#its obviously not that simple that it was purely economic of course but to ignore this in favor of viewing it as this crazy irrational evil

[worseandworser]

Royal Silence (Xerxes AU)

RoyEd Week day 3: AU

Summary: Don’t look at the young dukes. It was the first advice given to the officers after it was confirmed that the Hohenheim family would be visiting Amestris.

According to Xerxian traditions, direct contact with unmarried members of a royal or noble family without the permission of the patriarch was a horrendous scandal. The Xerxian commoners who dared to commit such act of disrespect were bound to live in shame, jail or, depending on the type of contact, to not live at all. The Duke’s wife, Duchess Trisha Hohenheim, was an Amestrian woman, but rumors had it that she was raising perfectly Xerxian children, giving up on all of the Western habits from her homeland. So, as to not create any unnecessary disasters that could ruin the economic plans of Amestris, it became protocol to not even look at the kids and the soldiers got to the point of completely ignoring them to stay in line.

But of course, Roy Mustang’s life couldn’t be that simple.

read on ao3

Rating: M (mentions of sex)

Warnings: none

Words: 2,943

A/N: Edward is aged up a bit, let's say... Ed is 15/16 and Roy is 19/20 years old. I'll probably add more chapters to this, I just couldn't stop writing it haha. But that obviously depends on how people will react...

Don’t look at the young dukes. It was the first advice given to the officers after it was confirmed that the Hohenheim family would be visiting Amestris.

According to Xerxian traditions, direct contact with unmarried members of a royal or noble family without the permission of the patriarch was a horrendous scandal. The Xerxian commoners who dared to commit such act of disrespect were bound to live in shame, jail or, depending on the type of contact, to not live at all. The Duke’s wife, Duchess Trisha Hohenheim, was an Amestrian woman, but rumors had it that she was raising perfectly Xerxian children, giving up on all of the Western habits from her homeland. So, as to not create any unnecessary disasters that could ruin the economic plans of Amestris, it became protocol to not even look at the kids and the soldiers got to the point of completely ignoring them to stay in line.

But of course, Roy Mustang’s life couldn’t be that simple.

“Your hair is funny.”

The young major stood frozen on the doorstep of the library. He and the warrant officer Jean Havoc were appointed to care for the two boys’ nightly security, which meant they would be following them around while keeping an eye out for threats. No big deal. Except that it was.

There was a threat. A huge threat that seemingly no one saw as one. But Roy saw it—of course, he did, how couldn’t he when it was always around him—the threat dressed in beige tunics and thin leather sandals, gold bracelets covering toned arms and hair braided with small pieces of jewelry that made a sweet clink clink clink sound with each movement of the head. It showed no mercy, seeking constant attention through poking and relentless teasing.

“Can I touch it?”

The older brother.

“Oi, answer me, you jerk.”

Oh, poor Havoc...

Roy did not dare look at the scene occurring right beside him.

“Brother, stop that, you know they can’t talk to us.”

A snort and footsteps were heard.

“Yeah, whatever. C’mon, Al, there must be some books here that we haven’t read.”

Breath in, breath out.

Roy risked a glance over a pale Jean Havoc. A thin sheen of sweat covered his forehead.

Oh, fuck.

The Duke’s family was in Central purely for political reasons. Van Hohenheim was very inclined towards alliances with Amestris and seemed found of its Eastern countryside, where he met his wife. Getting to his good side was one of the top priorities of the Führer, needless to explain why: Xerxes posed as one of the most powerful countries, even without the strong militarism of its neighborhoods Amestris and Drachma. No one would dare to invade the oldest country of the continent, that survived centuries in the desert and still managed to have the most advanced scientific and artistic hubs. The Royals were so important that the Führer actually went through the trouble of reserving a whole suburban mansion exclusively for them, with dozens of rooms and a caravan of maids, cookers and guards.

Out of so many soldiers, it made the Flame Alchemist wonder why him.

During the days, the boys almost lived in the library, which made the whole job for the day guards easier. These lucky officers did not need to walk around that much, and Edward spent most of the time with his face in a book instead of being an inconsiderate brat. And there even a good part: listening to the brothers interact as if their guards weren’t even there was endearing: the older one turned soft and caring when it came to Alphonse. Apparently, the two of them were brilliant, reciting formulas and facts as if they were long-time experienced alchemists, and, as far as the sparring times they had could tell, great hand-to-hand fighters, something completely unexpected of young royals.

But when the night started, oh, that was the definition of hell. The brothers were separated, and Roy would always be dragged by Edward to his quarters and sit by the door. Every night, the young duke would open the curtains and lay wide awake in bed, bathed in silver moonlight, until an unbearable point of boredom. Then the boy wandered around the room, talking to Roy as if he could answer and complained because he didn't. The emptiness of the ambient left the man brave enough to follow the blond with his eyes, but not to speak. So Edward cursed him, his ancestors, his descendants, and sometimes even threw a pillow at him when the anger grew too much to be conveyed in words.

It was an overly warm evening when Edward decided to change his behavioral patterns. The youths parted with a hug and Jean Havoc stayed behind to accompany Alphonse. The instant they were out of sight, the boy grabbed Roy’s hand. The man flinched as if he’d been burned, staring with wide eyes at the smaller one, who made his point by tightening the grip.

“Let’s go.”

And the Flame Alchemist didn’t make a sound.

The Xerxian’s room was the size of Roy’s apartment, furnished with wooden furniture and a bed big enough for... well. In front of the pompous fireplace was a couch that seemed too comfortable for its own good, to which Roy kept giving longing looks every night he had to spend in that damn stool by the door. The whole space was disturbingly impersonal and the thought of living there repulsed the young major. Edward seemed to hold similar opinions, since he stashed all his luggage in the smallest pile possible on the ground next to the bed, not even unpacking properly.

The boy closed the door and the raven-haired man cringed at the sound of a lock being turned. He gave Roy’s hand a little tug and, when the man showed no sign of moving, rolled his eyes.

“Don’t be such a stubborn bastard, it’s not like I plan to torture you or something."

The soldier sighed and relented, letting himself be dragged in the direction of the couch. Oh, oh, the couch. The boy flopped in the cushions and propped his feet on the table – the movement too aggressive and ungracious to be considered cute but Roy thought it was anyway –, patting the spot next to him.

The man frowned and stood frozen.

“Y’know, I’m royalty and all that, but if I have to tackle you to make you sit on this damn sofa, I will.”

So Roy sat down and–

–he had to stop himself from sprawling all over it.

oh god ohgodohgod this is furniture heaven

He managed to keep a straight face.

“It must’ve been hell sitting on that stool all night, right?”

The young major did not look at him, eyes locked to the empty fireplace, but he could hear the smile.

"Now I just have to figure out a way to make you talk to me. C'mon, isn't it weird that you just follow me around and never say a word?"

Silence.

“I think it's pretty fucking creepy."

More silence. And a snort.

"God, you're so annoying." Edward's feet left the table and Roy heard a bit of fumbling. A hand came to rest on his shoulder, fidgeting the lone star patched there.

"But you have a nice face, y'know, for a bastard."

The man tensed like a string pulled tight. That was an attempt at flirting, right? It just had to be. Oh god, maybe the compliment had been a bit backhanded, but a compliment nonetheless. And then there was that insistent hand on his shoulder just adding to his thesis. Roy's mind buzzed with the pride and his heart did some weird, excited leaps and a stunning Xerxian royal said he has a nice face. His eyes drifted to Edward, only to meet the boy's smug grin.

“You do Flame Alchemy.” A statement, not a question. “But fire isn't matter, so how does it work? You can't expect me to believe that you can alchemize flames.”

Roy went back to staring straight ahead.

A loud, loud groan, almost a scream and the soft touch on his shoulder left.

“Holy fucking hell, what do I have to do for you to make a goddamn noise? Is it really going to hurt you so much to just talk to me? You'd get fired or some shit? That's just stupid, this whole thing is really fucking stupid!" The boy's fists clenched against the pillowed surface.

"I know you like me, okay? I mean, you're always giving me these looks and... I just know, okay? And it's fine, more than fucking fine even cause– yeah, I don't believe in that tradition bullshit and answering me won't instantly turn you in my fucking husband or an exiled or whatever. Fuck, you're not even from Xerxes and in a few weeks we'll go back home and you won't ever see me again..."

His tone was losing its initial sourness, crumbling into something akin to hopelessness. From the corner of his eyes, the raven-haired soldier saw the boy gesticulating, exasperated and barely giving himself time to breathe between words.

“It's just... no one talks to me anymore.” A sigh and Roy itched as whole to reach out “I mean, I have Al, my parents and some letters from Winry but that's it. Even the servants– fuck, Al and I used to talk to them every day, they were so nice and they played with us and I thought they liked us. But even with dad's permission, it's not fucking polite so they just stand there expecting us to give orders and shit and act as if everything is normal. Al is gonna marry Winry in a year or so, and he'll be outta this hell in no time, but I– fucking god, they've been tryin’ to set me up with someone but I'm such a fuck up and– and...”

A deep, shuddering breath and then–

“Forget it. Just... stay on the sofa tonight, I guess, that stool looks uncomfortable as hell."

–stood up and left.

Roy's chest tightened. How could he? How could Edward mess around with him like he always did, poking and teasing, then tear himself open like he just did and spill all over? As if it was nothing, as if it wasn't a tsunami but rather a warm wave that never got above the ankles? As if it didn't leave Roy breathless and stunned and craving for the attention–

“It's oxygen manipulation." The footsteps ceased.

A questioning uh and Roy could hear his own heart ripping his way from chest to throat in mismatched beats. Edward was back on the couch in a split of a second, his whole body turned to its other occupant, so the major adjusted to a similar position.

“But how do you–"

The words spilled out of him, and Roy hoped that he didn't sound as starved as he felt:

“My gloves are made with phosphorus added between the fibers, so when I snap my fingers the friction generates a spark. It's called ignition cloth." Edward's irises were like two gems of gold, shining curiosity and heavy with something the alchemist couldn't quite name. “Then I focus on the atoms of oxygen in the atmosphere and move them around to make wide range flames."

The boy smiled, from ear to ear and sparkling under the yellow lamps of the room.

“That's pretty fucking neat, for a bastard."

Their days carried on with the soft weight of a shared secret and the nights became sweet sleeplessness. Roy was not restlessly teased anymore and, from time to time, Edward would raise his head from a book and their eyes would lock for a millisecond. In that small moment, the world came to a halt.

Edward wore his heart on his sleeve, so full of thoughts and emotions that all it needed to spill was a little tug. His favorite food was stew and his color was red. He started alchemy on his own. He loved Alphonse and would die for him. He lost his leg in an accident and his best friend Winry made his automail. He loved Winry and would die for her. He preferred Elric, his mother's last name, over Hohenheim. He lived through the equivalent exchange law.

So Roy told him about his alchemy. About his favorite books, his beloved records. He told him he loved flowers, especially sunflowers and water lilies. He complained about a faceless girl named Gracia, who stole his best friend away. The only ones who could put up with his shit were said best friend, Maes, and Riza. He was an orphan. There'll be a riot in Ishval, he was sure of it. He was scared of it. He hated guns, corrupt politicians and being alone.

It's not you, Roy reminded himself, he just wants company.

They sat in front of the unlit fireplace, arms and legs brushing, touching, draped over each other. Sometimes, Edward snuggled up against him, neverminding the itchy cloth of the blue uniform. He dared to pet blond hair more times then he could count and Ed liked to hold hands so Roy had to take his damn gloves off. And they talked, and talked, and talked, not once missing a chance to answer each other.

It's not you, he just wants company.

Until the fateful night, the Xerxian decided to put Roy's mouth to other uses. He threw himself into the officer's lap, trapping him to the couch with his knees on each side of Roy's hips, a daring smile adorning his expression. No, no, no, I'm older than you, what if I hurt you, what if someone sees us, what if, what if–

what if this is more than I can take

It's not you, he just...

Edward – brilliant, stunning Edward – covered the other's lips with his on, and just like before, Roy relented. Ed's fingers tangled in ink-black hair, tight and pulling in a way that forced a whimper out of him. Roy's hands roamed, grasping, squeezing, touching taunt muscles and every patch of exposed skin within reach. Their tongues slid together and Edward pressed down against the body underneath his, making the man's nerves sing with pleasure and desire.

It's not you.

So they moved from the sofa to the bed.

The next morning, Roy woke up amidst a mess of limbs and soft bed covers, legs tangled and his arm pale against a tanned torso. The acknowledgment of his sin hit him like a train wreck, his mind screaming for him to get up and out, maybe if he begged he could get a transfer and leave the young duke with another soldier to mess with. In the end, it wouldn't make a difference to the blond, and the man would die before admitting that the thought left a bitter taste in his tongue.

Edward's eyelids fluttered open, slowly and dizzy, revealing impossible golden irises. Instead of bolting out of the room, Roy allowed himself to indulge in the sight of the boy beside him, yawning and stretching, back arching in a cat-like manner. Edward smiled.

“So,” he let out a small laugh “How fired are you for this?”

Roy smiled back.

“Very, very fired. Maybe even an execution is in order.”

The blond laid on his side and kissed a pale shoulder with unnatural delicacy, mumbling something unintelligible.

“What did you say?”

“I said,” his voice louder and hinting annoyance “Is it worth it, though?”

Roy stared at him, blinking in confusion.

Oh. Oh.

And Edward had the audacity to blush.

A laugh bubbled its way through the soldier’s lips, and he pulled the boy closer to him. How could he ever think of giving away this sweet duty to another officer? Edward, irritated and obviously embarrassed, struggled to get out of the embrace, but the man just tightened the grip, overwhelmed by the thumps of his own heart.

“Nonono, Ed, don’t get angry at me, I’m not making fun of you, please!”

“Not making fun my ass, let go of me!”

He placed his hand over Ed’s jaw, forcing o look back at him. Roy felt warm all over, almost as if he was being tickled on the insides. He put his best efforts to contain the giggles but failed miserably.

