Showing posts with label economics. Show all posts
Showing posts with label economics. Show all posts

Tuesday, December 10, 2013

Bank Depositors Please Read This

If you do not wish to read the entire article .. just read the info directly below... and you will understand that the US is way past bankrupt... there were more banks during the 30's depression than there are now.....
JPMorgan Chase - zombie bank
Total Assets: $1,947,794,000,000 (nearly 1.95 trillion dollars)
Total Exposure To Derivatives: $71,289,673,000,000 (more than 71 trillion dollars)
Citibank - zombie bank
Total Assets: $1,319,359,000,000 (a bit more than 1.3 trillion dollars)
Total Exposure To Derivatives: $60,398,289,000,000 (more than 60 trillion dollars)
Bank Of America - zombie bank
Total Assets: $1,429,737,000,000 (a bit more than 1.4 trillion dollars)
Total Exposure To Derivatives: $42,670,269,000,000 (more than 42 trillion dollars)
Goldman Sachs - zombie bank
Total Assets: $113,064,000,000 (just a shade over 113 billion dollars – yes, you read that correctly)
Total Exposure To Derivatives: $43,135,021,000,000 (more than 43 trillion dollars)

Too Big To Fail Banks Are Taking Over As Number Of U.S. Banks Falls To All-Time Record Low

By Michael Snyder, on December 3rd, 2013
 
     
Lower East Manhattan - Photo by Eric KilbyThe too big to fail banks have a larger share of the U.S. banking industry than they have ever had before.  So if having banks that were too big to fail was a "problem" back in 2008, what is it today?  As you will read about below, the total number of banks in the United States has fallen to a brand new all-time record low and that means that the health of the too big to fail banks is now more critical to our economy than ever.  In 1985, there were more than 18,000 banks in the United States.  Today, there are only 6,891 left, and that number continues to drop every single year.  That means that more than 10,000 U.S. banks have gone out of existence since 1985.  Meanwhile, the too big to fail banks just keep on getting even bigger.  In fact, the six largest banks in the United States (JPMorgan Chase, Bank of America, Citigroup, Wells Fargo, Goldman Sachs and Morgan Stanley) have collectively gotten 37 percent larger over the past five years.  If even one of those banks collapses, it would be absolutely crippling to the U.S. economy.  If several of them were to collapse at the same time, it could potentially plunge us into an economic depression unlike anything that this nation has ever seen before.
Incredibly, there were actually more banks in existence back during the days of the Great Depression than there is today.  According to the Wall Street Journal, the federal government has been keeping track of the number of banks since 1934 and this year is the very first time that the number has fallen below 7,000...
The number of federally insured institutions nationwide shrank to 6,891 in the third quarter after this summer falling below 7,000 for the first time since federal regulators began keeping track in 1934, according to the Federal Deposit Insurance Corp.
And the number of active bank branches all across America is falling too.  In fact, according to the FDIC the total number of bank branches in the United States fell by 3.2 percent between the end of 2009 and June 30th of this year.
Unfortunately, the closing of bank branches appears to be accelerating.  The number of bank branches in the U.S. declined by 390 during the third quarter of 2013 alone, and it is being projected that the number of bank branches in the U.S. could fall by as much as 40 percent over the next decade.
Can you guess where most of the bank branches are being closed?
If you guessed "poor neighborhoods" you would be correct.
According to Bloomberg, an astounding 93 percent of all bank branch closings since late 2008 have been in neighborhoods where incomes are below the national median household income...
Banks have shut 1,826 branches since late 2008, and 93 percent of closings were in postal codes where the household income is below the national median, according to census and federal banking data compiled by Bloomberg.
It turns out that opening up checking accounts and running ATM machines for poor people just isn't that profitable.  The executives at these big banks are very open about the fact that they "love affluent customers", and there is never a shortage of bank branches in wealthy neighborhoods.  But in many poor neighborhoods it is a very different story...
About 10 million U.S. households lack bank accounts, according to a study released in September by the Federal Deposit Insurance Corp. An additional 24 million are “underbanked,” using check-cashing services and other storefront businesses for financial transactions. The Bronx in New York City is the nation’s second most underbanked large county—behind Hidalgo County in Texas—with 48 percent of households either not having an account or relying on alternative financial providers, according to a report by the Corporation for Enterprise Development, an advocacy organization for lower-​income Americans.
And if you are waiting for a whole bunch of new banks to start up to serve these poor neighborhoods, you can just forget about it.  Because of a whole host of new rules and regulations that have been put on the backs of small banks over the past several years, it has become nearly impossible to start up a new bank in the United States.  In fact, only one new bank has been started in the United States in the last three years.
So the number of banks is going to continue to decline.  1,400 smaller banks have quietly disappeared from the U.S. banking industry over the past five years alone.  We are witnessing a consolidation of the banking industry in America that is absolutely unprecedented.
Just consider the following statistics.  These numbers come from a recent CNN article...
-The assets of the six largest banks in the United States have grown by 37 percent over the past five years.
-The U.S. banking system has 14.4 trillion dollars in total assets.  The six largest banks now account for 67 percent of those assets and all of the other banks account for only 33 percent of those assets.
-Approximately 1,400 smaller banks have disappeared over the past five years.
-JPMorgan Chase is roughly the size of the entire British economy.
-The four largest banks have more than a million employees combined.
-The five largest banks account for 42 percent of all loans in the United States.
-Bank of America accounts for about a third of all business loans all by itself.
-Wells Fargo accounts for about one quarter of all mortgage loans all by itself.
-About 12 percent of all cash in the United States is held in the vaults of JPMorgan Chase.
As you can see, without those banks we do not have a financial system.
Our entire economy is based on debt, and if those banks were to disappear the flow of credit would dry up almost completely.  Without those banks, we would rapidly enter an economic depression unlike anything that the United States has seen before.
It is kind of like a patient that has such an advanced case of cancer that if you try to kill the cancer you will inevitably also kill the patient.  That is essentially what our relationship with these big banks is like at this point.
Unfortunately, since the last financial crisis the too big to fail banks have become even more reckless.  Right now, four of the too big to fail banks each have total exposure to derivatives that is well in excess of 40 TRILLION dollars.
Keep in mind that U.S. GDP for the entire year of 2012 was just 15.7 trillion dollars and the U.S. national debt is just 17 trillion dollars.
So when you are talking about four banks that each have more than 40 trillion dollars of exposure to derivatives you are talking about an amount of money that is almost incomprehensible.
Posted below are the figures for the four banks that I am talking about.  I have written about this in the past, but in this article I have included the very latest updated numbers from the U.S. government.  I think that you will agree that these numbers are absolutely staggering…
JPMorgan Chase
Total Assets: $1,947,794,000,000 (nearly 1.95 trillion dollars)
Total Exposure To Derivatives: $71,289,673,000,000 (more than 71 trillion dollars)
Citibank
Total Assets: $1,319,359,000,000 (a bit more than 1.3 trillion dollars)
Total Exposure To Derivatives: $60,398,289,000,000 (more than 60 trillion dollars)
Bank Of America
Total Assets: $1,429,737,000,000 (a bit more than 1.4 trillion dollars)
Total Exposure To Derivatives: $42,670,269,000,000 (more than 42 trillion dollars)
Goldman Sachs
Total Assets: $113,064,000,000 (just a shade over 113 billion dollars – yes, you read that correctly)
Total Exposure To Derivatives: $43,135,021,000,000 (more than 43 trillion dollars)
Please don't just gloss over those huge numbers.
Let them sink in for a moment.
Goldman Sachs has total assets worth approximately 113 billion dollars (billion with a little "b"), but they have more than 43 TRILLON dollars of total exposure to derivatives.
That means that the total exposure that Goldman Sachs has to derivatives contracts is more than 381 times greater than their total assets.
Most Americans do not understand that Wall Street has been transformed into the largest casino in the history of the world.  The big banks are being incredibly reckless with our money, and if they fail it will bring down the entire economy.
The biggest chunk of these derivatives contracts that Wall Street banks are gambling on is made up of interest rate derivatives.  According to the Bank for International Settlements, the global financial system has a total of 441 TRILLION dollars worth of exposure to interest rate derivatives.
When that Ponzi scheme finally comes crumbling down, there won't be enough money on the entire planet to fix it.
We had our warning back in 2008.
The too big to fail banks were in the headlines every single day and our politicians promised to fix the problem.
But instead of fixing it, the too big to fail banks are now 37 percent larger and our economy is more dependent on them than ever before.
And in their endless greed for even larger paychecks, they have become insanely reckless with all of our money.
Mark my words - there is going to be a derivatives crisis.
When it happens, we are going to see some of these too big to fail banks actually fail.
At that point, there will be absolutely no hope for the U.S. economy.
We willingly allowed the too big to fail banks to become the core of our economic system, and now we are all going to pay the price.

