Is It Really Getting Worse?

[charlietwo]

This is a very pessimistic post, but I feel the need to bring it up. I would like to see some perspective from my wiser, older brothers out there. It seems to me that we're willfully walking towards the edge of a precipice. I understand we're not faced with nuclear annihilation, nor are we facing a war that encompasses the entire world in organized conflict, but it seems to me that America is dying from within. So, my question is, has it ever been this bad?

Every day that goes by, I see more stories about various aspects of the American society crumbling under the weight of anti-American ideology. Everything from Islamism to aggressive secularism is making the not-so-subtle argument that the average American either doesn't want to survive, or they don't know how to regain the power that is obviously lost.

I have no faith in our government as an institution, nor do I have faith that the institution itself wants to survive. It appears to my young eyes that we've somehow made a death pact and this beautiful ship that is America is on cruise control and we're heading towards an iceberg. The worst part is that the two parties that are supposed to be guiding this ship are nowhere to be found. One party wouldn't know which way to steer if they got control, and the other party seems to be content with crashing just so they can blame the other. All the while, we sink into the abyss.

I understand this is a very pessimistic view, and I hesitate to even bring up these thoughts. At the end of the day, my faith brings me peace and serenity, so I don't fear the future, only try to find a path to make it better. But ultimately, as a sheepdog, I see many wolves among us. Worse yet, I see the sheep I've been charged with protecting guarding the wolves who are sitting back and salivating for their opportunity. I feel powerless, and I don't see any representation in this supposedly representative government.

So again, my question is, has it ever been this bad?

[PSM]

So again, my question is, has it ever been this bad?

You mean besides the Civil War of Northern Aggression (I'm covering my ass here) and the late '60s? No. :D

See if you can dig up a copy of the movie "Wild in the Streets" (1968). The scenario depicted in that movie didn't happen at that time, but those guys grew up to become lawyers and "community organizers" and are taking a second shot.

We stopped them then. Let's get out there and stop them again.

Pat

p.s. IIRC the music in that movie was pretty good. ;)

[C0B2A]

While I have no answer for your question because I am just as young as you, I must say that I agree whole'-heartedly on your feelings and ......
At the end of the day, my faith brings me peace and serenity, so I don't fear the future, only try to find a path to make it better. But ultimately, as a sheepdog, I see many wolves among us. Worse yet, I see the sheep protecting these wolves, while the wolves sit back and salivate for their opportunity.

is beautifully put and I think should go in the "Best Quotes of 2008" thread.

[Richard]

If you truly study History, you will find it has always been so and your concerns are nothing new. Study, learn, and keep it all in perspective. Be positive, remember you are a citizen of the greatest nation this planet has ever known, and join the club of all those who are doing their damndest to maintain it and make it even better. And remember, it could always be worse and has been so in the past.

Richard's $.02 :munchin

[Sigaba]

CT--

From my perspective, things are holding steady at 'not so great.' I felt that things were much worse in the 1970s and the early 1980s.

When I was near your age back in the mid 1980s in college at Berkeley, some of the student protests were getting very heated. A few years before, protesters had burned down the hall housing the military, naval, and aerospace departments. Now, these folks had returned as a mob chanting "ROTC OFF CAMPUS" in front of the collection of double-wides that comprised Callahan Hall.

An ROTC cadet commented about how bad things were getting. The Soviets, the furor over Iran-contra, and the flatulent ravings of the radical left were on everyone's mind. The instructor, an Army officer in artillery, stopped his lecture and provided us with a corrective emotional experience.

He told us that, upon returning to the U.S. after one of his tours of duty in SE Asia (and this was a time when soldiers who wore their uniforms stateside risked, at best, hateful remarks and spittle) the men in his battery did some training and planning in case the on-going civil disturbances of the day got any worse. He let the ambiguity of that statement sink in. He then gave us one of his rare grins that said "this is nothing" and we all felt a lot better.

I agree with Richard. The 'lessons' of history have been co-opted by politicians, ad-men, and some of the folks responsible for network television programming. This country has been through intervals of worse turmoil.

I would add that part of what is happening is that we as a nation are using an interpretive lens built on sound bites, unrealistic expectations, pipe dreams of easy a la carte fixes, the desire for single-shot silver bullet solutions, really crappy journalism, poorly written instant messages, inarticulate posts in the blogosphere, too much caffeine, and narcissistic rage.

[nmap]

Sir, it may be that I am out of my lane in posting this, since you referred to your brothers. If I have erred in posting, please accept my apologies. It is not my wish to intrude.

I believe I sense many of the same problems you refer to. Others have made cogent points about past problems, and it is true that we have united and overcome a great many challenges in years past. It is certainly possible that our best traits will again come to the forefront. I hope that is the case.

That said, I observe a variety of risks within our society. With excellent leadership and some good luck, we can overcome any of them; for that matter, we can overcome all of them. However, if we choose badly, the problems could – in my opinion – be destructive. I have listed, in no particular order, several I perceive.

1. The dissipation of a common culture. First, let me be clear – culture means precisely that, and is not a code word for anything else. Culture includes language, religion, values, and aspirations among other matters. At one time, the U.S. population seemed to have a dominant culture. Other cultures were brought into the primary culture, not always gently. When fundamental beliefs of what is right and wrong diverge, when goals and hopes are deeply different, there are many opportunities for conflict. For example, one value is freedom of speech, particularly political speech. However, considerations of political correctness are, in some areas, regarded as more important than freedom of speech. In addition, beliefs about democracy are not universal. One must ask whether a subpopulation that does not support democracy can integrate into our society effectively. I note that the former Yugoslavia broke apart, and my understanding is that cultural conflict contributed to the breakup.

A useful experiment consists of asking others what they believe the American dream is. Generally, the dream consists of getting a well-paying job or a big house. Does a shared marketplace suffice to bind a nation together? I wonder.

2. Fragmentation. In the case of fragmentation, people in various segments of society don’t communicate very much. Therefore, the ability to exchange views and concerns, is reduced.

3. Television and air conditioning. Seriously. By the way, I’m fond of both. That said, notice that each contributes to a withdrawal from interaction with the people in the neighborhood. Prior to TV and AC, people went to the front porch and (unavoidably) interacted with the neighbors. Most people could not provide the first and last name, the profession, and a few minor facts about their eight closest neighbors. Will such people draw together? Will they help each other, or will each focus on themselves alone? The withdrawal from public interaction may represent a problem. It is worth noting that many of the great public service clubs of past decades are slowly dying – and their membership is old and aging.

4. Dependency. Many have developed a tendency to call on government to address any and all problems. I cannot help wondering if we, as a nation, might sell our birthright for a mess of pottage. When I look at the burgeoning trade and budget deficits, with China as a large creditor, I cannot help but wonder. Still worse – can a people who embrace dependency be expected to sacrifice or fight for their freedom and independence? Or will they lick the hand of whoever fills their food dish?

5. Involvement. There is a tendency for leaders to tell the public to refer problems to the professionals. In essence, the public should go shopping. I suspect those who perceive that they are actively making a contribution to something greater than themselves value that something far more than do those who merely shop. Do untrained, undisciplined people make annoying messes? Of course. But the benefits of involvement may outweigh the inconvenience.

The issue of the various protests against the Vietnam war has been mentioned; but I wonder – was that really an example of divisiveness, or could it be an example of large numbers of people who agreed about a particular course of action and worked together? Could it be that those who can unite, even in disagreement with national policy, are more likely to come together than are those who withdraw into their various individual pursuits? I don’t claim to know.

