So let's say we go into financial ruin........

[outbackjack]

What does that look like to me, an average Joe.

My wife and I make a steady income, nothing great but not bad......say 150k combined. A little in the market, a 403b, etc. We are the definition of middle class.

2 kids, we are early 40's.......stay involved in kids sports, like to eat out a lot and vacation at Disney.

The more I write, the more I realize how middle of middle class America we are.

So say we land in ruin financially as a country.

Will we notice any change, or is this an " on paper" thing that will be covered up with something else, and daily life As we know it will continue?

[PIMking]

I guess I will be lower class if I'm making combined about 100k at the most when she gets done with school

[FlyingGatorII]

What does that look like to me, an average Joe.

My wife and I make a steady income, nothing great but not bad......say 150k combined. A little in the market, a 403b, etc. We are the definition of middle class.

2 kids, we are early 40's.......stay involved in kids sports, like to eat out a lot and vacation at Disney.

The more I write, the more I realize how middle of middle class America we are.

So say we land in ruin financially as a country.

Will we notice any change, or is this an " on paper" thing that will be covered up with something else, and daily life As we know it will continue?

Actually, the income level you listed places you in the top 5%, not the definition of middle class. As far as what our daily life will look like, many feel we are headed towards a future that is Greece's present based on out of control spending and debt growth. At some point, the piper will have to be paid. The question is how long before that happens IMO...

http://www.washingtonpost.com/riots-erupt-in-greece-over-new-tax-hikes/2012/11/08/5460ddda-2944-11e2-aaa5-ac786110c486_video.html

[gator7_5]

yeah, 150 is a pretty solid income. If you plan well, retirement should be extremely easy and stress free.

[QGator2414]

I would be more concerned for your two kids and what we leave them.

It is the kids and "poor" that will suffer the most...

[outbackjack]

I have no idea what defines actual numbers for middle class, but my wife and I are both 20 year teachers, hardly an upper class job.

We have planned conservatively for retirement.

Thanks Too Hot for making me feel good, I'm usually quite depressed after reading this board with all of the doom and political disagreeing.

[Burke]

The thing I first think about is how you make your income. Will it continue when the economic meltdown occurs?

The next thing is whether your income is a fixed salary or business income that can go up with inflation.

Because we are going to have horrible inflation.

Personally, I think you and everyone else should be buying as much gold and silver as you can. Accept some of those no initial interest credit card offers and buy a bag of junk silver (about $23K right now). Then start buying gold coins. If you are in a farming area, find a way to buy farmland. Maybe you could find one with a home on it and get one of those very low fixed rate interest loans. Farming is the wave of the future.

This is what I would be doing if I were your age.

Finally, you should start educating yourself about what's going on in the world economically.

A couple of guys to read are Jim Rogers and John Butler, for starters.

http://jimrogers-investments.blogspot.com/?m=1

http://m.financialsense.com/contributors/john-butler

Then get into reading investment newsletters and books.

Don't rule out the possibility that you may eventually decide to leave the country, because it's going to get ugly here.

Try reading: http://www.sovereignman.com/

My son in law recently decided to cash in his 401K (which was in a gold trust) to buy silver coins, and his well-known Jacksonville accountant told him that all his well-heeled, smart clients were doing the same.

The worst mistake most people are making now is underestimating how bad things are and how much worse they are going to get.

[outbackjack]

Great advice. Thank you.

[chemgator]

What does that look like to me, an average Joe.

My wife and I make a steady income, nothing great but not bad......say 150k combined. A little in the market, a 403b, etc. We are the definition of middle class.

2 kids, we are early 40's.......stay involved in kids sports, like to eat out a lot and vacation at Disney.

The more I write, the more I realize how middle of middle class America we are.

So say we land in ruin financially as a country.

Will we notice any change, or is this an " on paper" thing that will be covered up with something else, and daily life As we know it will continue?

The main question is, how will you handle double-digit inflation? You have all this income (if it continues, which is unlikely), and a significant amount of savings. It won't be worthless overnight, but it will be worth a lot less as inflation eats into it.

As an example of what could happen, look to the 1930's. Wealthy people lost their fortunes within a few years. A lot of them could not stop spending, even after their income dried up. Their wealth did not protect them.

If you are concerned about a meltdown, the smart thing to do would be to invest in things that prevent you from needing much of anything from the outside world after the meltdown. Buy a house that needs minimal repairs, or learn how to repair it yourself. Put solar panels on the roof, so you'll have your own source of electricity. Get a geothermal heat pump to limit HVAC costs. Have enough property to grow your own vegetables. Have a fuel-efficient car, or an electric car that runs off your solar panels. Collect rainwater from the roof and water the yard with it. Waiting until the meltdown to invest in these things won't help, because inflation will drive the cost up.

[tegator80]

As we go down this path of untenable financial math, two prominent things are going to happen. The first is that the line delineating "rich" will progressively move downward. If you are comfortable today (can go on nice vacations without going into debt and think about moving into a nicer home occasionally) then your disposable income becomes a beacon for resources for feeding the beast. Good luck in keeping your assets yours.

The other thing that will happen is that the underprivileged, who are hooked on free stuff, are going to come to a point where the free stuff isn't coming the way it did (rationing, poor quality). History tells us that if these people aren't civic minded but feel entitled (regardless of the new reality) then rioting, thieving and black market economies becomes rather commonplace. In other words, they are put in a permanent underclass position. And the pot will get bigger (see the first thing). So civics becomes more about self preservation (guns in the hands of the citizens if possible).

And lastly, which isn't necessarily guaranteed but I expect it will - the people in politics and big business are very smart and not stupid - there will be an elite class of society that is immune from the others. Whether it is government run or corporate run or a combination of both, they will keep the power and real money pretty much amongst themselves.

Sounds fun, doesn't it? But, hey, we get the new Android phone!

[wargunfan]

Junk silver coins may be the currency of the future if the worst happens. There may be commodity and food shortages and very high prices as the dollar collapses. Expect a run on the grocery stores and gas stations when inflation really kicks in. Panic among the populace will make it worse. Government workers and police and fire fighters will be laid off as cities fail to meet their budgets. Expect Greece-like riots as people realize their jobs are gone. It will be more dangerous to be on the streets, especially at night. It won't be pleasant for any of us.