Tuesday, September 3, 2013

Continuing Preparations Amid Difficult Circumstances

Sometimes life throws us curves. Just like other parts of life preparations for uncertain times can be affected by these curves. Today we will talk about different ways to handle adverse situations so they minimize the impact on our overall preparedness levels.

First I think it is important to take a long view of preparedness. Depending on the sort of drivers you are looking to mitigate be they disasters, violence, economic collapse, war or whatever it may be a matter of months, years or decades before you are in a good place to be prepared for these threats. In a 5 year plan a bad week or even month is not that big of an issue. When things are bad a big less happens and when they are good do a bit more to make up for it. [It's also worth noting that even folks in very good setups need to maintain systems and skill sets, rotate stocks, test and repair equipment and all manner of other stuff. The point is that even when the accumulation phase is done there is still some work to maintain it.]

Second I recommend you continue pushing hard for improvement in areas not affected by the difficult situation that is at hand. Say you get cut back to part time, the spouse loses their job or whatever. Obviously that hurts the money situation substantially. Money will obviously be problematic. In fact you might even be dipping into savings and stored food to get by. So the money situation is going to be rough and you might even rotate some food early. That being said there is not a good reason one cannot continue exercising, eating reasonably, doing dry fire practice and such. They can also continue working through different combinations of stuff to find useful systems, of stuff you already have, to meet a variety of needs. People have a bad tendency to have problems in one area then everything falls apart. Example the family who cannot put money into stuff this month might stop exercising, eat their feelings, stop practicing, stop carrying useful gear, etc. In fact one might even push harder in the areas they can continue to pursue. A person who is laid off has plenty of time to work out twice a day and do dry fire practice daily.

Third is that whenever possible create systems that automate and do the work for you. Maybe money is still flowing in but you are too busy to do anything. A scheduled transfer from checking to the crazy fund for every payday will mean there is a nice little wad of cash when time slows down enough to go shopping. A solid system of rotating shelf stable food makes it easy to keep things up. You get the idea.

Lastly work a bit harder when things go back to normal or hopefully improve beyond normal. Work hard to make up lost ground and gain some more. Taking advantage of opportunities that present themselves is important. When it comes to money be prudent and intentional about any new (not typical and already allocated) gains.

Hope that helps you all have some ideas for keeping going during hard times. Your input on how to keep preparing during hard times would be appreciated.






Friday, July 5, 2013

Egypt and Brazil: Crazy Stuff Going On Around The World

Egypt is a huge mess right now. To briefly recap. Recently as part of the Arab Spring Hosnu Mubarak the longtime dictator was deposed. The military chose not to get involved on his side, avoiding a Syria like protracted conflict. There were elections and the Muslim Brotherhoods candidate Mohamad Morsi won. President Morsi immediately set forth on an agenda towards a variety of goals including changing the constitution and generally cracking down on dissent as well as other political groups. It was the traditional African/ Middle East "One Man, One Vote, One Time" agenda.

The Egyptian economy, which has a large tourism component, has not been doing well. Death spiral might be too strong but it certainly has not been doing well. People started gathering in Tahrir to protest. They called for President Morisi to step down and were ignored.

The Army then got involved and pulled off a soft coup. The chief Justice of their equivalent of the supreme court was put in charge and elections will be held on a date to be announced later. Much of the Muslim Brotherhood key leadership has been arrested or is still being sought for arrest.

This is not good. The Muslim Brotherhood are not going to take this lying down. Violence has already started. Don't know exactly where it is going to go but probably no place good. Violence may or may not break out into full on conflict or civil war. My guy says the Army can probably hold them down; after all suppressing the Muslim Brotherhood is something they have decades of practice at.

If this is a good thing or not I am uncertain. Honestly Morsi setting up a Muslim Brotherhood totalitarian Islamic state wasn't exactly a good path for world stability anyway. May just be a different branch of the bad tree. While possible that peaceful and fair (well by Middle East standards anyway) election in a reasonable timeframe with this turning out to be a one time thing is possible I doubt that will happen. An alternating combination of military leadership and weak civilian governments a la Pakistan may be the future.

Our government is intentionally not calling this a Coup which it clearly was. Maybe it's just that saying this was a preventative Coup to reinstate lawful civilian leadership is a bit complicated.

Fundamentally this brings up a weak point in American foreign policy. We say that we want democratic governments but in practice we want folks who do not rock the proverbial internatonal boat too much and generally can be dealt with. At least as often as not this means a strong man of some sort.

Aside from communicating with both sides and using soft power to try avoiding a complete blood bath I do not think we should do anything.

The riots in Brazil seems to have tappered out yet it is a bit too early to be sure.

Who knows what will happen next week. In particular I am paying attention to Egypt but who knows what else is going to happen.


Tuesday, March 12, 2013

Economic Crack Binge and Coming Effects

The best comparison to our countries economic situation and coming problems I can think of is Charlie Sheen. Our problems with massive deficits are like Charlies problem with crack cocaine and alcohol. Lets call derivatives the Charlie equivalent of prostitutes/ porn stars.

