Curried Wealth Building
Finding an Edge

If you want help with your finances, give me a call at 703-791-3243.
January 9, 2010
Issue 78  -  Tipping Point
I was talking to a friend the other day and the discussion came around to our increasing levels of debt and spending.  He mentioned an article that showed quotes from the 1970s and how they were predicting disaster if the U.S debt reached a certain level.  The level was reached but nothing happened.  Now decades later the numbers are getting larger and larger but it doesn't seem to matter.  My friend said,  "What if it just keeps growing?"
That's an interesting question.  The answer is really simple.  It can't.  You can't build a tower to the sky and you can't build a tower of debt without end.  Nature doesn't permit it.  Eventually, it will end.  The edifice will collapse and things will suddenly change.  Instantaneously.
My chart of the week is one that clearly shows that this change may be closer than you think: (from

This chart shows the total amount of government workers versus manufacturing workers.  As a note, remember that under Bush 2, manufacturing jobs were redefined to count fast food workers.  My position is that Republicans and Democrats are the same.  They both pull this crap.  Putting a hamburger together is now a "construction" job.  You can't make this up. 

NEW YORK, Feb. 20, 2004

Building Blue-Collar … Burgers?

Bush Report: Fast Food Work A Form Of Manufacturing 

By Jarrett Murphy

(CBS)  Manufacturing jobs making things like airplane engines, cars and farm equipment are disappearing from the American economy.

Or are they? According to a White House report, new manufacturing jobs might be as close as your nearest drive-thru.

The annual Economic Report of the President has already stirred controversy by suggesting the loss of U.S. jobs overseas might be beneficial, and predicting that a whopping 2.6 million jobs will be created in the country this year.

As first reported by The New York Times, the fast food issue is taken up on page 73 of the lengthy report in a special box headlined "What is manufacturing?"

"The definition of a manufactured product," the box reads, "is not straightforward."

"When a fast-food restaurant sells a hamburger, for example, is it providing a 'service' or is it combining inputs to 'manufacture' a product?" it asks.


That being said, the above graph would probably be worse if these fast food "builders" were removed from the stats.  Government jobs are, in a macro sense, a debit on the economy.  They are jobs paid for out of the public coffers.  They are not additive to the economy.

If we were to add the jobs of the government contractors, which aren't classified as true government employees, this would be way worse.  So we have the situation where the jobs that create wealth, manufacturers, are now less than the wealth destroying jobs.  Once this is crossed, it's very difficult to reverse.  The main reason is that the government wants to add to it's employees.  In fact, Obama has stated that he wants to reduce the contractor type employees with full time government employees.  This is a very slippery slope. 

Notice that the slope of this line is nearly perfect.  This means that eventually, EVERYONE, will work for the government.  Obviously, that's impossible, and this line will turn down at some point as the producers won't be able to support the government employment roles.  The government knows that too, so why do they keep increasing their employment roles?  They have to.  Without them the tipping point would be reached much more quickly. 

The government has become a web of deceit and flim flam.  There isn't a single number or projection that comes out of our government that isn't massaged or fudged to make it look it better.  Watch this video from Chris Martenson who explains it very well: (I have talked about these things before but the visuals help explain them better)

So the government jiggers the numbers to save money and reduce benefits?  Yes.  They have every incentive in the world to do just that.  In fact, it seems that government officials have made it their job to pull stunts like this and then deny any responsibility: 

Bernanke defends Fed record

January 3, 2010: 4:49 PM ET 

NEW YORK ( -- Federal Reserve chairman Ben Bernanke said Sunday that low interest rates in the first half of the last decade were "appropriate" at the time and were not the main cause of the ensuing housing bubble.

Speaking in Atlanta to the American Economic Association, the Fed chairman was addressing a key criticism of Fed policy: That it kept rates too low for too long from 2002 to 2006, encouraging a speculative frenzy that drove home prices to unsustainable levels. The subsequent crash in home prices led to a surge in foreclosures, billions of dollars in losses for banks, and what Bernanke called the worst financial crisis in modern history.

"Monetary policy during that period -- though certainly accommodative -- does not appear to have been inappropriate, given the state of the economy and policymakers' medium-term objectives," the Fed chairman said in prepared remarks.

So let me get this straight.  Low interest rates, no let me correct that, extremely low interest rates, didn't encourage speculation?  WHAT?!?!?!  Does he think we're stupid?  How could low interest rates NOT encourage speculation?  Does he think if interest rates had been 15% for houses that there would have been just as much speculation?  Would people have been able to 5 houses at a time with high interest rates?  The government leaders now treat the public like rubes.  They lie, cheat and dissemble as a matter of course.
Now a new government proposal will take that to a new level.  How about freezing money market accounts: (from zerohedge)
......This is not surprising, as the primary purpose of money markets is to provide virtually instantaneous access to a portfolio of practically risk-free investment alternatives: a typical investor in a money market seeks minute investment risk, no volatility, and instantaneous liquidity, or redeemability. These are the three pillars upon which the entire $3.3 trillion money market industry is based.

