EPTA Discussion of US Debt - Page 2
| Forum Index > General Forum |
|
Harrow
United States245 Posts
| ||
|
Chocobo
United States1108 Posts
But there is a breaking point, there has to be. Suppose you make $50,000 a year and have $500 in debt... no problem, of course. You develop a bit of a spending problem and work up to $3,000 in debt... an small problem, but you can handle it. A couple years later it's at $15,000 and starting to look serious, but you can make your credit card payments and still get by, you're still getting along fine. Years after that, your debt is $40,000 and you're strugging to make your payments, but you're also eyeing a new car you plan to buy. Everything will be fine, you haven't gone bankrupt yet, right? Sadly... that's not how it works. The fact that there's a debate about the dollar remaining as the world's reserve currency says a lot. Right now we're at "that probably won't change anytime too soon, I think". 15 years ago we were at "are you kidding? the dollar will never go away", and 25 years ago no one even thought it was a possibility. I think you can see what direction this is going... what do you think the discussion will be 10 years from now? On April 09 2011 12:49 Broodwich wrote: Are people really crazy enough to think there is going to be some large scale political / economic revolt in the United States that leads to its collapse? Buying houses in the hills of SF, buying solely silver, etc? This is the same country that survived Bush v. Gore with little to no political upheaval. In 95% of the world, this would have been a civil war. The underrated driver of the dollar as the reserve currency is the unique political stability of the United States. There are very legit critiques to the short and long term US economic strategy and debt load, but we are remarkably resilient at surviving crises without long term political upheaval. This drives foreign investment into the US. The biggest threat to the US government is its massively underfunded long term transfer obligations (SS, Medicare, etc.) We're going to have to attack the plans in the next 5-10 years or else the budget will get out of hand. Bush v Gore was a petty family squabble over whether Daddy or Mommy would choose where we're going on vacation this year. The debt is "kids, I know you like having a pet dog and having your own rooms and a back yard to play in, but we're going to have to move into a small apartment on the other end of town. I hope you don't miss your friends too much, you're going to make new ones..." There won't be any revolt that will lead to everyone living without electricity, trading silver coins and weapons in order to survive. It won't be a crazy scenario where the entire country falls into chaos. But there will be an economic event close to the size of the Great Depression, though probably without the starvation, malnourishment, and disease this time. I expect something similar to the housing market crash. There will be a slow but steady decline as other nations finally refuse to keep funding the US debt, and instead of home values falling by 50%, it will be the value of everything in the US and all of the US dollars. Imported goods will be more expensive, we'll have less income from exports, and this country will finally be forced to learn to live on less. I wish this could be avoided, but it's political suicide to say "I will raise taxes and cut benefits". I do think avoiding it is possible, we don't even have to pay off the debt as long as we just stop making it larger. But the public isn't smart enough to vote in the people who would do this, so it's a broken system destined for failure. Even the people who sort of had the right idea at first, the Tea Party, got flooded with morons to the point where they were literally sending out advertisements for people to watch a charismatic Alaska mom's new reality show. One thing I'm curious about, if there are any experts around. What happens if someone buys a $300,000 house, has a large mortgage to pay off, but then a year later there's a financial crisis that involves some serious inflation problems? Will he be able to pay off his debt with these inflated dollars, essentially only having to pay half price for his home? (not that I have any idea if inflation will be a major part of the upcoming problems or not) | ||
|
Broodwich
United States393 Posts
On April 09 2011 13:36 Sufficiency wrote: I am seriously not sure why you think gold is good. When the world turns into shit, no one cares how much gold you have. It's just a piece of crap. If all the doomsayers are right and the US collapses and things go nuts, if this country turns into anarchy you can have all the gold in the world and it's not going to matter. If solely the US dollar collapses, well, buy Euros or something else, because gold is still useless. At first I was stunned that gold was a booming investment, but then I remembered that there are a lot of really stupid people, and it's been 50 years since the collapse and complete failure of Bretton Woods so people don't realize why we went completely away from a gold backed currency (the gold standard repeatedly collapsed and lead to economic crises until we did away with it). It is arguably the least useful metal possible. The gold boom is proof that stupid people have money to invest. | ||