Now I cannot predict the specifics of Charlie Sheen's next breakdown/ meltdown/ fail. I can however confidently say 100% that there will be one. Maybe he will shoot his celebrity fiance, hold a knife to the wife's neck at Christmas dinner, manage to mess up staring in the top rated sitcom on tv, who knows. (These are all things Charlie has actually done;)

 Disturbingly our upcoming economic problem is like Charlies upcoming breakdown/ meltdown/ fail. Just maybe we will manage to kick the proverbial can a ways down the road. Maybe it will be 70's era stagflation. Could be the standard South American currency devaluation/ hyperinflation or an all out Argentina like economic collapse. The old adage that big powerful countries do not go broke, they go to war (a la Germany) could prove accurate again. Maybe a combination of crumbling infrastructure and weakened defense makes an attractive time for an old enemy to attack or just use an EMP to keep us distracted internally. Maybe one of the dreaded black swans pops up in the time we are able to handle it the least.

What can we do about this? Well the usual advice to buy bullets, silver , gold and emergency food is always sound. Things like water filters might become important as infrastructure crumbles or breaks and standards just plain drop. (Yes that is a lot of linkeage in a paragraph. Got to keep the bill payers happy.)

Being as healthy as possible is prudent. Get fit, take care of lingering issues you may have, go to the dentist, order a couple spare sets of glasses and stock extra medication.

Buy food. Yes it is getting more expensive but basic staple food, even the long term stable stuff, is still a great deal. Right now food is ridiculously cheap by historic percentage of income. Most people here can probably make some choices to put a few bucks into food and fill up the pantry.

Learn skills. Specifically learn skills that will let you do things yourself instead of paying somebody else to do them.

Get ready to protect yourself. Things aren't getting better. Have realistic and sustainable (if it's not comfortable you will not do it) plans to carry weapons while still going through your normal life.

Most of these things are not new. In fact they are generally the same stuff I talk about. Best get too them before they are more expensive and harder to do.

Tuesday, January 1, 2013

Ruminating Thoughts On The Coming Year

The Sun will continue to rise and set. Basically I expect a slightly worse version of this year.

Taxes- Taxes will go up. Part of this will be strait forward rate increases but most of it will be increases in 'fees', eliminations of various loopholes and such. The bottom line is that more money will flow from your pocket to multiple levels of government.

The Economy- I am not sure about our economy. My initial thought is that the lost decade our current jobless, non housing inflation and cheap money fueled recovery will continue. In this regard I expect a bit worse version of 2012. Then again who knows.

The European Sovereign Debt issue could well reemerge. With China's unsustainable growth rates turning to inflation and the economy slowing the US may well be one of the better looking horses in the glue factory this coming year.

I suspect artificial manipulation of gold and silver prices to continue. Silver will probably continue to be a pretty good buy over the coming year. Once our food storage goals are met we will put away some more PM's for sure.

Inflation- Hidden inflation will continue. The current CPI calculation seems manipulated to suit political aims inaccurate on how inflation affects normal folks. Most of this inflation will be covered up by smaller packages, less food by weight and the usual tricks. Expect your income to purchase fewer goods and services than before. 

Gun Control- I think that gun control could go many ways.  Were I forced to take a guess something will probably happen next year. The Dem's will do something, potentially via executive order if needed, to get a symbolic victory. It could be as benign as mandatory reporting of certain behaviors by medical professionals and maybe import limitations on certain guns like Siaga 12 shotguns and AK's or could be worse.

Crime- It ain't gonna get better. The flat lined economy will push some marginal folks towards crime. Also as state and county agencies try to make budgets work they are going to continue or increase prisoner releases. Yes these folks will generally have been arrested for nonviolent offenses but that is just what they were caught for. Plenty of violent criminals are incarcerated for various minor offenses and some of them will inevitably be released.

Down here in the South West I think the Reconquista downward spiral of drug/ cartel violence and unchecked illegal immigration will continue.

I wish that it wasn't my opinion that the partisan nature of politics in the US will get worse. Identity politics and hate mongering to suit various agendas will continue. There is potential for short flashes of localized violence being orchestrated to suit specific purposes. Think twitter flash mobs against political opponents.

Afghanistan- It isn't going to get better. The writing is on the wall that we are leaving. Expect limited conflict to support political goals. Think 'Nam in about 1971.

Wellthose are, for whatever they are worth, my thoughts on what is coming in 2013. Hopefully they give you something to think about. Again in closing I expect it to be a lot like last year but a bit worse.  Good luck,

What are your thoughts on the coming year?

Ryan




Monday, December 17, 2012

Quote of the Day- Jim Rawles on the Economics of an M1A

"For the same money as a "Loaded" M1A with one magazine and no scope, you could buy a PTR91-GI rifle (a HK91 clone), AND 100 spare alloy G3 magazines (under $3 each!), AND a Savage Model 10 .308 bolt action that is sub-MOA, right out the box.

For comparison, 100 spare original M14 magazines would cost you around $2,600. And just a spare USGI M14 operating rod ("op rod") now costs around $250. You should dispassionately consider not just the initial cost of the rifle, but rather the full lifetime cost, including magazines and and a supply of repair parts  (my emphasis, TOR)."
-Jim Rawles

I love the M1A. They are beautiful and accurate though if we are real probably not a gun that should ever have existed. It says something about America that we invented an inferior gun instead of just buying the much superior FN-FAL which if I recall beat the M1A twice in our own tests, which were promptly ignored. However some time ago I came to terms with the fact that it was a gun whose price was pegged (inflation, gun cost increases, etc) above what I was ever going to be willing to pay.

Incidentally at one point I planned to get an M1A and even picked up some magazines. They are the Checkmate 20 rounders which are currently being used by .mil. Brand new still in their wrappers. Think I've got 10 of them. Will sell for $25 a piece plus a few bucks for shipping. Will definitely trade for PMAGS or USGI AR-15 magazines and may trade for other mags or gear. If you've got something else to trade we can figure it out. Shoot me an email at theotherryan@yahoo.com if you are interested.

Mags are pending sale at this time.

Sunday, May 27, 2012

Toddler on the Computer

Walker really likes electronics. We try to indulge this some because it makes him really happy and maybe he will turn out to be some sort of genuis who makes the next IPOD or Google or whatever. Anyway he was fiddling with my computer today. I was keeping an eye on things but more that he doesn't go all Hulk Smash than what he was happily clicking away at. Not sure how but he ended up at Starve The Monkeys. Maybe he feels strongly about it.

Thursday, April 19, 2012

Quote of the Day

"Economic affairs cannot be kept going by magistrates and policemen."
-Ludwig von Mises

Friday, January 20, 2012

Stay At Home Mothers

A girl I know that just had kiddo #2 brought up the idea of staying at home with them.  That got me thinking and talking about this topic. I thought an update might interest some of you.

In case you didn’t know Wifey has been at home with the kid since he was born. It has worked pretty well for us and while he drives her crazy occasionally she likes it. We know what he eats for meals, because she feeds it to him. We know if he hit his head, because she was there. No worries about him being abused or neglected or whatever else happens in daycare. There is lots of one on one time to play and try to teach him words and all that stuff. Studies consistently show that a stay at home mother is the best situation for a kid’s development and all that stuff. I don’t think anybody will seriously argue against that point.

So far it has turned out to be a very good decision for her to stay at home with him and I don’t see a reason that would change. Mothers staying at home and raising their kids has been, as of the last few decades, going the way of the Dodo bird. I don’t know why exactly.

