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Escaping Oz: Protecting your wealth during the financial crisis

Escaping Oz: Protecting your wealth during the financial crisis

Jim Mosquera

Author Bio

Jaime “Jim” Mosquera was born in Panama City, Panama. He spent his formative years in Panama City and St. Louis, Missouri. He graduated near the top of his class from the University of Missouri-Columbia with Masters and Bachelors degrees in Industrial Engineering. The Master’s thesis focused on operations research and computer simulation of real-world systems ranging from vehicular traffic to hospitals. His academic background prepared him for a lifetime of observation and inquiry.

After college, he entered the world of telecommunications. He served in a variety of roles including engineering, sales, sales support, product development, and training. In 2002, he received a patent for a software application he developed with a colleague.

In 1987, he began a comprehensive study of economics and the markets. He began trading futures that year and was highly successful during the stock market crash of 1987. He furthered his education by successfully completing the requirements for a Series 3 license (Commodity Trading Advisor). Mr. Mosquera also developed proprietary software programs used in options and futures trading.

In the late 1990s, he realized that something was amiss in the stock market. Many people were successful making money without having any meaningful experience in the markets. His employment in technology led him to recognize a “bubble” forming in companies related to the Internet. He warned those that he knew to remove their money from the stock market since it appeared a large, speculative bubble was about to pop. It did in the year 2000.

Over the next several years, he acquired more knowledge that ultimately led to the creation of a monthly financial publication, The Sentinel Financial Report. This publication inspired the creation of a book on the current financial crisis titled Escaping Oz: Protecting your wealth during the financial crisis. For many people, the financial crisis was a temporary interruption on the way to greater stock market gains. For him, something more sinister lurks.

Book synopsis

Escaping Oz is a book that tells the story of how the economic crisis evolved and what individuals need to do to protect their wealth. While economists, legislators, central banks, and policymakers discuss how to rescue the economy, the author presents the actual root cause of the problem. Those expecting a rescue from our “Wizards” (central banks, governments, economists) will be placing their welfare in peril. The story of The Wizard of Oz serves as the metaphor for where we find ourselves economically. The author uses this metaphor to help readers understand what at times can be an intimidating subject. This book could be one of the most important publications many people will read in the next few years. An understanding of the economic issues will be essential as economics and politics continue to intersect in the future.

“Author cautions readers to not expect economic salvation from the Wizards”

Author Jim Mosquera released a book detailing the true underpinnings of the current economic crisis. A series of economic missteps, government action, and public attitude ultimately contributed to the current state of affairs.

Tell us about your book

The financial shocks to the economy left the public dazed and confused. I’m sure many people wondered how this could possibly happen. Shouldn’t there be a government or Federal Reserve solution to our problems. Whom should we blame? How can I protect myself?
These answers are important not just for your family’s welfare but for the broader goal of our country’s future – both political and economic. Politics and economics will become inseparable in the years ahead.

Escaping Oz presents a fundamental description of our crisis. This is not a book about assigning blame or dealing in conspiracy theories. It is a very no-nonsense detailing of how we got here and what we should do to escape the financial quagmire. Those expecting a rescue from our “Wizards” will be placing their welfare in peril.

What inspired you to write the book?

We are facing significant economic challenges and I don’t feel the public understands the magnitude. There has been so much reliance on government to “fix” things and we see constant debate in the halls of Congress on what a budget should look like. The public is completely inured to the amount of money the U.S. spends. Discussions of trillion dollar deficits roll off the tongue with ease. Now we have a deficit commission (aka Super Committee) that is supposed to trim $1.2 trillion from the budget in 10 years. That amounts to $120 billion per year, which is roughly 10% of our annual budget deficit. You will no doubt have all kinds of vitriol from both political parties about what should and should not be cut from the budget. Moreover, for all this debate, you are still only addressing 10% of an annual deficit!

What is your view about our economic recovery?

