AlkalizeForHealth
Bush
administration prevented states from fighting predatory lending.
1,
2.
The American
kleptocracy.
The
FBI is
presently investigating "all levels of the mortgage systems" for
fraud.
Fraud and greed of trusted rating agencies helped spread credit crisis.
1,
2.
|
Investors in mortgage bonds can require banks to buy them back at
full value if there was fraud in the origination process (eg. loan
application documents, appraisals).
At the end of 2006, there were
$2.4 trillion of mortgage backed securities outstanding in the
U.S., up from $738 billion in 2000.
"Mortgage
Meltdown" - watch this 44 minute video plus extended
interviews free on the Internet.
Produced by Australian tv.
The present problems in the mortgage market were
caused by large banks selling unsound mortgage backed securities, and rating
agencies who gave these securities inflated ratings.
These same large banks are exposed to massive
potential derivative losses.
According to the Bank of
International Settlements, there are $596 trillion in derivatives
outstanding. This is many times the GDP of the global economy. US banks
hold $181 trillion of these derivatives.
91% of these derivatives are
"over the counter". Unlike exchange traded derivatives where
exchange rules ensure the liquidity of trading parties, over the
counter derivatives have no backing beyond the capital of the banks
that issued them. The many thousands of companies, pension funds,
etc. who have purchased derivatives from banks could find themselves
in trouble if the banks default.
Banks with derivatives
risk exposure in excess of their capital include JP Morgan Chase, HSBC, Citibank,
Bank of America, and Wachovia. The American banking system has
become a house of cards.
If one of these banks defaults
on its derivative portfolio, the resulting chain reaction could
bring down the entire global economy.
Is it possible that these banks took such risks
with mortgage bonds and derivatives because they are intended to fail?
NY Times:
Banks planned on looting the American public
for decades
It is absolutely necessary to move
Credit
Default Swaps onto a regulated exchange. This may be the only way to
reduce the possibility of chain-reaction economic implosions such as Long Term
Capital Management and Bear Stearns nearly triggered.
The sale of Credit Default
Swaps drove AIG into bankruptcy.
Greenspan opposed
regulation of derivatives
Warren Buffet on derivatives
Capitalist Fools
IMF View
- "The Quiet Coup"
GAO View -
"Systemic risk"
Is the U.S. a
failed state?
Instead of a $700 billion plan
that won't work, here is a
plan of action that won't cost taxpayers anything and just might
work.
Using taxpayer money to buy bad
debt is a bad idea. There is a good chance the money will be lost.
The British idea of purchasing
bank shares to recapitalize the banks is a better idea, providing
existing shareholders are wiped out and senior management that
caused the problems are fired. Instead of using the money to give
loans, recent reports suggest U.S. banks are using public money to raise
salaries, pay bonuses, dividends, and buy competitor banks. This
behavior will not help the economy.
AAA assets are selling at a 20%
discount. AA assets are discounted 50%. Sub-prime assets have lost 80% of
their value, and no one is willing to buy them. Institutions holding these
assets are taking huge losses. -
FT.com
With the collapse of bond
insurance companies Ambac, MBIA, CIFG, and FGIC hundreds of
thousands of bond issues are about to lose their triple A rating.
The United States has gone from
being the world's largest creditor to world's largest debtor in one
generation.
"The Federal Reserve and the
Federal government have betrayed the American people. They've robbed
savers by destroying yields in the money market. They've issued debt
that will either destroy America's credit rating when the government
defaults, or take Americans generations to pay back..." - analyst
Dan Denning
If US treasuries are risk-free, why is the
credit default swap rate on US treasuries rising?
35% of U.S. treasury debt has a
maturity of less than one year. This makes the federal deficit very
sensitive to increases in interest rates.
“I place economy among the
first and most important republican virtues, and public debt as the
greatest of the dangers to be feared. To preserve our independence,
we must not let our rulers load us with perpetual debt." - Thomas
Jefferson, 1816
U.S. government obligations
presently out-run expected revenues by $60 trillion
dollars.
- Bill Bonner
Watch the
Time-Bomb
debt documentary on DVD.
The U.S. trade deficit with
other countries will approach $800 billion in 2007.
Biodiesel from algae offers
unlimited fuel with zero greenhouse gasses. Can be made in the
U.S.A.
A massive program to make
biodiesel from algae, plus develop other alternative energy sources
such as wind, solar and geothermal, would solve the energy crisis,
create employment, end the wars in Iraq & Afghanistan, and keep US dollars in the
United States where they belong.
“In 2007, the United
States imported $331 billion worth of crude oil at an
average price of $64.25 per barrel. If the U.S. imports
crude oil in 2008 at an average price of about $95 per
barrel, the annual import bill could jump by about $150
billion or more, to $580-600 billion."
- Byron King
"The United States can be
likened to Rome before the fall of the empire. Its financial
condition is worse than advertised. It has a broken business model.
It faces deficits in its budgets, its balance of payments, its
savings - and its leadership." -- David Walker, Comptroller General
of the United States
Lower prices from increased
productivity and efficiency are good. Lower prices from a loss of
demand are a symptom of a larger problem.
Economic
Catch 22:
If deflation sets in, the debt burden remains while other prices
fall. The effort to sell assets to reduce debt causes prices to fall
further, making the debt burden still greater. The Federal Reserve
will do whatever it can to prevent deflation. The job is difficult
because excessive debt makes the economy inherently unstable.
The velocity of money is
slowing, and that is deflationary.
GDP divided by money supply
equals velocity of money.
If Helicopter Ben increases the
money supply in step with the slowing velocity of money then GDP in
dollar terms will remain constant, even though the real value of GDP
will be going down.
This will benefit debtors two
ways:
1) assets will tend to retain their dollar values
2) debt will be repaid with dollars that are worth less.
Plus, the government will
benefit because it will be spending money that it does not have.
"NO amount of stimulus can
prevent the de-leveraging process from running its course." - Mike
Larson
Should you
walk away from your mortgage?
The situation in America has
been rising prices combined with a contracting economy. This is
called "stagflation", and may be the best the Fed can accomplish.
The contraction of the U.S. economy has been be concealed for years by rising
debt and
misleading numbers coming from the government regarding
inflation and economic performance. If you calculate inflation today
the same way it was calculated in 1980, then U.S. inflation in 2007
is about 10%.
Plus, in the U.S. since 2006
- truck and rail tonnage is declining
- sales tax revenues to governments are declining
- imports are declining
- car sales are declining
- help-wanted advertising is declining
3.7 million full time jobs have been reduced to part time. Plus,
unemployment is
rising.
When home values and the stock
market were rising people spent more due to the "wealth effect". Now
we have a "reverse wealth effect" as wealth shrinks. In a "consumer
economy" the effect will be devastating for many businesses.
The most benign way out of
America's predicament is for there to be such a surge of creativity
and growth in the U.S. economy that the ability to pay off its debts
is vastly increased. |
The alternative may be brutal, involving high unemployment, falling tax
revenues, devaluation of the
currency, and foreclosures.
Great Depression of 1873. The center of global finance moved west. Now
it is happening again, though this time "west" means China.
$70 billion pay and
bonuses to Wall Street staff in 2008. Compensation for a job well done?
The Great American Bubble Machine
1,
2,
3,
4,
5, 6,
7, 8.
This may be the end of the US dollar as
world reserve currency.
National currencies should stay within
national borders. For international trade there needs to be an international
unit of exchange. Modeled after Special Drawing Rights of the International
Monetary Fund, we would suggest starting with a trade-weighted average of
all currencies in the world.
