Is self-hypnosis real?  If so, is it effective?

There’s both good and bad news here. Permit me to explain.

Living well is not easy. In fact, it’s quite difficult. As long as we fail to accept that, we obstruct ourselves unnecessarily. It’s always counter-productive not to accept reality. It’s futile. It’s frustrating. Why waste energy resenting what-is?

There’s no downside to admitting that being wise is not easy. It’s the opposite: admitting that living well is not easy is liberating! No wonder life has been such a struggle. No wonder living a balanced life seems so elusive.

Unconditionally admit that the present reality is just what-is. That’s the secret. Accept everything at this moment exactly the way it is without any mental reservations or conditions.

Once we are mature enough to do that, we are free to pursue wisdom and well-being. The good news is that self-hypnosis can be helpful in that pursuit.

If you doubt that, it may be because you have been obstructed from understanding it because you have accepted one of the dozens of myths about hypnosis. If that is your situation, I encourage you to investigate this topic further. If you don’t, you are limiting your options.

Here’s the most important idea: all hypnosis is self-hypnosis.

Despite what you may have picked up from elsewhere, it is impossible for one person to hypnotize another. Suppose that you think you observe that I hypnotize someone. Why couldn’t that happen?

It’s because all I could do is to teach that person to hypnotize himself. I don’t have any control over your thoughts or anyone else’s thoughts! You don’t either, do you? Well, neither does anyone else.

There are two different kinds of techniques that involve our most important power, which is our power of focus. Why not learn and practice both kinds?

First, there are radical techniques such as meditation and absolute prayer that involve letting go of all thoughts. Even though they are radical, they are quite simple. In fact, they are so simple that they cannot be learned by the thinking (conceptualizing) mind! Their aim is uncover alert, awake, thoughtless, unconditioned awareness. (For more on this, see the posts in the spiritual well-being section of this website.)

Second, there are less radical techniques such as hypnosis (self-hypnosis), biofeedback, neuro-linguistic programming, visualization, and psychoneuroimmunology that involve controlling thoughts. They all require learning and practice in letting go of certain thoughts and replacing them with others. They are less radical techniques because they do not involve letting go of all thoughts.

Just as nobody else can meditate or pray for you, nobody else can hypnotize you.

Since hypnosis is a skill that involves learning and practicing, naturally some people are better at it than others. Seven out of ten of us have an average degree of hypnotizability. About 15% are highly hypnotizable and about 15% have a low degree of hypnotizability.

With two exceptions, nearly anyone can learn to use it effectively. A moron with very low intelligence may never be able to learn to use it effectively. The same is true for someone who is paralyzed by fear – especially the fear of losing control.

That’s excellent news for anyone who regularly reads this blog. Statistics show that this blog appeals most to those who have the intelligence to do work in graduate or professional school. That only leaves fear, and, if you are fearful, you can learn to overcome your fear. So there is no roadblock to your learning it.

Motivation to learn and practice makes all the difference. The purpose of this post is to help you to dissolve any obstacles you may have to using self-hypnosis.

If you are highly motivated to use self-hypnosis to enhance your life in some way, any clinical hypnotist can confirm that a low or average degree of hypnotizability can be improved.

Not trusting yourself decreases your ability to use self-hypnosis.

Similarly, if you are attached to the idea that it is ineffective, that skepticism will decrease your ability to use it.

If you are addicted to alcohol or other drugs that impair your ability to concentrate, to focus attention, you are also a poor candidate for using self-hypnosis effectively.

If you are addicted to analytic thought, to being wide awake, you are also a poor candidate for using self-hypnosis effectively. (I’ve noticed many professors and scientists attached to their views.) This relates closely to not trusting yourself. It’s an important point for those so addicted to understand and overcome.

A trance is a state of unusual fascination and an induction is anything that leads to it.

It’s normal to go in and out of trance all day long. Suppose you are eating while watching the television news. You get absorbed in some news story and forget to taste the food you are chewing and swallowing. That’s a trance!

It’s normal to go into a trance when watching a good movie or reading a good novel.

There’s nothing unusual about going into a trance when watching a campfire burn down.

Haven’t you ever found yourself staring out a window daydreaming, looking without seeing because you were absorbed in your thoughts? That’s a trance.

These are all examples of self-hypnosis, of letting yourself go, of replacing some thoughts by other thoughts.

It’s easy to find standard hypnotic susceptibility tests to confirm that you are able to use self-hypnosis.

Often the term “self-hypnosis” is reserved for occasions when someone deliberately induces a trance in an effort to achieve a specific benefit such as improved relaxation, lowered blood pressure, reduced muscular tension, or improved immune responses.

If you often use an alarm clock in the morning to awaken, haven’t you had the experience of awakening just before it sounds? That’s actually a common example of self-hypnosis.

If you are still skeptical about self-hypnosis, try this every night for a week. When you get into bed for the night, get into a comfortable position. When you feel at ease, focus your thoughts on the face of your alarm clock. It can be digital or analog. Imagine that it reads the time in the morning when it goes off.

Now imagine setting your biological or brain clock so that you’ll awake in the morning just in time to turn off your physical alarm clock. Imagine how delighted you’ll be when you are successful!

Next, forget thinking about it. Relax as you normally would, trusting that your biological clock will work, and let yourself go to sleep.

The next morning, write down whether or not it worked by recording the time you woke up. Do this for one week.

If you haven’t yet developed your biological clock, you may find yourself skeptical that this will work. It’s important to notice when you have such a skeptical thought: whenever you do, immediately replace it with the thought that there’s every reason to trust your brain to do it as well as it automatically controls, for example, your heart and respiration rates.

If you do, you will discover for yourself that your biological clock works wonderfully well!

That’s because your brain works wonderfully well.

That’s a simple example of using self-hypnosis. True: eliminating the need for a physical alarm clock is not a major improvement, but doing it proves that you are capable of using self-hypnosis to improve your life.

Excellent! Now, if you want, you can learn more about it and practice using it to make other improvements.

Why not use self-hypnosis?

It can be an effective way of making life easier.

[Recommended resource: S. Gurgevich, Ph.D., SELF-HYPNOSIS Home Study Course.]

As always, consider passing this along to others who might benefit from it and leaving a comment, suggestion, or question in the box below.

Since tigers exist, being vigilant can save your life. Being lost in thought can get you (and your loved ones) killed.

I’m using “tigers” to refer not only to deadly nonhuman animals from insects and snakes to large predatory mammals like big cats and bears but especially to human predators.

There have always been tigers. There will be even more in the future.

This is because of the increasing urgency of such global trends as over-population, global warming, and oil depletion. These cause social dislocation as well as economic distress like currency degradation, even higher unemployment, and increased underemployment. These contribute to criminality as well as civil unrest.

In 1970-71, I spent a year in the army in Korea. I’d never spent an extended period outside the United States. At least in those days, Korea was a much more peaceful society than my homeland. I quickly realized that walking around Seoul at night was much different from walking around, say, New York City. I eventually felt the stress lifting off my shoulders. It didn’t return until I returned home.

There were far fewer tigers there; being vigilant wasn’t as important. However, because of the adverse trends mentioned above, no country is immune.

Fernando Aguirre in Surviving the Economic Collapse: “During good times people can afford to be spoiled, lazy, and let others handle issues that they should solve themselves. Crime rates are low . .. But one day that changes . . .” He experienced it after the 2001 economic collapse in Argentina.

Since 2007 we have been experiencing a slow-motion economic collapse in the United States. If so, being vigilant is more important than it has been in recent years, and, at least for a while, it will become more and more important.

By way of contrast, saints let themselves get eaten by tigers.

