patrick.net

bob2356 says

What about the 29% of the 90% who have savings.

They get screwed?

That represents a lot of people who will be left destitute

Welcome to the New America. Perhaps you haven't been watching the news much?

What about anyone, like everyone that is retired, that is on a fixed income?

COLAs were established in the 1970s to fix this, no?

People starved, people died of exposure, people died who couldn’t get health care.

Many in Weimar Germany did OK because it was a bona-fide wage-price spiral going on. Labor unions were the drivers of the inflation. It was no picnic of course and that kind of hyperinflation that happened at the end of the event was and is indeed insane.

People ate sawdust bread, shoe leather soup, and rat burgers. Just because your ivory tower big picture history didn’t go into enough depth to see this doesn’t mean it didn’t happen. It would happen here.

Ah, but hyperinflation did happen here. Well, not hyperinflation, but certainly a nice reset of the system, 1973-1983.

What cost 25c in 1973 cost 50c in 1983. I should know, since I was without employment for most of that timeperiod and every quarter counted (even if it usually ended up in a video game).

I don't think anyone wants hundred dollar bills to become worthless. Before the wheels fell off of the Weimar inflation game their mark had depreciated from ~1 to 1/60 to 1/300 to 1/8000 (it ended at 1e-9). However, another 100% round of inflation would in fact knock the national debt back to where it was in 2000, 30% of GDP. This would also, of course, prevent the present $4T in mortgage overhang from crashing down upon us

I have no policy recommendations, but I certainly admire the problem.

I love the positivity of this thread! :)

You people are being ridiculous. Nearly half of all federal payment obligations are indexed to inflation. A devaluation/hyperinflationary event would not help reduce this debt one iota, especially if the inflation statistics could not be cloaked (ie. official/formal devaluation). The other half of the obligations could by hyperinflated away but at the expense of losing the USD as world reserve currency and triggering a complete and total collapse of all US financial markets. The stampede to the exits would be unprecedented - TRILLIONS of USD-denominated assets, stocks, bonds, etc. would be attempted to be liquidated by foreigners all at the same time. A mass panic would ensue that would obliterate global liquidity beyond all measure, and the world economy would collapse - quickly. In such a scenario it is extremely doubtful central bankers could do anything to ameliorate the situation as all trust and confidence in the markets will have been lost.

War at this point (probably nuclear) could commence. A great boon for the economy, that'd be. Sarcasm off. Massive riots due to goods shortages would overwhelm local authorities, and the country falls into utter chaos.

Now, for the ridiculous notion that real estate benefits from inflationary events. It does not UNLESS there is a stable wage price spiral and the accompanying jobs to support it. There will not be this time. With billions of peasants in the Third World and increasing technology and automation, wages will NOT go up to match the inflation rate. This will impoverish the vast majority reducing their ability to buy things other than food and energy. Any further cost increases in the West will simply be matched by more outsourcing to the East. Cost pressures in the First World will encourage further Third World job creation and further First World job loss.

Look at Iceland's currency collapse a little while ago. Home prices CRATERED during their inflationary event. Why? The economy was collapsing! No bank would lend, and everyone was so worried about affording the basics (food, water, energy, etc.) the market completely seized.

Also Weimar. The amount of a person's budget spent on housing went from 30%before the hyperinflation to less than 1% during the event as people spent 99% of what they had on food and energy (bare essentials for life).

The USA of 2010 is not the USA of 1940, 1970 or any other time. We are the kingpin in a global interconnectedness that is unprecedented. If you think you can just mess with the most important entity in the entire world (the USD) without dire consequences, you need to go back to school.

A deflationary bust could at least be gradually ameliorated via bailouts, public works and benefits until all of the excessive debt had been cleansed from the toxic economy. This is what is happening right now. What's going on in the economy currently is THE CURE - THE DISEASE is what happened from the 1980s until 2007 (excessive debt creation).

schmitz_kris says

You people are being ridiculous. Nearly half of all federal payment obligations are indexed to inflation. A devaluation/hyperinflationary event would not help reduce this debt one iota, especially if the inflation statistics could not be cloaked (ie. official/formal devaluation)

You're confusing debt with current account. Of course we have to fix the budget too, but inflation will help reduce the debt.

Nomograph says

Being an investor and owner shields me from the ravages of inflation.

It did no such thing as the krona collapsed (if you're referring to RE). An owner of gold, however, made out great.

