A Response

[Guest yobob1]

This was sent to me by Poopy Diaper :

The bold numbers are inserted as reference points.

...or tell me if this person is correct.

 

1 "Has anyone thought about what would happen if we ALL, every last one of us in the USA actually decided to stop and spend within our means? I'm not only talking about people who are accepting food stamps to supplement a meagar income, but also those who have plenty of money and have loans on cars, houses, and frills, but also businesses small and large, but also, and far more importantly our government. What would happen if each and every one of these people lived exactly within their means? The whole damn shooting match, this place we loveingly call home, the USA would just fold. OUr economy would be shot to hell.

 

2 First and foremost, our deficit was dwindling, we had a surplus income, so what did the president do(I can name names here, because he's a public domain figure), he decides that the WEALTHY deserve to get MAJOR tax cuts, but the dems in the congress and senate stopped that idea, forcing him to compromise and that's what spawned those refunds that SOME of us got. He also claims to have cut taxes across the board, but rumblings are coming that taxes on the poor are going to be raised... we're talking about people(who the Wall Street Journal has the audacity to call "lucky duckies") who make approx 12K per annumn and while they don't pay income tax as such, they DO pay ss taxes and medicare and medicaid, and more importantly they pay what economists call the poor tax, ie sales tax. All told, they pay 20% taxes on their 12K per annum(yes, even counting their EIC), which takes their disposable income down to 9,600..... oh yeah these people are really lucky. But I digress. If Bush had to spend within his means, he'd be stopped from doing ANYTHING. No Xmas bonuses or raises for his appointed brown-nosers, no increase in military spending, no defense budget or patriot act spending(now that would be a good thing), and no chance to wage war on Iraq - even if Iraq suddenly realized our predicament anbd bombed us first. And Bush would have to lay off a goodly portion of the govt. This would raise our current record high unemployment way past 6%

 

3 Next lets go to the major corporations, which often spend in the red - how many of these would have to shut down tomorrow? No bankruptcy - after all this is the ERA OF PERSONAL RESPONSIBILITY, and most would have to close down, thus placing even more people on unemployment - except, since the govt couldn't spend beyond its means, there wouldn't be any unemployment, any food stamps, any state health or welfare, and these people would all be desperately trying to pay their mortagages and feed their children.... quite a change from smugly sitting at home and looking down on the people who can't afford to live the way they once could. The resulting repos of cars and houses would, of course, cause a major bank failure - hmmmmmm and where would the FDIC be???

 

4 Next would come the people of modest means, the working poor and middle class - if they hadn't already been put out of work by the above employers working within their means, they would soon find themselves also on the street. And since living within their means was a major source of money for the small business(like my TKD studio which would not exist if certain parents and grandparents didn't find it necessary to scrape up money they don't really have to give their kids this boost in focus and self esteem), this would lead to the destruction of the small business.

 

5 As I said, with EVERYONE living within their means, small businesses would be out on their ears - no longer able to float purchases on daily cash flow(since their customer load would be grossly reduced) they would close. Small business is the lifeblood of the nation - there would be less money coming into to the fed govt - less chance of getting it up and running again.

 

And then we'd be down to the extreme poor - who would really be no worse off than they are now.

 

My point? Don't be so hard and so judgemental on those who are forced, either by necessaity or desire to live beyond their means. They are the ones who keep this juggling act we call the American economy up and running."

 

Thank you for your help!

 

Let's look at number one. In our current situation where all the mentioned entities are, as an aggregate, deeply in debt, The US and most of the global economy would fold up an die if borrowing came to a screeching halt. The problem is not that people aren't borrowing to live beyond their means, but simply that the debt load that they have already taken on, can't be serviced out of current income and maintain a status quo at the same time. The fractional reserve banking system requires that debt be constantly expanded. You not only have to create the principal that people wish to borrow but also the funds that represent the interest to be paid on that principal. This of course is inflationary from a monetarists point of view, and rightly so. When people complain about rising prices what they should be complaining about is the falling value of their dollars caused by constantly creating more and more of them. (thanks to Don Stott at www.coloradogold.com for the previous line, though not verbatim)

 

Constantly expanding the credit system is bad enough on it's own, but when the sytem is manipulated by an artificially low lending rate and lax lending standards, as we have had for close to a decade now, debt expansion grows wildly out of control allowing the system to borrow more than ever can possibly be repaid. This easy money then flows into areas of the economy that otherwise would never had access to funding. The funding mechanisms can be direct, (bank loans), sanitizing bundling (bond market), or the stock market via an IPO. Recent examples of this excess would be the Dot.bombs, Telco and energy trading (Enron).