There are two fundamental questions when it comes to momma staying at home with the kids. The first question is does momma want to stay at home with the kids and where dad is with the whole thing. A simple enough question really. The best part is that there is not a right or wrong answer. Some women have interests and goals outside of the home and that is fine too. While the women’s lib fantasy that a woman can have a big important career and balance a marriage and children could be debated it doesn’t matter. If she wants to work then that is just fine, I’m not the Taliban.

The second question is whether the family can make the numbers work to afford for momma to stay at home. This is a more complicated one and will be addressed at more length. For momma to stay at home the family needs to live off what dad makes. To back up a second this means dad needs to be in the picture and that there is a cohesive family unit which today is sadly not a given. This is one of those things that is simple but not easy, sort of like how the way to lose weight is to eat less. This is really where the hypothetical meets real life. 
To paraphrase Ronnie Coleman, a champion body builder, “Everybody wants to be strong, but they don’t want to lift the weight.” Lots of folks talk about staying at home with kids but it doesn’t happen. The reason is that with only one income you will not be able to do what you could if both partners were working, especially if both are capable of more than menial labor. To say it another way; living on one income means a more modest lifestyle than you could otherwise have. For a lot of people that is a hard pill to swallow.

Personally I don’t really mind it. I have run the numbers on what we would be able to save and invest and otherwise do if Wifey worked and they were pretty attention grabbing. However it is not worth it to me. I certainly wouldn’t mind a nicer vehicle or whatever but at the end of the day it is just stuff. How much do some bigger numbers in some electronic accounts really matter?

 For other folks the math simply doesn’t work. That is a more complicated discussion. Sometimes it just doesn’t, especially if Dad is a part time non union janitor or works for minimum wage. Unless you are willing to live REAL CHEAP that won’t work. However I would say if he is making more than 30-40k or so a year (or course cost of living is a factor, 30k in Manhattan, Kansas is a lot different from Manhattan, New York) income probably isn’t the whole issue.  What gets a lot of folks stuck is that they have a debt load which can’t be covered by one income. It could vary from rent/ mortgage to credit cards and vehicles or whatever which just can’t work with one wage earner. This is yet another reason to stay out of debt. You can radically change spending habits tomorrow should the need arise, it sucks to go from steak and lobster to spaghetti or rice and beans but it can be done. However money that has been promised is baring default, not an expense you can change. This is, more than most folks will admit, the reason the numbers just don’t work. Either they can’t drop their living expenses due to it being locked in obligations or they choose not to for whatever reason.
When I hear folks say it is impossible to have a parent stay home with the kids I want to ask what their cars are, what sort of toys they have and where they went on vacation last. The answer is that yes, it may well be impossible to buy a nice new car or two every couple years, have their toys and vacations on just one of their salaries. However all that stuff is a choice, not a given. I am not sure if they are unwilling or don’t even consider it but usually the answer is that yes, they could afford for her to stay home if they changed their lifestyle.

On the plus side having a wife at home helps with expenses or at least it can. Home cooked meals instead of eating out all the time, stuff like that. The possibility of having one car or an older one that will just go to the grocery store, etc is legitimate. She doesn’t need professional clothes or have those types of expenses. One of the biggest places a second income goes is daycare. Daycare for two or more kids adds up in a hurry. The bitter irony is many wives are working for a tiny salary once daycare is considered. Their real take home is just a few hundred dollars. I would submit to them that cutting that amount from their budget is pretty doable should they be so inclined.

I don’t want to get anybody down or poke at however you choose to live your life. You are free to make whatever choices you want.  All I want is for folks to know that having mom stay at home with the kids is quite possible if they are willing to make a few sacrifices. It is quite worth it to us and Wifey will stay at home until the kids (planning on getting Walker a battle buddy) are in school then she will likely start some sort of job.

Sunday, November 27, 2011

Best Is The Enemy Of Good Enough

This post is sort of a progression of my recent post “The Economy of Everything” where I talk about making choices about how to use time and money. Most of us have probably heard the phrase I used as the title to this post ‘best is the enemy of good enough.’ What it means is that we can, in our search for the perfect answer or solution get a sort of paralysis and miss out on an answer that is completely sufficient. Another way to say it is, better a good answer right now than a perfect one in the future.

Like most things this is a trade off. The trick is to know if you are making a good trade or not. That is what I want to talk about today.

It doesn’t take a genius to figure out what best is. Best would be the perfect plan or gadget or completely mastering a skill or craft. Now figuring out what good enough is can be more problematic.  This is going to make the bulk of today’s post.

To me good enough would typically have most of the traits of best but be significantly easier to execute or obtain. Meaning it takes less time, money or effort to execute than the best solution but has most of its characteristics. Typically I would move towards the best solution incrementally until I was close to it in characteristics then go until I hit a noticeable point of diminished returns. At some point the increased payout stops being worth the return.  Example, one might decide that a Daniels Defense rifle is the best solution out there but a Bushmaster will do most of what the DD rifle does for much less money.

I think the combination of characteristics and cost which is used to informally figure when that point of diminished returns is hit can vary by individual. Mostly the cost, characteristics are more objective. The time and energy one person needs to acquire or maintain a capability may vary significantly from another. Some folks can work out 3 times a week and be in good shape and others can’t.

 Also the relative cost is different. One of my single co workers might be able to spend 2 hours every evening at the gym learning boxing or just getting into stupidly good shape. I have a wife and kid so I plan three 45 minute gym sessions and try to do them at lunch. Would I be in better shape if I worked out for 2 hours every evening, sure (overtraining and efficiency are another post) but the cost is too high for me so I make do with less time.

I do think it is worth remembering that characteristics are a significant part of this trade off and not just cost. Otherwise it can get silly and you miss the point. This has been used to justify definitely sub optimal equipment, bad training plans, lack of physical fitness and probably some other stuff. A Mosin Nagant is a good rifle for what it (not a good rifle 80 years ago) is but it is not a semi automatic rifle with detachable magazines. Even though it is cheap there is a definite limit to what dinking around with your buddies at the public range will do for your skill development. Doing a few pushups and sit-ups now and then will not give you the strength that lifting free weights will and walking is at best a sub optimal substitute for running or rucking. When cost is your only consideration the answers usually suck.  I think common sense needs to be present to keep these tradeoffs realistic.

Thoughts?

Saturday, October 22, 2011

Saving Big

Saving a lot of money on things takes a few traits.

The first that comes to mind is flexibility. You either need to purchase pretty common things or be flexible and look for a more broad type of good instead of something real specific. Example, buying a mid range mens mountain bike is reasonable. However you could wait a very long time for a Speed Demon 97 with a blue frame to come up on a great sale or gently used. A used 04-06 4 door Honda with reasonable miles is very different than a green 2005 with a tan interior, the VTech engine and a specific list of options.

The ability to plan ahead is next. Getting good prices often requires some time (either looking or waiting) and thus you have to be thinking about what you will need in the weeks or months coming up, not today or tomorrow. Here is an example. Let us say that I like to eat cereal every day and thus go through a box a week. If I go shopping on Saturday and have absolutely no cereal in the house I am stuck paying full price or eating something else. However if I have a few boxes because I planned ahead I can wait until the next sale to get more cereal. The same could be said of winter clothes or any other need you can forecast.

