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Topics too numerous to list   (August 1, 2007)

Note: Due to my workload and a few days of vacation in July, I was unable to update the Readers Journal until now. As a result, there is quite a backlog of wonderful commentary. To aid your selection of what to read first, I have entered a topic by the author's name. Please note these are my attempts to summarize the topic, not the author's. Due to the informal nature of the Journal, I cannot catch every typo, so please forgive my poor editing.

Harun I.
Financial Risks, Hedge Funds, parasitic subsidization of the wealthy's failed financial adventures

"Thanks to hedge funds, leverage and financial engineering have been pushed into every available asset class." "The psychology is so powerful, and dangerous, that many of the financial system’s most fundamental weaknesses are listed as strengths: it’s 'easier for the less creditworthy to borrow than ever before;' 'the biggest banks don’t hold much debt, having sold it on to others;' securitization has distributed debts 'far and wide, so no single holder has significant exposures;' derivatives insure 'the holders of debt against losses.' But the pervasive spread of risk doesn’t mitigate it, it simply intensifies it and snares everyone." Elliott Wave Financial Forecast, January 2007.)

In 1998 it was thought that LTCM would bring the world financial system down due to a liquidity crisis. But we have forgotten the lessons. LTCM thought it was well diversified against the risk to which it was exposed, and in a normal market they were essentially correct. What their models couldn’t handle was the fact that during a crisis uncorrelated issues become perfectly correlated, and so they watched all of their positions move against them during the Russian default as everyone panicked. The last sentence of the above quote is simply the lesson LTCM taught us, a lesson we will soon revisit.

The more I read and study, the more I am becoming convinced that hedge funds are effects and the causality lies with fractional reserve banking and a fiat monetary system. Debt must be expanded or the system implodes, but the growth in debt is not linear, it has to be exponential and therefore is inherently unstable. The efforts to maintain the appearance of stability are unequivocally criminal. There is but a small number of people focusing on this but when things go critical there may be greater focus by larger numbers (a central bankers worst nightmare).

For example, how is it that during the greatest bull market in our history the dollar has been in a 22 year bear market relative to Light Sweet Crude Oil? This is not a supply/demand issue because prices of crude stayed in a relatively narrow band during this time up until 1999 (see attached chart). The dollar has been losing its value but apparently few are interested as to the “why”.

We had better awaken because implicitly, the dollar will go to zero. Personally, I speculate there is a quiet panic going on at high levels of government. Panics arise when people are fearful and don’t know what to do. I would also speculate that the current administration has put the word out to not let things blow up on their watch, which means if the democrats win, they will get the blame.

One thing that bothers me terribly is that hedge funds are private placement, only the wealthy “sophisticated” investor can participate. This regulation is required by law. Our government feels that only the wealthy are smart enough to understand the risks involved in these funds and because of their wealth can sustain a substantial or complete loss of their invested capital. The general public cannot partake, but in a crisis it is the unsophisticated, not-so-wealthy taxpayer that provides the relief needed to save the ‘system’. This (bailouts) runs contradictory as to why the funds are regulated to wealthy investors.

This parasitic subsidization of the wealthy's failed financial adventures by the middle class and poor has not caused social unrest yet and perhaps never will but nevertheless it should cease because in reality it results in a forced transfer of wealth (stealing?) from the middle class and poor to the wealthy. The “Greenspan put” should be called the “taxpayer put”. If our financial system can be destroyed by a few large firms then we must question who is really in control of this systems, the government or banks and financiers?

Bill Murath
Peak Oil, Disposable Houses

Peak Oil....... I do believe that oil is a very finite resource and we will pay the piper some day soon for our reckless use of such a valuable resource. Global warming......I can't be bothered. That to me is just a cyclical event and the Earth shall work through it, though there is a lot of money to be made fucking the good people who want or need to care about the latest fad.

Relating Peak Oil to construction. My favorite period of building is 1900 to the late 20's. Absolutely great quality for the slightly well off. The elite have always enjoyed the finest in craftsmanship but that period brought the quality to more folks. The reason I have been thinking about this is because people in these old great houses rip out their old sash weight windows and stick in a retarded plastic window frame with insulated glass units. I used to hate doing it but now it makes wanna puke. I have begun to tell the homeowners I refuse to do this and if they really want vinyl windows someone else can do it. I have been on a mission acquiring the tools,( planer, jointer, shaper etc...,) to build replacement sashes for these old windows with insulated glass units instead of the old single pane. That way I can do a small part in maintaining the beauty and integrity of the dwellings.

