The Astounding Failure of the US Education System, Part 2

smartknowledgeu's picture

After observing the considerable amount of interest over my
most recent article, The Astounding Failure of the US Educational System, I have decided
to extend that article into a 3-part series. Here’s Part 2.


Normally I don’t read all the comments on the articles I
post due to time constraints. I usually skim them from time to time but I normally don’t have the time to
read all the comments that people post on every video I upload and every article I
post. I just skim comments to see if people disagree or agree with what I’m
saying and also to gain more insight from people more knowledgeable than myself
about certain topics about which I have written. In fact, having people call me
an idiot, misinformed, and bitter is validating. Why? If my articles don’t provoke
at least a handful of haters then that means I’ve probably stopped telling the
truth and my views have gone mainstream. So I truly don’t mind the hateful
comments that call me a moron, embarrassing, and misinformed, because these
types of comments inform me that I am accomplishing what I have set out to do
in trying to open up people’s minds to an alternate viewpoint. Furthermore, I’m
used to the hate by now.


Ever since I started my investment blog, The Underground
, in 2006, I’ve been receiving negative and occasionally sometimes even
hateful comments. Back then, people called me crazy for repeatedly and
passionately advocating the virtues of gold. In fact, quite strangely, I’ve
been called by those that vehemently disagree with me, both a left-wing liberal
and a far-right neocon nut; a left-wing liberal for discussing gold and
silver-price suppression schemes years ago and for drawing attention to the
plight of the starving, and a far-right neocon for labeling President Obama as
a banker puppet the minute he selected his Wall Street cabinet. The funny thing
is that I consider myself neither left or right-wing but an independent that
always takes the side of truth and justice.


There’s nothing ever wrong with others vehemently
disagreeing with me. I’ve been wrong in the past, and I’ll be wrong again in
the future. I only wish that those that express their opposition in the form of
name-calling would make more of an effort to provide constructive criticism
that actually contributes to the discourse rather than just accusing me of
being angry, foolish, or short-sighted. I don’t know why some believe that
happiness and truth have to reside at opposite ends of the spectrum. It seems,
these days, that if you tell the truth, people assume you must be some
disenchanted, bitter, furious, A Time to Kill - Samuel L. Jackson-type of
character that screams “Yeah, they deserve to die and I hope they burn in
!”  I guess this type of
stereotyping makes it easier to dismiss the truth. 


The late Tupac Shakur once said that when the public started
criticizing him very harshly for the stories he told through his lyrics, he
became self-conscious and considered self-censoring himself, thinking as he
wrote his lyrics, “I can’t write that. That’s too harsh” or that he would start deleting lyrics, afraid that they might offend someone. However, he quickly killed the notion of self-censoring his lyrics. Why? He said when he did so, he would suffer from
writer’s block and that the sincerity and honesty of his song-writing
disappeared. Thus, he concluded, for better or for worse, that he would no
longer worry about how people would react to his lyrics but that he would just
right whatever flowed from his heart. I tend to think that I blog in the same
manner. At times, I make comments that some people will criticize for being too
blunt and too harsh, but I never write with the intent of being offensive to
anyone. As they say, the truth ain’t always pretty.


In any event, I want to acknowledge my supporters as well
and those that provide thoughtful commentary. In fact, I want to address a
commenter on my previous article that stated that parents must take
responsibility for the education of their children and that education begins at
home. I 100% agree with this statement. However, I believe that in today’s
modern society, this responsibility has become increasingly difficult to take
on for parents as opposed to within the societal structure that existed 40 to
50 years ago. If any of you have read any of the books about the history of US
education not only by John Taylor Gatto but also by Howard Zinn, Joel Spring et
al, you will discover that there was a concerted effort by the men that funded
the US educational system to end the era of the housewife that stayed at home
and cared for the children while the husband was at work. How did they achieve
this? By debasing and severely devaluing money so that a one-income family
would no longer be adequate and by ensuring that both parents would have to enter
the workforce, thus drastically decreasing the time parents had to spend with
their children. Thus, the goal of the men that funded the educational system was
to deploy more influence over children’s thought processes than even their own
parents by engaging children in the educational system more hours a day than
they would be engaged collectively by both of their parents.


