Inflation or deflation?
Readers suggested a topic on home prices and overall price movements. “Where to now………………? Inflation or deflation?”
One said, “I know alot of retired people who tell me that inflation is killing them, especially the food prices at the stores and medical costs. Also, its interesting how the global money supply served to help create the excess money supply that made the housing boom so possible.”
A reader from Europe, “The reality is that current central bank policy hugely benefits certain citizens while stealing from others (savers/renters/fixed income etc.). I don’t think that will change, the politicians have already made their choices and continue the current road until the bitter end. And their choices about who to support are not much different in the US or Europe.”
“In Netherlands over the last 15 years or so, homeowners have seen their income from equity gains far outpace the higher expenses for daily life. Even with the current 5-10% yoy home appreciation the equity gains probably outweigh the inflation losses, that is: if you are a homeowner. Central banks and politicians know this, so they keep inflating.”
“Our realtors are now warning that there is a looming ’shortage of homes because of high prices’ in the Randstad (the big Dutch cities): home prices are getting unaffordable for most of the population, but on the other side home prices have to keep rising to keep the middle class homeowners happy, they simply need the extra income…”
“There is no real ’shortage’ of homes as the Dutch population is hardly growing. The shortage is artificial, pentup demand from people who want to move up as long as the government or tax office pays the extra cost, and many renters who want to own a home because that is the easy way to riches. The price level of Dutch homes is most of all the result of all the free money the Dutch government and the banks keep pumping into the housing market.”
One looked back, “In the 90s inflation pressures created by excess money did not go to gold. Instead they went into two successive bubbles, stocks and housing.”
“Also, the effects of outsourcing/globalization were highly deflationary in the consumer goods sector. This one-time deflationary effect is now over, and we have seen since 2000 gold outperform the stock market. Inflationary pressures at work in Asian export markets will now spill over into our economies as well and we will see that inflation was only postponed, not reversed.”
“Combined with weakening USD, growing demand for goods in developing nations, and rising commodity prices this is a recipe for hyper-inflation IMO.”
A reply, “I dunno. Look to Japan as a model? People seem to like to compare that scenario with the current one. They are still trying to recover from their last bubble collapse which drew down industries of all types, reversed growth and caused severe deflation.”
“We see deflation now. A dollar buys much more house today than it did yesterday. As people’s ability to purchase thing dries up further, a buck will buy more of just about anything than it can today.”
Another said, “Housing is deflating just like Enron and Worldcom stock deflated. It was overpriced and with similar lies.”
“The industry in Japan most impacted by the deflation were financial firms. It was keeping the banks solvent that resulted in a generation of deficits. Manufacturers were not impacted with lack of buyers, Japan is an export oriented country.”
“Tis not prudent to call a credit bubble collapse in housing deflation. The misnomer is the perception of houses as assets when they should more properly be thought of as liabilities.”
Which drew this post, “I can’t say I’m completely clear about your point.. but let me suggest that a house is a real thing.. solid.. bricks and wood. Under any conditions, some entity owns all or a part of it, and that entity sees it as an asset.”
“At the same time, it may also be a liability to some other entity, and in the normal course of things it likely is. How this particular distinction helps in predicting macroeconomic conditions escapes me.”
“If nobody can afford to buy that house, regardless of our POV of it as an asset or liability, it’s price will deflate.. no?”
Another added, “I would think that in most cases, aside from architecturally significant properties, most if not all of the (long-term sustainable) value increase is due to the land, not the decaying structure standing on it.”
“Outside of bubbles or the handful of cities where it’s nearly impossible to build a new building (SF and NY), the only way you can say that the building itself appreciates in value is to neglect the maintenance and other carrying costs.”
One made this stand, “I vote for deflation. There’s too much money destined to be destroyed by the coming economic contraction. Cash will be king, even USDs.”
One agreed, “That’s about it. The country will still have the hard assets and natural resources and goods and services available for sale.. (Most) people will just lack the money to purchase them.” “High demand is nullified by the lack of ability to pay the price. Add high inventory…in what direction do price tags go?”
One posted this, “People bemoan the negative savings rate in this country, as they should, and as a country the pain will be felt. But an individual in this country who bucked the trend and saved instead of borrowed will be in a great bargaining position in the days to come.”
“Because saved dollars are few and thus scarce their value will increase. Much of the borrowed dollars will simply disappear.”
In a world of fraudulent financials…
Gold (physical only, no mining stocks or supposedly stored metal need apply) is beholden to no government, or crooks that would do you harm.
I knew our financial system was ripe with dishonesty, but the levels it attained shocked the hell out of me…
One hedge fund was using leverage of 200-1, on their money.
That would be the equivalent of me asking you to sell me 1 oz Gold Eagle Coins for $4.00, and you saying, that sounds a-ok, how many would you like?
Be the master of your own destiny…
I’ve got a question. What’s the best way to buy gold, paying as small a price as possible over the current “spot” price. I’d rather not hold it myself, but trusting some company to do it is scary, too. And I don’t want to buy “derivative” gold-related securities (or Canadian Gold Mine stock, etc.). Any quick advice on what do do? Can an individual (through a broker) simply put in a trade request on, say, the Chicago commodity exchange?
Just find a local coin dealer in your area, google them, to make sure everything’s a-ok (shouldn’t be a problem, really) and buy 1 oz coins, as they have the smallest premium.
24K Coins are the standard in the Orient, so buy Maple Leafs or USA Buffalo Coins, as they’ll be calling the shots financially, soon.
The spread should be around $20-25 between the buy and sell price.
I’ve used this comparison before:
Buying a house: (until 6 months ago) Put nothing down, on a $500k item.
Buying a 1 oz Gold Coin: pay in entirety, and you’ll receive it. Otherwise, no dice.
Most states allow a sales tax exemption over $1,000. If your state is one of the unlucky few that doesn’t have this law, buy elsewhere.
Thanks! I didn’t even think about Sales Tax! I’ll do a little research. I hesitated to buy coins before because a $25 fee per $400 “share” seems a bit excessive. (And of course, the cost of having a good safe installed in your home, etc.)
p.s.
I’ve never heard of any modern minted bullion Gold coin, anywhere… of not being up to the stated purity
And i’ve been buying and selling oro for a looong time…
Also, you may get pitched on numismatic coins, ixnay on this collectible item, that will do horribly.
Bullion Gold Only.
… and if you pay cash and stay below $10K on each purchase, nobody knows you bought it.
aladinsane,
Any opinion on GoldMoney and/or Perth Mint certificates?
I buy gold from Blanchard and they have great one-on-one service where the guy actually knows your name and your goals. They ship you the gold and will buy it back from you (usually a 3% spread). The down side is a 3 week lag from when you lock in the price until the gold shows up at your door.
The spot price is for raw gold, gold coins have real value above the spot price because they don’t need to be appraised when you buy/sell and they are universally recognized. You will get your money back when you sell.
p.s.
In 1980 Russia was a NET seller of precious metals, and China didn’t have a pot to piss in…
My, how things have changed…
Here is an interesting tax case that was prosecuted last month concerning gold coins. Don’t be surprised that the MSM suppressed it. It is only front page when they arrest them.
http://www.nowpublic.com/crime/media-blackout-161-federal-tax-charges-0-convictions
Very interesting angle there. Pay your workers in gold coins at face value, and claim face value. Kind of makes the Mint’s claim of it being a $20 (or whatever) coin ridiculous, eh?
On the other hand, perhaps the government prosecutors went about it all wrong: Based on the face values of the coins, could they have pursued the employer for minimum wage violations?
Amazing. I’ve been asking this question since 2001 (I wrote a gold and silver newsletter back then). It would seem the perfect way to circumvent the tax system and return us to a system of real money.
On bullion, I prefer Kruggerands and Eagles as they come with a hardener so that they don’t scratch as easily as maples and other coins. GATA (Gold AntiTrust) posted an article this weekend on the ability of the Feds to take your buillion, gold notes, mining shares, etc. If you store it in a safe deposit box, the bank could have a holiday in a crisis and the authorities could take your stuff and give you cash for it. There have been scams before for storage schemes and you can imagine how that worked out.