[Burke]

I just noticed that you stated in the reply above that you are both teachers.

That means fixed salaries and retirement.

That means you are extremely vulnerable to the inflation that is coming. Finding a way to avoid that should be your primary concern.

Do you have a home with some equity? I would consider refinancing at the very small fixed rates available now, getting as much of the equity out as you can, and buying precious metals with it. Although you will now have bigger payments, with inflation roaring in, you can expect some salary increases that will make the payments look smaller. Generally, debtors win with inflation.

The precious metals have the potential to explode in value. Even if they don't, they will at least keep pace with it.

If you don't do something like this, you will be at the mercy of events beyond your control.

[fairfaxgator]

Assume your are part of a teachers' union...State or National level?

[vaxcardinal]

the best advise I can give is to ignore the apocalypse paranoia on this thread...

[tegator80]

the best advise I can give is to ignore the apocalypse paranoia on this thread...

There is only one sound advice that anyone can give - and embrace - and that is "plan for the worse and hope (pray) for the best." Anything else is rainbows and unicorns. Adulthood is a bitch, the alternative is even worse.

[PIMking]

If a meltdown happens invest in precious metals like lead, as in copper coated lead projectiles because money is going to be the least of anyones concerns

[JerseyGator01]

I was just talking with a public school teacher in Jersey today whose husband just lost his job and her health benefits are being seriously threatened for a major reduction. She's going to look for a waitressing job in the summer unless her hub by chance finds a job other than burger flipper for the lawyers in Jersey.

Part-time jobs seem to be the wave of the future in Jersey. Most of the private sector in this country hasn't been growing in over 10 years. It's starting to affect the public sector, but we haven't seen anything yet.

[reformedgator]

the best advise I can give is to ignore the apocalypse paranoia on this thread...

I believe that's called the ostrich approach. I recommend it to everyone in all situations. It works great...until it doesn't.

[Burke]

People have been saying for decades that the day would come when the only way the govt can "pay" its obligations is to print money. When I look at the numbers, it's obvious that that day is here and that it has been here for 4-5 years.

Most have not realized this, which means that you still have time.

[cocodrilo]

The precious metals have the potential to explode in value. Even if they don't, they will at least keep pace with it.


So where do you buy gold, and where do you keep it? (Safe deposit box, or does some outfit, like a civilian Fort Knox, keep it for you?)

I keep seeing William Devane advertising something about gold (Roseland something) on TV but pay no attention to him. Should I turn up the volume?

[dangolegators]

Actually, the income level you listed places you in the top 5%, not the definition of middle class. As far as what our daily life will look like, many feel we are headed towards a future that is Greece's present based on out of control spending and debt growth. At some point, the piper will have to be paid. The question is how long before that happens IMO...

http://www.washingtonpost.com/riots-erupt-in-greece-over-new-tax-hikes/2012/11/08/5460ddda-2944-11e2-aaa5-ac786110c486_video.html

150k is not top 5%.

[mdgator05]

150k is not top 5%.

That is true. It is top 9% though. Still not middle class in a traditional sense. The actual middle is about 51K a year.

http://www.nytimes.com/interactive/2012/01/15/business/one-percent-map.html

[vaxcardinal]

So where do you buy gold, and where do you keep it? (Safe deposit box, or does some outfit, like a civilian Fort Knox, keep it for you?)

I keep seeing William Devane advertising something about gold (Roseland something) on TV but pay no attention to him. Should I turn up the volume?

http://www.goldennugget.com/amenities/gold_to_go_atm.asp

[dangolegators]

That is true. It is top 9% though. Still not middle class in a traditional sense. The actual middle is about 51K a year.

http://www.nytimes.com/interactive/2012/01/15/business/one-percent-map.html

Yes, it's still very upper middle class. This debate came up a while back. Some poster was upset that he was considered 'rich' (by mean old Obama) because he made 250k.

[oragator1]

Depends where you live, in Manhattan or DC it is middle class, the county I live in has a median home income of around 120k. 150k would be on the good side of middle class but hardly anything out of the norm. If you lived in rural Mississippi however, it would be living like a king.

[bluelang]

Great advice. Thank you.

It really isn't. Gold has no intrinsic value in a post-money economy, and is on a multi-year bubble. His boner for gold is based on economic principals that were abandoned forever a hundred years ago - basically yearning for an easy-to-comprehend panacea (buy gold!) for an extraordinarily complex problem (mushrooming population of cheap labor abroad with aging domestic population).

You need to speak with an actual financial adviser - preferably a friend, not someone paid on commission - to ensure that your retirement fund has some resiliency in the face of inflation.

Whatever you do, the best advice I can give you is not to take advice from random people on the internet.

[dangolegators]

Whatever you do, the best advice I can give you is not to take advice from random people on the internet.

Now he's screwed. If he follows someone else's advice, he's not following your advice. And if he follow's your advice, he's not following your advice. He's trapped and there's no way out.

[tegator80]

So where do you buy gold, and where do you keep it? (Safe deposit box, or does some outfit, like a civilian Fort Knox, keep it for you?)

I keep seeing William Devane advertising something about gold (Roseland something) on TV but pay no attention to him. Should I turn up the volume?

I have a problem when celebrities come on TV and talk with conviction, like Devane or Fred Thompson and Robert Wagner for reverse mortgages. To me the problem with "correct" planning is that most of it is based on conventional wisdom. In an apocalyptic scenario, what is considered valuable today or in the past is not necessarily so in the future. I don't doubt that physical gold is better than a certificate that says we are all civilized and we respect your wealth claim. You are going to have to decide how far all of this is going to go before it blows up.

My take is that the certainty of a financial train wreck is about right up there with not buying oceanfront property in Florida because of the threat of being wiped out by a hurricane. Getting hit isn't the issue; how far in advance is. I anticipate that since we are WAY ahead of the rest of the world in wealth, our fall from grace is going to take a while. Remember that Rome wasn't built in a day and it didn't crumble in one either.