Are you a saint? Can your loved ones easily afford to lose you to tigers? Are you willing to sacrifice yourself?

That’s one extreme option. Furthermore, it’s a noble option! I certainly am not arguing that you ought to spend the rest of your life being vigilant merely in order to continue living. That would be a categorical imperative, and I don’t know what you should do.

Being vigilant is important if remaining alive is a priority for you. That’s only a hypothetical imperative: if you want to remain alive, even if only to serve others, then being vigilant is important.

The imminent economic crisis is already transforming our lives. The relatively benign times that we have enjoyed for the last couple of decades are ending.

That should not be surprising. Flux is incessant. This world is one of Becoming. Whether you like or don’t like current conditions, just wait and they will soon change!

If you anticipate and prepare for change, if you are committed to being vigilant as well as resourceful and positive, you may not only survive socio-economic breakdown but emerge stronger and more prosperous.

Are you ready to be tested physically as well as emotionally?

Are you prepared to deal with unfair and intense suffering all around you?

Could you thrive for a while even without easy access to medications, physicians, and dentists?

Are you prepared to stand up to criminals without the aid of police?

Are you a weak or fat or unfit wimp who would be unable to function without eyeglasses?

Imagine how life used to be for your ancestors. They always lived in small bands, which are much better for mutual protection and aid than living alone or with a single partner. Tigers took the very old, the very young, and the very foolish. As you are now, would they likely have taken you?

If so, why not improve your condition?

Being vigilant isn’t just about always being aware of your surroundings. Being vigilant is also about always being prepared to deal with emergencies. (Also see Bug-out Bag.)

A helpful exercise in being vigilant is to imagine yourself as a criminal. If you were looking at your life from the outside with the eyes of a tiger, would you be a ripe target?

There’s no such thing as perfect security. If you want to survive an emergency, your goal is only to be less vulnerable than those around you. Tigers aren’t stupid: they always prefer the easiest prey. They understand that, except in extreme circumstances, attacking strong prey is too dangerous.

For example, when you are walking alone, is your tread that of a confident, strong person with a clear destination? Would someone looking at you think you are distracted and lost in thought or that you are alert and being vigilant? Do you look healthy and fit? What does your clothing (especially your shoes) say about you? Do you have an air of being tough-minded and ready to fight to the death to defend yourself?

If you look like a fawn, expect tigers to attack.

Do you always practice being vigilant in public? If not, expect to be attacked. For example, if you enjoy an occasional night out on the town and permit yourself to get a little drunk, for that night you will be an easy target even if most of the rest of the time you practice being vigilant.

Especially if you are not big and strong, do you always have a weapon ready-to-hand when you are alone in public? It may be something as simple as bear or pepper spray, which will not permanently injure an attacker, but being vigilant includes always being prepared. If you are mentally prepared to use them, know how to use them, practice using them, and they are legal, what about carrying an easily-accessible knife and hand gun?

Are you ready to react quickly and violently if attacked?

Do you always pay attention to whether or not there are potential weapons in your environment? These include bottles, scissors, pens or pencils, chairs, and pieces of wood or pipe.

There was a story on the television news a week or so ago about a women who was alone in her bedroom. She knocked out a male intruder with a wooden bed post! She then contacted the police who arrested him.

Except in a crowd, do you practice keeping people at a physical distance or always acknowledging them when they invade your private space? In a crowd, do you maintain balance with your hands relaxed but up?

Have you had training in how to react if you are physically assaulted?

Do you regularly do strength training and fitness training to increase your physical strength and fitness? (Regular exercise also greatly enhances mental or psychological well-being.)

Being vigilant is about paying attention.

The most effective way to develop your ability to pay attention is use a spiritual practice (such as zazen meditation or Presence practice a la Eckhart Tolle) several times daily. If you are usually distracted from life by incessant thoughts, you are condemning yourself to missing your life as well as to leaving yourself vulnerable to tigers.

(Please see the spiritual well-being section of this site for more on spiritual practices.)

You’ll find it helpful to repeat frequently to yourself a saying from the bush: “Always alert, never get hurt.”

A bug-out bag is also called a “72 hour kit,” “get out bag,” “GO bag,” or “emergency response kit.” It’s a personal preparedness bag that is filled with what you need to survive for 3 days.

Emergencies happen. If you never experience one, excellent! However, that’s just luck.

If you experience one without being prepared, shame on you! Why not at least be somewhat prepared? Since you can use whatever clothes and equipment you gather for your kit in other circumstances, there’s little downside to having a bug-out bag ready to go. There’s no need to rely solely on luck.

Assume you’ll have to leave the shelter of your home, office, or car. Assume that you’ll have no access to electric power for at least several days.

In an era of global warming, extreme weather conditions such as hurricanes, tornadoes, and severe storms occur more frequently. Other events such as earthquakes, civil unrest, or evacuations ordered due to damaged nuclear reactors or terrorist attacks are also possible.

Everyone who lives with you should have at least a bug-out bag at home. A good place to keep it is out of sight nearest your most likely exit door. If you work away from home, you may also want to keep another in your workplace. If you have one and spend much time in it, consider keeping a third in your car (and always keep your car well-serviced with a gas tank that is at least half full.)

If you have already had the thought that having a ready-to-go bug-out bag is a good idea, then do it. It doesn’t have to be perfect: a half completed bug-out bag is much better than none.

Do not assume that you’ll have time to put a bug-out bag together after you learn about an emergency. There may be no time. That’s as foolish as not wearing a car seat-belt because you think you’ll be able to buckle up after you see that an accident is imminent.

If you don’t already have a good one, please take a few minutes immediately after reading this post to make an initial list of what you’d like in your perfect bug-out bag. Then start one with whatever items you already have on hand. You can improve it over the next few weeks and months until it contains everything you’d like.

Preparedness contributes to peace of mind.

It’s possible, but not necessary, to spend a small fortune on survival gear. What’s important is doing what you think is reasonable to keep you (and your family and friends) safe during a temporary emergency.

You’ll find that having a bug-out bag with you when you are away from home will sometimes be very helpful even if there’s no real emergency. Maybe you spend the night with a friend or in a motel and need a toothbrush. Maybe you have low blood sugar and need a quick, decent meal. Maybe you just find yourself at a picnic with no way to start a fire!

There’s no perfect bug-out bag.

If there were, it would be inexpensive, small, and lightweight while containing shelter for all 4 seasons as well as everything you might need for three days in terms of water, food, fire, light, medications and emergency medical supplies, tools, security, clothes, and comfort.

When they are all considered together, those criteria are incompatible. Trade-offs are required.

I suggest that you simply focus initially on putting together what you consider a good bug-out bag and over time make it an even better one until you are satisfied with it.

Don’t make it so heavy that you cannot carry it. Put everything in one bag with shoulder straps so that you can carry it on your back. Mine’s in a waterproof river duffle. (L.L.Bean sells a fancier one they call a “waterproof hybrid duffle” that’ll give you the idea.)

Decide in advance about how much you are willing to spend and how many bags you want.

Decide in advance what kind of emergency you are most likely to have to confront.

Presumably you already know your geographical location, which will affect what kind of shelter and clothing to be included. If, like me, you live in the north, once you put your kit together, you may want to check it every spring and fall to ensure that what it contains is suitable for the forthcoming season.

Consider the following ten categories. To help you imagine what you’ll need, I’ve included some suggestions in each.

Water

2 gallons of distilled water may be sufficient, but they weigh 16 pounds and take up a lot of space in a bug-out bag. Still, do keep some water in your kit in a proper storage container (such as an MSR Dromedary bag available from places like REI).