Last is cash on hand. Often deals come when you least expect them. It could be a half off sale on canned goods, a buddy who needs to sell a gun in a hurry or who knows what else. So often a deal will be missed if you have to wait for payday. Having cash to take advantage of all manner of deals is essential.

There are also two areas in which people can go wrong trying to save money.

The first big mistake is getting a "great deal" on something YOU DO NOT NEED AND WILL NOT ACTUALLY USE. This sort of bumps up against the "be flexible" but it comes down to knowing and being honest with yourself. I will talk about it in two parts.

First do you need it? Example, buying a chair or a lamp you do not need (even if it might get used) is not good economics.

Second will you actually use it? Example, I use Heinz Ketchup. It does not matter of Hunts or Walmart brand are on sale for a penny because I won't use them. If in doubt it might be smart to try one or two of something before buying 5 cases. [Note, A family member of mine does that "extreme coupond" type stuff and she donates a lot of things she gets super cheap to charity. Either this or passing it on to a friend who can use it (ideally they would do the same for you;) makes sense. Just so long as the stuff will get used.]

The second big mistake is failing to consider the investment of time and effort involved.  Time is a valuable commodity as you cannot make any more if it. If you save 5 bucks by doing something but it takes 4 hours is it really worth it? I can't tell you what your time is worth (though your wages aren't a bad starting point) but you need to consider it. There is not an exact formula for this but the factors would be enjoyment, your available time and other income producing opportunities. The answer will vary depending on your currenti life situation (how busy you are, how broke you are or are not, etc all). Example, by making tortillas wifey can save a dollar (over the cost of ingredients) by making them herself. When she is working or otherwise busy that dollar is not worth it, however when she has time to spare it can be.

Another classsic fail is driving 50 miles and burning up 7 bucks in a fuel guzzling vehicle to save .75 cents on a package of hamburger. Totally misses the point, unless you buy 25 packages and combine the trip with business in that area.

I often ask myself "would I take a side job if somebody offered me this wage (the amount of savings in the time involves)?" It is a pretty good test.

I ran the ideas in this post by Wifey because she does this stuff more often and more successfully than I do. She added that a lot of people put start up money into things before they know they will use them. The most common example is spending a ton of money on equipment for a hobby to then use it twice and realize you hate it or for whatever reason will not use it. Bikes, fishing gear, etc all are common examples of this. We have found that borrowing or renting equipment to try things, or at least getting in on the cheap with basic used stuff helps with this a lot. You can always get newer, better stuff down the road and either sell the first set of stuff or keep it for backups.

A couple of recent real life examples which I believe will help to illustrate what I am talking about. We went to a big sale and got all of Walker's clothes in the next size up (well I am sure Wifey will get him a thing or two later to fill a gap or because she likes it, the vast majority of his clothes might be more accurate) for awesome prices. We got gently used shirts, onesies, and pants for an average of about two dollars and fifty cents.

We were at an outlet mall looking for something and needed to stay while and look around because Walker neeeded a break from the car. We went to an outdoor store and were idly looking at the stuff they sold. Wifey noticed name brand shell jackets on sale for $30 (retail of $110). I wasn't in the market for one but could definitely use one and at that price it would be foolish not to get it.

Wednesday, October 12, 2011

Wall Street Occupiers, Crony Capitalists and Shoulder Holsters

Our good friend Hermit left a couple of comments which I feel like replying to on the main page. It also brings us to other points worth talking about.

This whole Occupy Wall Street protest thing. I am completely ambivalent about it. Moreso I think some of the regional spin offs are just stupid. Instead of standing around and bothering productive people they should do something to better their own circumstances.

To this recent post "Quote of the Day" Hermit said "I was thinking I'd like to go throw some molotovs at Goldman Sachs myself. The more I think about getting screwed in 2008, the more I think I should start learning the words to "The Internationale"."

I can definitely see his point. This is one of those times where there are multiple complaints which can be logged against a group from different angles. I do not think they are bad people because they make a lot of money like the protestors do. However it is quite apparant to me that at least some folks involved knew what was going on and were "Shooting the Moon" so to speak. Like Enron but on a massive scale. I think there are/ were some issues of crony capitalism, fraud and such going on. I don't know much about securities and banking laws but to me it is pretty apparant that some bad stuff was going on. Lots of people should probably go to jail.

There is a saying that "the enemy of my enemy is my friend" and sometimes (if just temporarily) that is true. However other times the enemy of my enemy is also my enemy. To me this whole Wall Street protestors thing falls into that scenario. I am not a fan of crony capitalism and the fraudulent practices which it leads to but the last thing we need is more government involvement (which breeds more crony capitalism) and socailist redistribution. I do want change but not the change these protestors are advocating, if they can form a cohesive enough message to even say what they want.

On my recent post about Appendix Carry Hermit asked if I prefer it to a shoulder holster. The simple answer is yes. I carry IWB because it lets me wear a normal shirt (albeit a loose one) and conceal a compact sized pistol comfortably. This lets me wear a slightly modified version of my normal attire and carry.

Shoulder holsters require a relatively heavy (not a light shirt) over garmet like a windbreaker, vest or a warmup jacket if not a coat for concealment to work. I could go for a vest but for somebody my age (as Hermit has noted older men in the south wearing vests is common) a vest, particularly a 5.11/ photographers type vest screams I am concealing a gun. They do have a place in my book as they bring a couple of benefits. First they do not require pants with a belt to use. This is an advantage sometimes as you can just toss one on, cover it up and be discretely armed. Also they are particularly good for long drives and carrying particularly heavy handguns.


Thoughts?

Wednesday, September 21, 2011

Recognizing Mistakes

There is something fundamentally wrong with our country. Somewhere along the line folks got to the point where they couldn't admit they had messed up, at least when it mattered. They were genuises when things went right and it was somebody else's fault when they went wrong. Why do I care this? The reason is that, at least for myself and Wifey, these are where we learn. The cold hard truth is that you do not learn much from successes and learn a lot from failures and mistakes. Simply because you made a mistake does not mean you are a bad person. Typically we did what we thought was best (duh, otherwise we would not have done it) and for whatever reason it didn't quite work. Maybe a mistake cost us an extra hundred miles on a trip, or a few hundred bucks or some inconvenience. The thing about mistakes is that by the time you find out they are a mistake they are past the point of return and cannot be undone. The real power of mistakes is analyzing what went wrong and hopefully having some takeaway's to prevent future mistakes. To do this you have to admit that the mistake was, at least in part, your own fault. This brings us to my next point.