Whether the above are valid or not I leave to others. Perhaps they will provide grist for the discussion.

[charlietwo]

Thanks to all for their responses. In regards to nmap, I consider everyone my brother and sister regardless of opinion or origin, so fire away brother :)

I think it's important to add that my intent of this thread was not to cry or whine, but to illuminate the disconnects between the American public and those who are making decisions. I feel completely disconnected from those in office and I don't feel as if the American public at large has any representation that is worth mentioning in the higher offices.

If the American people were represented in any fashion, the following items would have been addressed strongly long ago:

1) Border security -- Our borders are wide open, and I don't have to expand on the dangers of this. If we seriously intend to maintain sovereignty, our borders need to be sealed by whatever means necessary. Businesses need to be fined heavily for employing illegal aliens, and government entities that do not enforce this should no longer receive the support of tax payers. Prisoners who are not legal residents should be deported immediately, and their countries of origins should be pressed for repayment.

2) Voter protection -- American citizens should not have to worry whether or not their vote will be counted, nor should they have to worry if their vote will be discounted by fraud. Any individual, or organization found involved in fraudulent voting activity should be prosecuted for treason, and punished as such. As a democracy, fraudulent voting is the tantamount to selling secrets to enemies. This activity is unacceptable, and turning a blind eye is equally offensive.

3) English language -- Without a common language, cohesion is non-existent. Cohesion is essential in a state of peace. In a state of war, a lack of common language is divisive. Western civilization is currently in a state of war with Islam and socialist ideologies. We are divided by a plethora of loyalties to various states and entities. All state business should be conducted in English, and all matters of business conducted by the state should be conducted in English.

I realize my ranting is rather insignificant and irrelevant, but I know these things are very important to the survival of our great nation. I am only reverberating what is already widely known amongst those who care about this country the most. But if it is not said, it will be forgotten. These concepts should be spread aggressively in the mainstream thought of the population.

From the perspective of an insurgency, we are losing. We are losing to an insurgency of socialist doctrine because we have lost the ability to fight against it. Our institutions have been destroyed from within. The hearts and minds of America are enslaved to the teat of the Nanny state, and only our voices will break those chains. I know of no other way to rise up against this.

I have faith that the foundation of America is set into the Earth itself. I do not doubt that we will survive beyond troubles and hardship, as our constitution is simply a representation of what we all already know -- man is created by God and we are all imbued with the rights of life, liberty, and the pursuit of happiness. This can not be destroyed, only squelched. I see it to be extremely important to raise our voices until we deafen those who make decisions. We are being ignored by those charged to represent us, and they will preside over our funerals if we let them.

I don't know what's gotten into me tonight, but I'm tired and pissed,. I want to have children one day, and I don't want them to be born into the country I see in the near future. Our G-Base is already breached, and it's only going to take one dark night to turn our secure haven into a cradle of anarchy and death. The seeds of destruction have already been sewn, and I don't want to wait for them to bloom.:mad:

C2

[Sigaba]

C2--

I agree that the disconnect between the American public and the elected officials in the federal government is huge. We members of the public can help to bridge that gap by getting better informed and more involved. This board and the honest efforts of its participants to discuss and to debate the issues of the day is but one example of how Americans across the country are trying to do more.

I respectfully disagree that the American system is in mortal peril. The ferocious engine of democracy is sputtering right now but it is going to get a tune up and a motorist who knows something about driving in the fast lane.

Is the political opposition winning or is it on its last legs? I think it is the latter. Here's part of the reason why.

By any reasonable measure, the Democrats should have won each of the last two presidential elections and should win this one. Yet, Senator Obama has a slim lead in the polls and only because America is facing a unique crisis and he's appropriated the rhetoric of class warfare that is patently empty. (To paraphrase Senator Bentsen: Senator Obama is no Karl Marx, hell, he's not even Karl Malden or Harpo Marx.) He's the political version of Sanjaya Malakar but with even less range.

The darkness we're witnessing is the moment before the dawn. Ours is the inheritance of Lincoln, TR [Theodore Roosevelt], Eisenhower, and Reagan. Our esteemed friends across the aisle know this is true; hence the shrillness of their empty polemics.

Americans buy books about Senator Obama but they read books about Abe, Ike, and the Great Communicator. A few thousand Germans took a few hours off to listen to some music for free and to take a gander at the novelty item. Europeans by the tens of thousands spend their time and money to come to Simi Valley to pay homage at Dutch's resting place.

Is the question: 'are we losing?' or is it 'when will the dawn come again?'. In 23 days.

[nmap]

Sir, I believe the items you mention are simply manifestations of a deeper underlying problem. That problem, in my opinion, includes culture, values, and fragmentation.

Let’s start with border security. Why are the laws not enforced? The majority of voters want border security; why does our government fail to act?

The businesses that hire illegal aliens do so to reduce labor costs. Their owners can make direct contributions to politicians and hire lobbyists to advance their interests. The voters who oppose open borders are not united, do not make significant contributions, and do not hire lobbyists. In addition, one of the drivers of inflation is increasing wages. If an influx of illegal aliens suppresses wage increases, then overall inflation is reduced. That, in turn, tends to reduce increases to Social Security and other such programs.

I believe it is fair to say that the issues of border security have been subordinated to the desire for profit and a national policy that uses this mechanism to fight inflation. Our politicians listen more closely to money than to the voters.

Voter fraud is a tool used by some (generally leftist) politicians to acquire votes. It is interesting that the press, the courts, other political parties, and the public are not incensed. It suggests that people perceive little value in their vote. Voter turnout seems to imply the same. This looks like disengagement from the greater society and the political process. Could it be that we have withdrawn from public life as the political commons cease to share universal views?

The value of English is another point – and deserves careful examination. A strong movement toward multiculturalism has existed for some time. An element of culture is language. Thus, different segments of society are being encouraged to maintain their culture and hence their language. The process of encouraging English fluency is sometimes referred to as “cultural domination” and even “cultural genocide”. I hasten to add these are not my views; however, the terms are included in readings I am required to do in a university class. Here we have a class, in a state university, that actively promulgates positions detrimental to the maintenance of a unified culture.

In darker moments, I wonder if such fragmentation is not encouraged. A nation with a united people may be difficult to control. However, a fragmented people, filled with groups who distrust and fear each other – who do not understand each other – is easy to rule. One simply plays one group against another. Groups that do not conform can be punished easily. Do some of our politicians act in such a Machiavellian manner? I suspect so.

My concern is that we are likely to enter an extended period of financial stress for many people. If that’s true…and if our national bonds are little more than a shared marketplace…then the future holds some significant challenges both for us as individuals and for the nation as a whole.

None of this is whining. It is political discourse in the classic sense; it is a discussion of ideas and perceptions that deepens understanding. It is the essential first step toward constructive change.

[rubberneck]

So, my question is, has it ever been this bad?


Yes, 1972 to 1980 were pretty dark times. High unemployment, run away inflation, mass gas shortages and there was a very large segment of our society that indulged themselves in self loathing. In fact those young people are now the clowns running one of the two major parties, but I digress.

I almost started a thread last week about the similarities between this years election and the one in 1976. If Obama wins the outcome will be similar to the disaster that happened under Carter. Sadly I don't see a Reagan on the horizon to come our rescue.

