How to be an Expert in 2011

Wherever you look these days, there are experts.  There are sports experts, politics experts, terrorism experts, social media experts, financial experts, and I'm sure there are "expert experts" somewhere.  I'm not sure what an "expert expert" would do, only that Sarah Palin would hate them. 

I think it's safe to say that we've reached the point where the word "expert" has lost all meaning. 

The Traditional Expert

Until recently, there were really two ways to become an expert: either be deemed an expert by another expert based on experience or complete some sort of academic sequence (a PhD, for instance) and write high-level academic literature on their selected topic.  Once an expert was identified, the expert would usually teach, write, and offer advice.  Your traditional expert was someone like Albert Einstein, Robert Oppenheimer, Henry Kissinger, or Stephen Hawking (trust me, they all have Wikipedia pages). 

Occasionally, they'd show up on the nightly news in a limited capacity to opine on a specific relevant matter.  Having this forum did not make them experts, instead it was their expertise that allowed them to have the forum.

The term "expert" meant that someone is recognized by others in their field as having a very high level of knowledge compared to other top people in that field. 

An Expert Today

With the growth of the internet and the 24-hour-a-day news cycle, this dynamic has been reversed.  Experts are deemed experts because they give opinions.  The only qualification for being an expert these days is to be able to speak or type (and, no, I'm not going to make a Stephen Hawking joke here, but I won't think less of you if you do). 

Experts can make a lot of money.  They are treated as celebrities.  Their opinions matter.  Not a bad deal just for giving your two cents.

Here's a step-by-step approach to becoming an expert in today's world: 

Step 1- Choose Your Field

This is where a lot of would-be experts lose their way.  They set out to be experts in areas like physics, economics, and engineering.  First of all, those things are all complicated and hard.  You need to go to school and work in your profession just to pick up the correct terminology. 

More to the point, you want to avoid any areas where others can prove you wrong.  If I opine that energy does not equal mass times acceleration squared, I'm going to get an argument.  Other experts will want to see my graph-lined paper and have me show my work.  They may determine that I've made a serious error or that I am, in fact, full of shit. 

It is with this in mind that I offer you to stick to the following list of expertise: fashion, investing, fantasy sports, and celebrity gossip. 

These areas have everything you could want.  People are eager to hear about these things, much of it is subjective and nobody cares enough to take the time to argue with you even when you're proven wrong or discredited.

Step 2- Be Right  

A friend of a friend of a friend is a financial planner working in New York.  He actively manages his clients' investments (meaning that he decides on trades and buying and selling investments on his clients' behalf).  At the beginning of the financial crisis a few years back, he admitted that he had no idea what the stock market or any other market was going to do.  His came up with a smart solution.  He divided his clients in half and, unbeknownst to his clients, had half of them long the market (betting that stocks would go up) and half short the market (betting that stocks could go down). 

In sports terms, he had moved from gambler to bookie.  Half of his clients (the ones for whom he had short the market) made a killing.  The other half got ruined.  Without knowing his strategy, these clients who made money believed that his success with their money was the result of the his expertise.  He built trust with these clients and probably got quite a few referrals from these folks.

It's a variation of the old gambling advice scheme: In week 1, I call 200 people and tell half of them to pick the Dolphins over the Bears and tell the other half to pick the Bears over the Dolphins. In week 2, I call back the 100 that got the correct pick the previous week, and tell half of them to pick the Eagles over the Redskins and the other half to pick the Redskins over the Eagles. In week 3, I call back the 50 people who got both correct picks and offer to sell them my week 3 pick.

The lesson here: how you are right is irrelevant, just so long as people think it's because of your expertise.

Step 3- Don't Be Wrong

I don't know how many experts work at CNBC (the 24-hour finance channel), but it's roughly the number of people who have ever appeared on the network minus four.

Most every expert who opines on the network gives their opinion on which stocks will go up in value and and which will go down.  Statistics have shown that even the most revered stock pickers make less than the broad market nearly as often as they beat the broad market. 

(As an aside: Wall Street folk get paid an insane amount of money to be right as often as they're wrong.  Why?  Because people think they're experts, of course.)

So, if an expert says a stock will go up and the stock goes up the next day, he's right.  On the contrary, if that same stock goes down, he's wrong... except when he's right.