“I mean it, I’m not! I would never make fun of you for something like that!”

“I said let me go, you bastard!”

An elbow hit Roy on the ribs.

“Ouch! It is worth it, Ed, it’s so worth it!”

The struggling ceased and the boy stared at him warily.

“...is it?”

His voice was almost a whisper, so Roy whispered in return:

“Yes, and I won’t ever regret it.”

He kissed the tip of Ed’s nose and the boy made a disgusted face.

The small alarm on the bedside sounded, announcing that Edward should get ready to join his family for breakfast and Roy should go to the door to wait for the man who would cover the next shift. The youths took their time to detangle from each other, and when they did Ed made his escape to the bathroom. Roy put his uniform on and then went to look at himself in the wall mirror, trying to fix his tousled hair. Deeming his appearance acceptable – the white shirt was a bit wrinkled and Ed had left a small purple mark oh his neck, so he had to button his jacket all the way up – he left the room to wait for his substitute.

The corridor was empty so there was no one to judge, but Roy lowered his head to hide the smile anyway.

[ecotone99]

[HF] A Viscount's Decision

[HF] A Viscount's Decision

Part 1

It was a decision, one that had to be made.

It didn’t have to have heart and soul, like so many might say, but it was a decision that had to align with him.

The man had plenty of experience making decisions, he made them every day, in fact; which of them is guilty or innocent, which of them should be hired or fired, which of the Baron’s letters to reply to, when to hold a celebration in his own honour. His was a Viscount, after all.

[…] Whenever, his Manor was set upon to host some of those townsfolk from Twyn, the commoners he liked to call them, he only deigned to visit them for one reason. “Good morning, your grace, how do you do, your grace, we are here for your expertise, your grace.” He liked that honorific, ‘your grace’, it relayed the symphony of congratulations and gratification, apropos to his divine work. […] On occasion, he would even ask his wife to call him that – on those days he had thought he had made a mistake.

The Viscount pondered some more. The decision shouldn’t be too difficult, for it concerned his duty to the Viscount, himself and the next, and he always did right by the Viscount.

“Hmm,” he frowned, suddenly recalling a faded memory, far in the distance, sun-bleached and trapped behind a wardrobe.

It was the previous Viscount. […] That late Viscount had come often enough into the current Viscount’s room as a child, muscling in through the small door- frame with his heavy-set jaw, tailored, pressed clothes and his usual litany. He was a giant in the small room, his presence booming and proud, like he knew he was an idol.

However, in this moth-eaten memory, the norm had inflected.

“You are a viscount,” the late Viscount had said in his gravelly growl. “Do you know what that is?”

[…] He had shaken his head, because he had been young and ignorant of the ways of the world. Plus, he rarely saw the Viscount and hence rarely dared to speak to him.

“You are a name, a great person,” he had said, his silhouette dark, but his eyes flashed as a sliver of moonlight adorned the Viscount, as though he had commanded the moon to give him a spotlight.

The young viscount-to-be had smiled, awed at his powers. “Like a King?”

The older viscount had frowned then, and the shadows lengthened from his heavy brow, so that he had transformed into a figure from a nightmare, a knight of the underworld.

“A viscount does not dream, that is for the serfs. We make decisions, that is what we have been chosen for – our divine right. A viscount trains in his childhood, away from his toys, so that he can make decisions when others cannot.” He stepped forward, and the young viscount-to-be shrunk back in his silk, plush covers away from this great guardian. “Remember, never let a decision just happen or unfold. Own it, control it. We are a dream. For we make decisions.”

The young viscount-to-be had straightened up as he listened and watched the late viscount once more, eyes wide with wonder at his assisted epiphany.

“But, don’t overstep your mark, young viscount,” he said as he turned to leave. “Study hard in your philosophies, young viscount, so you know your duties to those that do not know theirs. You decide what you should be.”

Encouraged by his words and wisdom, the young viscount said bravely as the viscount turned his back to open the door again, “Isn’t it who do not, sir?” He had just had his lesson on decorum and oration that morning, after all.

The late viscount had paused and glanced around, something strange flickering in his eyes. Was that the divine power he talked about? “It was my decision to use ‘that’. Do you want me to call you ‘it’?”

Something lodged in this throat as he stared at the late viscount with those dark shadowed eyes. The present viscount shook his head, what the foolish young boy he had been.

[…] The previous viscount had been right, of course, about decisions. To control was to own, and to own was to live. Pure and simple was his philosophy. So, who better to make this decision but him?

He had a few things to consider, however, for it was not a simple process for him to provide for his family and his people. […] Philanthropy would promote his image, the Viscount thought at his grand desk, book shelves crammed full of theories of philosophy and the more practicable economics. Experience had taught him the power of adoration and respect amongst the townsfolk, and also how to tip the scales of give and take in his favour if he simply disguised taking as giving.

So what to do?

It would be one more mouth to food, but that wouldn’t break his private accounts. However the mouth would grow to require more food and clothes. There was little need for it to read, he mused. It could aid the new young viscount and his older sister, after it had been trained up a bit.

The Viscount nodded slowly. Yes, he thought. I think I will adopt it.

He rang a bell, the finest for leagues. Let’s see what the Viscountess thinks about this decision.

​

Part 2

[…] It took one look. That was all. They couldn’t take this babe. Could they ask for a new one instead?

They exchanged a look, obviously hosting the same doubt.

They had known that the babe was poorly blessed with being the colour of that which plopped in the toilet, vile really, the Viscountess thought, but it was so dark. She had seen a few of them walking around town, in Dwayn and in her hometown, but she had always avoided them. Now she would be adopting this one. It didn’t even look healthy. Perhaps it had Foreign AIDS. That was a thing, right?

The Viscount’s thoughts were more aligned with her latter thought. Where would all those plans for praise and profit be if the babe died?

The townsfolk would be talking about them for years. ‘You remember them, the Mont-garrets? They couldn’t even take care of a stray babe. One touch of their hands and it died.’

He would bring shame upon his family, his proud name.

‘Xenophobics they were, mhmm,’ he heard them say in the tavern, when topic of conversation was sparse, or perhaps even when it was not. ‘It was a good thing, the King stripped them of their titles and lands and shunned and shamed them. If that is not the sign that they were not working for the one true god, then I don’t know what is.’

No, they couldn’t let this happen.

The Viscountess smiled at the ladies, noting how they had plastered themselves to the far wall, as though it would make the dingy hut bigger. Laying a graceful arm on the viscount’s, she drew her husband closer to her side and said quietly,

“Your grace, I realise the one true god has suggested to adopt the babe, but are you positive it was this babe he was referring to? This babe seems… off colour.” She giggled, surprised at herself. “Oh, my. Do excuse my choice of words, husband. Your grace, the babe seems unable to tackle life. It is struggling to breathe. Perhaps it is a sign the babe is not … meant to be with us,” she simpered.

The babe was so small, thin and still. Its eyes were glued shut, it’s nose plugged up, it’s mouth dry as it tried to breathe. They could not have such a scandal in their hands.

The Viscount felt a surge of affection for the Viscountess like he had never felt before. He seized at the opportunity, and agreed, “Indeed, Viscountess, you are correct of course.”

He had told the town, however, and needed a game-plan to deal with the rumours that would ensue once he had returned back to the manor empty-handed. He took the two measly steps to the two women. Their eyes were wide, faces pleased and adoring. They curtsied before him again, awaiting his words that would conclude that he was taking the babe off their hands. Undoubtedly, they thought they rejoiced that they were avoiding the slander when the baby died and perhaps drown their tiny business, the Viscount realised.

“The babe is unwell,” he barked loudly and abruptly. “I was under the impression you were taking care of the babe. Yet, looking at it’s condition, it seems you are xenophobics!” he spat in their faces.

The women blanched, paling so they blended into their crisp white-washed clothes. They stuttered and spluttered, shaking their heads, eyes rolling this way and that, like cattle.

“No, my lord--”

“Your grace,” the Viscountess corrected automatically.

“Your grace. We have no such affiliation or affliction. We took in the baby to make it well,” babbled the plumper lady, her wayward mousy hair electrified in her anxiety.

“The Baron passed us the baby for he had no wet-nurses available at the castle,” the other woman added hurried. “Our child was stillborn you see, so we took in the babe, to care for it as needed.”

“The babe already had the head-cold when she was passed to us. It has had trouble feeding because of it, hence it has lost a lot of weight,” the plump woman continued hastily. “She is a sweet little thing,” she said, evidently trying to sell the child as not a broken good, so as to get it off her hands.

The Viscount retorted testily, “You expect me to believe that this child is at death’s door from no fault of your own. I should take this babe to save it from your murderous hands and send you both to the castle dungeons.” He paused, looking at their aghast expressions. They had a bigger shock to come. “Unless… of course you wish to make reparations and care for the baby as your own?”

Their eyes widened. Yes, there you go. You thought you could dupe the Viscount?

“Oh, your grace, we would be delighted to care for the child!” they whooped, eyes brimming with tears of joy, hugging each other.

“Oh, thank you, your grace, thank you!” the plump one blubbered, frothing at the mouth in joy. “We would never harm a hair on little Hekata’s head.”

The younger made to hug the Viscount, but then reconsidered as he instinctively moved away. “Yes, thank you. We promise to care for her with everything we have. Will you want her once she is well?”

The Viscount paused. His angst and outrage had been so completely replaced by confusion that he was stumped. Why would they want such a babe?

“You have already taken it upon yourselves to name her, in full knowledge that we would come to take her?” The Viscountess came to his rescue, her tone calm and collected. “That is quite an imposition.”

“Oh no!” the plump woman smiled, not at all worried at another accusation. “She named herself, the wee thing.”

​

Part 3

The air between the Viscount and the Viscountess was strange on the ride home, and the weak light battling through the drawn curtains and the plush cushions did little to set them at ease as they stared at each other.

Their five-year union was not always a happy one, nor one that didn’t often frustrate each other, despite what one might hear from all the gossip around town. Only common goals had allowed them to struggle through the hurdles until their first child, Elspeth. Since then, the Viscount began to understand the Viscountess better and the Viscountess could empathise with the Viscount a little more. To the Viscountess right now, however, it seemed that they were flowing down different streams, barely able to see each other as they were swept through foreign scenery.

Why had he agreed to keep the babe?

She glanced down at the babe swathed in the red material beside her. The babe gasped, snapping awake for a few moments and showing brilliant green eyes that contrasted terrifically with her dark skin, before she drifted back to sleep, and back to the rasping it was. Why would he risk compromising their perfect image they had strived so hard for, for this little girl-babe?

The Viscount could see the unspoken question in his wife’s eyes, however, he did not answer her.

His mind was whirring, thinking up so many possibilities that arose from his decision, disregarding plans and making new and refined ones. He could not waste this opportunity; it could change everything.

The babe appearing in the forest was divine intervention, a godsend, aimed to remind him of his own responsibility. Recently, perhaps he had slacked off, allowing himself to be governed by greed more than normal, but with this decision, he had moral support; the one true god and the philosophers that lined his shelf. Plus the economists.

The babe was clever. It could speak at barely a month, recognise individuals and had already began learning from those woman’s behaviour. If he played this correctly, giving the babe the best tutors for economics, mathematics, science and perhaps a censored philosophy. It would change our very perception, science and more. He couldn’t just leave it there with those women where such a chance might die, he would ensure it lived and then train it to become a saviour for society. […]

His mind paused its frantic excited whirring as he glanced down at it. As he watched it struggling against the cloth, eyes turned towards him, his heart was suddenly conflicted. For, suddenly, the it was on the verge of not being an it.

No, the voice of the late viscount filled his head. You are not a commoner. We make decisions, no matter the cost. Decisions do not involve the heart and soul. They must be made with the mind, not left to unfold by the universe. You are a viscount.

That ghost of the past was right. He had made sacrifices for his family back in the day, and now it was his turn, and this little babe’s. The Mont-garret’s had a knack for making the right decisions, and he had a knew this decision aligned with his philosophy. The Principle of Permissible Harm, he though, and glanced out of the window to hide his heartbreak.

The tear that the current viscount shed in the carriage that day was the last until his demise half a decade later.

[…]

​

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[themoneybuff-blog]

Is your home a better investment than the stock market?

Shares 169 Ill admit it: There are times that I think everything that needs to be said about personal finance has been said already, that all of the information is out there just waiting for people to find it. The problem is solved. Perhaps this is technically true, but now and then as this morning Im reminded that teaching people about money is a never-ending process. There arent a lot of new topics to write about, thats true (this is something that even famous professional financial journalists grouse about in private), but there are tons of new people to reach, people who have never been exposed to these ideas. And, more importantly, theres a constant stream of new misinformation polluting the pool of smart advice. (Sometimes this misinformation is well-meaning; sometimes its not.) Heres an example. This morning, I read a piece at Slate by Felix Salmon called The Millionaires Mortgage. Salmons argument is simple: Paying off your house is saving for retirement. Now, I dont necessarily disagree with this basic premise. I too believe that money you pay toward your mortgage principle is, in effect, money youve saved, just as if youd put it in the bank or invested in a mutual fund. Many financial advisers say the same thing: Money you put toward debt reduction is the same as money youve invested. (Obviously, theyre not exactly the same but theyre close enough.) So, yes, paying off your home is saving for retirement. Or, more precisely, its building your net worth. But aside from a sound basic premise, the rest of Salmons article boils down to bullshit.