|
Broodwich
United States393 Posts
On April 09 2011 13:57 Chocobo wrote: People severely underestimate just how huge and out-of-control the debt is now. It's easy to just have a positive outlook, recall that the debt has been around forever and it's hasn't crashed our economy yet, and assume that things will probably be fine. But there is a breaking point, there has to be. Suppose you make $50,000 a year and have $500 in debt... no problem, of course. You develop a bit of a spending problem and work up to $3,000 in debt... an small problem, but you can handle it. A couple years later it's at $15,000 and starting to look serious, but you can make your credit card payments and still get by, you're still getting along fine. Years after that, your debt is $40,000 and you're strugging to make your payments, but you're also eyeing a new car you plan to buy. Everything will be fine, you haven't gone bankrupt yet, right? Sadly... that's not how it works. The fact that there's a debate about the dollar remaining as the world's reserve currency says a lot. Right now we're at "that probably won't change anytime too soon, I think". 15 years ago we were at "are you kidding? the dollar will never go away", and 25 years ago no one even thought it was a possibility. I think you can see what direction this is going... what do you think the discussion will be 10 years from now? Bush v Gore was a petty family squabble over whether Daddy or Mommy would choose where we're going on vacation this year. The debt is "kids, I know you like having a pet dog and having your own rooms and a back yard to play in, but we're going to have to move into a small apartment on the other end of town. I hope you don't miss your friends too much, you're going to make new ones..." There won't be any revolt that will lead to everyone living without electricity, trading silver coins and weapons in order to survive. It won't be a crazy scenario where the entire country falls into chaos. But there will be an economic event close to the size of the Great Depression, though probably without the starvation, malnourishment, and disease this time. I expect something similar to the housing market crash. There will be a slow but steady decline as other nations finally refuse to keep funding the US debt, and instead of home values falling by 50%, it will be the value of everything in the US and all of the US dollars. Imported goods will be more expensive, we'll have less income from exports, and this country will finally be forced to learn to live on less. I wish this could be avoided, but it's political suicide to say "I will raise taxes and cut benefits". I do think avoiding it is possible, we don't even have to pay off the debt as long as we just stop making it larger. But the public isn't smart enough to vote in the people who would do this, so it's a broken system destined for failure. Even the people who sort of had the right idea at first, the Tea Party, got flooded with morons to the point where they were literally sending out advertisements for people to watch a charismatic Alaska mom's new reality show. One thing I'm curious about, if there are any experts around. What happens if someone buys a $300,000 house, has a large mortgage to pay off, but then a year later there's a financial crisis that involves some serious inflation problems? Will he be able to pay off his debt with these inflated dollars, essentially only having to pay half price for his home? (not that I have any idea if inflation will be a major part of the upcoming problems or not) To answer your question on the mortgage: your payment obligation and debt is fixed to what you borrowed. However, they'd only benefit if the interest on the mortgage was fixed. If the interest was adjustable, the interest adjustments would move with inflation. Your point about the debt will be right probably 20 years from now if nothing is done, but I think people are finally waking up to the necessity of cleaning up SS and Medicare, and that it's going to be ugly. The Ryan bill has a lot of major issues, but at least it was a start on attacking the future expenditures of Social Security and Medicare. The current yearly deficit is high but not outrageous, but the long term projections are completely unsustainable without adjustment, even when you factor in the decline in defense spending when we stop stupidly going to war in 3 places. You vastly understate Bush v. Gore. A two party polemic system with a contested election where one party uses questionable means to assure its victory? And people did nothing? Ask the people of Kenya, or Ivory Coast, or Zimbabwe, or a host of other countries where we've seen this recently how it went for them. | ||
Jibba
United States22883 Posts
