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

Maserati wrote:

Yes, that is correct, I have options that I can't talk about, that are quite probably not available to you.

So you've already booked your ticket on Mars One.

J.R. wrote:

The ones who make the rule own the money.

False

Maserati wrote:

... (1) I understand precisely what I get from government, and I also know how much I pay for it currently, and how much I am likely to pay for it in the future.

...

(2) I don't know what business you are in, but all businesses are now after the fat government contract, be they professional consulting, janitorial supplies, surveying, transportation, whatever--they are after that money from all levels of government....

(1) No, you really don't "understand precisely what you get from government". The only way that anyone could understand this would be to eliminate the government entirely and see how their life changes. You may be a bright fellow but I am quite confident that this is a thought experiment which you are not competent to perform (nor is anybody else).

(2) No, it is certainly not true that "all businesses are now after the fat government contract". I myself am a co-owner of two businesses which have no government contracts, have never had a government contract and have no plans to change this state of affairs for the foreseeable future. I am quite confident that my companies are not unique and that there are surely thousands of others which are not "after the fat government contract."

Your propensity toward exaggeration reinforces the impression that you have given elsewhere that you are at least a bit unhinged. I hope that you will not take the K5 route in the future. It is very sad to witness.

1) Yes I do understand. Not only do I think about it, I have lived elsewhere in the world where the US government and its activities don't exist--this is the functional equivalent of "eliminating the government entirely". I'm not even American, although I want to retain assets in the US. Also I have worked for the government, and continue to work with the government on a daily basis. Do not confuse "the government" with "the citizenry" or "civil society".

2) That is your decision to make. Perhaps you are not properly qualified, and maybe you see the path to qualification being too onerous. However, I stand by my assertion--any business that is paying attention cannot ignore the opportunities that are out there, and I mean in all sectors of the economy, from roasting coffee beans to event planning to daycare to missile subsystems to furniture refinishing to lawn maintenance to aluminum cleaning to counseling services to software. While it is certainly true that many businesses are so small that they lack the resources to attempt qualification, and while it is also true that some don't think they could profitably execute government contracts or otherwise want to stay away from dealing with the government, it is generally true that in a successful going concern, the presence of government work is generally not ignored, and is instead considered a potential jewel in the crown of the business revenue streams.

I'm not exaggerating, I am generalizing. The two things may appear the same, but they do not have the same motivation. I generalize for purposes of writing economy--for instance, consider how long it took to qualify these minor points with a single other poster. If you want me to be conciliatory, I will agree that I exaggerate generalities for the purpose of economy.

ryan foreman, I am talking about both.

A failure of infrastructure or infrastructural management creating a rather quick short-term destabilizing effect, which short-term effect affects the present treatment of future unfunded liabilities going forward for, say for instance, 2 or 3 decades. Let's say 3 decades, all told.

A quick event that hastens the crisis in public accounts, the future management of which stabilizes society at a new equilibrium.

I would agree that I have a positive long-term outlook, because I believe it possible to thrive (if even only relatively) in many different environments, as long as you are both positioned and managed appropriately.

One need only look to some other places in the world, to see what sort of thing is likely to come to the US. To me, the US experience represents an accelerated pace of social evolution/devolution, different in speed but not in kind.

Consider Greece, Italy, Spain, Russia, and elsewhere. Things might generally be portrayed as sucking, but there are some people who are very well off, in and from all those countries. The uber-rich are tied to government and critical resources. Those in the general population who are considered well-off are those with government jobs--and even though we hear about government employee turmoil, in most cases they are still better off than the person working in the private sector, who is often forced to go abroad to seek opportunities.

I know how successful family units manage things in these countries and elsewhere. I know what it has taken for generations to successfully propagate themselves. I will take those lessons and apply them to experience in the US, and I will be hopefully in the vanguard.

It's not the end of the world, it's only the end of the previous world.

I hope this makes sense, I don't have much time today.

I hope this makes sense, I don't have much time today.

Maserati wrote:

I have lived elsewhere in the world where the US government and its activities don't exist

There is no such place.