Lying with Statistics Looking past the paying off your house is saving for retirement subtitle on his piece (a subtitle that was likely added by an editor, not by Salmon), we get to his actual thesis: Making mortgage payments can, in theory, be a way to accumulate wealth almost as effectively as contributing to a retirement fund. Im glad Salmon qualified this statement with in theory and almost because this is pure unadulterated bullshit. And its dangerous bullshit. Heres how this logic works: If you buy an urban house today for $315,000 (the average price) and it appreciates at 8 percent a year for the next 15 years, you will be living in a $1 million house by the time you pay off your 15-year mortgage, and you will own it free and clear. Which is to say: Youll be a millionaire. For this to be true, heres what has to happen.: Home prices in your area have to appreciate at an average of eight percent not just this year and next year, but for fifteen years.You have to take out a 15-year mortgage instead of a 30-year mortgage.You need to stay in that house (or continue to own it) for that entire fifteen years.Once youve become a millionaire homeowner, you now have to tap that equity for it to be of use. To do that, you have to sell your home, acquire a reverse mortgage, or otherwise creatively access the value locked in your home. The real problem here, of course, are the assumptions about real estate returns. Salmon spouts huckster-level nonsense: The 8 percent appreciation rate is aggressive, but not entirely unrealistic: Its lower than the 8.3 percent appreciation rate from 2011 through 2017, and also lower than the 9 percent appreciation rate from 1996 to 2007. Thats right. Salmon cites stats from 1996 to 2007, then 2011 to 2017 and completely leaves out 2008 to 2010. WTF? This as if I ran a marathon and told you that I averaged four minutes per milebut I was only counting the miles during which I was running downhill! Or I told you that Get Rich Slowly earned $5000 per monthbut I was only giving you the numbers from April. Or I logged my alcohol consumption for thirty days and told you I averaged three drinks per weekbut left out how much I drank on weekends. This isnt how statistics work! You dont get to cherry pick the data. You cant just say, Homes in some markets appreciated 9% annually from 1996 to 2007, then 8.3% annually from 2011 to 2017. Therefor, your home should increase in value an average of eight percent per year. What about the gap years? What about the period before the (very short) 22 years youre citing? What makes you think that the boom times for housing are going to continue? Long-Term Home Price Appreciation In May, I shared a brief history of U.S. homeownership. To write that article, I spent hours reading research papers and sorting through data. One key piece of that post was the info on U.S. housing prices. Let me share that info again. For 25 years, Yale economics professor Robert Shiller has tracked U.S. home prices. He monitors current prices, yes, but hes also researched historical prices. Hes gathered all of this info into a spreadsheet, which he updates regularly and makes freely available on his website. This graph of Shillers data (through January 2016) shows how housing prices have changed over time:

Shillers index is inflation-adjusted and based on sale prices of existing homes (not new construction). It uses 1890 as an arbitrary benchmark, which is assigned a value of 100. (To me, 110 looks like baseline normal. Maybe 1890 was a down year?) As you can see, home prices bounced around until the mid 1910s, at which point they dropped sharply. This decline was due largely to new mass-production techniques, which lowered the cost of building a home. (For thirty years, you could order your home from Sears!) Prices didnt recover until the conclusion of World War II and the coming of the G.I. Bill. From the 1950s until the mid-1990s, home prices hovered around 110 on the Shiller scale. For the past twenty years, the U.S. housing market has been a wild ride. We experienced an enormous bubble (and its aftermath) during the late 2000s. It looks very much like were at the front end of another bubble today. As of December 2017, home prices were at about 170 on the Shiller scale. (Personally, I believe that once interest rates begin to rise again, home prices will decline.) Heres the reality of residential real estate: Generally speaking, home values increase at roughly the same (or slightly more) than inflation. Ive noted in the past that gold provides a long-term real return of roughly 1%, meaning that it outpaces inflation by 1% over periods measured in decades. For myself, thats the figure I use for home values too. Crunching the Numbers Because Im a dedicated blogger (or dumb), I spent an hour building this chart for you folks. I took the afore-mentioned housing data from Robert Shillers spreadsheet and combined it with the inflation-adjusted closing value of the Dow Jones Industrial Average for each year since 1921. (I got the stock-market data here.) If youd like, you can click the graph to see a larger version.

Let me explain what youre seeing. First, I normalized everything to 1921. That means I set home values in 1921 to 100 and I set the closing Dow Jones Industrial Average to 100. From there, everything moves as normal relative to those values.Second, Im not sure why but Excel stacked the graphs. (Im not spreadsheet savvy enough to fix this.) They should both start at 100 in 1921, but instead the stock market graph starts at 200. This doesnt really make much of a difference to my point, but it bugs me. There are a few places 1932, 1947 where the line for home values should actually overtake the line for the stock market, but you cant tell that with the stacked graph. As the chart shows, the stock market has vastly outperformed the housing market over the long term. Theres no contest. The blue housing portion of my chart is equivalent to the line in Shillers chart (from 1921 on, obviously). Now, having said that, there are some things that I can see in my spreadsheet numbers that dont show up in this graph. Because Felix Salmon at Slate is using a 15-year window for his argument, I calculated 15-year changes for both home prices and stock prices. Ill admit that the results surprised me. Generally speaking, the stock market does provide better returns than homeownership. However, in 30 of the 82 fifteen-year periods since 1921, housing provided better returns. (And in 14 of 67 thirty-year periods, housing was the winner.) I didnt expect that. In each of these cases, housing outperformed stocks after a market crash. During any 15-year period starting in 1926 and ending in 1939 (except 1932), for instance, housing was the better bet. Same with 1958 to 1973. In other words, if you were to buy only when the market is declining, housing is probably the best bet if youre making a lump-sum investment and not contributing right along. Another thing the numbers show is that youre much less likely to suffer long-term declines with housing than with the stock market. Sure, there are occasional periods where home prices will drop over fifteen or thirty years, but generally homes gradually grow in value over time. The bottom line? I think its perfectly fair to call your home an investment, but its more like a store of value than a way to grow your wealth. And its nothing like investing in the U.S. stock market. For more on this subject, see Michael Bluejays excellent articles: Long-term real estate appreciation in the U.S. and Buying a home is an investment. Final Thoughts Honestly, I probably would have ignored Salmons article if it werent for the attacks he makes on saving for retirement. Take a look at this: If youre the kind of person who can max out your 401(k) every year for 30 or 40 years straight disciplined, frugal, and apparently immune to misfortune then, well, congratulations on your great good luck, and I hope youre at least a little bit embarrassed at how much of a tax break youre getting compared to people who need government support much more than you do. Holy cats! Salmon has just equated the discipline and frugality that readers like you exhibit with good luck, and simultaneously argued that you should be embarrassed for preparing for your future. He wants you to feel guilty because youre being proactive to prepare for retirement. Instead of doing that, he wants you to buy into his bullshit millionaires mortgage plan. This crosses the line from marginal advice to outright stupidity. Theres an ongoing discussion in the Early Retirement community about whether or not you should include home equity when calculating how much youve saved for retirement. There are those who argue absolutely not, you should never consider home equity. (A few of these folks dont even include home equity when computing their net worth, but that fundamentally misses the point of what net worth is.) I come down on the other side. I think its fine good, even to include home equity when making retirement calculations. But when you do, you need to be aware that the money you have in your home is only accessible if you sell or use the home as collateral on a loan. Regardless, Ive never heard anyone in the community argue that you ought to use your home as your primary source of retirement saving instead of investing in mutual funds and/or rental rental properties. You know why? Because its a bad idea! Shares 169 https://www.getrichslowly.org/home-investment/

[clubofinfo]

