Dan Amerman: Will Our Private Savings Be Sacrificed To Pay Down The Public Debt?

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21

davefairtexInteresting, but the only place I have heard of non recourse loans is for real estate in just a few states. Investment in positive cash flow real estate can be tricky to start with.  There are plenty of expenses, taxes and depreciation.  If you do manage to turn a profit it might take a fair amount of time to make up that 10-20% risked, not to mention the psychological repercussions of walking away from an agreed upon loan. Granted if the big deflation hit, you would be in the majority.
I have about as much exposure to rentals/real estate as I am comfortable.  Do you know of any other non recourse loans to fund investments?

22

Since I'm a simple guy I offer the following scenario but need Dave's help on the last #
 

Combining the interviews of Dan, Dave and Rickards's comments, this is what I find.

 

    First, loss of purchasing dollar power, then what: chaos and/or opportunity?
 
1.The gov needs money.
 
2. They fake the inflation numbers (CPI) to the low side, say 1.5-2%
 
3. The real numbers are anywhere from 4-9% depending on whom you ask.
       John Williams: about 5%
 
4. So 4.00% minus 2.00%=2.00% negative interest rates, while
         5.00% minus 2.00%=3.00% negative interest rates, and
         9.00% minus 2.00 %=7.00% negative interest rates. (DOA) Quite a range!
 
5. Thus, there are even fewer gains because of taxes, depending on your tax bracket.
 
6. First comes deflation, where EVERYTHING goes down, even metals.
      (Follow Rickards "The Day After Plan" --- unpublished chp to The Death of Money)  Enter IMF's SDRs?
 
7. Followed by inflation or hyperinflation, where MOST things go up, but especially metals.
 
8. Between 6 and 7 buy up unimproved land, real estate, certain stocks, a la Rickards. (prior post)
 
9. The signs/signals for # 8 are:  Dave help me out here, please--need detailed info.
 
 
 
Just trying to simplify things.  Comments?  Please keep it simple, if possible.
23

KennethPollingerI think that you have it right.  Right now is a good time to hold on to cash, barring PM's everything is expensive.  I am currently buying PM's with about 20-25% of my monthly investable funds into PM's the rest is added to my dollar holdings because if the fed follows through, ends QE3 and even gets close to raising rates a lot of what I want will go on sale, mostly stocks.  I will not try to stock pick, or nation pick for that matter I am going strait with VT, Vanguard world stock index.  If for whatever reason stocks to not become a good value I will build up cash reserves, continuing to buy PM's, and if that pile gets to big start paying off mortgages, starting with my primary, vacation home, and then rentals. Obviously I have exposure to real estate, but there is no way I am going to add to that position on more leverage now.
 
 

24
Risking redundancy, I repost two posts, back to back, with added comments on Costa Rica, especially for NEWCOMERS.
 
0
 
Your Post
 
 
Excellent Thoughts, Guys Very Helpful

Since I'm a simple guy I offer the following scenario but need Dave's help on the last #

Combining the interviews of Dan, Dave and Rickards's comments, this is what I find.

    First, loss of purchasing dollar power, then what: chaos and/or opportunity?
 
1.The gov needs money.
 
2. They fake the inflation numbers (CPI) to the low side, say 1.5-2%
 
3. The real numbers are anywhere from 4-9% depending on whom you ask.
       John Williams: about 5%
 
4. So 4.00% minus 2.00%=2.00% negative interest rates, while
         5.00% minus 2.00%=3.00% negative interest rates, and
         9.00% minus 2.00 %=7.00% negative interest rates. (DOA) Quite a range!
 
5. Thus, there are even fewer gains because of taxes, depending on your tax bracket.
 
6. First comes deflation, where EVERYTHING goes down, even metals, due to two upcoming bubbles:
      credit and/or bond bubbles.
      (Follow Rickards "The Day After Plan" --- unpublished chp to The Death of Money)  Enter IMF's SDRs?
       The BIG RESET.
 