In reasoning through this I have concluded that things will truly not be good in 20-50 years (not taking into account all the other things blowing up) with homes built after the 1950's. The 1950's saw a lot of brick ranches with finished basements. Simple and durable these should survive. You don't see many houses from 1930-1950 due to economic conditions. With proper maintainence the house from 1900 to 1929 should be great survivors. With their diagonal 1 x pine sheathing and subflooring, wood lathe instead of sheetrock these have what it takes to survive for a very long time if the owners realize what they have.

The problem I see is that at some point in time (20-50 years) all this crap that they are using as building materials these days will begin to degrade. What will be the outcome be when there is limited oil supplies? There will not be enough resources left to refurbish the homes in the suburban wasteland. Think of all the crap that will degrade.... MDF(cardboard) trim. Hollow core masonite doors, Cardboard siding, cardboard sheathing, particle board sheathing, asphalt roof shingles, Vinyl Windows. Vinyl anything, Shitttttty stamped hardware, Aluminum wiring...due to creeping. PVC Plumbing, Vinyl Flooring, All the stupid fake hardwood flooring....etc ad naseum.

Talk about the wool over the eyes of the masses thinking that a house built outside of that 40 year window (1900-1929 and 1950-60) is an appreciating asset. To qualify, I am assuming the houses are built by master tradesman. Add to the mix the crappyy building ethics and a very large percentage of the houses are doomed in an even shorter period of time. I am done with this one.

Don E.
Overbuilding, leadership

we travel a little and have noticed the same situation which you found in the central valley: large-scale construction that makes no sense on the face of it. once i had absolutely no idea what was going on; now that i know it is excess liquidity in search of yield by way of misallocation i sort of understand - but not really. how can a definition based in words do justice to the reality of fog?

i don't listen to politicians but today while stuck waiting in the car i heard bill clinton's speech from 7 july in aspen. i am not by any stretch a nationalist and think patriotism probably as great an evil as monotheism, but hearing bill talk about where the u.s. needs to go brought me very close to feeling proud of this country. what a relief to hear an intelligent policitican talk without rancor about what we can achieve if we have the leadership and will is a real shock. i tend to forget this is a great nation that has more possibilities ahead of it than global irrelevance as a strutting, dumbed-down bully. our present state of affairs really thrusts us into a bunker-mentality, xenophobes with handguns. the last question he fielded was on israeli-palestinian relations; he said with cooperation these two peoples could remake the middle east in a stunning way - i liked what she said to him after his comment: from you lips to god's ear. i don't really believe that capable leadership lies in our future; the rot runs so deeply thru every fiber of our political and economic systems, but gee, it was a nice thought for a minute.

Lloyd L.
Public Pension COLAs

You are very much on target regarding this "King Kong Gorilla" lurking in the shadows. What we have here is a routine and continuing fleecing of the public (via taxes to support the huge benefits noted) with the "legislative bodies" (read politicians) more than willing to continue the giveaway in exchange for labor peace and votes.

One thing not noted here is the escalator commonly built into both pension and retirement payouts. This, an outgrowth of the Social Security COLA adjustment, stands in comparison to the typical private employee pension benefit, which shrinks in value as years go by, dependent on inflation. Who legally provided public employees with a guaranteed retirment income stream?

Finally -- another comparison with the private sector -- who bestowed on public employees the status of this inviolable "retirement contract" that unions, bureaucrats and politicians like to cite as the reason benefits cannot EVER be adjusted, frozen, or otherwise modified. Perhaps we should all welcome a large municipal bankruptcy (I give you San Diego as a potential candidate) so the courts can decide once and for all whether such a "contract" exists.

Thousands of employees of corporations have lost potential benefits, capital accounts and promised health care benefits via acquisition, bankruptcy, or related. Ask one of those airline pilots looking forward to a $100,000 pension whether the maximum $45,000 he (may) receive from the (near bankrupt) Pension Guaranty Corporation is settlement enough for his lifetime of work and contributions to the company's plans.