People need to have equity and investments, obviously. The trouble is, if you're paying a large percentage of your income into one asset, your house, with little left over, you never get a chance to diversify your holdings. You would've done far better buying stocks and precious metals over the last 50 years than RE, especially in most of the country. THE WORST PART IS YOU NEVER GET TO BUILD AN ACCOUNT THAT YOU CAN SNOWBALL THAT PAYS YOU INTEREST AND/OR DIVIDENDS. Compound interest is the most powerful force in the universe. You might get capital gains with a house, but you don't get interest and/or dividends that you can reinvest every year and use to snowball your account. You need to sell your house (and subsequently rent or buy a much smaller/crappier place) or go into further debt (HELOC) (and pay more interest to a bank) to get access to those capital gains.

There is no reason for anyone to be paying rent (or any other bills for that matter) after their income-earning years are over. By that time their investment income should be paying their rent and other bills with tons left over to re-invest for an even bigger snowball. I'm very young and am already in this position. Unless the world totally collapses, I'll be retired well before I am 40.

BTW, there is plenty of opportunity for yield even in this environment. A bank is not the only "safe" place you can put your money, obviously.

I also hate it when people say "poor, elderly." That is so factually incorrect it should be embarrassing. Our elderly cohort is the second wealthiest in the USA according to the most recent Fed data we have available. There may be a few poor, old souls out there, but there are far more driving around in Cadillacs (poor taste, I know, but I digress...). They had the best economic boom in the history of the world to pad themselves down with cash. Their INCOMES may be lower, but their expenses are lower as well. As a general rule derived from Fed survey data, old people are wealthy, the young are poor (obvious as it takes time to amass wealth).

Troy says

I don’t think anyone wants hundred dollar bills to become worthless. Before the wheels fell off of the Weimar inflation game their mark had depreciated from ~1 to 1/60 to 1/300 to 1/8000 (it ended at 1e-9). However, another 100% round of inflation would in fact knock the national debt back to where it was in 2000, 30% of GDP. This would also, of course, prevent the present $4T in mortgage overhang from crashing down upon us

So let me get this straight in my head. People here are seriously suggesting that very high inflation or hyperinflation would be a good way to bail out the irresponsible people who voluntarily went way over their heads in debt to live a lifestyle they couldn't afford while financially crushing anyone who lived within their means and saved or worked all their lives and are retired on a fixed income pension (I certainly never used the phrase "poor elderly" but there are a lot more than a "few" poor old souls out there by the way). Perfect, just perfect.

Maybe, just maybe we should let the gamblers go to bankruptcy court and put the government's house in order. Fix social security (doable despite the naysayers), cut defense in half, go back to progressive taxation, stop going to war on credit, stop all bailouts and subsidies (why do we still have farm subsidies that 95% of go to large corporations by the way?), and live within our means. It would certainly be less disruptive than very high inflation or hyperinflation. This something for nothing mindset is the root of the problem, not the solution.

I'm already picking out my outfit for the awards ceremony.

Nomograph says

As far as “retiring at 40″ on an interest-bearing account, good luck but I think you’re speaking from youthful hubris and bravado.

Technically I could already retire, but I want to err on the side of caution, of course.

There is nothing wrong with living off 5% a year, Nomo. There's plenty of places to get that guaranteed as well.

Nomograph says

Storing your wealth in interest-bearing bank account is just about the WORST financial decision anyone can make.

Are you serious? There is a plethora of worse financial decisions - ones that expose you to leveraged losses, for example. Now THOSE would be the worst financial moves one could make.

Let's compare Joe Senior and Joe Baby Boomer. Joe Senior had his money in life insurance annuities, bank CDs, government bonds, etc. Joe BB had his money in his house and his 401K.

Joe BB just lost 30% of his net worth.

Joe Senior? HIS INCOME has fallen as interest rates declined, but his net worth HAS GROWN (due to interest and dividends).

There are scores of wealthy seniors who never invested in stocks or speculated in real estate. Go to any small town bank in the Midwest and ask a banker or insurance salesman. Ones that remember the Great Depression, particularly. They instead chose to live FAR below their means and save money in bank CDs, annuities, really basic, simple stuff that was deemed safe and/or guaranteed.

These people averaged a very nice rate of return over the decades - look up interest rates in the 50s, 60s, 70s and 80s and even some of the 90s - very nice.

Living below your means is the key.

bob2356 says

So let me get this straight in my head. People here are seriously suggesting that very high inflation or hyperinflation would be a good way to bail out the irresponsible people who voluntarily went way over their heads in debt to live a lifestyle they couldn’t afford while financially crushing anyone who lived within their means and saved or worked all their lives and are retired on a fixed income pension (I certainly never used the phrase “poor elderly” but there are a lot more than a “few” poor old souls out there by the way).

