What to do with money now, assuming a huge crash is coming?

well I read again, and, well...it's doomsday talk, and doomsday talk is almost always wrong. Is it ever right? I suppose in 1348 as the black death started its way across Europe, or in 1939 when Hitler's tanks hit the gas...but seriously...listen to yourself. Have you always believed doomsday talk or just more recently? If only more recently then you have to ask why you think today's interconnected, massively wealthy, massively peaceful world is more risky than, say 50 years ago, when there was hardly any democracy or capitalism, far, far less wealth, and the USSR and the USA fighting proxy wars around the world.

Now, with the world that matters all on the same side (except the muslim radicals, which is a serious problem)...you want to fear 'debt' more than war and global disunity.

Is the financial crisis over? Depends how you define things. Is taking the US off the gold standard 'over?' Is the reorganization of Europe after WW2 'over?' Is the French Revolution 'over?' No - reverbs from all that are not over, but is rich country debt a fatal blow to teh world as we know it? I don't see it - all the evidence goes the other way.

That global unity and global wealth is solving every problem, and western society is remarkably stable.

It's not "doomsday" talk, I'm talking about a serious disruption for 5-10 years, and a new equilibrium--NOT armageddon.

The difference is that today, we see formerly "third world" problems reached deep into the industrialized first world--corruption, massive waste, poverty, constriction in supplies, rationing, internal tribalism, etc. Also, developed nations are at some points reaching their population limits, and are actually starting to decrease in response, absent immigration that they have or are now actively curtailing (Japan, Norway, Switzerland, etc).

Things are very much different than they were in, say, 1950, when the threat of nuclear annihilation was foremost in some people's minds. We are bumping up against some of the limits that the waste of the 1950's have hastened. Other parts of the world are already screwed, and I have seen first-hand how people there protect themselves--they live behind walls, they have physical assets spread throughout the world to hedge against political instability, and they have a very small circle of trust, that often does not extend outside their genetic family.

It is already happening here, the signs are unmistakable, beginning with a loss of trust in both elected officials, bureaucrats, and the machinery of the state.

Just for the sake of gamesmanship, why don't you assume arguendo that I am correct--how would you respond?

Maserati wrote:

a) tax rates are subject to change over time, and NEVER go down;

you've said a lot of crackpot things on this thread, but this is my personal favorite because i'm a tax guy.

Yes, I understand your point with respect to effective income tax rates--however, the "rate" is not everything, and the government raises revenues while keeping "rates" down by changing eligibility criteria and conditions. The end result during my productive life has been an increased tax burden, both income and capital gains, and that dynamic shows no sign of stopping. I am absolutely convinced that not only capital gains, but income tax burden for somebody actually making some money, will only continue to increase, not to mention the almost-inevitable imposition of "wealth taxes", such as we already see justified in estate tax and property tax--the "basis" of which both of which have already been judicially sanctioned as constitutional.

Yes, I really believe that this will happen--and the longer that meaningful SS reform is put off, the more certain I am that it will happen.

1. Ok - I acknowledge I was exaggerating your argument - I'll stop referring to a doomsday argument.

2. I reject your 'corruption' argument completely. The US and Europe have never been cleaner and less corrupt. Read a history of wall street - up until the 1930s it was a complete wild west, practically lawless. Unbelievable stuff. Politics were wildly corrupt - tamany hall, etc. . Whatever corruption we have now in politics is peanuts.

3. Depopulation in Japan and Europe and eventually the US is a concern, yes. Capitalism has not had to do deal with shrinking populations - not clear what will happen there. But at this point it is a fear rather than a certain problem. Certainly immigration will happen, and that could work out well (like it has in the US) or not so great. We'll see.

4. If you think trbalism and rich folks defending their turf with guns is new...well...come on. That has been happening since day 2 of homo sapiens sapiens, and it's not going to end. But do remember that crime levels in US cities is at 50 or 60 year lows. For anyone with even moderate means...there is no crime in NYC or Boston, etc. Ask yourself why crime has fallen and see if that jibes with your view of a major coming disruption.

5. Loss in trust of politicians? Well, something is happening there. But the US has almost always had a distrust of government. Maybe for a magic spell in the 1940s-50s there was some large amount of trust among many white folks...but that was an exception. I think once our president is not black, a lot of this rancor will go away. It has already started - the tea party has been whipped very badly - the debt ceilign was raised despite the tea party. The last couple years have been sharply painful politically - There is a good chance that will end soon.

ok. how would I respond? You mean how would I prep for a major problem? I would leave the city. I would move to a small town with abundant water and near farms. I would buy a few guns and mucho ammo. Lay in years of supplies. Somehow secure a huge amount of gasoline/heating oil. I would sell my stocks and buy hard assets like land.

