When one member of a family looses their job, the household cuts down on expenditures to accommodate for the loss of income. Or they could decide that since it is only temporary; maintain the current lifestyle using the credit card. Using the credit card only allows you to continue the current lifestyle for an undefined time limit. It doesn’t solve the family’s problems. In fact, it makes them worse if the employment situation deteriorates.
Our government works the same way. There is a limit to the amount of debt a nation can carry, just like a family. The government cannot put these failed disasters on a credit card for long. You need real money to do anything. Real money is proof that something was produced for consumption. Savings are the surrender of present gratification for future consumption.
Our government has spent one trillion dollars (that no one earned yet) and is expecting someone in the future to forgo that large amount of consumption (savings) so they can spend it. It’s not very likely. The suggestion that the increase in the national debt will be passed on to our kids is ridiculous. We didn’t pay what was passed on to us, so don’t figure that human nature is going to undergo some metamorphic change.
We have to look at is the total amount of the national debt. The issue we need to be concerned with is the interest rate on that debt that we have to service. As long as the rate is 3%, there is not much of a problem. If the interest rates were to increase to say 10 or 15 percent, things could become very awkward. The total debt is a known; the service on the debt (interest) could get to a level where the government revenues would not be enough to cover it.
The interesting issue here is that interest rates relate to risk. The government spends what it doesn’t have and then expects us to fund it. This will be done by taxing everyone’s savings through a government program called inflation. The catch here is that you may want more of a return on your money since it is losing value. This would mean that interest rates would have to rise.
The other thing to consider, people might want gold and silver and would be dumping currency. The only solution to that is to ban gold ownership by individuals. FDR did it, to save the currency. I don’t see anyone wanting a currency where the incoming President claims that we may have trillion dollar deficits for many years in the future.
The net result is the government (by way of inflation) will confiscate personal savings to pay off the national debt. You get to keep your house, your car, your gold and silver and the government goes broke and issues a new currency to replace the old one. If you worked hard all of your life and saved for retirement, it will be comforting to know that it’s all gone, you have lost everything. You are at a point in life where you are too old to kick ass and make someone pay. Kind of sucks doesn’t it!
Obama is going to save us? Not to put the guy down, but to look at things a little more realistically. Printing money is not going to solve the problem. Congress is in charge of spending. The thought that this new President can somehow keep this spending orgy going is just a wish of the Hoi Polloi. It’s a little like pimping your wife and daughter to make the house payment. It shows that you gave serious thought to the situation and concluded that using your family “very pragmatically” was your salvation. The neat thing about this is that their customers will provide free “On the job training.” What a deal! It has government stamped all over it.
73 comments:
Jim, I agree 100%. Obama & Co. will be doing the exact same thing as Bush & Co.
That is, printing, printing, printing.
I urge everyone to watch I.O.U.S.A on youtube, it's a quick 30-minute version.
http://www.youtube.com/watch?v=O_TjBNjc9Bo
The Republicans borrow and spend, the Democrats tax and spend. We're screwed either way.
Obama is not enlightened. (We needed Ron Paul to take office if America was to be salvaged.) Obama will follow Keynes and/or Friedman based economic advice and move us downwards a few more tiers on the dwindling spiral of destruction of the American economy, and thus our country.
Bernanke, Geithner and Obama will create major inflation to prevent the correction/purging that this country so badly needs. We're also headed towards being a diseased socialist state just like the diseased countries of Western Europe.
I'm disgusted.
Lots of people are pimping out their wives and children. Passing on debt that cannot be paid to them is exactly the same thing. Look at the chick selling her virginity on the internet. You know that some pornographer out there is going to find the absolute longest guy he can find. She may find out that what she is asking for may not be what she wants.
These guys do not take money seriously. At one point, the Soviets didn't either. It was about production and status and dominance. They cratered their economy as a result. We just don't learn, do we?
Well, the next 6 months to a year will be very telling. With more business and personal bankrupticies; residential real estate continuing to fall; commercial real estate not circling the toilet bowl; stock dividends and interest drying up; unemployment rising to double digits; assets of every class continuing to deflate in value; and public opinion and confidence continuing to slide into pessimism... we'll know if the Fed, Treasury and Congress will succeed in their bailout/stimulation attempts or if they will be overcome and drowned by deflation which leads us into depression.
What is really happening here now is a drying up of income, a lowering of income from all sources. Money will become very scarce.
There is no place to go other than some sort of business activity that makes money during hard times, unless you have a job in an industry that is sustainable.
Fasten your seat belts. This is going to be a multi-generational shift from consumption and risk taking to saving and risk aversion.
Historians may write that 2009 was the beginning of the 2nd Great Depression.
An Inquiring Mind
CORRECTION: I meant to write... "with commerical real estate NOW circling the toilet bowl".
My wife was layed off last month. After searching, she recently gave up looking. Instead, we pulled our toddler out of daycare and she's now a stay-at-home Mom.
We've cancelled all magazine subscriptions, stopped the Sunday paper, stopped donating to most charities, and use Craigslist -FIRST- if we need to buy anything.
Fortunately, my job is pretty stable (for now), but we've increased our savings rate even more just in case. Here in Texas there is no income tax, so hopefully the state budget shortfalls won't be as drastic as other states.
Inflation may happen in the future, but what I've seen recently is DEflation. Everybody is selling everything they own on Craigslist, so people are avoiding new things. Prices are dropping, and down the spiral goes. If you have cash to spend, there are some incredible buys out there.
-John in Texas
Jim,
It seems the government is selling the souls of its citizens to avert at all costs what really needs to happen in our country...
Can we all just embrace the word that no one wants to say... Depression! Whats wrong with flushing the unpleasant smell that festers from toilette bowl were all living in? The US stamped drop-in $1t white hockey puck cleaners (on sale now at WM) have and will not cut through the stench. Obama needs to call the plumber on this one.
For Obama and the country's sake, I really hope the honeymoon in Washington does not last very long. We need these people focused... but definitely not on our wallets. Of course if I could wipe with it first, well... they can have all they want!
Tom
We needed Ron Paul<<<<
Thanks for the laugh.
Yes, we are in bad times, but there are actually some good things happening....
1. So far, the government's actions have at least temporarily stopped the financial system from complete meltdown, which it was doing several months ago. Evidence of that success is how LIBOR rates have come down significantly, to a decent level.
What hasn't worked is that no money was directed to the main source of our current problems, foreclosures.
Plus, the financial system will need more money, as the deleveraging continues.
I like Nouriel Roubini. He figures another Trillion of financial system bailouts will be necessary. Anyway, whether we will need more or not, we should be prepared for that.
As for Peter Schiff and Ron Paul, what they don't understand, in their thesis that it is best to let the financial markets do all the correcting, is that financial markets almost always go to irrational extremes during exceptional times, like we have now.
2. Unrecognized by most people, at least on this blog, is that we have been given a window, to allow us to "print money", at least for the short term.
Virtually no one predicted that oil prices would have collapsed so much. Heck, much of our trade deficit comes from imported oil.
Plus, like I have said, collapsing RE and stock prices have essentially eliminated mega trillions dollars of our paper currency. A home, piece of land, solvent stock, etc, is still that.
Sure, the economy is still in a mess and getting worse, but moderating the mess is the key.
By the way, I do follow stocks, and worst case I see is maybe Dow 3000, but there are some pretty terrific bargains out there, where averaging down and having a good cash reserve, is a pretty good strategy, in my opinion.
What I do think may happen, and does seem to be heading that way, is historically stocks used to pay higher dividends than top quality bonds. But, that changed around 1950 or so, when stocks paid less. But, there are many quality companies, with little debt, which are investor friendly and pay pretty good dividends.
I'm not saying to rush into anything, but opportunities are presenting themselves. For anyone with cash reserves, and either a solid job or not needing a job, this really is a pretty situation, in my opinion.