On April 09 2011 13:57 Broodwich wrote: If all the doomsayers are right and the US collapses and things go nuts, if this country turns into anarchy you can have all the gold in the world and it's not going to matter. If solely the US dollar collapses, well, buy Euros or something else, because gold is still useless. At first I was stunned that gold was a booming investment, but then I remembered that there are a lot of really stupid people, and it's been 50 years since the collapse and complete failure of Bretton Woods so people don't realize why we went completely away from a gold backed currency (the gold standard repeatedly collapsed and lead to economic crises until we did away with it). It is arguably the least useful metal possible. The gold boom is proof that stupid people have money to invest. They also forget that the silver market was almost cornered in the 80s showing exactly why investing in a single fairly illiquid commodity is stupid. But don't worry, everyone who's already invested in it. I'm sure when the crisis does happen, the new standard global currency will be BMW S70/2 engine bays and you'll all make a fortune. | ||
|
Ichabod
United States1659 Posts
On April 09 2011 13:36 Sufficiency wrote: I am seriously not sure why you think gold is good. When the world turns into shit, no one cares how much gold you have. It's just a piece of crap. People like gold because it has an intrinsic real value. Even if the world 'turns to shit' and we barter for stuff, gold would still retain its value from its usefulness alone (jewelry, status, industry use, w/e) (as long as humans are vain, gold will have substantial real value). It's still very important to understand that gold is not a real investment, but only a transfer of one's wealth from nominal terms to real terms (e.g. speculation), and serves as a hedge against inflation. A real investment can actually return a real profit, instead of just increasing based on expectations and the devaluation of the currency of measurement. Edit: Eh, it's industrial value is limited, but it's use in industry at all attests to its usefulness/worth, wouldn't they use an available alternative if they could, since it's extremely overpriced currently? (aside from the fact that they get to claim that their product contains gold) Sure, gold's value mainly comes from society, but it's not like humans will suddenly deem it valueless since it's still very useful as a status symbol. | ||
|
Jibba
United States22883 Posts
Being valued for jewelry is not an intrinsic value. That's purely societal. For someone so invested in religion, you'd think Ron Paul would've paid more attention to the Golden Calf story. | ||
|
Broodwich
United States393 Posts
On April 09 2011 14:07 Ichabod wrote: People like gold because it has an intrinsic real value. Even if the world 'turns to shit' and we barter for stuff, gold would still retain its value from its usefulness alone (jewelry, status, industry use, w/e) (as long as humans are vain, gold will have substantial real value). It's still very important to understand that gold is not a real investment, but only a transfer of one's wealth from nominal terms to real terms (e.g. speculation), and serves as a hedge against inflation. A real investment can actually return a real profit, instead of just increasing based on expectations and the devaluation of the currency of measurement. This is just flat out wrong. Gold is the LEAST useful industrial metal. It has almost no intrinsic value. Pretty much every other major metal has a steady demand and need in industrial goods and technology. Gold does not. Silver, manganese, aluminum, tin, lead, the rare earths, silicon, etc. all are used to make goods people actually need. Gold is used to make...spoons for tasting? Jewelry with little intrinsic value? Edit: Jibba you beat me. No fair  | ||
|
Chocobo
United States1108 Posts
On April 09 2011 13:36 Sufficiency wrote: I am seriously not sure why you think gold is good. When the world turns into shit, no one cares how much gold you have. It's just a piece of crap. That's true, if the world actually "turns into shit" and we're living in anarchy with no government, no police, and everyone's out looting and pillaging and stealing food and supplies just to survive. But that's simply not going to happen. Gold has held its value for thousands of years, even through periods of weak governments and rampant crime. Even when people had very low standards of living, they valued gold. This is unlikely to ever change. Now, I am not claiming gold is the best investment ever and everyone should go buy gold coins with all of their money right now. Gold is in an investment bubble along with other things right now, and the current value may not hold up so well. But the point is that most of the time in a large scale economic crisis, you are better off holding gold (or other commodities) than paper money which is unpredictably changing in value during the crisis. In 2006, ten million Zimbabwean dollars could buy a home. In 2009, ten million Zimbabwean dollars could buy absolutely nothing. You would have been better off holding gold (or anything really) instead of cash. Will anything like this happen in the US? Probably not, but the fact that it's even a remote possibility worries some people. | ||
|
Broodwich
United States393 Posts