[charlietwo]

My concern is that we are likely to enter an extended period of financial stress for many people. If that’s true…and if our national bonds are little more than a shared marketplace…then the future holds some significant challenges both for us as individuals and for the nation as a whole.

None of this is whining. It is political discourse in the classic sense; it is a discussion of ideas and perceptions that deepens understanding. It is the essential first step toward constructive change.

Sir, I think you've officially outlined the cracks in the foundation in a concise, eloquent manner :) If only a fraction of the population wasn't hypnotized by everything around them :rolleyes: I think my biggest problem is that I have no faith in our elected officials to govern this country away from the precipice we're facing. It is definitely a shame that I felt obliged to preface this with a disclaimer for whining. Serious political discourse has become somewhat of a "tin foil hat" past-time for the sleeping masses.

Mr. nmap, in your opinion, what course should be taken in the financial sector? It appears to me that either Mr. Paulson is getting incredible deals under the table, or he has some very ugly skeletons in his closet (with pictures to prove it). Aren't they simply devaluing the dollar in the face of increased competition?

I am seriously at a loss of what can be done to achieve redress in this country. Even Joe the Plumber has become a national pariah in the eyes a portion of this country. Do we really have to wait for World War III before people to wake up to the threats we face?

[Defender968]

Charlietwo, I share many of your pessimistic views on what is going on in our great nation, (I think it comes from being a LEO and seeing the dark and dependent sides of society for so long) specifically the fact that lobbyist have much more power and influence than we the people do. I don't have a simple solution for you, but being aware of the problem is the first small step. My argument on the second step is becoming politically active, now as a member of the military you must be careful, no campaigning in uniform, I wouldn't even email my congressman or senator from my military account, however contacting your representatives is important. Keep them honest, what I mean by that is weigh in on the issues and if they don't represent you, fire them, by casting your vote for another candidate. The beauty of the internet is we no longer have to type a hard copy letter, put a stamp on it and send it to our representatives, a candid succinct email serves the same purpose. I did exactly that a couple of weeks ago, my belief on this bailout bill is that it was the wrong bill, we needed to act but I don't think this was the best way to do it. I emailed my views to both my congressman and senator, and I made it very clear that I would vote against either of my representatives who voted for this bill. Both of my reps voted for the bill, and I emailed them to tell them not only had they lost my vote but I would actively vote against them.

Now not every issue is going to be a line in the sand, but whatever yours is, make your representative aware of it and then follow through by voting them out if they do not represent you.

I personally think we should clean house in Washington, fire all incumbents and let’s start over. I further think we should elect officials who will vote for term limits as a large part of the problem in my opinion is the Bidens and McCains who stay in office for 30+ years, hell I don't think Biden has ever even done anything else besides be a Senator.

As others have said, keep the faith, we are in tenuous times, but while the liberals and crazies on both sides of the isle are actively driving our country towards destruction, the backbone of this country is not those nut jobs, it is the people, and while there are lots of morons out there, they are still vastly outnumbered by the good people like you who worry about where we are headed and are willing to step up to divert us from destruction.

Just my .02

[Detonics]

they are still vastly outnumbered by the good people like you who worry about where we are headed and are willing to step up to divert us from destruction.

The above is for the moment, true. We'll see who ends up completing the "step up to divert us from destruction" part.

The word for our situation has been defined for ages.

plu·toc·ra·cy /pluˈtɒkrəsi/ Pronunciation Key - Show Spelled Pronunciation[ploo-tok-ruh-see] Pronunciation Key - Show IPA Pronunciation
–noun, plural -cies.
1. the rule or power of wealth or of the wealthy.
2. a government or state in which the wealthy class rules.
3. a class or group ruling, or exercising power or influence, by virtue of its wealth.

I don't believe our Founding Fathers could have anticipated outcome based education, the extent of media manipulation or most importantly, career politicians. The political process was envisioned as being completed by intelligent men serving temporarily to better the lives of their constituency, which is quite different than what it has devolved to.

[nmap]

Sir, I would take it as a great favor if you would call me Dave.

Let us consider our political leaders for a moment. Who are they? How do they get in office? How do they remain? In essence, they are people who look good on television and say various things that focus groups tell them are popular. They must raise large sums of money to fund future campaigns, and they must placate those who influence groups of voters.

From this, much follows. The need for money makes them susceptible to influence. Do people contribute hundreds of thousands of dollars to candidates because of their dedication to good government, however defined? That seems unlikely. Can money persuade an officeholder to modify his or her position? Can it change votes? Clearly, both individuals and organizations believe this to be the case, else they would not support the expense of such efforts.

We might, perhaps, also wish to look at the voters. Let us engage in a bit of whimsy for a moment. Suppose Sarah Palin, when asked about the economic crises, had furrowed her brow for an instant, leaned forward, and started talking about the details and particulars of economic theory, banking, international trade, and the various structured investment vehicles involved. After a brief pause to catch her breath, she leans forward, fixes the interviewer with her gaze, and discusses the implicit assumptions used in the statistical models used, and points out the flaws involved. She then might lean back and outline the impact on global GDP, bank capitalization, and the capital formation function of the investment banking industry. Even if it were broadcast, how many would watch? How many would understand? And - would she be admired for such in-depth knowledge, or dismissed as an egg-head?

We accept sound bites and slogans instead of educating ourselves on the important matters of our day, and then demanding (through our vote) that our leaders address issues with depth and seriousness. Our discussion here has better interaction and greater depth than did the recent political debates. What does this say about the quality of discourse the voters tolerate?

Let us look hard at our voting. On the upcoming ballot, in my location, voters will have the opportunity to vote for Chief Justice of the State Supreme court. An important position, certainly. How many will study the candidates and their positions? How many will make an informed, intelligent decision? For lesser offices, will the voters look deeply into the candidates? If the answer is no - and it often is - what sort of leadership can we expect?

The financial sector, in my opinion, represents a variety of trade-offs. One trade-off is economic pain. We have a lot of bad debts, and hence a lot of bad securities based on those debts. If we take our bitter medicine and write off the losses with no bailouts, then we will see quite a lot of economic pain. That will include failed banks, bankrupt businesses, evicted (former) homeowners, and substantially increased unemployment. On the positive side, we avoid increasing our national debt, we let those who made poor choices experience the consequences of making those decisions, and we clear out the problems quickly. I question whether our politicians or the voters will accept such a course. I suspect we would see calls for socialism that would make Lenin blush.

The other choice, bailouts, may mitigate the consequences. We will see some of the various effects mentioned, but (perhaps) to a lesser degree. In addition, the politicians can say they are "doing something", which is useful in dealing with voters. The price may include increased inflation, increased debt, and increased taxes. Those who made poor decisions will escape the consequences, so the same behavior will crop up in a different form. The public, since it perceives less pain, will be less inclined to demand government solutions.

Now Detonics brings up a good point about plutocracy, and it is worth some serious reflection. First, a poll (of limited size), done by a Wall Street Journal blogger, suggests that most (three-fourths) of the rich (defined as between one and ten million dollars net worth) support a conservative approach, and hence will vote for Senator McCain. But two-thirds of the super-rich (those with over 100 million dollars net worth) support Obama. Perhaps money and trust funds will insulate the super-rich; however, I suspect that the real reason is that the increases in inflation will help them. If one owns a lot - property, stocks, precious metals, or what-have-you, then inflation increases the value of your holdings over time. However, if one has little more than a pay stub and a rent receipt, inflation is devastating. So...we have a category of super-rich, and a category for Joe six-pack. Which category fits Secretary Paulson best? Which group writes big checks to politicians? Which, then, will be protected by the politicians?