I learned about the growth of public employee retirement benefits far too late in life to get into the game myself. As friends retired at ages 50-57 with near 6-figure annual payouts, I began kicking myself regularly.

Often I wonder why there is no palpable sense of outrage within the general public. The only thing I can come up with is that we have almost reached the perfect world of "a bureaucrat in every family". So why feel the need for reform?

Interesting item this week in the news about a poll in Norway showing how upset the general public is with taxation there. But the author carefully pointed out that many people queried admitted to receipt of numerous government transfer payments -- or salaries for family members employed by government agencies. Let's by all means have our strudel and eat it too.

Peter J. G.
Retail space, US and Europe

A reader commented that a better figure would be 3 to 1 when comparing US and UK. I would argue that even that is a misleading indicator of the "amount of stuff one can buy".

I argue that commercial rent is higher in Europe than in the USA, or alternatively land and building is more expensive in Europe. Historical reasons also dictate the sizes of shops (take the cramped old European cities for example).

Thus, for a European shop to be equally competitive as an American one might be, the floor size may necessarily be lower. Hence, smaller floor sizes are not due to lack of want or lack of willing customers.

Compare the two McDonalds I have visited in Luxembourg :- using eyeball to guess, both are perhaps around 100, maximum 150, square metres in size (1100 to 1600 square feet), and are packed to the brim at meal times. The ones I have visited on business travels across the USA are much larger and much emptier: Read "spacious" - and there's nothing wrong with spacious as compared with being packed in like sardines.

So... just thumbsucking, perhaps a ratio of 1.5 or 2 to 1 is more realistic as an indicator of what you are trying to discuss.

Matt S.
The Fourth Turning (note that Matt recommended the book to me)

I think you'll find that a lot of your readers will not react well to the theory - at least that has been my experience. I think a lot of people (ironically probably those that are the least adept at deep thinking :) have a hard time accepting that a relatively simple theory can account for a lot of societal/political actions. I think a lot of them can't stand the idea that they might not be as much 'in control' of their life as they think.

In any case, I'm glad that the book struck a chord with you.

I also took the opportunity to go back and read Peter's site and realized you have to wade thru a lot of verbiage to get to the point (didn't seem that way when I first read it).

Here is the key paragraph I think that hit me between the eyes with a sledgehammer :

"Following the consistent pattern of the Fourth Turning - "to understand the next Crisis, look to the prior Awakening attempts that failed" - one comes to the unavoidable conclusion that the impending crisis facing America involves a battle to decentralize the immense power of the Corporations."

Here is why that hit me so strongly:

Consider what types of actions we as a nation would need to do to SUCCESSFULLY transition to a world without cheap oil - buy less, use less, make do with old stuff, repair, replace, lower our expectations, reign in growth, spending etc.

Now consider what are the roots that nourish the growth of the corporations - buy more, use more, throw it away, buy the latest newest fashions, let growth happen without limits etc.

See a conflict here ?

In a world of declining oil, the values that allow a society (or an individual) to transition successfully are DIAMETRICALLY opposed to those that keep corporations ALIVE.

So either the Corporations LIVE or the People LIVE - I don't see a lot of middle ground here. And as it becomes (actually has already become) clear to the Corps that their very survival is at stake, they will do anything and everything to make sure that THEY make it - even at the cost of the survival of a great number of ordinary people.

If you think of a corporation as a living animal, fighting for it's very life, it becomes much easier to envision what horrific things they could become capable of in truly hard times.

Anyways, thanks again. Hope all this info helps.

P.S. If you want your head to really explode - after you've recovered from understanding the 4T book, check out Jeremy Rifkin's "Entropy" book. 4T is a theory for psych / social / politics - while Entropy is a theory of everything. The number one book on my all time list - while 4T is just number 2 :)

blissful ignorance, faith in a technical fix

You are spot on with the observation that most people live in blissful ignorance. Here in the UK we have not yet begun to see the housing bubble financial stress that the US has been seeing. The UK is typically 18 months to 2 years behind the US in this sort of thing so I think we are probably where the US was about mid 2005. That apparently was the high point of the bubble where everything looked great and the many cracks had not yet begun to show. For example, I rarely used to see any detrimental or deprecating articles in the UK main stream press about the affordability of UK housing. The idea that house prices might decline simply did not exist in print. Now I am starting to see more and more of them - nothing like the rate of the such articles in the current US press yet - but again it is very similar to 2005.