Gold was an absolute steal back in the $250s when England was dumping it like water.
I use monex.com They are in Newport Beach.
I can always sell back to monex without having to do an assay or get an assay certificate.
~Misstrial
Buy the GLD ETF
Agreed.. A gold ETF is a good deal. You can buy and sell quickly, and someday you will want to sell gold. Most likely this will occur after the election. A Democratic victory will lead to a “strong dollar” stance. Usually not the best thing for Gold. Besides, you should only have up to 10% of your portfolio in gold.
ive been buying from AJPM.com. Dont know if theyre the best deal out there, but ive been happy with them and the service.
“Because saved dollars are few and thus scarce their value will increase. Much of the borrowed dollars will simply disappear.”
Please Lord, let this be true!
This would be true if countries like China didn’t hold vast quantities of USD. As they sell them off it will flood the US with these new dollars. Obviously someone with money will always be in a better position than someone without money so you should be able to find all kinds of used goods at a good price, but new imported goods will be very expensive until our country can adapt and start manufacturing things locally.
Also consider that demand for US resources will be world wide, raw materials in the US will still be expensive to US citizens because foreigners will be bidding up the price.
Factor in that the price of used goods is generally related to the price of buying a new item and you begin to realize that physical assets (not paper dollars) will be what maintains value.
you seem to be making the assumption that the USA’s economy will falter, while China’s economy can continue to inflate indefinately ..
to the best of anyone’s knowledge China is currently engulfed in fragile bubbles of it’s own, both stocks and RE, that some say rival ours..
If the whole world falls equally then we will still be behind because China has all of our factories.
We do have great natural resources in this country, but intelectual property will “vanish” overnight along with the “fiat” money.
While deliberately over-symplifing the situation, let me say that we buy from china, and are therefore the engine that drives china’s economy.. we also supply food to china but many (think in terms of large fractions of billions when speaking of china) chinese still go hungry while suffering massive unemployment, especially in rural areas..
Their political situation borders on violent revolution that could errupt at any moment, due to their inexperience and misguided attempts to rapidly shift to an “ownership” society of a sort, and to a semi-capitalist semi-totalitarian economy.
In short, if anything rocks their boat in the slightest, china is in deep trouble.
“intelectual property will “vanish” overnight”
This is fallacious. I along with many engineers I know are constantly courted to go to china to help them develop new products and solve the problems they are experiencing with fabrication quality.
They suffer from many of the same deficiencies of the old soviet system. The nail that sticks up gets hammered.
China doesn’t need us, we need them. We buy on credit, paying in depreciating dollars. They are our creditors, is that plain enough? You seem to think consumption is some kind of talent. Anyone can consume without producing and only a fool (or a foolish nation) goes into debt to consume while simultaneously exporting their manufacturing base. We’ve eaten the seed corn and borrowed to buy more. Now we will pay the price.
If anything rocks OUR boat in the slightest, America is in deep trouble.
I thin a lot of the wrongheaded thinking about China is a result of many of us growing up and being told “eat your food, there are people starving in China” and indeed, many Chinese starved to death in the 1960’s…
The best way to describe now and then:
1925 Buffalo was a prosperous city, one of our top 10 cities.
1972 China was poor beyond belief
Reverse their fortunes and here we are today.
China doesn’t need us..They are our creditors, is that plain enough?
sure.. it’s plain enough.
Your biggest customer not only owes you a ton of money but, on top of that, stops ordering your products and stops delivering your daily bread.
But why worry?
Perhaps you haven’t heard how low our stockpiles of food are?
Your biggest customer not only owes you a ton of money but, on top of that, stops ordering your products and stops delivering your daily bread.
But they are now industrialized and growing … think Japan in 1960. They can grow their own food, write software and make movies in their own language.
Don’t forget Russia next door. Long term, they don’t need us.
People are willing to live a lot more of a simple lifestyle than those in the USA.
ok.. lets examine japan’s growth in the 60’s. Was it in any way spontaneous? Was it forced by worldwide economic unheaval.. Did it perhaps occur during a worldwide recession?
Did Japan face conditions China is now facing?
Nothing of the sort.
It happened only after Japan’s society was destroyed and their entire political and economic systems had been transformed by force. Japan was an economic prisoner of war long after the war ended.
Meanwhile they needed to support no armed forces at all, and, being totally free to experiment and learn and grow while under our motherly, protective blanket they performed what some call a miracle.. and good for them. It could have gone either way.
Perhaps the Chinese could follow that route by taking the first step of throwing out the Chicoms who continue to strangle it’s economy and steal from it’s people.
Or perhaps China could attack some country.. Russia comes to mind.. and so suffer a devastating war that, with luck, might have the same basic effect of scrambling their entire existance.
lets see.. China and Russia.. Now there’s a match made in heaven… practically bossom buddies, historically speaking. Who would foresee problems between these two?
But do we imagine Russia has the cash? Could they come anywhere near replacing the buying power of the USA? Might they build thousands of WalMarts to absorb China’s capacity to manufacture crap.. and then sell that to a Russian population that has money to burn? Somehow i doubt it.
If i were China and faced the ugly but likely economic challenges of the near future, i would not look for comfort or seek guidance in the 60’s Japan’s model.
I think this is the appropriate quote here:
http://www.lewrockwell.com/blumen/blumen16.html
Schiff skewers another commonplace fallacy: that Americans provide the “engine of growth” in the world economy by consuming what others produce. Consumption creates demand for other products, but the point that is missed by most financial writers is that demand must be funded by supply. Unfunded demand created by printing more paper is simply a drain on the productive efforts of others.
The world no more depends on US consumption than medieval serfs depended on the consumption of their lords, who typically took 25 percent of what they produced. What a disaster it would have been for the serfs had their lords not exacted this tribute. Think of all the unemployment the serfs would have suffered had they not had to toil so hard for the benefit of their lords.
The way modern economists look at things, had the lords increased their take from 25 percent to 35 percent, it would have been an economic boon for the serfs because they would have had 10 percent more work. Too bad the serfs didn’t have economic advisers or central bankers to urge such progressive policies. [p. 14].
American consumption as world growth engine is an idiotic concept, just like the related ‘global savings glut’ from B-52 Ben.
nobody called American consumption a “world growth engine”.
I used the word engine in referring to what is helping keep the Chinese bubble inflated, by consuming china’s output.
What happens when consumers can not afford to consume that which China manufacturers?
Demand for the products still exists.. Supply is available. But nothing gets sold.
Someone suggested that other countries will pick the purchasing slack in the event the USA stops buying. What countries will be up to the task? How will they avoid a coming recession?
I think this credit bubble’s collapse will suck worldwide.. economies will fall like dominos.. like in previous recessions.
We are all economicaly chained together.
A recession in the USA will hurt China first and foremost, and anyone else that is primarily dependent on this large, wealthy customer, imo.
The rise of Chinese stock markets is also due
to communist officials laundering their money.
please tell me what the difference is with the US stockmarket. I can assure you there is far more money laundering on Wall Street and the EU stock exchanges than in the Chinese markets.
From Investopedia, Deflation is:
A general decline in prices, often caused by a reduction in the supply of money or credit. Deflation can be caused also by a decrease in government, personal or investment spending….
Declining prices, if they persist, generally create a vicious spiral of negatives such as falling profits, closing factories, shrinking employment and incomes, and increasing defaults on loans by companies and individuals. To counter deflation, the Federal Reserve (the Fed) can use monetary policy to increase the money supply and deliberately induce rising prices, causing inflation….
http://www.investopedia.com/terms/d/deflation.asp
We’re going to need some new nouns.
We are definitely seeing a credit contraction in housing and a negative spiral spreading out to other industries including lumber, financials, RE sales, and so on, as a result.