There is a second point we might consider about a possible plutocracy. Politics requires a great deal of money as well as ample free time. A person working two jobs at a low wage is highly unlikely to enter a political contest, and still less likely to win. Most of our political leaders are well off. They own assets that will protect them from inflation. They own stocks. They do not live on a modest wage or a limited fixed income. Will they vote in terms of their self-interest? I suspect so.

More pointedly - if the dollar declines and gasoline goes to $10 per gallon, who does it hurt, and how much? And, if they have the knowledge or staff to guide them, can they invest to profit from such action? (Yes, they can profit.)

You ask what we can do to change our path. I'm tempted to offer a cryptic answer - everything, and nothing. :D

Everything in the sense what we could all do as Defender suggests and communicate with our elected leaders, along with intelligent voting. In addition, we can work to change policy. Quite seriously, there is an excellent book on how to influence political policy and create real changes - the title is Policy Studies for Educational Leaders: An Introduction, by Frances C. Fowler. It focuses on educational policy, but can be expanded to any area. It's well-written, easy to read, and deeply revealing. It's a bit pricey, so you might wish to ask your library if they can get a copy through interlibrary loan. As active-duty military, you may not be able to use the methods provided - that does not mean you cannot learn them. The book shows how ordinary people can go from reactive to proactive - how we could actually shape policy and legislation over time. No, it is not easy, and yes, it would take time and effort to do so - but it is possible. The book tells how. (By the way - the book does not involve sedition. It is not radical. It is a mainstream discussion of how to enter into the policy-making process.)

So, with time, effort, and energy, we could turn things around. In a few years, we could find ourselves on a much better path.

But I also said nothing, didn't I? The problem is not that we cannot act, but rather that we will not act. We are comfortable. Most of us have plenty (or too much) to eat, have reasonably nice houses and cars, possess more entertainments than we can possibly attend to, and enjoy abundant free time. Our lives would be the envy of the rich from a century ago, and of the royalty of three centuries past. The task of change requires that a satisfied people stir themselves to get off the couch, turn off the TV, and start educating themselves on serious matters and working toward change.

Therein lies the great problem. Will it take WW III to change our national attitude? Not necessarily. It will require substantial discomfort (pain) for a majority of the population, such that they choose to reform themselves. Until the environment changes, they will choose to remain as they are.

I think we can be confident the financial and geopolitical environment will change. There are a number of converging possibilities, and unless our leadership and population do a lot of things right, we will experience significant adversity. When that happens (I do not use the term "if"), people will be shaken from complacency, and they will seek solutions. (Of course, that's just my opinion. Others see a far brighter, more affluent future.)

And that is where you - you personally - come in, along with many members of this online community. I recognize there are constraints imposed by service, so please do not take anything I mention as suggesting any violation of those constraints. That said, you know how to lead. You have skills in working with and through people. There will come a time (in my opinion) when those around you will look to you for guidance, for direction - and, perhaps, even for protection. With wise leadership, they can move to a better path. Perhaps formally; or, perhaps informally, behind the scenes, with a few words - you can be one of those leaders. I hope you choose to do so.

[American_Pinoy]

Complacency has beset many within our country. A few in here have also mentioned what others feel; those who hold offices of authority are maintaining status quo rather than blazing new trails.

For many of us here who have been down range you can tell the wealthy from the poor. I can not recall seeing many of the “working class” being overweight. We have become so used to the good life here that we feel things should be given to us and not earned.
In many places people struggle to maintain survival while in others they struggle for a place in line at the burger joint.

Throughout the history of this country we have faced many tumultuous and trying times. It seems now more than ever we have become a society of instant gratification. A nation living beyond its means and soaring debt are a testament to this. Whatever happened to hard work and savings to obtain something?

There has been a division among those who have and those who have not for many years. There will be until the end of time in my opinion. Keeping up with the Jones’s is never a good thing and goes back to the instant gratification society we have become.

How many today have experienced rationing of food, natural resources, etc? Today it seems an impossibility but not too long ago it was a reality. How can you learn to pick yourself up if you never fall? How can America learn to live within its mean if we bail out those who made bad decisions? In essence what we are doing is socializing the bad decisions of a chosen few. The consequence is a debt that my grand children may be paying.

In as much as our government is responsible for many things why should it make us any less accountable for our own actions? People need to wake up and learn to take care of their own issues.

Give a man a fish and feed him for a day. Teach a man to fish and feed him for a lifetime.

[charlietwo]

Dave-- Very well stated. I think your assessments are spot-on, and sagely. In regards to affecting change, I have no doubt that things will happen in time, but I do sincerely doubt that time is something that America can afford at the moment. I will definitely look into that book, as it sounds like something I would soak up :) As it stands now, for the past 30 years, the socialist/communist ideology has taken center stage in all major spheres of influence in this country. The media, public education, universities, Hollywood, etc. have hypnotized the masses into slavery to *something*. Whether it be welfare, television, food, or sports, the majority of the country has become slaves to their own devices. In doing so, they have traded the heavy burdens of democratic responsibility for the comfortable chains of ignorance. *jumps off his soapbox*

Here are a couple of proposed solutions that I see bringing about a change in the slavish atmosphere that has become America--

1) Receipt of public support results in forfeiture of the right to vote until public support is no longer received.
-Welfare would not concern me as much if the recipients weren't voting themselves raises every election cycle. It's become so common now, that to challenge it is to become accused of "racism". Welfare is just another form of slavery, only the chains come in the form of financial support. Absolutely brilliant concept. My hat is off to Karl Marx.

2) Compulsory national service. Any form of service to the state, or nation to organizations agreed upon by the voting population (read: Community Organizers are excluded).
-Judging by what I've seen from the *children* in high schools as a recruiter, servitude to a cause greater than oneself, even if it is compulsory, could do a great deal of damage to the "Me mentality" which is the root of much of America's woes.

3) Taxation without Representation.
-Not sure what to say here exactly, but I do not feel represented in Illinois, as our state policy is set by the enslaved masses in Chicago. It seems to me that since the inception of this great nation, taxes has always been the crux of the issues. I'll pay taxes all day long, provided they are not used to spread the yoke of oppression.

These are my humble opinions, and I present them to all for review, rebuttal, and recommendations. Feel free to pile on, people! I'm enjoying this conversation thoroughly :D

[Surf n Turf]

It will require substantial discomfort (pain) for a majority of the population, such that they choose to reform themselves. Until the environment changes, they will choose to remain as they are.

I think we can be confident the financial and geopolitical environment will change. There are a number of converging possibilities, and unless our leadership and population do a lot of things right, we will experience significant adversity. When that happens (I do not use the term "if"), people will be shaken from complacency, and they will seek solutions.


