[deMolay]

This report cites another elephant in the room. The US MSM says don't worry be happy. http://www.guardian.co.uk/business/2010 ... -us-cities

[Cloud9]

This is a real problem for all of us. As real values in property go down, the counties and states have to seek ever more draconian ways of raising taxes. We have two speed traps set up in the county for the sole and express purpose of generating revenue.

The newest ploy, annexation that way we can pay for duplicate services in fire, police and garbage pick up and our property taxes go up an addition $50 a month. Given the chance government will beggared all of us.

[Tyler_JC]

We'll do what indebted societies have always done. Inflate away the debts, pay everyone back in paper and screw over the risk averse savers.

That's how we got out of the Depression.

[Cloud9]

Two compelling factors got us out of the great depression. First government subsidized a huge expansion of our industrial base which resulted in almost universal employment. Second, rationing combined with almost universal employment built up savings and a huge pent up consumer demand. When the war ended, there was a minor recession followed by the boom years.

Printing paper currencies does not end recessions it collapses economies.

[Tyler_JC]

Two compelling factors got us out of the great depression. First government subsidized a huge expansion of our industrial base which resulted in almost universal employment. Second, rationing combined with almost universal employment built up savings and a huge pent up consumer demand. When the war ended, there was a minor recession followed by the boom years.

Printing paper currencies does not end recessions it collapses economies.

We didn't escape that debt overhang by growing our way out of it and we certainly didn't pay it back by running budget surpluses for decades on end. We defaulted on the debt through inflation.

The new currency didn't create any new wealth. But it did allow debtors to pay off their obligations without having to liquidate everything. The war certainly provided a boost to the industrial base and employment but without massive post war inflation, we never would have been able to pay off the huge debts accumulated during the war.

In 1940, the consumer price index was 14. By 1950, it had risen to 25. In other words prices rose by an extraordinary 78% during the 1940s. That's a faster rise than during the 1980s (67%). For the sake of comparison, CPI only increased 68% in the past twenty years.

All those people holding on to War Bonds got wiped out. That's how we paid for the war. We forced Americans to save their wages to buy war bonds. Then we defaulted on the bonds through inflation. But no one complained because defeating the Nazis was worth every penny.

That is exactly what is going to happen with America's current debts. That's what "quantitative easing" means. We print money, devalue the currency and attempt to escape from our current liabilities without causing a catastrophic loss of confidence in the Dollar. It's a rather delicate balancing act.

[Fiddlerdave]

I don't disagree with you Cloud, I think WPA helped. But I don't believe that explains everything. The war also helped end the Depression. It put people back to work. So did suburbia in the long term. Let me explain.

I think folks tend to focus on the immediate financial causes of financial collapse instead of seeing the background, the long term trends. The stock market collapse that preceded the Depression was a trigger and so was the mania that preceded the crash.


IMO the cause of the Depression was rapid industrialization of agriculture, communications, and the maturation of the banking system. This caused unemployment and concentration of wealth (the Roaring Twenties). Heavy machinery developed during WWI (treaded tanks, bulldozers, heavy trucks) put farm labor out of work and led to the farm collapse. I think the dust bowl might have been a consequence of the same mechanization, a correlation and not a cause.

The same heavy equipment got us out of the Depression by allowing the modern logging and construction industry. The Great Depression was solved by the suburban housing boom (encourage by government subsidies for low-cost housing lones) and the resulting consumer economy.

A nice summary.

Now, what will bring back jobs for the unemployed now? In our current Conservative resurgence, nothing that will really happen seems likely.

[Cloud9]

The boom that occurred at the end of WWII was in no small part contributed to by the fact that much of the world’s industry was a smoking ruin. American factories were at the top of their game. The Marshal Plan while stabilizing Europe contributed to our own decline. For the past forty years the world has relied on Pax Americana to protect them. As we weaken, we will be compelled to pull in the world police force.

I agree that the WPA and the CCC eased the pain of the depression but they did not end it. The combined austerity and full employment of the war ended it. I to some degree admit the government partially defaulted on their debt through inflation. What is different now is that we have massive governmental outlays and it is doing nothing but prop up the financial sector. This is pretty much where the Hoover administration was at the end of his term. We will default on this debt too through outright cut backs on entitlement programs and inflation. The fun will start if we get to the point that a SNAP card won’t feed the poor.

[vtsnowedin]

I don't think you can say the holders of US WWII war bonds got wiped out. The interest rate was fair for the times and people did get to cash them in. Now a German war bond that's another matter.
I notice on your chart the US GDP closely mirrors oil production and reminds the doomer in me what is likely to come once we get well past peak oil. Interest rates and funny money from the government will be the least of our problems.

[Cloud9]

Back to the topic, I think we have a real problem looming with local governments. Most of the people in my county government are spending their nights trying to grow government. They have no clue that the new normal will include declining revenues for the forseeable future.

