1. Attention: We have put together a thread with tips and a tutorial video to help with using the new software. Please take a moment to check out the thread here: Trapshooters.com Tutorial & Help Video.
    Dismiss Notice

The Party's over

Discussion in 'Uncategorized Threads' started by halfmile, Oct 10, 2008.

Thread Status:
Not open for further replies.
  1. halfmile

    halfmile Well-Known Member

    Joined:
    Jan 29, 1998
    Messages:
    15,639
    Location:
    Green Bay Wisconsin
    Written by Peter Schiff of Europacific, You can see him on fox evry once in a while, also the other networks. For this and other financial writings, go to the link provided above.


    October 10, 2008

    The Party is Over


    More than just a mere liquidity or credit crisis, the current financial storm represents the death throes of the old global economic order, and perhaps the birth pains of a new one. The sun is setting on the borrow and spend culture that has all but defined us for a generation. Our long ride on the global gravy train is finally coming to an end, and once it does nothing will be the same. The sooner we come to grips with this the better.

    Despite the myriad of proposals that are coming from Washington and other world capitals, we must understand that this crisis cannot be cured by governments. In the United States, credit is gone because savings are gone. Our shallow pool of savings has been depleted through bad loans, and we can no longer entice foreigners into lending us their available savings. Given that we are already too loaded up on existing debt they we cannot realistically repay, who can blame them for not wanting to lend us more?

    As a result, the free market is trying to put an end to our spending spree. Without savings or home equity to fall back on, Americans struggling with rising prices are finally being forced to curtail their spending. This has terrified our leaders and is causing them to dismantle the remaining structure of our free enterprise-based economic system.

    The intention of all these daily federal interventions is to keep the credit spigots open so Americans can go even deeper into debt to buy more stuff they can’t actually afford. This should be clear enough to anyone who listens to what our leaders are actually saying. When speaking about the need for an even larger fiscal stimulus package, Barney Frank, chairman of the House Financial Services Committee, said, “We have to prop up consumption.” He has it backwards. The government has been propping up consumption for far too long, and the best thing they can do now is remove the props so spending can be replaced by savings.

    The sad reality is that we borrowed and spent our way into this crisis, and we are not going to borrow and spend our way out of it. Legitimate credit can only be supplied if there are genuine savings to finance it. Savings can’t be magically concocted into existence by a printing press, but can only be created by consumers who spend less than they earn. Efforts to fool the market will not work and will ultimately lead to a monetary disaster and runaway inflation.

    Were the government to allow market forces to work, Americans would now have to pay cash for their consumption. That would mean no instant credit for new cars, plasma TVs, appliances, consumer electronics, clothing, furniture, etc. Unless buyers actually had the cash in their checking accounts these purchases would have to be deferred. From an economic perspective this is precisely what the doctor ordered. But for an economy based 72 percent on consumer spending, the medicine will go down hard.

    Ultimately, a serious reduction in consumer and mortgage credit, combined with an increase in personal savings, would again provide a pool of needed capital for businesses to produce products and provide employment opportunities. However, the danger is that this potential credit could be completely crowded out by massive borrowing by the Federal Government. In addition, prices for such things as houses and college tuition will fall sharply, as the credit artificially propping them up disappears. People would still be able to buy houses and send their kids to college only they would pay much lower prices when they do.

    However, if the government keeps creating inflation to artificially sustain consumer borrowing and spending, there will be no savings left to fund anything and prices will be so high that despite massive consumer spending there will be few goods that Americans could actually afford to buy.

    HM
     
  2. shannon391

    shannon391 Active Member

    Joined:
    Jan 29, 1998
    Messages:
    4,477
    Extremely well written and informative, thank you for your post HM.

    I am curious to hear other points of view as to how ugly things could realisticly become???
     
  3. pendennis

    pendennis Well-Known Member

    Joined:
    Jul 26, 2007
    Messages:
    1,567
    Location:
    Southeast Michigan - O/S Detroit
    The stock markets will continue to decline, so long as investors are inclined to sell. It won't go up until investor confidence returns. During the stock market collapse in 1929, several mulit-millionaires attempted to shore up the stock market by making huge buys after "Black Monday". Their capital was chewed up and lost in a matter of hours.

    Part of this selling "panic" is being egged on by continuing bad news reporting in this era of instant communications. There is literally no time when stocks, and financial instruments are not actively traded. In years past, the markets had some recovery time in the off-hours to allow saner heads to make wise decisions. Today, this isn't possible. Coupled with off-hours quotes and futures trading, and the fact that trades are counted down to the penny, keeps anyone from taking a deep breath, and forces over-analysis of trading positions. When the stock market was in 1/8's, it was bad enough. But, when changes were made, it was in the wrong direction. Trades should have been made in whole-dollar valuations. Now, increasing scarce assets are being used to value pennies, and billions of shares.

    The worst mistake made, is the governmental intrusion into the market. As an example, when CitiBank and Wells Fargo got into a bidding war over the assets of Wachovia, the Federal Government interceded in the process, and needlessly delayed Wells Fargo's ultimate take over. The Government further exacerbated problems by allowing the FDIC to broker the original deal, giving favorable reviews to Citibank's offer. While Wahovia's shareholders have the last word, the FDIC should have kept out.

    What the Federal Trade Commission, Justice and Treasury Departments should be watching is the apparent over-size of modern banks. It's literally impossible for any CEO, CFO, or COO to adequately perform his/her due diligence functions with organizations so large and unwieldy. "Large" brings an entire set of problems which can't be solved by mere organization skills and modern data systems. I'm not so concerned about the implications of so-called monopolistic actions, as much as the concerns over management control. "Lean" corporations are only effective if their portfolios are small enough to effectively manage.