Would it be fair to say that you believe U.S. will go the way of Japan from 1990 to the present? It kind of sounds like that is what you are talking about. In 1990 the Nikkei peaked at around 38,000. Today it is at 14,500. And that is up a long ways from where it was a year ago. In that time span Japan has suffered from a combination of long term economic problem and short term crises that you seem to describe. 1990 for example was when Iraq suddenly invaded Kuwait creating havoc with world oil prices. Japan was highly dependent on Mid East oil at the time. That was a traumatic event to infrastructure. More recently of course has been the earthquake and the Nuclear power disaster. Concurrent to all that Japan has had long term structural economic problems that I don't fully understand. But basically in 1990 they had a huge asset bubble that popped. Japan banks got buried with bad loans. Its my understanding ever since those banks have refused to fully write down loans and accept losses to clean up their balance sheets. That has been an ongoing drag on the economy. I think it ties into Japan's unique feudal culture that I frankly don't understand. But it sounds like Japan corporations that probably should go bankrupt are propped up so as to not bring shame on the people running the corporation. The big difference between Japan and what you are describing is that Japan has suffered from chronic DEFLATION not inflation. That is where you lose me. Again market crashes and high inflation fundamentally don't coexist together. They intersect for a brief time. Japan in 1990 had their asset bubble that created high inflation. Then the Middle East crises drove up oil prices. So yes, in 1990 the market took a sharp downturn and you had inflation. But markets self correct all too well. The Japan central bank drove up interest rates to stop the inflation. In that environment Business and people don't spend and hoard their money creating a sharp decline in demand and prices. That can lead to a vicious deflationary cycle.

I'm traveling, but thought I would bump this thread considering Obama's recent budget proposals which contemplate, among other things, capping the tax-advantaged limits on 401k's and, yes, IRA's.

http://money.cnn.com/2014/03/04/pf/taxes/obama-budget-taxes/index.html?iid=Lead

I told you, it's coming. Yes, the 401k/IRA proposal is indexed for age. Yes, the estate tax exemption dials back to only 2009, but that was inevitable, and yes, some of these are recycled proposals.

But the bottom line is that they can, and DO, unilaterally vary the social contract. Rarely is such variance in the favor of a person with any money. Yes, I know the estate tax exemption has risen from around $1M to around $5.25M, but that is, like other things, a temporary aberration. The long-term trend is clear, and you can see it now even with IRA's.

The current types of proposals are a harbinger of things to come.

Fun thread--ryan foreman, I will read your post soon when I have time.

Obama's proposals are nothing significant in the big scheme of things. And maybe that is your point. Its the same old status quo.

What I find more worrisome is not Obama's proposals. It is the fact that he is making these proposals so as to justify paying for infrastructure projects.

In other words its all find and good for the Federal Reserve to buy up trillions of dollars in U.S. treasury bonds and Mortgage backed securities to inflate prop up bankrupt investment banks and the stock market. But its wrong for the Federal Reserve to use their power of creating money to finance U.S. infrastructure. That is messed up.

But that may be for another thread.

Maserati,

I'm still searching for a frame of reference of what you are talking about in this thread. I'm interested in you responding to my previous post where I talk about japan from 1990-2010. That seems like a realistic scenario for the U.S. someday in its future. Your scenario seems worth talking about. But it remains vague to me. It would be helpful if you could reference some economic event in world history. I don't think you have really done that yet in this thread.

ryan foreman, Japan is a very strange place to which to compare the US experience.

Japan has very strong and monolithic cultural/historic normative standards, more so than does the US--but it is true that the US has been trying to "take lessons" from Japan, and emulate some of the particular aspects of its corporate culture in particular. Japanese-style management has been in vogue at certain US corporations for some time now, for better or worse. In this respect, and in the deepening divide between have's and have-not's, the current social situation in the US is beginning to reflect some qualities of the Japanese.

There is also the issue of essential vs discretionary spending. I don't remember where I read it, but I remember that pre-crash, Japan had basically the highest rate of discretionary spending in the world--much of that spent on travel that was funded by credit, but much of it coming from domestic discretionary spending. Demand resulting from discretionary spending is indeed flexible, more so than demand resulting from essential spending. While there is significant discretionary spending in the US by the have's, I don't think it rises to the level of that which Japan experienced--therefore any potential hoarding and decline in demand that may happen here will IMO be less than happened in Japan, hence a deflationary cycle will be suppressed.

But only as long as the government can continue to prop up the have-not's to continue their purchases of essentials.

So I could see significantly lower markets, higher interest rates as an attempted intervention, and inflation all co-existing, and for more than a brief period of time.

I do agree that the types of infrastructural failures evident in Japan are being seen in the US, and in that sense the trajectories are also similar. If the US has a critical difference, it is the cultural diversity in various parts of the country, notably the relatively recent boom in the hispanic segment especially in the southwest, that may act as a cultural hedge to collapse.

That, however, encourages regionalism and black markets--and regionalism is one motivation for me to find something that is more local in scope, than exchange-traded equities in national/international enterprises.

I am Japanese and let me tell you, being Japanese is actually a great thing. We have beautiful people and we have ugly people. Just like any race. I for one am a great person, have great friends, and I take care of every one that is in my life and I am glad to do it, and for that I have people that love me around me. Also, Japanese parents are one of the best parents you can have. Sometimes they can be really strict, but they will take care of you no matter what, and they will buy you what ever it is that you need. As long as your not a selfish ****head. Also, we all have great jobs, lots of money and a family that we all love and take care off. Suck my d*ck op suck my d*ck

ryan foreman, it was interesting to hear Yellen say in her first presser today that the "linkage" between monetary policy and economic conditions is not "as strong or as quick" (or something to that effect) as the fed thought. I will try to find her exact wording in a transcript of the event.

