Recycled

Since we see the future and it's not bright, Barb has been in search of more land. We've had a three day marithon discussion about realistic expectations - can you imagine an old redneck and a research scientist with two PhD's talking about anything for 3 days. Never the less the bottom line on my part is that, even though I am not dead yet, she may well kill me if she expects me to fully develope the property here and build three more houses after the one we started. Her bottom line is to be prepared for any contingency. You see when she says stuff like that I need to try an understand what she means, it took 3 days for me to get a grip on this contingency thing.

"A theory is basically an "if - then" statement. You start with available data, the theory is the explaination of the data and through logical induction, which is not deductive like a syllogism, you derive an explaination. The explaination being - if the theory is correct then future events should also be true. Unlike logicians, testing the conclusions serves to validate or invalidate the theory to produce a more accurate explaination. Theories  are never proven, they are supported or refuted." This is the stuff I hear when I want to know what Barb thinks about the future, this was the disclaimer before the answer. You may be able to understand this stuff but when combined with the facts and figures she has amassed on the direction of future events is the reason it takes me so long to even get a glimpse at what she may be saying. At the end of the discussion I say, if we go out and buy a minimum of 10 acres of land, are we good to go? She says -" yes, with conditions." Which is exactly why she is looking, not me. If you get the feeling I am only the labor in this outfit, you'd be right, for a pretty good reason

Reasoning for the stories

There isn’t any one thing Barb and I can do in our personal lives to counteract the moral, legal, political and economic disintegration in this country – moving to another country doesn’t cut it – we’ve tried that and there are way too may unforeseen detrimental  issues. Simpler isn’t always better. Barb and I are getting close to the point where we will be on fixed incomes, physical constraints will soon be on our door step.  What we do now will be what we have to live with until we die; the stories portray the process we go through in making those decisions. Financial security is a function of this country’s financial and economic stability, physical security comes from the political system of laws and regulations, food and shelter from a free enterprise notion of supply and demand. If you think about it for a minute you realize, we may really be in serious trouble. The fact is we are past the point of no return, things will never return to what us old folks consider normal. The new Coke is the old Coke that was changed until someone noticed which became the old Coke when the real Coke disappeared. Sometimes we analyze things to death and it becomes impossible to track the individual components but it does lead us to realistic expectations. The last 4 years have lead us over the tipping point – no longer can we as a people travel through life oblivious to the political system, keeping our collective noses to the grind stone and when we are physically and mentally spent, cash in. That won’t do the trick anymore; our pensions and investments won’t keep up with increasing taxes and inflation, especially in health care costs. We will be thrown into the heap of used up assets along with the unproductive, piled in the corner after being stripped of any useful parts ( our money ), waiting for collection to be buried deep in the political muck. Over 50% of the population has already signed on to this outcome, of course they are so consumed by the moment they don’t know what’s coming, even when it’s pointed out to them, they are simply not smart enough to see the reality. This is what Barb and I see as realistic expectations, there is no turning things around we’ve gone too far, we have to deal with what we perceive to be the inevitable outcome of the direction society has taken. This is the basis of what I write about, it can’t be put into a nice neat little package and there is a lot of background and details and some of the things I say are wrong, partially wrong, partially right but mostly it’s right on the money and can be tied to facts and figures not some idealistic rumor of conspiracy theory.

I will continue to build the house here in North Carolina and maybe one more somewhere else but I am an old fella and I don’t hire anything out. I wait for weather and supply chains and budgetary constraints, I time out for other issues of interest to me and I get side tracked. I am not on a schedule and I have no deadlines. My work is first rate and my knowledge base is pretty extensive, so if you want to see a house built by a one man show – stay tuned. You’ll have to filter through a bunch of other stuff though. I will continue to write about the things that are important to me and that I think should be important to everyone and if you like that kind of stuff you will have to filter through a bunch of building stuff to get to it, depending on the time of year and building supply affordability. Building is still the best way I know to at least stay with the inflation rate. Its winter now so I have a lot of excuses not to be busy building, mostly weather related, so the blog is dominated by economics and politics, the rest of the year it will be building related; maybe.

Barb and I still have ties in Ecuador that may need to be tended to, a rental property to deal with and of course Barbs direction for retirement, she can actually fully retire at some point, I am unwilling to do that; I think she is too but I think we will go down that road for awhile anyway.