I have tried to talk about various issues like the housing bubble, incredible personal debt, peak oil and climate change - but it always just gets waved away. Its strange because the people I socialize with are usually intelligent, self-employed business people - and yet nobody wants to know.

If I do bring it up, a common comment I get is: "well we'll all be in the same boat - it'll be the same for everybody". I shake my head and think what nonsense that is. Only if your entire personal sense of self worth and security is benchmarked against your peer group can you think like that. Seriously, if you were a passenger on the Titanic would it be ok that everybody else was in the same trouble as you? No, in circumstances where the consequences are serious it really doesn't matter how bad your situation is relative to everyone else. Its not relative its absolute. Consider being Jewish in 1930's Germany. Did it matter that the authorities didn't have it in for you personally as opposed to the group as a whole? Of course not, and such a philosophy simply inhibits you (and by proxy the group) from taking any action.

Another common response is: "Oh well they will figure something out". The faith in a technical fix by some "they" is absolute. I suggest that there are a number of distinct and serious problems (ex: peak energy, climate change, peak food, population growth, foreign economic competition for resources etc) each of which would require a separate technical fix to maintain the current standard of living. No reaction usually other than a blank look. I sometimes suggest not fixing even one of these problems is very serious - sometimes "two out of three ain't bad" just doesn't cut it - and technology just doesn't work like that. Shoulders get shrugged all around.

Another, when discussing financials, is: "its an American problem - nothing to do with us". I think you covered pretty well in your Insanity and Complacency post exactly why problems in the US matter to everybody everywhere. There is no way US financial problems will not affect the rest of the world severely and to think otherwise is delusional. Even the non-industrialized countries will not escape. Already the rising price of oil is causing demand destruction in many poorer economies. That is why even though the amount of oil produced has actually declined, the price has not gone up as much as it probably should have done. Many countries are now priced out of the market hence restricting the demand.

Another theme is: "There is nothing we can do about it, Mr Doom and Gloom, so we might as well get on with our lives". I reply that if you cannot prevent the event it makes sense to try and minimize the damage. I buy a bit of gold (BullionVault) when I can, which I consider to be insurance not an investment. I am paying down my mortgage as fast as possible. I keep a supply of food to hand (essentially free insurance since it all gets eaten anyways). I am learning to garden vegetables (way harder than I thought), My back garden has virtually no non-edible plants. It looks like a regular garden and I am told it is quite attractive but everything in there has a purpose. Rhubarb, and climbing beans in particular are extremely beautiful border plants. It makes sense (and is fun) to learn basic carpentry skills and fix-it-yourself-craft. I have invested in some tools (not all power tools either) and am learning to use them. Also (possibly more importantly), I have collected over time a generous supply of screws, nails, wire etc all of which prove extremely useful for fixing things now and could be really important in future years if replacements are hard to come by. There is more, and I could go on, however, suffice it to say that it is not necessary to walk blindly to your fate.

As a closing thought, here's an excerpt from a Minyanville post which may interest you. Anybody see a trend here? Maybe a bit of insurance is no bad thing.
So today, in honor of the Federal Reserve Chairman's Humphrey Hawkins testimony, the Fed's release of the FOMC minutes, the rising cost of everything except those things included in core inflation, the $2 trillion worth of dollars put in circulation between 1776 and 1990, the $2 trillion more dollars that were added between 1991 and 2000, the $2 trillion more dollars added between 2001 and 2003, the $2 trillion more dollars added in 2004 and 2005 and the $2.8 trillion more dollars added from 2006 through the first half of this year, then yes, let us by all means embrace the Weimar Aesthetic!
Maybe you could do a posting on the theme of "cheap insurance".

Also can I suggest that you run the Haiku competition weekly. Make the theme for the Haikus the same as the theme of your weeks essays. Then you can post them in your readers essay column at the end of the week. It is not necessary to offer a prize. My theory is that people who write Haikus just do it for the fun of it - and to read what the others have submitted.