Allow me to explain.  Let's say that stock that he said would go up was valued at $50 a share when he made the prediction.  The next day it drops to $48.  A week later, it bounces back to $51 a share.  Tadaa!  The stock has gone up!  By giving a unspecified time frame, the expert can look backwards and declare himself correct.  The expert has willed it to happen with his expertness.

And we're not done yet.  Let's say the stock doesn't bounce back up from $48.  The expert can compare that stock the rest of the market or other similar stocks.  The stock may have performed well relative to other stocks, even if it didn't go up.  The expert has saved you from owning even shittier stocks!   He's some sort of wizard! 

Step 4- Go Big


Earlier this year, the media jumped on as story about a religious leader predicting the rapture for a specific day.  For a long time, I could never figure out why anyone would try to predict the end of the world.  If you're wrong, you're wrong.  If you're right, you're dead.   But now I understand.  He was completely wrong about the rapture and was mocked for about a day by for being wrong, but then most people forgot about the story. 

Now, what happens when another holy man predicts a definite future date as the end of the world?  Who will the media want to talk to?  That's right, the guy who was wrong the last time.  We'll get an opinion and a new "expert" on the end of the world.  And all he had to do was be completely wrong!  Good stuff. 

Step 5- Shoot the Moon

Every ridiculous opinion is a lottery ticket.  If an outrageous prediction sticks, you may get to expert status without passing Go and collecting $200.

This works for any would-be expert.  Pick any college freshman and declare that he'll be the best basketball player of all time.  Pick a random investment and opine that it will triple in value or become worthless.  Declare that Hunt's Tomato Catsup will become the new currency in the Euro Zone.  Speculate that Jennifer Aniston will eat 50 pounds of Twizzlers on her 50th birthday.  Type a blog post about how gay marriage will destroy daylight savings time.  C'mon, it's not like the internet is charging by the word.

Just know that if one of these comes through, you will be the person who correctly predicted the unpredictable.  And even if you get it wrong, you may still get to be an expert. 

Step 6- Profit! 

Moonlight Graham

In difficult times like these, it's useful to step back and remember what is important in life.  In that vein, I've decided to take a moment to file a rant on a 1989 Kevin Costner movie.

Field of Dreams was a cultural and commercial success.  I saw in in the theatre, as my mom took advantage of a promotion whereby you got into the theatre for free if you brought a pillow.   My mom is good like that.

For those who haven't seen it or don't remember the details, Ray (played by Costner) and Terrance (played by James Earl Jones), go on an adventure prompted by Ray's talking corn-field.  Ray builds a baseball field in the corn-stalks on his farm and, again prompted by the talking corn, drives to Boston to take Terrance to a Red Sox game.  Did I mention that there are ghosts playing baseball on the field?  No?  Well, they are. 

Anyway, Ray finds Terrance, they go to a Sox game, and the Fenway Park scoreboard tells them to find a baseball player named Moonlight Graham, who played one game in 1922 and never got an at-bat: 

(Off topic, but this scene freaked me out when I first saw it.  Every time I looked at a scoreboard, I said a little prayer that it wouldn't show me an eerie message.  Being 10 years old is terrifying.)

So, Ray and Terrance drive to Minnesota and learn that Moonlight is not-so-much alive anymore.  This is of no matter to Ray, who promptly visits 1972 to have a chat with Moonlight (who is an elderly local doctor). 

Upon leaving Minnesota, they pick up a hitchhiker: a wide-eyed young baseball player named Moonlight Graham.  They bring him to Ray's cornfield, where famous dead professional baseballers are having a rousing game of ball.  Moonlight gets into the game, realizing his dream.  He comes up to bat and hits a sacrifice fly to center in his only plate appearance.  Immediately after, Ray's daughter chokes on a hot dog, Moonlight steps from the field, transforms back into the weathered doctor, saves Ray's daughter, then walks into the corn and disappears.  So, if you're scoring at home, Moonlight has gone from dead, to old, to young, to old, and back to dead in about an hour of screen-time. 

Now, I have no problem with any of this.  As the credits roll, Ray has saved his farm and gets to play catch with his deceased father- a rather solid ending.  The baseball scenes are authentic looking, the parts of the movie that are supposed to be funny are funny, and the actors do a great job in the movie (except maybe for Ray's wife, who is excruciating).  In fact, the movie got an Oscar nomination for best picture, and this was back before every movie got a nomination.