Is that what you mean? Or if we are talking less major crisis, I would sell my apartment and convert my home equity (I own an apartment, not a house) to cash and rent. I would spread my money to many currencies. I would buy precious metals. I would short the heck out of the stock market. Find a way to profit from wheat, livestock, etc.

Having $1,000 balance in a line of credit doesn't do enough to give you a "perfect" credit score. A credit score is calculated using a variety of factors...payment history, amount owed, length of credit history, new credit, and types of credit. Having a LOW amount of credit isn't necessarily a good thing either. Your credit score is not really for you. It is for those who might loan you money. You are a more attractive person to loan money to if you pay on time and typically take a long time to pay off the debt. Also, a 'perfect' credit score is really a score of ZERO. That means you have no debt and haven't borrowed money in a while. A credit score is an "I love debt" score. IF you get to the point in your life that you don't need to borrow money anymore (which is where we should ALL strive to be), then you don't need to have a 'good' or 'perfect' credit score.

I currently have a 'good' credit score meaning anyone would give me a loan, because I have a mortgage that is paid automatically each month and I use a credit card and pay it off each month...a credit card satisfies the "revolving credit" need when calculating a credit score. However, this is just my place in life today. In 3 years, my mortgage will be gone, and not too soon afterwards, the kids will be to college and beyond, so my monthly expenses on my credit card will be less and less, and so my credit score will probably drop a bit. I could not care less. I don't plan to take out a loan for anything ever again. That's where your mind should be.

Hmm...I just read your answer in point No. 2 above, and my advice there is to go take some medication. Seriously. Any logic I can give you will not help you. I'll just tell you that your fears are unwarranted and silly...you will not believe me, which is why you probably should go see a doctor. Paranoia is a treatable problem. Good luck to you...seriously.

Flagpole - I sort of agree with him on retirement accounts - there are going to be some very large piles of money in IRAs owned by some very rich people - I suspect there will be some means test for confiscating some of that money.

meaning, if you have over, say, $5 million in tax protected assets, the tax rate on taking money out of a traditional IRA will have an additional 10% tacked on, or something like that. They already have a 10% fee for taking money out early - this would just be an extension of that penalty.

And Roths...even more dangerous...those will be a nice fat juicy target of new wealth taxes.

But I think this will all apply only to rich people - for the average guy with $500k in retirement accounts I don't think it will be a problem.

Maserati wrote:

Yes, I understand your point with respect to effective income tax rates--however, the "rate" is not everything, and the government raises revenues while keeping "rates" down by changing eligibility criteria and conditions. The end result during my productive life has been an increased tax burden, both income and capital gains, and that dynamic shows no sign of stopping.

putting aside the prediction part of this post, because i was only commenting on the accuracy of your reflections on the past, the excerpted quote above is just completely untrue. unless your "productive life" began about january 1, 2010.

reagan cut the tax burden on the wealthiest by a fair amount, george w bush lowered it, then he raised it. clinton raised it in general, but lowered it for capital gains income. (while lowering it for most lower or lower middle class families). george w bush lowered it for just about everyone, especially families and especially the wealthiest. obama lowered it even more in 2009. and finally obama raised it in 2011.

(obviously each congress played a role in all of the above as well).

it's not nearly a linear movement in an upward direction. especially if you are talking about the highest income people, and especially for capital gains income. after the 1986 tax reform, the highest long term capital gains tax rate was 28%. then it was lowered to 20%. then w bush lowered it to 15%. then obama raised it to 20% and finally to 23.8%. (in other words, yes, it is still lower today than it was under reagan).

i don't know what eligibility criteria and conditions you could possibly have in mind that have changed since the mid 80s for long term capital gain income.

here it is in graphic form. i certainly don't see a constantly increasing tax rate.

http://en.wikipedia.org/wiki/File:Top_Capital_Gains_Tax_Rates_and_Economic_Growth_1950-2011.jpg

agip wrote:

Flagpole - I sort of agree with him on retirement accounts - there are going to be some very large piles of money in IRAs owned by some very rich people - I suspect there will be some means test for confiscating some of that money.

meaning, if you have over, say, $5 million in tax protected assets, the tax rate on taking money out of a traditional IRA will have an additional 10% tacked on, or something like that. They already have a 10% fee for taking money out early - this would just be an extension of that penalty.

