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How It Goes Down

hypocritexposer

Well-known member
How It Goes Down
Posted by ROBIN KOERNER in Economy, Politics.
Aug 2nd, 2009

Anyone with an active interest in economics, or with the kind of bank account and job that causes them to read the Wall Street Journal should by now have a very good sense of what is coming down the pipe in the USA.

Most of the rest of the world – especially the Chinese – seem to have a very good sense of it.

While it is true that the USA is full of ingenious and enterprising people, and so probably won’t go up in a puff of smoke, it may soon be over in its current incarnation.

And here’s how we know.

When I arrived in the U.S. a few years ago, no one ever used the word trillion. Now we hear it on every news show. Depending on how you calculate them, bail outs represent government commitments of over $9 trillion Not all of this money has yet been spent, but it’s a fair number to use.

It happens that $1 trillion is very close to the total federal income tax receipts of the United States for the year 2006. As of June 2009, the total debt owed by the government of the USA is $11.4 trillion or $37,000 per capita, or $124,000 per taxpayer.

In other words, if nothing else changed in America, every single American would have to pay about double the income taxes they are paying now for about 11 years just to pay the principal debt owed by our government. That of course would mean total impoverishment. Even if that payment is spread out over an entire generation (25 years), income taxes would have to rise by more than 40% on top of what they are now.

It would be nice (but highly immoral) to say, “No problem; we can spread the payments out longer: our great grand children have it covered”, but at our current rate of deficit-building, they’ll have enough on their plate paying for the debts of our children and our grandchildren… and so it goes on… getting worse.

Indeed, we know the situation will be a lot worse even by 2014, when according to the government, the public debt will be an estimated $18.3 trillion, representing a 50% increase on today’s income tax rates for the entire working lives of every tax payer in America today.

If America were to attempt to raise taxes to cover these obligations, there would probably be (long overdue) riots on the streets. Quite right too.

This fact, and these numbers, confirm that the only possibility - and therefore surely the intention of those engineering this irresponsible nonsense - is for the USA to inflate its way out of all its obligations. We can be sure of it because they keep telling everyone that that is exactly what they are not going to do. The lady doth protest too much.

Inflation means printing more money without increasing productivity (which what we are already doing) to make each dollar worth less. In that way, all of the USA’s debts, which exist as a fixed number of dollars, become worth less in real terms and therefore easier to pay off. Thus, anyone paid back with these worth-less dollars ends up receiving a lot less value than they original loaned to the USA in the first place. This of course is the equivalent of defaulting on a loan - but much less honest.

It makes sense, then, the Chinese are talking about reducing their dollar holdings and have for some time been quietly buying real things of value with those dollars, like gold, the price of which in dollars will be rocketing over the next few years.

Moreover, the Chinese are now asking for their US bonds to be priced in their own currency, the yuan, rather than US dollars, because they know their yuan will be worth something when time comes for the Americans to repay – but they’re not so sure about the greenback.

More immediately, and perhaps even more frighteningly, rumors of a bank holiday are increasing. Reports are circulating among the financial cognoscenti that there could be a bank holiday as soon as the Fall. A bank holiday refers to a government-enforced closure of all banks for a few days… which then reopen with the currency revalued. In other words, on Friday, a tin of soup costs a buck; the banks are closed the following Monday, and then on Tuesday the same tin of soup costs two bucks. That of course is rampant inflation. This can only happen because the US currency is a “fiat” currency, meaning it is backed by nothing of fixed value – and so its value varies with the amount in circulation, or the money supply (and, admittedly, other factors, at least in the short run).

These rumors of a bank-holiday may come to nothing, in which case the inflation that has already been “built in” to the American dollar by the printing of huge amounts of money and borrowing that can never be paid back, will happen over a few months or years rather than a day or two of quiet high-streets.

