patrick.net

room and board here would be $5,000–7,500 a year if you didn't live at home, and tuition has gone up lately... depending on the course, could be $3,000-$4,000 a year, and even that is enough to make students think twice and stay away in droves...

Just to follow up on my previous post,

Perhaps I didn't read carefully enough nomadtoon's real question. If it is a worry about what to do (hold cash or not) during USD exchange rate deflation during a depression question:

As the USD weakens versus other currencies, which happens as interest rates go down, a number of things happen. Within the US itself, everything I said in the previous post holds. The macro things that happen between countries are a bit different, and not all of them affect your decision to hold USD cash as a person living and buying/saving in the US.

Inflation is negative (deflation), which will eventually force interest rates down. As rates go down, the USD is less desired by foreign investors. (Insert all kinds of reserve currency debate here). As the USD goes down, we become worse importers because buying foreign goods is more expensive, and we become better exporters because foreigners can buy our goods cheaper. This should reverse net-exports and narrow the trade deficit, or cause a trade surplus. The offsetting cost is in capital flows. We get less foreign investment in the USD.

For you, this means that you will do better holding dollars as cash, not travelling abroad, and buying domestic made products. The big wildcard is related to how businesses, which are largely global in nature, will react to this. They may be unable to shift production back to the US (or unwilling), and they may exploit the deflation by refusing to lower prices enough. They could then arbitrage the situation by "stealing" your newly found purchasing power and transferring that to other countries. There are also lots of complications caused by all the countries that peg to the USD to manipulate our import tastes. They can prolong the agony too by refusing to allow their currencies to rise compared to the USD.

Randy,
Thanks for the info. All of my savings, except for a small IRA and 2 mututal funds is old-fashioned cash. As in it sits in a bank. With all indicators of a recession, I've thought:" Oh crap. everything I have is in US dollars." We'll see how it plays out. As long as food is still easily affordable and rent is still within reason, I'll count myself of. All I can say is that this questionable future is making me tighten down. No new trucks, fancy gadgets, or other expensive things for awhile.

DS,

As for wine and higher valued products, the majority of the cost doesn't come from shipping but from the mark ups at every stage of distribution chain. Because Americans have greater purchasing power and have presumably built a more efficient distribution system, the producers and the middlemen are able to make money charging comparatively lower overall mark ups to the final US consumer.

Oh, and keep in mind that Depression and deflation are not the same thing. Deflation is just negative Inflation, an economic thing. Depression is a socio-political-economic thing which happens to be caused by deflation (historically), but could theoretically be caused by other factors too. I believe the definition of a Depression is just a very long, severe, sustained Recession.

That's why econ books always say deflationary-depression, so that we know it is a deflationary period accompanied by sustained negative GDP growth. The "socio-political" part comes in because Depressions are so severe that they disrupt the orderly functioning of society itself. Massive unemployment, a breakdown of financial institutions, political unrest, and usually salvation through warfare are the hallmarks of Depression.

Let's not cheer for that to occur.

As for wine and higher valued products, the majority of the cost doesn’t come from shipping but from the mark ups at every stage of distribution chain.

er, yes, but domestically it goes from vineyard to warehouse to stores. to get to america, it goes from vineyard to warehouse to port to ship to port to warehouse to stores. there's a markup in the distribution chain for you, unless the shippers, wharfies and truckies all work for free, and running a ship costs nothing... not to mention customs and excise fees, insurance, breakages, etc. Obviously internationally $12US buys $16AUS, so there may be a perception it is cheaper just by the numbers. note also that the AUD was 54c US for a while there, which was a boom time for exporters. now it's crept up to about 72c. (The AUD used to buy US$1.20 once, when it was pegged to the GBP - and I remember it too.)

i did a comparison on the retail cost of the LG TV fridge recently with a friend in DC who was buying one - it was a few hundred dollars dearer here after taking exchange rates into account... imported whitegoods/appliances here were about 10% more on average brand for brand, probably more to do with buying power and volumes of sales...

ALL YOUR EQUITTY ARE BELONGING TO US!

Is it wrong of me to find Seth Green utterly cute and clever?

Love the 'affluenza' word...Perhaps it should be added...
The insatiable need of FBs to continually add to their debt. Bigger is better...blah, blah, blah

DS,

Let's find a shipper for less than the delta and set up an arbitrage.