Nmap, First let me say that after reading your posts, I wish that I had spent more time on composition, and less time on ohms. Extremely well written, logical, and well presented.
I tend to be in general agreement with most of your discussion, but I arrived by a different route.
I wonder if the bottom 40% of income earners who pay no income taxes. (“they receive a net payment from the federal income tax system -- meaning from the taxpayers -- equal to 3.8% of all federal income taxes”) will reach a majority. If they do, then we are doomed. If you pay no taxes – what is wrong with a tax increase? Then we will have “social adjustment” on a scale not seen since October, 1917.
SnT

[nmap]

I wonder if the bottom 40% of income earners who pay no income taxes. (“they receive a net payment from the federal income tax system -- meaning from the taxpayers -- equal to 3.8% of all federal income taxes”) will reach a majority. If they do, then we are doomed. If you pay no taxes – what is wrong with a tax increase? Then we will have “social adjustment” on a scale not seen since October, 1917.
SnT

Thank you for the kind words!

We will reach that tipping point. I believe I can even predict the year - about 2012. I hasten to add that this has nothing to do with Mayan calendars. ;)

The problem lies in demographics; in this case, the fundamental design of the Social Security program and the aging baby-boomer generation. A steadily increasing number of boomers will apply for Social Security benefits.

The problem with the so-called Social Security trust fund is that there isn't one. Money comes in, and the excess is used to purchase Treasury Bonds. Money goes out in the form of benefits. But in 2012 (roughly) the amount that comes in will be less than what goes out. Where does the U.S. get the money to cash in those bonds that have accumulated? Only through budget deficits and the printing press. (You can read more HERE (http://www.cato.org/testimony/ct-mt092496.html). ) Which means that a large number of people will become net recipients of money from the government.

None of this is any surprise. I read about it more than a decade ago in Barron's. You will notice that the link is dated in 1996. The problem has been recognized and discussed for quite some time, nothing has been done, and now we will face some painful choices.

We can cut benefits, raise taxes, debase the dollar, or some combination of all three.

It gets worse, too. The boomers (or those acting on their behalf, such as pension funds) will sell stocks, bonds, and other assets. This will tend to depress the price of those assets for decades. At the same time, the boomers will continue to consume - but they will not produce much. This suggests inflation.

So, yes, we can expect social confrontation and upheaval, in my opinion.

nmap, how does inflation help the value of assets like property, stocks, etc...go up? Wouldn't that help most people who own a home and own a portfolio or a 401K, etc...?

Owning a single home doesn't help much. Let's suppose a person buys a house for $250M and lives in it. Some years later, it's worth a million. Has the person made money?

They sell the house and get their million, less costs and some taxes. They now need a place to live - but other properties have increased in value too. Have they gained?

Granted, they can choose a smaller house. Also, they can move to a less expensive location. In each case, they are doing something besides just selling.

They may have a 401K and other investments. The question is, how much? If someone has $250M invested, what can they withdraw consistently? As I recall, the insurance industry regards 6% (before inflation and taxes) as quite good. Another source suggests that 4% is better. ( LINK (http://www.retireearlyhomepage.com/safewith.html) ).

So, let's use 5%. That provides an income of $ 12,500 per year. If we suppose about $15,000 per year from Social Security, we get $27,500 per year. We haven't allowed anything for inflation. This looks like a fairly modest income for a retired couple with some medical expenses. Inflation - say, of gasoline prices, or grocery prices - will hurt them.

Can our hypothetical couple afford risk? Do they dare invest in precious metals or commodity ETFs? I suspect not.

In contrast, someone with more - say, $100MM - could live well on a million per year, while investing the remaining income. As I understand it, the Bass brothers in Texas buy large tracts of undeveloped real estate. They hold it for decades, pay low taxes, and sell it as growth causes it to appreciate. In one case, inflation erodes purchasing power, whereas in the other it increases the value of assets. This becomes even more powerful with leverage - so the person can make high returns.

The leverage dynamic was the particularly seductive part of the housing bubble. People could put a few dollars down and experience fabulous returns on their actual investment. However, they lacked holding power. I have no doubt some of those foreclosed houses will be worth more a decade into the future - but that doesn't help someone who can't make the payments.

Can someone making a middle-class income accumulate assets and make the transition? Sure. But few do. The Federal Reserve published a paper (HERE (http://www.federalreserve.gov/pubs/feds/2006/200613/200613pap.pdf)) that discusses net worth. On page 11, table 5, it points out that (as of 2004) the top 5% of the population had 57% of the net wealth. The bottom 50% has 2.5%. Notice how this comes back to Surf n Turf's point - in trying to encourage an ownership society, we face the problem of half the population owning very little. This may represent a further possibility for social upheaval.

None of this is meant to say that the distribution is "good" or "bad" - but I can imagine it creates a difference in perspectives.

[nmap]

Maybe there are two types of inflation though, the inflation that's bad for the middle-class but can help the wealthier, but the wealthier world also has its own type of inflation apparently...?

As I look at my previous post, I see that I did a poor job of explaining. Please let me try again.

I perceive four issues. These include sensible leverage, patience, opportunity (scale), and investment management.

Sensible leverage means using leverage as tool, but within bounds that optimize the rate of return versus the risk. We've seen examples of houses purchased with essentially no money down. This offers the benefit of high leverage, but unless the purchaser has substantial means exposes the owner to the risk of loss. A further example might be commodity futures. Once again, the purchaser takes a position with a leverage ratio of 20 to 1 or more, implying equity of less than 5%. If inflation in the particular asset produces a significantly higher return than the cost of holding the asset, such as interest, then leverage multiplies the returns.

As long as leverage works as planned, the results are beneficial. Thus an individual who purchased an expensive house with no money down would gain far more (on a percentage basis) from the appreciation than the rate of inflation represents. For example, if the person purchased an item for $100, and put down one dollar while financing the rest, the effect of a 10% move in the underlying investment from $100 to $110 increases the value of the actual money invested from $1 to $10. Thus, in this particular example, a 10% inflation rate would generate a return of 1000% less carrying costs and interest. If an individual owns a single house, then the increase is of little benefit. However, if the individual owned a dozen houses, then the return, along with the benefits of leverage, could produce significant returns in excess of inflation.

Once again, the term sensible must be emphasized. Prices fluctuate, even for houses. If the purchaser has the means and personality to hold the investment over the course of years and decades time may overcome temporary price declines. However, in the case of high leverage and limited means, the individual can lose the underlying asset due to temporary fluctuations in price and availability of credit. We can see an example in the present housing situation.

Patience is the next issue. A person that obtains raw undeveloped land and is prepared to wait half-a-century for growth in surrounding population centers to reach the area, benefits from both inflation and an increase in desirability of the property. Furthermore, patience can overcome temporary price fluctuations as discussed above. We can see an example in the current stock market fluctuations. There is a very good chance the person who purchased stocks at any given time would see excellent appreciation over a time frame of 70 years. (This reference is from Bullseye Investing by John Mauldin). Most of us have a shorter time horizon. Thus, a retiree with a 401(k) who depends on income from the investment does not have the luxury of patience. Furthermore, even someone with the time horizon of 20 years could experience a significant degradation in investment return if they acquire stocks that are expensive relative to historical valuations. Many middle-class people do not have the financial capacity to exercise such patience. Contrast this with those who manage generational transfers of significant wealth.

The third issue is opportunity, or scale. Those with significant means have the opportunity to invest in instruments or businesses that offer superior returns, and which are often unavailable to smaller investors. For example, both the Bush family and T. Boone Pickens have acquired properties with substantial rights to water beneath the land. There are some who believe that water will be every bit as important an issue in the future as oil is today. Thus, those who acquire large properties with substantial water rights may experience excellent returns over the next half-century. However, such options are only minimally available to ordinary investors. While it is true that an exchange traded fund (ETF) named PHO does offer some limited exposure to this area, it is sadly deficient when compared to the acquisitions mentioned above. A further example can be seen in the wind generators in West Texas. Investment partnerships and hedge funds can invest in the generators, sell the electricity, and enjoy tax benefits. I am unaware of any such opportunities for the ordinary investor.