Inflation is going to come when the world (including us) decides that the Fed is playing a game instead of following a strategic monetary policy. Will that be this year? My take is only when there is a viable alternative place to "place your bet" in the world economy. Some say that is China where I think that we are co-joined and neither of us can survive in a superior position without the other. And China is going to have some real growing pains shortly when the low/middle class decide that they want more.

So, in summary I would start to acquire some non-paper wealth of some type, either land that you own outright and are prepared to homestead on (not just something to flip), some precious metal (gold or silver) where if you want to hedge use gold or if you see really big storm clouds then physical silver (more useful as a daily purchase tool). And buy it anywhere where you aren't paying the advertising fees for the celebrity endorsements (almost all good size cities have businesses that sell the stuff). I am thinking about all of the silverware that has been handed down as an equivalent to coins. Silver is silver.

And lastly, think about a dire financial situation like it is Sandy and the NJ coast. You need food, warmth, and protection for quite a long time. Having it already on hand is a whole lot better than waiting in line with everyone else, especially when lines can get compromised. Bullets and the gun(s) to feed in them is not the worse idea out there. Not to kill or steal but to send the signal that your wealth is not someone else's opportunity. Good luck in your planning.

[dangolegators]

It really isn't. Gold has no intrinsic value in a post-money economy, and is on a multi-year bubble. His boner for gold is based on economic principals that were abandoned forever a hundred years ago - basically yearning for an easy-to-comprehend panacea (buy gold!) for an extraordinarily complex problem (mushrooming population of cheap labor abroad with aging domestic population).


Yes. A can of beans would potentially be worth more than a pound of gold. The best thing to invest in for a post-money economy would be an underground bunker and tons of canned goods. And guns. Lots of guns.

[cocodrilo]

I am thinking about all of the silverware that has been handed down as an equivalent to coins. Silver is silver.

Hey, I've got plenty of silverware. But are all those knives and forks really silver, or are they just made to look like it? Can they be melted down? I'm willing to eat with my hands.

[tegator80]

Hey, I've got plenty of silverware. But are all those knives and forks really silver, or are they just made to look like it? Can they be melted down? I'm willing to eat with my hands.

Mine are all real. If they are stamped on the back then they are. One other way to tell is to heat up some water to boiling, put one into it (say half way) and let it sit for a minute. If it is something else inside it will feel reasonable to your touch when you pick it up. If it burns the crap out of you then it is solid silver. Silver (and gold) are incredible heat conductors. I personally wouldn't melt them down but keep them in their current shape. Maybe more value that way but at least no worse than a bar of the same weight.

[FlyingGatorII]

150k is not top 5%.

http://money.usnews.com/money/personal-finance/articles/2012/09/13/where-do-you-fall-in-the-american-economic-class-system?page=2

[sappanama]

Yes, it's still very upper middle class. This debate came up a while back. Some poster was upset that he was considered 'rich' (by mean old Obama) because he made 250k.

so your middle spans 9-91%? seriously?, and depending on where he lives that may very well be top 5%. people can keep trying to make the middle class mean everyone, but that doesn't make it correct.

The next income level is what is commonly called the "5 percent," or the percentage of Americans who make more than $150,000 annually. At the top of the economic ladder is the so-called "1 percent," or households that earn more than $250,000 annually.http://money.usnews.com/money/personal-finance/articles/2012/09/13/where-do-you-fall-in-the-american-economic-class-system

[bluelang]

Now he's screwed. If he follows someone else's advice, he's not following your advice. And if he follow's your advice, he's not following your advice. He's trapped and there's no way out.

That was the joke :)

[cocodrilo]

In 1965 I met an old man in a bar in Peru who said he knew where there was gold if I would pay for the expedition and go with him. I wish now I had done it instead of just paying for his beer.

[Burke]

A dollar today is worth about 4 cents compared to the dollar of a hundred years ago. Between 1985 and 2010, the dollar lost 50% of its value. And this is using govt inflation figures and is in spite of the fact that the amount of real wealth is much greater, which would have caused deflation with a stable money supply.

And the inflation that will be caused by the current spate of money printing is yet to be realized.

Meanwhile, gold has risen every year for the last 12 years.

The US is the greatest debtor nation in history. The only way it will ever "pay" its obligations is by printing massive amounts of money.

Central banks all over the world are buying gold.

What more do you need to know?

Anyone who keeps his assets in dollar holdings is going to loss his butt.

[bluelang]

Meanwhile, gold has risen every year for the last 12 years.


Gold, over the same time span you measured the dollar, has not outpaced inflation by much.

Also, do you not see the irony of valuing gold in the same currency you're accusing of being worthless? For gold to be valuable past the collapse of the dollar, it has to have non-dollar value. Following the transitive property, you are preaching that gold is worthless.

Some weight of gold is worth $1000. $1000 is worth nothing. So what is that weight of gold worth?

What is gold's intrinsic worth?

It's a bubble. It'll burst soon enough.

[cocodrilo]

It's in a bank in the middle of Bevery Hills in somebody else's name.

[Burke]

Last I looked, the cost of a barrel of oil in gold was about the same today as in 1955, between 2 and 3 goldgrams. And the cost in dollars had increased about 30 times.

http://pricedingold.com/crude-oil/

It may turn out that keeping your wealth in gold will only preserve it. But if you had it in dollars, you will have lost all.

During the Great Depression, it was said that cash was king because those with cash could go around buying stuff for almost nothing. Then when the good times returned after the war, they were rich.

Our next depression will be an inflationary depression, most say, because the Fed is going to try to keep us out of it by printing money, just as it is doing.

And I believe gold and silver will be king and queen.

I might add that the value of gold is not primarily based on its intrinsic value, but upon its special qualities for use as a medium of exchange and a store of value.

That is, as money that cannot be printed.

[QGator2414]

Always interesting to see how people classify themselves based on earnings from one year of work...

[oragator1]

Last I looked, the cost of a barrel of oil in gold was about the same today as in 1955, between 2 and 3 goldgrams. And the cost in dollars had increased about 30 times.

http://pricedingold.com/crude-oil/

It may turn out that keeping your wealth in gold will only preserve it. But if you had it in dollars, you will have lost all.