I took down all the batter boards for the foundation this week and decided to recycle them into a little work table for Barbs birthday. I guess it's pretty sad that I never buy her anything but I really have no clue other than guns or tools.

A finish coat on the legs and another coat of varnish on the top and it will be ready to deliver.

What to look forward to

What Do We Have To Look Forward To?

Thanks Pat; What a great response! I hope people read it. As far as the house goes, I am deep in mud and material problems.

Mike; Thanks for the comment, you always seem to be way ahead of the curve.

Since someone asked, I’ll tell the story on the house building progress. A few weeks ago I side tracked myself to build a little storage shed because I was low on materials, specifically blocks – I still need 600 blocks to finish the foundation. I’ve already told the story about how 3 of the main distributers for building materials had shut down because Obama was re-elected. I can’t get blocks unless I order the whole load and even then it would probably be spring before they were delivered, they’re not making blocks. I could buy partial loads from surrounding areas but would pay double for the blocks and double for the delivery because it’s a partial load, I’m not doing that – I’ll wait. When the ground firms up again (freezes) I’ll parge the parts of the foundation that are in and I will pull a couple hundred blocks from a shut down distributor in Georgia, to stay busy but with an empty rental property in Missouri, I’m not in any hurry to over spend the budget on the foundation on the house here.

Late this past fall we planted some winter wheat in areas where we think we will put garden space this spring. My idea was to throw in some radishes to help loosen up the soil.

Barb seems to like them right about now - not too hot and not too sweet.

In the last 4 or 5 posts I tried to lay some basic fundamental concepts on political history and economics. Enough that I hope everyone sees the flaws in the political concept of paying down our national debt with future less valued currency. There is zero chance that congress will do anything meaningful to stop the spending spree. It is clear that the president has no understanding of our history and that congress has no grounding in economics. Even the most modest of households have to balance their budgets, everyone understands you can't spend more than you make for very long before there are serious consequences, there hasn't even been a federal budget for the last 4 years.

Personal perspective on what to expect for the next 4 years.

The political operatives in power now have 4 assumptions at the base of their policy making decision process.

1)    Spending is not the problem.

2)    We can always borrow money.

3)    We can always raise taxes.

4)    By lowering the value of the dollar we can pay back older debt with lower value money. Obama believes this policy actually saves money and it shows up in his budget proposal as debt reduction.

You can pretty much be assured of increases in back door taxes – Obamacare, tax increases when you transfer your 401K into a Roth tax free plan, increase in capital gains tax and reduced tax deductions are good examples of back door taxes that have already been passed. This is only the tip of the iceberg.

Increase in the retirement age. Not only in Social Security but because the Federal Reserve is holding interest rates low, you’ll get a much lower return on investment forcing you to put off retirement. The unemployment situation causes competition for work and lowers wages, a further deterrent to retirement. You won’t be getting any pay raises or a better work, upward mobility is a thing of the past.

Cuts in Social Security and Medicare are pretty much guaranteed. We pay for these programs and they “borrow” from them, you can be sure they will steal whatever they want from them (you). As they do you will see a sharp decrease in services, as a matter of fact they are going to use money from Medicare not only to fund Obamacare but to raise the level of Medicaid.

Of course there will still be hyper inflation, as it continues you will lose more and more of your purchasing power – continue to take a hit in your standard of life. They can’t continue to pretend that it doesn’t exist and if GDP stays stagnant our currency will fail, not to zero but 50% is pretty likely. Think bologna and spam for protein. Gold and silver won’t save you, look at history and you will see how they handle that.

The stock market is over inflated with imagined value in high tech markets that can’t possibly remain stable for an extended period of time. We can’t keep subsidizing agriculture to produce ethanol without it impacting our food production and exports. We can’t keep pouring money into alternative energy that will never be a viable alternative.

As this administration becomes more arrogant and enabled by stupidity they will continue to mess with the Constitution and Bill of Rights ( they will be going after the 10^th amendment next after they circumvent the 2^nd amendment ), congress will continue to, go along to get along and all the taxpaying, law abiding people will pay the price. You will see the non productive members of our society, the people who don’t pay taxes, the folks on welfare and food stamps and illegal’s, raised to the level of hardworking, taxpaying middle class folks through increased entitlement programs in an all out class warfare battle to ensure the leveling of American society.

