Dollar Crisis - What are the odds?

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21

A rather silly idea when farming is becoming increasingly automated. Within the next 50 years a ‘farmer’ will be little more than a man who sits on ‘capital’ and collects a ‘fee’.

We don’t need them, but they are awfully useful. Corporations aren’t the problem. The problem is that regulation is wrong headedly designed. The goal should be to: “Control the environment in which corporations and other free market entities exist, so that the earning of maximum profit is synonymous with providing the maximum benefit to the people.”



That, and we lean toward overly complex and unenforceable regulations (Differences in simplicity and enforceability is why a carbon tax is vastly superior to a cap and trade system).

A rotten idea. Free trade is, in the long-term, beneficial to all parties. That is why ‘Kansas’ has free trade with ‘New York’.



The problem with the current system isn’t free trade itself, but rather that the system encourages countries to ‘compete’ with each other for the ‘business’ of corporations. An insane idea that can be summed up with the inverse of the well known saying: “When companies compete, the customer wins” – or in this case “When countries compete the people lose.”



(Remember that the next time some senator or talking head claims we need to lower corporate taxes to ‘boost’ our economy. What he’s suggesting is that we compete even harder with other nations to ensure a ‘corporate presence’. Therefore, he is advocating a policy that in the end causes you - and the rest of the world - to lose)



Instead, what we need is clauses added to our free trade agreements establishing ‘minimum ground’ for all goods and services produced for export into the USA and all other member nations. This includes:



* Basic labor rights

* An international minimum wage

* Basic environmental laws

* Bottom level corporate taxes
etc…



In other words Europe, the Americas, Australia, etc… should all gang up against the corporations to shutdown this self destructive international competition, or at least reduce it to sane levels.



(A simple penalty for violation would be a nasty tariff)

Probably doesn’t need to be that high. Personally, I’d prefer to set it to $9 and index it to per capita economic growth. After all, the wealthier our nation, the more the bottom should get paid. (And, inversely, if our country becomes less wealthy, it is perfectly reasonable that the bottom gets paid less too)



That, and economic growth is something the government likes to nudge up in its doctored statistics, while inflation is something it likes to fudge down.

Agreed. While we are at it, make our income tax more progressive. And get rid of the medicare and social security taxes. These are just ‘general income taxes’ like the rest, disguised to make our tax structure regressive instead of progressive near the top.

Again, probably not a good idea. I’d rather a legal revocation of a corporations ‘personage’.



–


Steve

22

I don’t know the answer to that. I used to think that was an extreme, fringe view. But the longer and more I read and learn, the more I wonder. If you are interested in reading editorials by some folks who do believe that to be the case, check out the website www.financialsense.com . It has a lot of different editorial writers and contributors with many different views on the economy and macroeconomics (including our own Chris Martenson!). Some writers who explicitly talk about the economy being actively manipulated are:
Deepcaster: http://www.financialsense.com/fsu/editorials/deepcaster/archive.html
Darryl Schoon:
http://www.financialsense.com/fsu/editorials/schoon/2008/0716.html
and David Morgan: http://www.financialsense.com/editorials/morgan/2008/0922.html
There may be more writers with that view, but these are ones I know about off-hand.

23

So, I believe that the dollar will be falling.I believe interest rates are going to go up.
I know mortgage rates are at a low (very low).
I rent now… but if I bought a house today with a reasonable down payment and got a 30 year fixed mortgage at 5.5%, doesn’t that put me in a good position during the upcoming chaos?
No matter what happens, my payments will be $2,500 per month. If I can ride out what’s coming for the next several years and have enough savings to cover my mortgage, isn’t that a good position to be in?

24

[quote]Quote:As in Cuba, the social status of farmers and farm workers should rise to that of doctors.
A rather silly idea when farming is becoming increasingly automated. Within the next 50 years a ‘farmer’ will be little more than a man who sits on ‘capital’ and collects a ‘fee’. [/quote] That automation will only continue if we continue to have CHEAP ENERGY. Having grown up on a small family farm, I would argue that many of our cultural problems stem from the loss of understanding by the general population of where our food comes from and the natural cycles of life and change. The number of eyes (and therefore Is) to acres has been shrinking for a long time, and our food quality has been falling right along with it. Our food is now bred for how easy it is to grow and how long a shelf life it has, rather than it’s flavor and nutrition.