Finally, the issue of investment management from the perspective of the wealthy investor provides insight into the issue you mention. First, an anecdote. Some decades ago, I knew a young and pleasant attorney who happened to manage a few investment trusts. Unfortunately, he was tempted to borrow money from the funds under his management. As is not unusual in such cases, the borrowings grew until they could never be paid back. He was caught, prosecuted, convicted, and served time in prison. While justice was done, the clients who trusted him and placed money in his hands lost their money and never received restitution. They never will either; the young attorney was murdered in his apartment not long after his release from prison. From the perspective of wealthy investor, this represents a warning. Money placed with individual trustees is at risk. One might decide to use a bank or other large institution as the trustee. However, such trustees are likely to be highly conservative. They may well place all the money in bank certificates of deposit, treasury securities, and highly rated bonds. In the case of banks, a large and stable investment in certificates of deposits represents a benefit to the bank. The recipient of such yields is in the same position as an ordinary person invested in similar instruments. In fact, the wealthy beneficiary of the trust may be a worse position. The securities do generate an income, but the yield on conservative instruments such as mentioned above is likely to be less than the actual rate of inflation. In addition, trusts charge fees that will reduce the yield to lessen inflation. Therefore, the account given in the book you mention is completely valid.

What does this mean for the rest of us? In my opinion, we should observe and take a lesson from those who make inflation work for them. We may not be able to gain access to the same opportunities they have, and we may not be able to exercise the patience they can; however, if we are aware of the effects, we can perhaps adapt the knowledge to our own use.

[Surf n Turf]

The problem has been recognized and discussed for quite some time, nothing has been done, and now we will face some painful choices.
We can cut benefits, raise taxes, debase the dollar, or some combination of all three.

It gets worse, too. The boomers (or those acting on their behalf, such as pension funds) will sell stocks, bonds, and other assets. This will tend to depress the price of those assets for decades. At the same time, the boomers will continue to consume - but they will not produce much. This suggests inflation.

So, yes, we can expect social confrontation and upheaval, in my opinion.

Nmap,
Several queries / comments:
By cutting benefits, I assume you are describing “means testing” eligibility. Would this not make the Social Security / Medicare programs pseudo “Welfare Systems”, in that the larger contributors would receive no benefits for their contributions. Additionally, wouldn’t this make “voluntary contributions” to either program less attractive, when one realized they are unlikely to benefit from their contribution?

By raising taxes on these programs, the taxes would be directed to the group described above, who are “means tested” out of the programs. Again, wouldn’t the same arguments be made for raising taxes for programs, that a significant portion of the population would be proscribed from participation?

By debasing the dollar I am not sure if you are suggesting inflation or deflation. There are certainly signs of inflation (to much money chasing to little goods), but with the current overstocked housing market & Automobile market, plus the credit card default increases, are we not setting the stage for deflation (To much goods chasing to little money). Plus, as you point out, the Boomers will sell stocks, bonds, and other assets for subsistence. Isn't that deflationary?

If we are to expect social confrontation and upheaval, I have two queries:
Based on the above, where / how do people plan their finances to maintain purchasing power.
Based on the above, where and how do people live in order in minimize upheaval?

SnT

Post Script - "There is no known example, in the history of the world, where a fiat currency was debased in a wild fractional-reserve multiplication by the greedy banks that did NOT end badly. And 100% of the time is as close as you can get to 'guaranteed'." Hyman Minsky

[VVVV]

Yes, 1972 to 1980 were pretty dark times. High unemployment, run away inflation, mass gas shortages and there was a very large segment of our society that indulged themselves in self loathing. In fact those young people are now the clowns running one of the two major parties, but I digress.

Not for me! Life was good at that time for me. I started a new business in '72 in NY, sold it and "retired" to Florida in 1978. I did beach and bar recon for a year before coming out of retirement and starting another business...life was great.

I didn't find the gas shortages to be much more than a minor inconvenience... I don't recall anyone I knew not having enough gas to get to work or other places they needed to go. I had more than enough to tool around in my gas-guzzling Big Block Vettes. Yep! For me, those were the good old days! :D

Free Love and The Sexual Revolution didn't end in the 60's!:p

[nmap]

Nmap,
Several queries / comments:
By cutting benefits, I assume you are describing “means testing” eligibility. Would this not make the Social Security / Medicare programs pseudo “Welfare Systems”, in that the larger contributors would receive no benefits for their contributions. Additionally, wouldn’t this make “voluntary contributions” to either program less attractive, when one realized they are unlikely to benefit from their contribution?

Means testing is only one option. It is possible to reduce benefits for all future retirees (as was done back in 1983.) The reduction could be accomplished by changing the way benefits are calculated, increasing the retirement age, or making more of the benefits taxable. One could also lower the income trigger that starts taxation of benefits. Yet another way is to change the way inflation statistics are calculated, with official numbers providing a lower figure for inflation than did the previous method of calculation (which has already been done).

Each of these moves us incrementally closer to your scenario. A more rapid transition is incorporated in the Obama plan, since it removes the upper limit on social security taxation of income. It seems unlikely that upper income earners will receive payments proportional to their contributions.

So, yes, those contributions become steadily less attractive. This will surely cause some to seek ways to avoid such taxes, and may encourage some to consider illegal tax evasion. The underground economy, with its emphasis on cash transactions, is likely to become larger.


By raising taxes on these programs, the taxes would be directed to the group described above, who are “means tested” out of the programs. Again, wouldn’t the same arguments be made for raising taxes for programs, that a significant portion of the population would be proscribed from participation?

Sure. That’s the fundamental reality of “spreading the wealth” or income redistribution. Right now, the increase in Social Security taxes is an easy way to raise a great deal of money in a manner hidden from most wage earners. It is interesting to note the proposed increase in capital gains taxes from 15% to 20%. I strongly suspect we will see others, just as you suggest.

Ironically, the victims in all this are middle class people who earn a paycheck through an employer. The truly wealthy will have the means to choose other (often better) options. The poor (however defined) will benefit from the programs. In addition, both the wealthy and the poor can shift away from traditional paychecks to other approaches. In the case of the poor, cash compensation as part of the underground economy might work. The wealthy can use approaches that avoid ordinary taxes. The middle class, however, are trapped.


By debasing the dollar I am not sure if you are suggesting inflation or deflation.

My meaning was (and for that matter, is) inflation. As the supply of dollars increases, inflation follows. Present trends bring that view into question; however, I regard the present governmental deficit spending pattern as a prelude to future inflation. We’ll see how that works out.


There are certainly signs of inflation (to much money chasing to little goods), but with the current overstocked housing market & Automobile market, plus the credit card default increases, are we not setting the stage for deflation (To much goods chasing to little money). Plus, as you point out, the Boomers will sell stocks, bonds, and other assets for subsistence. Isn't that deflationary?

Yes – we are going though a remarkably strong period of deflation. I wonder if the failure of various assets has not destroyed money at a rate even faster than the Treasury and the Fed can generate it. If we enter a global deflationary cycle, matters will become, quite frankly, bad. We live in a debt driven economy, and the liquidation of hundreds of trillions (yes – seriously. Hundreds of trillions is not a typo) of debt would destroy the monetary system.