I suspected as much, which is why I think we could see a simultaneous rise in both inflation and interest rates.

Well, I don't think we need to delve much into cultural differences in this thread between Japan and the U.S.

I basically disagree with you on your outlook of essential vs discretionary spending. I think the capacity for Americans to NOT spend and still live a reasonably comfortable life is massive. I've been pointing this out for years on this board. People come on this board warning that we are on the verge of hyperinflation because of what the Fed does. I keep pointing out that the inflation effect from Fed policies is already happening. We don't see a high CPI because the inflationary force of the Fed and budget deficits is offset by a massive deflationary force.

This deflationary force comes from three different ways. 1. There really has been a big increase in productivity over the years. 2. People are spending less for the good and sensible reason that they don't have the money and banks aren't loaning them money. 3. The sheer weight of having had sustained inflation for 50 years. I think this sustained inflation comes out of government always stimulating the economy when the economy slows down rather than accepting recessions as a healthy thing and letting them run their course. As a result I believe we have created gluts over the decades giving rise to massive amounts of discretionary consumerism.

Something has got to give. And briefly in late 2008 it did give. The country was staring in the face of a high rate of deflation. The Fed embarked on its very radical policies that they are still deep into today even though the buzzword is "tapering". But my theory is that we have fundamentally and naturally entered a prolonged era of deflation.

Getting back to Japan. I think what I have said above parallels to a large extent what went on with the Japan economy leading up to 1990.

In any case. My question still stands about the economic similarities of Japan and what you are describing. Moreover, you keep wavering on what you expect the stock market to do in your scenario. First you talked about a "crash" which I take to be a very steep and deep decline in prices. But in other posts you are talking about stock market going lower for some unspecified time.

I preface all of this with the caveat that I do not hold myself out to be an expert on any of the matters here under discussion.

Yellen, when commenting on the adverse effect that current fiscal policy is having on the employment picture:

"And monetary policy has tried to do what we can to offset that. But, you know, the linkages aren't as strong and aren't as quick as we might ideally like them to be."

CYA at its best, but nevertheless, it is IMO an entirely valid generalization.

ryan foreman, there is no way to meaningfully compare the Japanese economic, fiscal, or monetary policy with that of the US, without a careful consideration of Japanese culture and its essential differences with that here in the US. Almost everything in Japan has been driven by culturally normative values and behaviors.

"I think the capacity for Americans to NOT spend and still live a reasonably comfortable life is massive."

This is a value-laden statement, and steers the discussion into a consideration of what is reasonable and comfortable. Basically, the Fed has a limited number of tools to influence the money supply, and has essentially maxxed-out the use of these tools and is now backing off, because they had backed themselves into a corner--or, 3 corners, to be precise. Once in these corners, they left themselves room to maneuver in only one direction, in each of 3 dimensions: 1) QE (open market operation) rose to the level where it realistically could only be adjusted in one direction--down; 2) after Lehman the required reserve ratio could only realistically go, and has only gone, in one direction under Basel--down; 3) discount rate can only go in one direction from 0%--up.

So not only have the monetary tools been maxxed-out, but their "linkage" to economic indicators are understood as not being "as strong or as quick" as might be desirable to produce the desired effect.

"We don't see a high CPI because the inflationary force of the Fed and budget deficits is offset by a massive deflationary force."

We don't see a high CPI because things that are volatile, yet which have shown a trend to do nothing but increase over time (food, energy, etc--and I would include non-sales and excise taxes), are excluded from the CPI. It is easy to find an economist who believes the real rate of inflation to be around 8% or 9%. There is IMO significant inflation at the moment. Reasons for governmental use of the artifically-low CPI abound, including the minimizing of government liabilities arising from CPI-driven adjustments.

So IMO "a massive deflationary force" is not the reason we don't see a high CPI. Consider the fuel situation, just as happened in Japan who were very dependent on mideast oil: there has been dramatic inflation over the past years. Credit might be given to Americans who have recently exploited domestic energy sources, but it must be remembered that the energy market is global, and prices are set globally. It is true that demand may be falling and supply rising, and to that extent your increased productivity argument may have some merit in indicating a deflationary force--but averaged over a period of, say, 5 or 10 years (definitely since 1999), there has been significant inflation, which appears to continue notwithstanding US domestic efforts and decreased industrial activity in China.

