“Are You 100% American? Prove it!”

Yes… Give Your Money to the Government. [The Rude Awakening] May 30, 2023 [WEBSITE]( | [UNSUBSCRIBE]( “Are You 100% American? Prove it!” - You’re either for us or against us… - To prove you’re for us, give us your money! - Meet the new scam, same as the old scam. [Response Requested]( 1/1000th of an ounce of gold available As a Rude Awakening reader, Jim Rickards is offering you 1/1000th of an ounce of gold when you upgrade your account. It will come in the form of a “Gold Back” - a new type of gold currency that’s starting to spread across America ([click here to view](. If you have not responded to Jim’s offer yet, and want to know how to claim yours… Please click the link below for details. [Click here to learn how to claim your new Gold Back Currency<]( Thanks! Amber Anderson Customer Service [Click Here To Learn More]( [Sean Ring] SEAN RING Happy Tuesday from a glorious Piedmont! I was ready to show you pictures from our day trip to Annecy, France, this weekend. But then the venerable Byron King, good friend and Rude contributor-extraordinaire, decided to bowl me over with yet another outstanding historical piece. Since I started reading works by people like Niall Ferguson, Jim Rickards, and, of course, Byron, I know history lessons are only complete with the economics and finance behind the big decisions. This is one of those pieces that will instantly and completely change your understanding of our history… and you’ll be able to apply it immediately to the present. In fact, after reading this, you’ll know more about this stuff than our hapless Speaker! This is a bit longer than the usual Rudes, so I’ll leave you here and see you tomorrow with an original Rude from me. All the best, [Sean Ring] Sean Ring Editor, Rude Awakening Twitter: [@seaniechaos]( [[UNDISCLOSED LOCATION] 1,399 miles from Washington D.C.]( [Click here to learn more]( Take a close look at this scary chart pictured here… What you see is the money supply in America… And as you can see, the number of dollars in circulation has exploded in the last few years. In fact, more than 80% of all dollars to ever exist have been printed since just 2020 alone! Which is why some say inflation could soon explode even higher than it is now, to 20% or more. And if you’re at or near retirement age you must take action now to protect yourself… otherwise you risk losing everything. [Simply click here now to see how to survive America’s deadly inflation crisis](. [Click Here To Learn More]( [Byron King] BYRON KING “Are You 100% American? Prove it!” Yes… Give Your Money to the Government. I hope you had a good Memorial Day long weekend. Meanwhile, how do you like that title? Did it catch your attention? Because the idea is to question your patriotism if you don’t fork your money over to the U.S. government. It’s abrupt, but don’t blame me! That wording isn’t mine. Our government said this in a poster from 1918 during the Third Liberty Loan drive that raised money to fight World War I. Here it is, courtesy of the National Archives: [SJN] Buy Bonds! (Or we’ll question your patriotism.) This patriotism-questioning, guilt-trip advertising reflects the desperation within the U.S. government in 1917-18, all to raise funds to fight a war. And it’s worth recalling for two reasons. First, we’ll discuss World War I and the Liberty Bond campaign because it was Memorial Day weekend, when we remember America’s fallen from past wars. And second, we’ll discuss government debt. Because right now, the U.S. government is in the midst of a political battle over raising the ceiling on that national debt. That is, the Democrat-run White House and Republican-majority House of Representatives are squabbling over how to continue to fund the government via the sale of… yes… bonds. Lots of bonds. Much like what happened back during World War I. Only with lots more zeroes. Sure, McCarthy agreed to a deal with the Democrats… but does he have the votes to see it through? That remains to be seen. One intriguing bit of history in all this – still pertinent! – is that the idea of a ceiling on national debt originated during World War I. It was part of legislation that enabled the second (of four) Liberty Bond drives, raising the cash that paid for the war. So in this article, we’ll discuss bonds, money, and war. And rest assured, this history from 100-plus years ago remains relevant. Paying for War in the New Age of a Central Bank Where to start? Okay, let’s start with the second term of President Woodrow Wilson. In 1916, the former professor from Princeton campaigned for reelection on the slogan “He Kept Us Out of War,” meaning Wilson kept the U.S. out of the then-raging war in Europe. But you know what happened, right? Once Wilson was safely back in the White House, he took the