Expert: It appears that the Western public, both relatively ‘educated’ and thoroughly ignorant, could, after some persuasion, agree on certain very basic facts – for instance that Russia has historically been a victim of countless European aggressions, or that countries like Venezuela, Cuba, Iran or North Korea (DPRK) have never in modern history crossed the borders of foreign nations in order to attack, plunder or to overthrow governments. OK, certainly, it would take some ‘persuasion’, but at least in specific circles of the otherwise hopelessly indoctrinated Western society, certain limited dialogue is still occasionally possible. China is different. There is no ‘mercy’ for China in the West. By many standards, the greatest and one of the oldest cultures on Earth, has been systematically smeared, insulted, ridiculed and arrogantly judged by the opinion-makers, propagandists, ‘academia’ and mainstream press with seats in London, New York, Paris and many other places which the West itself calls the centers of ‘erudition’ and ‘freedom of information’. Anti-Chinese messages are sometimes overt, but mostly thinly veiled. They are almost always racist and based on ignorance. And the horrifying reality is: they work! They work for many reasons. One of them is that while the North Asians in general, and the Chinese people in particular, have been learning with zeal all about the rest of the world, the West is thoroughly ignorant about almost everything Asian and Chinese. I personally conducted a series of simple but revealing ‘experiments’ in China, Korea and Japan, as well as in several countries of the West: while almost every North Asian child can easily identify at least a few basic ‘icons’ of Western culture, including Shakespeare and Mozart, most of the European university professors with PhDs could not name one single Korean film director, Chinese classical music composer, or a Japanese poet. Westerners know nothing about Asia! Not 50% of them, now even 90%, but most likely somewhere in the area of 99.9%. And it goes without saying, that Korea is producing some of the best art films in the world, while China and Japan are renowned for their exquisite classical art, as well as modern masterpieces. In the West, the same ignorance extends to Chinese philosophy, its political system and history. In both Europe and North America, there is absolute darkness, withering ignorance, regarding the Chinese vision of the world. In Paris or Berlin, China is being judged exclusively by Western logic, by Western ‘analysts’, with unsurpassable arrogance. Racism is the only fundamental explanation, although there are many other, secondary reasons for this state of affairs. Western racism, which used to humiliate, attack and ruin China for centuries, has gradually changed its tactics and strategies. From the openly and colorfully insulting and vulgar, it has steadily evolved into something much more ‘refined’ but consistently manipulative. The spiteful nature of the Western lexicon of superiority has not disappeared. In the past, the West used to depict Chinese people as dirty animals. Gradually, it began depicting the Chinese Revolution as animalistic, as well as the entire Chinese system, throwing into the battle against the PRC and the Communist Party of China, such concepts and slogans as “human rights”. We are not talking about human rights that could and should be applicable and respected in all parts of the world (like the right to life) protection for all the people of the Planet. That’s because it is clear that the most blatant violators of such rights have been, for many centuries, the Western countries. If all humans were to be respected as equal beings, all countries of the West would have to be tried and indicted, then occupied and harshly punished for countless genocides and holocausts committed in the past and present. The charges would be clear: barbarity, theft, torture as well as the slaughter of hundreds of millions of people in Africa, the Middle East, what is now called Latin America, and, of course, almost everywhere in Asia. Some of the most heinous crimes of the West were committed against China and its people. The ‘human rights’ concept, which the West is constantly using against China is ‘targeted’. Most of the accusations and ‘facts’ have been taken out of the context of what has been occurring on the global scale (now and in the history). Exclusively, Eurocentric views and ‘analyses’ have been applied. Chinese philosophy and logic have been fully ignored; never taken seriously. No one in the West asks the Chinese people what they really want (only the so-called ‘dissidents’ are allowed to speak through the mass media to the Western public). Such an approach is not supposed to defend or to help anybody; instead it is degrading, designed to cause maximum damage to the most populous country on Earth, to its unique system, and increasingly, to its important global standing. It is obvious that the Western academia and mass media are funded by hundreds of millions and billions of dollars to censor the mainstream Chinese voices, and to promote dark anticommunist and anti-PRC nihilism. I know one Irish academic based in North Asia, who used to teach in China. He told me, with pride, that he used to provoke Chinese students: “Do you know that Mao was a pedophile?” And he ridiculed those who challenged him and found his discourses distasteful. But such an approach is quite acceptable for the Western academia based in Asia. Reverse the tables and imagine a Chinese academic who comes to London to teach Chinese language and culture, beginning his classes by asking the students whether they know that Churchill used to have sex with animals? What would happen? Would he get fired right away or at the end of the day? ***** The West has no shame, and it is time for the entire world to understand this simple fact. In the past, I have often compared this situation to some medieval village, attacked and plundered by brigands (The West). Food stores were ransacked, houses burned, women raped and children forced into slavery, then subjected to thorough brainwashing. Any resistance was crushed, brutally. People were told to spy on each other, to expose “terrorists” and “dangerous elements” in society, in order to protect the occupation regime. Only two “economic systems” were allowed – feudalism and capitalism. If the villagers elected a mayor who was ready to defend their interests, the brigands would murder him, unceremoniously. Murder or overthrow him, so there would always be a status quo. But there had to be some notion of justice, right? Once in a while, the council of the brigands would catch a thief who had stolen few cucumbers or tomatoes. And they would then brag that they protect the people and the village. While everything had already been burned to ashes by them Given the history and present of China, given the horrid and genocidal nature of the Western past, ancient and modern, given the fact that China is by all definitions, the most peaceful large nation on Earth, how can anybody in the West even pronounce the words like ‘human rights’, let alone criticize China, Russia, Cuba or any other country that it put on its hit-list? Of course, China, Russia or Cuba are not “perfect countries” (there are no perfect countries on Earth, and there never will be), but should a thief and mass murderer be allowed to judge anybody? Obviously yes! It is happening, constantly. The West is unapologetic. It is because it is ignorant, thoroughly uninformed about its own past and present deeds, or conditioned to be uninformed. It is also because the West is truly a fundamentalist society, unable to analyze and to compare. It cannot see anymore. What is being offered by its politicians and replicated by the servile academia and mass media, is totally twisted. Almost the entire world is in the same condition as the village that I just described. But it is China (and also Russia, Cuba, Venezuela, Syria, Iran, and other nations) that is being portrayed as villains and tormentors of the people. Black becomes white. War is peace. Slavery is freedom. A mass rapist is a peacemaker and a cop. ***** Once again: The West hates China. Let us be totally honest. China has to understand it, and act accordingly. Sooner rather than later. As we have already determined, the hatred towards China is irrational, illogical, purely racist; mainly based to the superiority complex of Western “thinkers”. But also, it is based on the subconscious fear of the Westerners that Chinese culture and its socialist system (with all its ‘imperfections’) are greatly superior to the culture of terror and thuggery spread throughout our Planet by both Europeans and then North Americans. Several years ago, I was interviewed by various Chinese media outlets, including the legendary People’s Daily, China Radio International and CCTV (now CGTN). They all wanted to know why, despite all those great efforts of China to befriend the world, there is so much Sino phobia in Western countries. I had to face the same question, again and again: “What else could we do? We tried everything… What else?” Because of its tremendous hereditary optimism, the Chinese nation could not grasp one simple but essential fact: the more China does for the world, the less aggressively it behaves, the more it will be hated and demonized in the West. It is precisely because China is, unlike the West, trying to improve the lives of the entire planet Earth, that it will never be left in peace, it will never be prized, admired or learned from in such places like London, Paris or New York. I replied to those who were interviewing me: “They hate you, therefore you are doing something right!” My answer, perhaps, sounded too cynical to the Chinese people. However, I wasn’t trying to be cynical. I was just trying to answer, honestly, a question about the psyche of Western culture, which has already murdered hundreds of millions of human beings, worldwide. It was, after all, the greatest European psychologist of all time, Carl Gustav Jung, who diagnosed Western culture as “pathology”. But Who Really Hates China and How Much? But let’s get numbers: who hates China and how much? Mainly, the Westerners – Europeans and North Americans. And Japan, which actually murdered tens of millions of Chinese people, plus China’s main regional rival, Vietnam. Only 13% of the Japanese see China favorably, according to a Pew Research Center Poll conducted in 2017. 83% of the Japanese, a country which is the main ally of the West in Asia, see China “unfavorably”. In Italy which is hysterically anti-Chinese and scandalously racist at that, the ratio is 31% favorably, 59% unfavorably. Shocking? Of course, it is. But Germany does not fare much better, with 34% – 53%. The United States – 44% – 47%. France 44% – 52%. Entire half of Spanish nation sees China unfavorably – 43% – 43%. Now something really shocking: the “rest of the world”. The numbers are totally the opposite! South Africa: 45% see China favorably, 32% unfavorably. Argentina 41% – 26%. Even the Philippines which is being pushed constantly by the West into confrontation with China: 55% favorably – 40% unfavorably. Indonesia that perpetrated several anti-Chinese pogroms and even banned the Chinese language after the US-sponsored coup in 1965: 55% favorably – 36% unfavorably. Mexico 43% – 23%. Bolivarian Republic of Venezuela: 52% – 29%. Chile 51% – 28%. Then it gets even more interesting: Lebanon: 63% – 33%. Kenya: 54% – 21%. Brazil 52% – 25%. Tunisia 63% – 22%. Russia: 70% – 24%. Tanzania 63% – 15%. Senegal 64% – 10%. And the most populous country in Sub Saharan Africa, Nigeria – 72% – 13%. The 2017 BBC World Service poll, Views of China’s influence by country, gives even more shocking results: At the two extremes, in Spain, only 15% see China’s influence as positive, while 68% see it as negative. In Nigeria, 83% as positive and only 9% as negative. Now, think for a while what these numbers really say. Who is really benefiting from China’s growing importance on the world scene? Of course – the wretched of the Earth; the majority of our Planet! Who are those who are trying to stop China from helping the colonized and oppressed people? The old and new colonialist powers! China is predominantly hated by Western imperialist countries (and by their client states, like Japan and South Korea), while it is loved by the Africans), most Asians and Latin Americans, as well as Russians. Tell an African what is being said to the Europeans – about the negative or even “neo-imperialist”, influence of China on the African continent – and he or she will die laughing. Just before submitting this essay, I received a comment from Kenya, from my comrade Booker Ngesa Omole, National Organizing Secretary, SDP-Kenya (Socialist): The relationship of China and Kenya particularly and Africa generally has not only led to tremendous development both in infrastructure but also a genuine cultural exchange among the Chinese and African people, it has also made African people understand the Chinese people firsthand, away from the daily half-truths and lies generated against China and the Chinese people and transmitted en masse globally through the lie factories like CNN. It’s has also shown that there is a different way to relate to the so called development partners and the international capital, the Chinese have developed a policy of non-interference in the internal affairs of a sovereign country as opposed to USA and Western Countries through IMF and World Bank who have imposed destructive policies on the continent that has led to the suffering and death of many African people, like that infamous Structural Adjustment Plan, that was a killer plan, after its implementation Kenyans unemployment skyrocketed, our country also became bankrupt . Another comparison is the speed at which the projects are done, in the past we had a gruesome bureaucratic expensive process, which could take several years before any work could start on the ground. This has changed with the coming in of Chinese capital, we see the projects are being effected just in time, we see very high quality work contrary to what the western media want to portray that everything from China and Russia are fake before arrival. ***** The Chinese system (Communism or socialism with Chinese characteristics), is in its essence truly internationalist. As Chairman Mao Tse Tung wrote in his “Patriotism and Internationalism”: Can a Communist, who is an internationalist, at the same time be a patriot? We hold that he not only can be but also must be… The victory of China and defeat of the invading imperialists will help the people of other countries… Chairman Mao wrote this during the China’s liberation struggle against Japanese invaders. However, not much has really changed since then. China is definitely willing and capable of putting much of the world devastated by Western imperialism, back onto its feet. It is big enough to do it, it is strong enough, it is determined and full of optimism. The West produces, directly manufactures, crises and confrontations, like the one that took place in Beijing’s Tiananmen Square in 1989, or the one that never really managed to ‘take off’ (mainly due to the disgust of the majority of the local people with the selfish and pro-Western protesters) in Hong Kong, in 2014. However, those Western implants and proxies are all that most Europeans and North Americans know about China (PRC): ‘Human Rights’, Falun Gong, Tibet, Dalai Lama, ‘Northwest of the Country’ (here, they don’t remember, or cannot pronounce the names, but they were told in the mainstream Western media that China is doing ‘something sinister’ there, so that’s what they are repeating), Tiananmen Square, Ai Wei-Wei and few other disconnected barks, ‘events’, and names. This is how this colossus with thousands of years of history, culture and philosophy, is perceived, judged, and how it is (mis-) understood. The entire situation would be laughable, if it were not so tragic, so thoroughly appalling and dangerous. It is becoming clear who really hates China: it is not the “world”, and it is not those countries on all the continents that have been brutalized and enslaved by the Western imperialists. There, China is loved. Those who hate China are the nations which are not ready to let go of their de facto colonies. The nations who are used to a good, too good and too easy life at the expense of others. To them, historically egalitarian and now for many decades socialist/Communist (with Chinese characteristics) China poses a truly great threat. Threat – not to their survival or peaceful existence, but threat to their looting and raping of the world. China’s internationalist attitude towards the world, its egalitarianism and humanism, its emphasis on hard work and the tremendous optimism of its people, may soon, very soon, break the horrid inertia and the lethargy injected by Europe and the United States into the veins of all raped, plundered and humiliated nations. China Has Already Suffered Enough! In his ground-breaking book “China Is Communist, Damn It!” a prominent China expert, Jeff Brown (who is presently based in Shenzhen) writes about the dehumanizing treatment, which the Chinese people had been receiving from Westerners, for centuries: …untold numbers in the 19th century… were pressganged and kidnapped, to be sent to the New World to work as coolie slaves. The racism conducted on these Chinese coolies was instructive. On the ocean voyage from China to Vancouver, Canada, they were tightly packed and kept in dark, poorly ventilated holds for the three-week trip, so they would not have any contact with the Whites traveling aboveboard. No sunlight, no fresh air. The crew on the ships routinely talked about these Chinese allies in terms of “livestock” and they were handled and treated as such. Actually, they were treated worse than cattle, pigs, sheep and horses, as there are laws that require animals get so much open air and exercise per day, while in transit… This kind of inhumane treatment of Chinese citizens is dispassionately captured in the diaries of a British officer, charged with overseeing them, ‘As children, we were taught that Cain and Coolies were murderers from the beginning; no Coolie was to be trusted; he was a yellow dog… The task of stowing away Coolies is a tiresome one. In orders, it is alluded to as “embarkation”. By those experienced in the job, it is known more as “packing”. The Coolies are not passengers capable of finding each his cabin. The Coolies are so much cargo, livestock, which has to be packed away. While experiences are ceaselessly pressing upon him, his attitude towards existence is the attitude of a domesticated animal.’ British 2nd Lieutenant Daryl Klein, from his memoir, “With the Chinks”, spoken like a true Western imperial racist. Of course, chinks is the worst slur word to be used against the Chinese. It’s the equivalent of yellow nigger. The term Coolie is not any better. It’s like calling someone from Latin America a wetback. At least Lt. Klein was honest in his total dehumanization of the Dreaded Other. There are countless examples of discrimination against, and humiliation of, the Chinese people by the Western colonialists, on the territory of China. The Chinese were literally butchered and enslaved in their own territory, by the Westerners and the Japanese. However, there were also despicable crimes committed against Chinese people on the territory of the United States, including lynching, and other types of killing. Hard working, many Chinese men were brought as slave laborers to the United States and to Europe, where they were often treated worse than animals. For no other reason but for just being Chinese. No apologies or compensation were ever offered for such acts of barbarity; not even decades and centuries later. Until now, there is a silence surrounding the topic, although one has to wonder whether it is really simple ‘silence’ that grows from ignorance, or whether it is something much more sinister; perhaps defiance and conscious or subconscious refusal to condemn the fruits of Western culture, which are imperialism, racism and consequently – fascism. Gwen Sharp, PhD, wrote on June 20, 2014 for Sociological Images in his essay ‘Old “Yellow-Peril” Anti-Chinese Propaganda’: Chinese men were stereotyped as degenerate heroin addicts whose presence encouraged prostitution, gambling, and other immoral activities.  A number of cities on the West Coast experienced riots in which Whites attacked Asians and destroyed Chinese sections of town. Riots in Seattle in 1886 resulted in practically the entire Chinese population being rounded up and forcibly sent to San Francisco. Similar situations in other towns encouraged Chinese workers scattered throughout the West to relocate, leading to the growth of Chinatowns in a few larger cities on the West Coast. Throughout history, China and its people have suffered at the hands of Westerners, both Europeans and North Americans alike. According to several academic and other sources, including a publication “History And Headlines” (History: October 9, 1740: Chinezenmoord, The Batavia Massacre): On October 9, 1740, Dutch colonial overlords on the Island of Java (now a main island in Indonesia) in the port city of Batavia (now Jakarta, capital of Indonesia) went on a mad killing spree of ethnic cleansing and murdered about 10,000 ethnic Chinese. The Dutch word, “Chinezenmoord,” literally means “Chinese Murder. Anti-Chinese massacres were also repeatedly committed by the Spanish occupiers of the Philippines, and there were countless other cases of anti-Chinese ethnic cleansing and massacres committed by the European colonialist administrations, in various parts of the world. The ransacking of Beijing’s Summer Palace by French and British forces was one of the most atrocious crimes committed by Westerners on the territory of China. An outraged French novelist, Victor Hugo, then wrote: We call ourselves civilized and them barbarians. Here is what Civilization has done to Barbarity. ***** The West cannot treat Chinese people this way, anymore, but if it could get away with it, it definitely still would. The superiority complex in both Europe and North America is powerful and unapologetic. There is real great danger that if unchecked and unopposed, it may soon terminate all life on our Planet. The final holocaust would be accompanied by self-righteous speeches, unrestrained arrogance, gasping ignorance of the state of the world, and generally no regrets. Chinese people cannot be beaten on the streets of Europe or North America, anymore; they cannot be, at least theoretically, insulted directly in the face just for being Chinese (although that is still happening). But there are many different ways to hurt and deeply injure a human being or the country. My close friend, a brilliant Chinese concert pianist, Yuan Sheng, once told me, right after he left a well-paid teaching position in New York, and moved permanently back to Beijing: In the United States, I used to cry late into the night, almost every night… I felt so helpless. Things they were saying about my country… And it was impossible to convince them that they were totally wrong! Several years later, at the “First World Cultural Forum” held in Beijing, an Egyptian-French fellow thinker Amin Said argued that we are all victims of capitalism. I strongly disagreed, and confronted him there, in Beijing, and later in Moscow where we spoke, again, side by side. Western bigotry, brutality and imperialism are much older than capitalism. I believe that the things are precisely the opposite: Western violent culture is the core of the savage capitalism. Recently, while addressing students and teachers at one of old alternative and officially progressive schools in Scandinavia, I finally understood the scope of the creeping anti-Chinese sentiments in Europe. During my presentation about the global conflicts being fueled by the United States and Europe, the audience was silent and attentive. I spoke at a huge hall, addressing some 2 – 3 hundred people, most of them future educators. There was some sort of standing ovation. Then questions. Then discussion over coffee. There, precisely then, things got very wrong. A girl came and with an angelic smiled uttered: “Sorry, I know nothing about China…. But what about the Northwest of the country?” The northwest of China is a few times bigger than Scandinavia. Could she be more specific? No, she couldn’t: “You know, the human rights… Minorities…” An Italian girl approached me, saying she is studying philosophy. The same line of questions: “I don’t know much about China, but…” Then her questions got aggressive: “What do you mean when you talk about ‘China’s humanism?’” She was not asking, she was attacking. I snapped at her: “You don’t want to listen, you simply want to hear yourself repeating what they brainwashed you with.” One of the organizers of the conference hated my interaction with her spoiled, rude, self-centered and uneducated brats. I could not care less. I told her directly to her face. “Then why did you accept the invitation to be a keynote speaker?” she asked. I answered, honestly: “To study the Europeans, anthropologically. To face your racism and ignorance.” Next day, the same. I showed my shocking documentary film Rwanda Gambit about how the West created the totally false Rwanda narrative, and how it triggered real genocide, that in the Democratic Republic of Congo (DRC). But all that the audience wanted to discuss was China! One said: “I saw a Chinese government company building two sports stadiums in Zambia. Isn’t it strange?” Really? Strange? The Chinese health system is mainly based on prevention and it is successful. Building stadiums is a crime? Another one recalled that in West Africa, “China was planting cashew nuts.” That was supposed to match centuries of horrors of Western colonialism, the mass murder and slavery of hundreds of millions of Africans at the hands of the Brits, French, Germans, Belgians and others. At the airport, leaving back for Asia, I wanted to throw up and simultaneously, to shout from joy. I was going home, leaving this brainwashed continent – this intellectual bordello behind. The West was beyond salvation. It will not stop or repent. It can only be stopped, and it has to be stopped. ***** Jeff Brown in his book China Is Communist, Damn It! pointed out one essential difference between the Chinese and Western mindset: China and the West could not be more different. Western civilization is founded on Greek philosophy, culture, politics and economy. Ancient Greece was composed of hundreds of relatively small, independent city-states, which on a daily basis, were comparatively isolated from each other. They were separated by water or mountain ranges, ensconced in bays and valleys. Each city-state’s population could usually be counted in the thousands, not millions. There were a number of different dialects, with varying degrees of mutual comprehension, from familiar to total misunderstanding. Contact with each other was based on commerce and trade, grounding Western economy in the precepts of capitalism. The notion of personal agency in the West is founded in this economic system, where farmers, landowners, merchants and craftsmen were able to work and make business decisions individually, between themselves. Each city-state had its own independent government and over the centuries, there were phases of monarchy, oligarchy, tyranny and democracy. Local wars were frequent, to settle disagreements. These battles happened steadily, as ancient Greece’s agricultural production was not abundant, due to poor soils and limited tillable land. When food became scarce with droughts, agricultural trade could be interrupted, due to shortages, thus stoking the need for war, to reclaim the lost purchases of food. Ancient and modern China could not be more radically different. Life, the economy and development all revolved around a large central government, headed by the emperor. Instead of being based on trade and commerce, China’s economy has always been founded on agricultural production and the harvests were and still are largely sold to the state. Why? Because the government is expected to maintain the Heavenly Mandate, which means making sure that all of the citizens have enough to eat. Therefore, farmers always knew that the grain they grew could very easily end up in another part of China, because of distant droughts. This whole idea of central planning extended to flood control. Communities in one area of China would be tasked to build dams or canals, not to help reduce flood risk for themselves, but for other citizens far away, downstream, all for the collective good. The idea of independent city-states is anathema in China, as it always signaled a breakdown in the central power’s cohesion and governance, from border to border, leading to warlordism, strife and hunger. Chinese socialist (or call it Communist) system has clearly roots in China’s ancient history. It is based on sharing and cooperation, on solidarity and harmony. It is a much more suitable system for humanity, than what the West spread by force to all corners of the world. When the West succeeds in something, it feels that it has “won”. It drives the banner pole into the earth, gets some fermented drink to celebrate, and feels superior, unique. China thinks differently: “if our neighbors are doing well and are at peace, then China will prosper too, and will enjoy peace. We can trade, we can visit each other, exchange ideas.” In the ancient days Chinese ships used to visit Africa, what is now Somalia and Kenya. The ships were huge. In those days, Europe had nothing so enormous at its disposal. Chinese ships were armed against the pirates, but they mainly travelled with scribes, scholars, doctors and researchers. When they reached the African shore, they made contacts with the locals. They studied each other, exchanged gifts (some Chinese pottery and ceramics are still being found near the island of Lamu). There was not much common ground between those two cultures, at that time. The Chinese scribes recorded: “This is not yet right time for permanent contact”. They left gifts on the shore, and sailed home. Nobody died. Nobody was “converted”. No one was raped. African land still belonged to Africans. African people were free to do what they chose. A century or two later, the Westerners arrived… ***** I know China, but even better, I know the world in which China operates. The more I see, the more I am impressed – I actually want China to be everywhere, and as soon as possible! I have worked in all the tiny and large nations of Oceania (Polynesia, Melanesia and Micronesia), except in Niue and Nauru. There, the West divided this gorgeous and once proud part of the world, created bizarre borders, literally forced people to eat shit (dumping animal food in local stores), burdened them with foreign loans and introduced a culture of dependency and destruction (nuclear experiments, and military bases). Due to global warming, RMI, Kiribati and Tuwalu began “sinking” (in reality, the water is rising). China came, with real internationalist determination. It began doing everything right – planting mangroves, building sport facilities for people in countries where over half of the population has to often live with diabetes. It constructed government buildings, hospitals, schools. The response of the West? They encouraged Taiwan to come, bribe the local governments and to make them recognize Taipei as the capital of an independent country, forcing China to break diplomatic relationships. In Africa, I saw Chinese people building roads, railroads, even city trams, schools, hospitals, fighting malaria. This continent was only plundered by the West. Europeans and North Americans built nothing there. China did, and still does, miracles. Out of solidarity, out of internationalist principles so clearly defined decades ago by Chairman Mao. And I don’t really care what the Western propagandists and ideologues think about the Chinese Communist Party, about Mao and about President Xi Jinping. I see results! I see China, huge, compassionate and confident, rising, and with its close allies like Russia, ready to defend the world. China saved Cuba. The Western “left-wing” intellectuals said nothing about it. I did. I was attacked. Then, Fidel personally confirmed that I was correct. China helped Venezuela and it helped Syria. Not for profit, but because it was its internationalist duty. Saw China in action in East Timor, (Timor Leste), a tiny poor country that the West sacrificed, delivering it on a silver platter to the murderous Indonesian dictator Suharto and his military cronies. 30% of the people were brutally massacred. After independence, Australia began robbing the weak new government of the natural gas in a disputed area. China came in, built the energy sector and an excellent modern hospital (public), staffed with top Chinese surgeons (while Cuba sent field doctors). Afghanistan? After 16 years of monstrous NATO occupation, this once proud and progressive (before the West manufactured terrorist movements there, to fight socialism) country is one of the poorest on Earth. The West built walls, barbed wire fences, military bases and total misery. China? China built a huge modern hospital wing, actually the only decent and functioning public medical facility in the country. These are just some of many examples that I have been witnessing during my work, all over the world. When I lived in Africa (I was based in Nairobi for several years), across the floor was a flat housing four Chinese engineers. While the Westerners in Africa are almost always secretive, snobbish and arrogant, this group of Chinese builders was loud, enthusiastic and always in a great mood. They power-walked downstairs, in the garden, they ate, joked together. They looked like a good old “socialist realism” poster. They were clearly on a mission. They were building, trying to save the continent. And it was so clear how confident they were. They were building, and I was making documentary films about what the West did to Africa, including my above-mentioned Rwanda Gambit. It was clear where I stood. It was clear where the Chinese engineers stood. We stood with the people of Africa. Firmly. No matter what the Western propaganda, academia and mass media keep inventing, that is where we stood, and that is where we are standing right now, although geographically far apart. Once comrades, always comrades. And if we fall, that is how we fall – with no regrets, building a much better world. And the people of Africa, of Oceania, Latin America and increasingly of Asia, are beginning to realize, to understand. They are learning what The Belt and Road Initiative (BRI) is. They are learning about “Ecological Civilization“. They are slowly learning that not everyone is the same; that each country has a different culture and goals. They are learning that not everything in life is a lie or for profit. Yes, of course, resources are not unlimited and expenses have to be sometimes covered, but there is much more to life than just cold calculations. The West and its client states cannot understand this. Or they can, but do not want to. As a moral entity, they are finished. They can only fight for their own interests, as their workers in Paris are only fighting for their own benefits; definitely not for the world. The West tries to smear everything that is pure and it repeats that “everyone in this world is essentially the same” (a thief). Their (mainly Western, but also South Korean, Taiwanese, Hong Kong and Japanese) academia is deeply involved. It has already infiltrated the entire world, particularly Asia, including China itself. It teaches young Chinese people that their country is actually not what they think it is! At some point, Chinese students were travelling to the West, in order to study… about China! North American and European universities are spreading funding and trying to manipulate the best Chinese minds. In other parts of Asia, again through funding and scholarships, the local academics “get matched” with the anti-Communist and pro-Western counterparts that operate at the universities inside the PRC. This problem has been, fortunately, identified in the PRC, and the shameless attacks against the Chinese education system are being dealt with. Mass media and bookstores are not far behind. Anti-Chinese propaganda is everywhere. Anti-Communist propaganda is everywhere. Yet, China is rising. It is rising despite racism, the lies, and fake news. Socialist, internationalist China is slowly but confidently marching forward, without confronting anyone, without making too much noise about the unfair, aggressive treatment it receives in the West and from countries like Japan. It appears that its leadership has nerves of steel. Or perhaps those long thousands of years of great culture are simply allowed to speak for themselves. When a great Dragon flies, you can bark, shout insults, even shoot at it. It is too big, too ancient, too wise and determined: it will not stop, turn back or fall from the sky. And when the people on Earth have enough time to observe it in its full glory and in full flight, they may, just finally may understand that the creature is not only mighty, but also tremendously beautiful and kind. ***** • Originally published by New Eastern Outlook (NEO) http://clubof.info/