7. Followed by inflation or hyperinflation, where MOST things go up, but especially metals.
 
8. Between 6 and 7 buy up unimproved land, real estate, certain stocks, a la Rickards. (prior post)
 
9. The signs/signals for # 8 are:  Dave help me out here, please--need detailed info.
 
 
 
Just trying to simplify things.  Comments?  Please keep it simple, if possible.
 
 
Rickard's Latest Contributions
 
I recall reading Currency Wars and then The Death of Money and his interview with Chris.  I liked his comments at the end about % of what in your portfolio. However I found those comments/suggestions to be rather general and vague.
Chris recommended creating TARGETS somewhere, so that when the time is ripe, with cash, you can jump in and add to your reserves.
 
Well, Rickards now has offered some more detailed and concrete suggestions.
I will attempt to summarize them for our virtual community below.  All I ask, in return, is feedback.
 
A Crash Plan
 
1. Shelter from Dollar's Fall:
      It's literally impossible for the US to ever pay its debt off.
     Therefore, the only solution is to INFLATE the currency to reduce the real
        value of the debt.
     If you have any kind of fixed income, you LOSE.
 
    a) Therefore SHORT the US Dollar (as a pure hedge against the decline in the 
           dollar).  HOW: UDN, PowerShares DB U.S. Dollar Index Bearish Fund
    b) BUY the Euro (more speculative).  Eurozone has 10,000 tons of gold=
           a backing of their currency. Not the Yuan, China has major problems.
                        HOW: URR, Market Vectors Double Long Euro ETN
 
2. Insurance Plan for Market Collapse (Rickards predicts a 70% drop)
     a) SHORT the S&P500
                        HOW: SH, ProShares Short S&P 500 ETF
    b) Financial Sector Crash (major banks have more than $700 TRILLION in
          risky derivatives exposure, on and off the books) Sell BAC,C, MS. WFC,                   DB, GS HBSC (We are less prepared for the coming crash than ever 
            before)
                          HOW: FAZ, Direxion Daily Financial Bear 3x Shares
            (Risky and require regular diligence)
    
3. Invest in Things Folks cannot live without (food, water, energy, medical
      supplies, essential goods and services)
     a) Food Investment (the most basic)  Agricultural sector is important
                             HOW: CNHI, CNH Industrial N.V.
     b) Water Investment drinking water and water management)
                              HOW: AWK, American Water Works Co. Inc.
     c) Medical Supplies Investment
                               HOW: BDX, Becton, Dickinson & Co
     d) Electricity Investment
                                HOW: ABB Ltd. (ADR)
 
4. HARD ASSETS Companies.      BUT PHYSICAL Gold and Silver, first)
     a) Rail Industry    HOW: UNP, Union Pacific Corp
     b) US Coal (fastest growing major fuel)
                                 How: BTU: Peabody Energy Corp
    c) Energy Development  HOW: AEP, American Electric Power Co
                                               and XOM, Exxon Mobil Corp (it has 25.2 billion barrels worth of oil and gas                                                                         in current reserves on the books)
    d) Even Gun Manfacturers (ultimate security)
                                      HOW: RGR, Sturm, Ruger and Co; and SWHC,
                                                                               SMITH & Wesson Holding Corp
 
 
He has much, much more to say but this is a good beginning shot.
However, here are two Portfolio Allocations:
 
A) Initial                                        B) "The Day After"
20% land                                       30%land
20%cash                                       30%PMs
15%bonds                                     30%fine art                                                                                                                                                                               10%cash
15%stocks
10% PMs
10% hedge funds
10% fine art
 
However, fine art appears to be out of reach for most of us--requires large sums of money, even for art funds.  As for PMS, he recommends two:
PHYS: Sprott Physical Gold Trust ETV
OUNZ: The Merk Gold Trust (ETF)
 
BUT PHYSICAL gold and silver, most of all.
 