 

This is obviously a very simplified explanation for expediency.

 

The alternative is a system whereby savings are deposited by those who have extra income beyond their immediate needs. These represent the "profit" of individuals and businesses. When a bank has accumulated enough savings, it then can loan some of those savings out, because under normal circumstances not all savers will withdraw their funds at the same time. In a free market the interest rate is set by the availability of saved funds and the demand for those funds. The other side of that coin is the interest rate paid to the savers which should move in concert with the demand of the borrowers. The lending must be done on a prudent basis; i.e. ability to repay and sufficient collateral. So when savings are high and demand is low, lending rates are low as is the interest paid to the savers. visa versa of course. Again very simplified, but here you do not need to expand the money supply to cover the interest. The savers get paid indirectly by the borrowers who pay their interest with their profits earned by investing in productive enterprises producing goods demanded by the consumers. In between is a bank earning it's management fees by the spread between the savers and the borrowers rates. In itself a bank is not a bad thing.

 

In a nutshell we simply expanded credit beyond the ability to repay the interest, let alone the principal, and in order for it to continue the lending has to expand at an ever increasing rate. There are limits to the expansion because soon you have a graph that goes vertical and no amount of lending can cover the liabilities and the market becomes debt saturated, even at zero interst rates. This is where we are now. It will collapse. No if's, ands or buts. It's not a question of "if" everybody quits borrowing, it's when. That "when" is increasingly being determined by lenders dealing with previous lending going bad at an increasing rate which causes lending standards to tighten directly or indirectly. I hope this answers number 1.

 

Number two.

we had a surplus income, so what did the president do(I can name names here, because he's a public domain figure), he decides that the WEALTHY deserve to get MAJOR tax cuts, but the dems in the congress and senate stopped that idea, forcing him to compromise and that's what spawned those refunds that SOME of us got.

 

We never had a surplus, otherwise how would you explain that the govt. continued to increase debt all the way through those surplus years? The rest of that is political sour grapes and I won't touch it. Personally I am in favor of any tax cuts anywhere if it is matched by reduced govt. spending, which it never is. There is no difference between the Democrats and the Republicans other than the constituency they pay off and damn little difference there.

 

they DO pay ss taxes and medicare and medicaid, and more importantly they pay what economists call the poor tax, ie sales tax.

 

So you would propse that the "rich" pay the costs of the entitlements to the poor? Then where is the motivation for the poor to improve their lot? The whole concept of entitlements sickens me. Stealing money from me through taxes and then giving it to someone else of their choosing is wrong and purely socialist. I am not against charity by any means, but let me decide where I want my money to go.

 

Don't worry about the govt. losing it's borrowing ability as long as the federal reserve bank exists. If you total the number of local, county, state and federal employees, you'll find that almost half of the workforce is comprised of govt. workers at some level. So out of the other half, you have to subtract those who receive some or all of their money from the govt in the form of direct payments, rent sudsidies, food stamps, or the thousands of other govt. programs out there. Let's be generous and say they comprise only 10% of the total potential workforce, though I suspect the number is higher. So what do you have left? 40% of the population supports the other 60%.

Frankly I'm tired of working for everyone else and it would not offend me at all to see half the govt. leaches out on the street. Maybe then individuals and businesses could find a reason to invest their "savings" in productive enterprises which would create productive jobs for those unemployed. In the meantime I personally strive to pay the govt. as little as possible by reducing my living expenses and controlling my income. Call it a work slow down if you like.

 

Numero tres.

quite a change from smugly sitting at home and looking down on the people who can't afford to live the way they once could.

