THE ROCHE RECORD – AMERICA’S ECONOMIC HEALTH

March 14, 2011

STANSBERRY’S “END OF AMERICA 33” EXPOSED AS MARKETING PLOY

Frank Roche, Economist

Tea Party patriots and the conservative blogosphere have been abuzz recently over a video describing the end of America.  The video, “The End of America 3”, published by Porter Stansberry of Stansberry & Associates Investment Research, is a dire warning from Porter that America as we have known her will collapse this year, the collapse is already underway, he knows why, he knows how you can personally protect yourself, and he’s happy to share the information.  Well, sort of.  The information you need to avoid the end will cost you at least fifty bucks.

I’ve recently received emails and phone calls from unnerved Americans asking if I’d seen the video.  What I thought of it?  And, could this really happen?

Having taken the hour and sixteen minutes to watch the video a few things come to mind.  First, he offers nothing new.  No new economic insights, no unknown data, no new perspective, no new theories, no new research methodology, no new news of any kind.  Second, he connects disparate dots that logically and economically cannot be connected.  Third, this is a blatant marketing ploy based on arousing fear.

The premise of his argument is the massive government debt burden built up at the local, state, and federal level has reached critical levels. This will cause a collapse of the US dollar on the foreign exchange market, an end to its’ reserve currency status, and plunge America into social and economic chaos.  In the aftermath will be left a third world nation.

The argument Stansberry puts forth, broadly speaking, represents one scenario that is possible among the many that could result in the “end of America” (radiation fallout from the earthquake induced Japanese nuclear catastrophe is another).  The elements of concern that he addresses, largely related to government spending and the challenges we face in reversing our indebtedness, along with the correlations he cites among asset classes (US dollar, interest rates, inflation), are all things to be reasonably concerned about.   Conservatives have been complaining/warning about all of these things for decades.

It would take multiple pages, and more than an hour long video to address many of his economic inconsistencies, and misplaced logic.  For example, where does one start to tear down the comparison Stansberry makes for America’s collapse in 2011: Yugoslavia after the fall of the Soviet Union.  It seems silly to even try.  In this segment of the video he keeps the viewer in anticipation, or wants to keep the view in anticipation, as he lays out the example of a country that shows the pathway to collapse for America…Yugoslavia.  This example alone is enough to discredit the whole video.

He spends some minutes going on about how much more other nations pay for retail gasoline without once mentioning the differing amounts of taxes in the price.

He takes as a sign of American weakness that increasingly foreign nations prefer to be paid for their exports in their own currency.  To the contrary, that is a sign of improving economic prospects for those nations and something Americans can be proud of for having so long trumpeted free market capitalism as the best way to organize a society (until recently anyway). Stansberry notes that the Mexican branch of a Chinese bank, HSBC, will only take Pesos now after many years of also taking US dollars.  Then he highlights the tourist who is just aghast that they can’t use US dollars on the streets of Europe, or at the Taj Mahal in India.  These are signs of strength for those nations.  Good for them, it’s about time.  It’s OK, we want that.  I suspect American’s can handle the arduous task of exchanging currency when they travel overseas.

He references the fall of Great Britain after WWII and confuses that pathway with the impact of the Marshall Plan, attempting to compare today’s America and our Marshall Plan:  the American Recovery Act, and QE I & II.  Where do you start correcting this failed logic?

He claims the US dollar has already begun its collapse because the value of the US dollar is down 8 percent and gold is up 85 percent.  If 8 percent is the start, we can breathe a sigh of relief, because that is nothing to write about.  If your gold position is up 85 percent, sell now.  You’ll have a chance to get back in again soon.  Gold, the ultimate speculative asset.  Have fun.

Remember, foreign exchange is all relative.  One nation’s currency value in terms of another.  One nation’s economy compared to another.  One nation’s interest rates compared to another.  Stansberry has failed to address these basics, and while I don’t have the time to explain here, the transmission mechanisms for correcting international imbalances all go through the exchange rate.  A weakening dollar is one of the necessary ingredients for America to correct our imbalances.  Let the market do its thing.

He points out that the spoiled high-end lifestyles lived by Americans for so many decades now will keep the masses from recognizing the collapse only he can see coming because of our “normalcy bias.”  Everything is great right now, that means it will great forever and ever, right?   You see, you have to buy his research to be awoken from your ignorant stupor.