And Roths...even more dangerous...those will be a nice fat juicy target of new wealth taxes.

But I think this will all apply only to rich people - for the average guy with $500k in retirement accounts I don't think it will be a problem.

I think you're being a bit too liberal with the tone of what that guy said...or maybe he's not good at expressing himself...didn't sound to me that he was simply concerned with tax rates...seemed to me he was concerned with the government arbitrarily taking most or all of his money.

Here's my stance on it all...a stance that allows you not to really worry about things:

If I have $5 million or more in retirement accounts when I retire, then I shouldn't mind paying a bit more in taxes. People get all bent out of shape over 'if I had X amount of money and then it gets taken either by taxes or a stock market drop, then I'll be pissed' vs. what they should consider, and that is, do I have enough money to support the lifestyle I want? AND, the BEST way to ensure that is to retire with ZERO debt and then make sure that you have invested your money throughout your career. The problem that most people have is that they retire and then look at the money they have and base what their lifestyle will be on that when what they SHOULD do is envision the lifestyle they want while still young and working and invest enough to make it happen...you have to be reasonable with that vision...can't imagine owning a Major League Baseball team if there's not way you could end up with that kind of cash, but most working Americans can get themselves to a pretty awesome place if they start soon enough.

agip wrote:

Flagpole - I sort of agree with him on retirement accounts - there are going to be some very large piles of money in IRAs owned by some very rich people - I suspect there will be some means test for confiscating some of that money.

meaning, if you have over, say, $5 million in tax protected assets, the tax rate on taking money out of a traditional IRA will have an additional 10% tacked on, or something like that. They already have a 10% fee for taking money out early - this would just be an extension of that penalty.

And Roths...even more dangerous...those will be a nice fat juicy target of new wealth taxes.

But I think this will all apply only to rich people - for the average guy with $500k in retirement accounts I don't think it will be a problem.

a) i completely disagree on the likelihood of a tax on existing IRA balances being enacted. it is completely politically impossible. a general wealth tax - sure, that's not beyond the realm of possibility, but a tax that is specific to retirement accounts, no way.

b) even if such a law were to be enacted, one has to compare the cost of investing in an IRA/401(k)/etc versus in a fully taxable manner. for example, how would an additional tax of 10% on the gains in a roth IRA, upon withdrawal, compare to investing in a fully taxable account? the roth IRA is clearly better. (i) the gains would otherwise be taxed as long term capital gains, at rates up to 23.8% under current law, more likely 15% for the average investor; and (ii) the taxation would occur annually as dividends and gains happen, which would really hurt compounding.

so you have to be picturing some pretty serious "confiscating" of roth IRA balances - while non-IRA assets are exempt from the "confiscation" - in order to choose to not invest via an IRA now.

c) the real risk of a roth IRA is a radical change to the income tax system in the US. if we shift to no income tax on the first $100k of income (or $500k of income), or lower rates on the first $100k of income, while adopting a VAT or national sales tax, then there would be significant questions about how roth IRAs should be treated. if they are not given some sort of special treatment, then a roth IRA loses much (though not all) of its advantage over a fully taxable account. (i assume that withdrawals from traditional IRAs in such a tax system would still be subject to income tax.)

there are many other taxes that do seem to rise over time - property tax, sales tax, gasoline tax...

some of these are local so hard to generalize, but if I had to guess, I'd say the all-in tax burden for middle class people in teh US has risen over time.

Although I have no evidence or information, so my views aren't worth much on that subject.

agip wrote:

there are many other taxes that do seem to rise over time - property tax, sales tax, gasoline tax...

Although I have no evidence or information, so my views aren't worth much on that subject.

property taxes go up and down. it's not uncommon for a state to reduce their property tax rate or base, most famously in california with prop 13. (obviously a popular referendum rather than legislative action, but the result is the same).

gasoline taxes have been largely flat, although with increases in gas mileage it's effectively a tax cut (you may have read about how some states are considering new sources for transportation funding).

sales taxes i would tend to agree that they mostly go up. i'm sure they don't exclusively go up, but i can only remember a few instances of a temporary hike expiring, as opposed to material cuts. a cynic would say that's because the wealthiest people pay the least (relative to income) in sales taxes, so politicians who are tax cutters don't focus on that tax.

regardless of the specifics though, the original post at the top of this page was about taxation of retirement funds, so i thought the long term capital gains rate (which is also the rate for qualified dividend income since 2003 ish - the tax rate on dividend income was of course much higher before 2003, yet another tax cut) would be the most appropriate tax rate to consider.