My issue is that they haven't addressed Moonlight's statistical deficiency.  As seen in the clip above, the scoreboard at Fenway  stated that Moonlight had one game, but no at bats.  Ray and Terrance clearly state their intention to remedy the fact that he has no at bats.  He comes to bat in the movie, and flies out to the outfield, scoring the runner from third base.  It's a sacrifice fly- get it? he sacrifices himself!- but a sacrifice fly is not counted as an official "at bat" under the official scoring rules of baseball!    This has driven me crazy since I first saw the movie. 

I've tried to reconcile this with the baseball rules.  Maybe a sacrifice fly counted as an at bat in 1922?  Nope.  Nor did it count as an at bat in 1989 (when the movie came out).  At certain points, the official rules did count this as an at bat, but those times were short-lived (prior to 1908 and between 1940-1954).  Since we're told that most of the players on the field were banned from baseball in 1919, it seems quite unlikely that they'd be playing using the rules of either era. 

The players in Ray's field were most likely not keeping any statistics outside of each team's run total, but since the characters expended so much effort to get Moonlight his one "at bat", this is a huge oversight. 

Next week I'll break down the jurisprudence of Night Court, to see if I can suck all the fun out of that too....

Karate School.



The S&P downgrade of the Federal Government

I've been a (moderately) active investor since I've had two nickels to rub together (circa 2006).  Between then and now, I've watched the market be relatively stable, crash, stabilize, crash again, bounce, and crash again while I'm typing this.

Today's drop can be directly attributed to Standard & Poor's (S&P) downgrading the federal government's credit rating, from AAA (the highest) to AA+ (the second highest). 

This has rattled investors, who have started indiscriminately selling stocks to put their money into cash. 

However, I would argue that this sell-off has much more to do with fear and confusion than it does to do with any sort of financial reason.

Note to Government: Stop doing anything.

The one thing I have learned from investing is that federal government action = stocks go down.  Obama talking about the economy = stocks go down.  Congress doing anything = stocks go down.  Congress does nothing and it shows up on the news = stocks go down.

The debt ceiling debacle has smacked the economic recovery in the face.  We can handle the fact that our elected officials are corrupt or that they're imbeciles.  But we never realized how badly their idiocy could fuck us until the country was brought to the brink of default for political reasons.

What the hell is S&P and what is its function? 

Standard & Poor's has a super-important sounding name.  S&P is the name of a stock index that shows up on the news along with the Dow Jones Industrial Average and the NASDAQ.  It has the word "Standard" in it.  Is it a government agency?  What sort of power does it have?

Well, S&P is actually a private company, owned by McGraw-Hill.  Yes, McGraw-Hill the book publisher. 

Its function is as a "ratings agency."  A ratings agency is a company that rates (assesses the ability of borrowers to pay back loans) debts that are for sale.  In the federal government's case, the government issues bonds to raise money.  A government bond is an IOU from the government, stating that they will repay the IOU plus interest.  A downgrade of the federal governments rating means that S&P believes that there is a higher likelihood of the federal government electing to not pay back their IOUs. 

S&P rates all sorts of bonds, from straight corporate bonds to bonds backed up by assets (such as mortgages).  For the record, a whole lot of loans that rating agencies (including S&P) said had virtually no chance of going bad did just that during the financial crisis.  Investors who relied on the ratings and thought they were being conservative were hit hard.  S&Ps inflated ratings were most likely caused by either (i) not knowing what they were doing, or (ii) refusing to give bad ratings to the bond issuers, who coincidentally were paying the rating agencies to produce the ratings.  S&P was nice enough to lower their ratings during the financial crisis, thus throwing more gas on the fire that they helped to start.

What does the downgrade actually mean? 

The interesting dynamic here is that the federal government can print money.  It can literally turn on a printer and produce bills.  It's like lending someone on a beach a bunch of sea-water and telling them that they need to pay you back a bucket of sea-water every month.  That borrower can always get more water- the only risk to the lender is that the borrower refuses to do so.  Likewise, the question is not whether the government can pay its debts, but instead the question is will the government refuse to pay its debts.

Essentially, the downgrade is directly tied to the government's inability to get things done.  If one of the two parties is willing to use government default as leverage to get its way, it naturally follows that eventually the other side will refuse to budge.

So, what's the end result?