So, feedback, please.    Ken
 
Lastly, another alternative: Come visit me in Costa Rica this Jan through the end of March.
Please inspect the Costa Rica Retreat category on my website: www.AwarenessCenters.com
 
Your wife could take the Yoga/meditation/healing retreat while you and I could explore land and building options.
Or just you for a great vacation/business experience--all tax deductible.
Here are a few photos of two guest houses I just finished.  And I'd like to talk about farmland and buying/selling cattle.
Anywheres from 40% to 120% profit in 1 and 1/2 years, depending on whether you own the land or not. Here are a few photos to entice you.
 

Costa Rica

Guest House | Main House > | Other Projects >

 
 
 
 
25

Thank you Chris for interviewing Dan; I also had read some of Dan's free material on his site when I was looking for information on when to rotate from bullion to real-estate; his approach seemed to fit my strategy: I bought PM stocks partly with an investment loan secured by my primary residence; I plan to ride the PM stock wave up until the historic undervaluation against bullion has abated, rotate into bullion to maintain my purchasing power during the inflation period that I anticipate; during inflation the nominal real-estate values will increase but valued against gold they will decrease; once we have arrived at the point where gold will be again be part of the financial system (gold standard or gold backed SDR's) gold ounces will buy a lot of real estate.
I would be interested to hear from others what might go wrong with this strategy.

Here are some of the risks that I  can think of:

  1. PM stocks may be sold off in a deflationary collapse or a liquidity crises before they get pulled up by bullion prices
  2. Bullion may not be readily available by the time PM stocks have caught up with bullion prices
  3. Mortgage loan values may be  reset higher to prevent mortgage holders from repaying mortgages with inflated dollars
Regarding the last point: Jim Sinclair had made that point in response to a query I had made; he mentioned that this is what has happened in the past and that is why he recommends everybody to get out of debt before the reset unless you are on a fixed mortgage and you can pay down the loan with cash.
26

Thanks guys for sharing your thoughts on how to plan targets and strategies.  The devil is in the details, they say.  Glad to see you two diving into the details. Since almost ANYTHING can go wrong, maybe that's why most folk stay out of this type of thinking. I would still like to see Dave and Chris commenting on # 8 in my post: what are the specific signs/signals that just might tell us that we are at or close to that certain important point.
In other words, WHEN to jump in!

27

Brandon,  You asked me to comment on this idea of the e-dollar, as described here;


In a word, I think this idea is insane.  If one believes that it's best to let the market set the interest rate for, or cost of, money... then we are already in a highly distorted world today.  We live in a world where we have already bought ahead as much growth as we possibly can through the creation of easy money... And now the suggestion is to create what is essentially a self-liquidating dollar.. one that depreciates 5% per year.. has a negative interest rate... Well, that is just nuts.  The unintended consequences would be high inflation, as this self-liquidating dollar would incite a burst of money velocity the likes of which have never been seen before.   To me, the idea, and the article, are a bad joke. 
Got that? After a year of a -5% interest rate, $100 dollars are equal to $95 e-dollars. This ensures that paper currency also faces a negative interest rate as well and eliminates the incentive for savers to hoard dollar bills if the Fed implements a negative rate. Presto! The zero lower bound is solved. The benefits of this policy go even further though: We can say goodbye to inflation as well. "Once you take away the zero lower bound, there isn't a really strong reason to have 2% inflation at this point," Kimball said. "The major central banks around the world have 2% inflation and Ben Bernanke explained very clearly why that is. It's to steer away from the zero lower bound."
Forget inflation?... this would be the final straw that breaks the back of confidence in our ponzi fiat currencies...  we would rapidly move into hyperinflation.  Everyone would want Gold and Silver in order to escape this horrible, self-liquidating money.. and nobody would want to hold this garbage.   
28

[quote=bwh1214]Chris,
Daniel Amerman’s 4th method does not pass the smell test for me.  He implies that the 4 methods are to get out from under unsustainable government debt.  This is reinforced when he discusses the last period of time during which the government used financial repression post WW2.  During this time Federal debt to GDP fell.  
I agree they may be attempting financial repression, and successfully robbing savers, but if it was currently being successful wouldn’t the debt to GDP be falling?  In other words they are not robbing nearly enough to reach the stated goal of any of the 4 methods. 
[/quote]
Brandon, the answer to your question is no it's not working.  
The reason why is buried within the recent public article on how the Fed is stealing from savers.  In my mocked up Yellen speech I had her note that financial repression works great unless growth does not return.
Then it just does everything wrong (evil).
 