The economic recovery is based on the creation of more debt specifically at the Federal level. There is great confusion about debt equaling wealth. Central banks (Federal Reserve) and governments do not create wealth. The problem on a macro scale is no different than it would be for an individual on a micro scale. If an individual has exhausted all their cash and has no credit left, they are forced into austerity. The only difference between the individual and government is government’s ability to have credit available. They only have this credit available since they can control the process of credit creation (via the Fed) and since there is still public confidence that their credit is good. When the public begins to doubt the credit of a government, you end up with Greece, Italy and some of the other struggling Euro countries.

The government can proudly point to GDP statistics and proclaim a growing economy. GDP growth tied to the creation of more debt is not growth. In fact, the economy is getting far less bang for its buck (pun intended) for each unit of debt created. Joe Q. Public sees large deficits, spiraling debt, and bailouts on one side with unemployment, wealth concentration, and a struggling middle class on the other side. The groundswell of public discontent should tell you something about the recovery.

What is the greatest problem facing the U.S and world economy?

One word….debt. The debt is at the private level (credit card, student loan, non-revolving credit, mortgages) and the public level (funded debt and unfunded liabilities). The public sector has entered into covenants with its constituents relating to their economic well-being. These covenants lie on a mountain of debt that cannot be sustained. Presently, about 37 % of income in the U.S. is derived from transfer payments. By this, I mean the U.S. Government pays out 37% of its budget in the form of a transfer payment (pensions, welfare). Another 24% is spent on well-being (health care) which is also a transfer payment of sorts. Defense takes up 25%. This is a big reason why the Super Committee will meet resistance to their proposals when 86% of the budget is considered untouchable.

There are commercials on TV from different constituent groups urging government not to cut their program. At a local or state level, there is public outcry about trimming the budget. There is always the notion that the budget can be cut elsewhere. Recently, St. Louis County suggested the closure of several public parks due to budget concerns. This is meeting stiff resistance. When things get very severe, you can have government simply declaring bankruptcy as recently occurred in Jefferson County in Alabama.

The public will be in for a rude awakening when government withdraws further from the economy. Government withdrawal from the economy will come from further budget cuts or ultimately a loss of confidence in government debt. Since the government is well-entrenched in the economy, the disruption will be significant.

Can the President, Congress, or the Federal Reserve provide the ultimate bailout?

This is the 20th century prescription to economic woes. Apply government spending and let the Federal Reserve intervene. Unfortunately, the Fed’s record on economic matters is less than stellar. One of the original goals of the Fed was to promote price stability. This clearly has not gone well. Their latest attempts at rescue with QE I and II and I have not produced desired results. Government typically tends to enact laws/policies to right an economic problem only to create others. Usually they take action, after a problem occurred. For example, government passed a law during the Great Depression that separated commercial and investment banking. They passed this law due to the investment speculation of the 1920s. Then in 1999, they repealed it. Now we have banks deemed to big to fail due to problems with their investment arms.

What would a “market” solution to our economic problems look like?

Debt is resolved one of two ways. Either debt is paid or there is default through non-payment/repudiation. For the mountain of debt to be repaid it requires a great deal of austerity. This is austerity on an unprecedented level. Default is the most likely alternative. We have already seen this on a large scale in the housing market. There are fears in Europe that some countries in that region may default. As we noted earlier, a whole county in Alabama defaulted on $4.1 billion.

Either payment or default will bring pain. An economy under austerity is not going to expand at the same rate it previously did. There will be less demand for goods and services deemed discretionary. Assets will be sold to raise cash in order pay back debt. A wave of defaults will strain the credit markets. Creditors will be less likely to lend in the future with the scent of default in the air. Borrowers will be reluctant to take on new debt. The experience of the previous credit bubble will stain an entire generation.

The market, in the absence of the additional debt created, would revalue all assets to a sustainable price level. Cash becomes king due to the immense credit destruction that occurs. Once the market achieves a new price level, inventory can be cleared and reinvestment can occur.

Why should we leave the fate of our economy to the “market”?

I read a book called Where good ideas come from. In the book, the author discussed how the human brain has an interconnectedness that exceeds the network known as the Internet by manifold. He goes on to point out that ideas tend to emanate from larger more interconnected networks. It’s not that the network itself has some innate wisdom but rather that someone within the network does and that wisdom can spread.