As I usually write the articles I post when I have spare
moments in the wee hours of the morning, I often have one of my administrators
skim comments of my articles within the first 24-hours after posting just to
ensure I didn’t make any egregious factual errors in my frequent haste to write
new articles. Regarding the article that comprised the first part of this three
part series, The Astounding Failure of the US Educational System, my admin was
genuinely upset about some of the negative comments posted in the article (God
bless her heart).  She came to me
and said, “I can’t believe some of the negative comments on that article. That
was probably the least self-serving article you have ever written. You should
just stop writing these articles if people are going to attack you for writing


Upon hearing how upset my admin was, I told her to hold on
and to allow me a couple of days to read through all the comments. When I
finished reading all the comments, I went back to my admin and told her, “I
read all the comments. There were 280 comments at the time I read them, and
maybe only a dozen that were really negative. Look, if one young adult
understands what I write and saves himself or herself a life of debt, then that
article is worth 3,000 negative comments. And people can say whatever they want
to say. It’s a free world and I don’t have a problem with that. Furthermore,
” I
told her, “I know that my blogs have achieved what I want them to achieve.
There’s a young kid in Seoul that has written me many times that I think is
brilliant because he already understands how the matrix works.  He’s told me that because of my
articles, he’s postponing the traditional educational route and going to strike
up an attempt at becoming an entrepreneur first. I know he’s going to be
successful because he’s passionate and he’s very intelligent in the unconventional,
non-academic sense.”


“Okay, then,” she replied. “But you need to really write an
article that lets people know how accurate your predictions have been. If
people knew how accurate your predictions have been for five years running and
that it has nothing to do with your academic career, then maybe they’ll
understand your rejection of traditional business academia to a much greater
degree. Maybe then, they would get it.”


So without further ado, I’m ironically going to follow up
what my admin considered “the least self-serving” article I’ve ever written
with what I believe will be the most self-serving article I’ve ever written. Even so, my embarrassingly shameless self-promotion in this article still has a very important point, and that is to illustrate that higher education is not the Holy Grail to knowledge, intelligence, and entrepreneurial success. On
April 23, 2008, when I was not yet writing for Zero Hedge, I wrote an article
on my blog titled “Will US Markets Crash Now or Later?” that was printed on
Seeking Alpha (see the link). If you visit the link and read the comments, many
commenters called me naïve and foolish for writing such an article, even
though, 18 business days after I wrote this article, the US S&P 500 started
a massive 54% decline from the 1440 level to the 666 level that any normal
person would define as a crash.  So
why did people automatically discredit me and believe the “authorities” that
preached the economy was fine and that US markets had begun a new bull market
in earnest?


Before I answer that question, let’s consider a very small
sampling from a much wider list of predictions that I have provided (1) on my
blog; or (2) to my clients over the past five years that have come true.  The below are exact quotes that have only been extracted and condensed from much more comprehensive
bulletins sent to my clients.


My Past Predictions


June 2006: “The dollar has to weaken not a little, but
considerably, for the massive U.S. trade deficit to close considerably. And a
stronger U.S. dollar of course makes this less likely to happen (a stronger
dollar means that U.S. goods become more expensive for foreign countries, so
U.S. exports would be likely to decline). However, because American individuals
are burdened with debt as well, Bernanke’s hands are tied as to the number of
times he can continue to raise interest rates without causing an economic
recession.  In the early 2000’s
many American’s overextended their credit, taking advantage of historically low
interest rates to buy huge houses with low mortgage payments that were really
over their budget.”

Outcome: The sub-prime mortgage fiasco and currency fiasco
that we warned about became a reality. Within just one year, the U.S. dollar
lost 15% against the NZ dollar, 5% against the Sing, and 16% against the Thai
baht not to mention huge losses against major currencies like the Euro and
Pound Sterling.


August 16, 2006: “Over seven and a half years, if your
portfolio has tracked the S&P 500’s index as some 97% of U.S. professional
money managers aim to do, you have about the same amount of money you had seven
and a half years ago – only with the rapid devaluation of the dollar, your same
amount of dollars buys much less today, so in all actuality, tracking the index
has lost you money. That’s a whole lot of waiting for a whole lot of nothing.
And that’s the good news. The bad news is, as of 2006, the U.S. stock market’s
performance will likely become even worse for the rest of this decade.”