martial plunge. Wilson was reinaugurated as president on March 4, 1917, and less than a month later, on April 2, he asked Congress for a declaration of war against Germany. The cassus belli was German submarine warfare, namely attacks on U.S. ships that carried war materiel to Britain and France. Well, wars are expensive: “War costs much silver,” wrote Sun Tzu in his ancient text on strategy. The U.S. government had to raise immense sums of money to join the fight in Europe. More money, in fact, than the U.S. Treasury had ever raised before in a very short time. And how does one do that? One way is to sell bonds, and in ways and amounts never before seen. That is, neither the U.S. government nor the general economy was geared toward selling massive levels of bonds, let alone war bonds. Yes, per the Constitution, the federal government could issue debt, but the history along those lines was quite modest. From the Republic's earliest days, when the federal government needed funds, it issued bonds. And with every raise from 1789 to 1917, the amount and accompanying interest rate was authorized by Congress. Up until 1917, federal law provided nothing like a debt ceiling. Then along came Woodrow Wilson, and with the U.S. entry into the European war, fundraising began immediately. On April 24, 1917 – about three weeks after the declaration of war – Congress passed the First Liberty Loan Act; $5 billion was raised via 30-year bonds paying 3.5%. That was just the beginning of a Niagara-level of military spending. As you can imagine, the war, and of course, the Treasury, needed more. So on October 1, 1917, Congress passed the Second Liberty Loan Act, $3.8 billion of 25-year bonds paying 4%. And along with authorization to raise funds via bonds in this legislation, Congress set a ceiling of $15 billion of overall government indebtedness, the first debt ceiling in U.S. history. Here’s what happened. Legislators who enacted this new statutory limit on borrowing were shocked at the rapid growth of federal obligations. Wilson’s war took government spending to unheard-of levels, with entirely unknown future effects on the national economy. For perspective, in the years immediately preceding U.S. entry into the war, the annual federal budget was under $1 billion. Yet as 1917 unfolded, federal debt expanded by an order of magnitude, from under a billion to well over ten billion dollars. War or not, Congress included at least a few members with a flinty, banker-like view toward exploding debt levels. Indeed, back then, everyone alive had come of age in a nation that routinely used hard money as currency, namely gold and silver. From the Civil War to 1900, the U.S. followed a monetary policy of bimetallism, meaning that silver and gold defined the national currency at fixed ratios. Then in 1900, President McKinley signed the Gold Standard Act, which placed the U.S. squarely on the side of gold as the definition of American money. But on December 23, 1913, President Wilson signed the Federal Reserve Act, establishing a U.S. central bank. The idea was for this new entity to issue currency by fiat, meaning book entries of money unbacked by ounces of gold or silver. In other words, the Fed gave the U.S. what people called an “elastic” currency. The idea of elasticity to money supply meant that the central bank could expand or contract the amounts of currency in circulation to meet the needs of the country’s business cycles. If there were an agricultural crash in one place or an industrial crash somewhere else, the banking system could function with loans or another financial backstop from the Fed. As fate would have it, though, in 1914, the first major challenge to the newly created Federal Reserve was to finance a global war that began in August of that year, “the Great War,” as it was called, now known as World War I. By the end of 1914 and into 1915, the Fed rapidly expanded the money supply. It issued billions of dollars in new credit to support the massive trade growth in war-related materials and machinery, moving from the U.S. to France and Britain. It would be a stretch to say that anyone at the time really saw what was coming. Nobody has that kind of crystal ball. But as events unfolded, the earliest, formative days of the Fed brought an explosion of money creation. And not classical, gold standard money; no, it was fiat and mere bookkeeping entries from the Fed to banks that then issued letters of credit to pay for wartime goods and services. It was an unprecedented way to make vast claims on real wealth. And this brings us back to that debt ceiling law in 1917, part of the Second Liberty Loan legislation. In essence, a few members of Congress applied their quaint notions of hard money to the new cascade of spending and debt. They created a debt ceiling