    There is another set of problems, with the "mark-to-market valuations of monetary investments like home mortgages. With no long-term history to observe performance, banks have had to resort to algorithms and extrapolations to value these assets. It's resulted in what may be an artificially-low valuation of properties, which has resulted in the tightening of liquidity for banks.

    Dennis
     
  4. bluedevil

    bluedevil Active Member

    Joined:
    Mar 8, 2008
    Messages:
    643
    Location:
    Colorado
    Good post HM, correct in every detail. Have said to my kids and grandkids for a long time, "you can't live on credit forever". I owe nothing I can't write a check for, house paid for etc. 401 is taking a beating but still positive from original investment. We can't blame Bush for this one folks, this has been building for years and we are all to blame. Like the man said, government can't solve this, we have to.
     
  5. Brian in Oregon

    Brian in Oregon Well-Known Member

    Joined:
    Jan 29, 1998
    Messages:
    25,238
    Location:
    Deplorable Bitter Clinger in Liberal La La Land
    Oh give me a break. Blame the consumers, lenders and capitalism, but not one word about the trillions and trillions spent on government social programs over the last seven and a half decades that have created a debt load so great that our great great great grandchildren will still be paying for the debt load of the baby boomers alone. This ponzi scheme was due to crash sooner or later, and it's crashing now. The mortgage crisis would not be so bad if the banks still have money to lend. But the government has been sucking that up for their own debt load.
     
  6. halfmile

    halfmile Well-Known Member

    Joined:
    Jan 29, 1998
    Messages:
    15,639
    Location:
    Green Bay Wisconsin
    The government has used up its credit card too. And fallen into the same trap.

    Using Debt to consume just doesn't work. I got a check for 1200 this summer, and I know it wasn't real money. It was debt, and it was transferred right back to me.

    Instruments of debt have their place, as in for big ticket items you just can't drum up a large amount of cash for.

    House, car, even appliances for the young just starting out. Lots of debt out there for stuff that has already been consumed. Clothing, Nintendo games big screen HDTV, even groceries.

    Once the goods are gone, the debtor has a little resentment about paying back. There is now a lot of resentment, due to recent developments.

    Coming soon to a bank near you:

    "The credit card meltdown"

    Enjoy the show, folks.

    HM
     
  7. bluedevil

    bluedevil Active Member

    Joined:
    Mar 8, 2008
    Messages:
    643
    Location:
    Colorado
    Give me a break, we all share the blame on this one. Blame the government sure but how about the guy who makes $15 an hour but has a motor home, boat, K-80, flat screen etc. etc and is in debt up to his eyeballs. I see it every day at the trap club and the golf club. I spent 30 years going into homes for a utility company, have seen it all.Have had to break up fights between wife and husband so I could get out of the house cause Joe six pack spent all the money and the wife couldn't pay the electric bill, kids were hungry but he had his fancy pickup. Every day we saw crap like this, fancy toys but can't pay the basics. Guess who suffers? the kids! and as a nation guess who will suffer? the kids and grandkids. HM is right, wait till the credit card meltdown hits.The government is corrupt sure but we ain't that clean either.
     
  8. Jerbear

    Jerbear TS Member

    Joined:
    Jan 29, 1998
    Messages:
    3,588
    Around here, for years and years, there has been people that lived high on the hog because of overtime. Large homes,40 foot cabin cruisers, class A motor homes, jet skies, etc... When the crunch came and the car companies slowed production, poof... no overtime. Goodbye large home, 40 foot cabin cruiser, well... you get the picture. I have neighbors that lived this way, except for the large house, but never put any money away for a rainy day. Nor they have been scrambling to make ends meet. Their only saving grace is, they have their home paid for, the toys are what's eating them alive. With the conditions around here, they can't sell any of their toys for what they owe on them. I am lucky, my wife runs this household like a business and all receipts are accounted for. We have never paid a finance charge on a credit card,(that pisses off the card companies) and am lucky to have a few bucks in the bank. I have been asked by people, why I don't buy a k-80 or other high quality firearm, I don't think it's a necessity to shoot. My Beretta 391 Trap does just fine and was alot less expensive. Flame away, but I don't shoot that much anymore and have never seen the need to impress anyone but myself.

    Jerbear
     
  9. shot410ga

    shot410ga Well-Known Member

    Joined:
    Jan 29, 1998
    Messages:
    7,755
    The world markets run on the American consumer. Without us the system dries up. As it is now doing.
     
  10. bluedevil

    bluedevil Active Member

    Joined:
    Mar 8, 2008
    Messages:
    643
    Location:
    Colorado
    Jerbear, you did good, I've lived that way all my life(thanks Dad) and it is paying off now. I can sleep at night, no bills and I have always saved. Shot410ga is correct, we will all pay the price eventually.
     
  11. halfmile

    halfmile Well-Known Member

    Joined:
    Jan 29, 1998
    Messages:
    15,639
    Location:
    Green Bay Wisconsin
    My Dad was born in 1904, so he was in his early 30's when the depression hit. He adapted, as did everyone.

    I spent a lot of time in the garage when I was a kid straightening nails on the vise. He had the Depression Mentality in a strong way. He made his tomato cages out of sticks he sawed on his table saw from scrap lumber. he laughed at me when I bought wire cages for 75 cents each.

    And he hated debt. With a passion. He built a house, and had it paid off within 5 years. Granted it was a modest house, but it was paid for.

    I think a lot of us will be making tomato cages. Some will not have any tomatoes to eat.

    HM
     
Thread Status:
Not open for further replies.