During the Great Depression, it was said that cash was king because those with cash could go around buying stuff for almost nothing. Then when the good times returned after the war, they were rich.

Our next depression will be an inflationary depression, most say, because the Fed is going to try to keep us out of it by printing money, just as it is doing.

And I believe gold and silver will be king and queen.

I might add that the value of gold is not primarily based on its intrinsic value, but upon its special qualities for use as a medium of exchange and a store of value.

That is, as money that cannot be printed.

No one keeps their money in cash, it's in securities, in their house, other assets etc. Those will rise with inflation as well just as they have for the last 200 years. The only time gold is a valuable commodity is when it outpaces inflation(which is speculative), for people who don't own assets tied to inflation(cash or bond holders can get burned) or in an environment where inflation rises so rapidly that faith in the dollar is shattered to the point where another currency is needed. None of those are imminent and none apply to most anyone here. It's either a panic buy or a savvy investment to prey on the fear of others, but doesn't serve any other practical purpose in today's world, we would have to get close to inflation levels of Weimar Germany before it became a necessity. Japan carries more than twice the debt in relation to GDP than we do and has had to go to near zero interest rate recently 20 years after their crash to try and induce inflation and growth. Heck Canada has a higher debt to GDP ratio than we do and they are considered healthy even by many here who have pointed to them as well run.
None of this is to say we shouldn't get our house in order and it is costing us both long term and short term, but the panic spurring the gold craze is just that, panic, it's not based on economic reality.

[Burke]

Not based on economic reality?

What universe are you living in?

Even the NY Times recently admitted that our debt plus unfunded liabilities are more than $88 trillion. That's nearly 6 times the GDP and more than the GDP of the planet. Others have placed the govt's exposure as high as $220 trillion.

The Federal govt is borrowing more than 40% of what it spends. How much longer do you think that can go on?

Bernanke is printing $85 billion a month and keeping interest rates at nearly zero.

Mainly to prop up the stock market.

When the money printing stops, as it will eventually do one way or another, all hell will break loose.

Just watch.

[oragator1]

Not based on economic reality?

What universe are you living in?

Even the NY Times recently admitted that our debt plus unfunded liabilities are more than $88 trillion. That's nearly 6 times the GDP and more than the GDP of the planet. Others have placed the govt's exposure as high as $220 trillion.

The Federal govt is borrowing more than 40% of what it spends. How much longer do you think that can go on?

Bernanke is printing $85 billion a month and keeping interest rates at nearly zero.

Mainly to prop up the stock market.

When the money printing stops, as it will eventually do one way or another, all hell will break loose.

Just watch.

I am in the universe that has to understand macroeconomics for my job, particularly bonds and inflation.
When people claimed hyperinflation or even high inflation was coming in 2008 I told them it wasn't and that deflation was a bigger worry. When they said it was coming in 2009 I said it wasn't. When they said it in 2010, 2011, 2012 and gold was all the rage I said it wasn't coming, and in fact gold has fallen substantially off it's highs. I said in 2008 we were in for a 10 year down cycle which was the price for the government interventions in lieu of a cataclysmic crash, so far I am still right there too. I also said the government would try to fill the debt bubble to soften the landing, which they have, both dem and republican. This stuff isn't that complicated, inflation isn't coming because there isn't the economic engine in the US to drive it and trillions in wealth have left the country both in paper losses and real losses - that engine won't be back for another few years at least, regardless of government debt. They could print a trillion dollars tomorrow and it would be a hiccup, just as it was when they doled out trillions in stimulus...that window gives the government years to slowly wind down its spending and long term liabilities in a low cost of funds environment, similar to what California has been able to largely do over the past few years.
If we get to the point where the national economy starts to roar again and the government doesn't take that opportunity to scale back it's spending then yes, we will face more serious ramifications, but people keep talking about the hyperinflation that will be coming without even understanding what that means. The most common definition of hyperinflation is 50% a month, and that's what it would take for gold to be a currency. Meantime you realize that the oft used example of Greece had their inflationary rate top out at less than 6%, and that's when they approached 200% GDP and it looked like they were descending into third world status? Because when the government crashes the economy does too and that counterbalances inflation, inflation generally comes in times of good economies because money becomes loose, in bad times it tightens as people don't spend on a personal level and banks don't lend.
So you can panic, buy gold and feed guys like Soros who made a billion dollars trading it in the panic and then sold near highs, I will keep my money allocated where the gains actually are, it has more than served me well the past 4 years.

[cocodrilo]

I have an idea. How about investing in various foreign currencies? For example, $10,000 in Mexican pesos, to be deposited in a Mexican bank. (The only problem would be getting to a Mexican bank safely and back.) $10,000 more in Peruvian soles, and so on. Then when the collapse comes, you would have some options, you could move to a country where your deposit there is still worth something.

[bluelang]

hi i'm the only person on the internet who knows wtf he is talking about

can't rep you again but well said.

[busigator96]

If a meltdown happens invest in precious metals like lead, as in copper coated lead projectiles because money is going to be the least of anyones concerns

JP Morgan gobbled up most of the available a year ago.

[tegator80]

I am in the universe that has to understand macroeconomics for my job, particularly bonds and inflation.

When people claimed hyperinflation or even high inflation was coming in 2008 I told them it wasn't and that deflation was a bigger worry. When they said it was coming in 2009 I said it wasn't. When they said it in 2010, 2011, 2012 and gold was all the rage I said it wasn't coming, and in fact gold has fallen substantially off it's highs. I said in 2008 we were in for a 10 year down cycle which was the price for the government interventions in lieu of a cataclysmic crash, so far I am still right there too. I also said the government would try to fill the debt bubble to soften the landing, which they have, both dem and republican.

This stuff isn't that complicated, inflation isn't coming because there isn't the economic engine in the US to drive it and trillions in wealth have left the country both in paper losses and real losses - that engine won't be back for another few years at least, regardless of government debt. They could print a trillion dollars tomorrow and it would be a hiccup, just as it was when they doled out trillions in stimulus...that window gives the government years to slowly wind down its spending and long term liabilities in a low cost of funds environment, similar to what California has been able to largely do over the past few years.