as part of national law because they wanted at least a semblance of legislative control over federal outlays, and certainly outlays financed by the issuance of wartime bond debt. The Ever-Growing Federal Debt In 1918 the U.S. passed two more Liberty Loan acts as the war unfolded, in April and September; these raised a total of $11 billion in 10-year bonds at between 4.15 and 4.25%. And then, the First World War ended on November 11, 1918. Through it all, the federal government enlisted celebrities to travel across the nation to urge people to buy bonds. For example, movie stars like Mary Pickford and a young Charlie Chaplin gave talks to promote the bonds. And even the Boy Scouts got into the act, urging fellow Americans to support the effort. [pub] Boy Scout hands “Sword of Preparedness” to Lady Liberty; National Archives. After the war, the U.S. still needed vast sums of money to pay ongoing obligations. It raised another $4.5 billion via “Victory Loan” bonds, 4-year term at 4.75%, payable in gold, no less. The U.S. government’s war indebtedness topped out in August 1919 at just over $25.5 billion, comprised of Liberty Bonds, Victory Notes, War Savings Certificates, and various other government securities. The next question was how to pay down these obligations. Indeed, the peacetime question of how to repay the country’s wartime debt came home with a vengeance after a massive recession (some say depression) in 1920-21. Where was the wealth, let alone the tax mechanism, for the government to raise funds and pay down such immense debt? Another intriguing, if not astonishing, angle to this looming lack of tax revenue was the 18th Amendment which came into effect in January 1919 and led to the era of Prohibition, via a ban on the sale of alcoholic drinks. In turn, this led to a massive loss of formerly considerable and predictable tax revenue flows to the federal treasury and most states’ treasuries. Prohibition put many firms out of business and led to job losses for hundreds of thousands of workers across the land, from winemakers, brewers, and distillers to farmers, barrel-makers, drivers, saloonkeepers, and many more. Financially, banning booze was a national disaster. In Washington, D.C. of the 1920s, under Presidents Harding and Coolidge, and with no less than the formidable Andrew Mellon as Secretary of Treasury, it was apparent that the war bonds would not be paid in full within the scheduled life of 4-year, 10-year, and even 25- and 30-years. And in another aside, this government financial quandary was behind 1920s-era efforts to limit spending on arms, notably a series of conferences and treaties that limited naval battleships. Getting back to the Liberty Loans for the war, and to make a long story short, the solution was simply to roll them over at maturity, to issue new bonds for old. That worked throughout the 1920s until the Crash of 1929. Then the Great Depression came along and upended the entire edifice of federal finance. In 1933 Franklin Roosevelt became President. Almost immediately after taking office, he “called in” the nation’s gold and revalued it. And then came the government repudiation of elements in wartime bonds that referred to repayment in gold. The matter was resolved via the Gold Clause cases that went before the Supreme Court and took the government off the hook. This brings us to the past eight decades of government debt, now growing in a manner that looks hyperbolic, if you believe the Federal Reserve Bank of St. Louis: [SJN] U.S. federal debt, unadjusted for inflation. Courtesy Federal Reserve Bank of St. Louis. This FRED chart goes back to 1939, the oldest reliable data, apparently. You can extrapolate backward and discern that federal debt in the 1920s and 30s was rather small beer. That means the big debt roll-up began in the 1970s and into the 80s and 90s. Then since 2000, it’s been up, up, and away. This brings us to the present and the current political battle over raising the debt ceiling to conform with the underlying requirements of the Second Liberty Loan Act of 1917. During World War I, people worried about raising a few billion dollars; today, the fight is over trillions, with more to come. The goal is for Uncle Sam to continue spending far more than he takes every year. We’re looking at a runup of national debt from $31-something trillion to about $33 trillion, give or take, in the next nine months or so. And if the debt ceiling doesn’t change, the U.S. Treasury cannot legally borrow more money, the stock market will crash, and all hell will break lose. Or so they say. Well, we’ll see. No doubt, the politicians will do something. After all, they want their paychecks next week, too, the same as everybody else. But as it all unfolds, think back to World War I, Woodrow Wilson, the use of