Financial topics

[John]

I received a nice message from a web site reader:

> Just want you to know ..If I hadn't found your site I would be
> like most of the people I know , "clueless !" I got busy ! (and my
> roommate ) Paid off the house and have "0" debt. Sold a truck and
> sharing a car that only has 2 years left owing. Better gas mi. I'm
> pinching the nickel and as the saying goes until the buffalo
> poop's. Just got rid of cable Monthly's are very manageable with
> cutting down middle.

> He has a 401 K,not earning much. Been saving and will continue to.
> I can't figure out any thing other than a Roth I R A? Don't no
> where to go from here ?

> It looks like his house (condo ) will go back to the value at
> purchase price which was in 1990. Just a ball bark Est. I came up
> with @ $95.000 in real cash invested in it. End up at maybe
> $40.000 ? As they are predicting an other 11% loss in home
> values. Makes me ill.

> He's 58 I'm 62.

> Even though we are better off than a lot of younger and older
> people. I still spend a lot of sleepless night's wondering what
> more I can do ? Too scared to invest ? Got any ideas ? Neither
> of us has family,just each other.

> I guess I'm just scared period because there is "no" safety net's
> that I can see? But If you hadn't created your site and been
> passionate about the truth a lot of us would be so much worse off.
> I was like so many other's I just wasn't paying attention to what
> was "really" going on. You got my attention and I appreciate you
> and thank you.

> I live in Central Fl,east coast. We are second to Nev. with
> housing excess,over building,foreclosures. After all it stared
> here! NASA is done.So I've pretty much figured out that those of
> us left standing are going to get fee's and taxed to our end. Not
> to mention food ,fuel and health care cost.

> But not to worry. I have "Netflix"! I can't believe I worked my
> whole life and I can only afford Netflix! L O L !

> Take care John. I know every body said you were a crazy
> doomsday'r back in the day. I'll say this.. over and over you
> hear some who were in very high ranking position's and their chant
> now is always'"Boy didn't see this coming" !

> And there were others that were beating the drums too.

> I just can't accept that there was just so many in places of power
> that were so un-informed ? (STUPID IDIOTS!)

> I didn't know where it would take us but I knew that giving people
> homes with low income and no down payment's was a bit
> unconventional to say the least. I tried to stop some friends and
> family from taking equity loan's to pay off debt.Now they say the
> wish they would have listened.

> I have an A.S. Cert. in Child care. All those people that let
> this happen are way more educated than I. So I guess we crazy
> birds of a feather need to stick together.

> I' ed like to say this is like the "Titanic" but it's worse. There
> were at least some life boats on that ship that went down.

> I really enjoy reading G. D. Wish we were having these
> discussions on public media. We' ed be "Winning " also. L O L!
> Best to you John.

Thanks to you and others. You're the ones who keep me going.

John

[vincecate]

Those of you who are talking about inflation aren't thinking ahead.

The increases in food and energy prices are causing enormous
hardship, but they don't indicate inflation, because people spend
less on other things. This morning's jobs report included the
crucial fact that wages are not going up. Until people have more
money to spend, there won't be inflation.

The prices on things people don't buy much of now are going down. But a fair measure of inflation should reduce weightings on things we are not buying as much of. As a larger fraction of our money goes to food and energy those should be weighted more. We can and are getting inflation without wages going up, it just means people are effectively getting poor. This was what Keynes was trying to do with money printing. Read page 6 of his book. His idea was that if they made more paper money they could trick people into working for less real value, and so make the local labor more profitable so more jobs would be made. So the real point of printing money is to make people poor, which it is.

[Higgenbotham]

Those of you who are talking about inflation aren't thinking ahead.

The increases in food and energy prices are causing enormous
hardship, but they don't indicate inflation, because people spend
less on other things. This morning's jobs report included the
crucial fact that wages are not going up. Until people have more
money to spend, there won't be inflation.

A lot of the extra spending power available now is due to government transfer payments and nonpayment of mortgages. These two components of spending power are unsustainable. Spending power used to be available from the home ATM, but that source is gone and I'm not sure there are other credit sources consumers can tap at this time. Knowing what is happening is important and inflation is happening; the next question is how can it continue. My understanding is as of now, disposible incomes are rising. The wage component of that is not the whole story but it would seem to me that to get sustainable "overall" inflation let's call it wages will need to rise because the other sources of income are not sustainable. It is possible that food and energy prices go up and up. This would result in a huge credit bust and a lot of bankruptcies. If everyone in the economy were already employed producing food and energy and living in low cost huts then it would be different.

http://www.bea.gov/newsreleases/nationa ... elease.htm

This release from yesterday shows disposible income rising, but for the first time in awhile, the real disposible income in chained 2005 dollars (adjusted for inflation) decreased.

[vincecate]

The wage component of that is not the whole story but it would seem to me that to get sustainable "overall" inflation let's call it wages will need to rise because the other sources of income are not sustainable. It is possible that food and energy prices go up and up. This would result in a huge credit bust and a lot of bankruptcies. If everyone in the economy were already employed producing food and energy and living in low cost huts then it would be different.

