Collapse of the Economy in 24 hours. . .

[Chris Coles]

Re: Collapse of the Economy in 24 hours. . .

But, surely, correct me if I am wrong, there is absolutely nothing to stop you from, instead of purchasing and renting, instead purchasing and granting your own mortgage?

[GeraldRiggs]

Re: Collapse of the Economy in 24 hours. . .

EJ:

First, thank you running this site! Somehow, fall 06 early 07 I started reading your site. Shortly thereafter, I pulled all of my family's retirement savings out of mutuals and placed it in hard assets and cash. To date, I am 5% ahead of the game even with a few small investments in alt energy (got in too soon) that are down 40%....Again........Thanks!!!!!!!

I'm interested now in understanding what a person should do NOW to best position themselves for the coming times. Pay off mortgage?

[c1ue]

Re: Collapse of the Economy in 24 hours. . .

*sneers and rubs hands*

Welcome to the Dark Side!

I hate to see what is happening as much as everyone else, but my cynical view on those in charge is being fully borne out.

As I've noted before, my personal view is we've got 2 more bailouts (out of 3) before the referee (reality) stops the fight.

The window of opportunity continues to shrink - the 2nd round is looking bad already.

The 3rd round is going to be Hail Mary time - even should the right plan be put in place.

What should be happening is this:

1) 1 month bank holiday except for 5 transactions per account.
2) During the holiday, all mortgages to be reviewed using a simple set of rules:
a) price of home in question in 2001
b) income of home owner
c) outstanding loan amount
3) By fiat - all home prices reset to 2001
4) Loans at negative equity (or made into negative equity) are reduced to 85% LTV based on new loan price
5) Amount of forgiven loan translated into tax debt on homeowner. Debt to be fully amortizing as a 2nd loan on home at Fed interest rate. Term 30 years floating rate or 100% due if home is sold.
6) All property taxes by fiat changed to a yearly assessment rate
7) All homeowners unable to meet payments after modification go through foreclosure. Government retains loan forgiveness lien on homeowner until repaid.
8) Any banks sent into insolvency by this (which is to say, all of them) get recapitalized by the government

Spenders get chained to their homes.
Savers get homes at lower prices.
Retirees and savers who own homes free and clear get screwed. But their kids will be able to buy a house, and the economy gets to restart.

[metalman]

Re: Collapse of the Economy in 24 hours. . .

EJ:

First, thank you running this site! Somehow, fall 06 early 07 I started reading your site. Shortly thereafter, I pulled all of my family's retirement savings out of mutuals and placed it in hard assets and cash. To date, I am 5% ahead of the game even with a few small investments in alt energy (got in too soon) that are down 40%....Again........Thanks!!!!!!!

I'm interested now in understanding what a person should do NOW to best position themselves for the coming times. Pay off mortgage?

post to ask ej?

[Chris Coles]

Re: Collapse of the Economy in 24 hours. . .

What should be happening is this:

1) 1 month bank holiday except for 5 transactions per account.
2) During the holiday, all mortgages to be reviewed using a simple set of rules:
a) price of home in question in 2001
b) income of home owner
c) outstanding loan amount
3) By fiat - all home prices reset to 2001
4) Loans at negative equity (or made into negative equity) are reduced to 85% LTV based on new loan price
5) Amount of forgiven loan translated into tax debt on homeowner. Debt to be fully amortizing as a 2nd loan on home at Fed interest rate. Term 30 years floating rate or 100% due if home is sold.
6) All property taxes by fiat changed to a yearly assessment rate
7) All homeowners unable to meet payments after modification go through foreclosure. Government retains loan forgiveness lien on homeowner until repaid.
8) Any banks sent into insolvency by this (which is to say, all of them) get recapitalized by the government

Spenders get chained to their homes.
Savers get homes at lower prices.
Retirees and savers who own homes free and clear get screwed. But their kids will be able to buy a house, and the economy gets to restart.

The only problem I have is that the loans MUST be fixed rate. Otherwise, that is a good idea.

[Prazak]

Re: Collapse of the Economy in 24 hours. . .

EJ, I find a couple of your points puzzling and would be grateful for your clarification. Maybe this belongs in the Ask EJ section, but since it's in response to your earlier posts on this thread, I'll post it here.

First, you, and it seems most of us here (along with a few notable inflationistas out there), believe that for several reasons the Fed is ultimately going to start monetizing this mountain of public debt. They've been revving the printing presses audibly at the bond markets to keep rates low and at some point will be forced to begin buying the long end of Treasuries. This will herald an era of inflationary "Poom".