[foursproutwealth-blog]

Kentucky Teachers Want A Taxpayer Bailout

New Post has been published on http://foursprout.com/wealth/kentucky-teachers-want-a-taxpayer-bailout/

Kentucky Teachers Want A Taxpayer Bailout

Authored by Troy Vincent via The Mises Institute,

The Kentucky state workers’ pension system is by some measures the worst funded pension in the entire country with an estimated $70 billion dollars of unfunded liabilities. A recent audit of the pension system found that the plan has had $6.9 billion in negative cash flows since 2005.

At $40 billion, Kentucky teachers make up the largest portion of this unfunded liability. But even in the face of impending insolvency, many teachers in Kentucky are still protesting the slightest changes and cuts to their compensation that have been proposed in an effort to prevent catastrophe.

A minor reform bill recently signed into law that Governor Bevin admits “doesn’t come close” to solving the pension crises, and in no way changes current worker or past retiree’s pension or healthcare benefits, has been met with hysteria.

Many teachers and the Kentucky Education Association (KEA), the teacher’s union, are demanding the state raise revenue instead of cutting costs. The grand plan by the KEA and their lobby of teachers opposing pension reform is to take more money from those that are already responsible for paying teacher incomes – the Kentucky taxpayer. Instead of making concessions in an effort to fix their own underlying problem, they want a bailout. Not only would such a bailout set a very dangerous precedent, but for reasons I will explore below, it would be economically disastrous for Kentucky’s economy and private sector.

To put the $70 billion of unfunded pension liabilities in perspective, Standard & Poor’s has ranked Kentucky’s public pension as the worst-funded of any state in the US, with just 37.4 percent of the money it needs to pay obligations to retirees. Moody’s has ranked Kentucky as having the third-highest pension debt when measured against a state’s capacity to pay it off. With just over $10 Billion in total annual tax revenue for Kentucky’s General Fund, every state run institution and service in Kentucky would need to close for nearly 7 years just to fund past pension liabilities.

But despite this fact, the KEA and supporting teachers still insist that the state can somehow tax its way to solvency.

How Did We Get Here? The Moral Hazard of an “Inviolable Contract”

Over the past 30 years, and particularly in periods of unsustainable stock market booms, politicians from across the country sweetened government employee compensation packages by making ill-conceived promises. These promises, largely in the form of defined benefit pensions and health insurance, relied on market investments performing at levels that were wholly unrealistic. Kentucky was one such state, requiring a consistent near 8% rate of return annually to stay solvent. The problem was not, as the KEA and its supporters would have you believe, politicians using the money nefariously. In fact, the official audit of the pension plan stated that 23 percent of the growth in unfunded liabilities was due to the market underperforming the assumed rate of return. An additional 47 percent of the shortfall was found to be a result of making unrealistic actuarial assumptions and negative amortization caused by making inaccurate forecasts for state payroll growth. In layman’s terms, the financial assumptions made when projecting the plan’s ability to pay out were simply out of touch with reality.

In recent weeks Kentucky teachers have been calling in sick to hold protest rallies at the state capital, effectively striking, while entire school districts are forced to shut down. They condemn any cuts to their retirement benefits as a “broken promise.” Not only should the state honor their promise they say, but they must given that these benefits are part of an “inviolable contract.” So what is this magic “inviolable contract” that guarantees future payment despite having no money to pay out? Essentially, this “contract” is nothing more than a state decree supposedly guaranteeing public worker benefits no matter the financial circumstance. Which is, of course, an astoundingly ignorant economic proposition. As the saying goes, you cannot draw blood from a turnip.

With this problem growing for well over a decade, why then are teachers, the KEA, and politicians just now confronting the problem? The answer is quite simple: economic moral hazard. Neither the politician nor the teachers have any skin in the game. The creation of an “inviolable contract” which puts future taxpayers on the hook for promises made by past politicians is practically the textbook definition of an economic moral hazard. An “inviolable contract” with the state is a promise by politicians that government will extort whatever amount of income necessary from those in the private sector to make government workers whole. In this arrangement there is no incentive for teachers to keep an eye on the health of their own retirement. Why would a pensioner care to keep up with and address the problems as they have unfolded over the past decade if they are guaranteed government protection from the fallout? Obviously they would not and they did not. It was not until Governor Bevin was elected and began speaking honestly about the necessary budget cuts that teachers were impelled to action.

Beyond the simple fact that they are often years removed from political office before their grand plans turn into grand catastrophes, economics also explains why politicians make such unrealistic promises. The lesson is one of concentrated benefits and disperse costs. That is to say, a promise to teachers and state workers to sweeten their terms of employment is sure to gain the support of a large state worker voting pool. Meanwhile, the taxpayer which is busy trying to make a living in their respective field, has little time to assess and weigh in on such matters. In fact, up and to a point, the cost of engaging in this political process is more costly to the taxpayer than just forking over their additional portion in tax money to the lobby.

The Underpaid Kentucky Public Teacher Myth

More recently, teachers have begun not only protesting any changes to their retirement benefits, but also bringing attention to their claim that they are not paid fairly. Economically speaking, one could never actually know what the fair market value is for an employment arrangement that is forced upon the ‘buyer’ of the service, as is the case with public education. This claim also shows the KEA and supporting teacher’s unwillingness or inability to assess the value of their total compensation. After all, retirement benefits, hours worked, vacation days and salary must all be considered when honestly discussing compensation.