Due to the importance to every nation
of the value of the International Currency Unit (ICU), the calculation needs
to be transparent. The only way to accomplish this is to have the ICU traded
in the markets like any other currency.
Internationally traded
commodities such as oil and gold would be priced in ICUs.
The ICU and national currencies
would be fully interchangeable in the foreign currency markets.
The ICU would not be printed money and
would have no physical existence. It would simply be a unit of account
designed to facilitate international trade and flows of wealth.
National currencies need to continue so
that each nation can control the monetary and fiscal policy appropriate for
its needs.
Nations might consider the creation of
coupons or special / restricted currencies so that monetary and fiscal
policy can be more tightly focused to the needs of particular regions or
industries.
A strong military requires a strong economy to support
it. As the American economy implodes a power vacuum will be created in the
world.
When the U.S.S.R. went bankrupt their fleet was tied to
the wharf and left to rust.
The U.S. surface fleet is
obsolete anyway.
Obama is engaged in political theatre, designed to
distract the masses until the real estate debacle ends in 2012.
Interest expense is 10% of the federal budget and rising.
Moody's warns it may downgrade U.S. Treasury debt by 2013
because by then interest payments on the national debt may exceed 20% of
federal revenue.
NEW YORK
(Dec. 15, 2008) - The sum of America's liabilities and other financial
commitments now exceeds the collective net worth of its citizens. -Peter
G. Peterson Foundation
Proper regulation of Wall Street
1,
1A, 2,
3.
"I sincerely believe that banking
establishments are more dangerous than standing armies, and that the
principle of spending money to be paid by posterity under the name of
funding is but swindling futurity on a large scale."
- Thomas Jefferson
|
America's Empire of Debt "The Federal government's gross debt - the accumulation of its annual deficits - was about $7 trillion last September [2003], which works out to about $24,000 for every man, woman and child in the country. But that number excludes items like the gap between the government's Social Security and Medicare commitments and the money put aside to pay for them. If these items are factored in, the burden for every American rises to well over $100,000." - David M. Walker, Comptroller General of the United States. *** The U.S. Federal Reserve totals the Federal government debt at over $10 trillion
[2003]. The extra trillions come from government sponsored agencies whose debt is ultimately the responsibility of the Federal government. For example, mortgage giants Fannie Mae and Freddie Mac hold $3.5 trillion in mortgages. With rising interest rates, the value of these mortgages and the solvency of these two agencies is questionable. The Pension Benefit Guarantee Corporation (PBGC) insures pension funds totaling $1.5 trillion. These pension funds are presently $450 billion underfunded, and the situation may get much worse depending on what happens to the economy.
Update September 2008 - Fannie Mae and Freddie Mac
hold $5.2 trillion in direct and contingent mortgage liabilities, plus
$1.5 trillion in debts and $2 trillion in derivatives for a total
potential liability of $8.7 trillion. These
two agencies now have an unlimited line of credit from the U.S.
treasury.
"It is the CBO
view that Fannie Mae and Freddie Mac should be directly incorporated
into the federal budget." - Peter Orszag, director of the Congressional
Budget Office, September 9, 2008. (Three years ago in 2005,
Freddie Mac lobbying killed
legislation that would have regulated Freddie and Fannie and perhaps
prevented the problems that arose in 2008.)
At present [2008] there are $13 trillion in mortgages
outstanding in the United States, involving 111 million homes. Moody's
is projecting 3 million mortgage defaults in 2008. The Mortgage Bankers
Association reports that 1 in 40 mortgages is now in foreclosure and 1
in 16 is now delinquent. Of the AAA subprime mortgage securities issued in 2006,
86%
are now in default. Loans from 2007 are expected to do just as bad or
worse. Three percent of prime mortgages and 7.5% of jumbo prime mortgages were in
trouble as of the second quarter of 2008.
Many banks are taking huge losses on mortgages,
credit card debt, commercial loans, etc. As a result, banks are
tightening lending standards on all types of loans. Some banks are
virtually shutting down mortgage lending. Others are refusing to lend
through mortgage brokers. Mortgage borrowers need higher credit scores,
bigger down payments, and enough income to cover rising interest rates.
Plus credit spreads are higher so that banks can recoup their
losses. All of this is reducing the number of potential home buyers in the
market, at a time when the number of homes available for sale is at
historic highs. Fewer buyers means lower prices and larger losses for
lenders, resulting in even tighter lending standards, in a downward spiral.

"We are now facing a major
de-leveraging cycle and it will suppress economic growth and put a lid
on the stock market for years to come." - Niels Jensen, Absolute
Return Partners, London , UK.
Niels Jensen is writing about the blue line
in the chart to the left. But, why is the green line sloping upward? The
deleveraging cycle pictured on this chart is just a little blip on top of
a much larger deleveraging cycle pictured in the Total U.S. Debt chart
at the top of this page.
"The worst is not behind us." -
Nouriel Roubini,
November 13, 2008.
"The time has come to issue one of my sternest warnings
to date: Bank of America and Citigroup
could fail despite the most radical government rescues of all time...JP
Morgan is not far behind." - Martin Weiss, January 26, 2009.
Asset price deflation, debt liquidation, and
derivatives such as "credit default swaps" are the
heart of the problem we face today. |
Neither a borrower nor a lender be;
For loan oft loseth both itself and friend.
And borrowing dulls the edge of husbandry.
- William Shakespeare
(Shakespeare's observation regarding "borrowing dulls the edge of
husbandry" is one of two reasons why Keynesian economics does not work.
Both reasons have to do with human nature and the wise husbandry of
money. Keynesian economics promotes borrowing money as a means of
stimulating the economy, yet borrowed money is never spent as carefully
as saved money. The result of borrowing is a tendency toward
mal-investment and slower economic growth over time. The second reason
Keynesian economics does not work is that when investing/spending other
people's money, one is never as careful as when investing/spending one's
own money. An economy dominated by big corporations and big government,
both run by managers investing/spending other people's money, will never
be as efficient and productive as an economy dominated by
owner-operators and people investing/spending their own money.) The World Loses Confidence in America The U.S. dollar has fallen in value more than 40% during the past few years relative to the Eurodollar. The decline continues and international investors who hold $4.6 trillion in U.S. treasury bills, corporate bonds and stocks are starting to panic. The massive U.S. Federal deficit
and the equally massive U.S. trade deficit both conspire toward even lower value for the U.S. dollar. "And never forget: When foreign investors are selling, they're not just selling the currency. They're selling all the investments they bought with the currency — stocks, bonds, private businesses, real estate, and more." - Dr. Martin Weiss, November 8, 2004. Average Americans "don't connect the dots between the dollar's decline overseas and a declining purchasing power of the dollar at home ... between the threat to the dollar and the threat to the entire economy ... between the dire threat to the economy and an equally dire threat to the fabric of society." - Dr. Martin Weiss, February 9, 2004. *** Update July 6, 2004. From the end of 2000 to the first quarter of 2004, private household debt rose by $2.52 trillion, or 36%. Most of this came from mortgage refinancing with people increasing the size of their new mortgage in response to rising property values and lower interest rates. The spending this has enabled is what has kept the U.S. economy from entering a deep recession.
***
Update 2007.
The stimulus provided by the mortgage bubble has ended.

The Case-Shiller index looks at housing prices relative
to income and finds that home prices are too high, making them unaffordable.
However, look at how low prices went during the great depression of the
1930's. Due to the excess supply of houses on the market today is it
possible that house prices will overshoot to the downside? Plus, what
happens if unemployment rises and average incomes fall in a deep and
prolonged recession? Since the Case-Shiller index looks at house prices in
relation to income, if incomes fall then house prices must also fall just to
remain affordable. Throughout history, when bubbles collapse, the inflated
asset tends to decline in value by 75% to 90%.