I think part of the whining, bitching loser mentality that is far too common today comes from, or is directly related to failing to admit to oneselfself that you made mistakes. There whiners are genuises when things go right and when they go wrong it is everybody else's fault. What this mentality does is it creates a cycle where people gripe and complain about how life is not fair instead of figuring out how to do the absolute best they can to take care of theirself and their family. By losing the power to learn from their mistakes (after all the smart people who made $15 an hour were getting adjustable rate NINJA loans for $300k homes, etc) and are thus doomed to make the same mistakes or similar ones. Instead of realizing the issues with their plans, goals or underlying philosophies these folks will keep trying the same stuff and suprisingly have similar results. Also these folks take away their own power and give it to other people. After all it is these numerous agencies and organizations that keep holding them down, so why even bother with it. If they could just see their role in the mistakes they could see through to their role in fixing them and not making new ones which would put them and their family into a far better position.  I would feel bad for these folks but to be honest I really do not like whiners.

Tuesday, September 6, 2011

Book Review: Reinventing Collapse: The Soviet Example and American prospects by Dimitry Orlov

This book discusses the Soviet collapse (loosely moving between the end of the USSR and their economic hyperinflationary collapse a few years later, more on this in a bit). It compares and contrasts what could be called the Soviet model with current and possible future events in America. In doing so the book looks at where we may be going. I read it on my kindle but am sure you can get it in a physical format if you so desire. Anyway let us get onto the usual format.

The Good: It was a quick, easy read. The author did a bang up job of speaking on complicated issues in clear language without jargon or scienceinese (the language scientists speak and none of the rest of us understand).  Somebody smart once said that if you can’t explain an idea to an average man on the street then you do not really understand it. By that standard Dimitry Orlov really understands the themes and ideas that make up the subject matter for this book. For a nonfiction book it reads rather casually, part because of the clear simple language used and part because it is interwoven with stories of his experiences and anecdotal tales. In the closing comments he said (more of less) that he tried to keep it light and enjoyable and I would say he did a great job. The information on the Soviet economy and collapse was outstanding. Also the way it was written hit the man on the street angle as well as the bigger picture of what was happening. This balancing act was probably hard and he did a great job of it. I learned a lot about how the Soviet economy worked, failed to work and fell apart in this book.

The Bad: It is abundantly clear to me that the author looks at the Soviet union through some rose colored glasses. I don’t know a ton about the USSR/ Russia’s history but he seemed to have an awful positive memory. Furthermore I found him willing to sweep America with a broadly critical brush that is probably not deserved. The words “if you liked it so much then why didn’t you stay there” came to mind and maybe out of my mouth a few times. If he would have been glowing or rough to both sides it would have made a lot more sense. This almost discredited an otherwise quality book for me.
The author could not seem to make up his mind between talking about the fall of the USSR and the Russian economic collapse a few years later. Of course both events were linked but the way he talked about them flipping back and forth randomly was confusing and in my mind not particularly logical. I’m not sure if he was trying to pad the book a bit, in any case it was distracting.

The Ugly: At points I found the book to be full of contradictions. He can’t seem to decide if there is going to be an economic collapse and hyperinflation or if things are going to go all Mad Max and stick with one idea. Much of his claim rests on peak oil theory which is, while not as discredited as global warming, certainly a subject that could be debated. This goes back to the point before that the events he is claiming will or are happening do not seem to logically lead to the conclusion he goes to. Maybe my reading missed something.
More so than any comparable book (Kustner, FerFAL, etc) I found this to be depressingly low on concrete ideas to prepare for the scenario the author lays out. He mentions how you might want to buy some compact tangibles such as soap and razor blades and that having a home with a bit of land to grow a garden that is paid off is a good idea. Aside from a few vagaries the book is awful long on problem and short on solution.  I’ve been told never to bring somebody a problem without an idea for a solution, apparently Dimitry Orlov hasn’t heard that one.

Now for some discussion in no particular order:
-One compelling and disturbing point was brought up. A significant reason the Russian economic collapse was so calm was that everyone’s residence was owned by the state so nobody got evicted. Sure they shared an apartment with a 12 member 3 generation family but at least they had a roof and walls that was not tied to any need for income. In America pretty much everyone’s residence is tied to a need for continued income, if just to pay the property taxes. That kept their homeless population to a real minimum which contributed a lot to stability. I do not know a lot of people in America who would still be in their home after a year or two if their savings/ investments were wiped away and their job lost. I am not sure what would happen if America had that sort of structurally high unemployment. However if our current situation is any indicator it would favor banksters and large residential property owners (who are typically quite well off) not average down on his luck Joe 6 pack. Massive homelessness would be a huge tragedy for a lot of people and cause significant instability. When people think (maybe accurately) that they have nothing to lose they are very dangerous.
- I think it is not possible to make a lot of comparison’s in an ‘apples to apples’ way because so much was going on in the USSR and Russia during that period. All of the events happening make direct cause and effect impossible in some cases, at least IMO. I would say a lot of the chaos and the rise of a massive criminal underworld was the result of communism or the wild west collapse of communism. Unless there are significant tariff’s, price controls or truly punitive taxes put into place I do not see the kind of massive underworld that appeared in Russia happening. There is no need to buy $25 soap from a sketchy dude in an alley when you can get it from the neighborhood store.  The existence of a relatively free market and its inherent ability to adapt readily negates some points the author made.
- Also for a lot of reasons I do not see the kind of massive corruption that took place in Russia happening, it just is not part of our culture, well except maybe Dem’s in Illinois. I do believe we could fall a rung down the proverbial corruption ladder but not to where Russia was/ is.
-As for the idea of a lot of laws and regulations being almost removed by the default of non enforcement I am not so sure. Unfortunately I think the answer is that laws will stay on the books and either every once in awhile somebody will get hammered for running an unlicensed business, dodging taxes, etc. This is not a huge deal as the odds of it being you are low. Another possibility is that laws will just be enforced selectively based upon various personal and political motives. Given the way the pendulum has swung recently that would be bad for most people who read this blog, especially the ones who are publicly outspoken. That the New Black Panthers can openly and brazenly intimidate white voters with weapons and face no consequences but an active conservative type will get hammered for a parking ticket or the like could be seen as a glimpse into the future.
In closing I do think this book is worth reading even though it does have some rough spots. The info and background on the Russian collapse was very interesting and though provoking. Heck I would go as far as to say it is worth paying retail price for if you can’t borrow a copy.

Friday, April 22, 2011

Book Review: The Ascent of Money By Niall Ferguson

I got this book for Christmas from my brother in law. Didn't really get a chance to start reading it for a couple months and just finished it today on a wonderfully relaxed day. Onto the usual format.
 
The Good: Niall Ferguson is a heck of a writer with an ability to go deep into history and explain events and themes. He has also written a couple of other very interesting books. In his typical fashion it explains complicated subjects and also keeps things light and interesting through various anecodal stories that blend into the subject at hand. It is a real credit to the author that it reads more like a history book than a college text. I found this book particularly valuable in that it explains, in a way average laymen can understand the history of so many parts of modern financial life. It explains how they came to be as well as how they interact with eachother. It moves along in chapters that are logically grouped by theme (banks, bonds, stocks, insurance, housing, etc) and all wraps together very well.
 
One of the most interesting things is that it shows so many things are more cyclical or reoccuring than genuinely now. Finance is sort of like movies in that if you boil it all down there are only a few real unique plots.
 
Also it is very interesting that despite what some hard money folks like to say all currencies were not genuinely 100% redeamable in gold until the early to mid 20th century. It is however true that the long term stability of non redeamable currency is at best questionable.
 