In other areas, yes, there has been an increase in productivity over the past few years, but IMO it has been more than offset with the decrease in potential productivity over the same period, with the massive unemployment and underemployment and decreased labor force participation. Those people still need, and still do consume, "essentials"--thus supply may have increased to some extent, but demand has increased yet further IMO. I do not argue that there has been sector-specific deflation, but overall, the level of inflation might be measured by the level of social spending undertaken by the US government, which has done nothing but increase in recent history--and again, that increase has been artificially minimized by use of the artifically-low CPI. Just ask SS recipients.

"People are spending less for the good and sensible reason that they don't have the money and banks aren't loaning them money." Are people in the aggregate spending less? No. US consumer spending has increased dramatically since mid-2009. Where does the money come from? Wealth concentration at the top, subsidy at the bottom, and the middle remains in stasis.

IMO we are in a period of inflation, and there is little to be done via monetary policy. The traditional levers of control are no longer as effective, because the situation has been let go to seed. The only real effect of the recent articulation of monetary policy is on the short-term markets.

Where am I going with all this? Interest rates have nowhere to go but up, and Yellen gave a timeframe for that. Inflation is present, and significant. Unfunded public liabilities continue to increase at a staggering rate. From where will the money come to pay for all of this? QE? The government ran out of money a long time ago. Discount rates? Can't get any lower than zero. From bank activity, through change to the required reserve ratio? The feds are in Basel as we speak, trying to find out how to tweak that one--it was already effectively unlimited for a time, and that ended up being more expensive than the alternative.

Solutions come from such areas as currency devaluation, default, tax increase, renegotiation of the social contracts of SS and Medicare, etc.--ALL of which suggest a crash, to me.

Maserati wrote:

markets.

Where am I going with all this? Interest rates have nowhere to go but up, and Yellen gave a timeframe for that. Inflation is present, and significant. Unfunded public liabilities continue to increase at a staggering rate. From where will the money come to pay for all of this? QE? The government ran out of money a long time ago. Discount rates? Can't get any lower than zero. From bank activity, through change to the required reserve ratio? The feds are in Basel as we speak, trying to find out how to tweak that one--it was already effectively unlimited for a time, and that ended up being more expensive than the alternative.

Solutions come from such areas as currency devaluation, default, tax increase, renegotiation of the social contracts of SS and Medicare, etc.--ALL of which suggest a crash, to me.

You ask "From where will the money come to pay for all of this?"

obviously, if the economy continues to grow at close to 3% then increasing tax revenues will pay for a whole lotta stuff. I'm sure you've seen the charts showing how the annual deficit is shrinking quickly. No crash necessary.

The problem, of course, is how we can afford the next recession. In a recession tax revenue dives...and we really, really can't afford that.

So growth is the key to the next 10 years - if we have steady growth we should be ok. If we have a shallow recession we'll be fine. but a deep recession would be a big problem.

Where am I going with this? The Fed knows this and would rather have inflation than a recession. So they will keep rates as low as possible as long as they can. They are willing to stoke inflation because inflation is better than a recession.

I actually agree with the sentiment of this post, if not the specifics, but I would ask whether your "growth" is actually inflation by another name.

Maserati wrote:

I actually agree with the sentiment of this post, if not the specifics, but I would ask whether your "growth" is actually inflation by another name.

well in a sense it doesn't matter to this argument - if tax revenues continue to rise strongly as they are, and government spending continues to hold steady...we can grow out of this whether the economy is growing 3% in real terms or 1% in real terms.

The bottom line from the deficit side of the debate is that revenues are rising and spending is flat.

It's a differenet debate if we are talking about the economic health of jane and joe sixpack.

(1) No you most certainly do not "understand precisely what you get from government"

Not only do I think about it, I have lived elsewhere in the world where the US government and its activities don't exist--this is the functional equivalent of "eliminating the government entirely".

This ^ is simply false. Also known as incorrect. That is the functional equivalent of exchanging one government for another. Sorry, but that is not even close to knowing what you get from the government. Not even in the same universe.

"I've lived in France. Therefore I understand exactly what life would be like without any government." Ummm...okaayyyyy.

(2) Yes, it is my decision to make. And many others make the same decision.

Here was your claim:

"I don't know what business you are in, but all businesses are now after the fat government contract, be they professional consulting, janitorial supplies, surveying, transportation, whatever--they are after that money from all levels of government...."

I have demonstrated that your assertion is false. A grotesque exaggeration at best. A flat out lie is perhaps a fairer way to put it. Nothing in your 'rebuttal' even attempts to dispute this.

Try living in the real world. It would do you good.

With the proposed change, the Feds will be taxing the same money twice. Will someone be able to make a case against this?

For high earners they will be forced to pay partial taxes as contributions are made to 401(k)s and will be forced to pay full taxes on all funds as they are withdrawn. Doesn't seem American to me.