Kip S.
Peak Oil, Cheap Oil

I want to point out a subtlety in the entire "Peak Oil" discussion; one I know that you understand but one that is not appreciated by most (but probably by your readers -- they seem to be a perceptive lot).

That subtlety is this: The world is NOT "running out" of oil but the world IS starting to run out of CHEAP oil.

Google an image of Spindletop -- the great oil find in Texas at the beginning of the last century. The oil is a geyser -- it looks like Old Faithful. Sitting right under the ground in coastal Texas. Now Google an image of Chevron's discovery that you mentioned recently. You can't. It's a well over 28,000 feet deep at drilled under 7,000 feet of water. And it's about 200 miles off the coast in the Gulf of Mexico.

Are we continuing to find oil? Yes. Is there a great deal of untapped oil available? Yes. Is it easy and/or cheap to get? No.

Oil (and gasoline) today is AMAZINGLY cheap. How many people will pull into a gas station, fill their car and complain about the price of $3.00 per gallon, and simultaneously purchase a 16oz soda for $1.00. The soda is $9.00 a gallon; gasoline is $3.00. Is gas really THAT expensive? If the car that this person is driving gets 15 miles to a gallon, the cost of the gasoline is $.20 (twenty cents) per mile. How many oats would you have to feed a horse to go a mile? (Frankly, I have no idea, but I'd guess it's at least 20 cents worth of oats).

The real issue is that we have build our economy (and our society) around this limitless supply of CHEAP energy. Particularly cheap energy for transportation. And we are discovering, or will soon discover, much to our dismay, that the supply does indeed have a limit. Cheap energy may soon be over.

At that point, we will have some difficult decisions to make. There are energy substitutes for oil and natural gas for many activities (we can use coal or nuclear or solar or wind or geothermal, etc to generate electricity to heat homes, etc), but there is no ready substitute for oil as a source of energy for transportation. Our society -- and perhaps even our psyches -- are build around cheap mobility. Changing the way we structure our world (and most of us will have to, whether we like it or not), will be painful.

There are numerous actions that we can individually and collectively take to mitigate the pain of the end of cheap oil. However, given our collective sense of entitlement and our desire of something for nothing, I suspect that we will do nothing to mitigate the problem until the market mitigates it for us. Put simply, we will do nothing until the nominal price of oil has doubled or tripled again.

I think that we have a simple choice: we know that the time is coming when cheap mobility will be over. What are we going to do about it -- act as responsible adults and make responsible choices, or act as narcissisic children and demand something for nothing? I think you know where I'd place my bet.

Paul M.
The Key to Good Health That No One Is Talking About

This recent article downplays the role of "choice" in the health care debate, unless one accepts the proposition that people "choose" to be poor. I suppose many Republicans actually start reasoning from that premise, however. The President's recent remark that health care is accessible to the uninsured, because of (a perceived) access to the "emergency room" is illustrative.

The Key to Good Health That No One Is Talking About

I saw Michael Moore's "Sicko" when it opened in Reno. I hope you get to see it, and comment on it. I was interested in the film's take on Kaiser (portrayed as the inventor of 'managed care', and sold to Nixon as a way of channelling money to insurance companies, which remains an integral part of out "system" today) and that Hilary Clinton is the largest Democrat recipient of health care campaign contributions.

Michael Goodfellow
Income Inequality

From Wall Street and Main Street: What Contributes to the Rise in the Highest Incomes?

We consider how much of the top end of the income distribution can be attributed to four sectors -- top executives of non-financial firms (Main Street); financial service sector employees from investment banks, hedge funds, private equity funds, and mutual funds (Wall Street); corporate lawyers; and professional athletes and celebrities. Non-financial public company CEOs and top executives do not represent more than 6.5% of any of the top AGI brackets (the top 0.1%, 0.01%, 0.001%, and 0.0001%). Individuals in the Wall Street category comprise at least as high a percentage of the top AGI brackets as non-financial executives of public companies.

While the representation of top executives in the top AGI brackets has increased from 1994 to 2004, the representation of Wall Street has likely increased even more. While the groups we study represent a substantial portion of the top income groups, they miss a large number of high-earning individuals. We conclude by considering how our results inform different explanations for the increased skewness at the top end of the distribution. We argue the evidence is most consistent with theories of superstars, skill biased technological change, greater scale and their interaction.