So called domino effect. This is the real concern. Not that massive amounts of empty houses or fraudulent loans are good but the “blowback” if you will is what will lead us to a 1929 type of event.
Deflation can occur if there is a fall in the supply of money OR an INCREASE in the demand for money.
Inflation can occur if there is an increase in the supply of money OR a DECREASE in the demand for money.
The Fed will do everything it can to counter credit crunch by INCREASE the SUPPLY and the rest of the world will act to DECREASE the DEMAND for USD.
IMHO the DEMAND for USD will fall much faster than the SUPPLY for USD leading to much higher prices.
A while ago, someone in this blog proposed a scenario in which we could have inflation and deflation at the same time. I’m sure that person’s explanation was much better than anything I can post about financial issues, but it seems to me that we are now having some deflation in housing and some inflation in other goods such as oil, commodities. How this all relates to the money supply is beyond me, but what if it’s really different this time around? Could we be headed into the unknown, namely housing deflation with inflation in other living expenses and no wage inflation in sight? Is this at all possible?
When you consider that money is just the most marketable comodity and that all things are relative then it becomes easier to realize that increasing/decreasing the money supply does not affect all things equally.
You also have to consider Supply/Demand for money, houses, etc.
Demand for food, energy, and other necesities stays fairly constant. Demand for luxuries falls when people don’t have access to money or credit.
Demand for basic housing is directly related to population. Demand for McMansions is a luxury where as Demand for a roof of any kind is a necesity.
We now have an over supply of housing combined with “fixed” income levels and a continuing devaluation of dollars (+supply/-demand) This pushes prices up on necesities up and prices of luxuries down.
Supply and demand is now world wide so the only savings a local economy can get is labor savings, raw materials will still go up in terms of dollars.
Bottom line, we cannot inflate away our housing debt unless we can increase wages and we cannot increase wages without devaluing the dollar and increasing the prices on necessities. Increasing prices on necesities will reduce income availalbe for luxuries and thus bring their prices down.
Bottom line, we cannot inflate away our housing debt unless we can increase wages and we cannot increase wages without devaluing the dollar.
Cool, VT Dan, now I’m beginning to get how hairy this thing can get. Oh, my…
Yep.
And keep in mind, we don’t really care who buys our wheat every year – we only look at the price. As we don’t need the cash right this second we take a later payment – more cash. That may change if inflation spikes (as in we might take the cash on delivery instead of the extra 30ish cents\bushel for waiting two months…)
Thank globalization and import-dependence.
As many of us have said before… inflation on everything you need, deflation on everything you don’t.
Also from Investopedia, Disinflation is:
A slowing of the rate at which prices increase. Typically, this occurs during a recession as sales drop and retailers are not able to pass on higher prices to customers.
Disinflation is not to be confused with deflation, where prices actually drop.
http://www.investopedia.com/terms/d/disinflation.asp
Although commodity prices are increasing, some producers don’t have much pricing power and can’t pass costs on to end users. According to one source:
Dean scaled back its profit forecast, saying record-high milk prices are hurting sales and causing consumers to switch from name brands to cheaper private-labels products. The company also said it plans to cut 600-700 jobs, more than 2 pct of its work force.
‘The downgrade reflects the difficult operating environment — record-high raw milk prices and the oversupply of organic milk –that is currently affecting operating performance,’ said S&P’s credit analyst Jayne Ross.
http://tinyurl.com/35exet
Where to? To Hong Kong. It’s a pitiful turn of events when I’m infinitely better off invested in the bubble of a strategic enemy than my own markets. The only thing that scares me more is dollars under the mattress.
Try gold under the mattress.
Perhaps better, do what a friend of mine did. He trusts no bank and no dealer and no metals agent. He bought gold and silver bullion and built many, many tens of thousands of dollars worth of that bullion into the interior walls of his house. Granite countertops are nothing compared to the expensive, sound-deadening luxury of gold-weighted walls!
Gold melts in a house fire, you know. And if it’s undeclared on your insurance, you will *not* get it back.
Not safer than a bank, sadly.
U.S Farmland and timber are the most negatively correlated assets to all other financial assets.
people should forget this notion that foreign countries or currencies are somehow immune to the credit bubble’s collapse and can be seen as a safe haven…
Just like the history of our bubble, it’s effects take time to spread. It begins in one place and spreads slowly.
Similarly, in the end, no place on the planet will prove to be “different”.
It might be safe to assume that investors cautious enough to have survived our bubble with cash to send to Hong Kong may be coping with historic shifts in wealth as well or better than others. I have neither seen or read of anyone characterizing SEHK as anything BUT a bubble. It does not follow that no one should avail themselves of the best investment opportunities and execute their portfolios in a disciplined manner. Not everyone is a slave to greed and fear.
Inflation is caused by increase in the supply of credit, not the printing of money. The Fed only prints according to demand. The real inflation is caused by people borrowing money. If the credit bubble collapses, there will be deflation, not inflation. In that case, cash is king. Why are the banks having so much trouble lately? They do not have enough cash. It doesn’t matter what the CB’s lower their rates to, if firms cannot raise enough cash to settle their debts, they are bankrupt.
The only way for this credit crunch to end quickly is if the Fed guarantees all those toxic CDO’s that were sold the past few years. That would only cause more troubles.
inflation caused by borrowing.. interesting..
Are you saying that along with my promise to pay $100K in exchange for a house valued at $100K, that something real called “credit” was created, and that this somehow affects the economy?
The way i see it, nothing at all was created during the deal.
In effect, what happened is I did pay cash for the house, but the bank and I agreed that the actual transfer of money would be delayed..
So, the loan neither adds nor subtracts anything at all. The deal was an even trade and affects nobody but the bank and me.
if you promise to buy, the seller immediately gets $100K and thus it is borrowed into existence; because of the nature of central banking, this $100K appears out of nowhere on the banks balance sheet. Nobody provides this money, so the total amount of money in circulation increases and all consumers together have more money to buy = inflation.
you make the assumption that the seller immediately gets $100K and then speak about how the debt might circulate through the central banking system, and that nobody, anywhere down the line, needs to back-up that “new” $100K with real assets.. it’s another subject which i’d like to examine, but be that as it may..
There’s no need to complicate matters to this degree. The proposed premise was simple: Borrowing creates inflation, true or false.
If borrowing creates something, you and I can do the deal and see what happens.
I buy your house. You accept my promise to repay.. no bank was involved. No money exchanged hands, and nothing was created, inflated or deflated.. at least nothing that affects the economy.
I see your problem. When you borrow from the BANK, money IS created. If you borrowed from someone and slowly paid them back, money IS NOT created. The reason for the former is because the money you borrowed is INSTANTLY available to the seller. The bank only needs to keep a fraction of this money in reserve per The Feds rules (10%). The latter case does not make money because the seller can only buy as you pay him/her back. At least this makes sense to me.
Though I think there is some bias, watch this series of videos that talk about gold, fractional reserve, and how it all works :
http://youtube.com/watch?v=cy-fD78zyvI
The reserve is much, much, MUCH less than 10%.
I read in the WSJ today that finance companies have noticed a sudden uptick in people borrowing against their 401Ks. I guess that is the final source of equity to “liberate,” or second to final if you count selling their organs or children.
Instead of looking at the doom scenario, who about the “good scenario?” That is, the rest of the world continues to improve economically, and the U.S. lives within its means?
That is a scenario in which you get the opposite of what we have had — U.S. assets deflate, but prices of many consumer goods inflate. We are outbid for food and fuel, and imports cost more. To the extent that those in the service sector have the power to fight against that by demanding higher wages, prices of U.S. services continue rising in sympathy. Employment remains high, but what you can buy for it falls.
It’s already happening, some could argue.
I guess that is the final source of equity to “liberate,” or second to final if you count selling their organs or children.
I am seeing PLENTY of offers to be an “egg donor” or surrogate mother on Craigslist. I think the going rate for that is about 10K for success. Look for more “creative” ideas of this sort.