The rich get richer on the back of financial asset inflation
Savers lose steadily, the rate being defined by their personal inflation experience (yes, we all have different ones depending on our own personal basket of goods and services that define our lives)
The government runs up bigger debts
Other debts run up bigger too, such as student and auto loans (hey, I'm getting a great rate!) and corporate borrowing.
Borrowing for rank speculation goes up too (NYSE margin debt, etc)
But the one thing that is missing today is organic robust economic growth which means lackluster income gains and subdued tax receipts.
Hmmmmm…remind me again what happens when you continually increase the debts (claims) but fail to increase the income part of the equation?

29

They can crash the currency.  They can bleed your savings. Manipulate the stock and bond markets. Regulate foreign investment.  Regulate or tax precious metals.  They can tax your land away. Regulate your water rights away.  What hard asset comes without some form of government involvement that can be escalated as needed by that government?

30

That is why the more years I live the more I support the stateless society.  

31

I appreciate that point of view Kugs.  Would be interested to hear if Chris has a different perspective.  I have never been a part of the foil hat crowd, but, I'm starting to believe that I should have.  I am not a conspiracy guy, and I have enough to lose.  I worked very hard for it, and made many sacrifices.  What have I earned that they can't take?

32

I agree the E Dollar is a bad idea, but don't think its introduction would cause instant inflation like you think.  Just a guess.  Again I agree it is a bad idea but I think it is one of the few solutions I think could actually be viable. 

33

Chris, Thank you so much for your reply.  I truly am a huge fan of your work and agree completely with your comments. I would love to get your take on the E Dollar.  Though I think it is a bad idea I think it is certainly one of the few viable options out there that the govt may follow to get us out of this mess.
I have commnets (post 16) on it above that gives my thoughts, and have a fair amount already written that I could include.  I also link it to the cordial treatment of bitcoin over the past few years by our govt.  I think it would be a great topic for you to do a article explaining your thoughts.
Here is the E Dollar story:
http://www.businessinsider.com/electronic-currency-2013-11
Other countries are looking at this as well.
http://cointelegraph.com/news/112685/filipino-lawmakers-unveil-e-peso-act-to-create-national-currency-for-the-digital-age
https://www.dollarvigilante.com/blog/2014/7/24/rumors-of-mexico-backing-peso-with-silver-false-you-might-no.html
Quote from above article "But interestingly they (Mexican Govt) are actively studying bitcoin and have an interest in creating an E-Peso.
I would love to hear your thoughts.
Thanks Again for the Response 
Brandon

34

Brandon, For me, it's important to separate out some of the ideas that are in play here.  The idea of a purposely self-liquidating form of e-money, that would lose say 5% of it's value per year, is completely separate from the broader idea of electronic, digital money in general, and even different from the idea of digital, debt-based money to be more specific.  Sure, this form of negative interest rate would be easiest to administer in an fully electronic, digital money environment.        
In the more general sense, the truth is, most money today is already digital.  We are already mostly there.  The only step left to fully control the monetary realm is to ban cash, at which point you would be hard pressed to walk into your LCS or LGS and make a purchase that is not under the purview of gov't and shadow gov't organizations… and this is why the banning of cash should be fought against.  All else is a distraction in my mind vs. the push to ban cash, possibly under the auspices of fighting the "drug war".  Once fully digitized, capital controls become much, much easier.  Bail-in's become more effective, etc.  