Also, be sure to have a back-up or alternative such as iodine or chlorine tablets and a water purifier such as the First Need XL or the Sawyer Complete. Your selection should be determined by the kind of contaminants (such as bacteria, viruses, salts, pesticides, fuel, oil, herbicides, or other urban contaminants) that water near you may have.

Food

MRE’s are my recommendation. (‘MRE’ abbreviates ‘Meal Ready to Eat.’) Yes, they are expensive, but they are not that expensive for just a few days.  There’s nothing wrong with ordinary canned goods such as salmon, tuna, chicken, (preferably organic) vegetables, beans and lentils. Why not some favorite peanut butter?

Partly because freeze-dried foods use real meat rather than textured vegetable protein like dehydrated foods, I generally prefer either canned goods or freeze-dried foods to dehydrated foods.

That does not mean that you shouldn’t have some dehydrated food.  For some with a long shelf life, click here. (I haven’t tried it, but apparently Costco sells an affordable meal Bucket of dehydrated foods.)  Engineered foods like protein bars can also work.  Ensure that you’ll be getting plenty of protein and calories.

Consider also having a way to heat foods such as a Jetboil personal cooking system or Primus Omnifuel stove (especially if you might be in cold weather); if you do, be sure to include sufficient fuel as well. (I have a two-burner Coleman white gas stove that is great for camping, but it’s way too big and heavy for a bug-out bag.)

Shelter

A tent, tube tent, or tarp with cord to protect you from cold, heat, rain, snow, wind, and sun. An inexpensive option is the SOL Emergency Bivvy. Sleeping bag, sleeping bag liner, blanket, or SOL survival blanket. Large, heavy plastic garbage bags. Duct tape.

Fire

In addition to a flint/magnesium stick and striker, always have back-ups such as inexpensive lighters and waterproof matches. Small fire starter sticks can be very helpful.

Light

Flashlight. Batteries. Consider a new, bright LED light or headlamp by Surefire that runs on small batteries. Lithium batteries can have a 15-year shelf life, so they are excellent for a bug-out bag. It’s a good idea to keep a small light stick or keychain light in an outside compartment of your bug-out bag or near its top. Shakable flashlights also can work well. Metal mirror (for signaling).

Medical Supplies

Prescription medications sufficient for a week or two. Supplements. Trauma supplies. Wilderness medical kit. Snake bite kit. Sting relief. Epi-kit. Asthma inhaler. Vaseline. Maxi-pads. Alcohol gel. Insect repellent (such as 100% DEET). Surgical scalpel. Butterfly bandages. Sunscreen. Superglue. Wilderness medicine book. Antibiotics. Iodine. Cauterization powder. Aspirin or ibuprofen. TENS machine.

Tools

Good quality (such as Leatherman or Gerber) multi-tool knife. Small shovel. Hatchet. Gorilla tape. Heavy leather gloves. Folding camp saw or SaberCut saw. Manual can opener. Compact binoculars or monocular. Goggles.  GPS unit with batteries.  550 parachute cord. Whistle.

Security

Good quality fixed blade knife with full tang. Survival knife. High quality folding knife (such as CRKT). Bear or pepper spray. Body armor. Protective [gas] mask. Smoke protection. If legal and appropriate: Firearm with ammo and cleaning kit.

Clothes

High quality hiking boots. Socks–including some wool ones. Underwear. Extra shirt. Extra trousers. Sweater (I like L.L.Bean’s commando sweaters). Rain suit or the GI Plus Brand poncho, which can also serve as a shelter. Parka. Wool or Polartec cap. Sun hat. Sun suit.  (Remember that, while synthetic fabrics can be great for protection from heat, cold, sun, rain, and bugs, sparks from a campfire can ruin them.)

Comfort

Toothbrush and small tooth paste. Dental floss. Hand sanitizer and wipes. Baby wipes. Extra glasses (including sun glasses). Toilet paper. Anything like caffeine or nicotine that you are addicted to. Chap stick. Soap. Towel. Small book. Portable radio with battery. Survival manual. Coins for emergency cash. Pencil & small pad of paper. Local map. Handkerchiefs. Small sewing kit. Deordorant. Ear plugs. Skin cream (like Nivea). Perhaps survival playing cards (click here for more information).

If you trouble yourself to put a good bug-out bag together, don’t be surprised if you feel and sleep a bit better!

Robert Kiyosaki:  ”If you prepare for the worst of times, you will only know the best of times.”

Suggestions for additional reading: David Morris’s Urban Survival Guide and Fernand Aguirre’s Surviving the Economic Collapse.

As always, please consider forwarding this to others you care about and leaving a comment.

Investing for cash flows is better than investing for capital gains.

This may be especially important for the average investor during these difficult financial times. All authorities seem to agree with Robert Kiyosaki’s statement that “we are entering a long and hard financial winter” (Rich Dad’s Conspiracy of the Rich [2009]).

Capital gains investing is gambling. It is possible to win at gambling, but it’s foolish for the average investor to gamble at all in difficult financial times.

Since there are only two kinds of investing and since capital gains investing is unnecessarily risky, investing for cash flow is better because it’s much less risky.

Taxes are another important reason why investing for cash flows is better than investing for capital gains.

Taxes are paid on earned income, portfolio income, and passive income.

It’s good to have any kind of income! However, the problem with earned income, which includes income from a job or a retirement plan, is that it is taxed at the highest rates. If you flip real estate properties or buy and sell stocks and hold those assets for less than a year, the money you make will be taxed as earned income.

Portfolio income most often comes from capital gains. If, for example, you buy stocks or real estate low and sell higher after holding it for over a year, that is capital gains income that is taxed at 28 percent. The danger, of course, is that the stock or real estate that you purchase will not increase in value at all, which is why investing for capital gains is gambling.

Passive income is taxed at the lowest rates. Suppose, for example, that you purchase an apartment building that, after expenses, puts money into your pocket every month. Your income from it won’t only be taxed at the lowest rates, but there are ways to reduce even that tax exposure such as amortization, appreciation, and depreciation.

Assuming that you do your due diligence in advance, you will have an excellent idea before you purchase apartment buildings what their income will be.

Still, since apartment buildings are not liquid and require intensive management, it’s important to understand exactly what you are doing before purchasing them. After all, a single real estate investment can cost you tens of thousands of dollars.

The point is that, from a tax perspective, passive income is the best kind of income to have. If that’s the kind of income you want, then investing for cash flow is your kind of investing.

Another advantage is that you may be able to invest for cash flows using other people’s money! For example, it may prove easier for you to obtain a mortgage on a $1,000,000 dollar apartment building than on a $100,000 single family home. Why? Folks who lend money understand that there’s a huge difference between owning a shelter for you and your family (see Your House and Increase Your Assets) and a cash-flowing asset.

A mortgage on your home is a liability that takes money out of your pocket. Financially, it is bad debt; whether you rent or buy, shelter is an expense. On the other hand, a mortgage on an apartment building may be an asset if it puts money into your pocket. It may be good debt that is not only tax-free but also your tenants may pay it off for you!

I don’t think that any of this is controversial. Why, then, don’t all investors invest for cash flows?

I don’t know. My guess is that it’s because investing successfully for cash flows is more difficult than investing successfully for capital gains.

To continue with the same example, in general, is it easier to sell a single-family home or an apartment building?

A single-family home. Why? There are many, many more people looking to purchase them than there are real estate investors looking to purchase apartment buildings. That higher demand makes it easier to sell.

Real estate is not a liquid asset, and apartments are more illiquid than single-family houses.