With the US dollar being used all around the world, wages in the US do not need to go up for there to be inflation in the US. People in the US can really just get poor as prices go up. Watch and see. The effective wage in US dollars for people in China and India can go up and drive up prices in the US. Those wages could go up for a long time before US wages were competitive.

[Higgenbotham]

The wage component of that is not the whole story but it would seem to me that to get sustainable "overall" inflation let's call it wages will need to rise because the other sources of income are not sustainable. It is possible that food and energy prices go up and up. This would result in a huge credit bust and a lot of bankruptcies. If everyone in the economy were already employed producing food and energy and living in low cost huts then it would be different.

With the US dollar being used all around the world, wages in the US do not need to go up for there to be inflation in the US. People in the US can really just get poor as prices go up. Watch and see. The effective wage in US dollars for people in China and India can go up and drive up prices in the US. Those wages could go up for a long time before US wages were competitive.

That should have the same effect as food and energy prices going up. I think about 2% of the US population is employed in agriculture and 75% of our energy comes from overseas. So that leaves probably over 95% of the US population employed outside those areas that would support higher wages. As the price of essentials goes up, that 95% can no longer service their debts. The part I left out above is whether that matters. As of now some people aren't servicing their mortgage debts but the lenders aren't going through foreclosure or at least it's very slow. The securities that reflect those mortgages are tied up or marked to myth. There's no limit to how much the Fed can expand their balance sheet. In theory they could take in $60 trillion of unserviceable debt and issue paper money for it. On the other hand, if the markets started to panic and the Fed came out and said, don't worry, we'll cover it all and then the markets continued to panic anyway then there may not be anything the Fed can do. Remember how the money markets panicked that morning in 2008 and the Fed said they would cover everything and that quelled the panic? What happens if that happens again and the market ignores the Fed?

Today the employment numbers were pretty good and the stock market started to sell off, probably figuring the QE crack might end early. As soon as that happened, a Fed official blew some smoke and back up it went. That shows us what the dynamic is that's holding the market up. If we're down today anyway, the might be a warning sign that the Fed is losing its power to hold the markets up.

[at99sy]

A harsh reality right now is that millions of Americans "REAL" income (meaning spendable income) is dropping quickly.
Increases in health insurance costs, increases to retirement contributions etc. are reducing the size of peoples paychecks.
People have less spendable money to buy goods and services that are increasing in price daily. You can believe the figures coming out of the Feds neverland ranch all you like. Just go to a grocery store or gas station and you will very quickly see that Prices aare going up up up up up. Sure some items are stable or even dropping but they tend to discretionary items not
necessities.
Nero is reported to have played a fiddle while Rome burned; are people going to be arguing about Inflation/deflation while they walk around the grocery store wondering why the shelves are bare?

[freddyv]

From the point of view of Generational Dynamics, the real financial crisis has not yet occurred. I've been truly impressed by the ability of governments and central banks to always find a way to avoid dealing with any problem with some band-aid that works for a few months.

It has been a long time since I've posted here, though I make a point of reading the blog at least weekly. I no longer spend as much time here because I have been studying history and history tells me that while certain things are inevitable, they may also take much longer than you think to come about. In other words, I have learned patience.

I have always said that the markets and history have time on their side and that is their greatest weapon. Those who lost 50% in the stock market by early 2009 are just now beginning to feel the pull of greed as they see the stock market rise and rise and rise. Many others have already profited and some are even ahead of the game since the decline began back in 2007.

But that was less than four years ago and the fourth turning should have another 11+ years to run. It will not be the same is the last time, that we can be sure of, what we can do is look objectively at what is happening NOW and see where the pressures are building up. Sovereign debt is the obvious problem. Japan is likely to blow first and enter into hyperinflation as they are forced to print money to pay debts that are unpayable. This will drive up rates worldwide and will start the cascade that will bring down one economy after another. This will create the situation whereby war will not be so unthinkable because of the desperate need to feed the population.

That's the most obvious scenario to me but I do know that the fourth turning is not complete. Even if you believe it began in 2000 it would be 5-10 years away from completion.

To those reading this I hope you prepare: put cash in the bank and the mattress; buy a bit of gold; store plenty of food and water away for a rainy day; and most of all, build a strong network of people that you can reply on in hard times. Even if these things do not come to pass you will be doing things that can only provide for your long term security. Please do not get greedy and look to make the quick buck. The last in always get the harshest beating.

--Fred

[vincecate]

A harsh reality right now is that millions of Americans "REAL" income (meaning spendable income) is dropping quickly.

Above I said Keynes talked about this on page 6, but really it was page 9. His plan was to print money to lower the real wage, and things are working exactly by his theory. People are getting poor.

From page 9 of "The General Theory" we read, "Now ordinary experience tells us, beyond doubt, that a situation where labour stipulates (within limits) for a money-wage rather than a real wage, so far from being a mere possibility, is the normal case. Whilst workers will usually resist a reduction of money-wages, it is not their practice to withdraw their labour whenever there is a rise in the price of wage-goods."