Investors are selling their shares and getting out of the market.  In a different time, the market might having other investors coming in to the market to buy stocks at a discount.  After the financial crisis, investors know that just because a stock is cheap, it can still get cheaper (much, much cheaper). 

Americans have no real faith in the government to address the nation's financial problems.  If the debt ceiling debate (which was, at best, an egregious waste of time and resources) could almost sink our economy, what faith should we have in government to actually make progress?  The financial rules are constantly in flux and Washington's indecision is causing corporate America to sit on its collective hands.  Companies are incentivized to hold their money until there is more clarity (such as figuring out where this extra $1.5 trillion in budget cuts are going to come from).  The economy was stuck in neutral, and now our government has attached a trailer to it. 

So, when you hear Republicans blaming Democrats and vice versa, know that the problem is not that either party's plan was neccessarily better, but that no one knows if they can stop bickering long enough to repay the pail of water every month. 

As for S&P, they aren't telling us anything we don't already know.  The timing, however, could not be worse.   Gas, meet fire. 

In conclusion, what we have here is on-going failure on behalf of our elected officials.  And the downgrade?  That's just a non-trustworthy private company telling us that idiots (Congress) will continue to act like idiots, which should not be a surprise to anyone.

Would you rather?

On a recent trip,  a game of "Would you rather?" broke out with my family.  Some gems...

- Would you rather lose vision in one eye or have everyone in Canada tear their ACLs?
- Would you rather never sleep in the same room twice or attend every single event at your local church for the rest of your life?
- Would you rather say the opposite of every statement you make, wait a beat, and say "Not!" or eat every meal from gas station kiosks (clarification: not the nice mini-marts, but those bullet-proof glass booths with the slot that you push your money through)?
- Would you rather never drive faster than 25 miles per hour or wear a giant Styrofoam cowboy hat every waking minute of your life?
- Would you rather say everything you ever say loudly into a megaphone or have to try to hug every person you have a conversation with?

The Higher Education Bubble

I was golfing with a college friend of mine the other day and he mentioned a fund-raising event he went to at our Alma Mater. There, the president of the school projected that tuition would continue to rise at a rate of 8.5% annually. Perhaps this doesn't sound too awful, but compounding the increases is a bitch...

2011-12 tuition: $40,000
12-13: $43,400
13-14: $47,089
14-15: $51,091
15-16: $55,434
16-17: $60,146
17-18: $65,259
18-19: $70,805
19-20: $76,824
20-21: $83,354
21-22: $90,439
22-23: $98,127
23-24: $106,467
24-25: $115,517
25-26: $125,336
26-27: $135,989
27-28: $147,548
28-29: $160,090

For a child born today, entering college at age 18:
29-30: $173,698
30-31: $188,462
31-32: $204,482
32-33: $221,863

Total: $788,805

Keep in mind that this is for tuition only and does not include living expenses or various other "fees" that colleges like to tack on to the bill.

My friend noted that he was trying to put together a savings plan for his one year-old son. To which I replied, "What's the point?" How much money do you reasonably have save each year to save for both college tuition and retirement? And is it at all responsible to pay for college over saving for retirement? And if you have multiple children, what percentage of people are going to have $1.5 million saved for their children's colleges? Finally, what entity (in the post-financial crisis world) would be crazy enough to lend a college student upwards of half a million dollars to get a bachelors degree?

Honestly, I tried answering these questions until I got dizzy and decided to consider the ramifications of home-schooling my future children through medical school.

Unless wages rise dramatically over the next decade (and there's little reason to believe that will happen), we can expect to see dramatic changes in the behavior of American students at some point in the next 15 years.

It is my belief (and a google search of "higher education bubble" will show I'm not alone in this belief) that America's higher education- colleges & grad schools- are a bubble that will eventually burst. I can't say when this will happen, but as the above tuition chart shows, it may come sooner rather than later.

