Y2K Economics 101 for Decker

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Y2K Economics 101 for Decker

Ken, in my class, I define the principles a little differently than you.

First of all, most people believe that their hard earned money is sitting in a bank vault, pension plan or stock & bond fund. But actually, what exists is an electronic promise to pay. What these "investors" really have is quite literally ones and zeros in a computer database. Rather than something concrete like a gold coin or a years supply of heating oil, these 1s and 0s represent "stock" in the economic system. The "stock" rises when the economic system is prospering, and this is reflected in increased savings interest, fund dividends and market share price. When the system is in recession, or a momentary panic, or "correction", the "stock" falls. Sometimes the behavior is more complex and inexplicable, but the underlying definition of "stock" in the economic system remain fundamental.

Secondly, the success of the modern economy of the world is based on sustained growth. When that growth stops globally, at this point in the Ponzi scheme, TSHTF.

Now, lets put 2 and 2 together. We have A) a financial system based on "stock" in the economic system and B) global growth stops. What can we extrapolate?

Well, for starters, have you ever seen a new office building, gas station, builders mart, hospital or shopping center going up in an area that seems to already be saturated with new office buildings, gas stations, builders marts, hospitals and shopping centers? Ever wonder how in the world they will turn a profit? It has to do with structured debt. The banks are in the business of loaning out ever increasing sums of money, to finance this construction spiral. Governments get into the act too, building unneeded roads, bridges, and other facilities in order to keep the speculative bubble inflated.

The economy goes into overdrive as these expenditures of money are put towards raw materials and labor, and the beneficiary of these expenditures (company stockholders and workers) in turn reinvest this booty in such "commodities" as video rentals, restaurant meals, vacations, sporting goods, and the Home Shopping Network. Now, the $64,000 question. Where did this money come from?

In very large part, from you, the investor. Which is why the banks have loaned it out so liberally. Without stopping to think if the growth trend is sustainable. Without warning you, the investor, that things have become pretty darn shaky. Which is why y-2-k spells trouble for the banks. Confidence is at risk. But the bigger problem is that its not just about confidence - its about the current financial architecture reaching the end of its rope.

So, if and when the serious downturn occurs, guess who loses out when all the outstanding loans for new new roads, bridges office buildings, gas stations, builders marts, hospitals and shopping centers go bad? The banks? Guess again. The banks are insured by the government. And the government is insured by you. And you, with that 6 figure 401K, are heavily invested with stock in the economic system. Get the picture?

PNG expressed this quite succinctly when he wrote of the deteriorating situation in Japan earlier this year:

This is not a deferred payment plan. This is: "Remember that $2 billion you owe us? Well, you don't have to pay it back and we'll probably give you more cash on top of that because the government will give us the money to cover it."

My question is why are they asking the bank executives? Banks don't have any money. Towa Real Estate borrowed the depositors' money and promised to repay it with interest.

The government doesn't have any money to give to the banks to offset these bad loans. The taxpayers' money is being given to the banks to offset the depositors' money mishandled by the banks and Towa Real Estate.

The bottom is, when and if things go way south, the pollies will discover a new definition for "marketing fad".

Next lesson: How to avoid being accused of sedition by conventional economists.

-- a (a@a.a), July 24, 1999

Answers

"a": You can't teach an old cockroach new tricks, as the saying goes.

-- King of Spain (madrid@aol.com), July 24, 1999.

Mr. Decker, are you there? Hello? (I think I hear the wheels turning...)

-- a (a@a.a), July 24, 1999.

--a: Thanks for the refresher course in economics. I still don't know monetarily where the safest place (investment wise) to be. I do not own gold, I have a mortgage, and am credit card/loan free. Should I hide my cash under the mattress? What would you suggest one do?

-- bagofcash (bagofcash@bagofcash.com), July 24, 1999.

bag: beatstheshitottame. I don't give finiancal advice when it comes to how to bury money, but I do think extreme situations call for extreme measures. I didn't say I knew how to profit from this situation, although if you could time it right, and the banks and markets stay up, you could make a fortune on shorts.

As a general rule though

- get Out of the market

- have two months cash

- 10% liquid assets in precious metal

- no large non y2k purchases

- buy several months worth of supplies you will end up using anyway

-- a (a@a.a), July 24, 1999.


--a: Gold dropped again on Friday and I hear a couple countries are going to dump more of their gold reserves. If I purchase precious metals such as gold coins, what value will gold be if we are in a depression? We are no longer backed by a gold standard but backed by debt. I have asked this question several times here and asked gold coin dealers and I haven't heard a good logical answer. Sounds to me like we're all screwed regardless of where we're invested. I'm well stocked food wise--maybe I should rent a warehouse somewhere and become a surplus merchant.

-- bagofcash (bagofcash@bagofcash.com), July 24, 1999.


If TSHTF, gold will skyrocket. Always has. Probably always will.

A better question would be, during the Crash of 29, would you have rather had your money

A. in the bank

B. in the market

C. in gold bullion

-- a (a@a.a), July 24, 1999.


bagofcash, like a, it is hard for anyone to advise you on this. For myself, except for an account that I have in a local bank to cover the bills and Y2K preps, I am completely out of the system: cash, gold and silver coins (in addition to things like tools, guns, etc., that I figure will always be of value).

All you can do is hedge your bets. Personally, I am betting that the system as we know it is going to tank within the next six months (and maybe sooner rather than later), and so my goal was to get my money out of the system, so that I can be in the position to use it in whatever way is best. In theory, this is includes putting it right back in, should it turn out that everything is Y2K-AOK.

-- Jack (jsprat@eld.net), July 24, 1999.

And in agreeing with Jack, bag, I will say that one of the most profound things that y2k changed in me is that previously, I never bought anything useful that I didn't need. In other words, I got a lot of satisfaction in not buying a tool that I would eventually use, or a spare inner tube for my bike, or some wire or nails etc etc etc. I thought it foolish to buy today when I could put that money in the bank and have it accrue interest. I think just the opposite now.

-- a (a@a.a), July 24, 1999.

a, your background is in physics? Yet does that stop you from having an opinion about economics. No of course, not. But should we believe you opinion about economics, no of course not. Just like we shouldn't believe Eddie's opinion about nuclear missiles and warning. Stick to subject you know something about, such as aliens ships and black holes.

-- Maria (anon@ymous.com), July 26, 1999.

Gee maria..thanks for addressing the issues I presented. I can honestly say you did 100% better than your pal Mr. Decker.

-- a (a@a.a), July 26, 1999.


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