Also, more people understand how to buy single-family houses than apartment buildings.

Furthermore, apartment buildings are usually more expensive than single-family houses.

Therefore, it seems that buying apartment buildings is more dangerous than buying single-family houses.

Well, not exactly: they are only more dangerous to buy for the average investor.

What if you learn how to purchase them? What if you specialize and develop an unusually high degree of financial intelligence about investing in apartment buildings, which is an excellent example of investing for cash flows?

If you don’t get distracted, stick to that one kind of investing for cash flows, and avoid all other kinds of investing (including other kinds of real estate investing such as investing in office buildings or shopping centers), you’ll soon be able to develop a plan that will work well for you.

Why re-invent the wheel? Learn how to invest in apartment buildings for cash flows from those who have already done it. It’s foolish not to learn from the mistakes and successes of others.

For example, Kiyosaki sketches his plan in Rich Dad’s Conspiracy of the Rich. He ignores high-end apartment buildings because there is weak demand to live in them as well as low-end apartment buildings because they are too management-intensive.

Where are safe, clean apartments for working-class people located that have a high demand to live in them? Near great sources of working-class jobs!

Everyone understands that location is the most important criterion when selecting real estate. It’s critical when selecting apartment buildings for cash flows.

For reasons that James Howard Kunstler gives in The Long Emergency, I think that the best location to be a real estate investor in the U.S. in the coming years will be in the Northeast.

The reasons for that include global warming as well as oil depletion. Even if you buy real estate with good cash flows now along, say, the Florida coast or in the cities of Nevada, you may not have to live very long to regret your foolishness!

It’s also critical to take into account where in the market cycle real estate is before making any offers. There are very good books and courses that teach how to do that.

Investing well for cash flows is complicated. In fact, it’s too complicated for most people.

Whether that’s good or bad news for you depends on you. If you are too distracted, ignorant, or unwilling to learn how to do it well, my best suggestion is not even to try.

If you are focused, willing to learn how to overcome your ignorance, and committed to doing it well, my question is, “Why not?” If you have read this far in this post, you probably have what it takes.

Remember, since it’s easier to invest for capital gains than for cash flows, fewer people invest for cash flows. Since fewer people are trying, there’s less competition. Because there’s less competition, the odds of your being successful are automatically increased.

If you are the right kind of person, it’s an excellent way, perhaps even the best way, to become financially successful and independent.

Silver may be the best investment right now (early 2012) for the average investor.

If it’s not, I don’t know what is.

Why?  What’s so good about it?  Why consider buying it now?

The fundamental fact about this world is that nothing abides. Flux is relentless. Always be aware of this when investing.

The way to do that is always to think in terms of wealth waves (cycles, booms and busts). Whether you are thinking about investments in precious metals, real estate, businesses, or paper assets such as stock and bonds, always think long-term, which means having the perspective to consider where the wealth wave for an asset class is at the present moment.

The only time to make an investment is in the present moment. It is always impossible to invest yesterday or tomorrow.

Why might precious metals be a good – or even the best – investment in the present moment [January 2012]?

After all, there has been a bull (rising) market in it for a decade! Perhaps that is a bubble that is about to burst. It will end. Why? All bubbles end. If not, eventually one ounce of it would be sufficient to purchase everything in the world!

So the critical question about buying it in the present moment is: “Is the current bull market about to end?”

Some analysts think it is. Harry S. Dent and Rodney Johnson: “Deflation is the only possible scenario in the decade ahead . . . we are a couple of years into the Winter Season. . . deflation is a monster . . .Gold and silver are inflation hedges, not deflation hedges” (The Great Crash Ahead [N.Y.: Free Press, 2011]). They predice that, like most other commodity prices, precious metals will fall in price.

They are correct that precious metals are inflation hedges. However, gold and silver are not like other commodities in one respect: they are real money. As fiat currencies drop, real money soars.

They are also correct that deflation is ahead of us. In fact, it’s already here.

The critical question is whether or not precious metals are deflation (as well as inflation) hedges.

I don’t know. Most analysis seem to think either that they are or that real money is still worth having in your portfolio anyway.

For example, Michael Maloney thinks that they “have a proven track record of performing well in inflation or deflation” (Guide to Investing in Gold & Silver).

Doug Eberhardt: “Silver is money . . . Historical ratios of gold and silver have fluctuated between 12:1 and 16:1” (Buy Gold and Silver Safely). Buying silver is a good idea when the ratio is below 80:1 and “be cautious” or “possibly take the other side” when the ratio goes higher. (Today it’s about 52:1.)

Howard Ruff: “Silver always rises during gold bull markets, usually twice as far and fast as gold, but the supply/demand situation . . . dwarfs all other reasons why silver will soar in price, perhaps much more than twice as much as gold.” (Huff’s Little Book of Big Fortunes in Gold & Silver)

Thomas Herold: The U.S. economy “must go into either default or into hyperinflation . . . Either option is dire . . . Silver metal is the one that has the lowest quantity of reserves to production, as well as the lowest reserve base to production ratios. . . [Its] uses are only projected to escalate. . . silver has more than a whopping 615 percent in price appreciation potential left to it before it reaches its inflation adjusted high again . . . should silver realign to its traditional average of 1:12 purchasing power of gold to silver . . . silver prices would . . . be far higher . . . count on between five and ten more years of the bull market continuing. . .”(Building Wealth with Silver [2011])

So, as usual, expert opinion is divided.

Five years later, everyone realizes that the economic recession that began in 2007 was not just another recession. It’s actually the beginning of a transition to a new world economy. We’ve never been there before – and this is the fundamental reason why expert opinion is divided about precious metals right now. Nobody knows what will happen.

There is agreement, though, that, minimally, we are in for a very difficult decade ahead. (I’ve been discussing some of the reasons for that in these posts, and I intend to continue to do so.)

Like paper assets and real estate, all fiat currencies are falling in relation to real money [precious metals].

That’s the fundamental reason to have them in your portfolio now.

When currencies, paper assets, and real estate re-value themselves against real money, that will be the time to transfer the wealth you have in precious metals to other assets.

Think in terms of value rather than price. When you do that, as Michael Maloney likes to say, precious metals are cheaper than dirt. “Whether you like it or not, the empire of the United States of America is now in decline . . . There is no possible scenario in which . . . [precious metals] do not rise” in value.

Is the U.S. empire in decline? Yes. The beginnings of the decline have been obvious for years. However, that does not mean that it won’t continue to be the most powerful and important nation in the world for quite a few years yet.

Will precious metals rise in value? Nobody knows. For my part, I predict that they will. I’m in!

Even if you agree, however, please don’t become attached to them. When you decide that their bubble is near its top, sell them.

Either way, my most important suggestion is to continue to develop your most precious asset, which is your mind. Keep reading blogs like this as well as books, keep thinking regularly, and every day practice letting go of all thoughts.

The amount of time we waste on trivialities is astounding. If you need to, please break out of your beer-and-sports induced coma or addiction to soap operas and shopping.

Step back. Notice your attachments. Starting with the most important one, begin breaking them all one at a time.

I’ve known bright people who were attached to television news! That news is mostly mass entertainment. “If it bleeds, it leads.” Regularly focusing attention on short-term catastrophes and crimes robs you of paying attention to what is valuable.

Investing in precious metals or anything else is a game. Since all such activities can become addictive, I believe it’s important to remind yourself daily that the purpose of the investing game is to get beyond the need to play it.

What do you want freedom for?  What do you want freedom from?

(My answers: Freedom from Becoming. To live well, which is living a balanced life between Becoming and Being, and to help others do the same.)