Look at the parallels between higher education and the housing market bubble:

1. Belief that the item has an almost mythical value. (See: American dream of home-ownership vs. America's dream of a college education)
2. Irrational belief that the items value will always increase. (See: "Historically, housing has never gone down in value." vs. "College educations pay for themselves many times over in a lifetime")
3. Tax treatment that inflates the affordability of the item. (See: Deductible home loan interest payments vs. student loan interest deduction)
4. Easy credit to purchase the item. (See: Housing Loans of 2004-2007 vs. student loans backed up by the government, ability to defer interest until graduation, and availability of federal loans at a low fixed rate- which are admittedly not that low right now)
5. A rapid increase in cost that dramatically outpaces average incomes (See: Historical housing prices vs. 8.5% annual increases in tuition)

The housing bubble burst when banks became unable to sell the loans that were on their books and stopped offering refinancing on adjustable rate mortgages. Homeowners, who were relying on refinancing to avoid the increased payments, began defaulting on their mortgages. This threw into doubt the ideas that housing always goes up in value and that housing is a 100% safe investment. Suddenly, people who were overextended on their debts were no longer able to rely on the banks to prop them up. New home buyers couldn't get loans to buy homes, a glut of foreclosed homes and houses bought for investment flooded the market, and the deteriorating employment picture kept most other home buyers on the sidelines. Housing prices got crushed and are finally starting to stabilize after price drops of well over 50% in some areas.

This is the final major characteristic of all bubbles. Once they burst, things unravel very quickly.

I see two scenarios for the bursting of the higher education bubble. Let's tackle them like an episode of 'Mega-Disasters':

Scenario 1: The short wait-list.

It's a warm spring day in Chesterfieldtownport, Connecticut. The dean of admissions for a small liberal arts school is downloading the applications of candidates to start in the fall of 2018. The college has had a minor drop of in applications the previous two years, but nothing drastic. Tuition is $72k a year and the average salary for graduates is hovering about $41,000 a year with 55% finding work within 6 months of graduation.

Something seems off. There's only 2300 applicants for a class of 1850 students. She tries to redownload the applications. She calls her IT department. The IT department contacts the digital application hub. The number is correct. Only 48 paper applications are in-hand. The admissions board moves quickly through the applicants. Only 1100 students merit acceptance based on the prior year's standards. The entire wait list from early applications is accepted. After much argument, the standards are relaxed. 1500 are accepted under the new standards.

The application numbers are leaked to the press, becoming national news within hours. Other colleges are revealed to be suffering the same drop-off in applications. The public universities reap the windfall, as in-state applicants double across the country. The state schools (with in-state tuition about half that of private schools) become extremely competitive and become harder to get into than all but the most prestigious private universities.

The small liberal arts college takes a massive reputation hit. Only 950 students send in deposits for the 2018 school year. Many sophomores and juniors decide not to return to school. The school lays off staff and non-tenured professors. Classes jump in size, the school's ranking plummets. By 2022, the college is closed.

Scenario 2: Don't send us your poor.

It's the late summer of 2019. At the south's Big Private University, orientations are being planned, dorms painted and the basketball court polished. Over 3400 freshman are expected to arrive in the coming weeks.

Suddenly, the financial aid office's telephones start ringing. By the late afternoon, the office has left a voicemail message to contact them by e-mail. Over 5000 e-mails arrive that day. Sallie Mae, citing a huge number of student loan defaults, is suspending its loan program. The company is owed $9 billion in delinquent loan repayments and may need government intervention to continue operations. Citibank soon suspends their loan program, citing concerns about delinquencies and the need for an 'internal audit' to assess the risk they're taking on these loans.

All students receiving financial aid are notified that their loan money is not going to arrive in time for the fall semester. Big Private allows these students to withdraw for a semester without academic penalty due to financial hardship. Over 5500 students take this option. No one at the school will say it, but there's no guarantee this loan money will ever return.

Once the belief system of college as an American birthright and as an unrivaled investment ceases to hold consumers (and that's what college students are- consumers) captive, the entire system will need to be reanalyzed. Like with housing, college will again begin to be assessed like any other major purchase. Schools will need to focus on supplying value and on showing that to potential students.

After the bubble bursts, the gap in education may be filled by private companies, who cherry-pick the most talented students to start 'apprenticeships' at their companies. Likewise, on-line colleges will likely become more of a mainstream option and more accepted as a reasoned alternative to traditional colleges. Finally, colleges may start allowing for public service to count for school credit. In this way, students can gain life skills, help their community, and reduce the cost of tuition by replacing classroom work with service.

On inflation...

Future historians will look back at the last few years of economic upheaval with great interest. Whether it's historically known as the Great Recession (as some pundits are trying to coin it), or some other moderately clever name, it will serve as a great example of how very large social systems are not immune to catastrophic meltdowns.