People borrowing against their 401Ks are also contributing to the war on savings! When they get old, they’re just going to tax the rest of us to take care of them.
One very scary scenario is, suppose a couple saves a couple million and hopes to retire with interest income plus a little SS and medicare help.
When we run short of tax money, these folks will probably be deemed to “rich” to receive any SS or medicare (there’s already talk of withholding it for “wealthy” seniors), and they’ll have to live off the 60K or so they can get out of conservatively investing their nest egg. This covers their property tax (let’s assume their house is paid up), medical insurance, etc.
A couple who saved nothing and BK’d a few times gets government help (funded by the “careful savers” of the first scenario)
They both end up with the exact same standard of living.
As near as I can tell, from reading what politicians are proposing to “save” social security, etc, this is EXACTLY what will happen.
I always like being honest, but the only way not to be screwed is to start making money under the table and hiding it in gold somewhere. (Not that I’m in the position to do this!)
Both Democrats and Republicans have proposed removing the Social Security earnings limit. This means that a hypothetical hard-working small businessman making 400K/year (and working his butt off 7 days a week) would, overnight, get a 50K/year tax increase. All to help subsidize lazy good-for-nothings who can’t save anything.
“When we run short of tax money, these folks will probably be deemed to “rich” to receive any SS or Medicare ”
That’s probably exactly what will happen. The politicians will keep kicking the can down the road, on the issue of SS and Medicare, until the whole mess implodes. After all, the fiscal responsibility it would take to fix the future problems, won’t buy them any votes today.
Also ,every year they tax SSI more if you have additional income from savings or a pension plan .
it already works this way in parts of Europe and certainly in the Netherlands. People use tricks to game the system: e.g. even if you have a couple of million, make sure you give it away to your children in some tax-friendly way at 65 and then claim benefits so the state has to pay for all your special expenses (like housing/care for elderly people, which is expensive if you have to pay it yourself) until you are 90 or so. Of course, some of these people travel abroad (like to their second home in Spain) and out of sight they live the good life with the money that they ‘no longer have’. Also, in some cities like the one where I live, politicians have invented a system where elderly people who have low income can get luxury apartments for a basic rental fee (that every 65+ person can pay from the money they get from the government). The cost of this system is passed on to other renters and homeowners in the city. Want to have a luxury home and don’t pay for it? Come to my city, make sure you get rid of your assets first and the government will be happy to help you out.
Of course, all this only works as long as there are not too many people cheating. The number of cheaters will probably increase strongly (even with the current elderly people who are supposed to have some ‘values’ left, fraud is rampant). If too many people cheat, the system will collapse and everyone who counted on the governement to provide them a nice old day will be in serious trouble.
Why do they have to save Social Security. I know it won’t be there for me, I am 28. So thats fine. But I really don’t want it, and eventually don’t want to be paying for it. If people can’t save for later in life, than thats just too bad. I also think if they ever decide to force 401k saving is just plain stupid. Why can’t we have actual choices? Are Americans really happy being thought of as stupid and need everyone to tell them what to do?
I like knowing that I can put money into my IRA and 401k. I actually wish I could check off boxes on where I think my tax money should go. The money might actually get distributed pretty evenly to each part of Govt.
Sorry, I think I am finally fed up with living in California. I may have a job offer to go to Utah!
the trouble is that all financially irresponsible citizens (those spending beyond their income) want the Social Security to stay, and they want you to pay for it. Government assures them this is the way to go and unfortunately, it works like that in most of the developed world. In Europe it’s even worse because the social security taxes are much higher and many people (like those who are self employed of who have some savings) are excluded from the system; even if your income is below the minimum wage, you still don’t get any social security but you sure have to pay up for it …
I do not know which way to swing, if you look at the housing market, one would assume, a deflation is in the works due to the slowing, etc, on the other hand, I was walking in my local mall comprising of about 300 stores, and I saw at least 30 help needed signs which indicates that there are jobs availabe, but people are not taking them because they are looking for the next great thing.
Inflation or deflation, I don’t believe the Bernanke camp even knows.
Inflation - Deflation, Who cares? I’ve got credit cards!
Consumer Borrowing Up Sharply
WASHINGTON (AP) — Consumers have boosted their borrowing at the fastest pace in three months, turning increasingly to their credit cards to replace home equity loans as a source of ready cash.
The Federal Reserve reported that consumer credit rose at an annual rate of 5.9 percent in August, the biggest increase since a 7.9 percent jump in May.
The increase was led by an 8.1 percent jump in revolving credit, the category that includes credit card loans. Consumer have been using their credit cards more to finance purchases now that home equity lines of credit are becoming harder to obtain.
Non-revolving credit, which includes auto loans, also rose at a faster pace in August, increasing at an annual rate of 4.7 percent, compared to gains of 3.1 percent in July and 4 percent in June.
http://tinyurl.com/yovb2s
In the UK, Barclays recently slowed credit card offers and reduced existing lines. Russian Standard Bank, a consumer friendly lender until recently, did the same.
With MEWs drying up as a result of falling home prices, what happens when credit card limits are reached?
Good question. It certainly won’t be dancing in the streets.
Maybe Helicopter Ben has an answer?
but Northern Rock still provides 125% financing on a home. So what is the problem? If they are soon taken over by another UK / US bank, maybe even more British (and probably other EU customers) can enjoy 125% financing and have another few years to rack up their debt levels?
Only one way from here: Gold and silver, silver and gold… fiat money is going back to its roots, and those are the same as toilet paper.
All of the world’s gold can fit in a 12 X 12 X 12 ft room… make your conclusion where true value is.
Silver is certainly better than fiat currency, but many people don’t realize that it’s performance in 1979-80 was a complete aberration, as the Hunt Brothers & Saudis, tried to corner the market, a bubble that lifted the somewhat common grey metal nearly 10x in value in less than a year.
And $100k worth of Silver weighs almost 500 pounds, vs a like Dollar amount of Gold weighing in @ less than 10 pounds.
Oh that’s horrible. Silver is so cheap that you can buy so much that you can’t even carry it around. All I’ve got to say is that the runs on the Countrywide and Northern Rock banks might be slowly entering the mass psyche. When does fear turn to panic?
actually the cube of gold would be close to 65ft on a side.. 152,000 metric tons.. but that’s still a tiny amount in the scope of things..
I can see where some large, new gold discovery at the bse of some remote mountain range might double the supply, and cut the price of gold in half overnight.
http://www.amnh.org/exhibitions/gold/eureka/funfacts.php
Gold foil hats for everyone then.
I lose sleep over the possibility of alchemists turning aluminum cans into Gold…
Not
it’s old hat.. stars have done it since the … well, since forever.
Mankind did the lead-to-gold alchemy around 1950 if i recall.. in nuclear reactors type things.. But, obviously its not profitable or we’d be using gold bullets and fishing weights by now.. i find it ironic that its much easier to turn gold into lead.
I think the measurement based on 1.3 cu ft per ton and approximately 85% of a total of 155,000 (metric) tons mined (132,000 tons) remaining would put that at 171,600 cubic feet or
arount 55 x 55 x 55 ft in total, but you are right it is a pretty rare substance unless someone figures out how to transmute lead to gold
Even cutting its value by 2 or 3 is negligible… remember that 500 years ago gold was actually used in coins and everyday purchases.
Silver is more voluminous… but more likely to be bartered for goods of value when the SHTF. I don’t see myself showing off gold coins unless I have a gun on me… either way a bad situation.
Denial down under…
“But the NZX-50 index stopped just short of a fresh closing high on Tuesday and overseas markets have also recovered. The sorry episode appears to be fast disappearing in the rear view mirror.”
