Gambling future wealth via debt

Debt is borrowing from the future.

There's an idea that you need money to make money. So if I have money, I can invest it along with hard work and come out with enough money to pay off the debt AND have money left over to spend on my living.

There was a fun game on the old Apple II+ computer in the 1980's called Taipan, where you could trade between 7 cities on different items from "General", to Arms, and Silk, and up to Opium which was worth the most per unit weight. The game you can begin with a small ship and no debt, or a larger ship with guns WITH a debt.

The debt interest was horrible, like 10% per month, with one month being the time to go between cities. However a good trade could still make more money. A strange thing in the game, you could borrow up to twice as much cash-on-hand as you had. So basically everytime you can into HongKong port, you borrowed a maximum amount of money, tripling cash on hand, which allows more cash for buying cargo and making more money. Because the initial debt was much higher than cash-on-hand, borrowing MORE was better because it increased operating money for getting rich.

Another game, a gambling paradox is double or nothing. Usually it is considered a question for the winner, but think from the point of view of the loser. If I bet $10 and lose, then I'll bet $20, and if I lose, I'll bet $40. All I need is to win once, and I win back ALL my original loses and double that in the positive.

You can play the same game with lottery tickets. Buy one, then buy two, then buy four, and keep doubling until you win the lottery.

What's the FAILING of the doubling theory? Exponential betting would seem to beat any odds. However it only works if you have an unlimited ability to borrow or spend to bet.

All that works if you have known odds, while in the economy the game is not so predictable in the future. There WILL be near "sure things", like buying cheap land in an expanding landscape and selling high, but it only works as long as the city keeps expanding.

Imagine you borrowed $100k to buy property, and sell it 10 years later for $1 million, more than covering your loan and interest. Then you invest the $1 million, and borrow another $1 million, in more cheap land, and then sell it 10 years later for $20 million. Well, all well and good, but suddenly a economic depression happens and you lose 10 years and need 20 years to get back your investment value. Well, if you're unable to pay the interest to wait out your investment, you'll have to sell early. AND worse, if your borrowing margin gets to be too high, your sale price might not even make up the selling value.

Well, I just wanted to state these stories to give some perspective on debt. When times are good, and the economy is expanding, taking on debt can be a good deal. HOWEVER when things turn down, you have to have the resources to pass through the down-times without selling your assets. Too much debt can means too much interest.

I'm a financial conservative, rather have NO debt at all, even as I acknowledge prosperous times debt can create wealth.

My BIGGEST concern in this "What if our wealth comes from an unsustainable source?" What if the future will have LESS energy available than the present? What if the debt will NEVER be repayable, no matter HOW good I do?

I believe we're heading into an unknown future of declining resources and that the "easy wealth" of the past will no longer be as easy. Blind investors at least should get out sooner than later, and that includes me. Even my 401(k) seems like a bad deal, needing to TRUST someone else to invest MY money.

I don't know WHEN our collective debt will catch up to us, but I'm convinced our "keeping just ahead of our debt", and running things on credit is foolish and we WILL pay sooner or later.

SOME day our credit lines will max out, and we'll see what hits the fan then. I'm ANGRY by this conclusion, and worried for others more than me, but I don't have an answer. I've been very fortunate, and so many others have too. We are spoiled, and we CAN be making better investments now that will sustain us in the future.

We Were Warned: Tomorrow's Oil Crisis

I don't have cable, but saw a CNN production by this name:
http://www.cnn.com/2006/EDUCATION/03/14/cnnpce.we.were.warned/
In We Were Warned: Tomorrow's Oil Crisis, CNN's Frank Sesno explores the potential ripple effects of this frightening scenario. The events depicted are hypothetical, but oil experts believe the scenario is entirely plausible. His interviews with energy experts reveal that we are nearing the point at which the world, led by the U.S. and China, will begin to consume more oil than can be pumped from the ground and the oceans. Tracking the global race to find new pools of oil, Sesno also considers the viability of alternative fuels, such as ethanol, which is used as fuel for 40% of cars in Brazil. Throughout his investigation, Sesno tries to find out whether any of these ventures can solve our looming energy crisis or whether we are already too late.

A very interesting program, apparently made for high school class discussion!

If we JUST want to consider an energy crisis like the 1970's - which was a political event, although peak oil also may start as a political event leading to a recession - it seems a good starting point for concern. We're much more dependent upon imports now than in the 1970's though Canada and Mexico perhaps about the same level?

Mostly I worry about things like - how secure is my job under an economic depression? How will pay my mortgage if I lose my job? And I don't even have a family to support!

