Money vs. Currency

Why am I working more for less?

One of the biggest sources of confusion amongst the general population is the difference between currency and money. This is in spite of people spending most of their adult lives trying to make money. In this endless pursuit, they often wonder why they are struggling to make ends meet, why they always seem to be on a hamster wheel. So, first, what is money?

“The study of money, above all other fields in economics, is one in which complexity is used to disguise truth or to evade truth, not to reveal it.” – John Kenneth Galbraith

Money IS any tradeable asset with tangible value. Money is your house. Money is your car. Money is an investment property. It can also be a service, a piece of metal, water, or food. Money, is NOT, contrary to popular opinion, the dollars in your wallet or purse. Well, aside from your ability to burn it to start a fire or use it as paper to write down ideas. The dollars in your wallet are in fact, currency. Currency is used for convenience. For example, you can not carry your house around. Without money, i.e. assets, currency has near-zero value.

“There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.” – Vladimir Lenin, as quoted by John Maynard Keynes

In other words, people do not realize the importance of currency as a variable in their lives. A related misconception is the belief that inflation is rising prices. Incorrect. Rising prices are a symptom of inflation. Inflation is an increase in the supply of currency. What are prices, and why can they fluctuate so dramatically? Prices are the supply of currency divided by the total money supply (tangible assets). Therefore, PRICES = CURRENCY / MONEY. Who controls the increase and decrease in the supply of currency? The private Federal Reserve Corporation. How do they do that? Usually, they do it thru fractional reserve lending. Since the great financial crisis, however, the Federal Reserve’s ability to increase the currency supply through fractional reserve lending has been muted. Why? Lack of eligible, marginal borrowers. In other words, people are broke and already saturated with debt. The Fed still has one very eager borrower, however. The U.S. Government. More on that in another post. The Fed has also bypassed its lending mechanism by utilizing another method to increase the currency supply: manipulating the stock market to not let prices fall substantively. How do they do that? Via an increase in “reserves” held on behalf of some of the biggest banks in the world, known as the “primary dealers”. These reserves are then leveraged to produce the liquidity necessary for constant stock market manipulation.

There is a lot to unpack in what I stated above but the moral of the story is as follows. The Fed can influence PRICES dramatically by increasing (INFLATION) or decreasing (DEFLATION) the currency in circulation. These changes in the currency then increase or decrease claims or demand for tangible assets, i.e. MONEY. Further, the general public’s lack of knowledge regarding this process puts most people at a significant disadvantage economically.

Health Care – a hot mess

medical bills continue to be outrageous

It would be impossible to cover our country’s health care situation in one post, however, I have to start somewhere. Before the past decade, I recall having employer-based coverage with a modest deductible, let’s say $500 or $1000, that had an out pocket maximum of maybe $2500. Over the past 10 years, my coverage has evolved to a deductible of $2500 to $5000, an out of pocket maximum of $10,000, and with less coverage.

Today I present to you just another small fiasco in our health care system that has become a hot mess. Recently I scheduled an appointment with a doctor as we moved to a new area about a year ago. The objective of the appointment was a routine check-up and blood work. So I went in about a month ago, got the blood work, and everything was fine. Until I got the EOB, that is. Below is a snapshot that explains the services.

Are you serious?

The first shocker is the “list price” of the routine blood work. $1329 !! Are you serious? Of course this is the list price if you have insurance, however, they give you a big discount due to their contract with the insurance company. Seems collusive? I think so. At a minimum, it is not transparent and not based on supply and demand. The real joke, or not, depending on you look at it, came when I saw that one of the tests was not covered by insurance. I called the insurance company and asked what test is not covered. It turns out it was for Vitamin D.

Looking at the explanation codes at the bottom and the description, you find the following:

J0151 – An internal protocol, policy, guideline or rule has been used to process this service. If required, a copy will be provided free of charge by calling our Member Services Department.

So, I called member services and asked to get a copy of the guideline. After waiting on hold for 10 minutes, the CSR agreed that I could request a copy and she would send in the mail. I have yet to receive, but at best it will provide comic relief as to why myself and others continue to get ripped off.

When the final tally is added up, my routine visit looks like this:

  • Insurance pays $181.14 ($131.20 for visit and $40.94 for bloodwork)
  • I pay $339.15 which is applied to my $5000 in-network out of pocket limit

What does this look like to me? That the hospital and insurance companies are making huge money at the expense of the end-consumer. How? By non-transparent pricing convoluted by an agreement between the hospital and the insurance company. Also, the “non-profit” status of the hospital, meaning non-profit in name only. Someone, or some group affiliated with the hospital, is making big money.