Either way, if you love America, and want to help repair it after the fan has stopped working because of the large amount (18 trillion-worth, no less) of a bad smelling substance that has been thrown at it, get your money out of dollars now. Buy something real with them while you still can, like a few ounces of gold, or what the heck, some land and a few cows so you can at least have some milk and red meat to cheer you up when everyone else has to queue for food. Then, when things calm down again, you may be able to sell your gold for a few NADs (New American dollars) and invest again in the new America.

Let’s hope that America 2.0 keeps the old Constitution.

http://themoderatevoice.com/41678/how-it-goes-down/
 

Lonecowboy

Well-known member
Inflation means printing more money without increasing productivity (which what we are already doing) to make each dollar worth less. In that way, all of the USA’s debts, which exist as a fixed number of dollars, become worth less in real terms and therefore easier to pay off. Thus, anyone paid back with these worth-less dollars ends up receiving a lot less value than they original loaned to the USA in the first place. This of course is the equivalent of defaulting on a loan - but much less honest.

I've been wondering about this-
maybe some of you more money wise people tell me what you think.

say I buy a piece of land for $500,000.00 at a fixed rate.
it would take 1000 calves @$500.00 (plus intrest, I'm just using easy math) to pay it back.
Say inflation occurs and calves become worth $750 of the weaker dollars,
it would only take 666 calves to pay it back. (Yes I know all the other input prices will rise too)
my question is: If you use it right can't inflation be a benefit to us too on big purchases if we use it right??

ps. the 666 is just the way the math worked out, not trying to imply that inflation is or isn't the mark of the beast.
 

Faster horses

Well-known member
Pat Goggins used to maintain (I suppose he still does, it's just that
I no longer read his paper) that inflation was a friend to a rancher or
a farmer, for the very reasons you just posted, Lonecowboy.

Pay back money borrowed with inflated money...

Maybe right now is the time to expand our operations. :p
 

Lonecowboy

Well-known member
That's interesting FH-
Pat certainly seems to know how to make the financial side of ranching work doesn't he!

now if I could just find a bank that would loan me $500,000.00 at 3% for 30 years!! The way that the fed is printing money i should be able to pay it off in % with proper inflation.
Of course the way things are heading I'd probably have to let it go for back taxes.
 

Broke Cowboy

Well-known member
Sounds good in theory.

However you still have to come up with that money.

If business and people are not paying enough tax to cover the debt AND pay down the principle - it all leads to financial insolvency.

Nice to pay back witjh a dollar that might be worth less - but if you do not have that dollar - someone is going to want to take some assets.

How much longer will the US of A be able to fend off creditors?

BC
 

Sandhusker

Well-known member
Faster horses said:
Pat Goggins used to maintain (I suppose he still does, it's just that
I no longer read his paper) that inflation was a friend to a rancher or
a farmer, for the very reasons you just posted, Lonecowboy.

Pay back money borrowed with inflated money...

Maybe right now is the time to expand our operations. :p

The problem is that inflation erodes the the purchasing power of money, which is all money is good for - purchasing. You get your place all paid for, but are you really ahead when the purchasing power of the money that ranch generates is lower as well?
 

Lonecowboy

Well-known member
Sandhusker said:
Faster horses said:
Pat Goggins used to maintain (I suppose he still does, it's just that
I no longer read his paper) that inflation was a friend to a rancher or
a farmer, for the very reasons you just posted, Lonecowboy.

Pay back money borrowed with inflated money...

Maybe right now is the time to expand our operations. :p

The problem is that inflation erodes the the purchasing power of money, which is all money is good for - purchasing. You get your place all paid for, but are you really ahead when the purchasing power of the money that ranch generates is lower as well?


That's a good point- Maybe that's why small farms and ranches that used to support a family are sold out and consolidated into bigger places.It now takes several of these places that each supported a family to support one family.I guess what I'm asking is that if inflation is going to happen anyway -- How best to make it work for you??
I already have some land debt- should I be in a hurry to pay it off?
 

MsSage

Well-known member
any time you can get out of debit do it....no sense paying interest longer than you have to.
Would you not rather own the land free and clear and not have to worry about when inflation is going to start.....
 