Newspapers were useful once upon a time…
http://www.nzherald.co.nz/section/3/story.cfm?c_id=3&objectid=10468230
That’s for real. I sometimes wonder if everyone’s in some smiley-happy alternate universe. However, today’s Sunday paper showed some tiny cracks forming in the denial. Front page article said that the vast majority of first home mortgages are now 100%, and suggested not-very-forcefully that this might not be a good idea with the market slowing, as people could end up in negative equity. No shit, Sherlock. Quoted was Adam Parore, Mortgage Broker. His only qualification for this seems to be that he was once in the NZ cricket team. (Related thought: as a shortcut to identifing industries of the rich, financially illiterate and stupid, could we just follow the careers of former professional sportsmen?) However, he did come out with the useful information that buyers with even a 5 or 10% downpayment were now ‘rare as hens teeth’. These are the people who’ve been patronising me for years because I didn’t buy, and they’ve got no bloody idea that the vultures are about to come home to roost. I’m really hoping for deflation - barring catastrophic bank collapses, I’ll be able to buy for cash. Strikes me that the chance to patronise and lord it over others is half the reason for this. It would be deemed crass for me to wave my bank statements around and boast about my net worth at parties, but people have no such inhibitions when it comes to real estate. I’m looking forward to the end of all the endless eye-glazingly boring conversations about property prices and kitchen remodelling.
The conversation of what ‘asset’ means is an interesting one. I wont bother looking this up - some one else can do that… I’ve always viewed assets as things that provide a positive cash flow. In that sense a house is an asset, but not for the owner in most cases, rather it provides a stream of income for the bank.
Perhaps when you sell a house it becomes a one time asset assuming you are not under water. This gets to the heart of our recent housing bubble. People felt rich because they thought they had an asset when in fact they had a liability. They were encouraged in this fallacy by home equity loans but the truth is that the worth of the “asset” was yet to be determined. The loans were just bets on the housing market.
A house is an asset. It is NOT an investment. Once you finish paying for it, it is an asset that generates a value each year of the cost to rent it for that year - tax free - minus the cost of maintaining it in livable condition and keeping the property taxing authority happy.
No different than a car, really.
Once you finish paying for it, it is an asset that generates a value each year
That is the definition of an investment - an asset that yields income. Houses are investments - as long as there is someone who is willing to pay to live in them.
ok - if you own it outright then I’d call it an asset. Unfortunately most people do not own their houses out right.
Doesn’t matter whether you own it outright, as long as the income generated (rental value of property, whether you rent it out or live in it yourself) exceeds all holding costs, including mortgage interest, taxes, etc.
Which is the only sensible reason to buy a house in the first place.
Exactly, Hans. During the credit bubble, J6P and family were smoking crack, confusing debt with wealth.
What we are seeing is the Bush administration, via it’s cronies on Wall Street and the banks, holding up a very, very fragile economy. They do this by blatant propaganda, put out over the major networks. The network anchors and head honcho’s will never really do anything to upset the White House. To do so means getting blacklisted from the invitation list. That why we are fed the, “Economy is healthy and strong,” b.s. As Jon Stewart (the only serious news program even though it’s done via comedy) remarked on the Daily Show recently, “Yes, Mr. Bush! The economy is doing great! That’s why the US dollar now equals the Canadian dollar!” He should have added that the US is doing so well economically that many countries are dumping the dollar and there’s a good chance the US dollar will be replaced by the Euro as the worlds reserve currency.
So, what’s the scam? Simple. Under Bush, the US has fallen deep into the toilet. Not just dollar-wise but in credibility. The national debt is nothing short of a horror story and there is no end in sight of stemming the financial blood letting.
Here’s the scam. Bush and his neo-con cronies, only have 1 year left. Anyone who thinks the Republicans will get elected in 2008, should take a long vacation and get your doctor to prescribe a big jar of Prozac because you are cracking up mentally.
After the election, the Republican spin meisters will get to work attacking the Dems BUT, the newly elected administration are going to inherit the biggest financial mess in US history. So, the scam is to hold on and pass the crap onto the next government. That ain’t too far away and trust me, the Financial Gangsters of Wall Street who control the Fed and the SEC in cahoots with the banking industry and the oil industry and the pharma industry and the weapons industry, all wrapped up in Bush’s fake “War on Terror” which has made Bush’s cronies even richer by supplying war material, will keep this mess bubbling for another few months…..then it ain’t their problem anymore and then we will start to get, “When we left office the economy was strong and we were winning the war on terror. There was no sign of a recession. Inflation was low. Now look at what’s happening under the Democrats….Yada-yada,” spin will start.
Makes no difference. The Dems are just a little more sympathetic to the less well off but all US governments are bought and paid for by special interests these days. The Dems will try and get out of the debt. To do so they will increase taxes. They might last for 8 years but trying to financially re-float the USS AMERICA is going to be very hard.
Eventually the Republicans will get back in and resume their rape and plunder program via Wall Street and the banking system. It’s called musical chairs with the same players. As for the average American - that tugging you feel on your arms and legs and head - are the strings being pulled.
bush, clinton, bush, clinton
Can this country really afford more foolishness?
I saw a great bumper sticker a while ago: “No More Clintons! No More Bushes! That’s the Deal!”
The 8 years of Clinton in between the Bushes wasn’t too bad, was it? So what’s the issue, exactly?
Not that I’m voting for her. Ron Paul, all the way.
Don’t fool yourself. The Republicans only care about big business and the rich. The Democrats only care about big business and buying the votes of the poor. Both are very dangerous groups.
My cousin in Austin is a gold coin dealer. He has a shop at the MGM in Reno and travels to shows all over the Texas area. He is a history buff and showed me his collection. He also showed me his gun collection.
Hey, if I bought gold coins now didn’t I just miss the bubble?
i think this gold bubble has a ways to go yet..
Mounting economic fears will convince a lot of people to buy into it, raising it’s price further. And all the money taking flight away from debt related investments needs someplace to land..
‘i think this gold bubble has a ways to go yet..’
Probably. As it goes up in price it will draw more speculators. The value of gold is ? I used to think labor was a metric for where value could be normalized.An oversupply has decreased its value.
Gold, adjusted for inflation, is VERY cheap today. It would have to go to over $1000 an ounce just to get back to 1983 prices and $2000 an ounce to hit its all time high in inflation adjusted terms.
I am a bit afraid of the price of gold here but nonetheless i have been adding to my physical gold and silver holdings at these prices as ultimate insurance. I am much much more afraid of a deflationery type credit collapse that will take banks with it and possibly other financial institutions and possibly even lead to exchange controls. In the past week alone there have been two banks go down and the news items stated both had significant depositors over the 100K threshold. Nobody is crying for them and i don’t think they will be reimbursed for other than the 100K. I think this is just the very tip of the tip of the coming adjustments and i really think that there will be many banks and financial institutions that go down. My gold is safer than the banks and i am willing to risk price for that kind of safety.
LMAO!
Are all of your friends and relatives crowing about their gold? Are they pressuring you to buy it? Is the MSM covering gold stories daily?
Gold hasn’t even gotten started yet.
Guys,
I have been lurking for quite a while here. You guys are right and your metrics make sense. However, I do want to comment that this housing crisis is really going to get ugly and the collateral damage is going to be wide and deep. It is fun to know we are in the right and take some pleasure being right about the bubble but it reveals IMO massive and deep problems in the US economy that will affect us all. These problems have been delayed in their onset and this will make things even worse:
1. Lack of savings (negative in fact). I personally have no savings. Even knowing what is coming, I am not in a position to deal with it.
2. Massive debtloads (worse with each generation). I have a massive debtload, mostly higher education.
3. Hollow economy that neither mines or manufactures anything, even the “manufacturing companies” are shell companies where the real work is done overseas with a US address. With each passing year we become dependent on others to make our stuff for us we lose skills.
4. An aging Boomer population that wants to retire soon and take their ease and the lack of a solid Gen X/Y to wipe their butts and pay into their entitlement programs aka Generation Debt wallowing in student loans with 30% still living with their parents into their 30s
I think the higher education racket is the same crock as the housing bubble … the easy student loan credit has fueled incredible inflation in the universities just like the housing market. Even worse, it is an ambition tax as people feel pressured to get an education at any cost.
