A great SNL skit featuring Steve Martin that really simplifies the truth of the matter with people who are in debt and don’t know how to get out.
IT IS THE CRY OF MY HEART
I started my first day of work at Kaplan today. They’re giving me an SAT class. I’m excited to be teaching again, but my eventual long-term goal is to work on curriculum development.
We can help transform homeschooling and Christian education in Oklahoma City. We can also provide easy-to-understand books on apologetics to a wide audience.
I have a big, broad vision. I want to see Oklahoma City become the center of a movement where God’s Word becomes central to family life.
It’s the family unit that will accumulate cultural and material wealth. Material wealth will allow us to have more free time to influence the city. Cultural wealth will provide values which will make the transformation permanent and positive.
Just look at the results of the Puritans’ work hundreds of years ago. They built a Protestant culture friendly toward economic growth.
Now we have the largest economy in the world. Even though we have problems with borrowing too much money, we still have more economic freedom than most European countries.
Talk about a city on a hill.
And no, you becoming richer doesn’t necessarily make other people poorer. The invention of the light bulb helped almost everyone. Thomas Edison got richer faster than the poor did: if you look purely at dollar signs. But the standard of living went up much more for the poor than it did for Edison.
Light bulbs cost the same whether you’re poor or rich. So does electricity. Yes, Thomas Edison got rich in dollar signs faster than poor people did. But being able to buy 10,000 light bulbs instead of one doesn’t increase Edison’s standard of living 10,000 times. This is an example of the law of diminishing returns.
So even though the gap between the rich and the poor widens in terms of dollar signs, the productive inventions created by rich people make both the poor and the rich richer. And the standard of living goes up for everyone, but it goes up for the poor faster than it does for the rich.
If there were no rich people, we’d have no light bulbs. Or cars. Or transistors. Or computers. So in what way is the growing gap in dollar signs between the rich and the poor a bad thing, when the standard of living gap is actually shrinking?
If you doubt this, pretend that you’re poor. You want a more comfortable life. Pick any period in American history prior to this one that you’d rather live in. Can’t think of one? Didn’t think so.
You’re poor today. Would you switch places with a rich person from 1907? 1807? 1707? Why or why not?
“You shall not covet your neighbor’s house. You shall not covet your neighbor’s wife, or his manservant or maidservant, his ox or donkey, or anything that belongs to your neighbor.” Exodus 20:17
There are lots of people more qualified than I am to do curriculum development. I met one of them: he teaches worldview and history at Community Christian School in Norman, OK.
So why aren’t they doing it? It’s usually lack of time, lack of vision, or both.
That’s why I’m so big on Christians starting their own businesses and teaching their children how to run them. If children inherit pre-built businesses and don’t have to start from scratch, they’ll have more free time to develop an all-encompassing vision for their community. They’ll have time to apply their gifts toward specific needs like curriculum development.
People may think I’m weird for posting on so many money-related topics. They know I’m not very materialistic, so why do I do it?
I want America to be friendly toward a culture that produces wealth, a standard of living high enough for people to devote their excess time and income to re-investment and ministry, not consumer spending.
What conditions must exist for a society that accumulates wealth? Here are some:
(1) A large population. The larger the population, the more people can specialize on jobs they’re good at. I can teach at Kaplan and trust farmers, truck drivers, real estate investors, commercial banks, supermarket employees, auto manufacturers, and gas stations to help me get my food. This is the division of labor.
(2) A society where people cooperate in peace. Violent racism, fear of nuclear war, and religious isolationism all have the effect of separating the population out into little pockets, reducing the division of labor. I met Gary North at South San Francisco OPC about a year and a half ago, and he told me that India’s caste system reduces their division of labor and prevents them from achieving the kind of economic growth seen in other Asian countries. I became convinced that he was a genius and signed up for his e-mail list.
(3) Values that emphasize free trade. Free trade allows buyers and sellers to set prices so that both parties are satisfied with what they’re getting. There’s no such thing as an equal exchange: when I buy a pair of sneakers, I do so because I think I’m getting a price that makes the shoes worth buying. The store thinks they’re getting enough money that makes the shoes worth selling. When we allow buyers and sellers to determine prices on the free market, the market automatically urges sellers to be competitive with prices and quality.