Whatever your answers to those important questions, precious metals may be a means to enable you to get there.

Why consider the price-rent ratio?

You need shelter. Either you rent a place to live or buy a place to live.

Let’s suppose that you understand that the real estate bubble for housing in the U.S. burst in 2007 and that prices for single family houses have been falling ever since. Let’s also suppose that you are wondering whether you should rent a house for you and your family or purchase one.

Have prices fallen enough for purchasing a house to be a good deal or not?

There’s no point offering you a straight answer for three reasons. First, with respect to any particular deal many factors are involved. Second, since the market is always changing, there’s no one answer that will work well all the time. Third, I don’t know what you should do because, like everyone else, I don’t know what the future consequences of whatever decision you make will be.

Instead, let’s simplify things by assuming that you are going to investigate this unemotionally as a real estate investor would. My thesis is simple: consider the price-rent ratio before making a decision.

Why? What is the price-rent ratio? Why is it important? What’s a good one?

Whether you are considering purchasing a house to live in or to rent out, the price-rent ratio is the average cost of ownership divided by the rent you would receive from a tenant.

Suppose that you find a house for sale in a good location that you are considering purchasing. It’s easy to find the owner’s asking price. Next, answer two questions:

First: What is the yearly cost (principle, interest, taxes, insurance, and maintenance) of owning that house? Let’s say it is “X” dollars.

Assume you’ll be getting a fixed rate, 30-year mortgage at the going interest rate. Its owner can show you recent tax receipts or you can look them up at the county court house. Any insurance agent can give you quotes on either homeowner’s or landlord’s insurance. A real estate agent can help you estimate yearly maintenance costs, which will vary with the age and condition of the house. So, after you do your due diligence, you determine it is “X” dollars.

Second: What is the average annual rent for a similar house? Let’s say you estimate it to be “Y” dollars.

To determine the price-rent ratio, simply divide X by Y.

If X is $1000 and Y is $1000, the price-rent ratio is 1. Roughly, that is about where it should be – or perhaps slightly higher such as 1.05.

If the ratio is lower, the price of the house is low. For example, if the price-rent ratio were .8, the positive cash flow for an investor owning that rental house would be about 20%, which is very high.

If the ratio is higher, the price of the house is high. For example, if it were 2, an investor owning that rental house would have an “alligator,” which is a property with a very negative cash flow that may eat you alive.

As Michael Maloney argues, it’s important to understand the history of the price-rent ratio for the average single family home in the U.S. if you are thinking of buying one.

For example, in the residential real estate bubble of 1989-1990, the national price-rent ratio was 1.25. Housing prices were too high.

In the recession of 1996-7, the price-rent ratio was .90. That was a great time to purchase a house – if you had the money or could get a loan, which was very difficult.

Then there was the greatest real estate bubble in history that didn’t begin to deflate until 2007, when the ratio was 1.85 or 1.90! That was a crazy time to buy a house!

What about more recently? The great real estate bubble hasn’t yet deflated. It fell and then bounced up to 1.25, which was the same as the ratio during the bubble of 1989-90!

The timing won’t be right until it drops below 1.05.

In fact, usually, when there is a market bubble, it doesn’t just burst down to fair value: the higher the bubble, the farther below fair value it usually goes until another bubble begins. So you might want to hold off buying a house until you see a ratio at .9 or lower.

Either rents must increase or prices must decrease. Since we are in a deflationary period (as I write this post in January 2012) in terms of both the stock market and real estate (when compared to real money, namely, gold or silver), rents are not going to go up. That means that housing prices are going to decline farther.

Why buy a house at a higher price now when you can purchase a similar house later at a lower price?

So, there is a conclusion from our looking at the price-rent ratio: it’s a good time to be a renter.

That, though, will change. Right now, rent a house and invest in gold and silver.

All bubbles burst! The gold and silver bubble will eventually burst. If it didn’t, you’d eventually be able to purchase a house for an ounce of gold or, even more absurdly, all the real estate in the world for an ounce of gold!

If so, as real estate decreases in value while gold and silver increase in value, investing in gold and silver now will enable you to use them to purchase more real estate later.

All that being said, though, this does not mean that you should not purchase a house right now.

That may seem to contradict everything else in this post, but it doesn’t. The point: the price-rent ratio is just one factor to consider. If it were the only factor to consider, it would follow that this is a poor time to purchase a house.

Again, this discussion has been over-simplified. My thesis is only that it’s a good idea to consider that ratio before purchasing a house.

If you agree with that now and didn’t before, excellent! You’ve absorbed some information that may be important to you.

Income from rents is similar to personal incomes and corporate incomes that are closely tied to price and supply fundamentals.

What are the most important fundamentals regarding real estate? Everyone knows the answer: location, location, location.

There are always good real estate deals available. Just please don’t be in such a hurry to purchase real estate that you forget the price-rent ratio.

(Have you read the related post about Your House?)

Is the U.S. dollar sound money or not?

If it is, what makes it sound? Will it continue to be sound?

If it isn’t, what should we as individuals do?

Ultimately, money is an idea. That being said, my purpose here is practical rather than theoretical.

Is money important? King Solomon: “The table has its pleasures, and wine makes a cheerful life; and money is behind it all” [Ecclesiastes 10:19]. It’s especially important if you don’t have any!

[Is money ultimately  important? No. In my judgment, that is reserved for spiritual awakening. I mention this because not having money is not an excuse for living poorly.]

Where does money come from?

Our species has existed for about one-quarter of a million years. For nearly all that time our ancestors were foragers, hunter-gatherers. Presumably, there was at least occasional bartering or trading, but there was no need for money.

The First Agricultural Revolution occurred about ten or twelve thousand years ago. Once our ancestors figured out how to grow crops and domesticate animals, the advantages of doing so made the foraging way of life obsolete. Those who came to control land became wealthy; everyone else paid their taxes, which were typically in the form of crops or animals, to them.

Because of specialization (the division of labor), the First Agricultural Revolution enabled our ancestors to organize themselves for the first time into sizable communities. Towns and cities must circulate goods and services to survive. There are only three options for doing so [cf. Heilbroner’s The Worldly Philosophers].

The first is tradition. In ancient India, for example, successful economic patterns were preserved from one generation to the next by handing down specialized tasks from father to son. If you were a farmer or a brick maker or a carpenter, your son would become a farmer or a brick maker or a carpenter.

The second is dictatorship (kingship, authoritarian rule, command economy). The pyramids of ancient Egypt were built because various pharaohs commanded that they be built. If a king wants a larger army, he simply decrees that peasants from various other occupations become soldiers.

The third is the market system. Its rule is deceptively simple: each may do what is to his own economic advantage. If everyone does this, all the necessary tasks will actually get done because of the rules of the market game. The market system is the basis for modern society.

So where does sound money fit in? Although there is a helpful distinction to be drawn between money (monetary wealth) and currency, let’s here – following common usage – consider them to be the same thing. Minimally, it is essential that currency or money is a medium of exchange as well as a unit of account.

A problem with bartering is setting exchange rates. How many bushels of corn trade for one shirt? The answer becomes easy once the value of each is given a monetary price, which is a unit of account.

Money also facilitates transferring value between assets. It makes doing deals less cumbersome and more efficient, which is what a medium of exchange does.

Incidentally, there’s nothing new about this. Aristotle: “money was intended to be used in exchange” [1259b4] (as opposed to using interest to get money from money, which he considered to be “the most unnatural” way to become wealthy).

Money may also have nonessential uses as well, such as being valuable for wealth storage or for deferred payments. Lest this discussion become too complicated, let’s just set those aside.