As long as credit cards are available, consumer spending will continue for awhile to take up the housing bubble slack. If this dries up, it will domino effect the whole economy and no one is going to be safe except for maybe a very few with federal pensions or independently wealthy who have assets in other countries. What to do? It seems like our economy is built on debt/the greater fool/smoke/mirrors and BS rather than solid concepts like spending less than you make, mining and manufacturing. In fact, what is the point of getting a great education if their is not an economy/jobs to actually utilize that degree? The jobs we are “creating” now don’t really need much skill and do not pay much.
Thanks for your post hirent .I am really worried about the state of the job markets for Americans .They have sold the Americans a bill of good about getting a education to insure a good wage .It all boils down to only coporate profit matters and Americans having liveable wages doesn’t matter anymore .
You hear the BS on the Business shows where they are trying to sell the idea of global markets being good ,yet they fail to mention the cost of good jobs to Americans being the price .
I believe in a free market economy ,but not at the expense of the American middle-class .
“I believe in a free market economy ,but not at the expense of the American middle-class.”
Labor arbitrage is the cost of a free-market economy. And it has already happened. First manufacturing was outsourced, and a huge number of “blue-collar” jobs that provided middle-class incomes with health benefits were offshored. Then design, marketing, accounting, insurance,and even govenment paperwork was sent overseas. Now, educated Americans in finance, IT, medicine, nursing, et. al. compete globally for American jobs at lower wages–that is, wages that HB-1 visa holders will accept.
That’s the job market.
The numbers heralded by the Labor Dept. include service and retail jobs–minimum or slightly above minimun wage without health or retirement benefits–the sort of waitress or sales job teenagers used to take after-school. There is nothing “middle-class” about these jobs.
Alan Blinder was the outsourcing guru under Clinton, who in tandem with Rober Reich, really got this game going. It has accelerated under the Bush admin. It will continue to accelerate as more companies look for cheaper and cheaper labor.
Whatever your degree, you’re competing against Indians, Chinese, East Europeans etc. Being a citizen is no protection or implied advantage.
The old, stable middle-class has been and continues to be eroded, both blue collar and white collar…nobody worried about blue collar folks getting creamed, since they wanted cheaper stuff to buy. As the culling of white collar jobs continues, the erosion of the middle class is an inescapable fact.
I was trying to think hard about what industries or jobs that can be counted on in the US. I can really only think of the basic government and farms as something we all need. Why are the unions doing their thing right now?
I only imagine with Hollywood about to shutdown at the end of October or beginning of Summer, that the entertainment industry will leave California and go to other countries. My girlfriend works at an entertainment law firm, and this is definitely a real issue for everything involved. I think the entertainment industry has all the high paid people working in the Los Angeles area.
Its also too bad that the jobs that teens use to take no longer are taken by them.
It is a mistake to think the economy is built on debt. The economy is built on debt and taxes.
Boomers have paid 50% of their salaries all their lives to the government, including subsidizing of the Xers who take years and years to get a bachelor degree. Now Xers also get to pay 50% of their income to government, and another 40% to debt service.
I talk to people here from India, from Europe, from China. They are amazed at the high level of taxes in the US. Despite what we hear, the US is one of the higher taxed countries in the world. And it just keeps going up.
Tell your government you don’t want to pay such high taxes anymore, and tell it it can &^%can 90% of its programs and workers.
Ronin:
Taxes are pretty low right now. I believe Boomers are known for being the absolute worst when it comes to living off of credit. The “Gen Xers” (what a stupid name) are now trying to cope with a system run by irresponsible Boomers that seems hell-bent on destroying the future for the benefit of the present. This is because Boomers will be dead soon, so they really don’t care what happens after that.
Of course, Boomers aren’t doing anything to subsidise Gen Xer’s education, becuase Gen Xers have already graduated. It is the Gen Yers (another stupid name) that are taking a long time to graduate because the cost of education is so high, and they have to finance it all themselves. That financing, however, is still not a subsidy. It’s a debt that will have to be repaid by GenY, further limiting their ability to pay for housing and everything else that Boomers will be able to easily afford thanks to the free retirement that will be provided by who, you guessed it, Gen X and Gen Y.
You, ronin, are obviously a Boomer. I want you to know that we Gen Xers and Gen Yers have a lot of animosity toward you. Your generation has been spoiled and irresponsible. We are now trying to clean up your mess, and all you do is complain because we can’t graduate fast enough.
Dear Hirent:
IMO, the credit-card domino has already begun to falter, and is now leaning on the retirement-savings domino.
You’re absolutely right about the hollow economy.
What to do? My plan is to pressure my legislators to repair our trade agreements so they once again work in our favor. Everything was fine until we got rid of all the tariffs and tax punishments that served to discouraged treasonous American CEOs from employing cheap overseas labor.
Other than that, the question is what to do with the $$ you can still earn. #1 is DON’T BUY A HOUSE (obviously). But what is #2? Save your money or buy gold? That’s why it’s important to know whether we will see continued inflation, or if Shiller will turn out to be right and we will start to see deflation. If deflation hits, then those with savings will prevail. If inflation continues/worsens, then savers will suffer the most.
The only silver lining I can see to this cloud is that housing is bound to crash regardless of inflation/stagflation. So to me, it makes sense to save my $ and buy a house later. I may miss out on some huge gold-related profits, but I’m scared of risk at the present, so I’ll just chicken out for now.
Gold will go up regardless on inflation/deflation because it gets its value in times of economic uncertainty. Just like housing will go down regardless because it is overvalued, gold will go up because it is currently as undervalued as homes are overvalued.
I’ve been trying to tell people for 7 years - inflation/deflation does not have a material impact on the price of gold at this point in history. This is about a crisis of confidence, and gold will reap the benefit.
I also like the phrase, ambition tax. While it exists, the bottom line is young students have to research their future career choices before investing huge amounts of time and money.
Good post. I especially agree that higher education costs are grossly inflated relative to the opportunities higher education allegedly provides; “ambition tax” has a nice ring to it. The cost of attending my particular private university, already expensive, has tripled in eighteen years. And how many students actually care about learning? In my opinion the game will be up when a critical mass of parents realize that they are just paying for the commoditized equivalent of a babysitter.
I think that public education is a good value and can provide an excellent education for the money if the student brings in a strong background and puts forth effort in attaining the degree. But I’m seeing that a lot of students are unprepared for college when they arrive as freshmen or that they don’t put in sufficient effort to keep up with classes in later years. There are US schools that are doing unique research that undergrads can tap into to build their resumes.
SnakeCharmer,
It is a lot like the housing racket. The same hyperinflation driven by easy credit (hmmmmm sound familiar). If the student loans (federal and private) were not available the tuition would have to drop. (As the subprime mortgages dry up look at what’s happening to housing prices hmmm…)
Student debt is even worse in same ways… I love the phrase “skin in the game” that I believe Warren Buffett coined. Federal student loans are the ultimate in skin in the game as they pass through bankruptcy and there is almost no way out of them.
The coming Greater Depression will clean things up a bit.
http://www.itulip.com/forums/showthread.php?p=17216#post17216
Bernana eke! conomy
Behold Bananaman Bernanke
In fact, what is the point of getting a great education if their is not an economy/jobs to actually utilize that degree? The jobs we are “creating” now don’t really need much skill and do not pay much.
I’ve wondered this myself. I’ve put off going back to college to finish off my degree for this reason…alot of the fields I was interested in are getting outsourced to other countries. So if I want to find employment in the future, the possiblity is great that I would have to immigrate to a foreign country. (I have no problems immigrating to certain countries but my spouse and family are problems that have to be dealt with is this should happen. And they never want to travel ANYWHERE much less immigrate). And most of the job opportunities I’ve seen available lately are positions that don’t need a degree, or are part time at best. To me, there is no point in paying for a college degree for just part time employment.
