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May 16, 2015

Fundamental Concepts – How to Get Rich [Weirddave]

I thought I would go a different direction this week. We've talked about all kinds of “important” stuff, but now perhaps it's time for a simple “how to” post. All of us here at AoS HQ have used this method to become richer than the dreams of avarice, and I think it's time to share the secret with the masses. My co open bloggers and the COBs disagree, but I'm trying to sneak this one by them without them noticing. Copy this post and tweet it far and wide, post it to Facebook and Myspace, tell you mother and her friends. Get this info out fast, because once the powers that be realize that I've let the cat out of the bag, this post will be deleted with extreme prejudice. Are you ready? OK, here we go, here's the foolproof method that anyone can use to get rich, rich, rich:

Go up to Joe Biden and ask him if he's got two tens for a five. Repeat until rich.

Simple, huh? Don't thank me now, send me gold plated somethings once you're rich. (Just as an aside, Joe Biden was elected to the Senate in 1973. I was 5 at the time. In the 40+ years that he has been a senator or VP, he has amassed a fortune of $600K. Seriously, $600K. That's it. Harry Reid was elected in 1987, and he now owns half of Nevada. (kidding: Net worth, $10 Million) How monumentally incompetent do you have to be to spend 40 years in the Senate and come out worth less than ¾ of a million dollars? Shit, maybe he's not stupid, maybe he's.....honest? HAHAHAHAHAHAHAHAHAHAHAHA! Sorry, forgot myself.)

All kidding aside, I want to focus on two things, interest rates and regulations. First up, the near zero interest rates that the Fed has been enforcing are not indicative of a healthy economy. In a healthy economy interest rates naturally rise. Why? Because investment money is valuable and people will compete for it. In a healthy economy, entrepreneurs can take money and turn it into profit; if I have a million dollars, Entrepreneur 1 will offer me 4% to lend it to him and Entrepreneur 2 will offer me 5% to lend it to her. They both think they can use my money to prosper, so they bid for me to lend it. This isn't happening.

The fact that it isn't happening should be a neon sign that the so called “recovery” that we're in is nothing of the sort. In fact the Fed is keeping interest rates low, primarily due to self interest: They are borrowing money at an unprecedented rate. Low interest rates are the only way that they can even believe that that's affordable (it isn't). That's all well and good, but low interest rates mean “easy money” to individuals and corporations with resources. That means that they have the ability to raise capital at what is close enough to no cost to them as to make it basically free.

Now we'll bring the second part of the puzzle into play. Regulations. We live in an age of unprecedented federal regulation (ask Alex the Chick about the delegation doctrine sometime. Don't do it around children or they will learn lots of new words). The feds burden businesses with more and more new regulations that they have to follow, so businesses work harder and harder to comply with new regulations. That means that they hire teams of lawyers and accountants and administrators just to make sure they comply with regulations. Never mind that compliance consumes more and more resources that should be used to improve the product or service that the business offers, it's a level playing field, all of the competitors have to pay for large compliance departments as well. It's a huge waste of money, but at least it's a waste that applies equally.

But now lets put those two together. Like mixing bleach and ammonia, the result is deadly. Follow me here.

Low interest rates mean that money is “free”. If not free, near enough to free that it makes no difference. Oppressive regulations mean that every company spends a considerable amount of their resources on compliance. What does that give us?

Well, say we have two companies, both of them in the business of feeding random owls. Both of them are spending 15% of their revenue just to make sure that they comply with all federal regulations. Company A gets the idea that they will buy company B because reasons. They are able to borrow the money to do so because interest rates are artificially low (easy money). Once they buy company B, they naturally seek to consolidate operations, and where as before the merger both companies had to maintain individual regulatory compliance divisions, now those functions are redundant at what had been company B. Being comfortable with their own compliance division, company A fires all of the people in company B's compliance division.

So what has happened? Well, a dozen people from company B's compliance division are now out of work, and that's a big deal in the corporate profit world. Suppose those people had salaries that totaled $3 million. Getting rid of them means company AB now has $3 million that it didn't have before. By eliminating company B's compliance division because it's redundant, company AB shows an instant profit without doing anything. It hasn't improved its product, it hasn't offered better owl catering services, it hasn't contributed at all to the economy. It's a paper profit.

Now don't get me wrong, there is a place in the business world for companies to merge, and often times there are efficiency bonuses to be had because of it. However, in this particular case, there was no reason for the takeover except to take paper profits, and this has been happening a lot lately. If you've ever wondered why the stock market is constantly going up, up, up(indicating profitable corporations), yet your day to day experience tells you that the economy ISN'T getting better, this is one big reason. Yes, many companies are profitable, but they are profitable without production, and this is one way they do it. The explosion of regulation creates not a level playing field, but one that is slanted such that only large corporations can navigate it, and make money doing so, by absorbing their smaller competitors, leaving the consumer with fewer choices. Competition is the gasoline that fuels the economy of the country, and this administration's policies work together to eliminate it, while still allowing the wealthy and connected to profit. Ever wonder just why businesses get in bed with Democrats (and Republicans, unfortunately) when it seems from a logical, ethical and free market point of view that they shouldn’t be? This is one big reason why.

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posted by Open Blogger at 11:03 AM

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