Friday, November 26, 2010


Well they bailed out Greece and now they are going to bail out Ireland. This is proof that there is a pot of gold with every rainbow. Who bailed out Greece and Ireland? And with what from where? Now we have Spain, Portugal and Italy waiting in the wings. Grab a tin cup and queue up, it's free money!

These European government "train wrecks" are the result of borrowing and spending too much money in the past for things that they couldn’t afford in the first place. Many countries are broke and raising taxes is not an option. Ireland doesn’t need a bailout loan, they need to wipe the slate clean and start over. If they don’t do that, their citizens will leave the country in droves. Saving the financial world order will enslave us to our debts. Idealistic planning and dreaming got us into this mess. The good times are over. The world’s great social programs are underfunded or bankrupt. The people that benefited most from them could never be expected to contribute their fair share. When is enough too much?

In the United States, we are now spending money we never even dream of spending when times were good. The only way to pay the bills today, is to print dollars; it certainly won’t be raised in taxes. Four million homes in foreclosure and twelve percent unemployment, kind of suggests tax collections will be very lean in Obama-land this year and for many more years down the road.

Where all of these new found funds are coming from to bail out everyone? In Europe, it is the IMF to the rescue. Ever wonder who's in charge at the IMF?-- Ben and Tim!

In this country The Federal Reserve is buying Treasuries from Goldman Sachs; which is very logical when you think about it. The Fed needs to maintain interest rates of bonds already sold on the secondary market; therefore they have to buy every bond presented at par to maintain the interest rate. This insures that the rates at auction stay low without the perceived hand of government bidding at the auction. This could increase the money supply on a rather large scale (depending on how much is presented for redemption). The Treasury sells T-bills to China. China, later, dumps the bills on the open market and Goldman Sachs buys them for Bernanke at the Fed, keeping the interest rates low.

Are we really facing deflation or an end of “The good times?” The free-ride-gravy-train jobs are gone. In the 1930’s there was a measured drop in wages, people were desperate for work. The hourly wage didn’t keep dropping, there were limits as to what people would accept. The jobs that really took the hit were high paying ones, they disappeared (a lot of them were government jobs). Things returned to more reasonable levels.

Presently a lot of “million dollar homes” are slowly being revalued back to 240K. Is this deflation, or a return to reality? We could consider the release of air from the real estate bubble as a form of "deflation."

The Germans could be the key to this whole mess. Why should they have to foot the bill to keep the public restrooms in the rest of Europe clean? Their financial system has been through the wringer twice, once just before the Great Depression and again at the end of WWII. More debt is not a solution to solving the world’s financial crisis. The assumed financial responsibility to pay this borrowed money back is not there, "Just put it on our tab." The German’s are going to say “NEIN” to the PIIGS in Spain and that could spell the end of the Euro. This won’t set well with Das Über Führer Ben Bernanke.

Copyright 2010 All rights reserved


Anonymous said...

Between 22million and 26 million people in the U.S. work for various branches of govt.
Recently, a well known tv investment counselor said there will be 80,000. layoffs in the new year- not even a drop in the bucket.
In most cities in CA., at least half of city employees make $100,000. a year in salary and overtime. Don't expect this to change. The people who make the decisions on this, are OTHER government workers.

Jim in San Marcos said...

Hi Anon

I tend to disagree. A city the size of San Diego or LA is about to experience a 40 to 70 percent decrease in revenues available for city payrolls. A 20 percent drop in tax collected revenue, when 65% of your budget goes to fixed cost programs like retirement benefits, drastically reduces the funding left for wages.

If your payroll is say one million and your budget has been reduced to a half million, you have some executive decisions to make. Upper management tends to be laid off first and they tend to bump people down the ladder from there.

As a computer tech, I've seen our organization go from 24/7 service to 10 hours a day 5 days a week with all holidays off. There has been no real drop in service, it is just not as convenient for our customers.

Tyrone said...

Presently a lot of “million dollar homes” are slowly being revalued back to 240K. Is this deflation, or a return to reality?

Excellent question, Jim. I say it's a return to reality, or Fantasy Deflation, because the peak prices were total fantasy. When we get to '01 prices and crash below that, then the 'D' word can be used.

Anonymous said...

Thanks for your response to my first post. I like this site-no name calling, just good back and forth discussion on the facts.
I live in the San Francisco area. In response to a downturn in revenues, our city, and school distict, have "furlough days"-
no actual pay cuts, and no lay offs.
In addition, the school district wants to add an 8 year, $1,000. a year, residential parcel tax, to pay for teacher raises and increases in pensions, with NO accountablilty of how it is spent.
Of course, "It's for the kids."
Gov't. workers will fight like a caged tiger to retain their salaries and perks. It is up to us voters to push back, and say "NO".

Jim in San Marcos said...

Hi Anon 8:16

Glad you like the site. A lot of what we are discussing revolves around opinion and projected results, there is plenty of room for disagreement.

I can't believe that they want to raise property taxes up your way $1,000 per year. It's hard to imagine anyone who would even dare consider suggesting a tax increase in this moribund economy. Go figure.

Anonymous said...

As a sophomore in college, I am still relatively unfamiliar with all of this global economic interaction, but I recently wrote a lengthy paper for my composition class pertaining to this topic. We are supposed to follow up our research with some shared context in a existing forum for an "audience extension." I basically compared our present situation to the Great Depression and linked several contributing factors of the USA's recent downturn to those from 1920-1940. I realize that we are still a ways off from history repeating itself, but it is easy to see that we are utilizing the same irresponsible deficit spending that led us to the depths of the Great Depression.
In light of Greece, Ireland, and portugal not far behind, it is evident that incessantly spending money that we do not have leads to failure. It seems like now would be a good time to reevaluate our priorities and try to knock out some of the deficit while the nation is self sufficient and not entirely dependent on a bailout.