 

I feel the same way about corporations as I do govt. If they have borrowed beyond their means to repay then they should die. Ultimately they will anyway. These half-assed bankruptcies only serve to increase malinvestment and further drain resources away from the shrinking side of the productive economy. UAL is a good example. The airlines since the inception of the industry 70+ years ago have in sum total never made a profit. They are as bad as some of the tech compaines or Amazon in that respect.

 

In reference to the above quote, once again a type of class warfare is employed. Here you are pitting the savers against the borrowers. Should I feel bad if Joe Yuppy loses his job, his 500K McMansion, BMW, Cadilac Escapade, boat and his summer home? Sorry, I won't. Here again I'm tired of people who through borrowing were living a lifestyle they couldn't really afford. No body held a gun to Joe Yuppy's head and made him borrow all this money. It was his desire to feel superior, or at least "equal to", combined with easy credit that created his problem...not me. He thought he could have it all based on unrealistic expectations of the future. He can't.

 

Does that mean I will dance with glee if Joe and his family go hungry? No. It will be up to individuals to help Joe out. The problems will be too large for the govt. to handle. As to the FDIC, it never has been really stress tested. It will probably fail it's mission. This is why your choice of banks is critical as is storing some of your wealth in something other than paper.

 

I have to break here. I'll finish this later. We have been socked in with an air inversion creating a smoggy, foggy environment in the valley for the past 10+ days. I'm taking a drive up into the Owyhee mountains to get out of this crap for a few hours and maybe see the Sun.

[Flaming Turds]

A work slowdown is one way of dealing with it. Ive had two businesses that I shut down because of the tax burden. When youre a business owner and do your own accounting it is very hard to avoid the fact that they are stealing 50% of your time. Why should I work 60-80 hours to 'get ahead' when the only winners are the govt, the banks, and the landlords? I now do as little as I can get away with. I believe that most of the entrepreneurial types are well aware of this predicament and as this depression gets into gear we will all be just sitting there because we've been check mated. There really is no reason to get out of bed for the current system unless youre out of beer.

[Goldilocks]

Good heavens man! You actually let yourself run out of beer?

[Guest yobob1]

Well I'm back and it was refreshing. I arrived up at my high mark just before the sun rose and it was beautiful. The entire valley bowl was filled to the brim with the fog so the scene looked like mountains in a bed of cotton candy with blue skies above and the cool colors of morning light warming the muted hues of the earth.

 

I took the back way out and passed through an old township that was never much more than a stage stop in the late 1800's and is now just an intersection of 2 roads surrounded by ranches with a few buildings scattered about including the old one room schoolhouse. Also at this intersection was the graveyard. Normally I'm not one to poke about amongst the dead, but for some reason I was drawn to this one. There's probably about 50 graves total and maybe 15 or 20 different family names. I noticed a couple of oddities and it peaked my curiosity so I began to piece together some of the families' history. In 1892 one family lost 4 children, ages 2, 3, 7 and 10. they all died between November 29th and December 13th. Four children in 2 weeks. They must have been devestated. The father lived until 1921, dying at the age of 79 and the mother until 1931, being 88 upon her death.

 

In another family 3 children, between 2 and 12 died in one week around the 1st of December in 1890. Once again the parents outlived their children by a considrable margin. In another area of the cemetary with a different family name not apparently connected to the one who lost the three children were the graves of an elderly couple in their 70's that also died in the same time frame as the three children.

 

My guess is an influenza outbreak, or something similar took the weakest, those being the children and the elderly. I could be wrong of course, but that seems the most logical explanation. As I continued looking around it became obvious that about half the graves were children.

 

Boy do we have it tough. Ok moving on.

 

Quatro. I have no idea what a "TDK studio" is and probably don't want to know. Perhaps if the productive members of the workforce weren't having to work twice as hard to not only support themselves but also the 60% of the people who aren't productive they wouldn't need to have their kids "taught" focus and have their self-esteem boosted. Don't you people get it. Now it takes two working incomes and most of your free time just to support the "desires", the unproductive and yourselves. Most of the problem lies with the desires. I want, Iwant, I want and I want it right now. Nobody thinks about saving for and dreaming about their desires anymore. Hell that's more than half the fun. Don't you often find that once you've signed on the dotted line for your dream whatever, that the thrill begins to fade almost immediately?