patriotism as a club to beat people into giving their gold-backed money to the government, all to fight a war on another continent. And we’re still doing it. Yeah… As I said, I hope you had a good Memorial Day long weekend. That’s all for now… Thank you for subscribing and reading. Best wishes… [Sean Ring] Byron W. King In Case You Missed It… Memorial Day Re-Run: We’re Screwed If We Don’t Do the Math [Sean Ring] SEAN RING Good morning from a gorgeous Asti! I hope you’re enjoying your well-deserved holiday. If you served in the military, this day is extra special for you. Savor it. Today’s Rude is an easy one. That’s because we ran it last month. If you missed it, you’re in for a treat. If you read it already, let your eyes flow over the math, and then go enjoy your day. The more these ideas are read, the more they’ll stick in your head. And the feedback was overwhelmingly positive. If you had a chance to employ some of this stuff, awesome. Let me know how it went. If not, keep reading and get ready for the time you’ll need it. Let’s get to it. We’re Screwed If We Don’t Do the Math Most economists agree that there’s an inverse relationship between women’s literacy and birth rates. Economists concluded that the more women read (and are educated), the less they want children. I’ve always thought that conclusion didn’t match reality. I believe the more women can do the math, the fewer children they want (for lifestyle reasons). That is, numeracy, rather than literacy, drives decision-making. There are many examples of career women who can afford – and have – more children. Sara Blakely, Victoria Beckham, and Amy Coney Barrett come to mind. But this column isn’t about demographics. It’s about innumeracy, which we’ll define as incompetence with numbers. It’s what I think society’s big problem is. But instead of whining about the causes, symptoms, and cures of innumeracy, I will give you a few rules of thumb. You can use them to see if your decision-making changes. For my part, these simple equations and rules gave me a target. Specifically, I knew how far ahead or behind I was and how far I had to go to reach my goal. I won’t bombard you today, as the fewer and the simpler, the better. So let’s start with five simple rules to see if they change how you think. The Rule of 72 The Rule of 72 is one you’ve probably heard of. And you might be wondering why I’d even include such a rule. Well, let me first state the rule, and then we’ll talk about how to use it. For most people, the Rule of 72 tells them how long it will take to double their money if it’s invested at a constant rate of return. For example, if you’re earning 10% per year on your portfolio, it’ll take 72/10 or 7.2 years to double your portfolio. If you wanted to back out the math, assume you had a $100,000 portfolio. $100,000.00 x (1 + 0.10) ^ 7.2 = $198,622 The Rule of 72 isn’t perfect. But near enough is good enough in this case. If you’ve got a superstar financial advisor earning you 20% per year, then it’ll only take 3.6 years to double your portfolio. Now, let’s use this rule to look at inflation… something Sleepy Joe doesn’t want you to do. Historically, central banks have tried to keep interest rates around 2%. That meant a currency lost half its purchasing power in 72/2 or 36 years. You’d barely notice the loss in purchasing power, as it’d take so long to rear its ugly head. You’d probably go to the grocery store and wonder why eggs are “suddenly” double what they used to cost in 1983. We’ve all done something like that, haven’t we? But with inflation hitting 10% as it recently has, a currency loses half its value in only 72/10 or 7.2 years. Realistically speaking, let’s say Chairman Pow comes out and says, “We’d love rates to go back down to 2%, but that’s just not realistic. We’re now happy with a 4% target.” In that case, the dollar would lose half its purchasing power in 72/4 or 18 years. If you think eggs are expensive now, just you wait until 2041! The Rule of 72 is not only a great way to look at returns but also at purchasing power erosion. [[UNDISCLOSED LOCATION] 1,399 miles from Washington D.C.]( [Click here to learn more]( The building’s NOT a polling site… it’s not a voting site… But much like how the Watergate Hotel completely reshaped American politics in 1972, toppling Nixon and throwing the White House into a frenzy… When the history books are written on the 2024 election, I expect this building to be the dirty secret for Biden doing everything he can to try to influence the election… again. [Click here to discover where this building is and why Biden is set to send $200 billion to it.]