[quote]
The goal should be to: “Control the environment in which corporations and other free market entities exist, so that the earning of maximum profit is synonymous with providing the maximum benefit to the people.”[/quote]
While this sounds like a good idea, I am not sure that it is the environment that needs to be controlled, so much as the reasons that we allow the corporations to exist If we can re-define profit as “the most good to the most people” then we may be able to make some headway. If you look at a corporation as a person, and diagnose them using the DSM IV, which is the book used by clinicians and psychologists to diagnose patients, then you would find that corporations are psychopathic. They are anti-social, and their only goal is to make the most profit with no real regard for the human, environmental, or social costs, except as they impact the bottom line. From my own feelings, I would say that the bigger a corporation is, the more psychopathic it tends to be.
My only other comment is that limiting the time a corporation can exist is not necessarily a bad idea. My understanding is that this is how it was originally done, and it may be worth re-visiting the idea.
All the best,
Reuben

25

$2500/mo for 30 years? That sounds to me like you need to move to a less expensive part of town. :wink:
I would say that your question is one that only you can answer. Look at the situation from every angle you can think of. Some of the questions that I would ask myself are:

  1. Is the monthly payment more or less than the rent?
  2. If prices for basic living necessities triple, will I still be able to afford it?
  3. Is my income stream reasonably secure?
  4. Do I need to spend this much on a house?
  5. How will I feel if house prices drop another 5%? 10%? 20%? 50%? (some of these may be extreme - I hope - but it is still worth asking the question)
  6. If I have enough savings to “cover” the mortgage, should I buy something outright and save on the interest? (this may include looking in other housing markets)
    There are many more issues that affect the decision, but I hope this helps.
    All the Best,
    Reuben
26

I agree with Reuben. If you are not liquidity constrained (i.e., you won’t need that money to live on), a fixed mortgage in an inflationary environment is almost always a good deal in the long run.
That’s why people used to buy houses – they did not expect to make a killing in the market and remove the equity to buy more crap – they just expected that the real cost of their housing payment would decline over time while the value of the home and their income would rise with inflation. That may not be true in the next few years as the housing bubble continues to deflate.

27

This I think is really the key as to when it hits the fan. A great omount of the free capital in the world is held in sovereign wealth funds or by countries like China with huge trade surplusses. At some point when they are looking at the U.S. markets, you have to figure that they will not be interested in investing here anymore or buying any more U.S. treasuries, because they have better opportunities or concerns elsewhere.
You might have noticed earlier this week that China rushed in to support its own markets – that means it’s not using that money to support ours.
Just this evening Singapore’s sovereign wealth fund announced that it “has shifted its asset allocations toward emerging markets, hedge funds, natural resources and infrastructure …”
When these sources tire of U.S. investments and markets watch out because things could get Great Depression-like ugly for our markets – but with lots of inflation as the Fed injects trillions more into the system.

28

sorry to disagree with you steve. it is not a silly idea to have an equal regard for farmers. jefferson’s idea was for a country of small farmers. 1.6% of our population is engaged in farming currently. this is only possible with huge inputs of oil. oil for fertilizer and tractors. 4 billion people are here only because of the green revolution fueled by oil. which is at peak production right now. we will be having less oil, food will be more expensive to the point where we will have major die offs of human beings. long before 50 years has elapsed. a friend of mine is in food security and they ran a computer model to see what would happen if there was a few cows discovered with mad cow disease in one feedlot in colorado. within 3 months the entire social fabric of this country would have become unraveled.of course it was a computer model and subject to human error. but close enough to think about. my experience is that people who live closer to the earth and are able to live off local natural capital fair pretty well in the economic environment we are entering. take a look in your fridge and pantry and see how much of your food comes from a 50 mile radius. then think about if it doesn’t show up.
so i actually hold farmers in higher regard currently than i do the medical profession. i think it would be an interesting interview right now to ask an amish about the financial crisis. the answer would probably be huh?
i seem to recall that mr martenson actually now lives on the land. these are dark times my friend and i would make friends with someone growing food or better yet grow some yourself and see what it takes.

29

thanks for this post it was awesome. i love the sharing on this site. thank you chris. you are a true patriot. i am proud to have you in my foxhole.

30

i have been in real estate for 37 years. i have never seen anything remotely like what is happening now. be that as it may rueben’s advice is very sound. i would also add that you should review the chapter on bubbles. the bubble pops and returns to the level it started at or lower. in my market i think we have about another 20% to go before we see a bottom.so i would look at the numbers in your market dating back to 99-2000 and see where the market was for a comparable property to what you are considering. you can probably go into a real estate office and find an agent just dying to talk to someone willing to buy in this market…more like a hundred they will fall all over themselves to give you whatever info you want. my guess is you will find lots of properties for sale and you can lowball several a day until you find a "motivated " seller. this applies to everything in my previous real estate experience and we are in unchartered waters now. remember the lower the price the lower the payment. and who knows what your financial situation will be in the next few years.and of course you should buy the most energy efficient house you can find and retrofit it for as much alternative energy as you can. a garden spot is also a major plus. this advice is free so take that into consideration as well. i wish you well.

