Economy

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Peijen
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Economy

Post by Peijen »

So the congress passed the bill to increase debt spending cap by 800 billion. I was reading my macro econ (so I just started to study econ bite me), and it got me thinking.

Base on forum posts we have a fairly good mix of spending type on the board. Hoarder (George, me), spender (Jon, Jason), and borrower (Vinny and to a smaller extend Jason). Of course we are all abit of everything, so this is generalization and that's probably wrong but let's just run with it.

Now if the economy goes into an inflation happy mode Vinny would stand to benefit the most, while people like George and I will be hurt pretty bad. However I am not sure how inflation affect vinny's house's appreciation. If the economy goes to shitter and we experience deflation George might do pretty good (most of my asset is in stocks and funds so I am still screwed).

My question and hopefully we will get some good discussion is what are you doing to protect your future, and how do you think the next 15 years will play out.

Jonathan
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Post by Jonathan »

All our money is under our mattress in a pickle jar. I predict stagnation, at least for the next little while.

quantus
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Post by quantus »

I think this is a good topic to discuss at lunch. I'll see if I can get a few opinions to bring back...
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skanks
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Post by skanks »

Dwindlehop wrote:All our money is under our mattress in a pickle jar. I predict stagnation, at least for the next little while.
That might be an O.K. strategy as long as you exchange it for Euros before you put it under the mattress.

skanks
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Post by skanks »

So if we're concerned about American solvency in general its hard to pick a safe place in the American economy where you can put your money because its all interrelated. When Bush first became president we knew where money could be made: Big Oil, War Profiteers.

But since those guys are already as porked as they can get, its harder to pick winners in the "Return of Bush II" era. With record deficits and a sinking middle class I can't imagine where to put the money. Is there a way to invest directly in the wealthiest 0.1% of Americans? Because I bet they'll do ok.

----------

Let's talk about foreign investments. Europe is still experiencing some pains from the integration of Former Soviet Bloc countries into the European Union, but it appears solid and sound. China is experiencing explosive growth but I'm worried about a potential Boom-Bust cycle.

George
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Re: Economy

Post by George »

Acording to Quicken, my savings are about 20% bonds (mostly US treasury fixed rate), 5% cash and the rest stocks.

Inflation
Under inflation, fixed rate debtors win and fixed rate creditors lose. Also, dollar valued principal loses value, while other forms of real property gain.

Vinny and Jason make out like bandits if their mortgage is fixed rate during inflation. If they are paying a variable rate by that point and don't refinance early enough to a fixed rate, it's probably a wash.

Similarly, my US bonds interest payments lose value, as does the principle. The other bonds are all held indirectly through funds, so they could go anywhere. Proper fund management could mitigate some of the loss.

I have scrupulously avoided buying stock in the financial sector (except indirectly through funds). The financial sector will be severly harmed by inflation, but my stocks will probably hold much of their value during inflation, unless inflation triggers a recession.

Property would do well during inflation so anyone with home equity, gold, etc would benefit. Again, Vinny and Jason are in a good position, which will only get better over time. I have no real property besides my car, which is losing value and becoming more costly to repair, so I lose.

Deflation
This works the other way. Fixed rate creditors, dollar-valued principal, and the financial sector win; fixed rate debtors and most property loses.

Now my US Treasuries and lack of property works to my advantage. Fixed-rate mortgages, equity, and nice cars hurt Jason and Vinny.

Again, my stocks could go either way. In general, their value will be independent of the dollar's movement, unless deflation triggers recession.

Looking forward
To hedge against either outcome, you really want variable-rate securities and debts and stocks (though stocks will be hurt by the recession that will probably accompany either).

As it is, I'm disgusted by most rates of return on CDs, bonds, etc in the near term and I'm perfectly happy to stay in stocks (i.e., not because of inflation/deflation worries, just because I'm greedy). If I bought any more bonds, I'd proably go with very short term bonds, since its a given that rates are going up, regardless of inflationary/deflationary issues.
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Jason
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Post by Jason »

First off, I don't remember my economic theory since I took it in high school. Although, I don't think the US has had deflation since the great depression.

I do have a fixed rate mortgage for the next 30 years (5%) so I lucked out there. I am in the largest growing area of the country and even though interest rates have been going up, the value of my condo has also been going up so that's also a boon.

My problem is that I'm not saving enough on a monthly basis and when I do save, I'm only putting it into my savings account. I've been meaning to open a scottrade account, but haven't had the time yet.

I think my real plan for protecting my future is to make sure that I can stay in the government sector so that they can't outsource my job and also trying to move to a smaller yet stable company. One of my friends said he might be able to get me into a solid company in a year where I could start at six figures.

skanks
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Post by skanks »

Alan Greenspan on the value of the dollar:

In a speech to a banking congress here, Mr. Greenspan, the chairman of the Federal Reserve, said the United States' persistently high current-account deficit in world trade posed a risk to the dollar's value, since foreign investors would eventually resist buying more American assets.

