Follow Your Dreams, Part III

Posted under Energy, Inflation, Investing Strategies, Oklahoma, Real Estate

From the last Xanga post (Follow Your Dreams: Part II):

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My goal: I will make a two-person income so that my kids can spend more time with their mom. I will find a way to make a two-person income without sacrificing my time with students.

One possible way to reach it: Find a place to live with a university or middle school so I can continue working with students. Make sure it is in a state where the houses are cheap. Houses are affordable in about 40 of the 50 states. Make sure the rents in that area are high enough that there is money left over after paying the mortgage and other expenses on the houses.
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I’m looking for a place I’d be willing to spend a lot of time in, since I plan to fly back and forth between California and the new area for years to come.

Here’s my choice:

NORMAN, OKLAHOMA

Why Oklahoma?

(1) I am looking for a small city or large town containing a good university. If one of my goals is to work with students, I may as well live among them. Students should also provide a recession-proof pool of renters.

(2) The area must have affordable housing. For me affordable doesn’t necessarily mean “below a certain price.” I need to look at properties as investments, not as places for me to live. If housing prices are high but rents are also high, that’s fine. If prices are low and rents are high, that’s even better. If I can put 5% down and take out a loan for 95% of the value of the house and still have money left over after the rent pays all the house’s expenses, that’s good.

Considering (1) and (2) left me with these choices:

Dallas, Houston, Austin, College Station (all in Texas)
Albuquerque, Santa Fe (New Mexico)
Norman/Oklahoma City (Oklahoma)
Lawrence (Kansas)
Urbana (Illinois)

I like Texas, especially College Station, but property taxes are really high. I’m scratching Texas off my list for now but would be willing to move there later if Oklahoma doesn’t work out.

(3) I want a place that’s diverse enough so I’ll feel comfortable. The cities in Texas have a large percentage of Asians, but I’ve already scratched Texas. I also like Urbana, which is more diverse than San Francisco’s East Bay area but less diverse than the SF Pensinsula area. I had to scratch Santa Fe and Lawrence because they’re not diverse enough, even though I really like the weather.

The areas remaining on my list are Albuquerque, Norman, and Urbana.

(4) I’m looking for an area with conservative-minded people. It’ll be easier to live with neighbors who think like I do, especially when their votes will affect my freedoms. I’m a libertarian, which means I value freedom of religion, freedom of speech, freedom to defend my family, freedom to do business without regulations, and freedom from taxes.

If we can’t have a fully Christian government, then let’s have one that leaves us alone so we can do God’s work and preach the gospel. I believe that a libertarian government would unknowingly support Biblical values by giving Christians the freedom to change the world for the better.

I urge, then, first of all, that requests, prayers, intercession and thanksgiving be made for everyone— for kings and all those in authority, that we may live peaceful and quiet lives in all godliness and holiness. This is good, and pleases God our Savior, who wants all men to be saved and to come to a knowledge of the truth. (1 Timothy 2:1-4, NIV)

Dallas, College Station, Norman, and Lawrence are conservative. Houston, Austin, Albuquerque, Santa Fe, and Urbana are more liberal.

Only three states in the Union had every county vote for Bush in 2004: Oklahoma, Nebraska, and Utah. While I don’t support all of President Bush’s views or everything he does, I agree more with what he says than with the candidates from the Democratic party who have run against him.

(5) A lot of states are already feeling water shortages. For example, the cities in the dry state of New Mexico buy their water from the distant Colorado River. They’re working on channeling water from a river in eastern NM, but until that happens, watering has been so restricted that most people don’t have lawns.

Although Kansas and Oklahoma are going through a drought right now, I think Oklahoma will be fine long-term, since it has a lot of natural and artificial lakes.

(6) In the event of a national disaster or very high oil prices, big cities are the last places I want to be. Imagine what would happen if the price of gas doubled and trucking companies started to go out of business or raise their prices. How far does food travel in a truck to get to San Francisco as compared to Norman in Oklahoma, which is just a few miles from Hickville?

The situation would be even worse if the airlines, which are already in trouble, went bankrupt because of high fuel prices or more terrorist activity. Large cities tend to rely on airports a lot more than small ones.

Things would be truly grim if the airplanes brought something back with them [cough]. No, that wasn’t a subtle hint. It was the first sign of an avian flu epidemic.

There are lots of small college cities in the United States with a very educated population but Hickville only a few miles away. You may complain now, but I’m sure you’ll lighten up when the hicks show up with food and weapons to help their neighbors in a national emergency.

(7) Commodities like food, oil, and coal will go up in price over time because of a weakening dollar. It will be harder to buy commodities and other goods from other countries. The weaker dollar also encourages other countries to buy things from us.

The long-term prospects of Texas, Oklahoma, and Kansas are good, since they produce a lot of food and fuel. If it’s expensive to import them, there will be more demand for the amounts that are locally produced.