Some physical objects used as currency or money work better than others. What criteria separate less useful from more useful?

The best money must be: portable, divisible, durable, and readily recognized as being valuable.

Land is not portable. As private property, it can be an excellent means of storing wealth, but it cannot be money. It’s divisible, durable, and (usually) valuable, but it’s not portable.

Cattle and slaves are not divisible; it’s difficult or impossible to make change using them (even setting aside questions of morality). They are, though, valuable, relatively durable, and somewhat portable.

Seashells don’t make sound money because they are too fragile and are not usually recognized as valuable.

Pieces of printed paper and coins made from nonprecious metals don’t make sound money because they may not be recognized as being valuable. However, they are portable and relatively durable. Coins are divisible. Both can be sound money when they are, and are recognized to be, receipt money, in other words, IOU’s for real money.

Here’s the point: Human beings have tried many different kinds of physical objects as money (media of exchange and units of value), but most don’t work well.

I’m reminded at this point of a lovely passage in Aristotle where he is talking about utopian philosophers (like his teacher Plato) who dream up new living arrangements:

“Let us remember that we should not disregard the experience of ages; in the multitude of years these things, if they were good, would certainly not have been unknown . . . “ [1264a1-3]

Let’s use the test this suggests: What has human experience down through the ages shown to be sound money?

Gold and silver.

That’s it. Nothing else. They are recognized today as real or sound money in all cultures around the world; they are valuable.

You may object that they are just metals, that there is nothing inherently precious about them.

Actually, silver is the second most useful natural substance that comes out of the earth (after oil). Gold, too, has industrial uses. However, set their usefulness aside.

Gold and silver are sound money because human beings take them to be precious or valuable. Who cares that, if there are any, denizens outside our solar system might not value them?

To fail to understand their value is to “disregard the experience of ages.” If you have a lot of gold or silver, you are wealthy. Period.

Notice that both metals satisfy all four of the sound money criteria mentioned above.

The only one where they don’t do very well is portability. It’s dangerous and uncomfortable, for example, walking around with pockets full of silver coins.

However, that is easily remedied by printing paper receipts that are backed by quantities of gold or silver that is safely stored. That paper may function well as sound money.

Can paper that is not backed by gold or silver be sound money?

Well, as long as there is consensus that it is money it can work as a medium of exchange. However, once skeptics question it, if confidence in it erodes, then it will cease to function as sound money.

By these criteria, no fiat currencies are sound money. Since the U.S. dollar is a fiat currency, it is not sound money – and neither are all the other dozens of fiat currencies around the world that are pegged to it.

It’s astounding to realize that the official reserve currency in the world today is not sound money!

What should you do with it?  I don’t know.

Prudence, though, suggests getting rid of it, and certainly not trying to store wealth in either it or paper assets (see Inflation and Stealth Tax).

Are you prepared to survive a global economic collapse?

For various reasons that I have begun to articulate in some posts in the “financial well-being” category of this site, I predict there will be a worldwide financial crisis soon, perhaps within the next year or two and almost certainly before the end of this decade.

I hope that I’m wrong! On the other hand, what if that prediction is correct?

Let’s assume that it is and that you genuinely enjoy living. How should you prepare to survive a global economic collapse?

The problem is that there is no way to determine exactly what it will be like. Globalization is a recent phenomenon. There has never been a global financial collapse.

Perhaps, though, by examining recent national economic collapses such as the one that occurred in Argentina in December 2001 we can make some educated guesses that won’t be too far off the mark.

A global economic collapse will occur when economic activity abruptly and temporarily stops and only very slowly recovers.

It will, sooner or later, recover.

Please don’t let your imagination run wild. You might fear that a global economic collapse will look like nuclear winter or something out of the “Mad Max” movie.

Not at all. In fact, outwardly, everything will look very normal. There will still be houses and farms, oil wells and cities, automobiles and forests, stores and factories, sporting events and holidays.

A global economic collapse means a temporarily broken economy. In asking the question about surviving a global economic collapse, I’m inviting you to think realistically about how you would manage for the years it would take for the economy to recover fully.

For example, even if a global economic collapse were due to the financial implosion of all fiat currencies, for a while cash would likely still work, so you might want to keep some on hand for such an emergency.

Because it’s decentralized, the worldwide web would still function. However, banks would temporarily close — and don’t count on being able to use credit or debit cards.

Expect 25 to 50% unemployment. How will you obtain money?

Even if you could purchase food, store shelves would be quickly emptied. The practice of just-in-time delivery means that grocery stores simply don’t store much food. Might you not want to have some months of (canned, dehydrated, or freeze-dried) food on hand for such an emergency?

After all, government services will soon deteriorate. As citizens demand more and more services from the government, expect rationing.

Don’t be surprised if there’s more corruption of governmental authorities.

How do you expect government leaders to react to a global economic collapse? I expect them to become more authoritarian, more dictatorial.

A currency crisis might soon lead to the government trying to confiscate precious metals (gold and silver) as well as firearms.

Surely it would lead to increased censorship. What government leader wouldn’t want to control the information available to citizens with the rationale that it is for their own good? Might there not also be increased phone tapping and eavesdropping on private e-mail communications?

Do you think that the legal system works efficiently now? It would quickly become more and more inefficient.

When confidence in the the fiat currency collapses, how is the government going to continue to fund, wholly or in part, public institutions such as schools, hospitals, and public transportation systems? Expect more rapidly crumbling infrastructure like roads and bridges, the electrical grid, and sewer and water systems.

Is there a way to ameliorate such effects on you? For example, if you don’t already have one, how could you obtain clean water from an alternative source?

Expect more obvious poverty such as shanty towns and skinny children begging on the streets for food.

Might it not be wise, also, to expect a negative cultural change? What about moral deterioration? Hard times bring out both the worst as well as the best in human nature.

Expect a smaller and less efficient police force to battle increased crime.

These ideas are not fantasies. I just happened to read Fernando Aguirre’s Surviving the Economic Collapse, which is based on his own experience of the economic collapse that occurred in Argentina. I simply extrapolated the scenarios mentioned above from his book.

The survivalist community is filled with religious fanatics and other wackos ranting about surviving in the wilderness with groups of like-minded brethren and other goofy ideas.

I’m talking about surviving a global economic collapse living right where you are, which may be in a city surrounded by strangers.

There are some possible scenarios such as the earth’s being hit again by a huge meteor or a massive eruption in Yellowstone that are not worth worrying about for the simple reason that there’s nothing to be done. Survival is unlikely. (My suggestion: go meditate until you let those ideas go.)

That’s not the case with a global economic collapse. It’s both predictable and survivable.

Yes, some weak and meek will perish, but most of us will survive. The real question is: what quality of life do you want during and after the transition?

Like my father, I achieved the rank of Life Scout in the Boy Scouts. (I quit at sixteen — when I thought myself too old — as an explorer 5 merit badges short of Eagle.) Everyone knows the scout motto: “Be Prepared.”

Why not be better prepared for a global economic collapse?

If you don’t think one will come soon, my view is that you simply haven’t been paying attention. Again, I hope that I am pleasantly shocked that one doesn’t occur.

Everything in Becoming comes in waves or cycles. Good times are followed by bad times, which are followed by good times and so on.

The downward economic spiral became obvious in 2007 and the crisis, the global economic collapse, has been slowing unfolding ever since. There will soon be a tipping point [see my 5 Ways to Diminish Failure Almost Instantly, pp. 21-25].

I’ve personally never lived through a depression, but I soon expect to and hope at least to survive it, if not to emerge stronger from having been tested.

Aguirre: “Real survival is about being extremely positive and resourceful.”