In that case, why the inveighing against "the anvil" of debt? What's better in this environment than a 30-year mortgage at something ridiculous like 5.00% on an investment property whose rental income is adjustable upward (assume one has the means to service it)? Why should one plow today's dollars into that cheap, fixed note, in an environment in which credit is scare, rather than plowing in dollars that are vastly depreciated by time and supply?

Second, have a look at this chart: http://www.nowandfutures.com/images/weimar_stocks.png

Now, I find all the Weimar talk out there a bit off-putting (and hope to the gods that it will turn out to have been hysterical); but if "Poom" is still a part of "Ka Poom" theory, isn't there a scaled analogy here: Wouldn't an inflationary, upswinging "Poom" take equity markets up with it? I'm not suggesting we'll see a spike in market indices like the one from the Weimar chart, and I'm not running out to buy a market index fund (well, except recently for DBA and GDX); but isn't it likely -- or at a minimum a significant possibility -- that the same principle will be in operation during the "Poom" era? There seems a bit too much certainty on iTulip that the market is going to be flatlining, which somehow seems counterintuitive to me.

Third, the Ka Poom asset allocation into Treasuries seems like playing with fire. Folks like Faber are out there arguing that shorting Treasuries will be the trade of the decade. Since EJ has an interview upcoming with him, I'll quote Jim Rogers to make the point: “I cannot conceive of lending money to the United States. I will tell you that anybody who buys government bonds is making a terrible, terrible mistake. If I were you, I’d go home and sell your bonds. And if you happen to be a bond portfolio manager, I would urge you to get another job. You’re in the wrong place at the wrong time.”

So, holding Treasuries is safe, in Ka Poom theory, but holding gold miner equities is unsafe?

[we_are_toast]

Re: Collapse of the Economy in 24 hours. . .

*sneers and rubs hands*

Welcome to the Dark Side!

I hate to see what is happening as much as everyone else, but my cynical view on those in charge is being fully borne out.

As I've noted before, my personal view is we've got 2 more bailouts (out of 3) before the referee (reality) stops the fight.

The window of opportunity continues to shrink - the 2nd round is looking bad already.

The 3rd round is going to be Hail Mary time - even should the right plan be put in place.

What should be happening is this:

1) 1 month bank holiday except for 5 transactions per account.
2) During the holiday, all mortgages to be reviewed using a simple set of rules:
a) price of home in question in 2001
b) income of home owner
c) outstanding loan amount
3) By fiat - all home prices reset to 2001
4) Loans at negative equity (or made into negative equity) are reduced to 85% LTV based on new loan price
5) Amount of forgiven loan translated into tax debt on homeowner. Debt to be fully amortizing as a 2nd loan on home at Fed interest rate. Term 30 years floating rate or 100% due if home is sold.
6) All property taxes by fiat changed to a yearly assessment rate
7) All homeowners unable to meet payments after modification go through foreclosure. Government retains loan forgiveness lien on homeowner until repaid.
8) Any banks sent into insolvency by this (which is to say, all of them) get recapitalized by the government

Spenders get chained to their homes.
Savers get homes at lower prices.
Retirees and savers who own homes free and clear get screwed. But their kids will be able to buy a house, and the economy gets to restart.

This is interesting, but I don't like the idea of chaining people to houses. I know FRED and EJ aren't fond of saddling people with life long payments for debt and would prefer debt forgiveness.

I tried to come up with something that would work real debt forgiveness into your plan and came to the conclusion that there is no such thing as real debt forgiveness. Once borrowed money is used to purchase an asset and that asset drops in value, that's it, game over, someone is going to pay.

The more I think about it, the more I dislike the term debt forgiveness. What happens if I lend a buddy $20 and he can't pay it back. If I'm wealthy I just tell him never mind and "forgive" his debt, if I need the $20 to buy groceries this week, I didn't "forgive" anything, I simply payed his debt with a few pounds of my body fat.

So "forgiveness" somehow implies the debt simply disappears or is offset. In reality someone is going to take a loss for the amount of "forgiven" debt. The question becomes, how do we transfer debt from those who can not afford it, or who were mislead into acquiring it, to those who can most afford it, or who were responsible for burdening the debtors in the 1st place.

If you make the banks absorb the debt, they simply increase fees, and those fees get dispersed throughout the economy and most of us end up paying. If the government takes on the debt, it either increases taxes and most middle and lower income people pay the debt, or it eventually goes bankrupt. This money is coming out of the economy one way or another.