31

This made me laugh.
Thank you,
Tommy

32

Nope, automation would continue even if cheap energy was gone. There are several problems in the opposition here:



1: Humans are monstrous energy consumers. Farming with human labor is horribly energy inefficient. So inefficient in fact, that the total yields (when using animals bred for generations as assistance) that for most of history we could barely keep our heads above water, with 80-90% of the population farming. Now, if that doesn’t sound bad yet, recall that those farmers had a much poorer diet as well. Consider that if we Americans reduced our meat consumption, we could easily double or quintople our food supply.



2: Increasing automation further is mostly a matter of adding ‘intelligence’ (and I use that word very loosely here) to existing machines so that they operate independently of the human. There are of course, several mechanical additions that need to be taken care of as well, but even with those we aren’t talking any major changes of energy efficiency.



In otherwords, automation would continue to increase, even if the amount of energy farm equipment was allowed to consume stayed static.



3: More than enough Cellulosic ethanol can be produced from corn stalks, agricultural waste, and lands left fallow to power every farming machine on this green Earth. So while, yes, Cellulosic ethanol might not be in sufficient quantity to displace our entire fuel economy, farmers will continue to have cheap enough energy for the foreseable future.



To sum it all up. Automation in farming will continue to increase.

And, having read a history book, I’d say you are completely and utterly wrong. Our current problems are just one more repeat of the exact same ones humanity has faced for the last 10,000 years of civilization (albeit, at a much larger scale). It is, sadly, innate in our species. Did I say species? Sorry thats still too limited, many other species show the same problematic roots in their behavior too.



To put it simply, I doubt there is a single life form on this earth, that if given the chance, wouldn’t eat and obliterate its environment straight into oblivion. In fact, we humans are quite remarkable in that we can even grasp the danger of what we are doing and have taken ‘some’ (insufficient) measures to control ourselves.

The environment – that is, the system of laws, taxes, penalties, and regulations – is the only thing that can be controlled. Controlling anything else has proved itself repeatedly to be delusion.



So, by default, its the environment in which companies exist that must be controlled.

And you’d be right. That theory has strong rational basis. Consider that in a larger corporation, each decision passes through more layers of management. Each layer of management, thinking primarily about profit, is more likely to forget, fail to understand, or neglect the human factors. As such, the ‘humanity’ inherent from the employees gets washed away with each layer of transversal.



Hence, the bigger, the more likely a company is to be psycopathic. Publicly owned corporations are even worse, as their ‘leaders’ are nothing but an aggregate of individuals united only by raw greed.



I take it you’ve seen ‘The Corporation’. :wink:



–


Steve

33

You never have to be sorry about disagreeing!



Now, being sorry about being wrong… :wink:

To be frank, Jefferson probably never envisioned the technological revolution of these last 250 or so years. Indeed, it is clear he didn’t truly comprehend the power of the industrial revolution taking place during his own life. He was a smart guy, yes. But, the effect of future technology upon society was well outside his area of expertise.

Try
<a 0="href="http://www.epa.gov/oecaagct/ag101/demographics.html"/" rel=“nofollow”>
~0.35%
.



Farming is quite possible without large inputs of oil. It is difficult to get our current yields without fertilization though. But, there are a number of practices that have fallen out of favor (because of cheap fertilizer) that can maintain large yields.



I’d also point out the fertilizer itself, is not dependent on oil (though its largely inefficient use is aided by cheap oil significantly). Nor, for that matter, is there any reason that farming equipment need be tied to a single energy source.



So to say that modern farming is dependent on oil is incorrect. It is more accurate to say that modern farming (at least in the short run) will be much more difficult without oil.



If you want the closest existing visage of farming post oil, the best example is probably organic farming.

History has made it quite clear, that we won’t know the oil peak until after it happens. Yes, the signs of a peak are here right now, but that doesn’t mean it is right now.



So, while it is fair to suspect. Be quite careful about making such claims until the evidence exists to support it.

Fear! Fear! Fear!



Most models like that are so flawed they deserve only to be laughed at.



–


Steve

34

Hi robk-That’s a good question. The rule of “buy low - sell high” may not apply so much now as does - “buy to ride out what’s a head”. IF you take a plunge - go for a place that can provide both the buy-low/sell high factor and offer you security in energy conservation, food production and is comfortable - even in the worst of economies.

We bought a farm last year to ride out what we saw as an upcoming big economic shift due to peak oil . . and we haven’t even seen the beginning of peak oil - or the even the perception of peak oil (yet). But we also looked seriously at lake places and other waterfront since it tends to hold value and has a certain lifestyle value. Buying a foreclosed home in a depressed neighborhood may not look like the place you want to be if this turns to economic desperation.