Fortunately, I have saved for years, both in an HSA and in general, and paying a bill like this is a minor irritation for me. Is it sustainable for the broader population? I say unlikely. I predict that more and more people will seek out doctors that offer cash prices, or in the case of big expenses, engage in “medical tourism” by getting treatment in another country. It is already happening.

The Great Migration and importance of mobility

Florida had the highest level of net domestic migration last year

Decades of fiscal mismanagement at federal, state and local levels have created a debt nightmare that can only be solved by massive inflation, tax increases, structural reform or bankruptcy. Politicians have been reluctant to enact the structural reforms necessary to correct this trajectory, and instead, have “kicked the can” to future generations. People have woke up to this fact, and this can be seen in the states people are moving to and conversely where they are leaving.

As WSJ notes, Florida and other tax-friendly, pro-growth states have benefited greatly:

The eight fastest-growing states by population last year were located in the West or South (Nevada, Idaho, Utah, Arizona, Florida, Washington, Colorado and Texas). And what do you know? These states have also experienced rapid employment and GDP growth spurred by low tax rates and policies generally friendly to business and job creation. Nevada, Arizona, Texas, Washington, Utah, Florida and Colorado ranked among the eight states with the fastest job growth this past year, according to the Bureau of Labor Statistics. Nevada, Texas, Washington and Florida have no income tax.

Source: WSJ

On the other hand, people have been fleeing high tax states like Illinois, and it’s not due to cold weather:

Illinois’s population has declined by 157,000 over the past five years, which is equivalent to the mid-sized city of Rockford. According to research outfit Wirepoints, more than 114,000 residents left the state on net in 2018 and nearly 1.5 million people since 2000. Cold weather? While Illinois’s population has declined by 0.8% since 2010, Indiana’s has grown 3.1% and Wisconsin’s by 2.2%.

Source:WSJ

I can relate to this personally when we were faced with the prospect of relocating from Michigan last year. Driven by a desire to be closer to family and my wife’s job, the choice was between relocating to Illinois, either in Chicago and its neighboring suburbs or to Indiana. Living in Chicago proper would have provided a shorter commute for my wife and quick access to all of the amenities of the city, such as sporting events, restaurants, and museums. Chicago’s fiscal woes are well documented, however. The deciding factor was skyrocketing real estate taxes in Chicago and Illinois, with taxes roughly 3 to 3.5x that of a similar house in Indiana! Given the schools in the town we ended up choosing were excellent, and Chicago was a mere 30 minutes away, the decision was easy.

Therefore, when considering where to live it is paramount to understand the state and local fiscal situation as it could have a dramatic impact on your ability to keep the money you earn and ultimately, your long term freedom. This trend will only become more acute in the future.

The F.I.R.E movement – real or fantasy?

financial independence can cause one to jump

There has been a lot of online media coverage in recent years regarding the “F.I.R.E.” movement, which stands for “financial independence, retire early.” Basically the premise is to save 50-70% of your income and retire early in your 30’s or 40’s. Is this even possible? Well yes, but of course we need to dive a little deeper to understand what this movement represents.

In my view, the FIRE movement is a perfectly logical response to current times and the environment in which we live. Skyrocketing debt, lack of affordable housing, stagnant wages, and poor job security all play a part. You have repeatedly been told since youth that the proper path is to get a good education, work into your 60’s and then sail off into retirement. This is a fallacy, of course, and many young people today have figured it out. If I asked “what is more valuable to you, time today or time 20-30 years from now”, how would you respond? The fact is that the entire establishment wants you to believe that time in the future is more important. Why? Because they have a vested interest in keeping you working, likely for someone else, for all of your prime years. However is there any guarantee that you will be healthy in your 50’s, 60’s and beyond? Is there a guarantee you will even be alive? Of course not. Time, in fact, is all that we really have.

The other part of FIRE that is open to interpretation is what defines “retirement”. Is it laying on a beach somewhere sipping pina coladas? Owning a yacht or Ferrari? Do you have to be not working? No, No, and No. I contend retirement is simply doing what you want, on your own terms and when you feel like it. You could still be working, but at your own pace and not for someone else’s arbitrary deadline. So call it semi-retirement. In the end, it is dictating your schedule, not having someone else or an organization dictate it for you. This means more time with your family, hobbies, or simply sitting in your background and enjoying the weather.

My previous post started to lay a foundation on how to save money. It is not just saving more of what you earn, it is avoiding or reducing variable costs. This is just a kernel of thought however in the grand scheme of things. In a future post I will talk about one of my all time favorite ways to “beat the scam” and get ahead. The owner occupied 2-4 unit rental.