On April 09 2011 14:12 Chocobo wrote: But the point is that most of the time in a large scale economic crisis, you are better off holding gold (or other commodities) than paper money which is unpredictably changing in value during the crisis. In 2006, ten million Zimbabwean dollars could buy a home. In 2009, ten million Zimbabwean dollars could buy absolutely nothing. You would have been better off holding gold (or anything really) instead of cash. Will anything like this happen in the US? Probably not, but the fact that it's even a remote possibility worries some people. The people worried about that level of inflation as a serious possibility in the US are the same people investing in ecoloblue water filtration systems, fresh direct food seed delivery to grow their own food, and solar panels to live off the grid. Oh, and buying the book at HIDEYOURGUNS.com to keep their guns hidden from those pesky feds. These are the guys I want to copy investment strategies from. | ||
|
NoobSkills
United States1601 Posts
On April 09 2011 14:12 Chocobo wrote: That's true, if the world actually "turns into shit" and we're living in anarchy with no government, no police, and everyone's out looting and pillaging and stealing food and supplies just to survive. But that's simply not going to happen. Gold has held its value for thousands of years, even through periods of weak governments and rampant crime. Even when people had very low standards of living, they valued gold. This is unlikely to ever change. Now, I am not claiming gold is the best investment ever and everyone should go buy gold coins with all of their money right now. Gold is in an investment bubble along with other things right now, and the current value may not hold up so well. But the point is that most of the time in a large scale economic crisis, you are better off holding gold (or other commodities) than paper money which is unpredictably changing in value during the crisis. In 2006, ten million Zimbabwean dollars could buy a home. In 2009, ten million Zimbabwean dollars could buy absolutely nothing. You would have been better off holding gold (or anything really) instead of cash. Will anything like this happen in the US? Probably not, but the fact that it's even a remote possibility worries some people. No matter what gold has always been valued. People of ancient times collected it. Perhaps not to barter, but collected it regardless of how useless it was. Lands have been trampled for it again before anyone knew it could be worth it. So far I do believe the best reasonable investments are... Chinese Dollar (perhaps) Euro Gold Precious stones. Property in Europe I say perhaps, because there was a report about their economy being a bit too hush hush now and perhaps are struggling because the US is struggling. I doubt it is on equal levels, but it can happen. The rest will hold value because the WHOLE world will not go to shit at once. | ||
|
jdseemoreglass
United States3773 Posts
However, this does not justify a criticism of gold as a standard for a currency. The reason gold is so valued over fiat currency is not due to its intrinsic value, but rather due to its relative inability to be manipulated and inflated by a central government. However, those who believe in the effectiveness of Keynesian economics will see this as a negative instead of a benefit of the gold standard. | ||
|
Broodwich
United States393 Posts
On April 09 2011 14:18 jdseemoreglass wrote: I have to agree with the people criticizing gold investments. Of course, gold can be a great investment when economic stability is assured along with inflation. But in the end, the metal itself has very little utility and it not worth much intrinsic value. However, this does not justify a criticism of gold as a standard for a currency. The reason gold is so valued over fiat currency is not due to its intrinsic value, but rather due to its relative inability to be manipulated and inflated by a central government. However, those who believe in the effectiveness of Keynesian economics will see this as a negative instead of a benefit of the gold standard. In a multi-currency system with exports and imports, the gold standard will fail due to capital movements between countries. No amount of pegging currencies or gold exchanges or tariffs or import / export quotas will change this. It has failed multiple times for that reason since we have become industrialized and interconnected. We're only more interconnected now than the early 70s when Bretton Woods finally went away. You don't see credible economists out arguing for the gold standard. There's a reason the main proponent of the gold standard in the United States is a medical doctor, not an economist or a financier (and I say that as someone who voted for Ron Paul). It is a terrible idea in the modern world that would lead to continued economic instability. | ||
|
Chocobo
United States1108 Posts
