How to "save yourselves"

So, what to do and what not to do... I tried to summarize here my perception against the rising debt economies, possibility against the mayhem and all... I kind of still have the "modern" economic views to protect myself --I never bought guns, never invested in farm-land to isolate myself, never invested all of my assets in gold... So here it goes;

The background basic knowledge: I am not sure how it will all happen, certainly US govt is tapping now into the next generations' tax revenues, this is not something the current generation can possibly pay with trillions on the line. They are hoping to bring back the inflation and fix the problem by stealing from the entire population over a long time. But this would only work if the unproductive debt they are rescuing at the moment could indeed have some growth effects to the GDP. Instead it is ONLY preventing from eroding and collapsing the economy. You can borrow so much, at some point you have to start writing them off and they did not let that happen and the game will go on until all options are exhausted. Most are betting it will fail, I have different views, not necessarily an economic failure, but it can be qualified as a failure...

Japan suffered from the same result for decades, they are not still out of the debt problems. Obviously they just won't go away since this is how much the generations can pay. If they had 2 decades and a new generation of new work force helping them out to pay off their debt and all they see is more and more debt, what makes US think that they will be able to fix the unproductive debt from sinking the economy into a black hole and the whole thing can be rescued in any way and even make them work for the economy for better growth? Of course, this is non-sense!

Argentina is an extreme corrupt case where the govt assets have been deliberately sold, Japan is the modern case where the corruption was less of a problem (in the sense of selling govt assets), but they didn't let the economy breath because of the unproductive debt they accumulated for over a decade now. US is though is a special case. The population is expected to double in United States over the next 20-30 years, this doesn't mean the life standards will improve, no way. But instead the gradual inflation and the devaluation of the currency (and life standards) will pay off the debt very very painfully and slowly (while accumulating more new debt for the following generation). Essentially, the idea is to pay mostly the interest, not the debt...

Syndrome: At the end, we may even see Dow 100k but really it is just a numerical adjustment. In the long term, the commodities will outperform, no doubt about it, but the technology will improve productivity, so we may strike a balance there. At least this is the modern economic theory that is being taught to the new generations. The economy will survive and the suicide rate will go up as people will not be able to bear their diminishing return for their harder and harder work too, mostly for the labor class who cannot utilize the technology to their advantage. The rich will not only get richer, they will own everyone in the country, literally own them with trillions they will continue to compound on the people's hard work, they are the savings AND income that are literally stolen from the people. So, most will not live in nice houses, but smaller and smaller apartments, most will not get to spend much other than basic necessities. This is how it is in both for Japan and Argentina now. In Argentina, you don't get to borrow anymore, in Japan, your children may pay off your mortgage...

Japanese citizens have a lot of savings though and this is exactly why the Japanese govt continues to make more and more debt, the Japanese govt is after those savings. The govts are not to be trusted ever, no matter how it happens, they always end up with corruption whenever they are given these absolute power over people's money. The central banks are the root cause of the corruption;

"Let me issue and control a nation's money and I care not who writes the laws."
Mayer Amschel Rothschild, 1790

The bottom line: You have to always manage your funds in a leveraged way against the inflation if you want to come ahead, it is a task that not many are really cut out to do so. However, you do not need much more leverage, you just need to outperform the indices by 50-100%. So for example, if SPX goes up 2% and gold up 3%, you really need to make 4-5% to stay even with the inflation because the return on these assets is actually much worse than the real printing that took place and you need to have less draw down than the markets. In other words, the rate of increase in the money supply is usually more than the corporate earnings or the price of the commodities show, subsequently your life standards will decline and you have to protect your buying power...

When you stay even with inflation, you will be still obscenely taxed though on your gains and the best way to protect yourself against the govt once again is still to borrow and buy leveraged "tax shelter" assets, the best one is still the real estate that I know. The real estate prices have dropped and they won't recover for some time, but in the long run, it is still the best investment for the savings in my opinion. Make your money for the short term from the corporate earnings in the stock markets, but then reinvest in real estate in a leveraged way in the long term since it is the best "legal" tax shelter as well. A 5-to-1 leveraged mortgage (20% down payment) magnifies your money tax free around 10-12% when the real estate appreciates only 2-3% a year. As long as your rent income covers the mortgage and some of your property expenses, it is a no brainer passive investment since the entire mortgage interest is also tax deductible even if you make a profit from the property. In the long run, the properties pay off, but the property taxes remain constant while the stream of income continue to flow AND GROW...

Finally, isolating yourself from the monetary authorities to live of your own in a farm etc will not get you anywhere because your buying power is depleting because of the inflation everyday and you cannot live by yourself forever. Eventually, the truth about the rising prices will catch up with you and you will realize that the price of the goods perhaps went up more than your "passive" savings in the precious metals. The govt can always come and confiscate your gold in the name of the country at a discount price, check out the history following 1930s. The bottom line is you have to play by the rules of the "modern" scam... err... economy...

Best of wishes and luck to all of you...

Edited by arbman, 06 March 2010 - 02:16 PM.

Thanks for sharing Arbs. Wonder if it is coincidence but I spent like half hour talking about this with a friend today.