Sure, there is risk, and I do think high inflation is a real risk, but not for now. We habve a window. If you think this country was stupid, other countries were even stupider, so thanks to them, we have this window. Whether they like us or not, they need us.
....Joseph
Joseph
You seem very upbeat, but then go on to say:
"worst case I see is maybe Dow 3000"
Let's see: The Dow was at 13930 in October of 2007. That would put the decline from Oct 2007 to the time when your worst case scenerio plays out, to be 100%*(13930 -3000)/13930 = 78%.
Yeah that sounds like good times.
OK OK I know: We are not at 13930 today. I just checked the Dow. I see 8274. A decline from this price to a DOW of 3000 represents a decline of ONLY 64% !
Hold the presses. I better get me some of that.
This is a once in a lifetime window of opportunity.
PS: I'm just giving you a hard time. You should not have thrown out that DOW 3000 number. It kind of ruins the whole argument
Jim,
Here's a link for you . Maybe you saw it already.
http://www.pensiontsunami.com/
As you said a long time ago...Pensions will come under pressure as well. and Viola!
Shift said...
PS: I'm just giving you a hard time. You should not have thrown out that DOW 3000 number. It kind of ruins the whole argument<<<<<
I just wanted to make sure no one thought I wasn't prepared for more bad times ahead.
...Joseph
I'm not saying the Dow will go down that far, just that I am ready if it does.
Meanwhile, my stock holdings have actually done decently, if one includes the tinkering I do with them, like making some short term trades to take advantage of dips and pops which I call managing a long term portfolio, plus the excellent dividends.
I never believed in the mutual fund, ETF, etc concept. Even index fund thinking. Anyone who followed that would have been caught in the Internet bubble, and recently with the financial stock meltdown. Lots of mainstream so-called experts would tout companies like Citicorp, Bank of America, etc, etc. I wanted no part of them, because it was so hard to determine what they were really worth. Same with GE, also touted by so-called experts. Heck, they had/have about $600B in debt. GE was/is basically a phony company, with some great businesses but a stupid business model. And most mainstream mutual funds are/were loaded with GE stock. I'm not saying GE doesn't offer some speculative appeal, but it is just that, in my opinion, a speculation.
I look at stocks differently than most. I look at them as buying a business, not really just a stock, and prepared to hold them forever unless some major news changes my opinion. Plus, my stock holdings are about 12% of assets, not major enough to hurt me, but high enough to provide a good income stream and some capital gains, all at tax-favored status.
Joseph,
In good times and in bad times there are always winners. During the bad times it just takes a more hands-on approach. Sounds like your doing well with your stock picks.
I wish you well.
Shift said...
Joseph,
In good times and in bad times there are always winners. During the bad times it just takes a more hands-on approach.<<<<
Thanks for the good words.
However, I would say that a hands-on approach is just as important in good times. Heck, look at the housing bubble and how many people threw away plenty of profits during perhaps a once in a lifetime opportunity.
One thought I always keep in mind is that no one cares as much about one's money, as oneself. It always gets me when some article, book, or whatever says to consult your tax advisor or your investment expert. Sure, it is important to listen to others, but unless one makes an effort to understand all their money decisions, I think they are being too risky.
Look at that Madoff thing. Lots of otherwise smart people got caught, especially because the returns were so good in the good times. They just weren't questioning things enough.
One thing I have noticed is that characteristics of so many really wealthy older people and families, is that if one would look at their portfolios, they would see them as very boring, Treasuries, Munis, blue chip stocks and not much else.
I just read a chapter in a book, that says recently the top 1% of Americans have a higher percentage of the nation's wealth than in recent times, even comparable to the beginning of the 30's meltdown. That part is not really news, with Bush, etc, however, that it is why I try to look at this time as an opportunity. It is a time to emulate the really wealthy and pick up some of the things that they have, at bargain prices.
....Joseph
Joseph Oppenheim said...
"Sure, the economy is still in a mess and getting worse, but moderating the mess is the key."
Moderating by whom?
Seriously, who?
Nancy Pelosi
Chris Dodd
Barak "I lost my budget scapel" Obama
Maybe Barney Frank?
Or how about the duo of
Hank Paulson
Ben Bernanke
but then they have done more to get U.S in this fix than to get U.S. out
I garanttee you it won't be Nouriel Roubini or Peter Schiff.
"1. So far, the government's actions have at least temporarily stopped the financial system from complete meltdown,..."
Didn't the governments actions take us to the brink too?
At this point I'd settle for the government just doing the mundane, persecuting fraud.
Didn't the governments actions take us to the brink too?
At this point I'd settle for the government just doing the mundane, persecuting fraud.<<<<<
Sure, one can paint a pretty bleak future.
And news today was pretty bad with massive layoffs and all those Circuit City stores due to be empty, further creating a glut of commercial property.
And, yes, fraud bothers me, not to mention all the rampant crime and the prisons crammed full of 2.5 million criminals. I recommend the book, "Gangster Capitalism".
But, there are also a few good things happening regarding some of the rescue efforts, plus that window I keep on mentioning.
You might want to write off all our government's leaders, but I suspect there will be a few who rise and distinguish themselves. Heck, the president with the lowest approval rating in the history of the nation -from when such records started about 70 years ago (22% on this night's News), is leaving. It is pretty difficult to go down from there.
...Joseph
Hi John in Texas
When my son was born in 1992, I became Mr Mom. My wife had a good job. I figured out that if I had been working, just to cover all of the support costs and the extra income taxes from the additional income, I needed to earn 24K a year just to break even.
Your wife will save you money now that she has time to comparison shop for value. Plus once you learn to cook, food gets cheaper and better tasting at home.
If I needed a jar of mayonnaise tomorrow, I know it will cost me $4.50 for one jar. On sale it is less that $2. I have no idea what is for dinner on Saturday and Sunday, it depends on what is on sale or has been marked down when I travel down to the supermarket early Saturday morning.
Your observation that prices are dropping is real. Consumers are now the competitors of retailers. The retailers are in a lose lose situation. It's kind of sad but expected.
I'd keep the newspaper, the Sunday coupons pay for the paper. Plus the Wednesday food section tells your where to buy your food on sale. You can cut your food costs in half just reading the food ads coupled with Sundays coupons.
Hope the new life style works out OK for you, it should.
Hi Jim,
I just found your blog. I have enjoyed reading your several of your past posts. Would it be cost effective to continue renting instead of buying a home in a hyperinflation environment?
Anon 9:59
The wife pimping was my attempt a humor, I don't think it has gotten quite that bad yet (at least in my neighborhood).
I did see that bit on the chick trying to sell her virginity to the highest bidder. We laugh about dumb blonds all of the time, but its those rich old men looking for a tempting tart that are having a blond moment.
The thought that we could follow the Soviet Union into bankruptcy is rather sobering if not a real scenario
Thank you for your comments
Hi Inquiring Mind
Personally, I think that this depression will be 10 times worse than anything before.
It won't be the second, it will be the First World Wide Depression.
The thing that bothers me is countries like India and Pakistan that have nuclear weapons, we are talking about a fight for food and survival. Third world employment from the rich countries is drying up.
Thank you for your comments
Hi Angry Tax Payer
I think it's a little like my root canal. You don't visit that dentist unless there is a lot of pain.
The government knows there is a problem but it is just not that bad yet. Give it a few more months, and this will be a root canal of grand proportions.
Sadly, I suggest do not expect any real government solution, it just isn't possible. This is a debt and finance crisis that needs real tax dollars to solve. The money is just not there.
Thank you for your comments.
Hi Espnfan
With a hyperinflation environment, home ownership would be very desirable. The trouble is, once you reach that point in time, no one is selling assets, everyone is buying if they can.
You would have to buy before the hyperinflation became apparent.
A rule of thumb, if you can buy a house for 100 times the monthly rent, you have a viable investment that it would be hard to lose money on.
In hyper inflation assets like houses retain real value, dollars don't.