...the top 25 hedge fund managers combined appear to have earned more than all 500 S&P 500 CEOs combined (both realized and estimated).

...we do not find that the top brackets are dominated by CEOs and top executives who arguably have the greatest influence over their own pay. In fact, on an ex ante basis, we find that the representation of CEOs and top executives in the top brackets has remained constant since 1994. Our evidence, therefore, suggests that poor corporate governance or managerial power over shareholders cannot be more than a small part of the picture of increasing income inequality, even at the very upper end of the distribution.

We also discuss the claim that CEOs and top executives are not paid for performance relative to other groups. Contrary to this claim, we find that realized CEO pay is highly related to firm industry-adjusted stock performance. Our evidence also is hard to reconcile with the arguments in Piketty and Saez (2006a) and Levy and Temin (2007) that the increase in pay at the top is driven by the recent removal of social norms regarding pay inequality.

Levy and Temin (2007) emphasize the importance of Federal government policies towards unions, income taxation and the minimum wage. While top executive pay has increased, so has the pay of other groups, particularly Wall Street groups, who are and have been less subject to disclosure and social norms over a long period of time. In addition, the compensation arrangements at hedge funds, VC funds, and PE funds have not changed much, if at all, in the last twenty-five or thirty years (see Sahlman (1990) and Metrick and Yasuda (2007)). Furthermore, it is not clear how greater unionization would have suppressed the pay of those on Wall Street. In other words, there is no evidence of a change in social norms on Wall Street. What has changed is the amount of money managed and the concomitant amount of pay.

Fred Roper
Parallels between 1929 and 2007

I saw this on the Housing Bubble Blog:

Comment by rocketrob
2007-07-26 05:48:22

I just finished reading “Only Yesterday: An Informal History of the 1920’s” by Fredrick Lewis Allen, University of Virginia. I was amassed by the numerous parallels happening in today’s economic environment to that time.

Real estate bubbled everywhere in the US, most notably in Florida, and topped around January 1926 across the US. Although the economy looked questionable, the stock market went parabolic around April 1927 (1 yr 3 months from the RE top) and ended October 1929 (3 yrs, 9 months from the RE top).

If we transpose these dates to today, it gets real interesting. The real estate top was about May 2005. The stock market started its latest run in July 2006 (1 yr 2 months from the RE top!). If we extrapolate, the projected top of the stock market run should be about 3 yrs 9 months from May 2005, or January-February 2009. Interestingly that’s about the time a new president will be inaugurated.

I can’t imagine stocks going up for another 1 ½ years, but I’m going to trade it that way and I’m a perma- Bear. The parallels are just too similar.

Other items of note from the book: Scandals about young skinny debutants were big topics in the news (Paris, Lindsay, & Britney?), sports figures were king, and notorious murder trials filled the newspapers of the times. Commercial RE continued until the stock market crash (Empire State building finished 1931). Plus, everyone margined everything to the hilt, it was the “get rich quick” era.
Maybe we still have time left before the top?

Michael Goodfellow
History of Transportation, The Pursuit of Glory (book)

That is from new and excellent The Pursuit of Glory: Europe 1648-1815 by historian Tim Blanning. The best parts of this book -- which are very good indeed -- are the early sections on the economic history of transportation.

Four or six draught animals were needed to pull a coach and they had to be changed every 6 to 12 miles, depending on the condition of the roads. In England it was calculated that one horse was needed for every mile of a journey on a well-maintained turnpike road. So, for the 185 miles from Manchester to London, 185 horses had to be kept stabled and fed to deal with the seventeen changes required by the stagecoaches which traveled the route. Those horses in turn required an army of coachmen, postillions, guards, grooms, ostlers and stable-boys to keep them running. As a coach could carry no more than ten passengers, fares were correspondingly high and out of reach of the mass of the population. A journey from Augsburg to Innsbruck by stagecoach, although little more than 60 miles as the crow flies, would have cost an unskilled laborer more than a month's wages just for the fare.