Outcome: When I made this prediction, every single one of my
former colleagues in the investment industry with whom I discussed this
prediction laughed (and some quite literally, laughed out loud) at this
prediction. In fact I remember one investment industry professional stating
that the probability of the S&P 500 closing lower than its August 16th,
2006 level at the end of the decade was ZERO, even if one took the effects of
inflation into account. Today, at the near end of this decade, four years after
my prediction, the nominal S&P 500 level stands at 1,183.08, down from its nominal
level of 1,295.43 on August 16, 2006. Factor in real inflation rates of 10% to
13% between 2006 and 2008 and more recent inflation rates of 8% to 9% (as
calculated by and the REAL losses in the S&P 500in the
past four years become quite substantial.


September 6, 2007: “Increased volatility in stock markets
will occur as $370 billion in sub prime mortgages re-set to higher rates,
starting with $50 billion in September and $30 billion every month thereafter
for the next 18 months to 2 years. Triple-digit losses in the Dow during single
day trading sessions will become commonplace…2007, and possibly into very early
2008, will present the last opportunity to buy gold at less than $700 an ounce,
but not without some volatility in between….We will see a strong rebound in the
U.S. markets after a deepening and scary correction. The rebound will be
manufactured again by the U.S. Treasury with the help of the U.S. Federal

Outcome: Although it’s hard to think back this far, on
September 6, 2007, gold was trading at $685 an ounce. I presented the above
opinions at the Pan Pacific Hotel in Asia at an investment forum, after which
several investment professionals approached me and told me they believed that
gold was too expensive and that they would wait until gold dropped below $600
an ounce again before they would consider buying. These professionals may still
be waiting to buy. Gold rose from the $680 level in September to over $1,000 a
troy ounce by March of 2008. The London PM fix never closed below $700 an ounce
since then, even when the Fed Reserve engineered its now infamous attack
against gold prices in October of 2008. Triple-digit losses in the DJIA
happened almost daily or several times a week to open January of 2008 just as I
had predicted.


November 16, 2007: “With financial and housing stocks
slumping and big corrections in many major global stock markets, much of the
easy money shorting markets has already been made, though more will come in the
future. I think mutual fund companies are the next best bet for now. As the
crisis widens, I expect outflows from mutual funds to occur. There have been
some funds whose share price has defied current trends and those would be the
best bet, Janus Capital among them (JNS). Janus has a trailing 12-month P/E of
more than 40 versus the 29 of its peers. But there are others as well.”

Outcome: During the next four months, Janus Capital’s share
price plummeted more than 38%.


January 2008: “We can be assured that in 2008, that the
destruction of monetary value in both Europe and the United States will
occur...when smart investors finally realize that no fiat currency is safe, I
believe that investors (at least the savvy one) will begin to dump the Euro and
the Pound as well.”

Outcome: In August and October of 2008, both the Euro and
Pound plummeted in value, both losing about 25% in value in a very short time


July 22, 2008: “The global financial crisis is not under control
and becoming better as [bankers and gov’t officials] continually publicly
state. My downside target for Fannie Mae right now would be $4 a share."

Outcome: Though U.S. Treasury Secretary Henry Paulson stated
that “[Fannie Mae’s] regulator has made clear that they are adequately
Fannie Mae dropped from $19 a share at the time I made my
statement to near nothing (turned out my $4 a share prediction was too
optimistic!). On September 10, 2007, the US Gov’t nationalized Fannie Mae.


March 11, 2008: “If you are an “old-school” person that believes in the
sacredness of and credibility of banking institutions and view Money Market
Funds as “safe”, I urge you to re-assess that belief right now. Many Short-Term
MMFs invest heavily in Asset Backed Commercial Paper (ABCPs), many of which are
backed by these very shady Mortgage Backed Securities.  If the MBS’s go
belly up, so does the ABCP, and your MMF, which everyone believes can never
lose value, WILL lose value.”

Outcome:  It took
a little bit longer for this prediction to come to fruition, which of course,
opened the doors for people to state I was crazy once again. On September 16,
2008, one of the first and largest US money market funds put a seven-day freeze
on investor redemptions after the net asset value of its shares fell below $1.
Shortly thereafter, two more money market funds also announced their inability
to redeem the fund at a net asset value of $1.