"It seems persuasive that, given the size of the U.S. current-account deficit, a diminished appetite for adding to dollar balances must occur at some point," he said. "But when, through what channels, and from what level of the dollar? Regrettably, no answer to these questions is convincing."


http://nytimes.com/2004/11/19/business/ ... r=homepage

George
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The future

Post by George »

15-20 years from now: Depression
Uncontrolled illegal immigration, offshoring of technical positions, and the trade deficit will have sucked all real wealth from the US economy. Throw in the collapse of the housing bubble (it's about damned time) and the economy is pretty much tanked. Deficit spending and the baby boomer retirment will bankrupt the US government, preventing the increased government spending that brought us out of past recessions.

25-30 years from now: Partial Recovery
In the past, the US climbed out of recession/depression because the conditions that caused it were part of the economic cycle. This depression will have been caused by an unstable economic paradigm finally collapsing. In order to recover, the US will have to fix its trade deficit. This will occur because the US workers will be so poor they can't afford to buy anything. The US workers must also become competative with other countries' workers, which will happen when the economic conditions are so bad that Americans are willing to take jobs at the same pay as third-world workers. The baby boomers will begin to die, birth rates will fall, and immigration will fall off, so that population growth doesn't put downward pressure on the economy. Unfortunately the first two produce recovery only through a reduction in quality of living.

40-45 years from now: The Weimar Republic
Economic collapse will have necessitated a reduction in military spending, especially on develpment projects. The result will be a reduction in military capability, while the new economic powerhouses of India and China will have been speding like crazy. Their military capability will outstrip ours, and I expect several humiliating military defeats by previously inconsequencial enemies (China, India, and possibly others in the Middle East and Southeast Asia).

As for foreign policy, the US will be noisy but ineffectual. Unilateralism won't be possible because we just won't have the power to back it up. We'll have a strong opinion on everything and will demand everyone listen to us, but in the end, we'll rarely get our way, except when we ally with lots of other countries.

Domestically, the economy will have remained stagnant.

Unfortunately, widespread economic problems plus memory of the "glory days" produce exactly one result.

Right-wing millitaristic dictatorships.

Many of us have been calling Bush a radical right-winger, but the truth is that America has never seen a truly oppressive regime, nor will it under Bush or his immediate successors (look at European, Asian, African, or South American history if you want real perspective). That will change. Americans will be hungry for a return to the economic growth and foreign respect/fear of their past and inevitably a charismatic, ruthless leader will come to power as a result. He'll achieve several victories and a short term boost in American wealth and power. Then, he'll overreach himself and the country will be smashed flat by vengeful enemies. This cycle may repeat several times.

100 years from now: Success
Eventually, the US will learn its lesson, and accept its position as a second-class country. We won't be a superpower anymore, but we should be able to acheive a stable, sustainable economy with moderate growth. I expect us to be something like most Western European countries. Not France, since they still don't seem to have learned, but maybe Germany or England.
I feel like I just beat a kitten to death... with a bag of puppies.

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Re: The future

Post by Jason »

George wrote: As for foreign policy, the US will be noisy but ineffectual. Unilateralism won't be possible because we just won't have the power to back it up. We'll have a strong opinion on everything and will demand everyone listen to us, but in the end, we'll rarely get our way, except when we ally with lots of other countries.
sounds like France to me.

Alan
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Post by Alan »

George's prediction sounds a little like what Orson Scott Card has written in his Ender books.
Image

George
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Re: The future

Post by George »

Jason wrote:sounds like France to me.
Yup. I see Western Europe as a good predictor of the future. Most of those countries were the world leaders in science, culture, and military power at various points in history. History's greatest lesson is that you can't stay at the top forever, and I think the US is going to cause and suffer a lot of misery trying to stay there. We have several declines to look at; my predictions were largely based on Germany, though I was influenced by modern France too.

If you look at other countries' declines, you get other possibilities.

Rome: Picked apart over several centuries; ceased to exist as a population, culture, or nation.

China: Got complacent, was conquered and dominated by other countries for centuries. Managed to maintain a national identity and capitalize on favorable conditions to regain superpower status (ok, not quite yet, but pretty soon).

Belgium & Netherlands: Made lots of money off other people's wars, and managed to hold on to most of it in spite of being conquered in half those wars. Built colonial empires, lost same colonial empires. Still kept wealth. Evolved into relatively stable economies with surprisingly high standards of living for countries with no real resources. Though as more finance moves to southeast Asia they may suffer.

France: "When France sneezes, all Europe catches cold". Charlemagne, Napoleon, and a slew of Louis'es in between. They kicked ass all over Europe, and were at the top of the world. Unfortunately, they convinced everyone around them to work harder to kick their ass, which happened constantly for the next hundred years. Unfortunately, they were rescued by allies in the last couple wars and didn't have the opportunity to learn the lessons Germany and Japan picked up.

Spain: Good counterpoint to the low counties. Fabulous wealth from a colonial empire, squandered on constant religious warfare. Chased out all their skilled workers for religious reasons, and missed most of the benefits of the Industrial Revolution as a result. They've never really recovered. I consider this a possible future for the US, given the strength of the religious right.