Fannie Mae and Freddie Mac have borrowed money to
purchase mortgages and this debt is now guaranteed by the U.S. government.
The credit worthiness of the U.S. government is being placed in jeopardy.
China holds one fifth of its currency reserves in Fannie
Mae and Freddie Mac debt. They get a better interest rate while still
enjoying a U.S. government guarantee. The United States could not allow
Fannie and Freddie to default, because this would upset its largest
creditor.
The following chart shows why the bust will extend to 2012:

Watch
this 60
Minutes video. Due to the time required to process foreclosures, the
housing crisis will end sometime in 2012. In the above chart we see that
2009 offers a slowing of mortgage resets, with the storm continuing in 2010
and 2011. It is predicted that nearly
half of U.S. mortgages will be "underwater" by 2011.
In the United States, stock markets generally follow housing prices, with a one year time lag.
The U.S. economy now teeters on a precipice. Massive personal, corporate and government debt on the one hand, and rising interest rates
plus disappearing willingness to lend on the other.
Update August 2008 - Consumer
spending in the United States is collapsing for many reasons: 1) less
easy credit is available, 2) home values are declining resulting in
reduced mortgage equity withdrawals, 3) rising unemployment, 4) rising
gas prices, 5) inflation combined with low income growth. Lower consumer
spending, higher fuel prices, and tightening credit standards are inevitably reflected in
lower corporate earnings. | There are a number of factors threatening the U.S. economy at this time:
1. According to the Federal Reserve Bank's Flow of Funds Report for the first
quarter of 2008, total American debt is $50 trillion which is
350% of GDP.
This is far above the 1933 level shown in the Total U.S. Debt chart near the top of this
page. As shown in the chart, in 1929 total US debt was
about 150% of GDP. It rose to its
peak of 264% in 1933 largely due to contraction of GDP. The enormous pile of debt
presently owed by Americans has the potential to cause an economic implosion
greater than the 1930's when GDP contracted by nearly 30% and unemployment
rose to 25% of the workforce. Here is an updated chart from Weiss Research:

The U.S. Gross Domestic Product (GDP) in 2008 is estimated to be $14
trillion. GDP growth has stalled and may even be declining. The
total U.S. $50 trillion debt is growing at an annual rate of about 9%.
Interest rates are rising, and will rise much more quickly if
global investors begin to doubt the ability of the United States to pay.
Interest rates will also rise if money
that formerly flowed to the U.S.A. is invested elsewhere. For example, the half
trillion dollars the Chinese government is spending on infrastructure in
order to stimulate the Chinese economy will no longer be available to invest
in U.S. treasuries. Also, there is a growing tendency for international
investors to use their US dollars to buy commodities rather than hold currency.
Faith in fiat currencies depends on the financial strength of the
governments that issue them.

Look at this chart showing the Credit Default Swap rates
on U.S. 10 year treasury bonds. "The cost of insuring against a U.S.
government default is soaring. And similar trends exist in the bond markets
of Germany and Britain." - Sean Brodrick, November 2008. Judging by
credit default swap rates, bonds issued by the state of California are
riskier than those issued by Kazaksthan (April 2010). 48 states face budget
shortfalls.
Since the end of September 2008 the Credit Default
Swap rate on McDonald's debt has been lower than that on U.S. treasury debt,
suggesting that "flight to safety" money would do better by purchasing high
quality corporate debt. Update April 2010 - Yields on many corporate bonds
(Lowe's, Johnson & Johnson, Procter & Gamble, Berkshire Hathaway,...) are
now lower than on comparable U.S. government debt.
Banks will generally limit the size of a loan to a
customer so that loan payments do not exceed about a third of the customer's
income. Using this rule of thumb, the $14 trillion American annual GDP could finance at
most about $5 trillion in loan payments (principal and interest). With $50 trillion of
total debt, this $5 trillion payment will be
entirely consumed by interest payments at a 10% interest rate. If the
economy shrinks, then the ability to pay is reduced proportionately. However, given that interest rates are
still relatively low and the total debt is increasing by 9% annually,
it
seems the United States is already unable to pay even the interest on its debt.
Thus, the key question is not inflation or deflation, but solvency.
U.S. stripped of AAA credit rating by Chinese rating agency July 2010.
Look at the Total U.S. Debt chart at the top of this
page. Imagine it to be a volcano. Government borrowing, pledging and money
printing is the "blow off top". Soon we may start down the other side.
It took about 30 years (1980-2010) to reach the top of the debt volcano,
suggesting that it may take about 30 more years to get back down.
Microeconomic incentives that motivate behaviors
by individuals and companies need to be consistent with the macroeconomic
situation that is most beneficial for society as a whole. Banks have lobbied
for tax incentives that encourage debt. This has generated more business for
banks, but the end result has been to place the entire economy in a perilous
situation. These tax incentives need to be changed to encourage saving
instead. 2. Interest rates tend to move in long cycles
of about 60 years (30 years of declining interest rates followed by 30
years of rising interest rates). Interest rates are now at historic
lows. Rising interest rates affect stock prices two ways: 1) bonds compete with
stocks for funds and can take money away from the stock market, and 2)
rising interest rates increase borrowing costs and reduce earnings, putting
downward pressure on stock prices.
Interest rates go up as default rates
rise. Fear of loss makes lenders reluctant to lend, reducing the supply of
loans. Interest and principal payments on debt increase
the demand for money, which places further upward pressure on interest
rates. How high interest rates go in each cycle depends on the amount of
debt owed at the beginning of the cycle. This is one reason why interest
rates may spike very high before this cycle is over.
Government borrowing (to finance huge bailouts and its
own annual deficit, plus refinancing old debt as it matures) will drive
up interest rates for everyone. In fact, U.S. federal government borrowing
requirements are so excessive that they may reach a point where they
are
impossible for the market to fund.
There is an
epic battle being waged between the ideas of Milton Friedman (increase
the money supply to inflate prices and prevent deflation), and Irving Fisher
(defaults and asset liquidation will drive down prices until people decide
to buy again and then the economy will recover). Politicians are generally in
the Milton Friedman camp, because it allows them to "do something". We
maintain that the problem is so large that their doing something just
amounts to political theatre and adds to the total debt. In the end, the
debt problem must be resolved and Irving Fisher will prevail. The best way
to cure an economic slump is to go through it. Governments
should limit themselves to damage control, and take measures to prevent this
from happening again.
First, interest rates rose for sub-prime borrowers, then
for prime borrowers. Eventually interest rates will rise for the government,
too. The trend of rising interest rates may continue for decades. Bonds fall in value as interest rates rise. 3. By collectively investing
retirement funds into the stock market, stock prices have been bid up
to incredible levels. When baby boomers retire and try to remove this
money from the stock market, prices will plummet to unbelievably low
levels. The "baby boom" is anyone born during the years 1946 to 1964.
They will begin to reach age 66 starting in 2012. There is no way all investors can successfully remove their money from the stock market.
If you want to buy stocks, we suggest investing globally.
Emerging markets such as China, India and Latin America
have younger populations and their stock markets will be less influenced by
population patterns in developed countries.
Using a measure called "comprehensive income" which is
less manipulated than "net income", during 2008 the S&P 500 companies collectively lost
about
$200 billion. In other words, there is no price/earnings ratio because
there have been no earnings. However, reported earnings are a lagging indicator both
when the economy is growing and shrinking. This means the stock market
could start going up at any time, reflecting nothing more than the
general level of confidence that things are getting better. What we are seeing today is not a typical bear market.