The 70s Redux: oil shortages, rising crime and more

Its funny because we are back again in the mid to later 70's....Oil shortages, war, etc...and because oil drives inflation we are going to have Mega bank rates very soon. I mean we are almost 6%, which is not that high but all the dummies whom borrowed money and are up to their eyes in debt its very bad news. However Bad news is not bad for everyone!

Those of us who saw it coming and have learnt from history are ready....Money/Gold/Silver... a few "evergreen" shares as well.

When the bubble burst and we are going to see mass unemployment again.... which will be fun. As someone whom left school at 16 straight into the mass unemployment of 1980 i can tell that time will come again. Can't see me going on the riots (Toxteth/Liverpool) again (boy that was fun!)

Those fools who drove the price of houses though the roof will get thrown out of their homes, the pricks who did "Buy to let" (BTL) will face the same thing.

Are yes BTL, in the old days houses or flats were bought and let by people whom had a bit of cash to spare. The Homes were old ish and needed repair...not so good area's and they were cheap to buy. Now then BTL comes along, and everyone jumps on ship. People get a BTL Moragate, for 100% of the value of said house. Great prices rocket and these picks buy more & more (greed is good). They fail to see that you buy at the bottom of a cycle not almost at top!...Most of these homes are being rented to:-

Hard working people who are only here while the cheap credit boom makes work for them (once it gone so are they).

People who are here because we are soft enough to let them come in and rip us off!

"Dole-s" These are people who are on welfare, like their dad's and grandfathers!

My Mother & Father live in a lovely place that nothing much happens, then the Drug Lords moved in, together with a small number of crimo's. My mum was some what shocked when these thugs smashed down the garage door next door to steal a motor bike, which had a GPS tracking device on it. They were even more shocked to find said assholes where living only a mile away....in a rented house paid for by ME (and other taxpayers) from a BTL goon!

I confronted him and he said he was sorry but he had to let the house to someone, come the recession him & all the other will have those homes removed via the banks and sold off cheap (normal price) to normal "regular" people....Bank staff/Police/Fire/Medical/civil servants... honest 9-5 types who don't do much ram raiding!

As Bush said, "Bring it on".

Zeus Y.
Black Swan, what we already know but are desperately trying to escape

On the notion of a Black Swan event, doesn’t it seem as if micro events are almost coordinating with these bigger “meta” flows. Perhaps there is a straw that people blame for breaking the camel’s back, but isn’t the “straw” really the culmination of systematic fraud and delusion, destined to tumble at some point? And I’m talking fraud and delusion metaphysically here, not just practically. Sure, we will “wake up” some day to find that, yes, our pensions are gone, our medicare is underfunded by about 10-30 trillion dollars, our stocks are worth a fraction of what they once were, and our homes have lost half their ostensible financial value. But that is really already the case in any sane evaluation!

The only thing preventing these conditions from entering the purview of recognized reality is the hubris of believing that some clever trick can always be devised to escape accountability and continue the “euphorestria-c” binge. (You might be giving “truthiness” a run for its money with that great term.) Now look at the micro level. You see people experiencing a non-specific dread of reality approaching, as you reported (people “battening down the hatches” and moving to the Midwest, etc.), and its influencing their behavior, even if it has not entered their conscious mind. They know it. The noose tightens around the Bush administration and the maneuvers get increasingly more outrageous. Countrywide CEO Angelo Mozilo, cashes out a few hundred million of his stocks. Sounds like a play winding is way toward a dramatic climax.

C’mon. We don’t need a “black swan” event to “cause” a spiral into a kind of madness (or wake up from madness). We only need the black swan to come as the canary to confirm what we already know but are desperately trying to escape. And yet, we also know that nothing is more crucial to our survival than waking up. We know the environment cannot sustain a way of living driven by possession and neurotic use of material goods. We know our own spiritual and emotional lives cannot and do not want to any longer sustain this burden and threat to our existence. And yet we dawdle, hoping it will be handed to us by a parent-God or a benevolent dictator.

No, this might have to be the age of true popular democracy. We have to be the leaders we want, and that starts with truth-telling, aided by analysis, which tells us both that we have deluded ourselves with our obsessions over things and that we have long ignored an incredible opportunity to activate our nature as creative beings, connecting souls. We have wasted our humanity in screwing over others to gain our own ransom, our own war chest against the vagaries and opportunities of life. In so doing, we have prevented ourselves from having a life. It is time we pursued this new life, no matter how uncertainly. I detect more than a note of relief along with the acute observation of your readers (never triumphalism), that though the way forward may be at times traumatic and jarring, it is vastly healthier and preferable to a life of pampered and paranoid avoidance.