(4) Laws that reward honesty and punish dishonesty. Don’t you go trying to weigh me two pounds of bananas when I think I’m getting three, or the sword of the government will come and get you. Don’t you go counterfeiting money, especially when there are unbiblical legal tender laws in place saying that we can only use paper dollars to repay debt.
Today’s unbiblical laws put the government and central banks, the greatest counterfeiters, in control of everyone’s wealth. They allow central banks to devalue the dollar and take wealth away from people who have dollars stored up (savers and productive people) and people who are expecting future dollars (retirees and others on fixed incomes).
(5) Individual people who want to save and re-invest rather than spend all the money today. They are future-oriented and think about what their grandchildren’s lives will be like.
Hm. A large population of people who work together in peace. Free trade. Fair laws. Small government. Future-oriented families.
These are things we’d have if we only followed the guidelines for government found in the book of Deuteronomy.
I’m excited. People at Oklahoma City, and especially at my church, are already inclined to think this way. A lot of people would become theonomic if the theology were only explained to them clearly.
Buy one house a year to rent out. If you’re in an undervalued region of the country, the rents will pay off the loan and all other expenses. Each year, you can raise rents to keep pace with inflation.
(Rent goes up, but you don’t get a raise every year? That’s the reason why inflation lowers unemployment. You’re getting paid with money that is worth less every year, yet you get little or no raise. Since employees are effectively getting paid less, companies can hire more of them. Don’t blame the companies. It’s the Congressmen and President who want this inflation so we can lower unemployment and “boost the economy.” Ha, ha. And we’re the ones who vote for them.
And if you’re eventually given a pay raise to compensate for inflation, that’s also good for our politicians. It means you’ve been inflated into higher tax brackets, ones meant originally for those oppressive rich people. Now we get a taste of our own medicine.)
Buy one house a year. After twenty years, if not sooner, you’ll have enough rent coming in so you’ll be able to leave your job and do more ministry. Have your children manage the properties: pay them 10% of the rents. They’ll have a head start on the business when they inherit your houses.
May our children make a huge impact on this world for God’s glory.
—
Me tired today, too tired to answer Min’s response to my Government Schools post. But don’t worry, Min, I haven’t forgotten. 
to follow You all of the days of my life
YOU SAVED ME FROM THE DARKNESS
You may remember that I wrote this on April 3:
If your worldview is broader and deeper than what schools are teaching you, then you may also realize that your life doesn’t have to follow the path that others have laid out for you. Maybe you don’t need to get a job and work 9-to-5. Maybe the world isn’t even headed in that direction any more.
Think of what technology has done to snail mail and long-distance phone bills. Who’s to say that it won’t eventually make equally radical changes to our work environments? When Californians call a big company’s customer service line, they get a voice from India or Oklahoma. It’s more economical to outsource customer support to places where the cost of living is low.
Now combine what you’ve learned about economics, science, math, and current events. What will these companies do to eliminate gasoline costs and commute time as the price of oil rises? Perhaps someday, customer service employees will work from their living rooms or bedsides. They could be paid per call or per telephone minute.
Work environments are likely to change soon because of a problem called peak oil. Demand for oil is going up faster than the speed of production. At some point very soon, production will actually start to decline because our oil fields are running out.
Increasing demand and decreasing supply lead to higher prices.
What if the price of gasoline doubles? Triples? Prices of consumer goods will start to go up as shipping costs go up. The further trucks have to drive, the more things will cost. House prices will also rise because of shipping costs for new construction materials.
Eventually, it will cost more to drive to work than it will to take a lower-paying job close to home.
Smart businesses will prepare for this by beginning to give people the option to work at home through the Internet.
Peak oil will cause a lot of problems for the economy. Producing and shipping goods locally will reduce the division of labor. But as usual, there will be opportunities for profit. I believe three kinds of property will appreciate faster than average:
(1) Rural property in high-population-growth counties. It will be bought up by tech-savvy workers. (Three counties adjacent to Oklahoma City are poised for this.) It doesn’t cost much to produce food locally and ship it within rural areas. This kind of property is also in demand by baby boomer retirees.
(2) Downtown residential houses and apartment buildings. (Oklahoma City) Some jobs can’t be done over the Internet. I believe this kind of property would find increasing demand anyway because of the rise of the echo boomer generation.