Hope this is of some help, take care.
We are in a major DEFLATION period accompanied by DEBT DESTRUCTION. With the amount of wealth that has disappeared, and the amount that is still to be lost, there is NO way any of these coming government bailouts or any attempted stimulus packages will stop this crash. (It would take tens of trillions to even make a start.)
The Fed, the Treasury, the Obama administration, Congress, etc. are impotent and have no chance of reverting this situation. The die has been cast... it is CORRECTION/DEPRESSION TIME AMERICA!
Cash is diving out of sight.
Unemployment is surging.
Residential and commercial real estate is going down the toilet.
The next wave of foreclosures, defaults and bankruptcies will set historical records.
Stock market and bonds are history.
Pensions will be decimated.
Government will spend and borrow and print itself into oblivion.
The American public will overswing on the pendulum towards saving and risk aversion which will further destroy the economy (the danger of having an economy based on consumerism). We will have a lost decade just like Japan and depression. The question is... how long will it last and how will we get out of it?
Say goodbye to our current system. It is going into the ash can. The question is... what will the new system be... socialist or free market capitalism or something new?
Won't have to worry about inflation or hyper-inflation. This deflationary tsunami will prevent it for a long time to come.
Those with cash (and those with jobs or businesses that are still making money) who keep saving are going to be the only guys in a good place.
An Inquiring Mind
Jim in San Marcos said...
Hi Espnfan
With a hyperinflation environment, home ownership would be very desirable. The trouble is, once you reach that point in time, no one is selling assets, everyone is buying if they can.
You would have to buy before the hyperinflation became apparent.<<<<
Although I do think owning a home is good for a possible upcoming hyperinflation, one also has to be aware that all kinds of home-related costs could also spiral higher, like property taxes, insurance costs, home maintenance and repair costs, etc, etc. So, just owning a home would not be all one needs, in fact if the person wasn't also protected in other ways, he/she could lose the home anyway.
Remember, there really are only a few nations, the US and Britain mainly, which have a mania about owning homes. And it is just that, a mania. Not that owning a home isn't a good thing, just one needs to look at it from the right perspective.
Remember, professional landlords can take advantage of economies of scale to maintain properties, which homeowners cannot, unless they have home maintenance skills and the time.
One thing renting has as an advantage during uncertain times, is to allow flexibility for the person, to move easily if necessary, not to mention other flexibilities.
If someone can easily afford to buy a home, with little or no debt to also protect against deflation at the same time, great. But, if someone essentially bets everyting by loading up on debt to buy a home, I think that is foolish.
I'd say, if someone has to ask about the wisdom of buying a home, he/she probably shouldn't buy. It is a big responsibilty.
....Joseph
In a few more years you'll be able to buy a beautiful home for $50,000 (a house that cost $350,000 only 3-4 years earlier).
Before interest rates start going up you'll also be able to get a 30 year fixed mortgage for 4%. The lowest mortgage rates in over 60 years.
Those with money should just sit back and wait. You'll have the biggest bargain basement sales on homes, cars, boats, etc. that you have ever seen in your lifetime.
Inquiring Mind
"Obama is going to save us?"
Worried you're too old to join the Nation of shoveler's.
prosperity thru debt,
shoveler # 455-86-9348
Not the greatest attempt at humour but...
shortbus
Hi Joseph
I agree with your advice on buying a home. We speak in generalities and real people live under specific conditions. Advice that is good for one, might not be good for someone else.
If the present government tries to print its way out of this mess, a home will be a store of value that cannot be ruined by inflation. I look at a home as a gold inflation hedge equal to about 175 ounces of gold. If you need mobility of assets, a home will not qualify.
What we are looking at here is the preservation of capital with leverage supplied by the banks.
Property taxes could be a real issue, they were in the 1930's, people gave the property back to the state, they had no income.
Hi Inquiring Mind
Common sense agrees with what you suggest. I am waiting a bit longer to buy a home. The trouble is if I wait another 10 years, I'll be looking for an "Old folks" home to buy. Investment perspectives fluctuate but age demands that we change our perspective.
I do believe that bargains will abound as things get worse.
If you read the book, "When Money Dies" about the inflation in Germany from 1912 to 1923 you realize that our government is on the same path. The currency was not tied to gold, the central bank started to back all debt, government bought into the idea that debt did not matter and corporations stopped paying the debts. Write your congressman and suggest that we balance the budget and see what kind of response you get. They will all say that we must continute to borrow to save the economoy.
You know the old concept that it is only in times of great challenge and stress that one is able to assess the true character and competence level of an individual or entity.
Well... this economic crisis that the USA is in will now fully demonstrate the total lack of ethics, knowledge, competence and understanding that our government "leaders" and Congress have. It will show that Obama and his team have no idea what real "change" is needed (he is just more politics as usual, evidenced by the administration and team he is building around himself).
How desperate can a country be to have such hope and trust in a man that has not even proven himself in his earlier endeavours. The main thrust of all of this enthusiasm is basically people of color overjoyed to see a black man (and he isn't even a black man) going into the highest office in our country. Of course they are completely ignorant of our economic situation and foreign relations as they exist and
what the future holds in store for them.
The crash of this country economically will show that our leaders lack the fundamental knowledge necessary to run a country so that it maintains stability, grows and pursues some sort of national goal or purpose.
An Inquiring Mind
Jim in San Marcos said... If the present government tries to print its way out of this mess, a home will be a store of value that cannot be ruined by inflation.<<<<<
I just finished "The Great Depression Ahead", by Harry Dent. I still have to go over my notes and write a full review of it, however overall I do think it is worthwhile, maybe not all the chapters, but some I think were very good.
Anyway, a couple of things I think are significantly different from the big one back in the 30's - early 40's.
1. Hoover raised marginal tax rates from 25% to 63% in 1932, basically guaranteeing a massive collapse in GDP. That was the time to print money. FDR eventually did that, and remember the stock market quadrupled in about 4 years or so, as there was a real economic recovery. But, we were coming back from such a canyon, plus with WWII our debt was so much more massive, compared to GDP, than today, that our economy was in a worse situation. We eventually raised marginal tax rates to 94%.
The right thing to do right now is print money, as long as a good part of it is spent well. Investing in infrastructure, energy, education, healthcare, etc is good money which will return more than the costs. I forget the number, but the % of GDP spent on infrastucture has been ridiculously low, historically.
2. Sure, we have to have a concrete plan to begin paying off the debt within a few years. But, unlike in those years, we can raise marginal tax rates and still have them much less than Hoover and FDR did, and still not have them as onerous. In my opinion, one of the easiest taxes to raise is the estate tax for wealthy people. It is scheduled to be eliminated in a year or two. It is an easy change to make.
Plus, it is a good time to revamp our tax system. I think there is a pretty good chance something meaningful can be done there because more people are ready now.
In my opinion, it is too soon to worry about printing money, because so much has just been wiped out, plus that oil drop has been a windfall, temporarily, for us. Plus, other commodity price drops.
Even Harry Dent's prediction of a Great Depression, is for one not as bad as the one back then. I'm not saying we can't screw up things and end up worse, or something like a WWIII or major terrorist attack severely complicates things, but, for now, printing money is the right thing to do, in my opinion.
...Joseph
An Inquiring Mind said...How desperate can a country be to have such hope and trust in a man that has not even proven himself in his earlier endeavours.<<<
On C-Span's Washington Journal, this AM, they discussed and took calls about whether there was too much optimism surrounding Obama.
And, I think a very good point was made. That is, optimism is a very powerful emotion for the good. Obviously, much is to be proven. But, starting off in an optimistic mood during troubling times, I think is a good thing. We shall see. One of the things Obama promised was to engage the public to sacrifice, through public service, something like to be exchanged for free education. Like if a teacher agreed to donate a few years to work in an inner city school after he/she graduates college, he/she would have their tuition, etc refunded to them. Anyway, if the optimism is used correctly, it can be quite good, even if it starts out as just hope.