      

35

Jim I understand that there is a big difference between the E Dollar and other electronic forms of money, be it Bitcoin or current electronic dollars, and I agree the they need to be separated out.  I also agree with you that it is a bad idea, but don’t look at it from your point of view when determining if it is a real possibility.  Look at it from the perspective of the powers that be, namely the banks and government, as well as the common citizen.
First some key points about the E dollar.

1.     There would be a negative rate for Dollars held at the bank. Say -2%.  They have negative rates in Europe now and BoA is currently passing these negative rates on to their customers in Europe.  I think individuals will just treat this as just the cost of holding money in the bank like any other fee.  It will also do exactly what it is designed to do and get people to spend and keep as little in the system as possible

2.     There would be an exchange rate between E-Dollars and paper money, that would decrease the amount the paper money is worth in comparison to the E dollars, this would be more than the negative rate at the banks for E Dollars.  This would prevent you from taking the cash out.  Cash would eventually disappear.

3.     Old debts would be kept in old dollars as agreed under the original contracts, hence would be destroyed at the same pace the old dollars would be.

I only think this could be implemented under major stress but think about the benefits to the powers in this country, government, banks, and the average voter/citizen.

We’ll start with the govt. Elimination of cash would certainly make financial transactions easier to track thus tax, the Dems would love that.  Under the table work done by illegals would be much easier to stop, collecting entitlements and working under the table would also end, and black market illegal drug trade would have a major obstacle without cash so the Repubs would be happy.  Not to mention they both win from slowly eliminating the debt. 

The benefits to the banks are clear, they can skim directly off the to with the negative rates not to mention more would be forced to use and stay in the financial system.

Now think about the average voter/citizen.  Will they be more upset that they have negative interest rates on their meager couple thousand dollar savings, or happy that their 150k mortgage is going down at an even more rapid rate, or their car lone, or STUDENT LOAN. 

Sure pensioners, SS recipients, and foreign holders of our debt will not be happy, but if its brought in with the understanding that its either this or they get nothing through a default, guess what.  They will deal. 

There is no question that the implementation of an E dollar would have major problems and it is not a good looking path, and there are others I would rather follow using gold and silver as money for one, but that will not happen.  Using gold and silver as money would put the power back in the hands of the people, do you know of a monetary shift in the US where that has happened over the past hundred years?  I only see power shifting to the govt and banks, so gold and silver is out.  In that light they have three options that I can see right now.  Print until hyperinflation, default on the debt or the E dollar.  Which do you think they would choose.  Sure there maybe other options but I have not found them.

Really the E dollar is just a gradual debt jubilee with clear benefits for the Govt, banks, and debtors.

You may think the concept of and E dollar fanciful, but imagine telling a business man in 1926 that the govt would confiscate all the nations gold within the decade.  Or a man in ’62 that the dollar would be backed by nothing within 10 years.  My mom is a pretty smart lady, and I asked her what she thought about Nixon closing the gold window in ’71 and she said she didn’t even think about it.  That is how the average American will react to a change like the E dollar, they won’t bat an eye.

So how do YOU think the powers that be will attempt to fix this?  QE forever till the dollar breaks?  Just default on their debt? Confiscate bank accounts and retirement funds?  Maybe, but of those options I see the E Dollar or a similar attempt to side stepping as a much more likely possibility. 

I think we just have to start thinking outside the box of just Precious Metals, an outright default, or printing till Hyperinflation.  I’m not a fan of the government or banks but there are a lot of smart people working at those entities and they are obviously going to try and outfox the public. 

Again don’t look at it from your perspective, unfortunately we don’t hold much power, look at it from the perspective of those that do hold the power.  

36

Any debt you can use to produce income on a sure basis from your neighbors – or better, from the government – is productive debt.
Productive debt will inflate away at the rate of interest plus production minus taxes, but you have to dually pay it off, while still searching for ways to increase your income growth.
Slumlords are out, though, because people will go homeless. Maybe the thing to do is become a Spanish estate holder. That’s the only industry in Spain that’s left