The Bad: The writer is probably closer to Keynes than Friedman, let alone Mises. Sometimes it shows in his writing. However this does not detract from the overall quality or value of the book.
 
The Ugly: On the whole this book did a great job at explaining very complicated financial subjects in a manner where moderately intelligent laymen can understand them. However at times a couple sentences of explanation or background would have been very helpful. It is like the author occasionally forgot his audience is made up of people who like nonfiction books and had $16 in their pocket instead of Harvard finance majors.
 
All things considered I would suggest this book to anyone who is interested in our current economic/ financial system and how it came to be. I got a deeper understanding of many parts of it by seeing where, when and how it all came to be. It wasn't too expensive and was an easy read.

Wednesday, April 20, 2011

Quotes, Inflation and Hyperinflation

 
I underlined and bent the pages in The Ascent of Money for these quotes. They interested me and may interest you.
 
"Inflation is a monetary phenomenon, as Milton Friedman said. But hyperinflation is always and everywhere a political phenomenon, in a sense that it cannot occur without a fundamental malfunction of a country's political economy."
 
"Only entrepeneurs were in a position to insulate themselves by adjusting prices upwards, hoarding dollars (TOR adds they were talking about Germany post WWI so the dollar was a safe currency, comparisons could be made to the Canadian dollar or Swiss franc today), investing in real assets (such as houses and factories) and paying off debt in depreciating banknotes."
 
Inflation is on my mid term worry calender. At some point a couple to several years from now employment will start rising and we will finally have worked the glut of housing inventory out of the system. Things will start to get better and consumer confidence will rise which leads to more spending. When those dollars banks, businesses and people have been hording under the mattress in case of emergencies start moving it will eventually become noticable that there are lots of dollars chasing the same amount of goods and prices will rise. Our benevolent banking friends the Federal Reserve will raise interest rates to try and slow the inflation. I am less than confident it will work.
 
On one hand I am not that worried about inflation because our income is secure and we live well below it with no debt. Remember that while inflation makes debts cheaper in real dollars and thus easier to pay off, it also hurts the economy and leads to layoffs and failed businesses. It doesn't matter if your mortgage or bills cost 20% less if you are laid off/ business goes under and you make 100% less. In this respect we are in a good spot as we don't owe anything.
 
However I do have some worried because we couldn't raise my wages/ prices 20% tomorrow like a small business or whatever could. Since I am pretty happy with my job this is not going to change any time soon. That leaves us managing it. We don't have any debt, let alone variable interest rate debt or a frickin ARM mortgage but if we did I would be trying to get those accounts settled in a hurry.
 
We own some precious metals which would hold their value and be very useful if inflation became truly ruinous. We also store some food which would help us get through issues with JIT inventories. In this sort of situation (high but not hyper inflation) most likely our biggest savior would be that our normal lifestyle is well below our means. It would mean saving less and our travel budget (destined to drop 50% or more anyway when we return stateside anyway) would drop significantly but our day to day existance would be the same.
 
Obviously that sort of plan would not work well in hyperinflation. For that sort of scenario I have less of a warm and fuzzy but since it is so unlikely my underoos aren't all twisted up about it. As soon as practical we are going to start growing some of our own food which will help. Of course stored food and pm's would help in emergencies or as a short term stop gap measure.
What are your preparations for inflation? What are your preparations for hyperinflation?

Monday, April 18, 2011

Hard Truths

If you grow up, get a skill (degree, trade, whatever), get married to a person you have known for awhile, then have kids your odds of economic and social success are pretty high. If you do things in the right order all, don't spend more than you make and ideally stay married (this is where knowing someone is so huge) things will go resonably well for you. However if you mess up this order in any way the odds of success and stabilty drop. The more you mess it up the worse they get. I am not coming at this from a moral angle but a practical one. It is just cold hard truth. I know more than a few people who have intentionally or otherwise messed up the order. I really hope it works out for them (and for some it does) but it is definitely a lot harder road.

Saturday, April 2, 2011

Dealing

Things are not great right now. Our economy is at best floundering and will take several years for a full recovery and at worst, well I hope you have bullets, beans and bandaids. I think it is important to keep a sense of perspective and a positive attitude. First of all Americans, even 'poor' Americans are rich by world standards. If you can turn on a faucet and have all the clean water you want you are rich and most of us can do that (the ones who can't have chosen not to for whatever reason). Seriously we all have our wants and struggles but we have it pretty darn good. Attitude is just so darn important. A person who ends up in a bad situation with a good attitude and the willingness to move forward and deal with the new reality is always better off. There are numerous cases of people who are well prepared and essentially die of giving up and other cases of people who are in horrible situations and get through almost exclusively on good attitude and willingness to do what must be done. For Americans and most likely other folks it is really hard to accept reality and a change in standard of living or life patterns. Unfortunately the idea that you cannot have a 'middle class' lifestyle is tantamount to accepting defeat and failure as a person. I encourage you to ignore what other people think. Other people are poor and have seriously skewed values.

Also I think it is important to remember that broad trends are made up of a very large amount of individuals. I think we are facing an overall drop in quality of life of the American middle class. Call it whatever you want, inflation, market cycles, changes in labor patterns, depression, etc but it seems to be the situation. I urge you to work to either move against this trend or at least mitigate its effects on you and your family. Just because there is an overall 20% decline in standard of living doesn't mean it has to happen to you. Or in a more extreme case if most people lose everything and you just lose something you are better off. I think it makes sense to work along both traditional lines of effort such as good financial choices, increasing your earning power, etc as well as more preparedness oriented ones like tangible stores of wealth, primative and survival skills, alpha stragegy type purchases and the 3 B's. In the real world your finances and other boring stuff are almost surely more important for your ability to deal with realistic situations then the kind of semi automatic rifle you choose, the bullets that are in your handgun or whatever.

Thursday, March 17, 2011

Alternative Lifestyles

The Army has seen fit to stop blocking social networking sites. The last couple days my work has been kind of light so I have been fiddling around watching stuff on YouTube a lot. Off The Grid: Life On The Mesa looks interesting to me. I will fiddle around and see if I can find it for free but otherwise I will probably just buy it. I also enjoyed the Les Stroud piece on his move Off Grid. Also saw a lot of interesting stuff on people living off grid, riding the rails, being homeless s and generally existing in a manner that is pretty far from the norm. This has been pretty interesting.


I find this sort of lifestyle worth looking at because these folks have some valuable skills. They are able to travel and exist on very limited resources. Also they are able to travel in a low profile manner. Folks who participate in these kinds of lifestyles get there for many reasons. Some of them are capable and at least semi intelligent folks who for whatever reason choose these lifestyles. Others end up there by various poor choices. These folks are able to get by because they cut their lifestyle and expenses down to the bare minimum. In halfway decent weather you can get by just fine with a blanket or a sleeping bag and a little tent or a tarp. Instead of a spending a lot of money (relatively speaking) at a restaurant you can have a can of something or some rice and beans. For entertainment instead of going out to a show or a club you can sit around a campfire playing cards and BSing with friends. While less enjoyable, cheap booze does get the same job done.