The business cycle has its ups and downs. The economy overheats so the Fed
raises interest rates and we have a bear market until things cool down. This
is not what is happening today. Today's bear market is
caused by too much debt. We have not seen a bear market like this since
1929, and debt at the beginning of the Great Depression was proportionately
much less than it is today.
With a regular bear market, when the
economy cools down the Fed can lower interest rates, which increases
borrowing and stimulates the economy. Lower interest rates will not help an
economic collapse caused by too much debt. Increasing the amount of debt
just makes the problem worse.
Debt by its very nature cannibalizes future spending. In the short run debt
acts as a stimulant, but in the long run debt is a drag on the economy due
to interest expense and loss of future sales.
The level of debt in the U.S. economy has been increasing since 1980, to the
point where it is difficult to take on any more debt. The time has
come for people and corporations to face the accumulated mountain of debt. Consumption is going down, which will
cause employment to go down in a vicious cycle until we reach a bottom.
There is no knowing how long this will take or how far down is the bottom. The Japanese economy entered a debt recession in
1990 and low interest rates since then have not helped. Borrowing and
spending by the Japanese government has not restarted economic growth. The
Japanese stock market has had its ups and downs since 1990. However, the
economy cannot grow until the excess of debt is gone, and the Japanese
people and companies are still paying off this debt. Had the Japanese
government allowed the economy to collapse and the debt to be liquidated
through bankruptcies and defaults, the recovery would have begun much
sooner. However, this drastic alternative is not politically popular.
We seem to be entering what is known as a "secular
bear market". A secular bear market can last for a very long time.
However, even in a bear market there are rallies. Pressure is building for
one now (December 19, 2008). The average dividend yield on the S&P 500 is
3.48%. This compares to a yield of 2.54% on a 30 year treasury bond and
2.1% on a 10 year treasury bond. The
last time this happened was 1958. Short term treasury bills are paying 0% to
.25%. These low interest rates make stocks attractive. Plus, the low interest rates also make certificates of deposit offered by
banks at around 3% very attractive, helping to recapitalize the banks.
One investment strategy that worked through the
depression of the 1930's is dollar cost averaging. Regularly putting a small
amount of money into your retirement account buys more shares when prices
are down. When you come out the other end of the depression and prices are
back up, then you are far ahead. This assumes two things. First, the companies whose
shares you buy do not go bankrupt. Companies that should survive include the
ones whose services you use every day, such as telephone, cable,
electricity, gas, etc. This type of company often pays good dividends, which
can be a source of income in hard times. Second, you can afford to hold on
for the long term and will not be forced to sell at a loss due to
unemployment, retirement or other reason.
The dollar cost averaging strategy assumes the bear
market does come to an end one day. This has not been the Japanese
experience. After many ups and downs, their stock market today (November 2008) is at the same level as
it was in 1982. So once again we come back to investing in emerging
market economies that have the best chance of growing, or you might find
sectors of the North American market that have the best chance of growth
such as alternative energy. We discuss the coming decline of global oil
production and the need for alternative sources of energy further down this
page. Food may be another good investment, as global food supplies such as
grains are at the lowest levels in decades. Fresh water is also increasingly
scarce as underground aquifers become depleted and glaciers disappear.
All the reasons we heard in 2008 for high oil prices and high food prices
are still valid. Commodities in general have fallen in price so far that they are starting to
look cheap again, plus commodities are becoming a hedge against increasingly
worthless currencies due to excessive money printing by governments.
If you invest in gold and silver, we strongly suggest
that you purchase either the physical metals or mining stocks. Stay away
from exchange traded funds (ETFs) that claim to be backed by physical
bullion. If these claims turn out to be
fraudulent (1,
2,
3,
4) then your ETF investment will be worthless, while the value of
physical metals and mining stocks skyrocket. If you are an institutional
investor, consider purchasing the metals on the futures exchanges and take
physical delivery (and test what you receive to ensure the bars are not
gold plated tungsten).
Monthly Income
Writing Covered Calls
Covered calls are for people who want to actively
manage their investment portfolio in order to derive income from it. Writing covered calls offers a way to generate income in a sideways or
slightly rising market such as what we may be facing during the coming
decades. For more information do an Internet search or read one of the
books available on the subject.
Kadavy, Paul D.
Covered Call Writing Demystified - Double-Digit Returns on Stocks in a
Slower Growth Market for the Conservative Investor, Arrow
Publications, Fountain Hills, 2008.
Callwriter.com helps you find the most rewarding covered call
opportunities.
When option premiums are high, consider selling
covered call options to enhance your income. The best time to sell a
covered call option is when you think the share price has peaked for
a while. You can time your covered call writing
to also harvest dividends. |
Ethical investing
pays best.
4. Social Security had
its beginnings during the depression of the 1930's as part of President
Roosevelt's
"New Deal". At the time it was passed, retirement was at age 65 and the average person died at 60.
Less than 10% of the population lived past age 65.
Furthermore, only about half of the population qualified to receive Social
Security. There were 40 workers for each retired person.
Now there are less than 2 workers per retiree. Social
security covers nearly everyone, and the average person
lives much longer. More than 80% of the population lives past age 65.
Yet the age of retirement has been increased only to age 66
(soon to be 67).
All of this has created
a massive unfunded liability. We say the liability is unfunded because the
reality is that the Social Security trust funds have been spent. Social Security
is as it was originally designed to be - a "pay as you go" system.
The large size of the "baby boom" retirement
population living for so much longer may create an intolerable burden
for the next generation. People should be encouraged to
work past age 66 if their physical and mental health are adequate. In fact,
it may become necessary to raise the retirement age to 75 or even higher. Older
people should not feel slighted if they are asked to step down from
positions of responsibility, and to continue working at more junior
positions. This will give younger people a chance to move up.
Medical costs are greatest at birth and in old age. Here
is another unfunded liability that the next generation cannot be expected to
pay. Part of the answer will be increased home care, which is far less
expensive than hospitals and nursing homes. Medical tourism is part of the
answer. Medical, dental and nursing care are all more affordable in Mexico,
India and other developing countries, and the quality of care is often as
good as or better than in the U.S.A. Plus, people need to learn how
to take better care of their health. A study of Canadians who learned
Transcendental Meditation showed a
55% decline in
medical expenses after 6 years practicing this meditation technique.
Falling property values result in lower property taxes to
cities. As a result, cities are beginning to declare bankruptcy (1,
2), as they find themselves unable to pay
fixed costs such as pensions promised to retired police, fire
fighters and other municipal employees. States are slashing their budgets
and asking the federal government for help as tax revenues decline. However,
tax revenues are declining for the federal government as well, with a big
hit coming with the 2008 tax year when capital gains are replaced by capital
losses, plus declining income taxes due to business losses and rising
unemployment.
U.S. corporations are being manipulated into bankruptcy so
they can dump their pension plan obligations onto the
taxpayer. Upon emerging from bankruptcy, these companies are better able to
compete with other companies around the world that do not carry these
burdens. However, it is unlikely that the coming generation of taxpayers
will be able to pay all the obligations that it will inherit. The Pension
Benefit Guarantee Corporation (PBGC) has had a deficit each year since 2002. Revenues to
all levels of government are declining, and the costs of the unfunded social
safety nets are just beginning to soar.
There will be no option but to find ways to increase
revenues and decrease payments for Social Security, Medicare and the PBGC.
In the years ahead
Social Security and
Medicare are projected to be underfunded by many trillions of dollars. These numbers assume the economy continues
growing at the same rate as it did in the debt-stimulated past. How
likely is this?