If we get to the point where the national economy starts to roar again and the government doesn't take that opportunity to scale back it's spending then yes, we will face more serious ramifications, but people keep talking about the hyperinflation that will be coming without even understanding what that means. The most common definition of hyperinflation is 50% a month, and that's what it would take for gold to be a currency.

Meantime you realize that the oft used example of Greece had their inflationary rate top out at less than 6%, and that's when they approached 200% GDP and it looked like they were descending into third world status? Because when the government crashes the economy does too and that counterbalances inflation, inflation generally comes in times of good economies because money becomes loose, in bad times it tightens as people don't spend on a personal level and banks don't lend.

So you can panic, buy gold and feed guys like Soros who made a billion dollars trading it in the panic and then sold near highs, I will keep my money allocated where the gains actually are, it has more than served me well the past 4 years.

I had to edit your post to read it. Paragraphs are your friend (I presume you wrote it in a text editor and pasted it here).

Anyway, I completely understand the rationale for poo-pooing the idea of rampant inflation in the near future and that the price of gold has as much chance of going down bigtime as it does shooting through the roof. But this thread is more about what can we expect in the future, given the current direction of the country, including economics.

My take (and many others here) is that we are spending much more money than we take in and that is going to have consequences. Two things are happening. One is that the Fed continues down the current path of trying to keep the current ship afloat using the printing press. The other is that the Federal government continues to spend money like a drunken sailor because telling our population today that the party is coming to an end and the free stuff is going to stop coming is NOT in their best interests, both politically and bodily.

One of these days either the Fed is going to see a spreadsheet that says the game is over and time to let nature take its course or the ratings agencies are going to suspect the value of the dollar. The first scenario brings the apocalyptic scenario into play and civil unrest kicks in. The second one brings in inflation and while hyper is probably too much to expect, the cost of living will definitely and significantly head upwards. Neither are ideal.

And I have said (maybe too strongly) that the Fed is playing with Nitroglycerin. Things look innocuous until something goes too far and then it goes off fast. I think you prefer to believe they are more doing a controlled burn and that the firemen are ready to adjust things as the conditions progress. We shall see who is more correct.

[Burke]

Four years ago, our monetary base was $800 billion. Today, it is about four times that.

And that's just M1, without the effects of fractional reserve banking and the money multiplier kicking in yet.

The reason we haven't yet seen roaring inflation is because the economy is still depressed. If and when prosperity returns, inflation will roar. And the fact is that inflation is here now, despite govt jigging the numbers.

The Fed will just tighten up and stop it?

That's a laugh.

It's already stopped to a large extent because banks aren't lending the money. They aren't stupid.

The govt has destroyed our economy with its confiscatory taxation, its oppressive regulation, and massive manipulation of the money supply.

The only thing it has left to do is print money.

And the big question is which will happen first: a crash of the bond market or a crash of the dollar.

Both being caused by Bernanke's QE.

It ain't 1965 any more.

Japan has had two lost decades and is going crazy printing money now. We are looking at at least two lost decades and probably permanent, severe decline.

That's why so many people are going west again.

To China.

[G8trGr8t]

That is true. It is top 9% though. Still not middle class in a traditional sense. The actual middle is about 51K a year.

http://www.nytimes.com/interactive/2012/01/15/business/one-percent-map.html

150K is for 9 months though. That plus benefits that public workers get would be top 5 if you extended it over 12 months and included the benefits differential. And people say teachers are underpaid

[vaxcardinal]

150K is for 9 months though. That plus benefits that public workers get would be top 5 if you extended it over 12 months and included the benefits differential. And people say teachers are underpaid

its household income so this is for 2 people. assume they've been teachers for a while and their income is basically topped out. I dont think you can just extrapolate the summer month salary since its unlikely a summer job would pay as much as a teaching job.

[gator421]

I have an idea. How about investing in various foreign currencies? For example, $10,000 in Mexican pesos, to be deposited in a Mexican bank. (The only problem would be getting to a Mexican bank safely and back.) $10,000 more in Peruvian soles, and so on. Then when the collapse comes, you would have some options, you could move to a country where your deposit there is still worth something.

Very good, Grasshopper.

[oragator1]

I had to edit your post to read it. Paragraphs are your friend (I presume you wrote it in a text editor and pasted it here).

Anyway, I completely understand the rationale for poo-pooing the idea of rampant inflation in the near future and that the price of gold has as much chance of going down bigtime as it does shooting through the roof. But this thread is more about what can we expect in the future, given the current direction of the country, including economics.

My take (and many others here) is that we are spending much more money than we take in and that is going to have consequences. Two things are happening. One is that the Fed continues down the current path of trying to keep the current ship afloat using the printing press. The other is that the Federal government continues to spend money like a drunken sailor because telling our population today that the party is coming to an end and the free stuff is going to stop coming is NOT in their best interests, both politically and bodily.

One of these days either the Fed is going to see a spreadsheet that says the game is over and time to let nature take its course or the ratings agencies are going to suspect the value of the dollar. The first scenario brings the apocalyptic scenario into play and civil unrest kicks in. The second one brings in inflation and while hyper is probably too much to expect, the cost of living will definitely and significantly head upwards. Neither are ideal.

And I have said (maybe too strongly) that the Fed is playing with Nitroglycerin. Things look innocuous until something goes too far and then it goes off fast. I think you prefer to believe they are more doing a controlled burn and that the firemen are ready to adjust things as the conditions progress. We shall see who is more correct.

I had paragraphs, just not the extra space between them :)

As to your final paragraph, I don't believe it's a controlled burn, you don't get over 100% Debt to GDP by being "controlled". I would put it in the level between controlled burn and Nitro. It is in no way ideal and I agree 100% that we are spending too much, I am simply saying it's not panic territory.
But let's take this to it's logical conclusion:

First, inflation isn't imminent in the short term, nor is a strong recovery or a crash. This means status quo for a couple of years (The Fed has pledged to keep rates low for another 2 years or so minimum which tells you what they think).