SFWoman,

I wonder if you got to this article yet?

http://www.nytimes.com/2006/04/13/garden/13tbox.html

:P

Af-flu-en-za n. 1. The bloated, sluggish and unfulfilled feeling that results from efforts to keep up with the Joneses. 2. An epidemic of stress, overwork, waste and indebtedness caused by dogged pursuit of the American Dream. 3. An unsustainable addiction to economic growth. 4. A television program that could change your life.

http://www.pbs.org/kcts/affluenza/

Let’s find a shipper for less than the delta and set up an arbitrage.

hmm, yes. how?

I'm sometimes tempted to set up a chain of general appliance stores, given it seems to turn people into billionaires, even here...

--Let’s find a shipper for less than the delta and set up an arbitrage.

hmm, yes. how?

Generally, it is only possible to find worth while arbs with extremely pricey, luxury goods like exotic sports cars. Shipping, insurance and such always exceed the delta in other cases (obviously, or everyone would be doing arbs).

Generally, it is only possible to find worth while arbs with extremely pricey, luxury goods like exotic sports cars.

Let's do that then. Actually, they were going to export GMs made here to be the new Pontiacs, especially at 54c to the $, but that deal may have gone sour after it rose more to 75c...

the best arbitrage is the 'race to the bottom' for labour costs, using mexico, brazil, china, india, etc...

Randy,

Owneroccupier and I were talking a couple days ago about an arbitrage of the Mainland Chinese yuppie food market. I also see an arbitrage opportunity in the French designer bags market. Maybe hire unemployed French baccalaurate graduates as designer bag purchasers...

astrid,

Yea, but I'm not in favor of giving them more virtual lifetime employment benefits whenever they decide to party in the streets for a couple of weeks.

I'll hire them if they agree to move somewhere like Poland where I can fire them when they get lazy.

trust Rush to get it ass about... the striving for manifest economic and material 'success' is going to destroy the planet before long, through war or simply running out of resources - it simply isn't sustainable...

"Rush Limbaugh has been using affluenza..."

That's rich, coming from a man who's paid 3 different alimonies.

I sold my first house for $254,500. I remember the price because it was an odd price AND because that very house came up for sale 10 years later for EXACTLY the same price. Real Estate does NOT always go up and if people didn't learn the first time around...well that's nobodies fault but their own. If they're too young to know this...well then the're young enough to build their wealth back up again. I had to. I learned a HARD lesson the last time around. Good money can be made in real estate, but you must understand the cyclical nature of the market. I'm sorry, but this stuff is OBVIOUS. You'd have to be a fool to not get it.
I was speaking to a developer last week. They build SFHs all over CA...about 700 per year. She is very well aware of the market shift and they are preparing for it. They have made so much $$$ they are flush and are slowing down their business as we speak. They have the $ to send their kids on European vacations etc.(I know the kids)
My hesitation in investing in some other market is...I am not INTERESTED in another market, so I may not notice the signs of a shift. I AM interested in real estate and watch it very carefully, so therfore, at some point, I will own again...and hopefully profit.
Remember when we were advised AGAINST owning the biggest house on the block? What's with these sheeple? Perhaps they're too young to remember when that was a bad investment? Perhaps they've been afflicted with affluenza.

"I’ll hire them if they agree to move somewhere like Poland where I can fire them when they get lazy."

Excellent, we can hire Polish students to buy designer bags as second jobs. I smell an ebay business here.

-second
+summer

LiLLL,

That $254,500 house actually lost value, perhaps quite a bit of value depending upon when this 10-year period was, due to inflation.

This is a reason when I say real-assets are a hedge against inflation I am careful not to say "a house" is a hedge against inflation. Sometimes it is not.

Excellent, we can hire Polish students to buy designer bags as second jobs. I smell an ebay business here.

Getting around VAT will be the key to making this scheme work. I think there are punitive tariffs also for exporting such things in excess of the "personal allotment", but I'm not up on such rules.

In general, the EU is *not* an open market, not even within itself.

Robert,

Friggin' hilarious post! However, you MUST cut back on the weed.

"punitive tariffs also for exporting such things in excess of the “personal allotment”, but I’m not up on such rules."

Really. I was more concerned about Chinese import duties but I hadn't given thought to EU export duties. Also, I thought the EU was a free trade zone within its boundaries.