Insurance companies and private pension plans expect a certain return on their equity,
bonds and real estate investments in order to fund annuities and pensions. If expected
investment returns do not materialize, these companies will be unable to
meet their obligations. Defined benefit pension plans may soon be
unavailable. In their place will be defined contribution pension plans. You
put your money in, but there is no way of knowing what you will receive.
With this type of pension plan there is a great incentive to supplement your
pension with additional savings.
The $2 trillion social security trust funds were "invested" in U.S.
government treasury bonds and spent by the government. When we say that the social security program is
unfunded, this is another way of saying it is likely the coming generation
will be unable pay the many trillions of dollars of debt and other
liabilities that are presently being accumulated by the U.S. government. A great danger of massive
borrowing by the U.S. government in order to bail out the economy is that
the credit worthiness of the government itself is declining. The end result
of continuing on this path could be a massive default of government debt. Before this happens, however,
you can expect the government to confiscate any assets it can get its hands
on (Roosevelt confiscated all gold held by Americans, Argentina recently
confiscated the assets of private pension funds), plus hyperinflation and
restrictions on the movement of money out of the country.
Anyone who says the U.S. government debt is not a problem
because it is within historical norms as a percentage of Gross Domestic
Product (GDP) is ignoring the
additional debt owed by households and corporations. It is the credit
worthiness of the entire U.S. economy that is being called into question.
Plus, what happens if GDP begins to shrink as it did in the 1930's?
Update November 2008 - The U.S. government may be
planning a stealth takeover of $10 trillion in U.S. IRAs, 401Ks and private
pension plans. To "protect" you from fluctuations in the stock market, the
government will offer to make an inflation-adjusted annual contribution and
guarantee a 3% interest rate in your "Guaranteed Retirement Account". In
return, you will be giving your retirement savings to the government (so the
money can be spent) rather than owning shares in productive assets. The tax
laws will be amended to make this revised system attractive.
If the government "monetizes the debt" (uses printing
presses to make money and spends the money to pay off all or some of its debt),
it is a
stealth default. The lenders will have lost because the money is
worth less. If all G20 countries do this simultaneously, then all their
currencies will be worth less simultaneously. It would be a collective
devaluation of paper currencies. This would be a good reason to buy gold and
other hard assets. At this time, China is loading up on gold, oil, copper,
aluminum and
other materials, plus buying low cost shares and debt of companies that produce
the raw materials that China needs.
China and other countries with surplus funds are also buying
farmland around
the world rather than putting their money into U.S. debt. President Roosevelt devalued the dollar 41% by changing its value from
$20.67 to $35 per ounce of gold. The dollar is no longer pegged to gold, but
monetizing much of the debt can accomplish the same thing.
However, the strength of the currency must be maintained because
without it the economy cannot recover. Hyperinflation is not an option, so
there is a limit to printing money. "Helicopter Ben" seems to be
trying to prevent price deflation by printing money
and inflating the currency.

"A strong currency — the nation's social and political
anchor. It gives workers a reason to work and be team players; families a
reason to save and come together; entrepreneurs a motive for innovating." -
Dr. Martin Weiss. Let's hope the Fed gets it right and we do not end up with
the "Bernanke peso".
"The fate of a country is inseparable from the fate of
its currency." - Milton Friedman 5. The
Federal Deposit Insurance Corporation (FDIC) "watch list" has
grown to
775 problem banks (May 2010). However, in an independent review of the
US banking system, Weiss Research identifies more than
2,259 banks and savings & loans that are vulnerable. The FDIC has $45 billion to cover
more than $5
trillion of deposits. The closing of just one large bank could consume all
of the FDIC's $45 billion. Can taxpayers afford to pick up the tab for the
remainder? The FDIC insures deposits up to $250,000. What happens to business
accounts when a bank closes? How many businesses could afford to lose their
payroll if the bank closes just before payday?
To find the financial condition of your bank, go to
www.thestreet.com, click on
"PORTFOLIO & TOOLS", then "Banks & Thrifts Screener".
Banks are rated on a scale from A to E, with A being strong, C is middling,
and E means the bank is very weak. Slight variations in strength are
reflected by + and - signs. Look for a rating of
B- or better.
Since
September 2007 the Federal Funds target rate has
been cut 11 times, falling from 5.5% down to about 0%. If the Federal Reserve keeps
short term interest rates very low, and banks lend this money long term, the
interest rate spread could do wonders to recapitalize the banks. This way,
banks must lend in order to recapitalize themselves. Combined with delaying
market pricing of their bad debt (which exposes their lack of
capital), in time they can work their way out of the hole they find
themselves in. This has worked in the past. However, it takes time.
Banks are lending. The problem is not so much with the
banks as with the disappearance of customers for securitized debt. It used
to be that banks would originate loans and sell them to Wall Street for
securitization. This market is gone and will not soon be coming back.
There is much discussion of the government (taxpayers)
purchasing toxic assets from banks. When subprime debt qualifies for "AAA"
ratings, it is because some of the default risk has been transferred to
another tranche. The tranches to which the default risk is transferred
cannot be sold and are worthless to anyone, including the taxpayer. We
suspect that banksters planned from the beginning to sell this worthless toxic debt
to the government, and intentionally created a crisis to accomplish this.
At present,
corporate management nominates members of the board of directors for
shareholders to ratify. This makes the board subservient to management and
leads to management being paid like royalty while shareholders and the
public are abused.
Board members should be nominated by shareholders, with no management
involvement.
Project Censored analyzes the
interlocking corporate directorships that give corporations
control of U.S. news media.
118
people sit on the boards of directors of 288 American and International
corporations. There has been a coup in corporate America, and shareholders
have lost control of their businesses. A tiny group of non-owners has
covertly seized control of corporate America. They use their control of the
news media and a small portion of
shareholder money to fund and control who gets nominated and elected to
government office and what they do there. In this way, the group has
extended its influence to a coup of government as well. Taxpayer money then
gets funneled back to the corporations they control.
"They
frankly own the place." - Senator Richard Durbin
State and federal
supreme courts tainted by corporate money.
Questions raised about the composition and competence of
the New York Fed.
Supreme Court opens door to corporate funding of candidates
1,
2,
3,
4, 5.
This is how a small group of men exercise disproportionate influence in society: "a structured pattern based on concentration of control, interlocking directorates, financial services, joint ventures, professional reciprocal favors, commonality of interests...long term friendships, and, at its worst, greed and arrogance."- Moss, page 431.
"What seems to spook people now is the possibility
that everybody in charge of everything is a
fraud or a crook. Legitimacy has left the system."
- James Howard Kuntsler
"Behind every
great fortune lies a great crime."
- Balzac
"The domination of business by government is called Communism. The domination of government by business is called Fascism." - Robert F. Kennedy, Jr.
Update October 2008 - There once was a time when stock
options could only be purchased "over the counter". Now there are regulated
exchanges where stock options are bought and sold. Credit default swaps and
other derivatives can only be purchased "over the counter" at this time.
There are about $600 trillion of these unregulated derivatives on the
books of large banks, creating a huge "systemic risk" or risk of causing a
chain reaction of defaults when a major bank goes broke. It is the threat of
total economic collapse that banks have used to force government bailouts. It is time for new
exchanges to be created to remove the "systemic risk" and so that everyone
can trade these new products. If the systemic risk is not dealt with, there
will be periodic panics forever into the future whenever a large issuer of
over the counter derivatives gets into difficulty.
6. The value of the U.S. dollar
has declined dramatically relative to other major
currencies. A few years ago the US dollar could buy a Euro for 88 cents. Now
a Euro costs more than $1.50. When the dollar goes down, internationally traded commodities
(oil, copper, etc) go up in price. This means inflation of prices. It also
means that Americans are less wealthy relative to the rest of the world. By
global standards, Americans have taken a 50% cut in pay, plus all
American assets (including the US stock markets) have fallen in price by
half simply due to the loss of purchasing power of the dollar
compared to other currencies.