In order to get to where Greece was, they had somewhere between 145 and 180 percent debt to GDP depending on who you believe, along with an inefficient system in the EU and borrowing rates that sometimes approached 10%. For us would take 8-10 years to get to that level with 6% annual debt to GDP add and 2% economic growth, so the medium term is probably safe too. But if our lending rates went up that high today we would be paying an extra trillion a year just in debt service. So the biggest threat to bring us crashing down is actually a spike in bond yields - how would we get there? Option one would be to try and inflate our way out. If we did, the action would spur inflation which would raise bond rates and lower confidence, sending them even higher. So basically our debt would be worth less in current dollars but we would pay a ton more in debt service on the existing debt, making it not much better than a wash. 2nd would be a massive austerity program, which shrinks the economy and makes your real debt worse in the short and medium term. You could do a combo of both but then you get Greece.

The scenario that the government is already going down whether they admit it or not is the nickel and dime austerity approach. They will make marginal cuts each year just as they have the last 2 years (and will have to again this year with the sequester), give it great lip service and do the same next year, only doing as much as they absolutely have to do to keep our bond rates in check and be able to fund the crap they want to fund on both sides, and as the economy gets better tax receipts will continue to rise and cut into it even further. What's lost in the completely understandable talk about our exploding deficits is that they have actually come down each almost 30% in the last 4 years:

2009 $1413 Billion Deficit

2010 $1294 Billion Deficit

2011 $1299 Billion Deficit

2012 $1100 Billion Deficit

2013 $900 Billion Deficit

http://www.davemanuel.com/history-of-deficits-and-surpluses-in-the-united-states.php

No one is saying that 900 billion is acceptable by any stretch, I am only saying that for all of the crazy bluster talk, if one believes in Keynesian economics they are doing exactly what they are supposed to do, and even if you don't believe in it they are still working (however slowly) in the right direction. If you assume an 800 billion dollar debt next year, we are almost 20 years away from Greece with a ton more in our favor (lower borrowing rates, a growing population etc.), along with a lot of time to fix it.

So ruin isn't coming in my view, but other are more than free to take a different approach, I just think that for all of the legitimate concerns about our debt and what it means to our standard of living, much of the over the top apocalyptic stuff isn't reality.

[tegator80]

I had paragraphs, just not the extra space between them :)

As to your final paragraph, I don't believe it's a controlled burn, you don't get over 100% Debt to GDP by being "controlled". I would put it in the level between controlled burn and Nitro. It is in no way ideal and I agree 100% that we are spending too much, I am simply saying it's not panic territory.
But let's take this to it's logical conclusion:

First, inflation isn't imminent in the short term, nor is a strong recovery or a crash. This means status quo for a couple of years (The Fed has pledged to keep rates low for another 2 years or so minimum which tells you what they think).

In order to get to where Greece was, they had somewhere between 145 and 180 percent debt to GDP depending on who you believe, along with an inefficient system in the EU and borrowing rates that sometimes approached 10%. For us would take 8-10 years to get to that level with 6% annual debt to GDP add and 2% economic growth, so the medium term is probably safe too. But if our lending rates went up that high today we would be paying an extra trillion a year just in debt service. So the biggest threat to bring us crashing down is actually a spike in bond yields - how would we get there? Option one would be to try and inflate our way out. If we did, the action would spur inflation which would raise bond rates and lower confidence, sending them even higher. So basically our debt would be worth less in current dollars but we would pay a ton more in debt service on the existing debt, making it not much better than a wash. 2nd would be a massive austerity program, which shrinks the economy and makes your real debt worse in the short and medium term. You could do a combo of both but then you get Greece.

The scenario that the government is already going down whether they admit it or not is the nickel and dime austerity approach. They will make marginal cuts each year just as they have the last 2 years (and will have to again this year with the sequester), give it great lip service and do the same next year, only doing as much as they absolutely have to do to keep our bond rates in check and be able to fund the crap they want to fund on both sides, and as the economy gets better tax receipts will continue to rise and cut into it even further. What's lost in the completely understandable talk about our exploding deficits is that they have actually come down each almost 30% in the last 4 years:

2009 $1413 Billion Deficit

2010 $1294 Billion Deficit

2011 $1299 Billion Deficit

2012 $1100 Billion Deficit

2013 $900 Billion Deficit

http://www.davemanuel.com/history-of-deficits-and-surpluses-in-the-united-states.php

No one is saying that 900 billion is acceptable by any stretch, I am only saying that for all of the crazy bluster talk, if one believes in Keynesian economics they are doing exactly what they are supposed to do, and even if you don't believe in it they are still working (however slowly) in the right direction. If you assume an 800 billion dollar debt next year, we are almost 20 years away from Greece with a ton more in our favor (lower borrowing rates, a growing population etc.), along with a lot of time to fix it.

So ruin isn't coming in my view, but other are more than free to take a different approach, I just think that for all of the legitimate concerns about our debt and what it means to our standard of living, much of the over the top apocalyptic stuff isn't reality.

I believe the scenario you are presenting is the Japan scenario, which means lost generation(s). Not that it has to play out that way but the politics of today indicate no other choice. Is this correct and how is that defensible (looking for free advice:yes:)?

[cocodrilo]

This is all over my head. The most boring class I had in college was Economics. But I get the sense that we can all agree on something. This country is basically screwed.

Then again, if Greece can recover, maybe we can too. How much does a Grecian urn?

[Burke]

Coco,

Greece has "recovered" only because the EU has started printing money.

And have you tried to open a foreign bank acct lately?

Don't bother. Congress passed a law that subjects foreign banks to so much crap that they are kicking Americans with accts out.

[tegator80]

This is all over my head. The most boring class I had in college was Economics. But I get the sense that we can all agree on something. This country is basically screwed.

Then again, if Greece can recover, maybe we can too. How much does a Grecian urn?

Okay, simplify. You can get it over with fairly efficiently, put up with a LOT of turmoil, get to the other side (fiscal discipline) and then hope you learn lessons that will last a long time (although since some revisionists are now claiming that the Holocaust didn't really happen I am pessimistic) or you can take a long slog because the pain is too hard to contemplate. But the slog takes a LONG time and you are left wanting - maybe starving but definitely wanting - for as long as it takes. And if you believe like I do that the politicians are not going to do the prudent thing as long as the populace doesn't force them to then that may be a VERY long time.