 

Businesses large or small that have borrowed excessivley will go under. that happens in good times and in bad times it will harshen and accelerate the process until supply and demand meet at whatever level. People aren't going to stop trading. The levels may be different and the medium of exchange may change, but it will go on. And those that are successful at it will expand and hire as needed. Nobody said that the planet would stop revolving, but things will be different and yes there is going to be a lot of pain and suffering. The concept that we can just go on consequnece free is just plain stupid.

 

Numero 5. I don't want to get this government up and running again. The government we currently have is so mal-adjusted and corrupt that it is beyond redemption through the ballot box.

 

As to the extreme poor being no worse off, you must be assuming that those govt. checks just keep flowing. I wouldn't count on that, or if they do the amounts when adjusted for the hyperinflation that could well be the result of trying to outrun the devil, might be meaningless.

 

The sooner people stop suckling at the govt. teat the better. All it does is increase their dependency to where for their security they have to depend on the government. What in the hell happened to the concept of people looking inwards to their own abilities for their security? Would you rather have an independent populace or a dependent one?

 

My point? Don't be so hard and so judgemental on those who are forced, either by necessaity or desire to live beyond their means. They are the ones who keep this juggling act we call the American economy up and running."

 

No neccessity forces people to live beyond their means. They may choose to, but it's unlikely the really poor are charging their groceries, gas bill and whatever on their Visa cards. Neccesity needs to be clarified. Is a 3000 square foot 3 bedroom 3 bath house with a three car garage a necessity for a family of 4? Is a New Ford Expedition a necessity? Is it a necessity to have 2 cell phones, cable TV, and the internet? Do you really have to have that cartload of Chinese crap you picked up at Wal Mart or you will positively die?

 

As to the "desires", I commented on that above. At this stage of the game, if you have bit off more than you can chew, well I'm sorry, but I'm not going to bail you out.

 

Yeah, yeah I know, cruel and heartless. Tough titty. Until this economy is allowed to cleanse the excess and our "money" is put on some sort of sound foundation, there's going to be hell to pay. Some more than others according to how bad they screwed up. One way or another the party is over and the hangover has just begun. So how plastered did you get?

[Guest]

Thank you very very much Yobob1!

[assteroid]

Yobob, I'm puzzled about the 40% supporting the 60%. Do you mean through social security and medicare, or welfare, or all of these?

 

In many poor third world countries people are completely on their own. Rather than creating a model of hardy individualism these people create their own safety net by having far too many children. The poor third-worlder hopes that at least a couple of babies will survive long enough to take care of them in their old age. This has to be the craziest, most inefficient, cruel...but completely understandable "social program"anyone can imagine. Try as we like, we're social animals who try to accomplish social security one way or another. I'm afraid so many "solutions" create more madness and pain.

 

As far as taxation goes--small businessmen need an incentive system, not the current disincentive system. My husband and I were talking about this the other day. He said if he was somewhere in the tropics, like Indonesia, he could just pitch a little kiosk along the road somewhere and barbecue shishkabobs, and sell them. But not here, no way. You'd be breaking how many laws if you did this. All the permits, licences, zoning requirements, and taxes make it difficult and way too expensive. So I can see how resentment builds in this sector, and encourage anyone who doesn't understand what fuels the anti tax movement, to try starting a small business.

 

Fun reading about your trip, and all the dead people. What I've noticed in old graveyards is how many women died in childbirth. Being a guy was tough back then. Being a woman? Like why even bother, it was so bad.

