So, wheres the Crash?

[Jeff]

Re: So, wheres the Crash?

If you don't think the smart guys with a lot of money aren't putting it into gold, sovereign debt of commodity producing countries and homes in rural, easily defended parts of friendly nations (Canada, New Zealand, Costa Rica, Switzerland) you're delusional.

The only dollar denominated assets I'm still holding at this point are emotionally important pieces of real estate.

It'll be very interesting to watch how the guy with the Hummer, and the 3 refis in the last 2 years feels when he's homeless and jobless. I really expect a hell of a lot of really dramatic social upheaval in the next 2 years.

But my (paid for) farm in Costa Rica has solar power, reverse osmososis, a windmill and an interesting crop base.

[c1ue]

Re: So, wheres the Crash?

But my (paid for) farm in Costa Rica has solar power, reverse osmososis, a windmill and an interesting crop base.

2 questions:

1) Interesting farm base - is this a euphemism? :p

2) Where's the private plane to take you down there? Or are you connected enough to get on the last helicopter out of Saigon?

[touchring]

Re: The Savings Glut Myth

But the end game will eventually come, and although there may not be a decline in price, I am quite certain that a lot of local and expat "investors" are going to discover they hold highly illiquid, immovable assets in an unstable part of the world.

That's worst than a housing recession. As you said, there's no resale value, it will be forgotten and puffed into thin air like MBS.

[Finster]

Re: The Savings Glut Myth

Finster: You and I don't differ in our views of the "Great Greenspan" and the Fed's track record over his tenure. However, I remain unconvinced that the remarkable difference in consumption vs savings behaviour of the "Anglo-Saxon" countries (USA, UK, Australia, etc.) compared with the rest of the world is due simply to "low interest rates", or a remarkable insight on the part of American consumers that the US dollar was "a pretty obvious short".

As noted, interest rates were low in other jurisdicitons, but failed to prompt the same excess consumption behaviour. And if shorting the US $ was so obvious, it seems to me the rest of the world would have figured that out at least as fast as the average American (large numbers of whom are allegedly unable to read and comprehend the very mortgage documents they signed).

I prefer elegantly simple explanations wherever possible, but this mess we are in now seems the result of a complex interplay of many factors; and its pretty clear I am having trouble understanding some of them.

It is at least one degree more complex than interest rates alone. As I explained above:

Yet you are correct that it is not monetary policy alone that is at fault. Our tax policy is the other major driver. We tax production far more heavily than consumption. To take just one example, recent proposals to levy an import tax of some 27% on goods produced in China are termed "punitive"; ostensibly a punishment for the failure of the Chinese to float its currency or otherwise take action to reduce its huge trade surpluses with the US. For some reason, however, a tax of similar magnitude on the production of US workers - we call it the "income tax" - escapes criticism on the same grounds. If a 27% tax is "punishment" for China, then what exactly do we think we are doing to the US worker?

In short, our tax system imposes a very heavy burden on US production, the income tax being the main offender. In effect, it’s a tariff of 20%, 30%, 40% or more on goods and services produced in the US. As tariffs on goods and service produced elsewhere have been trimmed, the imbalance has grown.

In addition, even the interest rate factor itself is not merely interest rates, but interest rates relative to inflation. And there is a time element as well. Real interest rates have generally been so low so long that the debt mind-set has almost become an ingrained cultural phenomenon. While we once learned from our father’s generation that "a penny saved is a penny earned", we’ve since learned principles like OPM (other people’s money), and to think of our homes as "an investment". For the most part, they’ve been an inflation hedge; a form of wealth that has held its value as dollars depreciate out from under it.

Keep in mind how the supply of money and credit is expanded. Basically, it requires that the banking system is a net lender. That is, much money that is borrowed has never actually been lent by a real lender, but created out of nothing within the banking system. Real savings, however, can only come from deferred consumption. Someone produces something of value and sells it, but does not immediately consume all the proceeds, but sets aside some portion for capital investment, either of his own or in someone else’s. All money that is borrowed is lent by someone else who temporarily forgoes its use.

Whatever artificial credit emerges from nothing within the banking system displaces a portion of this real saving. If a consumer can borrow money without someone else actually having saved it, then he can spend that money on consumption while no one else’s consumption is reduced, even temporarily. The net result is more consumption without any increase in production.

But wait. That’s impossible. Everything that is consumed must first be produced. Something’s out of whack here. The out-of-whack-ness comes from our having been inconsistent in framing the scope of our economy. We first considered a national economy in which there is a net production of credit within the banking system, but then tacitly expanded our consideration to the global system, where all that is consumed must first be produced. We can rectify the apparent inconsistency by realizing that the excess consumption within that national economy is supplied from foreign sources. Someone outside that national economy is producing more than they consume. The real saving and investment is happening after all, it’s just not happening in our national economy.

So if our national economy is a net consumer, we have a "trade deficit". Now it’s not as if foreign producers are supporting our lifestyle out of sheer generosity and charity. As explained above, consumer goods come in. Dollars go out. Dollars come back in. Corporations go out. Factor out the common denominator, and the US is trading capital for consumer goods. Stuff we wear out and burn up is coming in, the means of production are going out. You could say the US is trading its seed corn for its next snack.

So while we recognize that the production of money and credit from nothing within the banking system is not the only factor, it is a very powerful facilitator. It catalyzes an increase in consumption without a corresponding increase in production within the national economy, which means that real wealth must flow out of the national economy. So contrary to the Orwellian Newspeak that conveys the impression that expansionary Federal Reserve polices "stimulate the economy", what they actually do is stimulate its demise.

[Jim Nickerson]

Re: So, wheres the Crash?

zoog started a thread "Push Capitalism" http://www.itulip.com/forums/newrepl...wreply&p=22933 which I think adds to understanding the psyche of American corporations and the American consumer.

At some point, hopefully, something will change so that this country can continue to exist at a level that still will make it a better place in which to live when compared to most of the rest of the world.

I think one has to love misery to be an ongoing reader of iTulip.

[c1ue]

Re: So, wheres the Crash?

I think one has to love misery to be an ongoing reader of iTulip.

Put away the gun Jim!

Life is still pretty good.

You don't need to love misery to iTulip; you just need to be a knowledge seeker.