In this post, I'd like to focus on the idea of inflation and specifically how governments are using inflation as a tool to address the stumbling economy.

What is inflation?

To most Americans over a certain age, "inflation" is a scary word. It is associated with price spikes, as in the recent fluctuations in gas prices, and is universally used as an explanation for any increase in prices (regardless of whether or not such price increase has anything to do with systematic inflation).

In actuality, inflation is an economic term used to refer to a broad increase in prices of goods. This is usually calculated by assessing the prices of a certain basket of commodities (fuel, wheat, coffee, produce, metals, etc.) over the passage of time.

How does this play out?

Another way to look at inflation is to think of it in terms of cash. If you have $1,000 under your mattress, you can take the money out from under your mattress, go to ShopRite and buy $1,000 worth of goods. If you wait a year (keeping the $1,000 under the mattress) and go to ShopRite then, a positive inflation rate will mean that you can buy less than you could had you gone the year before. In other words, you're $1,000 is worth less than it was a year earlier.

With this in mind, the kneejerk reaction is to decide that inflation is a bad thing and that the best result for individuals would be if the price of those goods had gone down (in effect, making that $1,000 worth more money after sitting under the mattress for a year).

However, while there may be satisfaction in walking out of the store with the same amount or more goods than the year before (as a reward for you saving that money for an extra year), the negative effect of the decrease will likely outweigh any benefits.

For example: let's say you have a student loan to repay. You have the loan at a fixed rate of interest and pay $200 every month. If, after a year, inflation has made your dollar worth less money, the fixed loan payment is essentially discounted. Whereas a year ago, that $200 could have bought you 25 pounds of coffee at WholeFoods, you can only buy only 22 pounds today. So, instead of paying back your lender a value of 25 pounds of Whole Foods coffee, you're now only paying them the equivalent of 22 pounds of coffee.

Yes, there's a piece that's missing. In order for this to benefit individuals, income must rise at the rate of inflation. If that WholeFoods coffee gets more expensive and your income has not risen, you're just going to have to go without that extra three pounds of Arabic Blend. However, if your salary keeps pace with the price of coffee, you've benefited by getting the discounted loan payment.

So, what exactly is the government doing?

The federal government is between a rock and a hard place (as are a lot of Americans and their businesses).

The government needs money to fund both its on-going operations as well as the massive stimulus packages they have funded over the past two years- not to mention the other gazillion dollars of debt it had before. The simple solution (and one that they have been utilizing) is that the federal government can literally print money and introduce more money into the country's money supply. Logically, this should result in inflation. The money supply is guaranteed by the full faith and credit of the US government, so each additional dollar does not increase the overall value of the money supply, it simply dilutes it. The existence of additional currency should lower the value of each dollar in the economy.

Printing money has several benefits. For one thing, the US is in debt (have you heard about this?) and its debt is in American dollars. Ergo, by printing more money, the government is decreasing the value of its debt payments while simultaneously creating dollars to pay back that debt.

For comparison, consider the plight of Greece, who is at risk of defaulting (not being able to pay back) their federal debt. Because Greece uses the Euro and the Euro is used by almost every country in mainland Europe, they lack the power to print Euros or devalue their currency. Other countries that are not in debt and are net creditors (meaning they lend money to other countries), do not want to devalue the currency because it would devalue their savings and devalue the money that it is owed. As a result, the entire Euro area is under strain because of the competing interests of the member countries. The US, by sitting ever-so-firmly in the debtor category, has no such conflict of interest.

Secondly, by devaluing the currency against other currencies, Americans selling their goods abroad benefit. If McDonald's is selling a cheeseburger in Paris for 3 Euros and those 3 Euros are now worth 6 dollars instead of 5, McDonald's is earning an extra dollar on each cheeseburger sale. This allows McDonald's to be more competitive abroad, earn more money and (in theory) allow them to hire more employees and expand their operations.

What are the risks?

The main risk of printing so much additional currency is hyper-inflation. Hyper-inflation is a sudden, significant increase in prices. The easiest way to explain this possibility is to imagine that the world loses faith in the value of the American dollar. Other countries and businesses become nervous that the additional printed US currency will significantly devalue the American dollars that they are receiving for their goods. Suddenly, they begin requesting higher prices for their goods, to cover their risk in holding American dollars. Prices spiral upwards, the American government is forced to pay a large premium to borrow money and this combination of factors causes the whole system to collapse.