(in terms of your specific point/question, whether the middle class tax burden has increased over time, the best proxy stat that i can think of is total tax burden as a percentage of gdp. it won't tell you the middle class tax burden specifically, because the relative burden of lower, middle and upper classes has shifted over time, but it will give you a sense of whether the overall tax burden has increased. here is one place with that data for 1979-2010.

and this site shows federal government only going back to 1934

the latter table shows the gigantic jump in the WWII era, and mostly a plateau since then, with a couple of years at 20% of gdp, and dips down to 15% of gdp, including during the early obama years due to the recession.

in neither data set do i see evidence of consistent movement upward.)

2) This is where we part ways. The current government is largely "lawless", as neither bureaucrats nor policy-makers understand what law actually is, and how to implement it.

4) I'm talking third-world tribal conflicts transplanted into first-world countries. It is undeniable that it is happening. As for reported crime levels, those depend entirely on reporting and investigative and prosecutorial resources, all of which is down relative to 50 years ago. Much goes unreported, much goes unnoticed as far as white-collar crime goes.

5) Not in politicians, but in the very institutions of government themselves. We have always had to figure things as we went along, but we have culturally lost the ability to do so meaningfully. I don't see the sharp political pain ending.

I understand what you are saying in your last 2 paragraphs, and I understand its validity. I guess I'm looking for an alternative. I don't wish to live in a small town, I enjoy culture and what western civilization has achieved.

Hingle McCringleberry wrote:

J.R. wrote:

I will try to post more quietly.

How about not posting at all?

Make up your mind.

I don't need credit, but I have used it wisely. I understand all the metrics that go into a credit score, and having a 1k balance in a LOC on which you make the minimum payments, combined with payoffs of residential mortgages, etc., makes you credit-worthy in the eyes of others. A credit score is NOT an "I love debt" score, nor is it an "I need debt" score.

Needing to borrow money, and using borrowing wisely even if you don't "need" it, are 2 entirely different things. That you don't appear to appreciate this is strange.

"That's where my mind should be?" That is totally unsophisticated. You apparently have never started or run a business for which you have given personal loan guarantees for either operating LOC or capital debt. My mind is on using available tools wisely, and credit can be a valuable tool if used properly, in the right organizational structure.

My "fears" about SS and Medicare are not unwarranted, and I am not paranoid. The difficulties inherent in those 2 programs are understood by everybody with a modicum of intelligence: they are unsustainable. The solutions are limited: increased contributions, decreased payouts. Good luck to you, as well.

The hot air in this thread along could solve our energy problems

ryan foreman wrote:

But ultimately the very existence of inflation inherently means people have money to buy things to inflate the price in the first place.

the 1%

first of all, if you're really looking for advice rather than trying to spread your worldview, the advice is pretty clear - diversify into multiple currencies/markets, own physical assets that would have value at whatever level of calamity you fear, and minimize exposure to the things you think are most at risk.

secondly, if, as i actually believe, you are trying to convince people that your view of the risk of such calamities is more accurate than ours, you need more evidence than you are posting. take your #2 above. "neither bureaucrats nor policy-makes understand what law actually is". what??? where do you get this? do you mean "the law" or "law"? in either case, what evidence do you have?

at least at the federal level, your average "bureaucrat" who is interpreting or enforcing law in a particular agency or regulatory environment is highly knowledgeable.

or your point #4. "it is undeniable that it is happening". and what of the evidence that crime is actually way down? well we have to ignore that, you say, because reported crime was higher 50 years ago. seriously? you think rape was reported more regularly 50 years ago? you think murders today are unreported?

finally, on your point #5, i will grant you that you are evidence that we have lost something culturally. you are not able to be convinced of anything based on facts or evidence. you simply believe that the government is corrupt, that statistics and facts are made up. so what is the point of engaging in discussion? you made a point about tax rates. i refuted the point with facts. are you able to admit that?

you made a point about crime rates, agip corrected you with facts. are you able to admit you were mistaken about the facts and adjust your theory?