Linda,

My concern with the current crop of young buyers is that they're committing to huge loans compared to their earning capacity. Unless they discharge it in bankruptcy, they will be carrying a loss that will take ten to twenty years to make up.

Randy,
It was 1988 when I sold it, and 1997 when it was bac up for sale.
I remember being glad that I hadn't bought several properties and held them hoping for appreciation as several friends were VERY property poor.

I think the EU only has export duties for luxury goods (like designer bags and such), but my knowledge is a bit dated on EU tariff specifics. There's been all kinds of WTO junk in the last few years, so it could have changed.

Ask Polish Plumbers if the EU is a free trade zone. Ask any French company trying to source from EU eastern labor markets. The FT had a great opinion piece yesterday about the future of the Eurozone. It is great, except for France, Germany and Italy, who happen to be over 60% of the Eurozone's GDP.

SFWoman,

Seriously, a school colleague and I were, at one point, trying to set up something similar (but not high-end designer) based in Mauritius, targeting China. We backed out after Mauritius got clobbered by the WTO.

Robert Cote'

Excellent post! The "Dr. Evil" analogy is so perfect for the HB because that is what we are about to hear from homedebtors in a big way. I actually had a fellow explain to me that the "tech wreck" was a gov't plot to prevent boomers from retiring too early! He wasn't kidding either. The turn at the top of the RE cycle was going to look ugly any way you slice it. I don't think we could have recovered from ANOTHER summer of free money. We'll be lucky to recover as it is.

SFWoman,

Excellent insight. The great unthinking masses will buy any piece of crap as long as they think it's cool.

I was thinking of the designer handbags as an arbitrage solution that (1) gives me a free ride on their brand equity and (2) break up their questionable practice of segregating their markets.

SFwoman,
the house we rent has a large back yard with a patio. We have several lounge chairs, a garden, 4 flower gardens, a deck, garage, and several fruit trees. I'm now utterly spoiled by this. Previously I lived in apartments with no yard and a parking space. We spend every sunny afternoon after work and the whole weekend outside( which hasn't been often in the last 3 months) but I could never go back to not having a yard.That's why when I see a large condo or apartment in the city with an asking price of over a mil, I can't fathom paying anything close to that without a yard. I could care less about the house as long as it is comfy and clean. The yard is what I'm after.I think it comes from the fact that when I was growing up, we had no TV reception, no cable, and no internet. Entertainment came from being outside, so that's just my prefrence. I can see how someone who lives and works in the city might find a more metropolitan situation such as a shared building more ideal though. Now those prices just need to come down about 40% and maybe... just maybe I'll be able to afford at least a small house with a yard. I can't even imagine having a vacation home unless I won the lottery, but perhaps someday this too will be possible on a decent income. Cmon crash!

SGV Patience,

It's a wonder this thread reached over 200+ posts before one of us made that observation. We indeed have a long way to go before any one here has need to feel guilty about anything. I will though take exception with those that feel a gov. bail out is inevitable. Homedebtors/Lenders may be all for that but I can't ethically see a way for any legislation of that nature to pass when we still have New Orleans and the Gulf Coast suffering from wounds that were NOT self inflicted. Where exactly would these imaginary dollars come from?

nomadtoons,

I think SFWoman likes this arrangment because she spends her weekends in the country. Thus, she gets the best of both worlds.

Also, one of the nice thing about the property SFWoman was looking at was its proximity to huge tracts of public parkland.

Ask any French company trying to source from EU eastern labor markets.

at least Ikea can manufacture cheaply in yugoslavia and the czech republic... definitely some manufacturing arbitrage going on between east and west...

i've got a few import/export ideas for oz tho... there are commodities here that i could make cheaply in china and undercut everyone else... do a richard branson...

i could make cheaply in china and undercut everyone else -- Like what?

ooh hoo, that would be telling... apart from the fact everything is being made in china at present, there's a few niches that would be easy to get into...

The interesting thing about the EU is that the same thing that is occuring here is happening there. Formerly poor, less desireable places like Yugoslovia, Romania and The like are becoming hot spots for business, vacations, and in-migration due to severe cost diffrences between these locations and the likes of France, Britain, and Germany. Some of the weather in Romania is actually very nice along the coast. The same can be said for parts of the US with the exact same reasons for the shift.