The advent of Obama’s second term terrifies me, because his socialist agenda is so obvious yet no one is standing up to him. He already has more power than any president in history with the National Defense Authorization Act – Title X, subtitle D, subsection 1021 &1022. My question is – how much more of your rights are you going to give him?

Comments on Comments

Getting to the comments.

Now that we are all on the same page, I’d like to comment on the comments.  How can we stop these politicians from doing all this stupid stuff?  We can’t.  With over 50% of the population wanting exactly what these politicians are pushing, it won’t stop.  Only when the low information people (the stupid), the people on public assistance and the people who believe in the redistribution of wealth find out that these political philosophies aren’t what they thought they were and have to start dealing with the economic realities, then it’ll stop, or not, depending on how far down that road we have gone.  There’s no such thing as a democracy in real life, there’s only the definition of democracy, it has never really happened.  In our country, after the signing of the declaration of independence, we were a federalist nation created by the articles of confederation.  We traveled that path, with weak central government and loose confederations with the state’s.  Over time we developed a stronger central government and with the advent of the election of FDR we officially became a democratic socialist nation, with a stronger central government seeking to establish socialism using the democratic process.  This process ebbed and flowed over time depending on the political persuasion of our elected representatives.  When democrats influenced the political system democratic socialism thrived, when republicans influenced the system it slowed down a bit and so it goes until 2008.  Since then the socialists nature of our nation has really been cooking because Obamas philosophies are pure Marxist and our populas likes it.  Next time you’re in the grocery store, standing in the checkout line, take a look around at how many people are watching what you take out of your cart.  It’s greed, we all have it to one degree or another.  Which leads me into the next comment, what’s the motive?  Man’s entire existence has been dominated by fear and greed.  Our country has come a long way in 200 years, once the fear of starving to death has subsided greed kicks in big time.  Politicians have figured a way to convert their greed into power and they’re addicted to it and will do anything to keep it.  A good liar will season his lies with the salt of truth and the pepper of fear, the best liar has the most power.

Politicians are not the only ones that are good liars.  Business people are pretty good at it and so are academics.  That’s not to say that they all are, it just depends on how greedy they are.  This brings me to the next comment-economist.  I have a little bit of a background in economics’ and I can tell you that a lot of economic theories that are floated as facts are contrived at best.  The reason that this subject comes up is because we are in the midst of probably the biggest economic disaster this country has ever seen.  All perpetrated by some of the biggest liars on the face of the planet.  Case in point-Keynes’ consumption function, a formula to measure economic consumption. The calculation is full of numbers and letters assigning variables with subscrits and footnotes to extract real numbers from other things that may or may not exist, I had to learn this consumption function. Being pretty simple minded, I had to break it down to it’s simplest terms (like manipulating fractions) to be able to comprehend what was going on in this way complicated formula – I don’t remember the formula but I do remember my simple version because it is way more accurate – total consumption is equal to spending on necessities(food,clothing,shelter) plus spending on non essentials as a function of disposable income – duh. If you think this is a really stupid thing to talk about think about this – the manipulation of our entire economy is done by people who subscribe to the principals of Keynesian Economics. If you want to look smart and important, to grab the gold ring of power and influence, make things so complicated that no one can understand it. The basis of law is a complicated language no one understands, mathematics – calculations to support other sciences, physics - applying math to common sense so it makes no sense……Obamacare is pretty simple to understand,nationalized health insurance that will result in lower standards of health care, increased costs that we will all pay dearly for, that covers everything except our health. So why does it take 2400 pages of legalese(and counting) to administer? You think it may have something to do with making it so complicated no one can understand it. Ofcourse complication leads to misinterpretation – oh, we are in for a bumpy ride!

Side Tracked

Getting a little side tracked

Pat; Your trying to sell a bill of goods that I’ll never buy – your quicker, wittier and more up to date than most and pretty darn smart, evidenced by your baiting of me on the question of motive – I like it. We can go there.

Mike; Thanks for your contribution from Lord Keynes, I’ll touch on his calculation of the consumption function – his biggest contribution to economic theory and one of the basic principles of macro economic teaching back when I was in school. It’s all a load of crap.