I am curious what a government can do under an energy crisis. I mean SURE, let the market set prices and dry up the demand, but how many people will lose their jobs because of this?

Republicans and Libertarians are all happy-go-lucky in an era of economic growth and prosperity, and they can perhaps make a fair call that the "socialism" that came out of the great depression perhaps delayed the ending of the depression. Who knows, but real people WILL be hurting. Real people will lose their homes, lose their jobs, all because they "mis-timed" their debt just before an economic downturn.

Do we let 10% of Americans lose their homes in a depression? Do we "reward" them for taking on too much credit card debt by new programs that help them? WELL, for that matter, can the government go further in debt to pay for "social programs" that keep people fed and sheltered?

Economic crises are cruel since they allow a few with a great amount of wealth to walk in and buy up all the foreclosed property as a discount price, while leaving larger masses broke and dependent upon these wealthy whatever their demands might be.

On the other hand, as a landlord, I can see I'm already "bleeding" myself by charging rent through "section 8" program which doesn't even cover my full costs, except for the tax deductions. Should I invest $12,000 on a new driveway on a property that takes in $16,000 gross rent a year? And this is supposed to be a good economic times. Will I kick out my tenant if utilities keep going up more than "fair market rent" to cover my costs? SURE, once I get the mortgage principle down, I won't be losing money at least, but I wonder - AM I OVER MY HEAD here with debt?

Debt is so scary to me. It's a calculated risk that the future will provide the resources to pay it back, but sometimes hard work isn't enough. We all demand a strong economy to pay our debt back, and we don't have any control.

NOW I might be less worried if we actually had a government that was spending and taxing responsibily, but with debt everywhere, like a virtue, I can't help to be concerned that something's got to give!

Ah, anyway, I don't expect any help to MY finances under a recession or energy crisis, and I HOPE I can "time" my debt repayment to avoid putting myself into a situation where I have to sell under force because I can't cover my costs. IDEALLY we can all have "incremental risk" where we take on debt we can repay in a few years.

I'm sure I'm SPOILED to think I can pay off my mortgage in 2 years, and my rental property in another 4 years. Yet my parents bought their house for CASH in 1964, with savings and help from their parents. Unbelievable frugalness there! Makes me seem a spend-thrift.

Anyway, I worry about debt, AND I think others should TOO!

The crazy thing is if EVERYONE suddenly worried, the economy would collapse without all the spending we now employee to keep things afloat!

Hmmmm...

Starve the Beast

http://www.wordspy.com/words/starvethebeast.asp
This funny phrase comes out of a conservative policy which purposely sets up budget deficits in order to encourage spending cuts.

Apparently the policy has worked well for state governments which have the balance their budgets, but I can't tell how it's supposed to work for the federal government, I mean are we TRYING to really make the federal government collapse? Perhaps so, and at such time the "Skull and Bones" bunch will suddenly appear ready to "rebuild the government" from scrtch into a perfect dictatorship.

In some ways it's the only idea that makes any sense of the budget priorities of the U.S. government. I don't even know how any congress-person could get elected and do ANYTHING rational without sounding like a mad man in the shit-covered glasses that the S-t-B people have convinced us all to look through.

President Bush has the gall to suggest Social security is in trouble in 50 years and we ought to convert it all into private accounts to save it?

WELL, actually, I almost agree, not about private accounts, but heck, if "Starve the Beast" means stopping the flow of SS surplus into the annual budget, I'd listen. But why can't he be HONEST about it? It's not about "saving SS", it's about helping the shit to hit the fan sooner than later.

I admit I don't know ANY WAY that a surplus SS savings can be trusted with the government. Obviously it CAN'T!

Strangely I'm NOT a republican, and I do believe the government can do good things. The problem for me is that I don't trust the government can promise anything when it can't keep it's budget in order now. Who cares about 50 years? I want to know how we are supposed to "balance" the budget when the government actually has to start paying OUT more SS than it takes in.

Apparently economists like to talk of bubbles - the "stock market bubble", the "housing bubble", false wealth that disappears when enough people figure out that things are overpriced. Perhaps we have a "national debt" bubble. Okay comparison backways, but WHO THE HECK is investing in government bonds? Crazy people!

And if I can't believe in investing in the government what can I believe in?

Now back to reality, WHY cut taxes for the rich while we have such deficits? Obviously because NO ONE intends to have it ever repaid, and so the FUTURE must exist to those who can get ahead NOW as soon as possible BEFORE the crash.

AH, really, I don't like to believe in organized conspiracies, but disorganized ones seem possible. Certainly people with wealth and brains must be worried, so a "starve the beast" plan is perfectly rational. The system WILL explode, and the SOONER the better, at least in the sense of maximizing personal wealth now, like Noah building his Ark before the flood.