And there are alot of Gen X/Yers who I know have leveraged themselves to the hilt with student loan debt. I know people who have graduated from state schools with over 40K in debt for common degrees like accounting, business, and psychology. And these same people now have trouble finding decent jobs with benefits to now pay off those loans. *shudders* Yeah, I’m sure these people are going to want to pick up the slack for their Baby Boomer parents’ retirement and increased taxload.
People might sniff at me and my husband because we have no college degrees, but at least we have: a small savings, no debt at all (no CC or student loan debt), and a small business that provides an income. That, IMHO, makes us a helluva lot free-er than a great majority of the American populace.
Spacepest, I am very jealous! You have a lifestyle that will let your survive this coming recession/depression.
I have no savings and almost $200,000 in professional school loans. Going into this debt was the biggest mistake of my life. Many of Generation Debt are in the same boat and they wonder why we have a “birth dearth” are delaying marriage and not having kids anymore when you can’t get any financial traction.
I have no money to buy anything without borrowing for it so I don’t feel confident about buying anything. My consumer confidence is ZERO. I would love to live debtfree - in a trailer home would be fine by me with a low mileage paid-off Geo Metro that uses little gas.
My tastes and expectations of the world hit new lows every day
True prosperity = spending less than you make.
In retrospect I would have gotten a job in the trades out of high school where you can become an apprentice and your education is free and then when you are 23 or so, a full journeyman making killer wages with great benefits with NO DEBTLOAD.
Hi Hirent,
You’re probably not going to see this, but on the oft change you do, I copied and pasted your response, then printed, for my 22yo son.
I am painfully aware of GenXYer’s (dumb axiom, yes, I know) resentment toward baby boomers.
(I don’t know wha the heck I am, as I was born in ‘60, a tweener…ew).
I know many boomers who did not see fit to save for their child(ren)’s edcuation. WE did…college or trade school, it did not matter to us.
We attempted to teach our only son any work is honest work. We planted many trees together and he’s dug many of holes! Honest is what honest does.
Back to you dear…my humble appologies. Said son recently graduated from HVAC with all four certifications. It was his decision, and we’re very happy for him.
I am also happy for you–you labored for an honest education. Look upward and fare well. The skills and knowledge you have are a true achievement.
P.S. Look into loan forgiveness programs-it varies depending on your field.
Best and nice to meet you,
Leigh
Thanks, I don’t really resent the boomers as i don’t think our generation would have done things any differently if we had been in their shoes.
HVAC is a great field BTW. I advise a lot of young men who are too “fidgety” (2.0 GPA) for higher education but good with their hands that going into a trade can be awesome, a pipefitter can earn 6 figures for example and there is a shortage of them. A longshoreman here can make $150k - if they work a lot of OT. We import so much stuff from China they have SERIOUS job security. If you have some business acumen as well as technical skills, you can take the HVAC skills and start your own business like NYBG mentioned.
Here in Hawaii anyone with a toolbox and a truck can make good $ doing remodeling, handyman work can make big bucks.
hirent,
That is a lot of student debt load. What did you study? Based on the dollar amount I would have guessed medicine but with your future outlook, I’m guessing not.
You are right medicine - but I am in a lower paying specialty
Hirent
I graduste as a chemical engineer and a chemist. I enrolled into an MBA program. This was back in the late 80’s. There were no Jobs. I had a student loan for $23,000 at 7%. Depression and self blame was a routine part of my life. I thought no body was going to give me a chance. Finally out of desperation I took a chance on myself. So I started a chemical manufacturing business with $2000 (two thousand dollars of borrowed money).
22years later I am rich. So my recomendation is bet on yourself. Dont expect anybody to give you a chance. Start a business. My theory is its easy to make money and its more diffecult to make a living.
Good luck
NYBusinessguy,
This is a great post.
Please post it again on Monday, so more folks can see it. Thanks.
NYBG,
Thanks for your post. I am working currently as an employee to knock down some serious bills and acquire some practice skills and experience but I have decided going into business for own’s self is the only way to over get ahead longterm - I did one of those entrepreneurial tests and come out like 90%.
“And there are alot of Gen X/Yers who I know have leveraged themselves to the hilt with student loan debt. I know people who have graduated from state schools with over 40K in debt for common degrees like accounting, business, and psychology. And these same people now have trouble finding decent jobs with benefits to now pay off those loans.”
You have described the labor profile of Argentina - PhDs, pharmacists, architects, etc driving taxis for a living. Now, the same thing is here.
A friend of mine graduated from CalPoly several years ago and was unable to find a job that utilized her degree (English. In S. Cal it may as well be Spanish). So she tells me she wants to get a Master’s in English. She was already $18k in undergrad debt and now a grad degree will cost her about $5-7k more. *sighs*
~Misstrial
Colombia too. A lot of highly educated people without opportunity spells big trouble.
You have described the labor profile of Argentina - PhDs, pharmacists, architects, etc driving taxis for a living. Now, the same thing is here.
You are totally right, Misstrial, the only good thing is you get to have amazing conversations with taxidrivers. I was in BA in August when the whole thing with Paribas broke. A taxi driver told me he saw a weakening of the dollar coming and he had spread his savings between, euros, dollars, swiss francs, yen and I don’t know what else. He said he had them under a slab in his yard. It might not be true, but it sure seemed like a sophisticated choice for a cab driver.
“A taxi driver told me he saw a weakening of the dollar coming and he had spread his savings between, euros, dollars, swiss francs, yen and I don’t know what else. He said he had them under a slab in his yard. It might not be true, but it sure seemed like a sophisticated choice for a cab driver.”
Amazing, your driver could be an economist.
This whole thing is upside down, imo: Taxi drivers that are real economists; economists that should be driving taxis.
Imagine Greenspan behind the wheel.
~Misstrial
apart from the education system, people in Argentina have also have some practical training in how the fiat cheating game works; and apparently some of them paid attention
isnt that throwing good money after bad
spacepest,
Neither I nor my better half have a degree, but that hasn’t kept us from doing well. Employers want intelligence, talent, commitment, hard work and (when available) experience. Fancy pieces of paper confer none of the above.
Could this happen to some commodities?
In China, Farmers’ Labor Bears Too Much Fruit
By KEITH BRADSHER
New York Times
Published: September 17, 2004
Tang Dynasty poets extolled the fruit in the ninth century, when special couriers brought it to royal palaces. More recently, as industrialization and capitalism have lifted millions of Chinese out of poverty, litchis have become a fruit for the masses, and are shipped all over the world.
Yet in the last few years, litchi production has soared beyond anyone’s expectations. Retail prices have crashed, from $4 to $7 a pound in the 1980’s for the best-quality litchis and $25 a pound during a bad harvest in 1993 to just 75 cents a pound now. For the most widely grown variety, the lower-quality heiye, retail prices have collapsed to less than 12 cents for a little more than a pound.
The plight of the litchi industry shows both the promise and the pitfalls of China’s remarkable economic growth and its shift to an awkward but dynamic mix of capitalism and state socialism in recent years. As in many industries, from television sets to washing machines and now to cars, early success by a few producers led to a flood of investment, overproduction and the evaporation of profits.
…
Litchi production has risen almost tenfold in the last decade, to an estimated 1.5 million tons this year. The annual harvest is poised to climb as high as 2.5 million tons in the next few years as recently planted litchi trees grow ever larger.
…
Professor Chen said that he and other agricultural experts tried to warn farmers in the 1990’s that they were planting too many litchi trees, but were largely ignored.
“The farmers were very difficult about listening to us,” he said. “The prices were very high.”
calling it a result of a dynamic mix of capitalism and state socialism
jeeze.. what a bunch of crap.. an experiment in diversity gone sour.. suprising, not.
The only thing worse would be if it happened under pure socialism, where the price would likely be 1 cent per ton and unstable mountains of lychee were collapsing and burying innocent women and children.
sure, if you want to know how wrong things can get look no further than Europe and the EEC farming subsidies. People were buried for years under mountains of butter, tomatoes etc., although more in a virtual than in a real sense. And it’s still happening, except that nowadays most of the overproduction is dumped in Africa to kill what is left of agricultural production there (so we get even more economic migrants …). The cost of bad decisions is passed on to people who cannot do anything about it, while all the big farmers are richly rewarded for decisions that are very bad for society and the economy as a whole.