Look at successful sports athletes. It is all about having confidence. Heck, a president is not unlike a coach. I think Obama has already proved, with two years of his campaign, that he can motivate people. Plus, the team he has built around him are at least recognized as qualified for their jobs, not as ideologues or cronies.
So, for now, I think the optimism is a good thing. The task ahead is big, and it requires a lot of people energized, rather than blase or pessimistic.
Sure, the honeymoon will end as he has to make tough decisions which will create enemies, but for now, I think it is a good thing. I have written about manias and how our society seems so primed for them, going from one to another, even lining up for blocks for new Apple products or Harry Potter books. Obama has a chance to use the mania correctly or waste it. We shall see, but so far so good.
....Joseph
Hi Joseph
I don't see it your way at all.
When Roosevelt took office in 1933 less than a third of the federal budget was raised using income taxes (individual and business). He introduced Social Security, which taxed everyone working.
If you can call the DOW industrials going from 9 to 36 at FDR's inauguration a quadrupling when it fell from 389 two years before something's not right.
Tax the rich is an idle taunt. It means nothing. If you can save 20% of your income each year for 40 years, you will become rich and you would have paid taxes on every bit of it. I would demand that this government take the budget and divide it by the number of citizens and charge each accordingly. Forget the free ride, even a dope dealer would have to pay tax. In Roman times every citizen worked one month for the government or paid to have someone work for him. That's how they built all of those roads.
Printing money does not plant crops or build cars. At some point you run out of things to purchase with the funny money.
Health care and Social Security are transfer payments, pure consumption, no product produced. Government is going to cut here.
As for paying of the national debt, how is that going to happen? If interest rates rise to 15% they will never be able to meet the interest payment.
The game is almost over, It's a little like holding an election on the Titanic for a new captain after it has hit the iceberg.
This government debauchery of the currency is nothing more that the biggest bank robbery on record. Your saving that you have already paid taxes on are being taxed 50% by this printing of money.
I hear everyone say that this printing is necessary--repeating it doesn't make it true. Inflation is government confiscation.
Our financial system has lost 8 to 15 trillion dollars. Replacing the paper is a waste of time. There will be a great contraction of wealth whether they take your path or mine. Government intervention just drags the process out.
"In my opinion, one of the easiest taxes to raise is the estate tax for wealthy people. It is scheduled to be eliminated in a year or two. It is an easy change to make."
I would agree to this, but the bottom miminum amount of estate value right now that qualifies for an estate tax, should it be re-instated, is set flatly at one million dollars.
If you add hyperinflation to the mix, a million dollars will cut deep into middle class estates. The more you inflate, the more millionaires you have, until the average normal guy homeowner is a millionaire if it goes extreme.
It would be nice if in the future, the estate tax could be adjusted for inflation ... because back when this tax was enacted, one million dollars was a HUGE amount of money.
Currently one million dollars is still a lot, but not huge like it once was.
In the future, one million dollars could be even less valuable.... at which time the estate tax could become the estate rape!
"In my opinion, one of the easiest taxes to raise is the estate tax for wealthy people. It is scheduled to be eliminated in a year or two. It is an easy change to make."
I would agree to this, but the bottom miminum amount of estate value right now that qualifies for an estate tax, should it be re-instated, is set flatly at one million dollars.<<<<<
It can be higher than $1M, maybe $5M.
Dent uses demographical trends a lot, in his analyses. Using that, he anticipated the 1990's boom, and actually back in 1993 as he does now, he anticipated as baby-boomers started to reach retirement age, since it was such a generationally large mass of people, selling assets, trimming down to smaller homes, etc, would begin a bursting of the boom.
However, the other side of the coin, as he points out, is that as this huge baby boom generation begins dying off, it presents a windfall for states that decide to tax the estates. Never before in US history have we created so many well-off senior citizens. Plus, as I see it, because we are a maturing and relatively economically successful society, it has had the effect of seniors not having as many kids, so there are less survivors to provide for. More is available to help us with this mess.
...Joseph
Jim in San Marcos said...
Hi Joseph
I don't see it your way at all.
When Roosevelt took office in 1933 less than a third of the federal budget was raised using income taxes (individual and business). He introduced Social Security, which taxed everyone working.<<<<
What a lot of people don't understand is that even though the Great Depression lingered for a long time under FDR, so much of what he did with the New Deal set the stage so that the eventual recovery would be on more solid footing, better laws and infrastructure. FDIC, etc. Social Security is part of that. Fixing it is simple. Sure, it means cutting benefits and raising taxes for well-off workers and retirees, but it really is intended as a backstop for the lower and middle class people and disabled, who just don't make it to being wealthy.
Another good point Dent raises and it is how I think, is with this mess there is greater need for both conservative and liberal viewpoints to converge, taking the good points of each.
Even Ronald Reagan, although a conservative, who advocated low taxes, signed into law the largest tax increase in history, up until then, by extending Social Security. It pains me how so many on the Far Right don't realize he was a pragmatist,not a pure ideologue, which helped make him a good president.
We need pragmatists. So far, Obama seems to be taking that route. We need both to build democracy and free markets. Another mistake the country made was Smoot-Hawley. Our society, and others, are more advanced then they were back then.
With the global economy so important, it behooves us and the world to both not get protectionist and also build international regulations and organizations which protect the global economic system.
...Joseph
Hi Anon 1:42
The estate tax just won't work. If you or I had a son that spent money like the Federal government, we would probably cut them out of the will. The government will never get the money from the super rich, these people will do something "stupid" like give it to charity, building public libraries, cancer research etc. When you travel to a college look at the names of the building, here is where many estate went.
With the government printing money, they don't have to wait for you to die, they want it NOW!
A million dollars in 1964 had the buying power of 10 million today. We've printed quite a few dollars already.
The hard earned dollars I saved in 1964 have been taxed 90%. Retirement is not going to be quite what I envisioned.
The bill you refer to is one of those sunset laws. The Congress has to renew the present law because it expires. So when they vote for tax cuts and bennies they always expire, that way when they pass them again, they get a pat on the back from their constituents. It makes it look like they are doing something.
Hi Joseph
There are too many assumptions that I question.
I don't think that the people in charge today are any smarter than the people in the 1930's. If you want proof, we're in crap up to our necks just like they were.
Second FDR did not fix the great depression, he lived through it. He did give us a Social Security system that will be bankrupt in 5 years.
As for "raising taxes for well-off workers and retirees." That sucks. If you spend all of your paycheck thats OK you deserve every penny of your retirement, but if you plan ahead and save for retirement, we are going to punish you by taxing you more??
The Smoot Hawley tariff was an attempt to get Americans back to work by forcing people to buy stuff made in the US. It will happen again. Otherwise we will be flooded with "cheap" goods from China, India and Pakistan
Fixing this catastrophe is not simple. Our consumption bankrolled the third world. Today they are unemployed and will starve to death. Now we are truly the Great Satin. The rest of the world will blame this mess on us.
The government could raise taxes which would bring in real dollars. The trouble is that with the economy in a bad way, you would still end up with diminishing returns.
We have already spent this years total tax receipts on this mess. This printing of money on this large scale is like feeding a baby and refusing to change its diapers.
It boggles my mind that people think that we can just write a check and everything is OK. It's going to bounce and no one gives a damn.
Hi Anon 2:59
Thank you for the book title, it could answer a lot of questions I have on the German's hyper inflation of the early 1920's.
I'm beginning to think this boat we are on, is on the same tack as the Wiemar Republic.
Hi All
When quoting from someone, try to avoid copying the Bloggers name title and greeting name of the person being addressed. It makes some of these comments extremely hard to figure out especially if it is the first part of the comment.
Whoa! I can't believe this.
Talk about no common sense... being brainwashed and programmed... contributing to one's own demise...
Raising marginal income tax rates?