[Fishman]

Back to the topic. Primarily in cities with public unions, this problems is primarily a Blue state problem. I doubt the Republic House will be offering up much Federal money. Should be interesting as California, NewYork, Rhode Island and at least Illinois go bankrupt. Join the crowd and move away from these liberal ratholes (the rest of the country is moving away)

[Tyler_JC]

8) I don't think you can say the holders of US WWII war bonds got wiped out. The interest rate was fair for the times and people did get to cash them in. Now a German war bond that's another matter.

That's how the trick works. Everyone always gets paid back but the money they are paid back with isn't worth as much as the money they put in.

You lock in a fixed 4% return. Then the government lets inflation run at 6%. Every year you get your interest payments but they don't buy nearly as much as they did the year before.

And if you tried to sell your bond, you'd get a fraction of what you paid for it.

But hey, everyone gets paid back, right?

[Xenophobe]

But hey, everyone gets paid back, right?

Yes. But it still sucks.

Tyler, I thought your post was top notch. Any speculation on the best method, generally speaking, to stay ahead of the curve on this one? I assume we invest our money into items which go up at the rate of inflation, or better. Be that real estate, the stock market, or whatever.

Any tips on which mitigation techniques have worked out best, historically?

[deMolay]

Here is a heavy read on Inflation. Called "The Dying of Money A Treatise on the German and American Inflation". http://esocap.com/uploads/files/Dying%20of%20Money.pdf

[Blacksmith]

If we take all national, state and local government debt, household debt, business sector debt, plus financial sector debt, and add it to unfunded liabilities such as Social Security and Medicare, it means that every man, woman and child in the good old US of A owes $550,000. Welcome to the wonderful world of deficit spending.

[jmnemonic]

Protecting wealth. Well, to protect wealth, you first have to decide what wealth actually is, and that's not the same thing to everyone. For example, having grown up in abject poverty, often without heat or adequate nutrition, blah blah blah, I now consider wealth to be: security, shelter, health, food, time, books. If I have enough of those things to last me the rest of my life, then I feel wealthy indeed. But achieving that (as best one can) does mean dealing with the world of 'money' at this point in time (and 'money' is not the same as 'wealth' in my mind, at all, though when things work out you can exchange money for wealth).

So, dealing with the reality that one has to currently deal with this whole global monetary system, myself and my significant other (of 21 years and going strong) have taken the following steps:

1) Eliminated debt, including home and car debt
2) Diversified our 'money' - pension, two IRAs, several savings accounts, some TIPS, some cash (plus ongoing income from both of us)
3) Invested (back in the mid-to-late 90s) in some precious metals and coins, mostly gold (and we're adding an ounce of gold/year to the stack now)
4) Bought a bunch of collectibles (mainly rare signed books and comic books) when people were unloading at firesale prices during the panic of 2008-2009
5) Began accumulating buttloads of food and important staples at today's prices

The coins and gold - maybe trade goods later. Mainly just money-preservation there. (Hope they're still worth something when money isn't though.) The comics and books serve a dual purpose: 1) in normal times books give about a 10% annual return, doubling in value every 7 years, after inflation (and comics are doing fine now too); and 2) in the event that 'the system' goes down and there is no more TV/internet/electricity, well, we'll have a bunch of excellent books to read. Yeah, I'd feel weird actually (re)READING a Foundation Trilogy that's been signed by Asimov, but hey, if it's the end of the world, what the hell.

Not trying to get rich. Just trying to not get poor. Been poor already, and it sucked. (But in the way I measure wealth, I do actually feel rather rich - I'm certainly happy with my life as it is, and appreciate it all the more for knowing that this likely will not - cannot - last.)

[Tyler_JC]

But hey, everyone gets paid back, right?

Yes. But it still sucks.

Tyler, I thought your post was top notch. Any speculation on the best method, generally speaking, to stay ahead of the curve on this one? I assume we invest our money into items which go up at the rate of inflation, or better. Be that real estate, the stock market, or whatever.

Any tips on which mitigation techniques have worked out best, historically?

There is a belief on this site (and in the rest of the world) that we will either have business as usual or a hyper-inflationary depression.

In truth, we might just end up more like Italy. Instead of averaging 3% real growth and 2% inflation, we might average 1% real growth with 5% inflation.



I know it doesn't sound like much, but that makes all the difference in the world. The difference between Canada and Argentina is about 1.1% growth over 100 years.



It look the Argentine people about 8 days to lose everything but it doesn't always happen that way. Sometimes it's just a slow, gradual erosion of living standards.

It's important to spread your investments around. Don't keep everything in one asset class or one country.

[Xenophobe]

It's important to spread your investments around. Don't keep everything in one asset class or one country.

Seems reasonable. People around here tend to ignore the real value of things, focusing instead on the nominal. I learned my lesson the hard way on that one investing in PM's back in the early 80's. The house ended up being worth more than the gold, even at todays pricing.

I seem to recall from the archives that you thought these were interesting.


Jay Leno picked up his recently, when do you plan on getting yours?

http://content.usatoday.com/communities ... like-sex/1

Saving the world from peak oil...one gallon at a time baby!