What rational person could possibly support an insane government?

The problem for me about this ditch-the-economy plan is that someone someday is going to have to clean up the messes we've created! Unfortunately there seems to be no way out of our madness except to cause a lot of misery and suffering.

Am I really so pesimisstic? Of course pesimist is a sign of impatience, and some of us will make it through to a new day. Perhaps some of the children born this very year will be the ones to see the new society that rises from our ashes, although I'm not even so hopeful as that, maybe their great grand children might see the promised land. At least looking to future generations offers some perspective on what real patience is about. We're not makers of our world - we're living yesterdays world. We're makers of tomorrow, and the next generations.

It is interesting that apparently democracy appears incapable of moderation. No one wants their taxes raised, and everyone wants "entitlements", so the solution is to listen to the hucksters who promise both via the god of exponential growth.

Seriously though, you gotta wonder WHEN people will get a clue that we're not going to get ahead by borrowing our future to pay for our past?!

The federal debt is water under the bridge. I'm now seeing the light. Why can't the government just be HONEST and SAY "Oopse, we really didn't MEAN to say we'd be paying back these bonds we sold you." What would it hurt for the government to default on its debt? It'd be MUCH simpler. I mean WHO is going to bomb us if we say so? Who's going to invade? Who's going to stop trading with us?

Ooops, right, SOON the world IS going to get a clue, and actually STOP accepting our IOUs as payment. AND is that a bad thing? NOT at all. Sooner the better!

So our insane republican friends are perhaps doing us all a favor - starve the beast, and eat your cake too, something like that!

Oh, I crack myself up. There's gotta be some interesting gods on their chess boards laughing too. "Hey Ares, you mean those stupid Chinese are still accepting those U.S. dollars in 2006? Jokes on them!" "Yo, Apollo, hush, the game's still playing, no telling until the secret's out!" heheheheheh

I just wish I knew who they real losers are going to be in 10 years. I already feel guilty, and I might yet be on the wrong side of the fence. But the spoils go to those who pay attention, right? And those who know what risks are worth taking.

Maybe having children might STILL be a good bet, but I can't tell.

9 trillion dollars!?

Will wonders never cease?!

The Senate passed a vote to extend the national debt from $8.2T to $9.0T
http://news.yahoo.com/s/ap/20060317/ap_on_go_co/deeper_in_debt

Surely there's no singular point of no return, but shouldn't elected officials feel ALITTLE guilty over this debt? I mean, gosh, why stop at $9T, why not just say no limit at all? After all, we can just vote a new limit any time, and EVERYTIME we need it!

Who is loaning the government this money? I mean what's the saving rate of the U.S. citizenry? Not even billionaire Bill Gates can offer much on the U.S. debt.

In short, its a JOKE. The republicans don't want to raise taxes?! We need "tax relief"?! What an amazing concept.

I need STUPID-GOVERNMENT relief! PLEASE?!

NO INTELLIGENT person should be investing in government bonds. Better to burn money for heating than encourage this debt to rise to our total destruction.

Insanity!

ANWR quest for oil

I heard another showdown is expected over ANWR drilling for oil.

I found a cool graph that extrapolates ANWR versus next 45 years of expected demand in the U.S.

Of course the purpose of the graph is to show ANWR has nothing ultimately to offer us, a drop in an ocean of demand, not the world is going to have 13.5 billion barrels of oil for us to squander in 2050.

I can't be a good environmentalist and fight for pristine nature WHILE we are funding terrorists and many worse polluters in the global market.

SO my "compromise" is to say "Fine, let's prepare for drilling in ANWR, better make a good deal now rather than wait until the political climate gets even more panicked over energy. BUT, if we're going to drill, THEN we must also conserve. I'd demand a large fuel tax in exchange for increased drilling in order to encourage conservation. FURTHER, I'd offer a regulation chart which PROJECTS demand and raises taxes in proportion to excessive demand to the desired levels, so just like the Federal reserve raises interest rates to prevent inflation, let the gas tax rise and fall in proportion to our needs to "cool" the energy consumption."

Well, I'll see if I can get some more graphs. I'm not satisified since this graph is already unrealistic.

Disposable pavement

Just a silly thought, partly because I own a rental property which has a decaying asphalt driveway in need of replacing.

I've thought to "upgrade" to concrete, at around double the cost. It's a a BIG driveway, 110' long, and varied width.

My own house is 42 years old and the driveway seems completely good condition with no maintenance. Sure its got some cracks, but big deal, and a good designed driveway will have spacer anyway to reduce cracking.