(Income tax was one of the key causes of the Great Depression; and one of the reasons we are in trouble today.)
Printing money?
(Inflate and destroy the currency. This is another cause for the problems we have.)
Heavy estate taxes?
(That money has already been taxed. Why is it ok to take money that is intended for heirs from people who have worked hard and been successful? This idea of taking from the rich is a diseased and degraded concept that comes from the lazy-communist-robin hood mentality.)
Investing in aspects of infrastructure that are flawed?
(Big error to expand or prop up aspects of our culture that contributed to our current problems... we need an electric national train system and miniature systems in every major metropolitan area and city in this country.)
FDR got us out of the depression?
(I don't think so. He just brought Marxism to America. Social Security, income tax, taking from the rich to give to the poor, etc. are all planks clearly taken from The Communist Manifesto.)
People espousing the above "solutions" don't even realize that they have been programmed to be bloody socialists and are playing right into the hands of the power elite. Communists and Capitalists are the same thing... they push an ideaology for the masses and as an elite group take in all the power and riches. They have both made a total mess of our planet and need to be given the old heave ho!)
All of the above ideas just continues the downward spiral towards destruction.
Relying on politicians to solve our maladies is a joke. They never have in the past and never will. All of the country's leading experts, economists, educators, politicians, etc. belong in the shit can. Why? Look at where they've allowed this country to get to... that is why. You judge by performance and statistics and accomplishments. That is the only logical way to decide who takes office and is removed from office.
Lord! Read the classical economists (Austrian Economists); read Adam Smith's Wealth of Nations; read Jefferson; read Franklin; etc.
Our country has been stolen from us and we are losing more and more of our liberties each day. They were kicked out twice before but the International Bankers (the Power Elite) succeeded again in 1913 when they got the Federal Reserve, central banks and income tax reinstated; and they've held fast and maintained control every since.
We need to end...
Government intervention in business and our personal lives.
Income tax.
The Federal Reserve and central banking.
Fractional reserve lending.
Fiat currency.
Anything other than the US Treasury being able to create currency.
Large government.
Labor unions.
Lobbyists, special interest groups and business influencing Congress.
Socialism / Communism.
Penalizing the productive and rewarding the non-productive.
We need to be de-programmed and the train needs to be put back on the tracks. We need to run on the true laws and principles of economics, government and human behavior.
Anon 11:50:00 PM,
What the country needs is another civil war, except this time not against any particular state (although several come to mind) but the government itself.
Every great nation ends in the way that ours will... financial ruins followed by civil unrest, war, death and complete destruction.
Change is coming to America... you can count on it!
Hi Jim...
As for you comment that "I don't think that the people in charge today are any smarter than the people in the 1930's", that really isn't the way to look at it, in my opinion.
The way human civilization works, is that it evolves, building on past successes and failures. It is an accumulated 'smarts'. Heck, life expectancy in the US now is about 20 years greater than in 1930. To say our leaders had nothing to do with that, I think is wrong.
It's all about balance, achievements at the low end and achievements at the high end.
Could civilization regress temporarily or permanently? Sure, and I do think this is a test for our society, for both the US and the global community. There are times when good leadership is more important than at other times. This is such a time. Our leaders have more tools and acquired knowledge from which to draw from, than previous leaders.
So, we shall see if our leaders are up to the test. We do agree that things will get worse before they get better.
Hi Anon 11:50
I agree.
One thing not realized is that when these programs are created by government, they get tweaked and modified over time until they become part of the problem. The road to hell is paved with good intentions.
Bailout spending will be paid for by a combination of higher taxes and inflation.
If inflation is reined in, then taxes would be exorbitant.
If taxes are kept the same, then inflation would be utterly destructive.
At this time, neither taxes nor inflation has increased. This state will and must change in the future.
To protect oneself, if only partially, I would advise two things.
One, acquire tax expertise so you can do your own tax planning and look for your own tax loopholes. Else, spend money on tax professionals.
Two, convert some (not all) paper currency into assets that would hold their value. Precious metals come to mind, and real estate if purchased cheaply, and perhaps TIPS even if the CPI is cooked.
Joseph Oppenheim wrote:
"The way human civilization works, is that it evolves, building on past successes and failures."
This only works with technology and science. Financially, we keep making the same mistakes. This can not be denied. We have only gotten better at deceiving ourselves as to why this time is different than before.
For fun: Try to justify your
evolution of civilization statement without resorting to scientific or technological advances.
I'm not being snarky. I think it would be fun and instructive to tear into the evolving civilization argument.
Actually, here is the basic of the basic...
Technology and Science have evolved greatly; and The Humanities have NOT. Technology and Science have far surpassed The Humanities... left it in the dust actually. Because Tech and Science have progressed in quantum leaps, and The Humanities have stood still... we are moving towards extinction of the human race.
There is no lack of knowledge, information or technology for any of our problems. But there is a MAJOR BARRIER to using logic and applying the knowledge and technology to solve our situations.
The root of all our problems with government, economics, commerce, trade, foreign relations, social ills, etc. is... HUMAN BEHAVIOUR, THE HUMAN MIND, MAN AS A SPIRITUAL BEING.
Man is out of balance with himself, his fellow man, and in relation to the world. Until man understands who and what he actually is and is also able to overcome or rid himself of his "animalistic" and "destructive" tendencies; he will never be able to understand and love his fellow man and unite in a cooperative effort of survival.
(There is a root cause for war, aggression, greed, destruction, etc.)
This is why politicians, priests, educators, etc. have not been able to solve the ills and social maladies of mankind. (We have the same social ills and problems today that we've had in all of our societies and civilizations as far back as history has been recorded.)
Obviously there is a missing factor. Man hasn't learned about the most important world--the world within. That is why he has not evolved.
Until man understands himself (the human mind and human behaviour) he will never be able to solve his problems. Solve these two points and you've solved all problems of civilization.
Inquiring Mind
Shift wrote...
For fun: Try to justify your
evolution of civilization statement without resorting to scientific or technological advances.<<<<<<<<<<<<
That's easy.
Try art, music, dance, spirituality, essentially everything.
For those who don't like newer forms of such things, the older forms are still available, like for those people who like to channel dead Austrian economists.
It's all about mathematics, and the concept of infinity, which can take us into spirituality. There are many definitions of spirituality, I use the meaning of that which is unknown. Every single second, more is being added to what is known, the finite. We get closer and closer to understanding everything, the infinite, but we will never reach there. That is the challenge in life, in my opinion, to test the limits in the things which interest us and make our life more fulfilling. Some people choose to dwell on the negatives, others the positives, but likely the best approach involves a balance. Problems are just opportunities to improve things. Does that mean someone, voters, or whatever, always make the right decisions? No, but even making wrong decisions can lead to successes later on.
"That's easy. Try art, music, dance, spirituality, essentially everything."
You're missing the point Joseph. The Arts have done nothing to mitigate war, poverty, disease, man's inhumanity to man, etc. etc. etc. Just look around at the world you live in.
That isn't evolution... it is just a more aesthetic environment, with a better sound track, more graceful dance steps, and an inverted and perverted spirituality (created by misguided organized religions with hidden agendas)... which gives us an even more beautiful background in which to continue killing each other.
If Beethoven's 7th Symphony, the Grand Valse, Monet's Water Lilies, St. Peter's Basilica, and the 10 Commandments haven't stopped man's inhumanity to man... no other form or art or existing "spirituality" will.
Technical and scientific forward progress, that leaves the spiritual side of man behind, is destruction.
Take Quantum Physics. They've have gone down to the smallest particle and now discover that in physical universe terms it is almost a "nothingness" and it locates in space based on one's decision as to where they want it to be located. At the center of matter is... nothingness. These physicists are now in awe and becoming very respectful, for they know that they now have confronted life itself, or something VERY close to it.
Man has a lot to learn about himself as the spiritual being that he is.