Based on Fidelity Financial’s retirement planning tool, an individual that works 27 years before retirement (the threshold for Kentucky teachers), earning an average $50,000 per year over the period, and that contributes to their retirement at the rate of Kentucky teachers (just over 9%) could only hope to have a yearly payout of just over $10,600 in retirement. When you compare this to the average Kentucky teacher pension distribution in retirement of $36,000 per year, it is clear that teachers are contributing very little to their own retirements and are compensated extremely well by taxpayers. If a teacher retires at age 55 and lives until age 85, this puts the taxpayers of Kentucky on the hook for $762,000 per teacher in retirement alone. This claim of “unfair pay” is especially suspect given that teachers in private schools average significantly lower incomes in terms of both salary and total compensation.

That said, Kentucky teachers do not do themselves any favor by bringing attention to even the salary portions of their compensation. Public teachers in the state, when adjusted for cost of living, are the seventh best paid public teachers of any state in the US with an average salary of over $52,000 per year. When you consider that Kentucky teachers work a total of 185 days, or just half the year, the figure is even more impressive. Put in terms of hourly compensation, Kentucky teachers earn roughly double that of the average worker in the state. This salary is even more staggering when put in perspective of the taxpayers of Kentucky’s ability to pay: Kentucky ranks 47th in the country for worker incomes, with a median income of $43,000 per year. This enormous disparity is undoubtedly unknown by the majority of Kentucky voters and taxpayers that succumb to the teacher’s emotional appeals of being shortchanged.

Moving Forward

Kentucky is currently ranked 33’rd of all states in the Tax Foundation’s Business Tax Climate Index, while neighboring Indiana is ranked 9th and Tennessee is ranked 14th. The only adjoining state to have a less attractive tax policy is Ohio. The KEA, teachers, and politicians coming to their defense are proposing to make the state even less competitive with our neighbors by advising to increase tax revenues instead of cutting costs. Not only would such a policy only serve to cover over the fundamental problem of making financial promises in retirement that are out of line with economic reality, but this sort of policy prescription puts the health of the entire state economy at risk. Individuals and businesses respond to higher taxes – they buy less, move here less, expand less, and hire fewer people. This is the underlying reason why simply raising tax rates does not always create more tax revenue, as people and companies move to more tax friendly states and avoid taxable activities. For those that think this is economic hyperbole or purely theory, just look to our neighbors in Illinois. The recent fallout from such policy folly has ultimately led to an exodus from the state.

If Kentucky is to prevent economic catastrophe and keep checks flowing to current retirees it can only be done by dramatically slashing spending and transitioning new and current teachers to a more private-sector-like compensation plan. Working for state government cannot both be more profitable than working in the private sector while also coming with zero risk of losing your job, having your pay cut or benefits renegotiated. Suggesting otherwise not only makes a mockery of the often referred to “public servant” but suggests that a young college graduate would be foolish to entertain work in the private sector that comes with far fewer benefits and far greater risks. The KEA and teachers unwilling to see cuts to their benefits are ultimately setting the stage for a long drawn out economic failure similar to that seen in Illinois, where individuals and businesses leave the state creating an ever smaller need for teachers and ever smaller pool of tax revenue. It is imperative to remember that the success of the private sector precedes the ability to have any employment in the public sector at all.

[foursprout-blog]

Kentucky Teachers Want A Taxpayer Bailout

New Post has been published on http://foursprout.com/wealth/kentucky-teachers-want-a-taxpayer-bailout/

Kentucky Teachers Want A Taxpayer Bailout

Authored by Troy Vincent via The Mises Institute,

The Kentucky state workers’ pension system is by some measures the worst funded pension in the entire country with an estimated $70 billion dollars of unfunded liabilities. A recent audit of the pension system found that the plan has had $6.9 billion in negative cash flows since 2005.

At $40 billion, Kentucky teachers make up the largest portion of this unfunded liability. But even in the face of impending insolvency, many teachers in Kentucky are still protesting the slightest changes and cuts to their compensation that have been proposed in an effort to prevent catastrophe.

A minor reform bill recently signed into law that Governor Bevin admits “doesn’t come close” to solving the pension crises, and in no way changes current worker or past retiree’s pension or healthcare benefits, has been met with hysteria.

Many teachers and the Kentucky Education Association (KEA), the teacher’s union, are demanding the state raise revenue instead of cutting costs. The grand plan by the KEA and their lobby of teachers opposing pension reform is to take more money from those that are already responsible for paying teacher incomes – the Kentucky taxpayer. Instead of making concessions in an effort to fix their own underlying problem, they want a bailout. Not only would such a bailout set a very dangerous precedent, but for reasons I will explore below, it would be economically disastrous for Kentucky’s economy and private sector.

To put the $70 billion of unfunded pension liabilities in perspective, Standard & Poor’s has ranked Kentucky’s public pension as the worst-funded of any state in the US, with just 37.4 percent of the money it needs to pay obligations to retirees. Moody’s has ranked Kentucky as having the third-highest pension debt when measured against a state’s capacity to pay it off. With just over $10 Billion in total annual tax revenue for Kentucky’s General Fund, every state run institution and service in Kentucky would need to close for nearly 7 years just to fund past pension liabilities.

But despite this fact, the KEA and supporting teachers still insist that the state can somehow tax its way to solvency.

How Did We Get Here? The Moral Hazard of an “Inviolable Contract”

Over the past 30 years, and particularly in periods of unsustainable stock market booms, politicians from across the country sweetened government employee compensation packages by making ill-conceived promises. These promises, largely in the form of defined benefit pensions and health insurance, relied on market investments performing at levels that were wholly unrealistic. Kentucky was one such state, requiring a consistent near 8% rate of return annually to stay solvent. The problem was not, as the KEA and its supporters would have you believe, politicians using the money nefariously. In fact, the official audit of the pension plan stated that 23 percent of the growth in unfunded liabilities was due to the market underperforming the assumed rate of return. An additional 47 percent of the shortfall was found to be a result of making unrealistic actuarial assumptions and negative amortization caused by making inaccurate forecasts for state payroll growth. In layman’s terms, the financial assumptions made when projecting the plan’s ability to pay out were simply out of touch with reality.

In recent weeks Kentucky teachers have been calling in sick to hold protest rallies at the state capital, effectively striking, while entire school districts are forced to shut down. They condemn any cuts to their retirement benefits as a “broken promise.” Not only should the state honor their promise they say, but they must given that these benefits are part of an “inviolable contract.” So what is this magic “inviolable contract” that guarantees future payment despite having no money to pay out? Essentially, this “contract” is nothing more than a state decree supposedly guaranteeing public worker benefits no matter the financial circumstance. Which is, of course, an astoundingly ignorant economic proposition. As the saying goes, you cannot draw blood from a turnip.

With this problem growing for well over a decade, why then are teachers, the KEA, and politicians just now confronting the problem? The answer is quite simple: economic moral hazard. Neither the politician nor the teachers have any skin in the game. The creation of an “inviolable contract” which puts future taxpayers on the hook for promises made by past politicians is practically the textbook definition of an economic moral hazard. An “inviolable contract” with the state is a promise by politicians that government will extort whatever amount of income necessary from those in the private sector to make government workers whole. In this arrangement there is no incentive for teachers to keep an eye on the health of their own retirement. Why would a pensioner care to keep up with and address the problems as they have unfolded over the past decade if they are guaranteed government protection from the fallout? Obviously they would not and they did not. It was not until Governor Bevin was elected and began speaking honestly about the necessary budget cuts that teachers were impelled to action.

Beyond the simple fact that they are often years removed from political office before their grand plans turn into grand catastrophes, economics also explains why politicians make such unrealistic promises. The lesson is one of concentrated benefits and disperse costs. That is to say, a promise to teachers and state workers to sweeten their terms of employment is sure to gain the support of a large state worker voting pool. Meanwhile, the taxpayer which is busy trying to make a living in their respective field, has little time to assess and weigh in on such matters. In fact, up and to a point, the cost of engaging in this political process is more costly to the taxpayer than just forking over their additional portion in tax money to the lobby.

The Underpaid Kentucky Public Teacher Myth

More recently, teachers have begun not only protesting any changes to their retirement benefits, but also bringing attention to their claim that they are not paid fairly. Economically speaking, one could never actually know what the fair market value is for an employment arrangement that is forced upon the ‘buyer’ of the service, as is the case with public education. This claim also shows the KEA and supporting teacher’s unwillingness or inability to assess the value of their total compensation. After all, retirement benefits, hours worked, vacation days and salary must all be considered when honestly discussing compensation.

Based on Fidelity Financial’s retirement planning tool, an individual that works 27 years before retirement (the threshold for Kentucky teachers), earning an average $50,000 per year over the period, and that contributes to their retirement at the rate of Kentucky teachers (just over 9%) could only hope to have a yearly payout of just over $10,600 in retirement. When you compare this to the average Kentucky teacher pension distribution in retirement of $36,000 per year, it is clear that teachers are contributing very little to their own retirements and are compensated extremely well by taxpayers. If a teacher retires at age 55 and lives until age 85, this puts the taxpayers of Kentucky on the hook for $762,000 per teacher in retirement alone. This claim of “unfair pay” is especially suspect given that teachers in private schools average significantly lower incomes in terms of both salary and total compensation.

That said, Kentucky teachers do not do themselves any favor by bringing attention to even the salary portions of their compensation. Public teachers in the state, when adjusted for cost of living, are the seventh best paid public teachers of any state in the US with an average salary of over $52,000 per year. When you consider that Kentucky teachers work a total of 185 days, or just half the year, the figure is even more impressive. Put in terms of hourly compensation, Kentucky teachers earn roughly double that of the average worker in the state. This salary is even more staggering when put in perspective of the taxpayers of Kentucky’s ability to pay: Kentucky ranks 47th in the country for worker incomes, with a median income of $43,000 per year. This enormous disparity is undoubtedly unknown by the majority of Kentucky voters and taxpayers that succumb to the teacher’s emotional appeals of being shortchanged.

Moving Forward

Kentucky is currently ranked 33’rd of all states in the Tax Foundation’s Business Tax Climate Index, while neighboring Indiana is ranked 9th and Tennessee is ranked 14th. The only adjoining state to have a less attractive tax policy is Ohio. The KEA, teachers, and politicians coming to their defense are proposing to make the state even less competitive with our neighbors by advising to increase tax revenues instead of cutting costs. Not only would such a policy only serve to cover over the fundamental problem of making financial promises in retirement that are out of line with economic reality, but this sort of policy prescription puts the health of the entire state economy at risk. Individuals and businesses respond to higher taxes – they buy less, move here less, expand less, and hire fewer people. This is the underlying reason why simply raising tax rates does not always create more tax revenue, as people and companies move to more tax friendly states and avoid taxable activities. For those that think this is economic hyperbole or purely theory, just look to our neighbors in Illinois. The recent fallout from such policy folly has ultimately led to an exodus from the state.

If Kentucky is to prevent economic catastrophe and keep checks flowing to current retirees it can only be done by dramatically slashing spending and transitioning new and current teachers to a more private-sector-like compensation plan. Working for state government cannot both be more profitable than working in the private sector while also coming with zero risk of losing your job, having your pay cut or benefits renegotiated. Suggesting otherwise not only makes a mockery of the often referred to “public servant” but suggests that a young college graduate would be foolish to entertain work in the private sector that comes with far fewer benefits and far greater risks. The KEA and teachers unwilling to see cuts to their benefits are ultimately setting the stage for a long drawn out economic failure similar to that seen in Illinois, where individuals and businesses leave the state creating an ever smaller need for teachers and ever smaller pool of tax revenue. It is imperative to remember that the success of the private sector precedes the ability to have any employment in the public sector at all.

[greggory--lee]

Understanding Bitcoin’s Scaling Debate: Politics Comes First

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Jim Harper is vice president of the Competitive Enterprise Institute, where he works to adapt law and policy to the information age. A former counsel to committees in both the US House and the US Senate, he served as Global Policy Counsel for the Bitcoin Foundation in 2014.

In this opinion piece, Harper lays out how politics controls many of the decisions being made in the bitcoin scaling debate, offering a solution for those involved. 

Software programmers are usually collegial and collaborative, but parts of the bitcoin developer community are currently displaying the kind of acrimony familiar to political capitols like Washington, D.C.

Understanding the nature of the scaling debate then might help the bitcoin community better iterate on the protocol and software in the future. But, what’s behind the strife when amendments to bitcoin’s rules – or stasis – become so controversial? What unrecognized dimensions of the debate allowed it to become so divisive and debased?

One is collective resistance to the fact that decisions about bitcoin’s direction are political decisions, which technical decisions must follow. Priorities vary, but the bitcoin community’s aims include global financial inclusion and economic development, human liberty and dignity, privacy and a truly stable money supply.

By debating only in terms of technology, the leading advocates for different paths have failed to articulate any unifying human vision for bitcoin’s future. That’s a recipe for alienating intellectual war.

The news isn’t all bad: The scaling debate will be concluded using market forces. Bitcoin escapes politics as practiced in coercive government.

It just doesn’t escape politics all the way.

Group choices are political

The bitcoin protocol and software is technical, obviously, in that they involve the application of technology to interesting challenges. How to configure bitcoin is political, though, because it involves choices made by groups.

Choosing in groups is no simple thing. The first step in group decision-making is to constitute a group. People are usually better off when they work together under a common set of rules. Bitcoin’s protocol is a clear example. But what commits them to any group?

Social contract theory is the leading explanation in modern Western philosophy for life under governments. Nobody ever actually signs that contract, so it’s a little dissatisfying.

Bitcoin’s version of the social contract is “consensus.” That commonly used word contains the idea that using the bitcoin protocol reflects agreement with its terms. But this isn’t necessarily the case. Treating use as agreement is probably insulting to dissenters from the status quo – just like “social contract” dissatisfies many U.S. citizens obligated to pay taxes for unending war.

Confusingly, “consensus” is also used to denote synchronization of blockchain data among bitcoin nodes.

However they feel about it, bitcoin users have joined a group, and they have choices to make together.

Open-source despotism?

Once a group is constituted, “it may appear that the chiefs, leaders or shamans of the group exert coercive force on members.” Those are the words of public choice economists Michael and Kevin Munger in their book Choosing in Groups.