(3) Property located in oil-producing areas. (Oklahoma City) Peak oil doesn’t spell the end of the oil industry. A peak has two sides to it.
Oil production will decline slowly. On the far side of the peak, oil’s price will rise rapidly because three factors will be working together: decreasing supply, increasing demand, and inflation. Petroleum companies will make a lot of money before the game’s over.
I think it would be wise to learn as much about the Internet as you can. Look at how fast the technology is developing, just in time to meet the demands imposed on businesses by peak oil. Most people won’t be Web programmers, but many will have to do at least some of their work through the Internet.
Watch these two videos about peak oil before making any major career decisions.
Who is there in all the earth in whom I can put my trust?
Who can move these mighty mountains? Whose voice can calm these seas?
LIFT UP YOUR HEADS, O YOU GATES
Pastor John once told me that the degree of our concern for others should spread out in something that looks like concentric circles. That is, a man should care most for his family and the area of his calling, then his church, then his immediate community, then his country, and then for the rest of the world.
But if anyone does not provide for his own, and especially for those of his household, he has denied the faith and is worse than an unbeliever. 1 Timothy 5:8
Of course, if the area of his calling involves another country, he may be more concerned about them than those in his own country. But generally speaking, I think Pastor John is right.
We’re entering a year or two of recession. This translates into significant inconveniences for most families, hard times for some, and devastating times for a few.
We tend to think about how bad things will get for other people, but the concentric circle idea suggests that we should be much more concerned for our own families.
Hard times also offer the greatest opportunities. Imagine if you’d had a thousand dollars in cash, no debt, during the Great Depression. What could you have bought? A recession is a miniature version of the Depression.
What follows the recession? More inflation. If inflation will be as bad as our obligations to Medicare, Social Security, government pensions, and national debt seem to require, the value of the dollar could drop by more than 10% per year like it did in the late 1970s.
The worst-case scenario would be mass inflation, as happened in Germany after World War I. The government had printed huge amounts of money to meet the reparation demands placed on it by the countries that won. People’s fortunes, if they were stored in anything tied to German money, rapidly eroded away. Food was king, and rich people traded their pianos and fur coats for a few months’ worth of sustenance. Frugal Jews were able to make these trades quite profitably, causing people to resent their success. German resentment in general made it possible for Hitler to gain a great deal of power and restore order.
I get these bits of historical data from Gary North’s book Successful Investing In an Age of Envy. In it, he lays out a strategy for the 1980s that I’m going to modify for our use today. It’s called compensated leverage.
During the recession, those with cash and good credit will be able to buy things at relatively low prices. A piano, for example, will sell for cheaper than it normally would because pianos are not as important in a recession as food and rent.
In the market, items are not assigned a value according to the materials and labor used to produce them, despite what some of us have been taught. How could a new piano sell for less than the cost of its materials and labor if this is true? Yet you’ve probably seen this sort of thing happen before. You can be sure that piano-making will be a less profitable craft in this scenario.
In an “end of the world” scenario, the piano would be worth more as firewood than as a musical instrument. Its value as an assembled item would be less than its value as broken wood. We can see that because someone is willing to spend time to chop the instrument into little pieces.
Rather than being valued by production costs, items will sell for whatever people are willing to pay for them. This is called imputed value. The item takes on a value that is transferred to it by the eyes of buyers in the marketplace. Out of a pool of available bidders, the piano will sell for the price the highest bidder is willing to pay.
There won’t be many bidders in a recession because cash and credit will be in short supply. (It’s hard to get loans when cash is tight because of the way our banking system works.) If you’re the highest bidder, you’ll be able to purchase items for fewer dollars than in a non-recession scenario. Buy when everyone else is trying to sell. You’ll get a better price.
I’m not going to suggest buying pianos, though. Buy houses. With cash and good credit, you can buy them using a loan. You can control a $100k house using a $10k down payment. This is called leverage.
Then, when inflation begins again, the price of the home will rise, but the amount of the loan and loan payments will stay the same. Eventually, you will have four houses that will sell for $400k each, but your loans on the houses will still be only $90k each. If you sell one of the houses, you can use the proceeds to pay off the loans on the other three houses. You’ll own three houses free and clear. You’ll collect a lot of net rent.
Leverage works well if you buy during a recession and hold through an inflationary period. That’s because the value of dollar goes down, and you’re paying the loans down with money that is only worth a fourth of what it was during the recession.