March 6, 2009: I stated to my Platinum clientsnow is a good time
to add MORE to physical silver holdings. I further emphasized that this was a
long-term play and that while “it is always impossible to determine the
timeframe for exactly when these great leaps higher in price will occur, [this]
is always why I seek what I feel are low-risk, high-reward entry prices.”

Outcome: Since then, silver has risen 78% from $13.12 an
ounce to $23.31 an ounce.


May 31, 2009: I stated to my clients “It’s time to be very
cautious with your precious metal stocks”
. I explained the reasons why I
believed danger was imminent (reasons that have to do with gold price
suppression schemes) and why the time was ripe to apply tight trailing stop
losses on PM stocks.

Outcome: The AMEX gold bugs index (HUI) plummeted from
398.06 on the first day after I issued the bulletin to 318.27 in the next 15
trading days, a 20% rapid fall.


Now let’s look at some of the predictions of my more
"educated", more advanced-degree-having colleagues in the industry.



PhD Ben Bernanke and Paul Krugman’s Predictions


July 2005: 
Bernanke stated there was no housing bubble in the US: “We've got a
growing economy, jobs, incomes. We've got very low mortgage rates. We've got
demographics supporting housing growth.”

In an interview in which Bernanke was informed of a premise
that a housing bubble existed, Bernanke replied: “I guess I don't buy your
premise. It's a pretty unlikely possibility. We've never had a decline in house
prices on a nationwide basis.”

July 2007:  Bernanke stated “[Home] sales should ultimately be supported
by growth in income and employment, as well as by mortgage rates that, despite
the recent increase, remain fairly low relative to historical norms…The global
economy continues to be strong, supported by solid economic growth abroad. US
exports should expand further in coming quarters.”

Outcome: Just two quarters later after Bernanke’s first
declaration that the housing market would continue to grow, US Median Housing
prices (real prices) started a non-stop slide for the next 3 years, falling
more than 35%.


November 2006: Bernanke stated, “The motor vehicles sector may
already be showing signs of strengthening.”

Outcome: By September, 2008, Chrysler, GM and Ford asked for
$50 billion to pay for health care expenses and avoid bankruptcy and ensuing
layoffs. By December, President Bush had agreed to an emergency bailout of
$17.4 billion to be distributed by the next administration. Chrysler filed for
bankruptcy in May, 2009 and GM followed suite, one month later. (Source:


February 2007: Bernanke stated, “We expect moderate growth
going forward.”

Outcome: In 2007, the revised US GDP was 1.9%, the slowest
rate in 5 years. In 2008, the revised US GDP was 0.0%. The REAL GDP rates
(versus the officially reported gov’t numbers) were much less, but that’s a story
for a different day.


July 2008: Krugman stated that Fannie Mae (FNM) and Freddie
Mac (FRE) "didn't do any subprime lending, because they can't: the
definition of a subprime loan is precisely a loan that doesn't meet the
requirement, imposed by law, that Fannie and Freddie buy only mortgages issued
to borrowers who made substantial down payments and carefully documented their

Reality: From1997-2007 FNM and FRE acquired a total of $2.2
trillion in subprime loans and private securities backed by subprime loans. FNM
and FRE’s failure to classify these loans as subprime is a matter of semantics.
FNM acquired loans that carried a FICO score of less than 660 (a regulatory
definition of subprime) though it failed to classify these loans as subprime.
(Source: Edward Pinto).


March 20, 2009: Krugman stated, “The Fed is, however,
creating a new liability: the monetary base it creates to buy these bonds. In
effect, it’s printing $1 trillion of money, and using those funds to buy bonds.
Is this inflationary? We hope so!...I’m not complaining; I think quantitative
easing (it’s really qualitative easing, but I give up on trying to fix the
terminology) is the right way to go.”

Reality: Desiring and "hoping" for significant inflation
amounts to the endorsement of theft. Doing so signals a desire to plunder the
wealth of every citizen, to cripple the elderly that rely on savings to live,
and to punish the welfare of younger generations that choose to save now.