Update August 2008 - Due to the falling value of the US
dollar American manufacturers are more competitive globally. As a result
exports of US manufactured goods are increasing. On the other hand, with
rising oil prices and the incredible quantity of oil the US imports, the
trade deficit remains virtually unchanged. To improve the balance of
payments, it is necessary to reduce and eliminate American dependence on
foreign oil.
Update November 2009 - The U.S. government is financing
itself largely by printing money. Paper money is losing its perceived value.
People, corporations and governments all over the world are trying to
minimize their holdings of U.S. dollars. There is a danger that this growing
rejection of the dollar could accelerate. 7. The U.S. Federal Reserve Bank has worked to dampen the business cycle. All of life is cyclical, and the business cycle serves many useful purposes. For example, recessions cause
debts to get paid off, marginal businesses close freeing up resources for stronger businesses,
all businesses are forced to consolidate and become more efficient, the threat of unemployment causes people to save for a rainy day and become more self-sufficient, and so on. A mild business cycle is healthy for the economy.
"Stability breeds instability."
-
Hyman Minsky
Stability leads to excessive risk taking and too much
debt. Instability leads to more conservative investing and less debt. The
cycle is natural and self-correcting. By interfering with the business
cycle, the Federal Reserve Bank has allowed the
build-up of extreme imbalances.
“Time’s glory is to calm contending kings,
To unmask falsehood and bring truth to light.”
- William Shakespeare
Update August 2008 - Recently the Fed has been bailing out banks, investment
banks and brokers by means of its Term Auction Facility (TAF), Term
Securities Lending Facility (TSLF), and Primary Dealer Credit Facility (PDCF).
The Fed now holds more than $500 billion in low quality debt instruments
that the banks and brokers were unable to sell in the open market.
Update October 2008 - The global credit crunch is about
to enter a new and more dangerous phase. One of the factors that made the
depression in the 1930's so bad was the Smoot-Hawley bill of 1930 which
tried to protect American jobs by increasing tariffs on imports. Retaliatory
action by other nations against American exports resulted in a significant
reduction in global trade and increased unemployment everywhere. A
similar situation is being created today as the credit crunch spreads to
include the letters of credit that finance international trade. Letters of
credit require international banks to trust each other. When banks do not
accept a foreign letter of credit then the shipment is not shipped. This is
starting to happen now. Unshipped goods are beginning to pile up in ports.
If it gets worse, international trade will grind to a halt. The one growing
sector in the U.S. economy at this time is the export sector. Over 90% of the
world's trade goes by ship. The collapse of international trade is
clearly seen in the Baltic Dry Index which is an index of what it costs to
send non-liquid exports by ship. The Baltic Dry Index has fallen more than
90% since May 2008.
Update January 2009 - The Baltic Dry Index is now rising.
See chart.
Central banks
must guarantee LIBOR (interbank) lending worldwide until the credit crisis
has worked itself out and international banks can once again trust each
other's solvency. Without this, the world risks sliding into a global
depression similar to the 1930's.
|
Political Interference with the Fed?
"...without
home equity withdrawals the economy would have been so bad it would have
been almost impossible for Bush to have won a second term." - John
Mauldin
Bush Sr. blamed his second
term election loss on the recession of the early 1990's. One wonders
what pressure Bush Jr. put on Alan Greenspan to keep real interest rates too
low for too long?
Home equity withdrawals are
now negative as principal repayment exceeds new loans. Nearly 25% of American mortgages are "underwater". Americans and the world
are
paying a high price indeed for the second Bush Jr. term in office.
Chart courtesy of
James Kennedy
and Alan Greenspan.
Pay close attention to the red
bars in years 2001 to 2006 in the above graph. Growth in the economy
(without home equity withdrawals) would have averaged well below 1%.
This was a time when Americans saved virtually nothing. Now think about
what will happen during the years immediately ahead. Home equity
withdrawals are gone and are not likely to come back as real estate
values continue to fall. Plus, the savings rate is up to 6% or more as
people pay off their debts. Economic stagnation and high
unemployment may continue for a very long time. Growth will happen in
areas of the economy that do not depend on the U.S. consumer. |
“The wicked leader is he who the people despise. The good leader is he
who the people revere. The great leader is he
who the people say, ‘We did it ourselves.'” -
Lao-Tzu

8.
Keynesian economics calls for governments to stabilize the economy by
borrowing and spending during recessions in order to stimulate the economy,
and paying off the resulting debt during good times. However, U.S.
governments are now saddled with such a pile of debt that added borrowing
during bad times may soon not be possible.
Plus, there is another factor. Look at the chart to the right (courtesy
of Weiss Research). So much U.S. consumption is foreign goods that
economic stimulus paid for by U.S. taxpayers will probably do more to
stimulate the Chinese and oil exporting economies than the American economy.
However, there is no evidence that Keynesian economics
works. It did not end the depression in the 1930's and it has not helped
Japan since its real estate and stock market bubbles popped in 1990. At best, government spending during
times of high unemployment can reduce suffering. Watch this
7 minute video.
The real reason World War II ended the Great Depression is because rationing
during the war forced people to save, and after the war people
invested/spent their savings in a manner that created a productive economy. 9. The world petrochemical
supply and demand balance is becoming precarious. Starting 2008,
world petrochemical supply is expected to begin its terminal decline.
What
this means is zero or negative economic growth going forward. Every time the
economy attempts to grow and oil consumption increases, the price of oil
will rise to a level high enough to reduce demand (this is called "demand
destruction") to the level of dwindling
global supply. Petrochemical
prices will continue to rise, perhaps dramatically, as the world competes
for a declining supply
of petrochemicals. The 1970's oil price shock caused stagflation in the U.S. economy. The coming oil crisis will be much worse than the world experienced in the 1970's and will be permanent, unless the world learns how to live without petrochemicals.
In the coming years as the petrochemical supply begins to decline
more rapidly, people, companies and countries
around the world will start to hoard. When this happens, gas pumps may often be
empty. Criminals will hijack gasoline tanker trucks to sell the gasoline on
the black market. Nations will go to war for oil. (The chart to the right was produced by ExxonMobil in February 2004.)
“We should leave oil before oil leaves us. That
should be our motto.”
- International Energy Agency (IEA) chief economist Fatih Birol,
April 9, 2008
"The IEA performed a comprehensive study of 800 of the world’s largest oil
fields. And it concluded that depletion in conventional oil fields is
occurring at a rate in excess of 9% per year. (That’s an average. We see
depletion rates in excess of 15% in Mexico’s Cantarell field, for example.)
This means that absent large amounts of new drilling, new investment in
enhanced recovery and new discoveries, the current worldwide oil output will
decline by over 9% per year. And if it keeps going along this trend (there’s
no reason why it won’t), the base of world oil output could conceivably dry
up within seven-10 years."
- Byron King, November 12, 2008.
Summary
The total debt in the United States rose slowly from the Second World
War to about 1980. After 1980 the total debt rose at a rapid rate,
creating an illusion of prosperity. The total debt has now reached a
level where it is has become unbearable and the economy is entering a
debt collapse. Instead of
allowing a quick collapse, the United States government is borrowing and
spending trillions of dollars to stabilize the situation. However, there
is a limit to what the government can do. Banks will be weakened by
millions of home mortgages entering foreclosure during 2010 and 2011.