The “market” is the ultimate economic network from where ideas emerge. I have a set of economic laws in my book that define economic actions. My economic law #4 says, “Markets allow people to satisfy themselves by satisfying others”. A market is a network of participants knowing what they want and how to get it. They can only get what they want when they give someone else something they want.

When economic decisions emanate from legislative bodies (Congress), executive bodies (President) or from central bank policies (Federal Reserve), we lose that network effect from where ideas emerge. It is impossible for these Wizards to know what the market wants to do.

The Wizards have conditioned the public to assume they (Wizards) have intimate knowledge of what the market wants to do – they don’t. The market knows when a trend is exhausted but the Wizards attempt to thwart trend changes by their actions. This attempt to thwart diminishes the network effects of the market. For example, real estate would look much different were it not for government support of the mortgage market. The market wants to go lower but the government won’t allow it.

The motivation of the Wizards is often political – they want to satisfy their constituents. Back to the housing market….government promulgated the idea of housing being a right. The result was a large bureaucracy of Government Sponsored Entities (GSE) like Fannie Mae and Freddie Mac that require taxpayer support. Often times the motivation is geopolitical. Countries like the U.S. want to peddle their influence overseas. This type of influence peddling leads to empire building. According to the Department of Defense, there are U.S. troops in 156 countries with 63 of those countries having military bases. It costs a great deal of money to support this empire.

Is there a magic solution to the financial problem?

Unfortunately, there is no magical solution. The only way to repair the nation’s balance sheet is with austerity. Underlying all these problems are several issues the country needs to address.

First, what is the role of government? In my book, I provide a table that shows how much government grew in the 100-year period from 1910 to 2010. While the population increased 235% and GDP increased by 43,000%, the budget went up ten times more than GDP and the deficit went up 100 times more than GDP. Funded debt increased 10 times faster than GDP and unfunded liabilities went up by an infinite amount (there was no unfunded debt in 1910 and now estimates range from $63 to $100 trillion for unfunded debt). I believe government is doing much more than they should be. The nation will have to reassess what they want government to do.

Second, there needs to be honest dialogue by leadership with the public about the nature of our problems and what has to occur. Unfortunately, the political process excludes this candor. This candor is the essence of true leadership, being able to deliver bad news and having a plan to deal with it.

Lastly, we need to evaluate how we create credit. Some of our economic missteps occurred when money was decoupled from wealth. At one point, money and credit were tied to wealth. Slowly over time, this decoupling occurred and led to credit bubbles of unprecedented proportion. Until economies link money and credit to wealth, we will not escape the fundamental causes of our financial problems.

What are some investment classes that should concern the public?

Stocks in general are a concern. I believe we reached a long-term, probably generational, stock market top in 2007. There very well could be stocks that could prosper but an investor will have to have very specific knowledge in that issue.

Long-term debt is also a concern. Sovereign debt of European countries is under great distress. This debt is threatening the existence of the Euro. Treasury bonds in the United States should be stable in the near-term due to the public’s confidence in Uncle Sam as a creditor. This confidence will be tested in the future. Short-term U.S. debt (Treasury Bills) will have the most security. Municipal bonds are risky as more state and local governments struggle with declining tax revenue and their funded and unfunded obligations. The largest municipal bankruptcy in Alabama is an omen. Real estate continues to die. Any investment class that previously relied on credit to fuel its growth will be at risk.

What do you hope your readers come away with after reading your book?

We are entering a new economic period and I want the public to understand this for their sake and the sake of the nation. The economic challenges will not just be in the U.S. but worldwide. Knowledge acquired in this book will help elect leadership that is more accountable to our economic welfare. The knowledge should give readers a new set of lenses with which to view their own economic condition.

What are some resources that readers can tap to keep up with your work?

I have a monthly publication called The Sentinel Financial Report where I cover the stock market, bonds, precious metals and the U.S. Dollar. I also discuss economic and political happenings. I am thoroughly convinced that you will be unable to separate politics and economics in the years ahead.

My book web site contains information on where to purchase and has an excerpt.

Interested readers may contact me at [email protected].

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