Having seasonally appropriate clothing sure makes things more comfortable. Wide brimmed hats and sun screen are good for everybody, especially pale folks. I am not sure where the balance between having enough stuff to sustain yourself and too much to haul around is. Suppose just like a series of long hiking trips you get a pretty good idea what you would need. This would be a lot easier if you have a home or a place to keep stuff. For example being able to stash winter gear for the part of the year it is unnecessary would be nice. I've heard that hobo's often have multiple caches with clothes, gear and maybe weapons. I think that is a pretty sound policy, especially for someone who doesn't have a "home base". This could be a more traditional cache buried in the ground or just a buddy who lets you leave a duffel bag with a heavy sleeping bag, jacket, hat and gloves or whatever during the spring and summer.

This sort of lifestyle has some real danger. Instead of a lovable albeit lazy and semi drunk hobo of yesteryear reality is a mix of idealistic counter culture type youths and some legitimately dangerous folks (personified by the FTRA) Any time you interact with sketchy people there is a legitimate risk of them acting in a sketchy manner. Personally if I had to interact with these sort of people I would be wearing some old dirty clothes. An old garage sale backpack with some spare clothes, a beat up aluminum pot and a Sterno stove might be about it. In the winter a sleeping bag, a tarp and a poncho would be added. I would carry nothing of value except a concealed handgun.

I would probably still stand out but obviously wearing a $70 watch and carrying a $200 backpack would be a good way to find trouble.

I have no desire to live this sort of lifestyle. As our friend James Dakin has mentioned people who (Initially I find it interesting that a significant amount of these folks are, even if they are not keen on admitting it, on the dole. Some folks are on disability or social security or welfare legally and others are getting government money fraudulently.) exist somehow or another at the very bottom of society fail to realize what will happen if your current fairly solid social network really fails. If homeless shelters close and food banks put their energy toward generally productive locals who have fallen on hard times these folks could go from sort of cold and hungry to freezing and starving.

Sunday, January 30, 2011

Retirement Fun for Boomers and Beyond

I should note that I do not have a crystal ball or a product to sell which will magically fix all the problems I am about to discuss. I am also not an accountant or a financial advisor or anything like that so nothing I say should be seen in that light. By all means read what I say and think about it. If you decide it might have some merit then consider it in your plans. However don't just mindlessly put a lot of money into this or that because I (or anyone else) talk about it if you do that you are a fool and deserve all the bad things that could happen. Be an adult and make your own decisions because you will have to live with them.

With the slew of municipalities being broke and having insolvent retirement funds, corporations dumping pensions whenever they get any excuse and a whole bunch of states broke I would be concerned if a pension was going to fund my retirement. Heck even the federal government isn't doing so great. Consider what would happen if you pension was radically reduced or even defaulted entirely.

Also if you haven't noticed the USA has a real problem with welfare social security and medicare. Like the level of problem Charlie Sheen has with vodka and cocaine. Social security was started by commie FDR with benefits at 65 when people on average died at 62. Also there were lots of workers to pay for it. The numbers don't work and are rapidly getting worse. Too many people are retiring and not enough are working to pay for them.

I imagine a lot of small things will be done to try and bend the exponential curve of welfare entitlement costs.The are to collect full benefits will likely go up, well off people will be charged on more of their income (I think it's 100k right now), and some sort of a means test will likely appear. I believe all of this will only succeed in kicking the can down the road a few years.

Also more significantly generations X and Y realize we are never going to collect meaningfull social security. As boomer politicians screw us with higher rates of theft contribution we will get pissed. Pretty quickly we will get into an age demographic that votes at a far higher percentage and are a significant force there is going to be a reconning. I am not sure how we will screw you the boomers but I bet we will. Best case is that they are going to be paid in inflated dollars. On a more gloomy side it could be significantly inflated dollars. Worst case for them the welfare social security checks will stop entirely.

My point here is that you should plan for retirement without counting on a pension OR social security. If you can collect either of them then go for it. However personally I would want to be able to support myself without either and just have them as icing on the cake.

In an even darker scenario the dollar and subsequently paper investments denominated in the dollar could take a nasty hit. Maybe it could be a slow slide or a fast crash, I don't know. In any case the have money in investments and live off interest/ dividends plan would fail in this scenario. To be honest this is relatively unlikely (slow slide to a currency among many versus world reserve currency and a moderate loss in purchasing power is more likely) but it would be a bad one. Most retirees would be devastated. The truly rich would generally be fine (somehow they always are) but middle and upper middle class folks would mostly be destroyed.

What can be done for those who are worried about this relatively unlikely (the extreme version anyway) scenario? The first thing that comes to mind is to have your basic financial house in order. For those close to retirement age having very minimal or no consumer debt and having your primary residence paid off is so huge. I watch a lot of those financial shows and the amount of people who are trying to retire with car loans and very little equity in their home (let alone having it paid off) baffles me. If you are debt free and retire then something happens so you face a drop in income at least this way you can shred your expenses. It would suck but as long as you can pay property taxes, fuel and food you will be OK if not happy. However if your pension fund fails/ the stock market and subsequently your investments collapse and you have all sort of stupid consumer debt and a high mortgage payment it will get ugly fast.

My next thought also flows well with what is likely reality for most boomers. The reality is that many of them saved like they have a cushy defined benefits retirement plan when in fact they have a 401k. Too many of them continued to upsize their home and used home equity like an ATM instead of paying off their home. Fundamentally a lot of people are approaching retirement age and just can't afford to retire, at least in the way the Greatest Generation did. Some will be able to retire and live modestly (versus lots of travel and recreation) while others will need to keep working in some capacity or another.

The advantage is that earned income (vs from dividend's, stocks, interest, etc) is pretty flexible. You can, at least in theory, renegotiate the deal for future services to reflect a changing economic situation. That could mean getting paid to reflect the real value of currency, in a stable currency, PM or barter. Hard to do that with your pension or retirement account. If something this ugly happened a lot of people would be headed back to the workforce in a seriously damaged economy. The way to get ahead of the game would be by working in some capacity already. Maybe you could work part time, consult or just have a couple clients. Even a modest income could (in addition to making todays retirement economics more comfortable) be the difference between making it and not.

Where you choose to put your money is important also. I am not against precious metals for an alternate currency/ store of value but have concerns about them for retirement. The reason is that they do not benefit from interest, dividends, etc. Every silver dollar or gold eagle you spend is coming strait out of your principle.

The reason that truly rich (maybe wealthy is a better word) people do not get wiped out is that they own businesses and real estate that produce income for them. If currency values change radically a solid business will continue to earn some money. People will continue to rent apartments, homes and commercial space.

Things that produce income are good things to buy. A lot of the downsides of real estate (and to a lesser degree businesses) are minimized if you pay cash. I would rather have some money in the bank and the market and a modest rental house or twelve in decent areas earning me income than a bunch of money in the market.

I don't know what is going to happen so I hesitate to suggest putting all your eggs in any basket. If your finances are in order, you earn a bit of income and have at least some of your money in tangible things that produce income odds are you can weather whatever comes.

Thoughts?

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