SURELY in the long run I'm better off with a concrete driveway, saving cost and time on maintenance. If I BELIEVE the house will be around in 50 years, it's unconditionally worth a concrete driveway.

AND interestingly I'm told a concrete driveway is considered PERMANENT while asphalt is not, and will raise my property value AND properly taxes. Hmph... Save money to pay more taxes?!

Well, I judge in this decision also regards to debt. Adding a $10k driveway will add perhaps $6000 of interest on repaying my mortgage over the next 10 years. Added interest assuming delaying debt I would have otherwise paid down my mortgage faster. Of course it would be nicer to not think about the debt, but for me, I see it as a cost I'd pay down sooner than later as I could.

I just have to wonder about this peak oil thing. Asphalt is made of petroleum materials left over from distillation. It's a PERFECT use for a material left over from our oil consumption, BUT oil is declining and someday we'll have to repave our roads with more durable material.

On the other hand, perhaps "disposable" roads, like our society are intentional and good choices in a future which won't support as many roads as we now have?

If I sell my rental property in 5 years, probably I won't get my money back on a concrete driveway, maybe not even 10 years?! Who can say?

I should just bite the cost and get it done now, imagining all costs keep increasing anyway. It would be nice if rental income could actually pay for this, but the best I can hope for is reduced taxes on deductions.

Tough choices for a landlord, tough choices for cities, for states, and for a country living on borrowed time. We're SO lucky with our wealth and opportunity!

We OUGHT to invest more into a future that costs less money, less energy, especially given less may be available for us.

Maybe in 50 years we'll look back, seeing all the crumbling roads around us and wonder what we were thinking?! Maybe we'll also wonder why we "paved" so much good farmland?!

Offshore drilling for natural gas

Compelling argument for expanding NG drilling offshore:
http://www.eande.tv/transcripts/?date=031306

I don't know much about the issue, being in a "land-locked state", but I guess its "environmental protectionism", worries that offshore drilling will lead to oil spills. I don't understand why we have drilling in the Gulf of Mexico around Texas and Louisiana but not other places.

Representative John Peterson (R-Pa.), says the U.S. is at a competitive disadvantage for having the highest NG prices in the world and that industry that uses NG will move off continent to compete and we'll lose out on millions of jobs.

Certainly I accept this argument as true for industries like nitrogen fertilizers which need NG to produce it.

I'm not sure what position to take. I think higher prices are good because they encourage conservation. I even believe if there's a secret conspiracy to raise NG prices to encourage efficiency, sounds great to me. I mean seriously, when I bought a new furance a year ago, I got a 94% efficient model, and a small rebate check as well, but I know perfectly smart and able people who'll make the "standard" choice of minimum 80% efficiency models - and this is for a 20+ year commitment! And on older homes, insulation, newer windows, all that just doesn't have a short term advantage under lower prices. SO despite the fact I think using NG for electricity production is VERY foolish usage, except perhaps for special "peak demand" periods as a last resort, but otherwise, I think NG deserves to be the highest priced fuel - since it is the cleanest source.

Anyway, I accept Rep Peterson's position - drilling will occur sooner or later. I still would keep high prices. I just don't know how to respond to the argument that higher prices encourage industry to move elsewhere.

The collision of worlds

Amazing article at:

http://www.i-sis.org.uk/NBR.php The New Biofuel Republics

There is a collision of worlds going on - the natural world and diverse systems we are destroying - the human food system that sustain us - and the fuel system that powers our industrial civilization.

Cheap fossil fuels create an industrial production for material goods and advanced the material wealth of humanity beyond the imagination of previous generations. Now that progress has successfully BEGUN to use up the fossil fuel energy source, or at least reached a point where supply will not continue to grow even as our demand continues to grow.

There's long been a competition for resources between the human and nonhuman world for food and for fuel. I've read previously that the extinction of many species of whales was avoided because of the discovery of petroleum oil to replace the markets for whale oil.

Similarly the 6000 year old forests of Europe were cleared for both building materials and fuel for the industrial revolution. The discovery of coal as a source of energy both saved the remaining forests as well as upscaled the power available for industrialized development.

I accept the conclusions that there simply will be no scalable substitutes to power our economies the way fossil fuels have done.

The Cornucopians believe we'll just forever keep discovering NEW BETTER sources of energy as we need them, and economic growth will continue an orderly advancedment finally off the earth and into the solar system even.

The technical optimists believe proper "planning and management" can smoothly transition us, if not to a bigger-and-better future, one at least as good as what we know now.