There is another possibility. The current deflation may be a side-effect of debt and asset liquidation coupled with a flight to safety. I’ve attached a chart of the U.S. dollar index. Notice the rapid appreciation. This begs the question – why?

In a monetary crises, where does one put one’s money? In Switzerland? Maybe. But they have (as I recall) a deposits to GDP ratio of 7. Iceland was at 9. Iceland is not turning out well, with talk of defaults and lost depositor money. Is Switzerland better? That’s hard to say.

Europe seems strong, but we’re already observing some internal stresses among the EU nations. Japan seems strong. But notice that there are few truly safe places to put money, and the U.S. seems like one of the best, leading to people putting their assets into dollars.

In addition, much of the debt being liquidated is denominated in dollars. This means that debtors must buy dollars, putting upward pressure on the dollar. It also means that other assets must be liquidated – and I cannot help wondering if that isn’t part of the reason stocks, oil, gold, and other assets continue down. Hedge funds had 30-to-1 leverage, and they weren’t the only entities that used that dangerous tool. So the present price action may be an artifact of market reaction to unwinding all these positions.

Still, based on the present price action, the case for deflation is strong. If prices continue lower, and if unemployment starts forcing wages lower, then we are likely to experience a deflationary spiral that could last for years – or even a decade. Such a period will be memorable, and is likely to share characteristics of the 1929 depression.



If we are to expect social confrontation and upheaval, I have two queries:
Based on the above, where / how do people plan their finances to maintain purchasing power.
Based on the above, where and how do people live in order in minimize upheaval?


This is no small problem. From the standpoint of maintaining purchasing power, we face two contradictory scenarios. With inflation, cash (here, cash includes bank CDs, treasury securities, and other high-grade debt instruments) are all wasting assets. Tangibles, including gold, land, and even stocks will generally appreciate along with inflation. However, with deflation, tangibles decline, and the value of cash increases. A bank CD is better than gold, land, or stocks. These do not consider social upheaval.

Our problem is finding a way to prepare for both scenarios at the same time – which means, we must allow for an internal contradiction in our expectations. A strategy that works for one scenario is wrong for the opposite situation. One approach that might fit someone with deep concerns about the economy would probably allow for about 80% of assets allocated to insured bank accounts and treasury securities. Perhaps 20% could be placed in physical gold coins. One well-respected newsletter advocates precisely this approach (Dow Theory Newsletters by Richard Russell). Others take a more dire (or, perhaps, apoplectic ) position and suggest that present trends suggest complete monetary failure. Karl Denninger is an example, and you can read some of his thoughts HERE (http://market-ticker.org/archives/623-The-Stark-Choice-Now-Facing-America.html). He has some interesting arguments. These couple well with your concern over fiat currencies.

Social upheaval is an additional factor. This can range from complete breakdown, as in Somalia, to a few riots and increased crime rates. This is an interesting problem in that one must examine our society critically, and come to a conclusion about both the severity of the problem, and the likely reaction of the general population to such problems. My personal view is that matters will not degrade as badly as some suggest, and civil society will continue, although with greater risks for crime.

Personally, I have doubts about my ability to protect a substantial cache of gold coins, so my emphasis is on undeveloped land. On the negative side, it is has far less liquidity than gold and no transportability. On the positive side, it is harder to steal. I like bank CDs and FDIC insured bank money market funds. Some mutual funds, a few stocks, and some commodity ETFs (all down since the first of the year) round out the position. In essence, I assume that deflation will be temporary, that the dollar will not be destroyed, and that inflation will return. In addition, I suppose that upheaval will occur but within limits. Your mileage will probably vary.

By the way – again, purely my opinion – the next problem we will see is the decline of the Cantarell oil field, and hence revenue for PEMEX in Mexico. Combine a general economic slowdown with problems for PEMEX revenues, and one has the potential for 100,000,000 people to face desperate circumstances. Such a situation might create instability in the border regions. I hope to finish up my degree work in just under two years, and I intend to look seriously at locating further away from the border. Once again, your mileage probably varies from mine on this issue.

I have attached two charts. One represents the value of the dollar. Notice the recent sharp appreciation. The second chart is the Baltic Dry Index, and is a measure of the cost of shipping dry goods. As such, it provides some indications on the level of global trade. Further declines in trade could trigger long-term deflation.

Notice the effort in Argentina to seize private pension assets. LINK (http://www.bloomberg.com/apps/news?pid=20601086&sid=aOVQR9Fivu1o&refer=news). T he actions taken by FDR are worthy of reflection.

[Surf n Turf]

Nmap,
Your post required that I take several pages to respond
SnT


The reduction could be accomplished by changing the way benefits are calculated, increasing the retirement age
making more of the benefits taxable.
lower the income trigger that starts taxation of benefits.
change the way inflation statistics are calculated.

Obama plan removes the upper limit on social security taxation of income.
unlikely that upper income earners will receive payments proportional to their contributions.

nmap, I suspect that you are correct in all of the above. We already have a system in place to increase the retirement age, and inflation calculations have been incorrect for years. It is clear that the “upper income earners” will receive a massive tax increase when social security is taxed all the way up. I am still of the opinion that SS benefits will be “means tested”


those contributions become steadily less attractive.
some to seek ways to avoid such taxes
encourage some to consider illegal tax evasion.
The underground economy is likely to become larger.

The underground / shadow economy is very large now. In an April 2005 article the WSJ claimed that it is about $970 billion, or nearly 9% that of the real economy. It could soon pass $1 trillion. I suspect that in 2008 we have now passed way beyond $1 trillion, and could be in the $2-3 trillion range. This might be one vehicle that the middle class saves itself from extinction.
http://wsjclassroom.com/archive/05apr/econ_underground.htm



the increase in Social Security taxes is an easy way to raise a great deal of money in a manner hidden from most wage earners.
It is interesting to note the proposed increase in capital gains taxes from 15% to 20%.
I strongly suspect we will see others

The increase in Cap Gains was discussed with BHO, and he conceded that a lowering would bring more revenue into the treasury, but was opposed because in was “not fair”
The other taxes increases we will see may include letting the Bush tax cuts expire in 2010, (Death Tax, Marriage Penalty, Tax brackets, R&D credits,, etc) Higher Income Taxes, Capital Gains And Dividend Taxes, Corporate Taxes, Tax On Coal And Natural Gas, and the AMT tax.



Ironically, the victims in all this are middle class people
The truly wealthy will have the means to choose other (often better) options.
The poor (however defined) will benefit from the programs.
both the wealthy and the poor can shift away from traditional paychecks to other approaches.
The middle class, however, are trapped.

I am of the opinion that the middle class will also move to the underground or non-traditional economy. There is some inquiry in congress to monitor Ebay transactions, to try and catch some citizens, but I am not sure how that would be enforced. Other craftsmen will quote two prices (one cash, and one check). The middle class will adapt.


My meaning was (and for that matter, is) inflation.
As the supply of dollars increases, inflation follows.
I regard the present governmental deficit spending pattern as a prelude to future inflation.