Who's going to pay?

[Roughneck]

Re: Collapse of the Economy in 24 hours. . .

I just don't see where the Government has enough money to throw at the problem. They are going to have to inflate their way out or forgive a lot of debt. Or crash the system and start over with a clean slate. Either way it's not going to be pretty.

[labasta]

Re: Collapse of the Economy in 24 hours. . .

So "forgiveness" somehow implies the debt simply disappears or is offset. In reality someone is going to take a loss for the amount of "forgiven" debt. The question becomes, how do we transfer debt from those who can not afford it, or who were mislead into acquiring it, to those who can most afford it, or who were responsible for burdening the debtors in the 1st place.

If you make the banks absorb the debt, they simply increase fees, and those fees get dispersed throughout the economy and most of us end up paying. If the government takes on the debt, it either increases taxes and most middle and lower income people pay the debt, or it eventually goes bankrupt. This money is coming out of the economy one way or another.

Who's going to pay?

Ahh... good post. This has expanded my thought process. Cheers.

Yes. I see now. It's really about a redistribution of wealth isn't it? To get a sufficient enough level playing field again so that the game of concentration of wealth can begin once more.

What are the chances of the pirates paying the price? Pretty slim I would imagine... hence stagnation.

[gwynedd1]

Re: Collapse of the Economy in 24 hours. . .

Hello all,

First post.
The situation is rather simple despite the edifice of complexity that is often propped up. All money is in the form of debt instruments. However debts are not made equal. I fundamentally believe we should completely discard our system of monetized debt such that it is but that is another point.
To sum it up Commercial credit(at interest) is shrinking. Small banks die and big banks are bailed out. Thus the big banks running the system have no issue and are seeing wealth in real terms rise.
There really are only two kinds of money. Federal Reserve Notes and the commercially created fractional reserves. Thus the only way to keep the money supply stable is with public debt since the latter is in retreat. So yes we must have huge deficits because we can no longer essentially pass around low quality debt as money. We need to pass around government debt(money). Sure, getting rid of debt is great and all but then don't monetize it. If this was done in the form of an income tax suspension and direct stimulus we would simply be replacing commercial credit with public debt(the money, no debt, no money).
The reason this is not done is because this would cut out the banks that wish us to finance everything we own instead of have any actual equity. That new money directly from the treasury would be interest free. Those that point to Japan's 170 GDP public debt as a problem don't get it. That huge public debt represents a large interest free chunk of their money supply. If it were smaller it would mean more Japanese are paying interest to a bank. The public debt is their money. The average Japanese however just refused to take debt. Its the same with us. The only real debt is when non Americans hold Federal debt. Otherwise it would simply be our own monetized debt. In other words the national debt is not debt its the money supply.

So the solution is simple. Suspend the income tax, and give direct stimulus to tax payers. Replace privately created money with public created money. The problem is then solved. If we want to act to limit real debt then the biggest source of dollars flooding the international markets is oil. So the one tax that should be instituted is on oil to keep a stable energy market. It would also contain the balance of trade.

I believe it is that simple.

[santafe2]

Re: Collapse of the Economy in 24 hours. . .

The only problem I have is that the loans MUST be fixed rate. Otherwise, that is a good idea.

Fixed rate yes but the loans will most likely be made full recourse. I'm not sure that's the way a standard mortgage should be written in the US. If home prices stabilize and become less of a stock market proxy, I might change my mind. Under the current system, it's too easy to run prices up, lock home owners in and let prices fall again. Like giving everyone in the US a highly leveraged market account. Scary, I just felt myself channeling c1ue....

[santafe2]

Re: Collapse of the Economy in 24 hours. . .

One-to-one redistribution doesn't alleviate the social strain; one-to-many does. Thus, I'd be more worried as a large land-owner or commercial farmer than I would as a small land-owner.

If you plan to store your wealth (in the form of, say, physical PM) I think it should be possible to preserve your wealth until a new economic system emerges. However, it will be very difficult to access and use your wealth during the transition, without being obliged to "share". My take is that transactions are the key issue.

I would suggest that this is the reason everyone should have some pre-1964 silver along with gold, (in the US anyway). Like gold, it's also a store of value and may well be a common means of exchange if/as the US$ becomes a less stable instrument of exchange than it is today. Dimes, quarters, halves, silver dollars.