The problem with central planning is the lack of feedback from the marketplace .. nobody knows or cares how much toilet paper was bought and sold or the volume of local warehouse supplies.. no idea of current demand, and how much raw material to order to manufacture paper that will be needed today, next week or next month.
As a result, some months shelves are empty and the population wipes their butts with lychee leaves.. The next month there’s nothing left in the cupboard to eat, except toilet paper.
Oh, I would completely agree with you there. Killing agricultural production in Africa, mostly through completely misguided ‘aid’ has simply been calamitous for the Africans. If western countries had just left the whole place alone Africa would be much better off.
Mogambo speaketh…
http://www.dailyreckoning.com/Writers/Mogambo/DREssays/MG100507.html
I’m afraid it looks as if the central part of a larger jiggsaw puzzle, namely the “credit crunch”, or contraction in available liquidity is in place. All that remains are a few outlying pieces to make the puzzle complete, with a final picture of a depressionary economic environment for many years to come.
Many of you “want” our economic situation to be just like Japan’s was after their housing bubble…
Japanese have always been savers, and those savings are the main reason they didn’t suffer all that much, aside from running in place for 15 years, after the bubble blew up.
We are a vastly different country, as in, not only don’t we have any savings, we are debt up to our eyeballs…
Don’t think Japan, think Argentina.
If utter deceit was common as dirt at the highest levels of finance?
How does it bode for regular rank and file stocks?
How much dishonesty is hidden away, only to be found when the crime is discovered?
It can take a very long time to observe the unavoidable results of drought. There is a point in every process where the elastic limit is reached, like when the water table finally drops below the level of a tree’s deepest roots. A deluge of liquidity after that will not restore health, and it takes a long time to grow a new tree.
Poetic.
~Misstrial
The last post I could find from House Inspector Clouseau on this or any other blog was 06-22-2007. Does anyone remember him announcing a name change? I know he’s reading this right now, that stinker.
Not sure because I have been MIA off and on.
Miss his posts and wish he’d post again.
~Misstrial
HIC has been missing from the blog since the bridge collapse in minneapolis, his hometown.
I expect inflation. The US central bank certainly has the means and has also demonstrated it has the will to paper over problems with the US economy. BB thought he studied the great depression well, and his solution to avoid a repeat seems to be to drop $$$ from his helicopter on the first sign of trouble. There may not be a recession this time around, the FBs and Wallstreet in particular are saved. But alas, in doing so, the US central bank is losing something precious: their integrity and the trust of savers worldwide. In the process, the US may also be losing her leadership in the global economy and eventually the leadership in the global community.
“Also, the effects of outsourcing/globalization were highly deflationary in the consumer goods sector. This one-time deflationary effect is now over,.”
And in countries like India or China there is a high wage inflation of 10%..20% per year, driving the prices up for both imported and exported goods.
Inflation or deflation.
One fiction novel that has haunted me for decades has been James P. Hogan’s “Voyage From Yesteryear.” Basically it was about a utopian society that got along without economics. They were so advanced technologically that they had “Santa Claus” machines that not only could produce all they want, but the machines could replicate.
My argument against that idea is that there will always be some things that are of higher value than similar alternatives. How about a beach house in Hermosa Beach, as opposed to a house in Buffalo, New York?
My point is that there will be certain items that will be in higher demand in the future than now, since society’s values fluctuate.
Back down to earth, I think we will see deflation in real estate, electronics, computer software applications in the future. But certain real estate items will go higher in value. I do not know where. Climatic changes may make Canada and Alaska very pricey.
I think college education, oil-based products, and health care will experience inflation. Some jobs in demand where there are not enough younger people to replace retirees will experience wage growth.
Sorry to be so vague. The jury is out.
That reflects on my asset allocation: bonds, stocks, precious metal bullion. It reflects more on my career - being footloose and traveling across the good ol’ USA for the almighty $. And here I am in Baltimore.
One fiction novel that has haunted me for decades has been James P. Hogan’s “Voyage From Yesteryear.” Basically it was about a utopian society that got along without economics. They were so advanced technologically that they had “Santa Claus” machines that not only could produce all they want, but the machines could replicate.
That is one of my favorite novels of all time, although not particularly for the economics, but for the politics. The “leaders” running the ship would fit right into the current administration, whereas most of the people on this blog would be on the side of the colonists (and the good people on the ship too, of course). Highly recommended.
Ben Bernake special field of study is the great depression. His theory is that the depression and its associated deflation could have been avoided with more liquidity. His game plan is to replay 1929 this time with more liquidity, and higher inflation, steadier asset prices, and falling dollar.
The credit bubble of 2007 is just as big as 1929; there is no painless way to get past it, but this time we are going to try the inflation, liquid, low dollar approach.
Pushing on a string doesn’t work. Ask the Japanese.
The banks don’t even trust each other. How much will they loan out to J6P? The only thing the Fed can do is to personally loan out money to J6P.
Test
Go for the least expected… Virtually all here voted for gold, inflation, and a weaker US. The Fed is trying to keep this hydra alive, but too many heads are being cut off.
I see massive deflation, cash will be king– US$, British Pounds, Swiss Francs, even the Euro. Virtually every person, every investment fund, city, county, state, and country is mortgaged to the hilt. Even the cash rich countries such as Qatar and the UAE have most of their money that is leveraged and at risk. Gold, silver, commodities will all go down a lot. All this leverage will be washed away, worthless. And, yes, it will be painful.
This economic cycle has been maturing for a long time, it’s just the nature of things for some economic winter. How we handle it politically is the part that truly scares me.
I see massive deflation, cash will be king– US$, British Pounds, Swiss Francs, even the Euro. Virtually every person, every investment fund, city, county, state, and country is mortgaged to the hilt. Even the cash rich countries such as Qatar and the UAE have most of their money that is leveraged and at risk. Gold, silver, commodities will all go down a lot.
Gold is cash. It’s the only money that isn’t someone else’s liability.
“People bemoan the negative savings rate in this country, as they should, and as a country the pain will be felt. But an individual in this country who bucked the trend and saved instead of borrowed will be in a great bargaining position in the days to come.”
This individual, who prudently saved money while watching others spend themselves underwater, is the enemy in the unannounced War on Savers. Try to save money, and you, too can become this individual, and enjoy watching the Fed inflate away their savings into the hands of Wall Street IBs.
IMHO , any American Corporation that takes jobs outside the United States should be taxed on that job taken outside of the United States .
We here in American have now gotten to the point where the financial health of the Corporations means more than the health of the Citizens of the United States .
Does it really matter that a American Corporation is selling alot of goods to other countries if the Americans aren’t getting the jobs associated with that production ?
In the last 15 years this Country is not suffering from a fox in the hen house ,we are taking the hen house to the foxes .(If anyone understands what I just said ,more power to you ).
You are absolutely right, and it is a disgrace that the “cost” of moving a job overseas is tax deductible!
Outside of bubbles or the handful of cities where it’s nearly impossible to build a new building (SF and NY), the only way you can say that the building itself appreciates in value is to neglect the maintenance and other carrying costs.”
someone should tell this person shortage of land was a myth in SF. Reason being over the past 2-4 years now they built more than most other decades in the past I can recall. The same is true with the south bay. The shortage argument has been around for a long while. Good to see that the builders went against the propaganda the realtors have been putting out. I dont understand why they keep saying it considering its not true.
Absolutely. Same thing in NYC - all five boroughs. But brand new buildings weren’t even necessary (although prevalent). There were scores of dilapidated, condemned buildings that were simply converted. Boarded up buldings are the urban equivalent of available land in rural areas. When realtors and FB’s try that “they’re not building anymore land” propaganda, I just chew their ass up with my ‘dilapidated building’ argument.