On April 09 2011 14:02 Broodwich wrote: To answer your question on the mortgage: your payment obligation and debt is fixed to what you borrowed. However, they'd only benefit if the interest on the mortgage was fixed. If the interest was adjustable, the interest adjustments would move with inflation. Interesting. It's hard to understand how banks are willing to offer 30 year fixed rate mortgages at under 5% interest, that seems at best minimally profitable and at worst a complete disaster. You vastly understate Bush v. Gore. A two party polemic system with a contested election where one party uses questionable means to assure its victory? And people did nothing? Ask the people of Kenya, or Ivory Coast, or Zimbabwe, or a host of other countries where we've seen this recently how it went for them. You're completely right about that, I didn't mean it in that way. What I was trying to say is that the US's ability to deal with crisis situations effectively and minimize the negative impact just won't be able to make a huge difference in an economic problem. Being polite to each other, trusting the government to handle the situation, and accepting the outcome is not going to do much for us if the prices of food and gas double. Of course it does mean that the resulting violence and theft will be much lower than it could be, and many people will work together effectively to make the best of a bad situation and start us on the track to recovery. But it absolutely will affect people's lives in a much bigger way than that presidential election ever did. | ||
|
Broodwich
United States393 Posts
On April 09 2011 14:17 NoobSkills wrote: I say perhaps, because there was a report about their economy being a bit too hush hush now and perhaps are struggling because the US is struggling. I doubt it is on equal levels, but it can happen. The rest will hold value because the WHOLE world will not go to shit at once. Actually, I disagree with your last statement, and the banking crisis argues in my favor. If you noticed from our last economic crisis, everyone else is so interconnected to the US that it's not like they kept on going. They all have copied our finance structures and economic ideas. Germany's banking sector is still a mess. An Irish friend said it best: "When you Yankees cough, the whole world gets a cold." | ||
|
sambo400
United States378 Posts
The answer is to cut military and social spending, and to crack down on Chinese imports to get our own exports going again. Raising taxes just encourages people to save and drives business overseas. Also, cutting unemployment benefits would help too (there is always a tremendous spike in people re-entering the labor market when their unemployment runs out) Trump 12! | ||
|
Broodwich
United States393 Posts
On April 09 2011 14:27 Chocobo wrote: Interesting. It's hard to understand how banks are willing to offer 30 year fixed rate mortgages at under 5% interest, that seems at best minimally profitable and at worst a complete disaster. It's a bet on the stability of the United States economy. I haven't researched it but I would bet that during stagflation in the late 70s the banks and S&Ls were getting hammered on this interest spread. | ||
|
Chocobo
United States1108 Posts
On April 09 2011 14:15 Broodwich wrote: The people worried about that level of inflation as a serious possibility in the US are the same people investing in ecoloblue water filtration systems, fresh direct food seed delivery to grow their own food, and solar panels to live off the grid. Oh, and buying the book at HIDEYOURGUNS.com to keep their guns hidden from those pesky feds. These are the guys I want to copy investment strategies from. 1) The value of the dollar is based on the faith people put into it, to trust that it will retain its value. If some people lose that faith and others are wavering, the value of your dollars has already fallen. 2) OK you're right, a portion of those people go way too far, and certainly are not the best financial advisors in the world. You don't have to buy gold, stockpile rice, and install solar panels. But that certainly doesn't make it a bad idea to start considering better investments than an all-cash savings account. It doesn't make you a dirty hippie to react to a real world situation. | ||
|
Broodwich
United States393 Posts
On April 09 2011 14:33 Chocobo wrote: 1) The value of the dollar is based on the faith people put into it, to trust that it will retain its value. If some people lose that faith and others are wavering, the value of your dollars has already fallen. 2) OK you're right, a portion of those people go way too far, and certainly are not the best financial advisors in the world. You don't have to buy gold, stockpile rice, and install solar panels. But that certainly doesn't make it a bad idea to start considering better investments than an all-cash savings account. It doesn't make you a dirty hippie to react to a real world situation. 1) Gold's value is just as faith based. There is no legit use for gold. 2) People who have a legit amount of money and are stupid enough to be in an all cash savings account deserve just as much scorn as the gold investors. | ||
|
jdseemoreglass
United States3773 Posts
On April 09 2011 14:39 Broodwich wrote: 1) Gold's value is just as faith based. There is no legit use for gold. 2) People who have a legit amount of money and are stupid enough to be in an all cash savings account deserve just as much scorn as the gold investors. It is just as stupid to believe that diversifying in securities which have the same intrinsic value of paper money somehow protects you from the dangers of an all cash savings account in the modern economy. | ||
| ||