If there is a global economic collapse, it will restructure the world’s economy. The people and organizations that survive the economic winter will emerge stronger than they were before the collapse.

Why not make the decision to prepare yourself? Why not plan to emerge stronger?

There’s no major downside to being better prepared.  Even if it doesn’t occur, there’s an important upside, namely, greater peace of mind.

If you don’t do it for yourself, why not do it for your loved ones?

Consider, too, the help you might be able to provide for the weak and the meek then if you prepare yourself now for the global economic collapse.

With good reason, many people fear a global economic collapse. The economic condition of humankind today is, in my judgment, in poor shape in most of the world. While many are simply ignorant, even many of those who today understand what might happen are unable or unwilling to prepare themselves.

If you are able and willing to prepare yourself, won’t you then be in an enormously strengthened position to help others?

Shouldn’t a well-lived life ultimately be about serving others?

Inflation functions as a stealth tax.

This does not necessarily mean that it is part of a conspiracy of the rich to rob the poor. Some authorities believe that, but it’s not necessary to believe it.

What’s important is noticing and understanding it, which will enable you to make better financial decisions.

Since 1971 when President Nixon felt forced to sever the connection between gold and dollars, U.S. dollars have been fiat currency. (By government edict, we must pay taxes and we must pay those taxes in dollars.)

Inflation is caused when the currency supply expands. When there are more dollars available to purchase the same amount of goods, the prices of goods rises. This is price inflation.

Deflation is the opposite. It’s caused when the currency supply contracts. When there are fewer dollars available to purchase the same amount of goods, the prices of goods falls. This is price deflation.

Why is inflation a stealth tax?

It’s because, when inflated, all fiat currencies like the U. S. dollar lose value in a way that’s difficult to detect and this benefits the government.

It’s the government that creates currency. What happens each time a new dollar is created? When it begins circulating, the purchasing power of all other dollars slightly declines. This is a stealth tax because it’s hidden and that benefits the government.

You and I may notice rising prices, but prices don’t matter. Value matters. The value of, say, a sports jacket, a barrel of oil, or a piece of real estate may remain unchanged, but, because of the stealth tax, their prices rise. We tend to think that they cost more, but, really, all that has happened is that the purchasing power of our fiat currency has declined.

Eventually, fiat currencies always rebalance their purchasing power in terms of real money (gold and silver). Governments can suppress market forces for only so long; eventually, markets cause a revaluation of currencies.

If so, sooner or later markets set both the monetary value of goods as well as the monetary value of currencies.

When the classic gold standard was used, there was no inflation, no hidden or stealth tax. The business cycle still functioned; there were booms and busts. However, on average, for centuries, there was zero inflation.

You may wonder how currency gets created in the first place. The answer is that the Federal Reserve writes a check as a loan to the government, without having a bank deposit on which that check was drawn, and, when those checks are deposited in banks, banks use fractional reserve banking to create currency. Banks charge us interest to use the currency. Flowing currency sustains the economy.

Since the currency is no longer pegged to gold or silver, there’s no real restriction on how much currency can be created. As long as people are confident that the currency has value, a credit-based economy still functions. This keeps governments and banks happy while preserving inflation.

They are happy because they are unrestrained, undisciplined. By way of contrast, if the economy were based on gold and silver, banks and governments have to be restrained, disciplined. It used to be that way. However, governments and banks resented it and found a way to cheat gold and silver.

Cheating may work for a while. It doesn’t work in the long run.

The U.S. was the strongest country to come out of World War II. Delegates from 44 countries decided at Bretton Woods in July, 1944, that they would peg their currencies to the U.S. dollar and that the U. S. would enable their central banks to redeem dollars in gold at a specific rate ($35 per ounce).

As Michael Maloney argues in Guide to Investing in Gold & Silver, the Bretton Woods agreement had two problems.

First, the question “How many dollars can be created for each unit of gold?” wasn’t answered.

Second, there was still an open, worldwide gold market (even though U.S. citizens couldn’t own it) that operated in addition to the Bretton Woods gold market.

So, until the market eventually caught up with it, the U. S. was given a license to use the stealth tax by creating currency.

Demand is the critical factor in economic life. Higher prices due to inflation are only the result of an artificial demand; they don’t reflect an increase in value.

Still, why is inflation a stealth tax? How does it benefit the government?

Remember that the leaders of the U.S. government have to be voted into office. So ask: how does inflation help them gain votes?

It involves both appearance and reality (cf. Schniff & Downes’s Crash Proof 2.0).

It appears that assets owned by citizens are increasing in value even though they are only increasing in price. So citizens mistakenly think, for example, that the stocks and real estate that they own are becoming more valuable, which tends to make them pleased with whatever it is the government leaders are doing.

It also appears to citizens that the economy is growing and healthy because they believe government propaganda concerning inflationary spending. It is really difficult to measure what is happening in such a huge economy, and the government’s own measurements (such as the Consumer Price Index [CPI]) as well as the disappearance of M3 [the most informative measure of the currency supply] in 2006 are to the government’s advantage. For example, cost of living adjustments to Social Security and other government benefit programs are determined by the understated CPI and, so, cost less.

While actually catering to special interests, the stealth tax enables the government to pursue fiscal policies that benefit heavily-indebted citizens (such as the mortgage interest deduction). Lower inflation premiums keep interest rates down enabling citizens to carry more debt. Similarly, the stealth tax enables the government to keep interest rates on national borrowings lower.

The stealth tax makes it easier for government leaders to repay the national debt because they are able to make payments in dollars that are worth less.

The stealth tax makes it easier for government leaders to enact popular social programs (especially the so-called entitlement programs) without paying for them honestly by raising tax rates.

So, mild inflation (as opposed either to rampant inflation or deflation) really is a stealth tax that benefits the government (and banks).

This is why researchers like Michael Maloney write things like: “the dollar is simply a smoke screen that obscures true value.”

After Bretton Woods, the U.S. was free to create as many dollars as it wanted. No other country had this advantage.

Not only could the government use the stealth tax against its own citizens, by running budget and trade deficits the U. S. government actually had the ability to use the stealth tax against citizens of all other countries as well! After all, diluted dollars are still the reserve currency worldwide.

However, that situation was temporary. Why?

Yes, in 1971 Nixon freed the dollar from the constraint of being pegged to gold.

Simultaneously, though, gold became free-floating, international money. (In 1974 U.S. citizens were once again permitted to own gold.)

What does all this mean for you and me?

(I have related posts such as inflation, gold, and buying gold. I intend soon to add additional posts on similar topics including silver.)

A tax may either be an obvious tax or a hidden stealth tax. Inflation is a stealth tax.

Is that good or bad? It’s neither: it’s just a fact. Most people don’t understand inflation as a stealth tax.

If you didn’t before, you, too, now do. That kind of information is power.

(If you click here, you can find a chart that calculates inflation from 1774 to the present day.)

Once you understand inflation as a stealth tax, you will be empowered to understand how, for example, general equities or stock markets have been falling for a decade.

What? How can that be? Isn’t the Dow going up in price?

Yes, it has been going up in price. However, its real value has been falling.

It’s an invisible crash. In relative terms, since everything else has been increasing in price faster than the Dow, the Dow has been falling even though its price has been increasing.

Lesson: stop using dollars to measure value.

When you begin to “see” the world as it is instead of as how you would like it to be, won’t the quality of your financial decision naturally improve?

Of course they will.

Inflation is a derivative of currency that is declining in monetary value (cf. Robert T Kiyosaki, Rich Dad’s Conspiracy of the Rich, p. 88). It’s a product of fiat currencies such as the U.S. dollar.