I think one of the things that gets missed in these discussions is that part of the problem is that we are now playing on a rather level world field. When we are competing against the Chinese, Indian and Brazilians, the adjustments to play the same game is pretty disruptive to what we are used to and adjustments to the cost of raw materials, labor and land are all a part if it. And regulations: pollution, or the threat of it, is unpleasant but it does incur a cost. No easy way to get to where we need to go.

[oragator1]

I believe the scenario you are presenting is the Japan scenario, which means lost generation(s). Not that it has to play out that way but the politics of today indicate no other choice. Is this correct and how is that defensible (looking for free advice:yes:)?

I have been comparing us with Japan for about 4 years as the most likely path we would follow, but having said that, there are some important differences. We have a growing population, they don't. We have a younger population than them and we are more insulated from the world because we have natural resources and can grow our own food.

But the more pertinent question should be, what is the least crappy of all of our options, and as you state politically which one will be most likely to come to pass?
The belief that I have worked under (and this isn't economic by any stretch), is that there isn't a politician alive who wants to either be responsible for finally sending us over the cliff, nor is there one who wants to get voted out for cutting the things their people care about, hence the path that we are on. I am not counting on their altruism, patriotism, far sighted abilities etc, I am counting on their self interest leading them down a central path where they do just enough to keep both sides of the ledger happy and keep them in office.

As far as it being defensible, what is the better option? Cutting into a recession generally doesn't work, it depresses tax receipts and offsets the cuts, leaving us not much better on debt but worse on the economy. Letting the economy tank in 2008 might have meant too big to fail went away, some of the other systemic problems would have been wiped out, and 25-50 years form now no one would be idiotic enough to make the same mistake, but I could write pages on what that would have done to the economy both domestically and globally. The lost generation (hopefully not that long) is the penance for avoiding 1929. Any one of the three options mentioned (Keynesian, letting the market decide and Austerity) has its benefits, but all also have major drawbacks, they all stink.

Here is an article from Forbes of all places on why austerity isn't the answer, it addresses what has happened in Britain and makes some of the points I have made but in more detail. So if that isn't the answer and the horse has left the barn on letting things tank, seems we only have the one option left, other than inflating our way out or pounding more stimulus in, but neither of those are going to happen.

http://www.forbes.com/sites/abrambrown/2012/12/24/the-argument-against-fiscal-cliff-austerity-just-look-at-britains-mess/

[cocodrilo]

And have you tried to open a foreign bank acct lately?


I wasn't really thinking of opening foreign bank accounts. I have enough trouble opening one here.

[mastoidbone]

There will be significant inflation--but not till later half of this decade. But I doubt greater then 10%.

[cocodrilo]

There will be significant inflation--but not till later half of this decade.

And Hillary will have to blame it on Obama. But she'll say, "Don't worry, we can spend our way out of it."

[tegator80]

I have been comparing us with Japan for about 4 years as the most likely path we would follow, but having said that, there are some important differences. We have a growing population, they don't. We have a younger population than them and we are more insulated from the world because we have natural resources and can grow our own food.

But the more pertinent question should be, what is the least crappy of all of our options, and as you state politically which one will be most likely to come to pass?
The belief that I have worked under (and this isn't economic by any stretch), is that there isn't a politician alive who wants to either be responsible for finally sending us over the cliff, nor is there one who wants to get voted out for cutting the things their people care about, hence the path that we are on. I am not counting on their altruism, patriotism, far sighted abilities etc, I am counting on their self interest leading them down a central path where they do just enough to keep both sides of the ledger happy and keep them in office.

As far as it being defensible, what is the better option? Cutting into a recession generally doesn't work, it depresses tax receipts and offsets the cuts, leaving us not much better on debt but worse on the economy. Letting the economy tank in 2008 might have meant too big to fail went away, some of the other systemic problems would have been wiped out, and 25-50 years form now no one would be idiotic enough to make the same mistake, but I could write pages on what that would have done to the economy both domestically and globally. The lost generation (hopefully not that long) is the penance for avoiding 1929. Any one of the three options mentioned (Keynesian, letting the market decide and Austerity) has its benefits, but all also have major drawbacks, they all stink.

Here is an article from Forbes of all places on why austerity isn't the answer, it addresses what has happened in Britain and makes some of the points I have made but in more detail. So if that isn't the answer and the horse has left the barn on letting things tank, seems we only have the one option left, other than inflating our way out or pounding more stimulus in, but neither of those are going to happen.

http://www.forbes.com/sites/abrambrown/2012/12/24/the-argument-against-fiscal-cliff-austerity-just-look-at-britains-mess/

Thanks for all of the points. My last question was rather poorly phrased. What I am asking is, if the Japan model is our strategy and Japan is our learning curve as to what works and what doesn't, then how do I (or we for those who are reading along) able to negotiate (not really defend) around years of malaise and stuck economies? That was a financial advice question.:embarrased:

[mocgator]

Man... I told everyone years ago to plan an exit strategy. A simple balanced approach.. but have a plan. It seems like many of you are at least starting to think about it.

Here is my advice... (given to me by someone much much smarter on such things) This is age dependent advice. If you're 22... good luck to you. Who knows what will happen to you.

If you are middle aged now is the time! Now is the time to buy the things you want for the rest of your life. Buy the things you want for retirement. If you buy things that you want to hold you don't need to worry about inflation. A friend and his wife dream of retiring to Napa one day. So they bought a house. They are over paying on the Napa mortgage to reach their goal. They don't need to worry so much about their 401K when they have their retirement home sewn up. And they have an asset at a lower cost basis than it will be in 15-20 years. Buy some gold (although that train has left the station for the big gains). Have broad equities to battle inflation. Buy long term things. Don't put dollars in your mattress what ever you do.

The losers in all of this will of course be the "poor". The fools who continue to vote the looters into congress to give them free toys. The toys will stop one day... and when you live paycheck to paycheck inflation is the most insidious tax of all for the "poor". Elections have consequences. Hope and Change baby!