Then there’s another way to look at it. You will be locking into a debt and that debt may not increase for the term of the loan while your wages and other expenses (like rent) may increase exponentially over that 30 years.

There are still reasons to buy and I'm sure someone can think of a million reasons Not to buy now so I'll let them come up with that side of the coin. . . EndGamePlayer

35

I have given this a lot of thought. My biggest thought is that if you want to know “what happens to X when economies tank”, simply look at history. “What happened to people who were deep in debt with high payments when their economy tanked?” Well most of them lost their high paying jobs and ended up defaulting on their home loans (this is happehing now). Don’t misunderstand my meaning behind this though. I am NOT saying that buying a property (especially a place you will live in) is a bad idea though. The reason is because renters are going to be hit hard as well. The position you want to be in would be to OWN your home OUTRIGHT with NO DEBT. This way, even if you loose your job and end up flipping burgers all you have to do is pay your taxes and you are good.
Don’t have $250,000 just lying around? No worry… buy a house that only costs 80,000. Get a 15 year mortgage so you don’t pay so much interest and use the extra money you save to fix the place up. Maybe even install a safe in the basement to store some silver coins. Don’t be afraid to buy your house. Get a great deal on a smaller, older place that is close to where you work/shop and pay it off as soon as you can. That is true security.

36

Mind the large bump.

I am not sure if Steve is still on the boards or not, but this is a response to his last post in a conversation that we were having. It has been awhile, but I still want to continue this if he is still around.

[quote=srbarbour]Quote:

That automation will only continue if we continue to have CHEAP ENERGY.

Nope, automation would continue even if cheap energy was gone. There are several problems in the opposition here: 1: Humans are monstrous energy consumers. Farming with human labor is horribly energy inefficient. So inefficient in fact, that the total yields (when using animals bred for generations as assistance) that for most of history we could barely keep our heads above water, with 80-90% of the population farming. Now, if that doesn't sound bad yet, recall that those farmers had a much poorer diet as well. Consider that if we Americans reduced our meat consumption, we could easily double or quintuple our food supply. [/quote]

I would suggest that calling human labor energy inefficient is a totally wrong headed. I personally think that using as little human energy in the production of things as we do is a waste of non-human energy. Put another way: if it is such a waste to use human energy to grow our food, what about all of the energy available from people who have no meaningful work, whether they have a job or not? This to me is a far greater waste of human energy than farming is. This is not to say that there are not appropriate uses for mechanical equipment in farming, but that the current scale of it is far too big.

[quote=srbarbour] 2: Increasing automation further is mostly a matter of adding 'intelligence' (and I use that word very loosely here) to existing machines so that they operate independently of the human. There are of course, several mechanical additions that need to be taken care of as well, but even with those we aren't talking any major changes of energy efficiency. In otherwords, automation would continue to increase, even if the amount of energy farm equipment was allowed to consume stayed static. [/quote]

The practicality of this is questionable, in my mind. While it may be possible, that does not mean that it makes sense.

[quote=srbarbour]3: More than enough Cellulosic ethanol can be produced from corn stalks, agricultural waste, and lands left fallow to power every farming machine on this green Earth. So while, yes, Cellulosic ethanol might not be in sufficient quantity to displace our entire fuel economy, farmers will continue to have cheap enough energy for the foreseable future. To sum it all up. Automation in farming will continue to increase. [/quote]

Here you are ignoring the amount of energy that it takes to run the huge equipment used in agribusiness these days. You are also leaving out the efficiency of producing fuel out of corn based ethanol – it is at best a break-even proposition. Also, if you use the agricultural “waste”, as you call it, you remove the nutrients in those “wastes” from the land. If they are taken away, they must be replaced, which means more inputs of fertilizer.

[quote=srbarbour] Quote:

Having grown up on a small family farm, I would argue that many of our cultural problems stem from the loss of understanding by the general population of where our food comes from and the natural cycles of life and change.

And, having read a history book, I'd say you are completely and utterly wrong. Our current problems are just one more repeat of the exact same ones humanity has faced for the last 10,000 years of civilization (albeit, at a much larger scale). It is, sadly, innate in our species. Did I say species? Sorry thats still too limited, many other species show the same problematic roots in their behavior too. To put it simply, I doubt there is a single life form on this earth, that if given the chance, wouldn't eat and obliterate its environment straight into oblivion. In fact, we humans are quite remarkable in that we can even grasp the danger of what we are doing and have taken 'some' (insufficient) measures to control ourselves.

[/quote]

I suppose that I misspoke, then. Let me amend that comment to read that our problems are exacerbated by being so removed from the natural rhythm of life.

In short, I guess that my argument is that the values that are driving agribusiness these days are clouded, and the definitions used for such terms as profit and efficiency are out of tune with the human side of things.

All the best,

Reuben