[chiefywiefy]

QUOTE "after all this is the ERA OF PERSONAL RESPONSIBILITY,"

What? What? Everyone and his brother being sued for one reason or another because life is not fair? From special ed requirements to 10 space handicap parking in lots that are never used, being sued for not putting brakes on skateboards, spilt coffee too hot, this is the ERA OF WHO TO BLAME. I grew up poor, although I didn't realize it until after I was married and my wife told me we we're known as the" poor children". Eight kids in a 1000 sq. ft. ranch in a neighborhood with similar families and situations. We happened to live and die baseball and our greatest treat was to play with a ball that had a little white on it. Nowadays you bring buckets of balls to pitch batting practice and if it's hit into the woods-oh well, forget about it. We have fifty more here. How much is enough? I look back at my childhood and realize that "although poor" it was much more socially oriented (of course mom's were at home) and simplified. The government didn't do squat for us and my father would have been embarrassed to accept any help. Nowadays it is "your right" and accepted.

 

A friend of mines grandmother recently passed away at 92 years of age. She lost her husband 22 years ago and had three healthy and married daughters. The grandmother could no longer afford to live on her own so what does she do? She gets section 8 housing, food stamps, heating assistance etc. because she can't make it on her own and "deserves" her own place. Even though ALL THREE daughters have room for her and financially can take care of her, but "it would be too hard" or "we don't get along". The grandmother would take care of a latchkey problem if she moved in with a couple of the daughters. So, to sum it up the woman could move in with a daughter without govt. aid and help relieve a daycare problem (which there is govt. sponsorship also to another daughter). No go. Let the govt. do it. Try to pass a law that charges these expenses to the relatives of the grandmother and see the howling begin. But these same people have no problem with putting a gun to our heads and forcing ME and YOU to pay for it through higher taxes. Ther is no personal responsibility, it has been passed on to "the Government". And don't even get me started on how taking these seniors out of the extended family has done some of the greatest harm to our society. That is the true evil of social security. I gotta stop. I need a beer. Home made. Untaxed. Supporting nothing but my shorts from an expanded bladder.

[Hypertiger]

The problem is too many people living off the compound interest. 2 Trillion dollars a year in payments!!! just for the interest. And the ability to borrow any more is past the point of growth. We are not able to borrrow enough money to continue "Debt" inflation. Reguardless of what is happening in the real world, debt deflation is the killer and cause of "depressions". WE ARE SO FAR GONE NOW THAT IT IS IMPOSSIBLE FOR "DEBT" INFLATION TO SHOW UP.

 

DEBT DEFLATION IS WHAT WILL FINISH US.

[IrishJew]

Yobob,

 

I agree with most of your points, having had the benefit of growing up lower middle class, putting myself though school, etc...

 

However, having travelled a great deal in Europe and Central America, there are stark differences between the societies and they have to do with, I believe, the presense of a social safety net.

 

Societies will always have poor people. No amount of individual responsibility training given at the youngest age will eliminate people from a lower tier of society. So what becomes of these people, and what is their impact on society?

 

In Europe, with large social safety nets, the impact was relatively minor. I'm talking about quality of life issues here; crime, vagrancy, violence, etc..

 

In Central America, these problems were epidemic. You go to any public place of commerce (a bank, a shopping mall, etc.) and you are surrounded by armed military with AK 47's.

 

Me...I don't want to live in that kind of society. I'm afraid when I hear you and others talk of eliminating all social programs in their entirety without reflecting on the consequences. I enjoy your viewpoints and agree with the majority of them, don't get me wrong.

 

Just be careful what you wish for...

[Guest yobob1]

Irish, at this point it would be cruel for some of these programs to be just eliminated, social security for example. Specifically here I would like to see it phased out and stop taking the surplus input. The younger you are the less likely you are to pay into it and then subsequently at retirement have no draw.

 

What could happen is that the government simply loses it's ability to fund many of these programs. Most of these programs have been total failures in their stated goals and should be eliminated. Primairly I don't think the federal government should be involved in any of this, trying to apply blanket solutions across wide swaths of the population. Any of these types of programs should be administered on a local level. Along with this of course the fed must lose it's taxing authority for these types of programs while the local govt would gain that authority. At least then the people at the local level could decide what solutions are appropriate and how to pay for it.

[machinehead]

"Try as we like, we're social animals who try to accomplish social security one way or another." - Assteroid

 

Besides large numbers of children, extended families provide an important safety net in Asia, as they once did here. As Western redistribution programs are introduced, the family safety net withers. Situations like chiefywiefy described, where the elderly depend on government rather than their children, develop. Children lose their interests in inheritance, as wage taxes during life, asset limits for Medicaid, and estate taxes at death strip away the assets of the family.