Yet new regulations proposed by the administration, and specifically by the ever-incompetent Securities and Exchange Commission, seek to pull one of these three core pillars from the foundation of the entire money market industry, by changing the primary assumptions of the key Money Market Rule 2a-7. A key proposal in the overhaul of money market regulation suggests that money market fund managers will have the option to "suspend redemptions to allow for the orderly liquidation of fund assets." You read that right: this does not refer to the charter of procyclical, leveraged, risk-ridden, transsexual (allegedly) portfolio manager-infested hedge funds like SAC, Citadel, Glenview or even Bridgewater (which in light of ADIA's latest batch of problems, may well be wishing this was in fact the case), but the heart of heretofore assumed safest and most liquid of investment options: Money Market funds, which account for nearly 40% of all investment company assets. The next time there is a market crash, and you try to withdraw what you thought was "absolutely" safe money, a back office person will get back to you saying, "Sorry - your money is now frozen. Bank runs have become illegal." This is precisely the regulation now proposed by the administration. In essence, the entire US capital market is now a hedge fund, where even presumably the safest investment tranche can be locked out from within your control when the ubiquitous "extraordinary circumstances" arise. The second the game of constant offer-lifting ends, and money markets are exposed for the ponzi investment proxies they are, courtesy of their massive holdings of Treasury Bills, Reverse Repos, Commercial Paper, Agency Paper, CD, finance company MTNs and, of course, other money markets, and you decide to take your money out, well - sorry, you are out of luck. It's the law......At this point it is without doubt that even the government understands that when things turn sour, and they will, the run on the bank will be unavoidable: their solution - prevent money from being dispensed, when that moment comes.

So they will have the ability to freeze the current "most liquid" asset on earth?  This can't be good.  They ARE preparing for a bank run at some point and that's why I recommend always having enough cash on hand to make it through two weeks.  This type of legislation only strengthens my feelings about that outcome.
As the tipping point for our country comes closer and closer there are more and more signs.  Look at this chart from the Washington Post:
The last ten years were the first on record with no net job gains.  Ten years is a long time to go with no growth as our population during that time went from 281 million to 308 million, almost a 10% increase.  That means, in reality, we lost jobs on a net percentage basis.
One other thing to point out on the chart.  Notice the last column on the right.  This shows the change in household net worth for the decade.  This past decade was the ONLY decade with a negative net worth growth.  This is a stunning outcome.  Families have lost ground for the last ten years!  There is no getting that time back.  Buy and hold doesn't work!  Stop listening to the people who make money off of you, when you take their advice.  It's impossible for that advice to be non-selfserving.  If you want to avoid disaster when the finally collapse occurs you need to be as far from the mob as possible.  Precious metals are the one life boat that will save you and I hope you've gotten yours. 
I'll finish this week with a web site that was brought to my attention (thanks Jim) which tells you whether to abandon your house or to keep paying.   (  This is a far cry from the mid 2000s when people were minting money with homes, no?  Have a great week!   
Should I Pay Or Should I Go?
The value of my house is  $
I owe this much on my mortgage(s) $
My Equity (or Negative Equity) Is $
I could rent a comparable home for this much per month $
I pay this much mortgage and property tax per month  $
My income tax rate is (estimate 10%-35%) per month     %
My monthly extra cost of ownership is $
I plan to live in this house for this many years  years

I Should Walk Away Unless I Think My House Will Be Worth At Least $0.00 In   7   Years
This Means That My House Must Increase In Value An Average Of NaN% Per Year for   7   Years. 

You decide.  This calculator is just a tool to help.  Numerous variables are involved but the biggest is probably your assessment of the future of housing pricing.  No one can predict future prices, but the conventional wisdoms says that it is probably not realistic to believe that housing prices will increase by more than 4%-8% per year on average.

It depends on the particulars of your situation.  In many states, including California, in many circumstances the “bank” has no legal or practical recourse against homeowners who stop paying their mortgages except to take their homes through foreclosure and put derogatory entries in their credit reports. 

The more it is in your economic interest to walk away, the more the bank should be willing to make a deal with you to get you to stay and pay.  The banks will try to base modification negotiations on what you can afford as opposed to what you should afford. 

For personalized legal advice and assistance with loan modification negotiations consult a qualified lawyer.  California homeowners are invited to contact the Law Office of Peter Fredman by sending an email to


For more information about the calculator methodology and assumptions involved, please click here or send a request via email to


Copyright © all rights reserved.