California, with its high city populations, will need a lot of food and oil, but production will be far away. High oil prices means that it will cost more to ship these goods to cities, and the cost of living in the big cities will go up faster than in small cities and towns.

There are very solid, fundamental reasons why the dollar should get weaker over time:

The American dollar will get weaker as the government gets closer to not being able to pay off its multi-trillion dollar debts on Social Security, Medicare, and federal pensions. They want the dollar to become weaker, to be worth less and less over time, because that makes it easy for them to pay their debts back. Thirty years from now, if the dollar is only worth one quarter of what it’s worth today, the government could pay its debts four times more easily than it could today. The poor folks who lent money out will get stiffed: paid back with money that is worth less than it was when they lent it out.

The government has been weakening the dollar for a long time now by borrowing money. That’s right: in order to pay back their debts, they need a weaker dollar. To weaken the dollar, they borrow more money.

How does this work? When the government borrows money, they spend it right away. This money finds its way into banks. This is a problem because a practice called ‘fractional reserve banking’ is encouraged. A bank can take the $100 you deposit and create $800 or more out of nowhere to lend to other people. That money comes out of thin air. $800 can be “created” from $100 because the bank can simply modify the records on their computers and then lend out the “new” money.

When that $800 finds its way to another bank, guess what happens? That bank can create $3200 or more out of nowhere to lend to yet more people.

This is supposed to stimulate the economy because businesses will get excited over having so much money to borrow. They’ll borrow the money to invest and make their businesses bigger. Because of that initial $100 deposit, thousands of dollars have been created out of nowhere. At first, those thousands of dollars are still chasing the same MP3 players, TVs, cars, and so forth, causing prices to go up. This makes businesses even more excited, since they can make more money if prices are higher.

The businesses eventually overproduce because they don’t realize that the higher prices were caused by fractional reserve banking, NOT a fundamental increase customer demand. Now there are too many MP3 players, TVs, cars, and so forth, far more than people are willing to buy. Yet businesses have borrowed a lot of money and have no way to pay it back without making the sales they were hoping for.

That’s right: it’s recession time. Since there are too many MP3 players, TVs, and cars, prices fall into the basement. Business go bankrupt or fire lots of people to keep from going bankrupt. Whatever customer demand was created by the “funny money” has disappeared. Eventually, everything would recover by itself, since fractional reserve banking requires banks to DESTROY money during a recession when people take their money out of their bank accounts. This is the reverse of the money creation process that started when you deposited your original $100.

Think about it: lower prices in a recession means that a dollar can buy more, so a recession makes the dollar stronger. Recessions are simply a way for the economy to rid itself of the effects of money-creation.

Unfortunately, the big-wigs will “save” us by preventing a full recovery from happening. Remember that they have debts to pay off and NEED a weak dollar. They’ll borrow more money in the middle of the recession in order to get the whole money-creation process to start again. Yes, this will pull us out of the recession, but it does so prematurely, before the dollar has had a chance to regain its full strength.

Despite all of its bad effects, it’s possible for some people to profit from a weakening dollar even as the country as a whole is suffering. People in other countries will be able to get lots of devalued dollars in exchange for their own currencies, which will encourage them to buy stuff from us. This will be good for businesses that manufacture goods for export. (The raw materials for those goods will include, not surprisingly, commodities like food, oil, and coal.)

Remember also that a weaker dollar makes it easier to pay debt back. Today, someone may borrow money to rent a house where the rent is barely able to make the loan payments. In the future, the owner of the house must raise his rents in order to compensate for a dollar that is worth less every year. However, the loan payments stay the same. The bank charges a high interest rate for loans because it knows that the dollar will get weaker. So even though not much of the rent money may be left over after making loan payments in the first year, the “leftover” money is bigger and bigger every year thereafter. Buying rental houses with debt is one way to profit when the dollar is going down the tubes.

By the way, there are lots of signs of a coming recession. For one thing, the yield curve is inverted as of mid-August 2006. This is a sign that people are scared that risky investments will go under, and they’re putting their money in long-term Treasury investments instead. In other words, they’re nervous and have already begun pulling their money out of the stock market.

Remember that as the dollar gets stronger, prices go down, but debt gets harder to pay off. People who lose their jobs or who have a lot of personal debt to take care of won’t be in a position to take advantage of low prices. Be prepared. If you can, snatch up a few good investments during the recession and watch the prices go up after the dollar starts getting weaker again.

OKie dokie

I hope it’s clear why I’ve chosen Oklahoma as a place of refuge. While I don’t plan to live there permanently, I do need a place that allows me to manage wise investments from a distance if necessary. It may as well be a place that has good long-term economic prospects and neighbors who have the same values that I do. I’ll need a safe place to live if California gets too liberal. I’ll also need a safe, steady income to allow my future wife, whoever she is, to spend more time with the kids.

This isn’t the only way to take care of a family, future or otherwise. Not all ways are equally effective, though. What are your plans?