Higher Education Often Encourages Arrogance, Not Intelligence


In regard to my above predictions, though I found little to
no use for any of the information I acquired from my MBA studies in making any
of the economic predictions I posted above, the act of writing my thesis for my
Master in Public Affairs was truly useful to these predictions. My topic for my
MPAff thesis was media and information filters and censorship. Learning how
information is censored as it passes through the various distribution channels
of the mass media provided the impetus for my research into the sources and
motives for all information that government agencies and bankers release in the
media about capital markets. Understanding this process has undoubtedly helped
me to understand how bankers move the prices of capital markets up and down.  However, I must emphasize that I gained
this understanding not inside the academic system, but on my own, outside of, and in spite of,
the academic system.
I threw out my Keynesian economics background and studied Austrian economics. I studied the money trails among Central Banks, governments and corporations to understand how price behavior really worked in capital markets and discounted the supply/demand dynamics I had been taught. I researched the origins behind all mountain of statistics that move capital markets and asked questions about the origins of these statistics and the motives of the men that created them. Had I not even completed a college degree, I have zero
doubt that I would still be able to make the same predictions I made above with
the same degree of accuracy. In fact, only when I shed my elitist feelings
about attending an Ivy League school and believing that nothing I learned at
this institution could possibly be false, and only when I literally de-programmed
my brain from the entire body of business academic knowledge I had accumulated
within institutional academia did I finally start making economic predictions
that consistently came true, year after year. 


So how can those with advanced PhDs from the most
prestigious universities in America be so wrong? I think the answer is fairly
simple. Because of the admiration society bestows upon those with advanced
degrees, those with advanced degrees often develop a level of inflexibility in
their thinking that I associate with arrogance. For example, I often got in
heated debates with prospects that were scientists years ago when I was still
working for Wall Street. Because scientists are so used to working with models
based upon statistics, many (not all, but many) of them insisted on studying
and understanding the meaning of every single portfolio statistic, including beta
coefficients, the r-squared statistics, and so on. When I used to tell these
prospects that obsessing over these statistics would not lead to any better
returns because the reality of markets is controlled by many factors
extraneous to these statistics, they still insisted on understanding every
little statistic. Thus, I countered with a different strategy.


I discovered that when I informed these scientists that these Wall Street
risk models were developed by PhDs in economics from Wharton, they ceased
harping about portfolio statistics and in a matter of seconds, amazingly acquired an immediate faith
in the validity of these asset allocation models. This is exactly the bunch of
rubbish and rigidity that I associate with higher learning at times. All I had
to do to convince prospects about the validity of a model they were unsure was
valid one minute ago was to tell them that a PhD from a prestigious university developed the model. This,
despite the fact that at no point and time did I ever encounter a single risk
asset allocation model developed by a Wharton or Harvard PhD that included gold
and/or silver. Not one single time for one single day for one single hour.  Because I left the world of Wall Street in 2005,
some will rationalize the decision of these PhDs to exclude gold and silver as
an asset class from even their lowest risk asset allocation models as acceptable
because of their belief that the global monetary crisis had not yet started.


This reason is pure
rubbish. By the end of 2005, gold was already five years into its
bull run, and silver, three years. Both PMs had already embarked on their bull
runs because of the cracks in the monetary system that had already begun to
show. As soon as I left the corporate investment firm and started my own firm,
from DAY ONE of our launch in 2006, we informed our clients that a monetary
crisis was under way and that one of the lowest-risk, highest-reward assets
they could purchase was gold. Of course I would never have realized this if I
continued believing the rubbish I had learned in my Economics 101 textbook that
inflation is caused by rising prices.


So are all PhDs, MDs, JDs, MBAs, etc. stupid and are all
teachers in the institutional academic system useless? Of course not. There are
brilliant MDs, PhDs, JDs, et al, as well as brilliant individual teachers. Still,
the expanded base of information of those in possession of advanced degree does
not make them automatically more intelligent than anyone else. Furthermore, the
system as a whole still produces, from advanced degree programs, many more
rigid thinkers than free thinkers, and many more horrible teachers than
wonderful teachers. Too many people still foolishly equate the attainment of
advanced degrees with intelligence. But perhaps this is an indictment of
exactly what is wrong with our educational system today – if we can’t even
agree on something as simple as the definition of intelligence, we’re destined
to never acquire any of it.


Stay tuned for the third and final article of this series on education,
Why Entrepreneurialism, Not Climbing the Corporate Ladder, Will Save the Global Economy. I'll be posting the final part of this series very soon.



About the Author: JS Kim is the Founder & Managing Director of SmartKnowledgeU, a fiercely independent investment research & consulting firm dedicated to helping Main Street thrive and succeed despite the fraud of Wall Street.