The solutions will not be found in the libraries of economics, sociology, organized religion, etc. They will be found in the study and understanding of the human mind and spirit... as they truly exist.
The last 3 posts have my head spinning.
We were discussing what government wants to do to us when we reach for that bar of soap.
We aren't going to solve any world problems here, lets leave that to whoever is running for Miss Universe;>)
Well, Jim... it looks like you've attracted some deep thinking philosophers to your blog.
Jim wrote: "We were discussing what government wants to do to us when we reach for that bar of soap."
That is obvious... the same thing that happens to any attractive young man who bends over to pick up his bar of soap in a prison shower .
Hi Anon 6:54
To split a hair with you, that fine Anglo-Saxon verb that I was indirectly abstracting to, has more to do with getting something of value for nothing. You promise the girl the world, get what you want and leave. Government is good at that.
I plead guilty for a poor analogy, I was trying to "inject" some government humor. Of course tongue in cheek, how can you tell if the guy picking up the soap is attractive? That's not the part of the anatomy you are "targeting."
Thank you for your comments, it's always refreshing to have some humor, we do tend to get a bit too serious at times.
Anon 5:27 wrote.....
You're missing the point Joseph. The Arts have done nothing to mitigate war, poverty, disease, man's inhumanity to man, etc. etc. etc. Just look around at the world you live in.
That isn't evolution... it is just a more aesthetic environment, with a better sound track, more graceful dance steps, and an inverted and perverted spirituality (created by misguided organized religions with hidden agendas)... which gives us an even more beautiful background in which to continue killing each other.
If Beethoven's 7th Symphony, the Grand Valse, Monet's Water Lilies, St. Peter's Basilica, and the 10 Commandments haven't stopped man's inhumanity to man... no other form or art or existing "spirituality" will.
Technical and scientific forward progress, that leaves the spiritual side of man behind, is destruction.
Take Quantum Physics. They've have gone down to the smallest particle and now discover that in physical universe terms it is almost a "nothingness" and it locates in space based on one's decision as to where they want it to be located. At the center of matter is... nothingness. These physicists are now in awe and becoming very respectful, for they know that they now have confronted life itself, or something VERY close to it.
Man has a lot to learn about himself as the spiritual being that he is.
The solutions will not be found in the libraries of economics, sociology, organized religion, etc. They will be found in the study and understanding of the human mind and spirit... as they truly exist.<<<<<<<<<<<<<<<<<<<<<<<
Well, thanks for the thoughtful reply. You bring up a lot of things, so I'll offer some comments.
The world has never been more peaceful in recorded history, based on the percentage of the world's population dying because of war(s), as healthy based on life expectancy, least impoverished based on similar percentages - but do remember some people want poverty - like some monks, priests, or others - there are just some people who are content with their lifestyles - happiness is not the same for all.
However, just in the last decade or so, over 300 million Chinese have risen out of poverty. Some really remarkably good things have been happening. Sure, we are encountering a tough economic period, but economics are normally cyclical.
As for the arts not affecting concrete things, I would argue that photos and video can be an art form, and they certainly have been used even recently to transmit images, even with personal digital cameras/cell phones which can effect meaningful change, like with Katrina, Myanmar, etc, etc. Plus, I really recommend the documentary, "Manufactured Landscapes". Unlike Al Gore's film which used all kinds of charts and statistics to bring attention to the effects of globalization/climate change, this film uses just art - photos and videos - and the film itself is art - with little talking to show what is happening.
Plus, many fictional movies - even satiric comedies, novels, etc, are used to communicate important thoughts.
As for your comments about music, I disagree. Heck, Dylan's "Blowin' in the Wind", "The Times They are a Changin'", plus I think it was Pete Seeger who either wrote or popularized "We Shall Overcome", which were anthems for the 60's advancement of civil rights, ultimately resulting in meaningful legislation around 1965. By the way, Seeger was invited to perform at the inaugural celebration yesterday, by Springsteen, another musical force merging with politics.
I'll also say that Dylan revolutionized music by freeing the mind, while Elvis did also, by freeing the body. After all, music is all about expression.
Also, I'll comment on your mention of "The Ten Commandments". Why weren't there 11 or 9, why 10? Especially, when the Torah has 613 commandments, why single out 10? Well, I don't know, but gee, using math, 10 is a number which is the basis of the digital number system, whereby maybe one can be led to use the Ten to create a very, very large number of laws to live by. And, gee, 613, if you add 6+1+3, you get 10. Not that this proves anything, but it allows such biblical scripture to be used as a living document, forever evolving thoughts and actions, as civilization evolves.
As for quantum physics, it is opening up a whole new way of thinking about things, and not just purely scientific applications. In fact spirituality has affected quantum physics. Einstein, not an atheist, but thought of God as represented by nature, with math being the language of nature. That is what led him to differ with most European scientists of the time who used induction - basically coming up with laws based on observations. Though Einstein was a physicist, he was enamored with math and its inductive form of thinking, which led him to relativity, first imagining it, then coming up with ways to prove it.
By the way, since you mention killing, the book, "Microtrends" looks for trends which might only appear in 1% of a given sample, then figuring since with globalization, the Internet, etc, 1% has the potential to spread to a very large amount of people, or way of thinking. In the book, it found a small sample of young people aspiring to be snipers. On the surface, that seems dangerous, and could be, maybe inspired by violent video games. However, there is another way of looking at it. Whereas, in times past, young people might have been more inspired to military pilots, now that war is more urban, sniping is a more moral way to kill than bombing, which has so much collateral damage.
....Joseph
Joseph,
This is very very sad:
"Every single second, more is being added to what is known, the finite. We get closer and closer to understanding everything, the infinite, but we will never reach there."
OK so the infinite is the understanding of the everything. What we know is finite. Somehow we get closer to the infinite.
I will ask you this: Why did you decide that understanding everything requires infinity? There is absolutely no reason for this. This is what I bet: You think it sounds nifty.
You did not even try.
It was stupid of me to ask you about evolving societies. Please forgive me.
Yes, Joseph. That is silliness. All the knowledge that is needed to survive can be sensed and perceived by man right now. He has all of the technology he needs to solve his current problems. It is just that the truth "dives out of sight", or to put it another way... is obfuscated by people with special interests. Our educational system is not teaching what is needed, because our educators have false data.
Sorry Jim. This is your blog and we have digressed far from your original posting. (Albeit, I deeply believe that my opinion that man must understand himself is the key to our economic woes, as well as all the other problems that exist on planet earth. It is the basic of the basic.)
Anyway, to get back on track...
Monetary policy (via the Federal Reserve) is designed to create the environment for a renewed lending and borrowing cycle.
The velocity of money is thwarting, and will continue to thwart, the Fed's efforts. It has plummeted and will continue to slow. Debt deflation (or asset/collateral deflation) and its continuance will not allow the velocity of money to increase.
The Fed cannot print and inject anywhere near the amount of money or wealth that has been and will continue to be destroyed.
Thus, the Fed is impotent.
The government and fiscal policy? Fiscal policy can cause very negative, unintended results (look at our history). Our debt to GDP ratio is already over 360% (the highest its ever been) and more debt may only succeed in postponing our situation and will eventually wind us up in the soup.
For the government to spend it has to either raise taxes (which will push us into deeper recession, or depression), or borrow money from the financial markets, which will take capital away from the private sector (which will push us into deeper recession, or depression). I think this is known in Texas as being "between a rock and a hard place".
Transitory tax breaks or refunds haven't helped. None of the governments actions in 2008 worked. And they will stubbornly continue them in 2009. We've had an unprecedented decline in household wealth and income. Americans are not going to spend, they are now saving (which will push us into deeper recession, or depression).
The government is impotent.
Prepare for the great reckoning. The deflationary tsunami has hit.
The best thing that one can do is to: not spend one penny that doesn't need to be spent; save as if one's life depended on it; reconfigure one's financial framework; work out a strategy to preserve what one has and come up with a way to continue generating income.