That's EXACTLY what these people want. Read some of the other posts. Most of the pro-housing camp wants a free lunch without any work, courtesy of inflation/printing press/appreciation, etc. They also feel they should bear no risk of depreciation/loss. They want to pay the bank back in devalued dollars. They all want something for nothing. Lazy, worthless, pathetic Americans are in no shortage these days.

bob2356 says

Maybe, just maybe we should let the gamblers go to bankruptcy court and put the government’s house in order. Fix social security (doable despite the naysayers), cut defense in half, go back to progressive taxation, stop going to war on credit, stop all bailouts and subsidies (why do we still have farm subsidies that 95% of go to large corporations by the way?), and live within our means. It would certainly be less disruptive than very high inflation or hyperinflation. This something for nothing mindset is the root of the problem, not the solution.

Amen.

uh, more like this (guess which one I am now?):

Not dorm buddies - COLLEGE buddies, as in friends that I made at college. We've been friends for many years now, but that's how I always refer to them. I'm in my early 30s.

Just like Patrick (and numerous others) I correctly predicted we would see DEFLATION as this gigantic mess came crashing down around us. I also predicted we'd see Congress safeguard the FDIC and the banking sector in general before they would save individuals, homedebtors for instance (they don't deserve it anyway). The public/military/federal/banking sector must be protected if we are to have/maintain any civilized society whatsoever, and I think that these things will fall LAST if a full-blown economic armageddon materializes. Of course, given my pessimistic outlook I also hold bullion - as a crisis hedge. Every doom-and-gloomer adores the yellow precious (think Lord of the Rings), and I'm no different. I view it as a form of insurance policy.

By "the Titanic going down" I mean the disappearance of the unsustainable lifestyles financed by artificial prosperity and skyrocketing debt so common from the 70s onward.

Do I think we'll have people running around eating each other in six months time? No. It is a possibility, however. We're already feeding 1 in 8 with foodstamps and millions more via UE checks with money we're borrowing. If we do something stupid (read this thread) and ruin our credit things would get real dicey real quick. I am certainly hoping things don't get that bad.

There are still MANY banks and insurance companies in this country that are in impeccable financial shape. Some of them have even been smart enough to buy billions in bullion.

I agree with Nomo, although I believe the recovery will be slow & painful.

I pee in the woods.

This site might be biased towards the downside, at least in terms of real estate, but I thought we could take a poll of forum users to see who is bullish, and who is bearish - on the economy in general.

No, it doesnt look very pretty. Some people keep barking comments regarding "innovation" and "it will come back, it always does". But i havent heard Route 128 coming back.

http://www.siliconbeat.com/2010/02/17/vanishing-public-companies-lead-to-the-incredible-shrinking-silicon-valley/

Vanishing Public Companies Lead To The Incredible Shrinking Silicon Valley

Posted by Chris O'Brien on February 17th, 2010

One of the most significant trends I’ve been watching over the past decade is the dramatic drop in public companies in Silicon Valley. Naturally, that number was artificially inflated during the dot-com bubble when it reached 417 in 2000. For our purposes, Silicon Valley includes San Mateo and Santa Clara counties, and the southern half of Alameda County.

But the number of public companies has dropped for nine straight years now. Even when IPOs briefly reappeared in 2006 and 2007, they weren’t enough to overcome the net loss of public companies through acquisitions or bankruptcy.

In 2008, the number had fallen to 261. We just updated our records and the latest figure is 241.

That’s not just less than the dot-com era, that’s well below the 315 public companies the valley had in 1994 when the Mercury News started keeping track.

mikey says

I pee in the woods.

I'm assuming that you're catholic, too?

schmitz_kris says

By “the Titanic going down” I mean the disappearance of the unsustainable lifestyles financed by artificial prosperity and skyrocketing debt so common from the 70s onward.

No offense, but if that's what "the Titanic going down" means to you, you're a bit of a drama queen.

Does a bear pee in the woods ? Is that the expression ?

I don't like to make negative predictions, or predictions in general. It messes me up, because then my desire to be right may influence some decisions.

MY biggest worries:

The baby boom. Not just the upcoming cost of their retirement, but also the fact that so many boomers haven't saved enough, so they won't be consuming with gusto any time soon.