Happily, there is no literal coercion in bitcoin-land, but it harkens to the observation of Konrad Graf that the maximum block size, a “production ceiling” on transactions, is economically equivalent to a government intervention. Dissenters from the status quo feel the familiar strains of tyranny, which they thought bitcoin would help everyone escape.

That is nonsensical and shocking to the Core side, who see themselves as following standard open-source development processes. Their conservative approach, including maintenance of the 1MB limit on bitcoin blocks, safeguards a $40 billion asset, securing it against the predations of real governments.

To them, the most satisfying explanations for opposition to their approach range from simple ignorance to profit-hungry short-termism on the part of bitcoin companies.

Open source in the commercial layer

The software development mode exemplified by Internet Engineering Task Force (IETF) standard-setting processes is an attractive and successful model of cooperation. But bitcoin development may diverge from the theory about open source that the IETF helped spawn.

Open-source development does not automatically digest and balance community values, enshrining them in code. In the dominant bitcoin implementation, a small number of people have commit access, and they have disproportionate power to determine what goes into the code base. These humans, intending only the best, are subject to the influence of their own premises, their social circle and a simple incapacity to capture and prioritize all the interests that would be served by a global public utility such as bitcoin.

The user side of the equation also fails the theory, stated well by economist Vili Lehdonvirta: “Bitcoin is purely ‘math-based money,’ and all the developers are doing is purely apolitical plumbing work.”

Developers have relatively greater power many bitcoin users do not have the technical capacity to reconfigure their own code or to choose wisely from among competing implementations.

Bitcoin developers have had far fewer meetings than the IETF did at a similar stage. The reservoir of goodwill was already low before the scaling debate drained it.

And bitcoin development may also be materially different from other standards-setting efforts. We may be seeing for the first time what happens when open-source software development hits the commercial layer.

Technical communications standards are essentially neutral as to the content or meaning they will convey. Bitcoin standards define and shape markets.

One illustration of the power of the protocol is the rise in transaction fees, which for the time being has cut off use cases such as payments and savings for people in poorer parts of the world. That is no technical engineering decision. It delays crucial economic development that otherwise would sustain and bring joy to potentially millions or even billions of people.

Needed: visionary leadership

That vision – of bitcoin at its best, having its most tremendous consequences – has been notably absent from the scaling debate. If at all, the sides represent their animating goals ambiguously as “payments” on the one hand or “digital gold” on the other.

Among many of its social capital deficits, bitcoin lacks visionary leadership.

The outcomes sought by the bitcoin community are widely agreed upon, but they are typically left unspoken.

A development team that articulates a view of bitcoin’s horizons in human terms could unify the community. Then, given more study of the economics of bitcoin’s systems, technical decisions could follow. Such decisions could be made with wide understanding that the trade-offs involved are faithful to the bitcoin community’s widely agreed-upon goals. At present that is left unclear.

Network effects

Network effects, of course, are the shackles that keep many dissenters chained to bitcoin, and (they feel) under the yoke of Core. The current threat of chain splits may produce a real-world test of how many bitcoin versions can exist.

Experience with ethereum and ethereum classic suggest that multiple chains can co-exist. And, for three reasons, network effects don’t dictate disaster from chain splits:

It is easy to transfer among cryptocurrencies, for instance via Shapeshift.io. This means there can be a viable digital gold, a viable payments crypto and many others.

At a global scale, there are enough users to maintain several currencies. A global niche market may still be a big market.

It is a relatively small technical iteration to make all wallets, exchanges, payments gateways, etc. accept all major cryptocurrencies. The relevant “network” may not be any one cryptocurrency, but all of them.

The bitcoin community has a lot to learn about itself and what it is doing in the scaling debate.

The debate’s tenor – those angry words and base insinuations – are commonplace in political capitols like Washington, D.C. But at the end of the day in those places, vicious political opponents can also get together to cooperate on matters of agreement.

Whatever the outcome, bitcoin users should expect that kind of professionalism and maturity from all participants in the scaling debate.

Political gridlock image via Shutterstock

Source: Coindesk

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Source link

Source: http://bitcoinswiz.com/understanding-bitcoins-scaling-debate-politics-comes-first/

[takebackthedream]

Democrats Can’t Be Distracted By Trump’s Russian Circus by Robert Borosage

  Hillary Clinton’s presidential campaign sensibly concluded that Donald Trump was so obviously unfit for office that he could not be elected. He was shockingly unprepared, corrupted, juvenile, poisonous, and often simply repugnant.

  Clinton chose to make Trump the issue. Her closing ads defined the choice: between a “steady hand” and a “loose cannon,” “common sense and unity” or “drama and division,” someone with “deep understanding” or someone “unprepared,” someone who spent a life fighting for “mothers and children” or someone who spent it “helping himself”

The argument was surely true, but not sufficient. It focused the campaign on personal character—not a Clinton strong suit. It left voters without a clear sense of what Clinton was for, other than more of the same. It isolated Trump from the right-wing congressional Republicans and their tired and failed agenda.

Clinton won the argument and the popular vote. Polls showed voters rated her far better than Trump came to temperament, judgment and experience.

Trump closed with ads about the corrupted establishment that had failed working people, promising to “drain the swamp,” and mixing his toxic politics of division with pledge to bring jobs back, end ruinous trade policies, and rebuild America.

“[It] used to be cars were made in Flint and you couldn’t drink the water in Mexico. Now cars are made in Mexico and you can’t drink the damn water in Flint,” he said. Trump became the candidate of change when a good portion of Americans was ready to shake things up.

In the madcap first month of the Trump presidency, he’s issued continuous fusillades of stunts, rants, weaponized tweets, lies, transparent corruptions and secreted curiosities that drive the news. The embarrassing incompetence and mismanagement prove once more he isn’t up to the job. And the scandals naturally rile up the Democratic base.

Most titillating, of course, are the shadowy Russian connections. Russian interference in the US election is outrageous, if true. The reported exchanges between Russian officials and Trump associates before the election certainly create suspicion. Trump’s bizarre unwillingness to criticize Putin feeds it. The possibility of collusion before the election has Democrats thinking Watergate, and possibly impeachment.

The possibility is too salacious to ignore and lends itself to perfervid rhetoric. “The Russian noose is tightening around Trump,” said progressive Robert Reich.

“Its Time to Investigate Trump’s Kremlin Klan,” wrote Representative Maxine Waters in a dear colleague letter. The Americans for Tax Fairness Action Fund has collected 450,000 signatures demanding the Congress force the release of Trump’s tax returns to investigate for Russian connections. Rep. Jerry Nadler has filed a resolution for an impeachment proceeding. Another group seeks funds to support effigies of Trump as “Putin’s puppet.”

Obviously, Russian interference in the election merits investigation. Prior collusion would constitute possible grounds for impeachment. Secret financial dealings or perverse stunts in Russia that could compromise the president need to be exposed.

Yet as a purely political strategy, is this the failed Clinton approach all over again? Once more the subject – Trump’s connections with the Russians – focuses on his personal shortcomings and dealings. Once more it separates Trump from his Goldman Sachs economic team or the Republican Congress that is salivating at the prospect of pushing through its predatory agenda.

And while Democrats are talking about the Russians and the last election, Trump is on message, in his own, circus-barker fashion. In his inaugural address, first press conference, first 2020 presidential campaign rally, and first address to Congress, he focused on jobs and fighting for America’s working people.

He boasted about torpedoing the TPP and changing our trade policy, bullying companies to bring jobs back or keep them here, promising a major infrastructure plan, pumping up the military budget, going after Muslims and immigrants, pledging to replace Obamacare with better and cheaper insurance.

Using the press – the enemy of the American people –as his foil, he claims his chaotic administration is in fact a “fine tuned machine” and that he’s working to keep his promises.

Bottom of Form

His patter, of course, is the come-on of the big con. Beneath the promise that Republicans are now “the party of working people” is a Goldman Sachs economic team intent on deregulating Wall Street, reopening the financial casino and rolling back consumer and investor protections.

The cabinet of generals, billionaires and ideologues is gearing up to roll back environmental protections, subsidize big oil, and King Coal, lard up the already bloated military, privatize everything in sight, cut taxes on the rich and corporations, and slash public support for the most vulnerable.

Democrats must expose this, indicting Trump and his Republican congressional accomplices. Trump’s cabinet appointees provided the first target, and Democrats and their mobilized base did decent work in exposing the nominees to more scrutiny and more opposition than normal. Trump���s budget provides the second opportunity, even though budgets are a blur for most Americans.

Amid Trump’s constant distractions, Democrats have to keep redirecting the spotlight onto the Goldman Sachs raid on the economy, starting with the effort to deep-six the simple rule that investment advisors shouldn’t cheat their customers when advising on retirement accounts, the so-called fiduciary rule.

There’s also Trump’s assault on workers – the opposition to hiking the minimum wage, the campaign to break unions, the coming repeal of reporting on CEO pay, and more.

And Democrats have to find a way – as Bernie Sanders and Elizabeth Warren have demonstrated – to constantly show people there is an alternative. Trump’s agenda should be contrasted not with the past, but with the possibility of Medicare for all, expanded Social Security benefits, tuition-free college, progressive taxation, a real plan to rebuild America, and a commitment to a Green New Deal that will generate jobs in capturing this century’s energy markets.

None of this will be easy. Obama and the Democratic establishment want to contrast Trump’s chaos with Obama’s accomplishments, but that is a loser’s play. Efforts by Democrats to offer clear alternatives – like the Senate Democratic infrastructure plan that Senate Minority Leader Chuck Schumer rolled out – find it hard to gain attention amid the Trump clamor.

Trump will continue sowing division that people of conscience must mobilize to resist. His law-and-order rhetoric will unleash police and spark popular reaction. His assaults on Muslims and immigrants can’t go unanswered. His attack on the press, while popular, must be opposed.

Democrats have to lead, not simply follow, their activist base as they mobilize in response to attacks on women, people of color, the LGBT community and more.

At the same time, Democrats need to keep the spotlight on Trump’s fraudulent sales pitch to working people that he’s their champion while he’s actually pushing the agenda of the one percent.

The alleged Russian interference in our elections demands independent investigation. But Democrats must avoid fixating on that. They can’t allow Trump to be strutting about the jobs he’s saved while Democrats are railing about Russians and the last election.

Schumer recently called an emergency meeting on how to address the Russian scandals. He would be well advised to call regular meetings on how to expose Trump’s flim-flam while demonstrating to Americans who is really on their side.

Cross-posted from The Nation

[themoneybuff-blog]

Is your home a better investment than the stock market?

Shares 169 Ill admit it: There are times that I think everything that needs to be said about personal finance has been said already, that all of the information is out there just waiting for people to find it. The problem is solved. Perhaps this is technically true, but now and then as this morning Im reminded that teaching people about money is a never-ending process. There arent a lot of new topics to write about, thats true (this is something that even famous professional financial journalists grouse about in private), but there are tons of new people to reach, people who have never been exposed to these ideas. And, more importantly, theres a constant stream of new misinformation polluting the pool of smart advice. (Sometimes this misinformation is well-meaning; sometimes its not.) Heres an example. This morning, I read a piece at Slate by Felix Salmon called The Millionaires Mortgage. Salmons argument is simple: Paying off your house is saving for retirement. Now, I dont necessarily disagree with this basic premise. I too believe that money you pay toward your mortgage principle is, in effect, money youve saved, just as if youd put it in the bank or invested in a mutual fund. Many financial advisers say the same thing: Money you put toward debt reduction is the same as money youve invested. (Obviously, theyre not exactly the same but theyre close enough.) So, yes, paying off your home is saving for retirement. Or, more precisely, its building your net worth. But aside from a sound basic premise, the rest of Salmons article boils down to bullshit.

Lying with Statistics Looking past the paying off your house is saving for retirement subtitle on his piece (a subtitle that was likely added by an editor, not by Salmon), we get to his actual thesis: Making mortgage payments can, in theory, be a way to accumulate wealth almost as effectively as contributing to a retirement fund. Im glad Salmon qualified this statement with in theory and almost because this is pure unadulterated bullshit. And its dangerous bullshit. Heres how this logic works: If you buy an urban house today for $315,000 (the average price) and it appreciates at 8 percent a year for the next 15 years, you will be living in a $1 million house by the time you pay off your 15-year mortgage, and you will own it free and clear. Which is to say: Youll be a millionaire. For this to be true, heres what has to happen.: Home prices in your area have to appreciate at an average of eight percent not just this year and next year, but for fifteen years.You have to take out a 15-year mortgage instead of a 30-year mortgage.You need to stay in that house (or continue to own it) for that entire fifteen years.Once youve become a millionaire homeowner, you now have to tap that equity for it to be of use. To do that, you have to sell your home, acquire a reverse mortgage, or otherwise creatively access the value locked in your home. The real problem here, of course, are the assumptions about real estate returns. Salmon spouts huckster-level nonsense: The 8 percent appreciation rate is aggressive, but not entirely unrealistic: Its lower than the 8.3 percent appreciation rate from 2011 through 2017, and also lower than the 9 percent appreciation rate from 1996 to 2007. Thats right. Salmon cites stats from 1996 to 2007, then 2011 to 2017 and completely leaves out 2008 to 2010. WTF? This as if I ran a marathon and told you that I averaged four minutes per milebut I was only counting the miles during which I was running downhill! Or I told you that Get Rich Slowly earned $5000 per monthbut I was only giving you the numbers from April. Or I logged my alcohol consumption for thirty days and told you I averaged three drinks per weekbut left out how much I drank on weekends. This isnt how statistics work! You dont get to cherry pick the data. You cant just say, Homes in some markets appreciated 9% annually from 1996 to 2007, then 8.3% annually from 2011 to 2017. Therefor, your home should increase in value an average of eight percent per year. What about the gap years? What about the period before the (very short) 22 years youre citing? What makes you think that the boom times for housing are going to continue? Long-Term Home Price Appreciation In May, I shared a brief history of U.S. homeownership. To write that article, I spent hours reading research papers and sorting through data. One key piece of that post was the info on U.S. housing prices. Let me share that info again. For 25 years, Yale economics professor Robert Shiller has tracked U.S. home prices. He monitors current prices, yes, but hes also researched historical prices. Hes gathered all of this info into a spreadsheet, which he updates regularly and makes freely available on his website. This graph of Shillers data (through January 2016) shows how housing prices have changed over time:

Shillers index is inflation-adjusted and based on sale prices of existing homes (not new construction). It uses 1890 as an arbitrary benchmark, which is assigned a value of 100. (To me, 110 looks like baseline normal. Maybe 1890 was a down year?) As you can see, home prices bounced around until the mid 1910s, at which point they dropped sharply. This decline was due largely to new mass-production techniques, which lowered the cost of building a home. (For thirty years, you could order your home from Sears!) Prices didnt recover until the conclusion of World War II and the coming of the G.I. Bill. From the 1950s until the mid-1990s, home prices hovered around 110 on the Shiller scale. For the past twenty years, the U.S. housing market has been a wild ride. We experienced an enormous bubble (and its aftermath) during the late 2000s. It looks very much like were at the front end of another bubble today. As of December 2017, home prices were at about 170 on the Shiller scale. (Personally, I believe that once interest rates begin to rise again, home prices will decline.) Heres the reality of residential real estate: Generally speaking, home values increase at roughly the same (or slightly more) than inflation. Ive noted in the past that gold provides a long-term real return of roughly 1%, meaning that it outpaces inflation by 1% over periods measured in decades. For myself, thats the figure I use for home values too. Crunching the Numbers Because Im a dedicated blogger (or dumb), I spent an hour building this chart for you folks. I took the afore-mentioned housing data from Robert Shillers spreadsheet and combined it with the inflation-adjusted closing value of the Dow Jones Industrial Average for each year since 1921. (I got the stock-market data here.) If youd like, you can click the graph to see a larger version.