 

Despite the good intentions behind them, it is inescapable that 'progressive' taxation and redistribution programs are viciously, toxically anti-family.

[Flaming Turds]

Heres is a great article that really puts things in perspective. They are reporting that if they fired every single state employee in CA there would still be a multibillion dollar hole. Idaho is also listed as a top five in the hole state, Yoyo.

 

http://www.nytimes.com/2002/12/09/national...tner=ALTAVISTA1

 

We are in for a major shitstorm.

 

Machine youre right. I think most boomer children dont expect anything. I remember a long time ago when my grandmother died they found cash stashed all over her house. I also remember when we'd go to visit the other grandmother, the first thing she would do as we came through the door was grab her purse and give my brother and I change. Change that used to actually buy something. Apparently that didnt leave much of an impression on the parents because they blew through both of their inheritances and retired deep in debt. There wont be anything left, not that they ever shared anyway. I bet this is pretty common. With pensions cut and social security devalued through hyperinflation, these people are screwed and its going to be real hard for us to feel sorry for them.

 

P.S. Golidi, I really hate it when that happens!

[assteroid]

Machinehead, If there's any way an extended family can take care of itself, that is usually a far better way to go, exactly as Cheify describes. I would just hate to see people start to have children they can't afford in the first place, for this reason. Some of the crushing problems of over population may be ameliorated, if this wasn't so.

 

I'm planning my old age around the fact that for reasons practical, ideological, or both, my extended family has to be self reliant. Since my brother, some of my friends and I have no children, we will try to live communally.

 

Though I think the government should provide some form of security to its citizens, if it can afford them, I'm aware of the trade offs that can occur, and the out and out idiocy and creation of dependency they can create.

[Drano]

" Everyone and his brother being sued for one reason or another because life is not fair? ...... being sued for .... spilt coffee too hot, this is the ERA OF WHO TO BLAME. "

 

The McDonald's coffee case is one that has had such untrue media spin put on it that most people do not know the truth of this case.

 

The industry standard for brewing coffee is to serve it at 180 degrees. However, McDonald's serves their coffee at 210 degrees. Coffee that is served that hot will cause a third degree burn in seconds. If coffee is spilled on someone, they cannnot avoid being seriously burned.

 

Now, McDonald's serves coffee to elderly people who use the drive-up window because they are not as mobile as they used to be. When one of them spills coffee while bringing it into the car, that is a PREDICTABLE accident. Had the coffee been at 180 degrees, as was the industry standard, she would have had probably a ruined dress and maybe a minor burn.

 

But, they served her coffee at 210 degrees, which MELTED the polyester in her clothing and caused a third-degree burn.

 

The standard for liability is, did the action have a foreseeable consequence that harm would be caused? Yes, they knew that inevitably someone would spill their coffee. And they KNEW it was too hot, because they had had more than a DOZEN similar accidents resulting in serious injury before she was injured. But they refused to change their coffee-making process, even though they KNEW IT WAS AN UNSAFE PRODUCT.

 

Did she deserve to win a whopping judgment against McDonald's? You bet she did. They knowingly delivered an unsafe product, despite their knowledge that it had injured many others over a period of YEARS. They deserved to be whacked with a giant punitive judgment.

 

And you know what? They're still serving their coffee at 210 degrees. They should have criminal charges filed against whoever is refusing to change their policy, which is purely out of ego for the corporation, because there is no good reason to depart from the industry standard.

 

This is why we have personal injury and liability laws -- so that there is an incentive for people to be sure that they do not harm others. Too bad McDonald's was able to spin this in the media to make the victim appear to be the abuser.

[Hypertiger]

Deflation will put an end to most laws based on inflation? Right now I?m just slightly a step ahead of a ?shitstorm? but guess what? Our ?Standing Armies? could barely maintain law and order inside our borders as everything ground to a halt? everything changes then restarted up again 50 years later? Or 100 years? Could even be a ?whirlwind of death and destruction?. Time will begin to slow down?

 

And other weird effects?