Thus far, inflation has remained under control. Investors have seen the US as a "safe-haven" to park their savings, as the history and the size of the United States suggests that the dollar will retain most of its value. To be more accurate, the US dollar is simply the least-bad option. The dollar has fallen in value against certain currencies, notably the Canadian Dollar and the Australian Dollar, but has held its value against the Euro and the British Pound (mostly because those currencies are facing their own challenges).

The problem that has popped up has to do with the lack of increases in wages. A high unemployment rate combined with stagnant wages has decreased the purchasing power of Americans. The savings on your loan payments (because of inflation) are of no benefit when you are making the same or less money than the year before. As a result, people have been cutting back on purchasing and going without, which has hurt the sales of businesses. Businesses, in turn, are not able to expand or hire, since their sales are stagnant or decreasing. Further, the high unemployment rate has put downward pressure on wages, since unemployed workers are willing to take less money to find employment.

As inflation persists (even at moderate levels) the decrease in wages and high unemployment is magnifying the effect of inflation.

What is the opposite of inflation?

Deflation is the opposite of inflation. Again, this may seem like a boon in the short term, but it's extremely problematic.

To use the previous example, imagine if the money you left under your mattress is worth more in a year than it is now simply by virtue of time passing. This creates an incentive is to keep the money under your mattress, as holding cash has become a form of investment. Now, both individuals and companies are inclined to hoard their money, as opposed to either investing or spending it. For a non-profitable company, it would be a realistic option to suspend operations and simply retain their free cash, knowing it will increase in value.

Likewise, those who are in debt will further burdened by their loan payments. Since it's likely that wages will fall in a deflationary environment, these payments will become that much more onerous.

The result could be a "deflationary spiral" where prices decrease, investments decrease, wages decrease and employment decreases. The wage and employment decreases will result in a decrease in purchasing power, which which lowers demand, which lowers prices, which will exacerbate the decrease in wages and employment even further. Thus, a spiral is created.

Fun with the North Korea Official Website

Imagine designing a website for your company. The company has been getting terrible press lately, and you wish to refute that negativity while reinforcing the company's mission statements and corporate culture. Now, imagine your company is the Democratic People's Republic of Korea (North Korea) and your task is to build a website that portrays the country in the best light possible. Doesn't seem too difficult, except that you cannot write anything (factual or otherwise) that does not reinforce the greatness of North Korea. Also, you must constantly reinforce that the country's leader is all-knowing, all-powerful and without fault. Did I mention that the website is not in your native language?

This is a dizzying task, and has been handled with enthusiasm (and possibly fear), by the Foundation of the Korean Friendship Association. The result, in all its glory, can be found here: http://www.korea-dpr.com/

Some background: the leader of North Korea, Kim Jong-il, has God-like status and authority- picture a mix of George Steinbrenner, King Henry VIII and Gozer the Gozarian. Kim Jong-il's father, Kim Il-sung, was the first leader of the country and-despite the omnipotent status he maintained- still managed to die in 1994. Since then, North Korea has steadfastly held on to the teachings of Kim Il-Sung (let's call him "PapaLeader") under the rule of his son ("SonLeader").

Within North Korea, the government is able to control dissidence and discord by controlling all sources of media. The internet is banned. Television, radio and newspapers are controlled by the state. Visitors are searched for, among other things, any information about the world outside of North Korea.

The state pushes four main messages to its people:

1. PapaLeader and SonLeader are omnipotent, powerful, benevolent geniuses. Countless inventions, methods and breakthroughs have been credited to the rulers.

2. SonLeader is the only thing standing in the way of annihilation from outside aggressors.

3. Other countries, notably South Korea, the US and Japan, wish to invade North Korea, rape its women and steal its rotary phones.

4. Speaking or acting in a way that is contrary to SonLeader is frowned upon. Quite frowned upon.

Not surprisingly, these themes show up all over the NK website. As it's targeted towards an outside audience, the themes are twisted slightly:

1. PapaLeader and Son Leader are still omnipotent, powerful, and benevolent geniuses.

2. North Korea's military is crazy-good, enormous and will fight to the death and possibly more than that to keep out foreign aggressors, especially the asshole Americans.