Whatever happens ... I'll be here watching the show.... Because I've been saving like a fiend from the day I paid off my school loans..... :)

http://i58.photobucket.com/albums/g244/mocgator/IMG_8965Small.jpg

[oragator1]

Thanks for all of the points. My last question was rather poorly phrased. What I am asking is, if the Japan model is our strategy and Japan is our learning curve as to what works and what doesn't, then how do I (or we for those who are reading along) able to negotiate (not really defend) around years of malaise and stuck economies? That was a financial advice question.:embarrased:

Investing isn't part of my job so I can only speak for myself and how I invest, but for me the simplest explanation? Buy assets that have traditionally maintained or accrued value personally, like a home - it will maintain most of it's value through inflation and if your standard of living goes down a bit in malaise you will have it at today's prices and interest rates. And then international stocks in countries where the economy is doing well as well as countercyclical stocks here. I will probably bump my international percentage this year but that will be more due to the bull market here finally running out of steam than a tanking economy or malaise.
This is the "asset" argument is part of the argument for gold, problem is that gold has become so speculative and volatile that it's a far riskier investment than it once was - I remember reading articles a couple of years ago about how it was going to $2500 or $3000 and it's sitting at $1600 and change now. People are buying it for the wrong reasons and the price swings have become wacky, it acts more like a stock now than a commodity.

[Burke]

A lot of financial advisors are recommending that you pay off your house/homestead so that you won't lose it if you lose your job in the coming meltdown, as so many did during the Great Depression.

I disagree.

Refinance at the current low fixed interest rates (about 3%) with the smallest down payment you can get. Invest the equity and whatever else you have in precious metals.

When inflation hits, your payment being fixed in terms of real wealth will decrease and the value of your precious metals will soar.

Even if you lose your job, you can sell off enough precious metals to make your mortgage payments and be way ahead.

[Burke]

This is interesting:

"Since 2000, the price of gold has outperformed the price of Berkshire Hathaway stock by over 300%"

http://www.sovereignman.com/finance/what-warren-buffett-doesnt-understand-about-investing-10874/

[QGator2414]

150K is for 9 months though. That plus benefits that public workers get would be top 5 if you extended it over 12 months and included the benefits differential. And people say teachers are underpaid

Nothing from the OP makes me think they feel underpaid like a buddy of mine (who also wants to eliminate the choice of charter schools for kids)

That said it is always fun to calculate the value of a pension in this case to compare it to the private sector...

Let's assume the $75K salary does not increase for the rest of the OP's career...Let's also use 2% compounded yearly for simplicity for the time value of money...also I will assume the OP teaches in Florida as Florida has one of the lowest pension benefits in the nation from everything I know...

In Florida the multiplier for working 30 years is 0.6 so the yearly benfit for the OP at $75K would be $45K. I will use a 20 year annuity to assume a 20 year retirement...In that case the present value of the pension at retirement would be approximately $735K...Now lets assume DROP is still around so the OP works an extra 5 years to retire in their late mid/late 50's assuming they started teaching in their early 20's (I will keep the 20 year annuity value for ease and think it is still a fair time to value the pension at for someone retiring in their 50's). The DROP account at retirement would be worth approximately $278K... http://www.myfrs.com/portal/server.pt/community/pension_plan/233/drop#participation

So we have a pension value of $1,013,000 for someone retiring in their 50's...

Also we should remember they have not had to contribute anything up until recently (correct me if this is wrong) in which they are asked to contribute 3%...So assuming they will have contributed $33750 assuming $75K was the salary over their last 15 years of work...

Now lets assume a private sector worker (probably not getting the time off, holidays, vacation and sick days either) started working at the same time and worked for $75K each and every year for 35 years and contributed 3% or $2250 with 2% coumpounded annually they would have an IRA worth approximately $113,000...

Back to the pension example...subtracting out the approximate $39K in contributions over the last 15 years gives a value of $974K to put the comparrison back on the same playing field...At 2% over 35 years to get a value of $974K one would have to contribute $19,482 each year...So the teachers salary really is almost $20K...

Again this is just an example using the OP's numbers...

[G8trGr8t]

So we have a pension value of $1,013,000 for someone retiring in their 50's...



gubmnt workers, the new 1%.

[QGator2414]

gubmnt workers, the new 1%.

Not the OP but my buddy really irks me when compensation of teachers is discussed... :)

[cocodrilo]

If you are middle aged now is the time! Now is the time to buy the things you want for the rest of your life. Buy the things you want for retirement.

Hmm. Sounds like it's time to finally buy a new car. (Already retired.)

[G8trGr8t]

http://archives.subscribermail.com/msg/6eb67db623e842d8ad12eb6f30de375e.htm

http://www.usfunds.com/media/files/pdfs/researchreports/2012-research-reports/USGlobalInvestors-Gold_Special_Report.pdf

couple of good reads on gold and how Soros liquidated and shorted the yen to make another billion. sure would be nice if he was spending some of those billions he makes putting his money where his mouth is.

[shelbygt350]

First, ignore the govt published CPI (they keep changing it to be low). Costs for energy and food (as well as other staples) are going to sky rocket....maybe not 25% per yr, but more than 5%. Cash will become worth less and less.

In 10 yr a loaf of bread could cost $100.

Consider this, a few yr ago (2-3) a formula was calculated (cant recall who did it) that if USA did not drop gold standard back 40 yr ago, an ounce of gold would be worth $7,400

The result is a vast number of people living with a much lower standard of living, just like in most countries of Europe, Asia, So America, etc. Then there are the "very few".

The very few, like the Clintons, Gates, Buffetts, Pelosis, etc will live like kings and queens, just like royalty. They own/control all that you need. See Fidel. See Soviet Union. See Europe.

It will be very difficult for one person to come from the lower tier, strive to succeed and actually break thru the ceiling and become a member of the royalty. Politically maybe, but not based on Merit, nor business acumen, nor self determination.

What caused people to immigrate to the USA, in decades past, was the "opportunity to succeed". Today, people immigrate to the USA for the opportunity to suck off the teat of the taxpayer.