An Inquiring Mind
Just read that Singapore is cutting the salaries of its top public workers and ministers from 12-20% for starters and more if the economy continues to worsen.
That is the first government action I've heard about that makes any sense.
Could you imagine if Congress and all government worker's salaries were based on performance and key statistics? Could you imagine if members of Congress didn't have their own special social security and had the same social security that we the people have? Can you believe that last week, despite everything that is going on with the economy, that Congress took a pay raise?
Our government is corrupt to the core and in TREASON to the people.
An Inquiring Mind wrote.....we have digressed far from your original posting. (Albeit, I deeply believe that my opinion that man must understand himself is the key to our economic woes<<<<<<<
Sorry, but behavorial economics is part of the academic study of economics.
Understanding financial markets simply can't be done without understanding human behavior.
In fact, the key failure leading to the mess we are in, were from the "quants" who designed hedge fund algorithms, really genius minds, but failed to understand the human component of markets. Specifically, they failed to understand that price data points are not independent variables. George Soros long ago saw this meltdown, seeing how derivatives, used by "quants", were being used so massively and incorrectly. His description of "reflexivity", identifies that prices themselves affect future price movements.
Basically, the hedge fund "quants", didn't compensate for the fact that once in a million or so price changes, can happen more frequently than calculated by normal (bell curve) distributions, etc.
Some say that Wall Street was run like a casino. No it wasn't, it was much worse. Casinos are closed systems, with known probabilities, like dice rolls, card chances, roulette wheel chances, etc. All independent variables. Not so with price movements in financial markets. The are dependent variables. Sure, fundamentals, like earnings, interest rate changes, etc play a role, but the human factor makes the price movements dependent variables.
That is why understanding stock and other financial markets is more of an art than anything else. Sure, a scientific approach can be used to explain some of economics, but not all, especially with market price movements at tipping points. That is also why economists are usually split in forecasting. I'm not saying they don't have much to contribute, but there is so much new in the field, plus still not completely understood enough, although there are probably some who do, or at least can compensate for it wisely.
That is why ideologues are so dangerous now. There are so many moving parts, all intersecting, that it requires open-minded, more pragmatic leaders.
....Joseph
http://globaleconomicanalysis.blogspot.com/2009/01/open-letter-to-congress-on-sharing-pain.html
The above is an excellent read. You can cut and paste it into an email to send to Geithner, Summers and your representatives.
It points out the sources for our current situation and rails against the fact that the taxpayers are the ones expected to sacrifice and take responsibility... but not the people and groups who caused the mess.
I modified and sent this communication to all of my representatives and also asked my friends and associates to do the same.
This is proactive and lets Washington know that we aren't all programmed dummies.
Hi Anon 11:53
Thank you for the link. It pretty much covers what I have been talking about for the last 2 years.
Your suggestion to copy the link and send it to our congressman I don't think will accomplish much.
The reason I say that is your statement "This is proactive and lets Washington know that we aren't all programmed dummies." From my point of view, just doing it does demonstrate that we are programed dummies.
Read the article and write a letter not an email, and you might have an effect.
Of course, you have already made one assumption that is making things worse, you have assumed that these "fine" leaders/idiots (your choice) know what they are doing. They haven't got a clue.
Let Congress argue over whether the deck chairs on the Titanic are made out of Pine or Walnut. Move towards the lifeboats.
Thank you for your comments.
I guess you are right Jim. They are just going to rearrange the deck chairs on the Titanic. And now, the pressing current problem is—with the widespread damage that has been caused (not to mention what is to come)—the lifeboats have been destroyed too. There aren't any to move to!
Now what do we do?
There isn't any way to protect my assets or the purchasing power of my money. Maybe I just need to acquiesce... buy a copy of Mein Kampf, get a flag with a hammer and sickle on it and sink into a warm alcoholic or sedative nirvana in front of the TV. And be satisfied that the government is going to take care of me... REALLY TAKE CARE OF ME!
Jim, these first lines in this post of yours is incorrect:
"When one member of a family looses their job, the household cuts down on expenditures to accommodate for the loss of income. Or they could decide that since it is only temporary; maintain the current lifestyle using the credit card."<<<<<<<
There are also many other choices for the household to make. Just two could be to sell some of their assets to raise cash or use them as collateral to borrow money. Borrowing the money could be the wisest if the current worth of the collateral was depressed temporarily because of current market conditions due to the poor economy. And, these are but a few of possible choices.
Sorry, but it is not an "either/or" situation.
....Joseph
Inquiring mind not sure if I am on the same track as your statement re capitalism/socialism perspective, my take on all this is that the current economic malaise will be allowed to fester a little further so the “fix” will seem to be the only way out of this mess. Has anyone heard Germany and the UK leadership in the past month talk about a global fix in a political sense? Both countries are espousing policies that give up part of their sovereignty to overcome the current economic crisis! America may not be strong economically at the moment, but an independent America that maintains sovereignty, to my way of thinking is very important, for the rights and freedoms we still have!!
Caught the highlights of Obama’s inauguration, and seeing that sea of humanity filled with hope unsettled me quite a bit. And Jim funny you should mention the Weimer Republic, this is where my thoughts were at the time when viewing this.
Personally I like Barak although I am a little more conservative, I would not suggest any negative historical comparisons with leaders from the past, but like your blog has on many occasions suggested, there is no real fix to this in an economic sense. And feel Barak’s presidency will be one compromise after the other. Think were in for something completely different here.
Regards ….
An Open Letter:
Politicians and Management of the Big 3 are both infected with the same entitlement mentality that has spread like cancerous germs in UAW halls for the last countless decades, and whose plague is now sweeping this nation, awaiting our new 'messiah', Pres-elect Obama, to wave his magic wand and make all our problems go away, while at the same time allowing our once great nation to keep 'living the dream'… Believe me folks, The dream is over!
This dream where we can ignore the consumer for years while management myopically focuses on its personal rewards packages at the same time that our factories have been filled with the worlds most overpaid, arrogant, ignorant and laziest entitlement minded 'laborers' without paying the price for these atrocities…this dream where you still think the masses will line up to buy our products for ever and ever.
Don't even think about telling me I'm wrong. Don't accuse me of not knowing of what I speak. I have called on Ford, GM, Chrysler, TRW, Delphi, Kelsey Hayes, American Axle and countless other automotive OEM's throughout the Midwest during the past 30 years and what I've seen over those years in these union shops can only be described as disgusting. Troy Clarke, President of General Motors North America, states: 'There is widespread sentiment throughout this country, and our government, and especially via the news media, that the current crisis is completely the result of bad management which it certainly is not.'
You're right Mr. Clarke, it's not JUST management…how about the electricians who walk around the plants like lords in feudal times, making people wait on them for countless hours while they drag ass…so they can come in on the weekend and make double and triple time…for a job they easily could have done within their normal 40 hour work week. How about the line workers who threaten newbies with all kinds of scare tactics…for putting out too many parts on a shift…and for being too productive (We certainly must not expose those lazy bums who have been getting overpaid for decades for their horrific underproduction, must we?!?)
Do you folks really not know about this stuff?!? How about this great sentiment abridged from Mr. Clarke's sad plea: 'over the last few years …we have closed the quality and efficiency gaps with our competitors.' What the hell has Detroit been doing for the last 40 years?!? Did we really JUST wake up to the gaps in quality and efficiency between us and them? The K car vs. the Accord? The Pinto vs. the Civic?!? Do I need to go on? What a joke!
We are living through the inevitable outcome of the actions of the United States auto industry for decades. It's time to pay for your sins, Detroit.