Italy: Again, tons of money from trade empires, squandered on fighting one another. Then, they unified after it was too late. A slew of burnt-out little countries became one medium-sized mediocre country. Fought some wars, with no real gains or losses. Stayed mediocre.

Sweden: Once, philosophers believed that noone except maybe the Mongol hordes could stop Swedish armies from marching all the way to China. Now they make cell phones and supermodels. 'Nuff said.

Austria (AKA, the Holy Roman Empire): The only real multi-cultural empire in continental Europe in modern times (pretty funny since they failed to hold onto the rest of the German people). They failed to assimilate most of their population, so they lost it violently instead. Still pretty far right, and not particularly important.

And of course, England, Russia, Poland, Lithuania (which ruled Russia for a while), Serbia, Greece, Turkey, Japan, and others provide yet more examples. I consider Germany the most likely, though Spain, Austria, and France are also highly plausible, though far less optimistic.
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Dave
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Post by Dave »

you are all wrong. Next year Cuba will detonate a nuke inside Washington DC and will result in a global hollowkaust when the US just starts firing missle everywhere.

Then I can hopefully get back to Vault 13. If only it wasnt cancelled
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Peijen
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Post by Peijen »

ha, my ISP still haven't update the DNS yet, I wonder if it's cached on my router and I need to flush it. I had a few things I wanted to post but I forgot all of them now.
Acording to Quicken, my savings are about 20% bonds (mostly US treasury fixed rate), 5% cash and the rest stocks.
I am at 9% for bond and 9% for cash, not counting savings/checking account.
To hedge against either outcome, you really want variable-rate securities and debts and stocks (though stocks will be hurt by the recession that will probably accompany either).
I am thinking of buying gold, but it's a pain to get a commodity trading account.
Although, I don't think the US has had deflation since the great depression.
Yep that's true, that's kind of the point of this thread, I was wondering if I should change my saving habit.
My problem is that I'm not saving enough on a monthly basis and when I do save, I'm only putting it into my savings account. I've been meaning to open a scottrade account, but haven't had the time yet.
Yeah, but I found tax to be a real pain in the ass. I made about 1000 in dividend this year, and I will have to pay taxes on it. The one thing I look foreward with Bush is the LSA, RSA, and HSA accounts (which were actually proposed by Clinton's advisor when Clinton was still the president).

As for George's prediction I actually agree with most of it, however I am not sure if it would happen on the timeline George proposed.

Peijen
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Post by Peijen »

Jason wrote:I think my real plan for protecting my future is to make sure that I can stay in the government sector so that they can't outsource my job and also trying to move to a smaller yet stable company. One of my friends said he might be able to get me into a solid company in a year where I could start at six figures.
I was thinking about this. Maybe the US should focus it's economy on military some more, I mean we are probably spending a good percentage of our money in military spending, arm forces, contractors, workers who work for the contractors. I mean shit half of us work for goverment contractors. Maybe we can export our military, although I am not sure if it's a good idea.

All the other field are looking pretty bad, IT is taken over by India, manufacture by China, the only thing we have left is service and agriculture. South America will probably take over agriculture once they get their shit straight.

I forgot what my point was ...

Peijen
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Post by Peijen »

Jason wrote:I do have a fixed rate mortgage for the next 30 years (5%) so I lucked out there. I am in the largest growing area of the country and even though interest rates have been going up, the value of my condo has also been going up so that's also a boon.
How much of property tax are you and vinny paying on your house? In fact I would be interested in know what's the property tax is like for everyone's location.

In FL my parent's house is worth about 100k average when we lived in it, the tax is about 1000. The houses in AL I looked are around 140k and I think the tax is advertised at ~1200.

Jonathan
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Post by Jonathan »

The U.S. spent 3% of its GDP on the military between 1989 and 1999. We exported $33 billion in arms according to the article. I'm not sure whether that is per year, in 1999, or over the ten year period. Anyway, we were 52nd in the world in military spending ranked by percentage of GDP. If military expenditures have increased since then, I would expect we're in the 4-5% range by now.

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Post by George »

Straightforward defense spending actually hasn't changed much since 9/11. All the defense stocks tanked about a year after 9/11 when everyone realized that Bush wasn't actually going to buy more or better equipment. Instead, most of the spending increases have been thse nebulous "logistics" contracts to defense "services" companies like Halliburton (Ok, they're actually oil services, but somehow they got all the contracts for cafeterias and other crap). None of this spending actually improves the ability of the military to do its job.
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Post by skanks »

The privitization of social security would allow individuals to place social security funds into privately managed accounts outside of government hands. If we want to privatize social security but still want to fulfil our commitment to people who have been contributing to social security for their entire working lives, then the privatization of social security is tantamount to a huge increase in the national debt.

Republican leaders are openly debating various budgetting scams and way to cook the books to hide this expansion so they can proceed with privatization:

washintonpost

Economist Paul Krugman warns of the parallel's between the US's own expansion of debt and that of Argentina before its collapse:

Reuters

Anybody know a good way to profit from the collapse of the dollar? I'm looking for something that gives me a fair amount of leverage for fluctuations in the 7% range but is relatively stable and safe against day-to-day ups and down.

Jason
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Post by Jason »


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