Aaron Gadberry

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Archive for the 'Political' Category

What to expect in the Housing Market

3rd October 2008 - By Aaron Gadberry

We are approaching a time of change in the United States. The $700 billion dollar bailout passed this morning and is being signed by Bush at the time of writing. For the past few days I have been considering what position this whole situation will leave me in. I’ve been trying to determine the best course of action for myself and my family, and I think I’ve found it.

First let me explain what I expect to occur and why. Predatory lending, naivety and irresponsibility on the part of the home buyer have led us to our current situation. Many people who should not have received mortgages did. Being already squeezed by their mortgage, rising oil and food prices left no way to make ends meet. In combination, a bubble on housing prices burst, leaving many actual responsible homeowners upside-down in debt, with seemingly no hope to recover.

The current result is an overreaction in the other direction. Lenders have all but stopped giving out mortgages. While requirements and qualifications will eventually become reasonable again, it will take time for an average American to be able to get a mortgage. Most importantly, no one will ever give out another sub-prime mortgage. This will reduce demand on housing drastically. With reduced demand comes reduced value. With an estimated 50-65% reduced housing demand I expect to see a 20-40% overall reduced home value. This is on top of any bubble burst experience some have already had.

At the same time there will be an inverse increased demand for rental property. Currently rent prices are just below mortgages, but that relationship will reverse. I expect to see rent prices stabilize around 150% of a standard mortgage payment.

These increased rental revenues will prop up home values, and perhaps even return them to their original position. Investors will pick up massive amounts of real estate for the sole purpose of collecting rent. I expect to see large firms build entire neighborhoods with the intention of renting out 95% of the property.

We will see a massive reduction in the percentage of home owners in the United States. Instead of paying a mortgage and trying to make ends meet while building equity, we will instead see people simply unable to afford rent. This forms a cycle of debt, leaving no way to work up the 20-40% cash soon required to put down on a house. Anyone who doesn’t already have a mortgage is in for a world of hurt.

Somebody wins here, and it can be you. Be ready to buy property when the price drops. Do your best to become a landlord. The more private landlords out there the smaller the impact will be.

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What’s that green paper in your wallet?

30th July 2008 - By Aaron Gadberry

I’ve been doing a lot of thinking about the currency of the United States. What is a dollar? If you ask an average person they will respond that a currency exists to make wealth easily transferable. Without currency you’re trying to pay at Wal-Mart with a goat. Most people stop thinking here and just assume that our currency is implemented in the best possible manor. This is what I’ve begun to question.

Looking back throughout history most people are aware that we used to have sound money. No one seems to know what that means though, and mentioning the gold standard results in virtually no intelligent conversation. Technically our country was never on the gold standard, but was on the silver standard. Here is an excerpt from the Coinage Act of 1792.

SEC. 9.

Dollars or Units—each to be of the value of a Spanish milled dollar as the same is now current, and to contain three hundred and seventy-one grains and four sixteenths parts of a grain of pure, or four hundred and sixteen grains of standard silver.

Cents—each to be of the value of one hundredth part of a dollar, and to contain eleven penny-weights of copper.

What did the currency look like after the Coinage Act of 1792? It was pretty simple actually. The requirements for currency were set forth in that act and included a standard amount of copper, silver or gold to be in each coin, certain markings on the coins, and that it had to be coined in a United States Mint. You could bring your copper (for half cents and cents), silver (for half dismes, dismes, quarter dollars, half dollars and dollars) and gold (quarter eagles, half eagles and eagles) to a United States Mint and have it coined for you. This made precious metals very easy to use in trade, because every coin had a guaranteed standard value.

At this time the value of the currency was contained within the currency itself. Yes, the value of metals fluctuate on the market, but so does everything else. It just depends on what you view as your base. It’s hard to adjust your thinking because the dollar has become so ingrained in our lives, but try making a transition to look at gold (or worth) as the base and the dollar as fluctuating.