Sandhusker

Well-known member
Lonecowboy said:
Sandhusker said:
Faster horses said:
Pat Goggins used to maintain (I suppose he still does, it's just that
I no longer read his paper) that inflation was a friend to a rancher or
a farmer, for the very reasons you just posted, Lonecowboy.

Pay back money borrowed with inflated money...

Maybe right now is the time to expand our operations. :p

The problem is that inflation erodes the the purchasing power of money, which is all money is good for - purchasing. You get your place all paid for, but are you really ahead when the purchasing power of the money that ranch generates is lower as well?


That's a good point- Maybe that's why small farms and ranches that used to support a family are sold out and consolidated into bigger places.It now takes several of these places that each supported a family to support one family.I guess what I'm asking is that if inflation is going to happen anyway -- How best to make it work for you??
I already have some land debt- should I be in a hurry to pay it off?

I'd say that it depends on what your other options are for those payments. If you make payments on a 7% land note, you're going to have to find something that offers a better return than that before it becomes a consideration. That's not always easy to do, especially now in this liberal bust that we find ourselves in. When times are tough or look to be tough, which I'd say they are with with 3 1/2 more years of finanical idiots in power that promise to further mortgage our future, it's generally time to circle the wagons, and that would mean paying off debt and not incurring more to guard that precious cashflow.
 

Lonecowboy

Well-known member
Sandhusker said:
Lonecowboy said:
Sandhusker said:
The problem is that inflation erodes the the purchasing power of money, which is all money is good for - purchasing. You get your place all paid for, but are you really ahead when the purchasing power of the money that ranch generates is lower as well?


That's a good point- Maybe that's why small farms and ranches that used to support a family are sold out and consolidated into bigger places.It now takes several of these places that each supported a family to support one family.I guess what I'm asking is that if inflation is going to happen anyway -- How best to make it work for you??
I already have some land debt- should I be in a hurry to pay it off?

I'd say that it depends on what your other options are for those payments. If you make payments on a 7% land note, you're going to have to find something that offers a better return than that before it becomes a consideration. That's not always easy to do, especially now in this liberal bust that we find ourselves in. When times are tough or look to be tough, which I'd say they are with with 3 1/2 more years of finanical idiots in power that promise to further mortgage our future, it's generally time to circle the wagons, and that would mean paying off debt and not incurring more to guard that precious cashflow.

You're giving some good thoughts here sandy- exactly what I was looking for. I'm trying hard not to give out too much info on here.
Here's the deal- I'm paying 5.25% right now, but it's not locked in for long,tied to a CD as collaterol. When the CD renews ( not my CD)the rates change to 2% above CD rate.
I could sell off 1/2 my herd (circle the wagons, but reduce future cashflow) and be completly out of debt. But then would have to rebuild, (takes quite a few years, but I could take in pasture cattle to help cash flow if anybody has any cattle left?)
As inflation hits the CD rates will go up when they are renewed, but MAYBE cows will be worth more weaker dollars and I would only have to sell say1/3 of my herd to pay off the debt V.S. 1/2 it would take now.
Is that enough info for good advice??
I'll PM you more info If you would be willing to take time to advise me.
I'm trying how to best make this situation work.
 

Sandhusker

Well-known member
Paying 2% above a securing CD is normal. One problem that I see in your case is that it's not your CD. Therefore, if rates go up and that CD renews at 5% instead of 2%, the interest you pay goes up and you don't have that CD income to offset. It's a good deal now, but might not be so good in the future. Having said that, a CD is still the best collateral to have whether it's yours or not because loan rates are simply pricing risk, and there is no risk in the CD.