Let me explain what youre seeing. First, I normalized everything to 1921. That means I set home values in 1921 to 100 and I set the closing Dow Jones Industrial Average to 100. From there, everything moves as normal relative to those values.Second, Im not sure why but Excel stacked the graphs. (Im not spreadsheet savvy enough to fix this.) They should both start at 100 in 1921, but instead the stock market graph starts at 200. This doesnt really make much of a difference to my point, but it bugs me. There are a few places 1932, 1947 where the line for home values should actually overtake the line for the stock market, but you cant tell that with the stacked graph. As the chart shows, the stock market has vastly outperformed the housing market over the long term. Theres no contest. The blue housing portion of my chart is equivalent to the line in Shillers chart (from 1921 on, obviously). Now, having said that, there are some things that I can see in my spreadsheet numbers that dont show up in this graph. Because Felix Salmon at Slate is using a 15-year window for his argument, I calculated 15-year changes for both home prices and stock prices. Ill admit that the results surprised me. Generally speaking, the stock market does provide better returns than homeownership. However, in 30 of the 82 fifteen-year periods since 1921, housing provided better returns. (And in 14 of 67 thirty-year periods, housing was the winner.) I didnt expect that. In each of these cases, housing outperformed stocks after a market crash. During any 15-year period starting in 1926 and ending in 1939 (except 1932), for instance, housing was the better bet. Same with 1958 to 1973. In other words, if you were to buy only when the market is declining, housing is probably the best bet if youre making a lump-sum investment and not contributing right along. Another thing the numbers show is that youre much less likely to suffer long-term declines with housing than with the stock market. Sure, there are occasional periods where home prices will drop over fifteen or thirty years, but generally homes gradually grow in value over time. The bottom line? I think its perfectly fair to call your home an investment, but its more like a store of value than a way to grow your wealth. And its nothing like investing in the U.S. stock market. For more on this subject, see Michael Bluejays excellent articles: Long-term real estate appreciation in the U.S. and Buying a home is an investment. Final Thoughts Honestly, I probably would have ignored Salmons article if it werent for the attacks he makes on saving for retirement. Take a look at this: If youre the kind of person who can max out your 401(k) every year for 30 or 40 years straight disciplined, frugal, and apparently immune to misfortune then, well, congratulations on your great good luck, and I hope youre at least a little bit embarrassed at how much of a tax break youre getting compared to people who need government support much more than you do. Holy cats! Salmon has just equated the discipline and frugality that readers like you exhibit with good luck, and simultaneously argued that you should be embarrassed for preparing for your future. He wants you to feel guilty because youre being proactive to prepare for retirement. Instead of doing that, he wants you to buy into his bullshit millionaires mortgage plan. This crosses the line from marginal advice to outright stupidity. Theres an ongoing discussion in the Early Retirement community about whether or not you should include home equity when calculating how much youve saved for retirement. There are those who argue absolutely not, you should never consider home equity. (A few of these folks dont even include home equity when computing their net worth, but that fundamentally misses the point of what net worth is.) I come down on the other side. I think its fine good, even to include home equity when making retirement calculations. But when you do, you need to be aware that the money you have in your home is only accessible if you sell or use the home as collateral on a loan. Regardless, Ive never heard anyone in the community argue that you ought to use your home as your primary source of retirement saving instead of investing in mutual funds and/or rental rental properties. You know why? Because its a bad idea! Shares 169 https://www.getrichslowly.org/home-investment/

[themoneybuff-blog]

Is your home a better investment than the stock market?

Ill admit it: There are times that I think everything that needs to be said about personal finance has been said already, that all of the information is out there just waiting for people to find it. The problem is solved. Perhaps this is technically true, but now and then as this morning Im reminded that teaching people about money is a never-ending process. There arent a lot of new topics to write about, thats true (this is something that even famous professional financial journalists grouse about in private), but there are tons of new people to reach, people who have never been exposed to these ideas. And, more importantly, theres a constant stream of new misinformation polluting the pool of smart advice. (Sometimes this misinformation is well-meaning; sometimes its not.) Heres an example. This morning, I read a piece at Slate by Felix Salmon called The Millionaires Mortgage. Salmons argument is simple: Paying off your house is saving for retirement. Now, I dont necessarily disagree with this basic premise. I too believe that money you pay toward your mortgage principle is, in effect, money youve saved, just as if youd put it in the bank or invested in a mutual fund. Many financial advisers say the same thing: Money you put toward debt reduction is the same as money youve invested. (Obviously, theyre not exactly the same but theyre close enough.) So, yes, paying off your home is saving for retirement. Or, more precisely, its building your net worth. But aside from a sound basic premise, the rest of Salmons article boils down to bullshit.

Lying with Statistics Looking past the paying off your house is saving for retirement subtitle on his piece (a subtitle that was likely added by an editor, not by Salmon), we get to his actual thesis: Making mortgage payments can, in theory, be a way to accumulate wealth almost as effectively as contributing to a retirement fund. Im glad Salmon qualified this statement with in theory and almost because this is pure unadulterated bullshit. And its dangerous bullshit. Heres how this logic works: If you buy an urban house today for $315,000 (the average price) and it appreciates at 8 percent a year for the next 15 years, you will be living in a $1 million house by the time you pay off your 15-year mortgage, and you will own it free and clear. Which is to say: Youll be a millionaire. For this to be true, heres what has to happen.: Home prices in your area have to appreciate at an average of eight percent not just this year and next year, but for fifteen years.You have to take out a 15-year mortgage instead of a 30-year mortgage.You need to stay in that house (or continue to own it) for that entire fifteen years.Once youve become a millionaire homeowner, you now have to tap that equity for it to be of use. To do that, you have to sell your home, acquire a reverse mortgage, or otherwise creatively access the value locked in your home. The real problem here, of course, are the assumptions about real estate returns. Salmon spouts huckster-level nonsense: The 8 percent appreciation rate is aggressive, but not entirely unrealistic: Its lower than the 8.3 percent appreciation rate from 2011 through 2017, and also lower than the 9 percent appreciation rate from 1996 to 2007. Thats right. Salmon cites stats from 1996 to 2007, then 2011 to 2017 and completely leaves out 2008 to 2010. WTF? This as if I ran a marathon and told you that I averaged four minutes per milebut I was only counting the miles during which I was running downhill! Or I told you that Get Rich Slowly earned $5000 per monthbut I was only giving you the numbers from April. Or I logged my alcohol consumption for thirty days and told you I averaged three drinks per weekbut left out how much I drank on weekends. This isnt how statistics work! You dont get to cherry pick the data. You cant just say, Homes in some markets appreciated 9% annually from 1996 to 2007, then 8.3% annually from 2011 to 2017. Therefor, your home should increase in value an average of eight percent per year. What about the gap years? What about the period before the (very short) 22 years youre citing? What makes you think that the boom times for housing are going to continue? Long-Term Home Price Appreciation In May, I shared a brief history of U.S. homeownership. To write that article, I spent hours reading research papers and sorting through data. One key piece of that post was the info on U.S. housing prices. Let me share that info again. For 25 years, Yale economics professor Robert Shiller has tracked U.S. home prices. He monitors current prices, yes, but hes also researched historical prices. Hes gathered all of this info into a spreadsheet, which he updates regularly and makes freely available on his website. This graph of Shillers data (through January 2016) shows how housing prices have changed over time:

Shillers index is inflation-adjusted and based on sale prices of existing homes (not new construction). It uses 1890 as an arbitrary benchmark, which is assigned a value of 100. (To me, 110 looks like baseline normal. Maybe 1890 was a down year?) As you can see, home prices bounced around until the mid 1910s, at which point they dropped sharply. This decline was due largely to new mass-production techniques, which lowered the cost of building a home. (For thirty years, you could order your home from Sears!) Prices didnt recover until the conclusion of World War II and the coming of the G.I. Bill. From the 1950s until the mid-1990s, home prices hovered around 110 on the Shiller scale. For the past twenty years, the U.S. housing market has been a wild ride. We experienced an enormous bubble (and its aftermath) during the late 2000s. It looks very much like were at the front end of another bubble today. As of December 2017, home prices were at about 170 on the Shiller scale. (Personally, I believe that once interest rates begin to rise again, home prices will decline.) Heres the reality of residential real estate: Generally speaking, home values increase at roughly the same (or slightly more) than inflation. Ive noted in the past that gold provides a long-term real return of roughly 1%, meaning that it outpaces inflation by 1% over periods measured in decades. For myself, thats the figure I use for home values too. Crunching the Numbers Because Im a dedicated blogger (or dumb), I spent an hour building this chart for you folks. I took the afore-mentioned housing data from Robert Shillers spreadsheet and combined it with the inflation-adjusted closing value of the Down Jones Industrial Average for each year since 1921. (I got the stock-market data here.) If youd like, you can click the graph to see a larger version.

Let me explain what youre seeing. First, I normalized everything to 1921. That means I set home values in 1921 to 100 and I set the closing Down Jones Industrial Average to 100. From there, everything moves as normal relative to those values.Second, Im not sure why but Excel stacked the graphs. (Im not spreadsheet savvy enough to fix this.) They should both start at 100 in 1921, but instead the stock market graph starts at 200. This doesnt really make much of a difference to my point, but it bugs me. There are a few places 1932, 1947 where the line for home values should actually overtake the line for the stock market, but you cant tell that with the stacked graph. As the chart shows, the stock market has vastly outperformed the housing market over the long term. Theres no contest. The blue housing portion of my chart is equivalent to the line in Shillers chart (from 1921 on, obviously). Now, having said that, there are some things that I can see in my spreadsheet numbers that dont show up in this graph. Because Felix Salmon at Slate is using a 15-year window for his argument, I calculated 15-year changes for both home prices and stock prices. Ill admit that the results surprised me. Generally speaking, the stock market does provide better returns than homeownership. However, in 30 of the 82 fifteen-year periods since 1921, housing provided better returns. (And in 14 of 67 thirty-year periods, housing was the winner.) I didnt expect that. In each of these cases, housing outperformed stocks after a market crash. During any 15-year period starting in 1926 and ending in 1939 (except 1932), for instance, housing was the better bet. Same with 1958 to 1973. In other words, if you were to buy only when the market is declining, housing is probably the best bet if youre making a lump-sum investment and not contributing right along. Another thing the numbers show is that youre much less likely to suffer long-term declines with housing than with the stock market. Sure, there are occasional periods where home prices will drop over fifteen or thirty years, but generally homes gradually grow in value over time. The bottom line? I think its perfectly fair to call your home an investment, but its more like a store of value than a way to grow your wealth. And its nothing like investing in the U.S. stock market. For more on this subject, see Michael Bluejays excellent articles: Long-term real estate appreciation in the U.S. and Buying a home is an investment. Final Thoughts Honestly, I probably would have ignored Salmons article if it werent for the attacks he makes on saving for retirement. Take a look at this: If youre the kind of person who can max out your 401(k) every year for 30 or 40 years straight disciplined, frugal, and apparently immune to misfortune then, well, congratulations on your great good luck, and I hope youre at least a little bit embarrassed at how much of a tax break youre getting compared to people who need government support much more than you do. Holy cats! Salmon has just equated the discipline and frugality that readers like you exhibit with good luck, and simultaneously argued that you should be embarrassed for preparing for your future. He wants you to feel guilty because youre being proactive to prepare for retirement. Instead of doing that, he wants you to buy into his bullshit millionaires mortgage plan. This crosses the line from marginal advice to outright stupidity. Theres an ongoing discussion in the Early Retirement community about whether or not you should include home equity when calculating how much youve saved for retirement. There are those who argue absolutely not, you should never consider home equity. (A few of these folks dont even include home equity when computing their net worth, but that fundamentally misses the point of what net worth is.) I come down on the other side. I think its fine good, even to include home equity when making retirement calculations. But when you do, you need to be aware that the money you have in your home is only accessible if you sell or use the home as collateral on a loan. Regardless, Ive never heard anyone in the community argue that you ought to use your home as your primary source of retirement saving instead of investing in mutual funds and/or rental rental properties. You know why? Because its a bad idea! https://www.getrichslowly.org/home-investment/