What’s causing it? Is it getting worse?

Government leaders fear deflation, which is its opposite. Since the way to dilute the value of the currency is debt, government leaders use debt to create inflation to forestall deflation.

Baby boomers like me have become so used to the incessant dilution of the dollar that it seems normal. In 2011 the dollar declined 10% in value measured against gold. That’s neither good nor normal. Let’s begin by understanding why.

Let’s suppose that both you and your neighbor are business owners. (Actually, since your household is a business, that’s probably true.)

Let’s also suppose that your neighbor has a very profitable business and that your own business is ailing. Might you not be attracted to begin doing whatever it is your neighbor is doing? Of course. Why not emulate those who are making a greater profit than you?

In simple terms, this explains why profits always tend to fall in capitalist (market) economies. Marx pointed this out a century and a half ago: it’s impossible in the long run for a business to perpetuate its profits much above its costs. This is why good business owners are relentlessly focused on growing their businesses.

Here’s an important analogy: a country’s economy is like a business in this respect. If it isn’t growing, it isn’t healthy.

It’s puzzled me for half a century why government leaders are not much more concerned about population growth. We’re at 7 billion and human population growth is expected to continue until at least 2065. I find this alarming! Why don’t they? The answer is that they have a fundamentally different perspective than I have. For example, I’ve already read economic thinkers who see the predicted population plateau later this century as a “monumental” problem because the number of potential consumers won’t always keep increasing! That’s how relentlessly (and absurdly!) focused on growth they are.

The problems with capitalist economies that Marx diagnosed remain with us today. The most important of those problems is how economic values pervert all other values. The relentless focus on growing (gaining, expanding) is a premier value of Becoming that obstructs Being.

Let’s, though, stay focused here on inflation.

Since inflation is incessantly eroding the value of our currency, either we must content ourselves with growing poorer or keep focusing on gaining more cash. If, like me, you don’t really like either option, you might want to eliminate inflation.

However, if you ran the U.S. government, you, too, might not want to eliminate (a modest level of) inflation because it fosters (a modest level of) economic growth.

It does foster economic growth, but there are a number of reasons why economic growth won’t continue.

Here’s a sufficient one. The economy is fueled by demand. (If you are not sure that’s true, I recommend Braudel’s great Civilization and Capitalism, 15th – 18th Century.) Why has the overall economy been booming for the past quarter century?

Two facts explain it. First, 70% of the demand in the U.S. economy comes from consumers. Second, that demand has been unusually high recently. Specifically, it’s come from us baby boomers, the 75+ million who make up the “generation” born between 1946 and about 1961, who were in their peak spending years.

However, not only are baby boomers beginning to retire, which would naturally create less economic demand, but also “homeowner equity values have dropped dramatically in the last 10 years” and, having been under pressure for over thirty years, “[a]djusted for inflation, income has been flat for over a decade” [Dent & Johnson, The Great Crash Ahead, pp. 187-190].

Wanting to sustain our styles of living despite unpleasant economic realities like these, we baby boomers have been taking on massive amounts of debt to support our consumption habits. Uh oh!

Now what?

Now we boomers are, finally, reducing our rate of consumption. In fact, we are frantically trying to downsize and pay off debt in order to prepare for retirement. It’s good for us as individuals to decrease debt and to increase investments, but it’s not good for the economy because it diminishes growth.

That lowered demand means less spending, which means a slow but long-lived crisis for the economy as, year after year, more and more boomers cut back. All things being equal, if the largest group of citizens is paying off debt instead of consuming, the money supply will shrink. Less money in circulation means less growth. The next generation (GenX) isn’t large enough or affluent enough to make up the lost demand.

The addict, the economy, has gone into debt withdrawal. Deflation has begun. For example, home prices have recently declined by about one-third.

However, all things are not equal. Government leaders (especially the Fed) have been very busy pumping massive amounts of currency into the economy by printing more fiat currency and buying bonds. Why? They have been trying to create inflation.

Again, government leaders fear deflation. Since it will mean a massive decrease in affluence for millions and millions of people, they don’t want it. Since, in addition to words, their only important tool to fight deflation is inflation, they are using inflation to fight deflation.

They also fear too much inflation or hyperinflation. They want modest inflation, perhaps about 2 or 2 ½%. So their economic goals are (1) to avoid deflation and (2) to have some—but not too much—inflation.

The immediate crisis began in 2007. How’s the war against deflation going 5 years on?

Not well. The additional currency did inflate the prices of commodities, stocks, and junk bonds to rise at the cost of undermining the dollar and postponing the reckoning that is coming with respect to the impending private debt implosion (not to mention over one hundred trillion dollars in unfunded liabilities for popular government programs like Social Security and Medicare/Medicaid).

It is impossible to postpone deflation indefinitely without ruining the currency. That war cannot be won.

We are in a financial mess that is going to get a lot worse before it gets better.

(It’s our own fault. Who elected the government leaders? We did. My interest here is not making political points. It’s easy to blame both Republican and Democratic politicians. Instead of pointing at them, turn your finger around. We elected them.)

Now what?

Forget assigning blame. There’s plenty to go around. That’s a losing strategy.

Instead, start thinking really hard about how to get out of this financial mess. Stop insisting that others fix whatever is wrong with your life; instead, think “if it is to be, it’s up to me.”

Ask: “What can I do?”

My answer: “Get your own balance sheet in order and then help others to do the same.”

How well does it work to tell someone else how to lose weight if you yourself are fat? Take care of yourself first, which will automatically show others what to do.

If you are middle class, it’s likely that your balance sheet is melting faster than Greenland’s ice. Since the middle class is disappearing, you need to choose to be relatively rich or poor.

Since I don’t want to be poor, I’m trying to educate myself with respect to money matters. (Writing these posts helps me to clarify my own thinking as well as, I hope, stimulate yours.)

A good place to begin is to start dealing more effectively with inflation. To do that, it helps to put inflation fighting in context:

There are five types of investments: businesses, [income producing] real estate, paper assets [stocks, mutual funds, bonds, savings, annuities, insurance], commodities, and gold & silver [traditional money].

It’s possible to stay ahead of inflation in any of the five. Why not pick one and master it? Then, since multiple streams of income are preferable to one, why not pick another and master it? If you have two significant revenue streams that are both staying ahead of inflation, you won’t be poor.

How? How do you beat inflation using these ways?

Simple: employ your greatest asset, which is your mind. (Ultimately, money is an idea anyway!)

Simple, though, is not easy. Furthermore, I don’t know what you should do.

What I can report are my initial steps.

First, I won’t make things worse by taking on any more consumer debt. If I want a better car or television and cannot afford a new one, either I’ll purchase a used one or save up to buy a new one.

Second, I’ve paid off my credit cards. When I’m tempted to use them in the future, I’ll refrain from using them unless I’m sure that I can pay them off completely at the end of the month.

Third, I’d like to eliminate all financial debt. I don’t have a second mortgage or line of credit on my house or a mortgage on a second house. Even though it has a low interest, long term, fixed rate note that is more than paid for by rents from the apartment building on the property, I’m working to retire the mortgage on my property. Once it’s retired, I’ll have shelter for the rest of my life as long as I keep up on the taxes, insurance, and maintenance (and the rental income will more than offset that).

Fourth, I’m continuing my financial education and planning additional investments. I’ve never paid much attention to money, and, since I don’t want to be impoverished, it’s better to learn now than after I start drooling.

If those steps makes sense to you and you are not already implementing them, you now have an initial plan. If you work your plan, your plan will work for you.

As always, I encourage your feedback and suggestions in the comment section below.