The Spanish Real, (piece of eight/four/two), was the standard form of exchange in the US colonies through most of the 17th and 18th century. In the event of a monetary crisis in the US, our silver currency from the early/mid 20th Century could serve the same purpose as commodities should have a stable price with regard to a hard currency. I don't see this as a likely outcome but I prefer being prepared. Especially with insurance that has no real cost.

With regard to your small piece of land idea, i completely agree. We made this move 2 1/2 years ago when we sold a house in the middle of town on about a 1/5 of an acre to buy a smaller house a little farther out on 2 acres. We spent over a year getting the property rezoned from R1 to R3 so we can, if we want, have 6 families on the property. In the last few months we've had two inquiries about either buying the property or selling shares in it. People are really considering how to be much more self sufficient. To my mind, this will be a good outcome if this trend continues.

[Guest]

Re: Collapse of the Economy in 24 hours. . .

This is not intended as a polemical question. It is a serious question. I see after this thread got started that it sort of built on it's own premises, and later posters became imbued with the certainty that this was a likely outcome, posting further elaborations on the survivalist theme posited at the beginning. It becomes an evolution almost similar to a self fulfilling prophecy. Why not go back to square one and ask - are we reallly sure this sort of societal breakdown is a plausible scenario? To me it all begins to sound vaguely surreal and completely "over the top". This country is the breadbasket of the world. Providing food at very least, for it's own citizens, even on an emergency-decreed socialization of the entire midwest's farming for an interim period of five years, is more viable a proposition than that might be for any other country in the world. To posit famine and guns in the streets about things like food in America appears to this reader to verge on the ludicrous. The remainder is a financial consideration - lots of people out of work, and a government ever more painted into a corner to print the currency to paper over their predicament. Yes, it's inflation and depression maybe, but all this talk of rifles, perimiters, sharpshooters, sharecropping opportunities on land etc. strikes me as the result of a long thread full of overheated speculation. A first time browser onto this site reading this stuff would conclude iTuliper's are a little bit over the edge.

Again - this is not intended to "poke fun" at anyone. Just a sober question: is the stuff all you guys are speculating about a high probability event? In my opinion it is not.

I would suggest that this is the reason everyone should have some pre-1964 silver along with gold, (in the US anyway). Like gold, it's also a store of value and may well be a common means of exchange if/as the US$ becomes a less stable instrument of exchange than it is today. Dimes, quarters, halves, silver dollars.

The Spanish Real, (piece of eight/four/two), was the standard form of exchange in the US colonies through most of the 17th and 18th century. In the event of a monetary crisis in the US, our silver currency from the early/mid 20th Century could serve the same purpose as commodities should have a stable price with regard to a hard currency. I don't see this as a likely outcome but I prefer being prepared. Especially with insurance that has no real cost.

With regard to your small piece of land idea, i completely agree. We made this move 2 1/2 years ago when we sold a house in the middle of town on about a 1/5 of an acre to buy a smaller house a little farther out on 2 acres. We spent over a year getting the property rezoned from R1 to R3 so we can, if we want, have 6 families on the property. In the last few months we've had two inquiries about either buying the property or selling shares in it. People are really considering how to be much more self sufficient. To my mind, this will be a good outcome if this trend continues.

[metalman]

Re: Collapse of the Economy in 24 hours. . .

This is not intended as a polemical question. It is a serious question. I see after this thread got started that it sort of built on it's own premises, and later posters became imbued with the certainty that this was a likely outcome, posting further elaborations on the survivalist theme posited at the beginning. It becomes an evolution almost similar to a self fulfilling prophecy. Why not go back to square one and ask - are we reallly sure this sort of societal breakdown is a plausible scenario? To me it all begins to sound vaguely surreal and completely "over the top". This country is the breadbasket of the world. Providing food at very least, for this country, is more viable a proposition than for any other country in the world. The remainder is a financial consideration - lots of people out of work, and a government ever more painted into a corner to print the currency to paper over their predicament. Yes, it's inflation and depression maybe, but all this talk of rifles, perimiters, sharpshooters, sharecropping opportunities on land etc. strikes me as the result of a long thread full of overheated speculation. A first time browser onto this site reading this stuff would conclude iTuliper's are a little bit over the edge.

Again - this is not intended to "poke fun" at anyone. Just a sober question: is the stuff all you guys are speculating about a high probability event? In my opinion it is not.

i agree. a review of 'are you a doomer' is in order for many.

[Guest]

Re: Collapse of the Economy in 24 hours. . .

Thank you Metalman. Given the criticism I'm leveling at you elsewhere that is a fine exercise in objectivity. I offer my respects to objectivity.