He says you “…can’t deny reality.” America will collapse this year.  Stansberry says, “…it’s already happening.”  There will be economic and social unrest involving riots, and warns urban residents to have access to a rural refuge.

At this point he presents four reports and one book you can buy from Stansberry Research to keep from having to suffer any of this.  You see, America can collapse, but if you invest with Stansberry Research you alone can escape the impact and still have your retirement fund in good shape.

There is one word I’d like to write in bold letters here.  I’ll just use the initials.  What a load of BS.

America faces real challenges at this point in our history.  We’ve faced greater challenges in the past.  Most of our problems stem from government policy at the federal level.  All of our problems are all self-inflicted.  All of our solutions can be self-inflicted as well.  If we put the right people in the Mayor’s office, the Governors Chair, the halls of Congress, and in the Oval office, we can avoid the possibility of an involuntary collapse.

Porter Stansberry highlights real problems.  However, his argument is flawed.  His conclusions are suspect, and his degree of certainty is way to high.  He wants you to buy his research.  Don’t do it.  If you’re compelled to take the hour and sixteen minutes to watch this video, go for it.  My advice is don’t waste your time, and certainly don’t take the time to forward the video to a friend or family member.  They have better things to do with an hour.

Porter Stansberry’s “End of America 3” is just a marketing ploy to get you to buy his research.

Our collective labor is our strength.  When we stop going to work each day, America will have collapsed.  Until then, we can remain number 1…which is nice.  We just have to put the right people in elected office and start making the correct choices, the hard choices.

3:38 pm edt Comments

March 10, 2011

PUBLIC GOODS ARE SUPPOSED TO BE LESS EXPENSIVE


As is being clearly demonstrated in Wisconsin it will require real courage on the part of fiscally responsible elected officials to begin to reduce the debt and deficits that plague America at the local, state, and federal government levels.  Public sector employees, like most of us I presume, would rather not give back any portion of their income or benefits package.  And, again like most of us, many probably feel certain they deserve all they get.  It is understandable that those public sector employees in Wisconsin who will take home less pay than they have become accustomed are upset and protesting in favor of the status quo.


Unfortunately, with the average public sector employee now making nearly 30 percent more in wages and benefits than the average private sector employee, and public sector employment at historic levels (22.3 million employees, 14% of labor force), the protests in Wisconsin are not receiving broad support nationally, and reveal the simple truth:  those working for the government, their ideological supporters, and the elected officials who over the years gave them what they asked for have lost perspective when it comes to public goods and services.


A public good is the phrase used by economists to describe those goods and services typically provided by a governing body with the power of taxation.   When we think of the nation state, national defense is the best example of a public good.
Public goods are defined as those goods that are provided to many people on a nonexclusive basis.  A good is considered nonexclusive if it is impossible, or very costly, to exclude individuals from benefiting from the good.  A private good is excludable because if you don’t pay for it, you don’t get it.

Public goods become that way because typically the private sector is unable to come up with a profitable model to provide the good, as resource costs cannot be properly and accurately attributed to individual purchasers.  Part of the challenge involves dealing with the “Free Rider” problem.  “Free Riders” are those who would refuse to pay expecting others to do so while still reaping the benefits.  This is a key disincentive for the private sector and one would expect resources to be under allocated if the private sector did try to provide the good.

National defense is not the only public good.  Public goods would also include education, public safety (police, fire, and justice), public parks and preserves, and food safety.  Because the private sector does not have sufficient incentive to provide them, government provides the nonexclusive good and finances it through taxation.  Implicit in this arrangement is that the government will subsidize the provision of the public good at a cost below that which can be provided by the private sector.  It implies input costs must be constrained.  It means labor costs must be held below the private sector.


We lost touch with this basic economic reality and we have the government debt and deficits to prove it, in large part related to over compensated employees.  Public goods must be paid for by tax revenue.  The allocation of the scarce resource that is tax revenue requires we confront the principle of scarcity and the dangers of living beyond our means.  It does set up the – us (private sector tax payers) against them (public employees) – scenario which is uncomfortable to be sure.

It doesn’t matter, either we confront our fiscal problems directly and honestly in a reasonably deliberate fashion, or it happens anyway in a messy and destructive way.

Public goods workers: teachers, firefighters, policemen, civil servants, medical workers, government workers all, are important to our society.  Parents, engineers, bankers, farmers, politicians, surgeons, football players are also important to our society.  Public goods related jobs/careers must be pursued as much for the public service as for the paycheck.

Governments cannot continue to pay private costs for public goods.

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