( [Click Here To Learn More]( Net Worth Indicator This is a great targeting mechanism and one I’ve regrettably only just found. It’s from The Millionaire Next Door by Thomas J. Stanley and William D. Danko. Multiply your age times your realized pretax annual household income from all sources except inheritances. Divide by ten. This, less any inherited wealth, is what your net worth should be. If you hit this number, you’re an AAW or average accumulator of wealth. According to the authors, to be considered a PAW, or prodigious accumulator of wealth, you “should” have at least twice this number. What I like about this indicator is that it’s simple to calculate. And it gives you a target. Full disclosure, I’m a UAW, which is an under-accumulator of wealth. But I won’t use this number to feel bad. What I choose to do is to think bigger and get better results. If you’re unhappy with what this number tells you, I suggest you do the same. Julian H. wrote in with this great question about the formula: I'm familiar with The Millionaire Next Door book and always wondered what's the logic behind the formula age x income / 10. Do you have any knowledge about that? In the book, there are no specifications about that, and I can't find anything valuable on the Internet. Thanks in advance. Best. Julian H. Julian, as far as I can see, this formula is produced with linear regression. That is, the authors took net worth, age, and income, and produced a line of best fit. The 50-30-20 Rule Tweaked This is a great way to allocate your monthly paycheck. And it’s super simple: - 50% of your income goes to paying your “needs.” These include rent or mortgage payments, car payments, groceries, insurance, health care, minimum debt payment, and utilities. - 30% of your income goes to paying down your debt. Once that’s done, this becomes discretionary entertainment expenses.* - 20% of your income goes to future investment. *In the original formulation, 30% go to your “wants.” That’s fine, but I think paying down your debt to zero takes priority. I couldn’t believe how fast my debt disappeared. It took about six to twelve months. But it was gone and gone for good. I’ve run a monthly credit card balance maybe once or twice in the last twenty years. And it’s thanks to this little system. 3x Rule for Buying a House Another one I love, and that would keep many rich people out of trouble, let alone those of lesser means. Never spend more than three times your gross annual income on a house. I’m in the process of buying a home right now, and I’m well within this rule. My down payment is ready and won’t empty my account, and my monthly payments are easily manageable. Far too many people only calculate what their monthly payments would be at the current rate of their mortgage. But if you’ve got an adjustable-rate mortgage, that could easily end in tears. There’s no need to overpay for a McMansion. The Normal Distribution (Bell Curve) Finally, we get to simple probabilities. [SJN] Again, this is just a rule of thumb. Nothing in finance is “normal.” But this can help you distinguish investing realism from fantasy. Let’s do an example. Let’s say Stock ABC has earned, on average, 5% per year. But that return is accomplished with a standard deviation around that 5% average of 2%. If we assume normal returns – a dangerous thing in finance, but we do it all the time – then ABC has a 68% chance of returning between 3% and 7%. It has a 95.6% chance of returning between 1% and 9%. And it has a 99.7% chance of returning between -1% and 11%. Here’s the thing, though: it certainly can crash far below a -1% return. And it may moonshot 45% on the FDA approving its new drug. But the probability of either of those scenarios happening is very low. Knowing this distribution is essential for setting your expectations as an investor and gauging what the market thinks of your potential investment. If you can adjust your thinking to being more probabilistic, you’ll be shocked at how different the world looks. Wrap Up The absolute last thing I wanted to do was to patronize you. But I also don’t want to assume you know things you may not know. So I hope, at the very worst, this was just a refresher of things you may have put on the back burner. But if there is a lot of new material here, I can’t encourage you enough to deploy this new knowledge as early and as often as you can. If this is the sort of thing you’d like to see more of, please let me know here. And if you found this the least bit unhelpful, do let me know that as well. I’ll see you tomorrow when it’s back to regularly scheduled programming! All the best, [Sean Ring] Sean Ring Editor, Rude Awakening Twitter: [@seaniechaos]( [Paradigm]( ☰ ⊗ [ARCHIVE]( [ABOUT]( [Contact Us]( © 2023 Paradigm Press, LLC. 808 Saint Paul Street, Baltimore MD 21202. By submitting your email address, you consent to Paradigm Press, LLC. delivering daily email issues and advertisements. 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