The truth is the dollar has had 7.5% devaluing from Jan 1st, 2008 through June 30th, 2008. Thinking of the dollar as the base means that’s your default holding. Your salary, bank account, and retirement fund just took a 7.5% loss! If you were paid in oil futures instead of dollars you’re salary would have doubled over that same period of time.

The removal of a commodity backing from our currency made the currency itself an independently tradeable item on the market. No longer was it tied to the supply and demand of gold or silver or copper, but only to the demand of itself. Given that paper has little to no intrinsic worth, that’s a pretty dangerous position to hold. If the IRS stopped accepting Federal Reserve Notes then they would become worthless overnight.

The four steps of currency in our country:
1) Currency is made (literally) of our wealth
2) Currency is a note exchangeable for wealth (but easier to carry with you)
3) Currency is a note exchangeable for wealth only if you are a foreign country
4) Currency is no longer a note and not directly exchangeable for wealth

The problem with our current position, (4), is that the Fed prints money, not wealth. They bail out Bear Sterns, Fannie and Freddy by printing money. There is now more supply and therefore less demand.

Imagine yourself in a simpler time. You have a bunch of gold. Would you rather hang on to the gold or trade it for a note? Many would put it in a bank vault and take a note in return (remember the note is for your original gold, not for dollars). A note is easier to store, easier to trade, etc. Maybe the bank comes out with a currency, and instead of giving you a note for your original gold, they will buy your gold from you in exchange for some of this currency. The problem is they control the currency, and have ability to flood the market at any time. All of a sudden your gold could cost twice as much to get back. Sound like a deal?

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17th March 2008 - By Aaron Gadberry

You only retain the freedoms you defend.

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Quotes worth revisiting

15th February 2008 - By Aaron Gadberry

“When the Government Fears the People, There is Liberty; When the People Fear the Government, There is Tyranny”
– Thomas Jefferson

“Those who would give up Essential Liberty to purchase a little Temporary Safety, deserve neither Liberty nor Safety.”
– Benjamin Franklin

Since September 11th, 2001, we have attempted to purchase safety with more liberty than ever before. Our freedom is spent but the seeming threat has only grown.

“If Tyranny and Oppression come to this land, it will be in the guise of fighting a foreign enemy.”
– James Madison

People, it’s already happening. Iraq, Iran, and the lineup will continue as long as any of our rights persist.

“The means of defense against foreign danger historically have become the instruments of tyranny at home.”
– James Madison

Still think torture in Guantanamo Bay is ok? It’s only a matter of time before it’s showing here too.

“Before a standing army can rule, the people must be disarmed; as they are in almost every kingdom of Europe. The supreme power in America cannot enforce unjust laws by the sword; because the whole body of the people are armed, and constitute a force superior to any band of regular troops that can be, on any pretense, raised in the United States.”
– Noah Webster

“But a Constitution of Government once changed from Freedom, can never be restored. Liberty, once lost, is lost forever.”
– John Adams

Do you actually think they will stop the illegal wiretaps when the war ends? Think again.

“We should be unfaithful to ourselves if we should ever lose sight of the danger to our liberties if anything partial or extraneous should infect the purity of our free, fair, virtuous, and independent elections.”
– John Adams

“It is a common observation here that our cause is the cause of all mankind, and that we are fighting for their liberty in defending our own.”
– Benjamin Franklin

“And it proves, in the last place, that liberty can have nothing to fear from the judiciary alone, but would have everything to fear from its union with either of the other departments.”
– Alexander Hamilton

I am equally afraid of the Executive branch having the other’s beneath it’s thumb.

“The great leading objects of the federal government, in which revenue is concerned, are to maintain domestic peace, and provide for the common defense. In these are comprehended the regulation of commerce that is, the whole system of foreign intercourse; the support of armies and navies, and of the civil administration.”
– Alexander Hamilton

So the federal government isn’t supposed to run my life?

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