I attended an economic summit last week where brilliant economist, Alan Beaulieu, from the Institute of Trend Research, surprised the crowd when he said he would not have given the banks a penny of 'bailout money'. 'Yes,' he said, 'this would cause short term problems,' but despite what people like politicians and corporate magnates would have us believe, the sun would in fact rise the next day… and the following very important thing would happen…where there had been greedy and sloppy banks, new efficient ones would pop up…that is how a free market system works…it does work…if we would only let it work…
But for some nondescript reason we are now deciding that the rest of the world is right and that capitalism doesn't work - that we need the government to step in and "save us..." Save us my ass. Hell - we're nationalizing…and unfortunately too many of our once fine nation's citizens don't even have a clue that this is what is really happening…But, they sure can tell you the stats on their favorite sports teams…yeah - THAT'S really important, isn't it…
Does it ever occur to ANYONE that the "competition" has been producing vehicles, EXTREMELY PROFITABLY, for decades in this country?… How can that be??? Let's see… Fuel efficient… Listening to customers… Investing in the proper tooling and automation for the long haul…
Not being too complacent or arrogant to listen to Dr. W. Edwards Deming four decades ago when he taught that by adopting appropriate principles of management, organizations could increase quality and simultaneously reduce costs. Ever increased productivity through quality and intelligent planning… Treating vendors like strategic partners, rather than like 'the enemy'… Efficient front and back offices… Non union environment…
Again, I could go on and on, but I really wouldn't be telling anyone anything they really don't already know down deep in their hearts. I have six children, so I am not unfamiliar with the concept of wanting someone to bail you out of a mess that you have gotten yourself into - my children do this on a weekly, if not daily basis, as I did when I was their age. I do for them what my parents did for me (one of their greatest gifts, by the way) - I make them stand on their own two feet and accept the consequences of their actions and work through it. Radical concept, huh… Am I there for them in the wings? Of course - but only until such time as they need to be fully on their own as adults.
I don't want to oversimplify a complex situation, but there certainly are unmistakable parallels here between the proper role of parenting and government. Detroit and the United States need to pay for their sins. Bad news people - it's coming whether we like it or not. The newly elected Messiah really doesn't have a magic wand big enough to 'make it all go away.' I laughed as I heard Obama 'reeling it back in' almost immediately after the final vote count was tallied…'we really might not do it in a year…or in four…' Where the Hell was that kind of talk when he was RUNNING for office.
Stop trying to put off the inevitable folks … That house in Florida really isn't worth $750,000… People who jump across a border really don't deserve free health care benefits… That job driving that forklift for the Big 3 really isn't worth $85,000 a year… We really shouldn't allow Wal-Mart to stock their shelves with products acquired from a country that unfairly manipulates their currency and has the most atrocious human rights infractions on the face of the globe…
That couple whose combined income is less than $50,000 really shouldn't be living in that $485,000 home… Let the market correct itself folks - it will. Yes it will be painful, but it's gonna' be painful either way, and the bright side of my proposal is that on the other side of it all, is a nation that appreciates what it has…and doesn't live beyond its means…and gets back to basics…and redevelops the patriotic work ethic that made it the greatest nation in the history of the world… and probably turns back to God.
Sorry - don't cut my head off, I'm just the messenger sharing with you the 'bad news'. I hope you take it to heart.
Sincerely,
Gregory J. Knox,
President, Knox Machinery, Inc. Franklin, Ohio
Wow! I consider that a great insight from someone who has been on the scene, looking into the BIG 3 for all of these years. Just plain old common sense. This is one of the many deadly viruses that is killing our economy and country. Let the auto industry sink and a new one rise from the ashes!
If Obama proceeded to do the right thing regarding our circumstances (altho a Socialist such as he doesn't have a clue as to what the right thing would be) he'd be impeached.
We live on a floating lunatic asylum. Spend, lend and borrow our way out of this? BUT THAT IS WHY WE ARE IN THIS MESS!
Nationalize our businesses? BUT THAT IS SOCIALISM AND THIS IS AMERICA... LAND OF THE FREE AND HOME OF THE BRAVE!
Prop up the failing banks and industries? THEY ARE THE WEAK, THE CORRUPT, THE INEFFICIENT, THE OBSOLETE. DON'T THROW BAD MONEY AFTER BAD... THAT IS WHY IT IS CALLED A CORRECTION... THE ECONOMY IS TRYING TO DETOXIFY ITSELF AND COME DOWN TO GROUND ZERO SO THAT IT CAN BEGIN TO RESTRUCTURE AND GROW AGAIN!
An Inquiring Mind
Jim,
The DJIA fell 4% on inauguration day. What most people don't know is that the US Banking Index plummeted 17.3% yesterday as well. That adds up to an almost 42% drop in one month!
CitiGroup fell 20%, BOFA almost 30%, JPMorgan fell 20%, WellsFargo lost 26%, PNC 50%, State Street fell 56%.
Royal Bank of Scotland had biggest loss in England's corporate history... lost 78% of its value. Lloyds lost 33%, Barclays lost 18%, UBS 16% and Credit Suisse lost 18.5!
Is this the beginning of the end for some of the top global banks?
We may start seeing some systematic closures of some of our US banks real soon.
It's actually happening. Do you think?
Hi Anon 10:24
There are things you can do. Have about a month of can goods to live on. Buy when it's on sale, it might take several months to reach that goal. If you have health insurance, get the stuff fixed now while your insurer is financial solvent.
If your getting old like me, you might want to modify a bathroom for easy access to the shower.
If you live in a high crime area, you might want to buy a rifle or handgun for defense (I don't recommend this only because you may come home and have it used on you). Bear in mind one person with a hand gun is useless, you need neighbors that think along the same lines that can come together for common defense.
I think that just the mere fact of understanding what is happening will guide you take what you may deem appropriate for your family.
We can't really predict how this will end, but we can anticipate what we need to protect ourselves from. Most people don't, so get prepared. Here is hoping that it just might not be all that bad.
Thank you for your comments.
Hi Joseph 8:22
Those two lines are a setup for the rest of the discussion. Government pays its bills like you and me or it becomes irresponsible and puts it all on a credit card (printing dollars).
It was more or less an implied suggestion that government was not playing the game by the rules.
Thank you for your comment.
Hi Frakrak
I agree economics cannot fix a bank robbery of this proportion. The real money has been spent and gone. What is left to buy with the new printed money--not much.
The year 2009 looks like a mean one.
Thank you for your input, it helps to make things a bit clearer.
Hi Anon 7:23
Every bank in the world has a gaping head wound. What happens next is any body's guess. With government intervention, there is nothing more than confusion. Sorry I couldn't be of more help.
Hi Jim,
If you like, as I would be interested, what pathways in your life, be they intellectual or personal experiences or anything, which have led you be so pessimistic? And, when?
As you know, I do think things will get worse, and I have taken reasonable preparations - like I always have, but I am not ready to predict an Armageddon scenario.
I will understand if you don't want to comment.
....Joseph
Hi Inquiring Mind
I made that open letter my next post.
I liked it to.
Your statement "We live on a floating lunatic asylum," pretty much says it all.
The frustration, the inability to do anything, is killing me.
Maybe we will meet in a food line in the near future and discuss this further. Take care.
Thank you for your post.
Hi Joeseph
I don't think that I am really dealing with some level of pessimism. I am trying to be pragmatic with the present situation. I don't offer investment advice, but you have the chance to make more money in a down market than an up market.
I do agree that I am an optimist with experience, and that is the definition of a pessimist.
I have had failures in my life, but I have always learned from them and rebuilt better than before.
I don't think that there is an Armageddon coming, there are a bunch of people that are oblivious to the economic conditions now present and they will be blind sided. It will prove interesting to see how it turns out.
Thank you for your comments.
Gee, Jim, from the way you worded your response, I agree with that attitude. In fact, the only real difference from the way I would describe myself, is that I have never considered any of the hiccups in my life as "failures". I did have a career in quality assurance, probabably because I do have an innate tendency to look for problems, however like I mentioned before, I see them as opportunities to improve things.
Thanks for your response.
...Joseph
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