If you think you can forecast correctly when recessions and inflation will hit, you can plan to remove your high degree of leverage by having a way to eliminate the debt profitably. It’s compensated leverage.
If you’re not convinced yet, I don’t blame you. You need to hear this from investors who have done this repeatedly through several recession-inflation cycles.
That’s why I keep pointing people to Gary North’s site. At least sign up for his e-mail list, which is free. Paid members can sign into the forum and ask him and real estate investor John Schaub whatever questions they want.
If you join this month, it’s $9.95/month.
Dr. North is hiking the rate to $14.95/month on May 1, but current subscribers will keep their original low subscription rate.
In a recession, procrastinators will be more motivated to pay and finally start asking him questions. Investors and businesspeople will go to him for advice when markets turn on their heads. Dr. North’s pricing strategy makes sense.
Isn’t it worth $120 to get one profitable idea each year? Compensated leverage is a good example of this. Predicting recessions and inflation is even more helpful.
I’m laughing at myself because I came to my blog to write about the challenge of postmodern hermeneutics. I think it’s the biggest problem Christian apologetics will have to deal with over the next few decades. But how will I, as a middle school teacher, get the income and time to study this subject while still supporting a family? How does anyone do this, short of becoming a well-paid faculty member at a college or university?
One good friend of mine raised two sons on her own. She worked as a high school teacher and had a second job after school for extra income. She’s out of that hole now partly because she sold her home at the right time (market peak) and bought another one at a significant discount. This is possible where the pool of bidders is small, such as at a foreclosure auction or where the property is not well maintained and doesn’t attract positive attention.
She cleaned up the house, adding a small basement apartment in the process. Because she bought below market, she doesn’t have to be as concerned about falling property values in a recession. The apartment rent will help her make the mortgage payment.
Then inflation will come and give her a big payoff for her efforts. Good thing she’s not Jewish.
Maybe I’ll write about postmodern hermeneutics next time. Join Gary North’s site so you’ll have something to read in the meantime.
that the King of Glory may come in.
SOARING ON THE WINGS OF SELFISH PRIDE, I FLEW TOO HIGH, AND LIKE ICARUS I COLLIDE
Since the stock market has looked so unstable recently, a lot of people have been asking me what they can invest in safely. There’s a case to be made for international bonds and undervalued real estate, but most of those who ask can get very high returns without doing any work.
Many people can get a 50% return on their money by doing something very simple:
Paying Down Debt
Credit cards typically have an interest rate of 20%. In an ideal world with no income taxes, paying down credit cards would be equivalent to investing the money with a 20% rate of return. I can’t picture myself getting a return like that by buying stocks and bonds.
But this 20% return is deceptively low. The effective return is much higher because income taxes are so high.
If you’re living in California, your marginal tax rate is probably 32% (25% federal times 9.3% state).
You can’t write off credit card interest on your taxes. That means for every $20 of credit card interest you pay down, you have to earn about $30.
By using the $30 to pay down your credit card, you save $10/year in interest.
If you were to invest the money instead, taxes would reduce your profit by 32%.
To achieve a $10 return on $30 after paying your 32% taxes in the stock market or by flipping houses, you’d actually have to make $15 pre-tax on your $30. $15 is 50% of $30.
That’s right: When you invest your money short-term (less than one year), you’re double taxed: once when you earn the money at your job and again when your investment turns a profit.
On the other hand, you’re only taxed once when you pay your credit card down, since there’s technically no profit made by lowering your interest payments, and you can’t write credit card interest off on your tax return.
I think my math is correct here: Paying down credit card debt with interest of 20% is equivalent to investing the money at a 50% rate of return.
Paying down debt is also important right before a recession, since a lot of people will be denied raises or lose their jobs altogether.
Those who have money will find that with their debt paid down, they’ll have more available to purchase undervalued investments in the middle of the recession when the prices have bottomed out. They can then wait for prices to go back up during the recovery period.
I’m not offering professional advice to you, so you may want to verify all this with your CPA before doing anything.
So steal my heart and take the pain
and wash the feet and cleanse my pride
take the selfish, take the weak,
and all the things I cannot hide
take the beauty, take my tears
the sin-soaked heart and make it Yours
take my world all apart