Thanks to the comments on the blog, we are going to actually start having a conversation about something other than me writing into a blank space. Even though most of you understand the stuff I have been writing (probably better than I do) the human condition is to attempt linear algebra without understanding the fundamentals of math, I’ve taught middle school math, I know. So for the sake of my own sanity I have to make sure we are all on the same page because the folks who are running this show (the government) have way less than no clue. It does make you wonder about the people who elected them though.

This post was supposed to be about what all the facts and figures I’ve sited in the last few posts means to you. I’ve never built a house without changing the foundation at least once and I can’t remember a conversation I’ve had where I didn’t digress. So why would this blog be any different, it won’t. I need to cover the basics of U.S. political history, but before I do I’ve got to tell you about a story I just read from the National Home Builders Association.  Hot off the press-the Federal government has just issued new standards for banks on lending money on mortgages.  Here’s the new standard, the person borrowing money has to be able to pay back the loan.  That’s it.  That really is it, of course the banks will have to hire 20 people to handle the paperwork, that  really is the only thing they stipulate.  Starting tomorrow every bank in America will have people lined up outside their doors as far as the eye can see, oh this will change everything, wait a minute, the new regulation won’t take effect until next January.  That means that the current regulation which allows for subprime mortgages is still in effect until next year.  Who’s the culprit for this housing debacle anyway, Bill Clinton’s Affordable Housing Act. What’s this new regulation going to do for the housing market? Nothing.  Why do you think the banks aren’t lending money?  So much for that, let’s move on.

My sense of history is extremely limited, I was fed this information by the research scientist in this outfit-Barb.  Man has been a hunter gatherer for most of our 200,000 year history.  It was only 2000 years ago that China, Rome, Greece, Persia and India started to evolve into what we see today as modern society.  The United States has only been the United States for 237 years, so as far as modern societies go we’re the new kid on the block.  With the exception of the puritans the foundations of this country were laid by businesses from England, Spain and France.  Greed is in our bones and greed is what formed this nation.  In 1670 the Hudson Bay trading company owned 15% of the entire North American continent.  The English, Spanish and French governments fought over control of this country and in 1763, at the end of the French and Indian war, the British empire finally had control of the eastern part of the North American continent. By this point in history there were 2 million people in the colonies providing goods and services to the British Empire, 2 million business people, mostly 3^rd, 4^th and 5^th generation born in the colonies British citizens. Farmers, loggers and lumber businesses, mining operations, textiles, importers, fishermen, etc. and the services to maintain those businesses and the population. If it weren’t for the greed of King George III we would still be a colony of Great Britain.  You can see from this brief history that the United States did not become the United States because of some ideology about freedom or because it was a land of milk and honey, it became the United States as a matter of survival.  The American revolution started and 1775 and on July 4th of 1776 the Declaration of Independence was signed with a long list of grievances against the Crown all of which had to do with the misuse of government powers and the lack  responsiveness to the population. Essentially British citizens without the rights of British citizens. Dissension about the succession of the colonies from the British Empire almost caused it not to happen. The Continental Congress formed the Articles of Confederation at that point which was sent to the 13 state’s for confirmation in 1777 and ratified by the Continental Congress in 1781.  The American revolution was fought from 1775 until 1783 and on March 4^th, 1789 the articles of confederation were replaced by the Constitution of the United States.  Which essentially address the grievances on the Declaration of Independence. It’s a constitution framed by businessmen not politicians, volunteers not paid representatives, people who knew what it took to have a prosperous society and most importantly knew from experience that a large central government would starve and tax them to death – literally.

I can assure you that a vast number of politicians, including Harvard educated constitutional lawyers either don’t know or don’t understand the history of our country. It’s never been about politics, it’s always been about business. When taken out of that context we lose our uniqueness and become merely another country.

This post has run a little long so I’ll have to put off political motivation and academically challenged economist until next time.