The political environment. One of the ways that I could see us coming out of this would be with some exciting combination of government leadership in the form of investment in certain areas, and also major changes in how things are done in Washington on both the spending and the tax side. But sadly it's really hard to see our government doing the things that it needs to do (see health care).

So generally I'm fairly pessimistic for more than just a couple of years out.

I trade forex from home using an algorithm I invented. That's why I'm on the computer (and thus various forums) so darn much. It's Sunday night, but the market is open so I've been "working" for several hours already. I trade cable (GBP/USD) exclusively.

I actually love doing grunt physical labor as that's what I'm built/made for. I'm from a rural area in the middle of Minnesota where everybody's a farmer, but my parents had me go to college because I am "smart."

I am going to be volunteering at an organic farm where they don't even use machinery soon and plan on counting on agriculture as my escape plan if the economy truly goes MADMAX on us. If it doesn't, like I said I plan on being retired within 5-7 years or so.

marcus says

Does a bear pee in the woods ? Is that the expression ?

Is a bear catholic? Does the pope...

tell her that if she drills an itty bitty hole in that diamond plate it will drain the water away and cut down on rust

tatupu70 says

No offense, but if that’s what “the Titanic going down” means to you, you’re a bit of a drama queen

Americans are spoiled, entitled. They want their free money/wealth/lifestyle, and they want it NOW. If you think they're going to go back decades-wise in lifestyle easily, dream on. Only 1 car per household? Only half a dozen outfits per person in the family? Eating out once a month is considered A TREAT?

Americans are going to freak.

schmitz_kris says

Americans are spoiled, entitled. They want their free money/wealth/lifestyle, and they want it NOW. If you think they’re going to go back decades-wise in lifestyle easily, dream on. Only 1 car per household? Only half a dozen outfits per person in the family? Eating out once a month is considered A TREAT?
Americans are going to freak.

We'll have to agree to disagree. I think Americans are pretty adaptable and will do what it takes.

I have already made enough to technically retire, as I indicated in my post above. I've been using my methodology for many years now. If you think a person who is stupid or lazy can succeed at forex, you obviously have no clue about this market. I did heavy farm work for much of my childhood, and I will tell you trading the currency market is MUCH more demanding - not physically, but mentally. It IS work, just a different kind. It also involves going without sleep for extended periods, being "married" to your charts, etc. It's not exactly a glamourous existence all the time.

What do you consider "actually working?" Are all of these IT profesionals (many on the forum) who punch keystrokes all day "working" in your opinion or not?

schmitz_kris says

It IS work, just a different kind

Sorry, work aka "labor" produces new wealth, directly or indirectly, ie is a positive contribution to the economy. Parasitism is that which takes existing wealth (or claims to it). This may involve effort, but it is not work.

Bank robbery requires effort, too, but it's not work. Unless you're a sociopath.

The forex is essential for there to even BE a modern economy.

What do you propose, that we revert to using bullion exclusively in every country of the world for every single transaction?

Bap33 says

elliemae says

(10) Mikey, a very punny guy.

without a doubt the best I have ever seen at proper pun prolification.

Exquisitely profound perceptions, as always.

PS: I cannot accept any award due to my stance on the plight of the American Indian. However, I have a squaw on tap to refuse the award in person, if need be.

mikey says

Bap33 says

elliemae says

(10) Mikey, a very punny guy.

without a doubt the best I have ever seen at proper pun prolification.

Exquisitely profound perceptions, as always.
PS: I cannot accept any award due to my stance on the plight of the American Indian. However, I have a squaw on tap to refuse the award in person, if need be.

One more word & I start dancing & singing with Rob Lowe!

elliemae says

marcus says

Does a bear pee in the woods ? Is that the expression ?

Is a bear catholic? Does the pope…

Berry funny.

No need to act grizzly, Mikey.

Good stuff, thomas.wong.

Imagine that, only 241 publicly traded companies left in Silicon Valley

Some blogs support polls. Piggington.com is one of them, I think. That could be handy.

By poll I mean a graphic poll where you click and then see the results.

elliemae says

No need to act grizzly, Mikey.

Wish I had a camera. This is a Kodiak moment and it gives me pause.

We're polar opposites, I guess.

Well, koala you know.

going down ... down .... down .... to a "thud". We shall then see the real bad economic times that are needed to absorb the fake-ass free-lending growth from 96 to 2006.

I hope that silly Cal laws that outlaw the burning of wood in a house for heat will be ended when times get tuff.

justme says

By poll I mean a graphic poll where you click and then see the results.

hey ... "graphic poll" ..... Mikey, do your magic!