Albert T.
Struggle between capital / labor, inflationary pressure

The Slip Between the Cup and the Lip

This link is also very interesting the author there discusses the struggle between capital / labor over whom gets to eat the inflationary pressure which is interesting. Ergo there is an implicit assumption that we are on the verge of rising inflation (hence devaluation of the currency). The psychological play of assumption is interesting however in my view the Fed is forgeting that people gauge their inflation based on environment and food with energy do come into everday play.

Ergo if people see food going up by 10% and energy by 10% while the TV is saying 2% the TV is ignored and looses credibility for blatantly lying. Therefor I am going to assume the Fed knows this and is lying about our inflation for the sake of outwitting foreign investors and prop up our currency. The 2% isn't believable to us but to someone buying a bond it may seem fine in the context of a "low" inflation europe and japan.

The Crude Awakening

I am a new reader to your website and I enjoy it very much.

You might know of a new documentary about peak oil titled The Crude Awakening.

The person who made it was interviewed on Financial Sense Online last Saturday. I believe you can still hear the interview. Basil Gelpke, Director & Producer.A Crude Awakening: The Oil Crash

On another topic, there is a fantastic video on Bull not Bull about creating money and debt. It is 40 minutes long but every second is enjoyable.

I believe you will enjoy both these films.

Riley T.
Soylent Green

The movie Soylent Green came out in 1973, the setting was 2022, every one should see this movie.

Theology and self-serving government

(on soapbox) Especially as I watch current events, this is a subject that can get me wound up. NO, it's not all President Bush's fault! Really, stop and think about it for a minute, What were the options? Me, of course I'd do things differently. That's why I will never be an elected official. In about two minutes, I'd have everybody in the country howling from stepping on toes. Iran just might be a sheet of glass. Ask my wife, I don't understand compromise.

The thing that strikes me about FDR is that he was able to maintain the illusion that he was the saviour of the suffering working man. It played out really well for him, politically. My grandmother was a lifelong democrat, who lived through the depression without personal suffering, yet saw enough pain to etch the times into her memory. And this, I believe was the reason that FDR was able to imprison the middle class with their cooperation. They saw FDR as a saviour rather than as an 'angel of light' ( the devil ). People had the idea, encouraged by FDR, that government was altruistic. Nothing was ever further from the truth.

For me, it was reading Robert Ringers books that I began to see that big government is always self-serving. Sorry if I offend any secular sensibilities that you may hold, but really the crux of the matter always touches the realm of theology. Government has always tried, but never succeeded in replacing Providence. Look at history. FDR was a skilled politician, but poor theologian. Guess what? The universe ( and human nature ) still work the way that they are, not the way we want it to be. By 'theology' I mean orthodox Christian theology, that states the universal need of mankind is for salvation of the eternal soul and the rejection of our selfish/sinful predisposition. As one catechism puts it, 'To glorify God and enjoy him forever'.

So the problem becomes a universal rejection of the idea that we have any need to recognize our Creator, because we are fooled into thinking that we need what the 'gooberment' can give us, not that our deepest desires can only be satisfied by Providential Grace. These notions are at extreme odds. In a Christian view, there is only one Soveriegn, and it is NOT the state. It should be obvious that this circumstance has not changed much in all recorded history - just reread the gospels. Taking a more secular stance, just reread U.S. history. Kings wanted sovereignty too. Isn't that why our predecessors worked out a constitutional form of government?

We do not see ourselves as being totally blind to the truth. If the definition of insanity is doing the same thing, expecting a different outcome, in the sense that the solution to government created situations are best solved by more government involvment, rather than by individual freedom and initiative, freedom to humbly surrender to and serve our Creator, Where is the sanity in modern politics, with a secular ( without religion / amoral ) requirement ? That is not our political heritage. (off soapbox)

Thank you, readers, for such thoughtful contributions.

For more on this subject and a wide array of other topics, please visit my weblog.


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