The overall trend is toward rising interest rates, shrinking tax
revenues, aging population, and declining global oil production. The
financial weakness of the federal and state governments may make it
impossible for them to pay for many of the promises and commitments they
have made. Financial strength comes from saving and investing, not from
borrowing and spending.
It took 30 years to create the
mountain of debt, and will probably take 30 years to pay it off. Rather than a "consumer economy"
Americans face a hard work economy for at least a generation. The torch of economic growth will pass to
those nations who are debt free. How can you protect yourself? Here are some suggestions: 1.
Your best investment is to pay off debt. One third of all homes in America have NO mortgage.
Debt is best avoided.
Interest rates go up and down in response to changes in the supply and demand for money. If lenders start to feel that the money they lend is not going to be repaid, then they will stop lending.
Plus, losses from the mortgage crisis reduce the ability of banks to
lend. (As a result, total lending in the United States is declining.) These will cause interest rates to spike upwards. Adjustable Rate Mortgages and renewals of conventional mortgages may carry interest charges that are unaffordable.
Many corporations are already experiencing
soaring interest costs and difficulty in gaining access to new debt.
(See
1, 2.)
To protect yourself from an interest rate spike, you need to become debt free as soon as possible. You may choose to ignore this suggestion, however there are plenty of wealthy people
around the world with lots of cash willing to purchase American assets for pennies on the dollar.
In fact, the current "debt trap" economic collapse may have been engineered with just
this thought in mind.
A "debt trap" is when you borrow to the limit of your
ability, and then something happens to reduce your ability to pay.
Lenders respond by increasing the interest rate on your debt which
further reduces your ability to pay. The result is generally
catastrophic. Individuals, companies and even countries can fall into a
debt trap.
If you are depending on credit cards to get by, you
should know that many people are about to lose their credit cards and
lines of credit as banks try to reduce their risk. As much as
$2
trillion of consumer credit may be chopped.
If necessary, you might consider credit counseling
and debt consolidation.
If you have savings to invest, remember that the main
principle to getting rich is compounding. You do not need to earn a lot.
Just a little each year, reinvested over time will bring great rewards.
Read
Rich Man, Poor Man by Richard Russell.
With interest rates so low, dividend paying stocks
offer a better return. The best dividend paying stocks are those that
have a track record of regular payments and regular payment increases as
the years go by. A list of the best dividend stocks that is updated
regularly is called
Mergent's
Dividend Achievers. There are 212 companies on the list at this time
(March 2010) with dividends ranging from 3% to 10% per year. You
compound your dividends by reinvesting them in more shares. Many
companies automate this process with an optional Dividend Reinvestment
Program (DRIP). DRIPS sometimes offer benefits such as no commissions on
the new shares, discounts from the market price, etc.
Diversify your portfolio with some shares in emerging
markets, Japan (the Japanese stock market is now at a
25 year low - March 2010), precious metals, energy and agriculture.
Large companies with global revenue offer protection from currency
fluctuations.
There are two ways to make money - work makes money,
and money makes money. When you can live on the income from your
savings, many new possibilities in life open up for you.
2. Move your personal and business bank
accounts to a bank with a rating of A or B. Avoid banks with ratings of
C, D, or E. To find the financial condition of your bank, go to
www.thestreet.com, click on
"PORTFOLIO & TOOLS", then "Banks & Thrifts ScreenWer".
Keep some cash in a safety deposit box or other safe place so that you
can survive in the event of a "bank holiday" (the government closes all
the banks for an indefinite period). You can access your safety deposit
box even during a "bank holiday". Open a bank account in another country and keep some of your savings
there.
3. Invest in yourself. Look after your health.
Without health, your life has no foundation. Improve your job skills.
Develop a skill you can barter. Encourage your community or a local
charity to start a barter currency such as "Calgary
Dollars" to make bartering easier. Learn how to live on
$36 per month for food. Look at the traditional diets of less developed
countries. They manage to live on a dollar a day. Economical food
combinations that will help keep you healthy include corn and beans
(Mexico), wheat and chick peas (falafel sandwich Middle East), and rice
and lentils (India). Fresh fruits and vegetables in season are healthy
to eat and are often much less expensive than canned/frozen foods.
4. How can you live if you are unemployed?
Reduce your living expenses as low as possible (downsize). Look for ways
to diversify your income or live on less income. If you have a choice
between retiring at this time and continuing to work for a few more
years, unless you have a lot of money saved up you might be wise to
continue working. Create a do-it-yourself economic recovery. Don't expect help from the government.
Here are some
self-employment suggestions
1,
2,
3.
Watch the DVD "Capitalism: A Love Story" by Michael
Moore. In particular, watch the 10 Special Features on this DVD, and
learn how worker co-ops can provide a beneficial alternative form of
workplace organization. ANY kind of business can be organized as a
worker co-op, and a worker co-op should be able to compete very
effectively in the marketplace. A worker co-op is owned by the
workers who work there. Every worker owns one share.
5. Live in a location that has public transit
so that you can get around without a car. (This assumes that cities can
afford to continue their mass transit systems. Apparently this is
in doubt, so a bicycle to peddle around town might be a good
backup.) Unless a solution is found for declining global oil supplies,
gasoline will be increasingly unaffordable in the years ahead.
6. If you buy a car, make sure the seats fold down
so that you can sleep in it. Municipal parking lots in Santa Barbara,
California become homeless shelters at night, with people allowed to sleep
in their cars. After having lost their employment, their homes are
foreclosed, and their car becomes a shelter of last resort.
Like it or not,
tent cities are springing up in urban centers across North America and
Japan.
Similar to the shanty towns of the 1930's, tent cities in city parks have
become the last resort of the homeless. Entire families with nowhere else to
turn are swelling the population of this new urban phenomenon. City leaders
should understand that tent cities may be the lowest cost way to deal with
this growing problem and take steps to make it humane. Toilets, showers,
laundry and a soup kitchen should be provided. Pay telephones, message
center and mail service will help make it possible for residents to look for
work and eventually lift themselves out.
If you have money, please make regular donations to your
local food bank.
(Note: Millions of American homes may be
foreclosure-proof. The reason for this is that the original mortgage
documents have been destroyed, and exist now only in electronic form in MERS
- Mortgage Electronic Registration System. However, courts have ruled that
electronic documents are not good enough, and the originals are required. So
if someone tries to foreclose on you, demand proof that they have the
right to do this. Read
more)
7. Everyone needs to eat. Plant a garden so at least you have food. If you do not have a yard, why not
make some window boxes,
create a container garden on your balcony, grow vegetables in hanging
baskets, plant something indoors, or grow
sprouts in your kitchen? Each square food of garden is precious. Divide your small garden into square feet and plant something different in each. Lettuce is a good plant to grow. It is highly nutritious and matures faster than most other vegetables. Practice vertical gardening so you can use your wall space.
Vines such as squash, zucchini, cucumber, melons, grapes, etc., will climb a
trellis or hedge. Use a
dehydrator to preserve food for the winter (eg. "sun-dried tomatoes".) Trees on your boulevard should produce nuts (chestnuts, walnuts,
heart nuts, hazel nuts, etc.) or other edibles. All vegetation around your home should serve multiple purposes (food, wind break, shade, fuel, mulch, compost, etc.). Learn to maximize the nutritional value of food that you purchase.
By means of rotary hydroponic
systems and vertical gardening, cities could grow
much of the fresh vegetables they need. Learn about urban agriculture
1,
2,
3. Would you
like to be an urban farmer?
Create a Potato Barrel
Any container will do - barrel, plastic bag, etc.
Add a few inches of dirt/compost and plant your potato eyes.