The Plan

Here’s the Plan ( as I see it )

The political plan to deal with our economic woes is as plain to see as the nose on your face – literally.  Let’s look at that simile, when you look at the nose on your face you look in a mirror to see it and what you see is a direct reflection of what you want to look at.  In other words you are looking at your nose exactly backwards.  That is the political plan, to do the exact opposite of addressing the problem and dealing with it directly.  I can hear the thoughts now, how is this idea anything new?  Politicians have been doing this since the beginning of time.  What you are saying and thinking is an exaggeration for effect, what I’m saying is that our political representatives not only will do but are doing the polar opposite of the right thing.  Now this sounds like something really silly, like maybe I’m being sarcastic but I’m not.  As an example let’s look at the latest fiscal cliff deal, the fiscal cliff was not a bad thing, what it was, was fiscal responsibility.  The chairman of the Federal Reserve used that metaphor to describe what he saw as an economic problem and it caught on as a catch phrase for the democratic agenda.  In reality, as history will show, the so called fiscal cliff would have saved this country a lot of economic grief.  Let me show you what I’m talking about.

Public debt is exactly like your household budget, except a whole lot bigger.  If you have more income in your budget than expenses, you have a surplus.  If you spend more than you make, you have a deficit.  Public debt is a measure of exactly the same thing, with federal spending being deducted from income  (tax revenue), because the number is so large, either way, it is reported as a percentage of the gross domestic product.  You could do the same thing with your household budget by citing the monthly surplus or deficit as a percentage of  sales of the company you work for. In what world would that make any sense. Compound that by adding in calculations on inflation indexes, the world price of commodities, pro_ections on rate of growth or decline in earning potential, annual depreciation of assets, increases in interest rates on debt and a partridge in a pear tree. Would you consider adding those calculations to your household budget? It sure would sound like you are doing something important. This is the Federal government we’re talking about so they have to have special language, special calculations and special terms for the things that you and I deal with everyday. Sounds like maybe the government has a corner on the market of red herring or could it be that you and about 150 million other people have been hoodwinked by a really slick salesman on a contract no one understands but sounds really important, to balance your budget. The fact of the matter is both of those things are true, we are lead down the wrong path at every turn by people who can talk the talk but have never walked the walk.

Now here’s the deal, if we had been allowed to go over the fiscal cliff the deficit in public debt would increase from 69% of GDP to 84% by 2035.  So we would accrue more debt but in the process our gross domestic product would jump by almost 3% which means more revenue.  You know we didn’t go that route so now we’re looking at the public debt as a percentage of GDP going up from 69% to 200% in 2035 and GDP staying flat. Those numbers are available from the Congressional Budget Office.  How would that work out in your budget?  Now let’s get on with what the plan is.

Hyperinflation by itself doesn’t mean the currency will fail – there are two ways to extend the inevitable, if the government can raise taxes enough and if they can borrow enough.  That’s how this government has been getting away with an economy in hyperinflation for the last four years, by borrowing.  We’ve reached a point in time where our options for borrowing are becoming very limited.  Nobody wants our debt as demonstrated by the last two years of borrowing from the Federal Reserve.  If you look at the numbers you’ll find China holds $1.1 trillion of our debt while the Federal Reserve holds well in access of seven trillion dollars in Federal debt.  The remainder of the balance of $16,000,000,000,000 in Federal debt is held by businesses, state and local governments and individuals in investments.  The Federal reserve is a private company but politicians, especially the president who appoints the director of the Federal reserve, has some influence on Federal reserve policy.  The last four years the Federal Reserve has engaged in three rounds of quantitative easing and four months ago operation twist, can you see how something like this would happen?  You think that this might be part of the plan?  Of course it is.  The politicians think they can borrow their way out of this mess long enough to get revenues up enough to get us out of an inflationary trend.  Of course it’s not working because they don’t understand business cycles, basic economics’, fiscal responsibility or have any common sense whatsoever.  The Federal reserve had its annual meeting at the end of December and I will bet you a dollar to a doughnut that Bernanke got called on the carpet over operation twist because the Federal reserve is starting to backpedal on this program.  Nonetheless borrowing money from the Federal Reserve is half of the political plan, the other half is raising taxes.  The president has been quoted as saying we don’t have a spending problem we have a revenue problem.  Which we all know is the exact opposite of what the problem really is.  To sum up the plan, the politicians will borrow money until they can’t, then they will raise taxes until they can’t, then our economy will fail.  Meanwhile the general population suffers through the effects of hyperinflation, while everyone blames it on everybody else and no one does anything to stop this freight train that has run out of rails. So what does this mean for you? We’ll discuss that next time.