Jim in San Marcos said...

Hi Anon 11:04

I hope you got a good grade on your paper.

The thing to remember about the 1930's is that they didn't think they were in a depression any more than we do now. The wheels haven't come off---- yet.

There is one difference this time, the banking system didn't collapse as it did in the 1930's. In the previous one, everyone with savings lost about 90% of what they had. With the world wide government printing of money, we will probably still see a loss of 90% of our purchasing power through inflation.

I don't think that government is going to help us out of this one with spending. Ireland, Greece and Portugal are the first to fall, we are just further in line.

Best of luck to you in college. Its a very good time to be there.

Thank you for your comments.

Stock said...

I have long been amazed that what I consider to be "basic data" can be so hard to come by. Ask your realtor for a time series of prices in a certain neighborhood, and they will look at you like you are from Mars. Why? Well because this is a good time to sell (insert vacacious reason of whim here) and this is a good time to buy (insert vacacious reason of whim here), so historical pricing makes no sense.

Try to get good data on the indices going back a hundred years....good luck.

Even getting commodity prices is a feat. Wish I still had access to the full on Bloomberg, but alas that is no more. Costs around $30,000 a year, I had it for free.

So here is the project. Search out and upload "Real Data Series" of all sorts, and post them as direct downloads on Hawaii Trading.

You got Data? Send it over, I will post it up. Knowledge can be freedom and power. Let's create freedom and power, for free.

First chart / Excel is by me (Courtesy of the Perth Mint). This chart data is down-loadable in Excel at Hawaii Trading. Within 2 months, my goal is to have 25 spreadsheets with valuable data, available for free.

The Excel format is sloppy, it took me 30 minutes to whip it into this shape as they had odd date formatting.

Anonymous said...

The Germans could be the key to this whole mess<<<<<<

Certainly, they are part of the solution, rather than part of the problem.

Of course, it is important to understand some of the FACTS why.

One, is their partially socialized infrastructure like their Social Security, extensive unemployment benefits, gov't-paid education, especially gov't-paid education, gov't paid healthcare, etc, etc. Done through TAXES.

Two, it is important to remember they BAILED OUT East Germany after the collapse of the USSR and successfully did that while creating a more successful Germany.

The bottom line is the importance of SHARING and especially sharing/partnering between private and government.


Jim in San Marcos said...

Hi Rob

You were right, I edited his comment to keep it on topic and deleted yours as so to not confuse anyone.

Jim in San Marcos said...

Hi Stevo

Your need to be careful when you say some data is hard to find. There is so much mis-information on the net now, that it can be rather hard to sift through.

You're right about Realtors, there is a going joke about the guy telling his Realtor, "Show me just one property that has a bad location before I die."

I wish you the best on your endeavor, there is always room for one more new face.

Thank you for your comments

Anonymous said...

thanks Jim


Anonymous said...

Jim --

You say that we will likely suffer a 90% loss of purchasing power due to inflation.
Do you have any thoughts as to how many years this will take?

Jim in San Marcos said...

Hi Anon 12:15

In the early 1960's there was a program called "The Millionaire." If they were to do a similar program today it would have to be called "The Billionaire." It seems like it took about 30-40 years for the dollar to lose 90% of its value in that first period.

The way we are going now you could see the dollar drop 90 percent from its present value, in the next 5 to 15 years.

The retired people who saved for the better life, are the ones that will get burned on this.

Anonymous said...

Jim --

This 90 off 90 devaluation would bring the value of the dollar down to one cent. At that point, what is the likelihood they would issue a new currency?

Jim in San Marcos said...

Hi Anon 3:41

You raise an interesting point. There is no need for a new currency, but there may be the need for larger denominated bills.

My dad made 5K a year in the 1960's. Today it would be about 60K. So another 90 percent haircut would be a "pay raise" to 600K a year.

The government could chose the route of going to plastic debit cards which could be quite intrusive. They could track every dollar you earned. This could be the end of the invisible economy where people work for cash.

If they did issue a new currency, all those pallets of 100 dollar bills from the drug trade would be rendered worthless.

Of course if\when we get hit with hyperinflation, the whole world gets to reissue new currencies, probably with some link to gold.

Most of the world will feel nothing, they have no savings. It will only be of consequence to those with money in the bank.

Anonymous said...

Jim --

When you say "hyperinflation" are you referring to the 90% haircut over 5-15 years or something beyond the 90%?
I've seen the word "hyperinflation" used when what was really meant was "high inflation."

rob in ns said...


The analogy I would use is the Frog in a pot of water. Boil it slowly and it won't jump out. That's what I think the Fed is trying to do.


Jim in San Marcos said...

Hi Anon 1:46

High inflation and hyper inflation seem to be used interchangably. I tend to define hyper inflation as the point where government loses control over the currency and it collapses of its own weight.

With hyper inflation, you have money but there is nothing on the shelf to buy. It's not because there is no product for sale, the merchant wants something real in exchange.

Jim in San Marcos said...

Hi Rob

It looks like we are the frogs. All Bernanke is doing is throwing in an ice cube or two for comfort. It's only a short jump to the frying pan and from there........

Tyrone said...

If they did issue a new currency, all those pallets of 100 dollar bills from the drug trade would be rendered worthless.

Looks as though they are worthless, anyway. LOL

Fed's Broken Printing Press is a $110 Billion Problem

rashid1891 said...

In the United States, we are now spending money we never even dream of spending when times were good. The only way to pay the bills today, is to print dollars; it certainly won’t be raised in taxes. Four million homes in foreclosure and twelve percent unemployment, kind of suggests tax collections will be very lean in Obama-land this year and for many more years down the road.