I am in general agreement with you. However, as you discuss later, deflation is potentially a far greater problem in the short term. In the short term CASH is king, especially in the areas of “tangible” assets such as Gold, Silver (very low), land, and business acquisition. I would note that this may be a perfect time to make acquisitions in tangible assets. Your results may vary, based on region, timing, and asset.
SnT

[Surf n Turf]

we are going though a remarkably strong period of deflation. I wonder if the failure of various assets has not destroyed money at a rate even faster than the Treasury and the Fed can generate it.
If we enter a global deflationary cycle, matters will become, quite frankly, bad.
We live in a debt driven economy, and the liquidation of hundreds of trillions (yes – seriously. Hundreds of trillions is not a typo) of debt would destroy the monetary system.


In the month of October 2008, we have witnessed a reduction in wealth, via the stock markets, that is unprecedented in America, and the world. I am reasonably sure that (in constant dollars) it exceeds the “Great Depression”. We have yet to hit bottom, and your observation may be correct. No longer are there “widows & orphans” stocks, nor safe options in which to invest. All areas are at risk.


There is another possibility.
The current deflation may be a side-effect of debt and asset liquidation coupled with a flight to safety.
I’ve attached a chart of the U.S. dollar index. Notice the rapid appreciation. This begs the question – why?

In a monetary crises, where does one put one’s money

I am betting (figuratively) that your observation is correct.
The dollar is the least worse place to move money, and it is not that the dollar is up, it is that all currencies (except Yen) are down.
But the dollar will fall. Wait until you see the results on Monday, of this weekends “lets make the dollar weaker” conference – brought to you by the IMF and ??
“The International Monetary Fund believes that emerging countries will become the next victims of the credit crisis and is trying to force through a rescue package within a week to allow such economies to swap their own currencies for US dollars.
While Wall Street has speculated that the swap facility could be worth $1 trillion (£620 billion),”
http://business.timesonline.co.uk/tol/business/economics/article5004044.ece



and I cannot help wondering if that isn’t part of the reason stocks, oil, gold, and other assets continue down. Hedge funds had 30-to-1 leverage, and they weren’t the only entities that used that dangerous tool.
So the present price action may be an artifact of market reaction to unwinding all these positions.

As you know I am interested in Gold / Silver, and have followed both since the Texas Chainsaw massacre that ended March 27, 1980. The current prices for both Gold / Silver are understated (Silver by a factor of at least 4, Gold by 1.5). Although Hedge Funds are involved, I wonder what other “entities” you believe are also using this leverage?



Still, based on the present price action, the case for deflation is strong. If prices continue lower, and if unemployment starts forcing wages lower, then we are likely to experience a deflationary spiral that could last for years – or even a decade. Such a period will be memorable, and is likely to share characteristics of the 1929 depression.

I tend to believe that our current deflationary period will be short lived, based on the amount of liquidity being bilge pumped into the economic system. If I am wrong, I may shortly be living in a “McMansion”, and starving to death.

[Surf n Turf]

This is no small problem. From the standpoint of maintaining purchasing power, we face two contradictory scenarios.
With inflation, cash (here, cash includes bank CDs, treasury securities, and other high-grade debt instruments) are all wasting assets.
Tangibles, including gold, land, and even stocks will generally appreciate along with inflation.
with deflation, tangibles decline, and the value of cash increases. A bank CD is better than gold, land, or stocks.
Our problem is finding a way to prepare for both scenarios at the same time – which means, we must allow for an internal contradiction in our expectations.

ay, there's the rub
We have two opposite scenarios, both in play, and we cannot devise a means to maintain purchasing power in either / both, while trying to maximizing outcome. It strikes me that a middle course is probably the best bet, and at the end of the day to break even, and to live to fight another day.



A strategy that works for one scenario is wrong for the opposite situation. One approach that might fit someone with deep concerns about the economy would probably allow for about 80% of assets allocated to insured bank accounts and treasury securities. Perhaps 20% could be placed in physical gold coins.

One well-respected newsletter advocates precisely this approach (Dow Theory Newsletters by Richard Russell). Others take a more dire (or, perhaps, apoplectic ) position and suggest that present trends suggest complete monetary failure

I follow the strategy listed above. It now seems to be the best approach to balancing Inflation with Deflation. I am convinced that long term the printing press is our enemy, and I do not want to have a $1 Billion bill to buy a loaf of bread. The danger is that the CD’s, Bank Accounts & Treasuries will not keep up with inflation / taxation. – and the harder you run, the behinder you get. We have to many “assets” to have a monetary failure (at least on a local level). The farmer will always trade, as he did during the early 1930 period.




Social upheaval is an additional factor. This can range from complete breakdown, as in Somalia, to a few riots and increased crime rates. This is an interesting problem in that one must examine our society critically, and come to a conclusion about both the severity of the problem, and the likely reaction of the general population to such problems. My personal view is that matters will not degrade as badly as some suggest, and civil society will continue, although with greater risks for crime.

We could probably have a complete thread devoted to this subject.


Personally, I have doubts about my ability to protect a substantial cache of gold coins, so my emphasis is on undeveloped land. On the negative side, it is has far less liquidity than gold and no transportability. On the positive side, it is harder to steal. I like bank CDs and FDIC insured bank money market funds. Some mutual funds, a few stocks, and some commodity ETFs (all down since the first of the year) round out the position. In essence, I assume that deflation will be temporary, that the dollar will not be destroyed, and that inflation will return. In addition, I suppose that upheaval will occur but within limits.

Agree, Deflation temporary, dollar weak but viable, and inflation in our future. Only worry is rate of inflation



The second chart is the Baltic Dry Index, and is a measure of the cost of shipping dry goods. As such, it provides some indications on the level of global trade. Further declines in trade could trigger long-term deflation.

I do not see deflation occurring in the long-term. Barring some act that paralyzes the worlds financial systems, we can crawl our way out of this mess in five (5) years or so.“Carpe Diem”


T he actions taken by FDR are worthy of reflection.

In March and April 1933 Roosevelt implemented a series of policies to combat the crisis of solvency of the US monetary and banking systems, including Executive Order 6073, the Emergency Banking Act, Executive Order 6102, Executive Order 6111, and later the Agricultural Adjustment Act, 1933 Banking Act and HJR-192. These acts and executive orders effectively suspended the gold standard in the United States

Executive Order No. 6102 – 5 April 1933
By virtue of the authority vested in me by Section 5(B) of The Act of Oct. 6, 1917, as amended by section 2 of the Act of March 9, 1933, in which Congress declared that a serious emergency exists, I as President, do declare that the national
emergency still exists; That the continued private hoarding of gold and silver by subjects of the United States poses a grave threat to the peace, equal justice, and well-being of the United States; and that appropriate measures must be taken immediately to protect the interests of our people.
"Therefore, pursuant to the above authority, I herby proclaim that such gold and silver holdings are prohibited, and that all such coin, bullion or other possessions of gold and silver be tendered within fourteen days to agents of the Government of the United States for compensation at the official price, in the legal tender of the Government. All safe deposit boxes in banks or financial institutions have been sealed, pending action in the due course of the law. All sales or purchases or movements of such gold and
silver within the borders of the United States and its territories, and all foreign exchange transactions or movements of such metals across the border are herby prohibited.
"Your possession of these proscribed metals and/or your maintenance of a safe-deposit box to store them is known to the Government from bank and insurance records. Therefore, be advised that your vault box must remain sealed, and may only be opened in the presence of an agent of The Internal Revenue Service.
"By lawful Order given this day,
the President of the United States."