When the potato stems and
leaves are up a few inches, add some more dirt/compost. In this way,
bit by bit you fill the barrel with dirt/compost and the potato
stems get longer and longer. The end result is a barrel full of
potatoes. |
8. Store enough dried food in your
home to keep you going for several years. (Remember the story in the Bible
about seven good years followed by seven bad years? Well, the United States
has had more than 60 good years and the bad times may be just beginning.
Begin preparing now, "just in case".) It is amazing the feeling of security that comes from having a cupboard filled with dried foods,
and they are not expensive. Given the rate of inflation in food prices, a
cupboard full of food is a smart investment. Money spent on nutritionless
edible substances is money wasted. At least one writer is predicting a
global food crisis beginning 2010. 9. Super-insulate your home (R-40 walls, R-60 roof). A super-insulated home will not allow you to freeze to death in winter even with no supplemental heat. The best insulation may be
sprayed-in-place polyurethane foam.
10. Actively support and implement measures that will move the economy and your personal situation away from dependence on petrochemicals. Make your home and community self-sufficient for as many of its needs as possible.
Also, you might vote in support of candidates who are
willing to change the tax system. In addition to "progressive taxation"
where the rich pay proportionately more, we need a tax system that taxes "bads"
and does not tax "goods". For example, a carbon tax on coal, oil and natural
gas would help reduce global warming and encourage the development of
alternatives. The carbon tax could be made revenue
neutral by removing taxes on employment. Most new employment is created by
entrepreneurs, but it is too complicated and expensive to hire someone. The
red tape and costs involved with hiring an employee need to be reduced to
the absolute minimum.
Similarly, the present tax system encourages debt by
allowing interest payments to be tax deductable, while discouraging savings
by taxing interest earnings, dividends and capital gains. This situation needs to be
reversed. Interest paid on debt should not be tax deductable, and this
change can be made revenue neutral with offsetting changes to taxes on
proceeds from savings and investment. Ideally, earnings from savings and
investment should be tax free.
Thirdly, there should be a national sales tax. The effect
of this tax would be to discourage consumption. The sales tax can be made
revenue neutral by reducing income taxes. This revised tax system will help lay
the foundation for future prosperity.
If you do all these things, you can rise above the turmoil of the world
and live a life free from fear. Avoiding stress is important for the prevention
of disease and maintenance of health.
When a person gets sick what they need is rest, not
stimulants. The economy needs a rest, and has reached a point where
stimulants have less and less effect. The basic problem with the economy is
too much debt, and the ONLY way to fix this situation is to get rid of the
debt through repayments or defaults. Either way, the economy will get
smaller. With defaults it gets smaller quickly (as lenders lose the money),
with repayments it gets smaller more slowly (as payments of interest and
principal consume money that could otherwise be used productively). If the
slow road of repayment is chosen, it is possible for the economy to still
grow but the growth faces stiff headwinds. The growth will not take place in
declining industries. Out of the ashes of the old economy is springing a new
economy, the economy of the future. Only this can grow quickly. Government
"stimulus" must be focused on the areas of the economy that are growing if it is to have a lasting effect. Creativity is
the basis of economic success. Look at Japan, a small island nation with few
resources. Theirs has grown to be the second largest economy in the world.
The only resource they have, and ultimately the only resource that is needed
to make an economy prosper is people. It is the creativity and intelligence
of the people that makes an economy grow.
Scientific
research on the Transcendental Meditation (TM) technique clearly shows
that practice of TM increases creativity and intelligence. Social and
economic applications of TM and its related programs can uplift the mental
functioning of an entire population virtually overnight as evidenced by
lower unemployment and other measures.
We cannot afford to ignore a program like this that has good evidence of its
effectiveness and costs a fraction of what is being wasted on bailouts. Here
is a way to promote growth in the economy that does not depend on
monetary and fiscal policy.
The present economic collapse has already cost trillions of dollars in
stock market losses and real estate losses. The entire mess was not
inevitable and could have been prevented. Many observers have been
commenting for years on rising debt levels, bubbles in stock markets and
real estate, faulty ratings from rating agencies, and so on. In a sense,
the present situation is a reflection of our collective lack of
intelligence. It is said that those who do not learn from the past are
doomed to repeat it. Our inability to recognize the value of
technologies that could increase our individual and collective
intelligence is symptomatic of our lack of intelligence.
Scientific
evidence that individual and collective intelligence can be raised
first began appearing in the 1970's, yet we are still not applying
these technologies widely. So the collective dullness will continue and
more economic accidents can be expected in the future, continuing ad
nauseum.
Greatness requires a measure of self-sufficiency. The interdependence
fostered by trade is fine up to a point, but to stake one's life on it and
to give up self-sufficiency for the essentials of life makes one vulnerable
and is a sign of weakness. This principle applies to all levels of society
from individuals to nations.
The modern economy is neither capitalist nor socialist.
History shows that unfettered capitalism leads to all kinds of abuses, and
unfettered socialism leads to total corruption. To control the abuses of
capitalism while retaining the efficiencies and dynamism of a market economy
a certain amount of government regulation and participation is necessary. This is called a
"mixed economy". The challenge is to
find the right balance between the efficiency of the market and regulation
by government. Finding this balance is an ongoing organic evolutionary
process that requires constant oversight by the consciousness of the
population. Corruption breeds in the hidden corners of the economy and
government, out of
public awareness. In self defense, the public needs full disclosure of what
is going on and why. Work off your Debt The United States has an enormous number of prisoners. About 25% of the prisoners in the world are in the U.S.
Many of these prisoners are being given the opportunity to earn their keep through forced
labor. The time may soon come when personal and corporate bankruptcy may be a crime. If you borrow money and do not repay it, you may be given the opportunity to repay your debt by means of forced
labor in a prison camp.
Under the Thirteenth Amendment to the
U.S.
Constitution slavery is illegal except as punishment for a
crime. This return to forced (slave)
labor in the American economy
may be a direct consequence of the coming shortage of energy from oil. *** About half of Americans who declare bankruptcy do so as a result of heavy medical expenses.
The United States needs to learn
how to control health care costs
1,
2, 3. *** April 15, 2005. The Senate and House of Representatives have passed a revision of the Bankruptcy Bill imposing a means test that will force many people to file for bankruptcy protection under Chapter 13, which requires a repayment plan. |
 For more information about the US debt see http://mwhodges.home.att.net/
*** The American Society of Civil Engineers' (ASCE) 2001 report on the state of America's infrastructure: 33% of the nation's major roads are substandard, costing American drivers more than $5.8 billion each year and contribute to 13,800 highway fatalities annually. One third of the urban freeways are congested. 29% of bridges are structurally deficient or obsolete. Fixing them will require $10.6 billion annually over the next 20 years. airports are
over congested, resulting in 50,000 flight delays per month. 75% of schools are old and overcrowded to the extent that they are inadequate to meet educational needs. 54,000 drinking water systems are antiquated. Corroded and broken pipes leak about 2.5 trillion gallons of water annually. This wasted water is equal to the annual drinking water requirement of the entire human population on earth. 16,000 wastewater systems are antiquated, overtaxed and near collapse. These systems need an additional $12 billion annually. 2,100 dams are unsafe. An average of 61 dam failures have been reported annually in recent years. inland waterway systems and locks have exceeded their design lives, yet transportation on these systems is expected to double in the next few years. the nation's electrical capacity is growing too slowly compared with rising demand for electricity.
Since 2001, the wars in Iraq and
Afghanistan have cost nearly a trillion dollars. The cost of these wars doubles when
hidden costs are included. These hidden costs are interest on debt
incurred to pay for the wars, the cost of treating wounded veterans, and the
higher cost of oil.
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