I don't know if I would sell cows just to get out of debt. I generally consider selling cows as the last option because they are your money-makers. Also, debt is not necessarly an evil to be avoided. There is good debt and there is bad debt - it just depends on how much you're paying for that asset vs how much it is making you. If you're paying 5.25% on your cow note, but you figure those cows are making you more than that, you've got good debt. If you're paying 15%, but whatever you're making payments on is bringing in 16%, you've got good debt. If you're paying 2%, but breaking even, you've got bad debt. Get rid of bad debt and get all the good debt that you can conservatively pencil. Let your cashflow projections be your guide.

If inflation hits, and it will, yes the dollars that you pay on your loan are lesser. But the problem is that you've also got to consider where those payment dollars come from - the sale of your calves - and you're getting lower valued dollars for them.
 

Lonecowboy

Well-known member
Sandhusker said:
Paying 2% above a securing CD is normal. One problem that I see in your case is that it's not your CD. Therefore, if rates go up and that CD renews at 5% instead of 2%, the interest you pay goes up and you don't have that CD income to offset. It's a good deal now, but might not be so good in the future.
That's why I'm in this deal like I am, it's been a sweetheart deal so far with low interest, as cheap or cheaper than rent. But now I'm looking to the future and not sure I like what I see.
Having said that, a CD is still the best collateral to have whether it's yours or not because loan rates are simply pricing risk, and there is no risk in the CD.

I don't know if I would sell cows just to get out of debt. I generally consider selling cows as the last option because they are your money-makers. Also, debt is not necessarly an evil to be avoided. There is good debt and there is bad debt - it just depends on how much you're paying for that asset vs how much it is making you. If you're paying 5.25% on your cow note, but you figure those cows are making you more than that, you've got good debt. If you're paying 15%, but whatever you're making payments on is bringing in 16%, you've got good debt. If you're paying 2%, but breaking even, you've got bad debt. Get rid of bad debt and get all the good debt that you can conservatively pencil. Let your cashflow projections be your guide.

I own the cows outright, no note, just the land. I'm too close to the thing and using too much emotion as a guide, that's why I'm looking for good outside advice. I see selling land as the last option. There are more cows being made everyday, not so with dirt. I could sell the land right now and make a tidy profit. Right now everything is cashflowing fine, looking for a crystal ball. Right now I have no need to sell either the land or cows.
Just trying to look ahead. Imformation and wisdom help make better plans.

If inflation hits, and it will, yes the dollars that you pay on your loan are lesser. But the problem is that you've also got to consider where those payment dollars come from - the sale of your calves - and you're getting lower valued dollars for them.

In my mind now we've came full circle- in real value terms am I wrong to think that with inflation it might only take 1/3 (approx) of my herd to pay off what would take 1/2 now?
 

Sandhusker

Well-known member
I think that it would take a lot of inflation (bad) or a lot of time for that to happen, LC. In order to work the inflation rate like you seem to want to do, you need a crystal ball to know what the rates will be and when - and if you have access to that information, you can make a heck of a lot more money using that information via Wall St. as opposed to cows.

I'd say not to concern yourself with it - just too much that you can't control or guess for too long. Concentrate on your day-to-day operations and, if anything, spend more time on marketing issues - that seems to be the area that affects profitabilty both long and short term.

That's my advice, which is probably worth as much as you just paid! :lol:
 

Lonecowboy

Well-known member
Sandhusker said:
I think that it would take a lot of inflation (bad) or a lot of time for that to happen, LC. In order to work the inflation rate like you seem to want to do, you need a crystal ball to know what the rates will be and when - and if you have access to that information, you can make a heck of a lot more money using that information via Wall St. as opposed to cows.

I'd say not to concern yourself with it - just too much that you can't control or guess for too long. Concentrate on your day-to-day operations and, if anything, spend more time on marketing issues - that seems to be the area that affects profitabilty both long and short term.

That's my advice, which is probably worth as much as you just paid! :lol:

well said and Thank you Sandhusker- kind of the conclusion I was coming to by myself- let todays troubles be enough for today and let tomorrows troubles be tomorrows- usually what actually happens isn't nearly as dramatic as what we can dream up.
I know I'd rather have cows in the hills than money in the bank right now.
 
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