3. Other people (who are not North Korean) totally love North Korea and think SonLeader is awesome and cool (and not fat at all).

What you end up with is a myraid of fluff pieces on the perfect leaders and various other propoganda about the greatness of NK and the awfulness of its enemies, all pushing the basic themes:

PapaLeader and SonLeader are omnipotent, powerful benevolent geniuses.

If American politicians are vying to be the "candidate you'd like to have a beer with", then PapaLeader and SonLeader are the rulers who will briefly take time out of their busy days of omnipotence to tolerate the presence of the unwashed masses:

The objective of politics is to bring love for the people into bloom, ardent love and trust in the people make them patriots and the revolution starts, socialist politics is , in essence, benevolent politics-this is Kim Jong Il’s out look on politics. Kim Jong Il’s love for the people reaches evey corner of the country And is permeated in all the wealth and creations. He pays deep attention to every item needed for people’s living ranging from the basic condiment, like salt, to shoes,cosmetics water and heating ,not to mention foods. Wherever you go in Korea ,you can easily find the working places and families which Kim Jong Il visited.

Yes. Wherever you go in North Korea you can find these people Kim Jong Il has visited. On an unrelated note, you cannot go anywhere in North Korea.

North Korea's army is crazy-good, enormous and will fight to the death (if not more than that).... and America sucks.

As it is targeted towards western readers, the military angle projects a jittery confidence in NK's military:

The defense industry of the DPRK has been enhanced to such a standard that it can manufacture military hardware powerful enough to frustrate any moves of aggression of the imperialists boasting of their military technology and to shatter their strongholds. The country has also prepared its nuclear deterrent against the imperialist nuclear threat.

Under the leadership of Chairman Kim Jong Il the DPRK will add more brilliance to its dignity as an invincible military power no enemy, however, formidable, dare challenge.

Anyone want to take a guess as to who these "imperialists" are? Here's a hint from the site's "news" feed:

Sixty years have passed since the most furious war after World War II, the Korean War (1950-1953), ended. During the three years, the US, which unleashed the war in an ambition to dominate the Korean Peninsula and the Asian continent, committed outrages unprecedented in the history...“Regard Koreans as animals. Kill them without mercy thinking as if you are killing animals.” This was an order of [US General] MacArthur at the beginning of the war.

MacArthur went on to say, "America has jealousy towards Korea and are stupid".

The websites extols NK's many military victories, among them a certain triumph over Japan which occurred in August of 1945:

Korea's liberation was due to the 20 year long armed struggle led by the great leader President Kim Il Sung,a gifted military strategist and ever victorious iron willed brilliant commander.His protean guerrilla tactics smashed Japanese imperialism.The anti Japanese armed struggle was a model for anti colonial anti imperialist struggles.

Hmm... what else happened in Japan in August 1945?

Other people (who are not North Korean) totally love North Korea and think that SonLeader is cool and smart (and not fat at all)


The authors of this site want readers to know that their country is loved and admired by people around the world (emphasis mine):


April 15th known as ’Day of the Sun’ to the Korean people mass celebrations will Take place in Pyongyang and other cities in the DPRK.These will be colourful and vibrant. Throughout the world from Lima to Tokyo meetings, seminar and events will take place.

Why is Kim Il Sung known as the sun of Korea because is is deeply respected and seen as the guiding light and inspiration.Comrade Kim Il Sung is deeply revered not only by the Korean people but the world people.You can see this clearly by visiting the International Friendship Exhibition in the scenic Myohang mountains in the north west of Korea.Here exhibited are some 36,000 gifts sent to the great Leader comrade Kim Il Sung by different people throughout the world,everyone from humble workers To state and party leaders has gifts exhibited there.You will see the train sent by Chairman Mao Zedong of Peoples China and the bullet proof car sent by Stalin as well gifts from the likes of Fidel Castro, Daniel Ortega, Col Qaddafi , Yasser Arafat and many others.Various international revolutionary leaders have praised the great leader comrade Kim Il Sung...


Celebrations from Lima to Tokyo? From Peru to Japan? Half this website is dedicated to bashing Japan's policies and rehashing the 20 year war with Japan. And what do you you have to do to get a gift from Qaddafi? And what did he send? A box full of radio static? A canteen filled with fingernails?


That's just a taste of what's up there. I implore you to go on and poke around yourself.