Myself, I am a pessimist. I certainly believe humans will TRY to continue, TRY to develop newer and better ways of living, BUT if it means moving towards sustainable energy, it will mean MUCH lower availability of energy than we've known. AND more likely this "powerdown" will occur via forced limitation of a diminished environment rather than well-planned management of dwindling resources. Well planning WILL occur, like pollution laws and Kyoto and fishing rules, all meant to share and moderate our over-exploitation of the world.

If it was just a group of enthusiastic yahoos on easter island cutting down all their trees, I'd say "let them starve", and if I lived there, and there was another land known, I'd make arrangements to leave. WELL, I guess that's what MY ancestors did from Norway in 1850 when too many sucessful children being raised was making the farming options restrictive for the next generation. ANYWAY, this time I belive we DON'T have anywhere else to go - no "America" to colonize, and a sucessful "world economy" bent on exploiting every last resource it can get its grubby hands upon, future be damned.

Well, we're all a part of that industrialize destruction model, and it would appear to continue INTO and BEYOND our energy crises on the immediate horizon.

You might imagine the oil age like a summertime feast - vines and groves full of edible food everywhere, and a coming winter. SURE, we're as good planners as anyone, and we'll save up some of our abundance collected for the winter, BUT if the winter is harsher or longer than we thought, WE'LL be eating our seed for the next promised year, and if our fuel is running low, we'll burn down our forests for heat. Not right away, but when times are tight, you do what you have to do, surely, rather than starve or freeze to death!

So when an author like Jim Kunstler and his "The Long Emergency", predicts the end of suburbia, and of the easy abundance we've known so long, he's seeing a future where there'll be short term crises of need, like hurricanes, and longer ones inbetween the crises, where the next one comes before we can clean up the last, and we'll dig a little deeper each time into compromising our "seeds of promise" for short term survival.

On the one side, I can see the threat of starvation as a reality, even for America and our promised abundance from a good god. But I accept it'll probably stay mostly hidden around the corners for a long time, or in "special times and places" of disaster and such.

Ultimately I accept there's two models for survival: (1) Huddled together in cities with less local resources but more community (2) Spread out on the country side with more local resources but less company. I accept the middle ground of "suburbia" is not a good place - with neither local amenities or local production. So the question comes down to "where will the jobs be?" Will there be work in the cities for the vast majority as now?

Seriously these questions are real ones, even if too far removed from current reality to have any answers. I'd say in the early years of a depression those best off will be those in the city. However in either case, without high employment rates, people with LESS debt will be better off. I imagine there will indeed be much available WORK in cities. I just don't know how much money may be available to pay for that work! So those with the smallest needs will be most helpful in organizing this third-world dilemma "more people than capital".

The main PROBLEM with the city model is that cities have great needs for resources to come in, but not necessarily aware of the origin of those resources. SO if a international corportation of Alberta wants to stripmine for tarsands and make oil to sell to us, they can earn enough money to bribe anyone they like for their markets and pollute all they want, and WE WILL BUY it, if we need it, no questions asked.

In contrast, people living on rural lands would rather minimize their cash flow and so they'll look for a local support system that can sustain them. They'll pollute and change the environment, but these decisions must be considered as tradeoffs. I imagine the Amish communities which prefer horses to tractors and cars. They'll prefer manure and crop rotation over high input fertilizers, and they'll grow first food for their own consumption, and see surplus in the light of protecting against future shortages rather than simply needing a market. I MEAN they've not indebted themselves to the bank to expand their farm to produce more food than they have a local market to sustain, and whatever fractional surplus exists has local uses as well, even if some can be sold.

Maybe the future will continue to have much of our technical improvements in communication and we can make the best of the old and new - using less energy, and maintaining trading systems where awareness of producer and consumer is available.

Mostly I don't FEAR for city folks starving. I more fear they'll be more dependent then a honest conscience allows, and blind themselves from their failings, and thus continue to drive environmental destruction further and further.

Anyway, I accept the collisions are ongoing and will get worse as oil stoppped subsidizing our energy systems. I accept individuals NOW ought to keep a heads-up over this and get their finances in order BEFORE the crash. Maybe it'll be slow, maybe fast, maybe both. I just know we'll all be better off sooner than later without debt.

Of course debt runs our system, so perhaps no matter what, there'll be a generation that gets the short end of the stick - gets stuck accepting promises for a future that won't exist, and debt they can't pay. In such times it'll be up to the lucky few who did find themselves on the upside of this debt circle. Lucky yes, but intentional, probably too.

I don't know anything better now except "Home economics":
(1) Live frugally and get out of debt
(2) Invest in a future that needs less money
(3) Grow some food, compost some waste.
(4) Know your neighbors, and see what you can do together.