In effect he is saying that it is easier to trick labor into working cheap by reducing the value of money than by lowering peoples wages. This is the big Keynesian economic plan. Make people poor by printing money. People should not be surprised when that is what happens, but most will be.

[Higgenbotham]

At the height of the financial crisis, the Federal Reserve allowed the world’s largest banks to turn more than $118 billion in junk bonds, defaulted debt, securities of unknown ratings and stocks into cash.

http://www.bloomberg.com/news/2011-03-3 ... teral.html

As this article explains, the official documents have finally been released and the truth is out. It's what I've referred to as turning junk into cash or making all the dollars equally junky. If there's no default on the junk paper, then there's no deflation. If the amount of junk paper gets even bigger in a future crisis, then the decision between hyperinflation and default could be upon us. If the banks have trillions of garbage they want to turn into the Fed and the Fed takes it, that wil be more inflationary. On the other hand, if the Fed holds the line and refuses to take it, then there will be a lot of defaults. That's my understanding anyway.

The demand is so strong for these securities that even the Federal Reserve is taking advantage, announcing Wednesday that it will sell off billions of dollars worth of subprime mortgage bonds it took on as part of its bailout of American International Group Inc. in 2008.

Subprime bonds are securities backed by hundreds or thousands of loans to homeowners with spotty credit profiles.

http://online.wsj.com/article/SB1000142 ... 33114.html

Not sure I understand this. With real estate prices falling, and the value of these securities at 60% of peak level, the only way I can see the Fed being able to sell these is if they paid less than 60 cents on the dollar for them. But my understanding was they paid close to market value. Anyone know what is going on here?

[OLD1953]

A harsh reality right now is that millions of Americans "REAL" income (meaning spendable income) is dropping quickly.

Above I said Keynes talked about this on page 6, but really it was page 9. His plan was to print money to lower the real wage, and things are working exactly by his theory. People are getting poor.

From page 9 of "The General Theory" we read, "Now ordinary experience tells us, beyond doubt, that a situation where labour stipulates (within limits) for a money-wage rather than a real wage, so far from being a mere possibility, is the normal case. Whilst workers will usually resist a reduction of money-wages, it is not their practice to withdraw their labour whenever there is a rise in the price of wage-goods."

In effect he is saying that it is easier to trick labor into working cheap by reducing the value of money than by lowering peoples wages. This is the big Keynesian economic plan. Make people poor by printing money. People should not be surprised when that is what happens, but most will be.

And Vince, that's the question. How do you avoid deflation if no one can afford to buy? If business has to cut costs to as near zero as possible, if there are no sales, if they lay off workers, how do they push prices upwards? A business with no sales is just another empty store front.

Sure, it's possible to imagine scenarios where the US dollar is worthless, but is that the most likely scenario? No, it's far more likely the country will simply withdraw the most expensive part of the US government from its huge and constant attempt to enforce peace on the world, IOW, the US military will pull back and bases will close world wide, as they are doing right now. Nationalism will push the US back into its shell, IMHO, and that's the biggest cost cutting measure imaginable. What happens next as war breaks out without the US presence to keep things down? The money of the fighting countries drops in value and we sell them weapons as they scurry about borrowing at inflated interest rates. Moreover, we can expect tax increases (or expiration of tax cuts, same thing in a sense) plus the end of the stimulus gifts to the various states, which will effectively put about half of the states near default, and will certainly put about 10 million on the streets looking for work. So where does that wind us up? In a situation where the dollar is rising vs the monies of the various countries at war or civil war, and they are sending us anything for the money to buy weapons at any price, where the US wage is low, where nobody has extra money to spend and many are saving madly for fear of the future and scared we'll join the wars - that's a deflation scenario.

So which pieces are lining up to match that future? Closing US military bases worldwide - yes, ongoing. Fighting in many places with potential for civil war or external war - yes. Serious fights in Congress about raising taxes and cutting costs - yes. Nationalism on the rise and people yelling for the US to let the foreigners kill each other - growing trend. Stimulus for states set to expire - yes.

All these things are coming to a head in about 17 or 18 months, and the 2012 federal budget will be the deciding factor as to whether or not they'll try to kick that can down the road one more election, or bite the bullet and go for it. Remember that the effects of that budget will NOT be felt in 2012, they'll hit in 2013.

http://www.stripes.com/news/usareur-ann ... g-1.108303

Do I even need to mention the pull down in Afghanistan, or the dozens of bases closing in Iraq?

http://www.icenews.is/index.php/2010/06 ... -us-bases/

The grassroots call for no more foreign bases is loud enough to spark arguements against it. But "save money" will win out.

http://www.americanthinker.com/2010/10/ ... a_pol.html

And arms are flying out the door.

http://www.defencetalk.com/global-arms- ... ion-32250/

BTW, the only map to that theoretical scenario where some states might seize federal tax monies, would be for the states to no longer get ANYTHING from the federal coffers. That could well be coming. I will point out that Bush effectively got rid of posse comitatus and set things up where the President can pull NG troops from one state and use them in another state. That's a big damper on a state fighting the federal govt with anything past words, IMHO.