From Thomas Jefferson : "If we run into such debts as that we must be taxed in our meat and in our drink, in our necessaries and our comforts, in our labors and our amusements, for our callings and our creeds, as the people of England are, our people, like them, must come to labor sixteen hours in the twenty-four, and give the earnings of fifteen of these to the government for their debts and daily expenses; And the sixteen being insufficient to afford us bread, we must live, as they do now, on oatmeal and potatoes, have no time to think, no means of calling the mismanagers to account; But be glad to obtain subsistence by hiring ourselves to rivet their chains around the necks of our fellow sufferers; And this is the tendency of all human governments. A departure from principle in one instance becomes a precedent for a second, that second for a third, and so on 'til the bulk of society is reduced to mere automatons of misery, to have no sensibilities left but for sinning and suffering...and the forehorse of this frightful team is public debt. Taxation follows that, and in its train wretchedness and oppression." How can we wake up????

How can we wake up????

We will not wake up, not because we are not smart enough, it is that the majority prefers to not fire a bullet. You will not get what is yours unless you are willing to shed blood. There is no legal way around this govt and their corrupt ways, you cannot possibly fight this govt in the legal grounds...

the key, the answer, is this line " have no time to think, no means of calling the mismanagers to account;" I love my country and it is sickening what they have done. Yet, there are many (idiots) that I work with who want more of the same. many have come to benefit by the govt. I will have to change my avatar (name) in order to even speak freely here on this forum because some at work my catch wind of it.

We will not wake up, not because we are not smart enough, it is that the majority prefers to not fire a bullet. You will not get what is yours unless you are willing to shed blood. There is no legal way around this govt and their corrupt ways, you cannot possibly fight this govt in the legal grounds...

Slightly disagree. It is not that we are not smart enough. Plenty of people are smart enough. The problem is we are not mad enough. And that is why nothing much is/has really changed in the financial world. We "almost" got mad enough but.......the great hand from the sky reached down and delivered the criminals from their "just reward" by effectively eliminating the "effects" of their crimes. Plenty of people realize that nothing "significant" has been done about the problems and that nothing significant has been done about those who created the problems. There just aren't enough individuals in the right places with the integrity and determination needed to "go against the popular grain" and, against all odds say......we need to really do something about this.....and.....we really need to send some big names to jail for the finincial crimes that virtually everyone knows they committed. In the mean time, we just skip along our merry little way because "things have really improved" (if you don't believe that just ask the criminals that created the problems in the first place), we can all still go to the bank and get "some" of the money that we think we have in cash, and most of us have not had to drastically change our lifestyles.

The funny part is that those of us who should be the angriest have had the great pleasure of taking on the burdens of the mess created by the above mentioned criminals......while they are patting themselves on the back for their great recovery.....while rewarding themselves with massive amounts of money.....and all the while most of "us" really don't know or understand the ramifications of what they have done to us. We are really acting like we just briefly stepped off of the yellow brick road, we are back on course and we will all live happily ever after. As an anecdotal sidenote, I have a neighbor who has been unemployed for several months. He recently turned down a job offer that would have paid him over 50k per year because he had previously earned over 100k per year.....you see, he just briefly stepped off of the road but there is no real need to worry......things will be back to normal soon.....

Basically, the whole country is acting like that in spite of what we say. We are not mad enough and until we are......there will be no real change.

Hi Arb, how many years, you think, until the [bleeeep] really hits the fan? Thanks, gis

I disagree on Real Estate.... I started in Real Estate 30 years ago with 10K down and have rolled that up into 7 figure equity, for the first time since I started investing in R.E... I sense RISK - BIG TIME. First of all there is going to be a day of reckoning in the not too distant future with respect to commercial property. I'm expecting that to occur late this year. Secondly, the government can revoke the mortgage writeoff at any time, and they will eventually. Now we're going to have a rip-roaring spring... Most of the comps vs last year on revenues and earnings are going to feature outrageous percentages of improvement in the corporate World. Furthermore, employment is going to pick up, housing prices are going firm in some cases, and move up sharply in other cases. The White House has been accused the last year of doing nothing about the jobs front. What you have to remember is "Never waste a crisis"... Well that includes in fact planning the timing of the recovery. The "stimupork" programs will start to show positive effects this spring, and my Washington sources tell me that Obama is going to spend every dime of the TARP ahead of the election to add fuel to the fire. This is the time to DIVEST yourself of R.E., because when that day of reckoning comes in commercial R.E. and it will, there is an historic ratio of value with respect to commercial property and housing. When Commercial R.E. drops to 40% of 2005-6 values under duress... such as we saw recently with "Do-Buy" World's divestiture of the prestigious "W" Hotel in NYC, that is the haircut they received.... and I would suggest that this could be used as a benchmark, you will see another big drop in housing. So sell your R.E. now into this euphoria you will see this spring and summer, and if you have to own R.E. wait til the dust settles from the coming Tsunami in Commercial R.E. Furthermore, I am expecting a screaming rally into the summer as the euphoria spreads and virtually everyone thinks "the worst is over". In that rally, the last thing you want to own in stocks is any company who has big holdings in Plant, Land, Building and equipment. The flakiest most speculative stocks will outperform as "real" companies like GE for example will go relatively nowhere, except bankruptcy, when the Day of Reckoning arrives... The difference between the housing correction and the commercial R.E. correction is EXPONENTIAL. In the housing crisis, Joe Six Packs lost jobs and homes. When the Com'l R.E. Storm hits... Big companies are just going to close up shop overnight, and we'll see the second leg down in this ugly bout of debt diarrhea. This thing isn't going to just go away, and history tells us that there's no way around the eventual unwinding and flattening of the huge debt bubble. The fix is in for the fall elections, but when they are over.... WATCH OUT.