Poor Man Survival
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A Digest of Urban
Survival Resources
Bottom Feeder News…
It's only a matter of time before the next economic downturn
comes along. How ready is your state?
Beyond the divisive
politicking and culture wars (mostly distractions, a trick as old as bread and
circuses), there’s something more insidious afoot.
Cloaked in opaque
language and circular reasoning… So boring in its approach it pleads with us
not to pay any more attention… to leave it to the experts because we’re too
stupid to pay attention.
From Flint,
Michigan to Afghanistan, two words are at root of this rot.
Today, to give you
the deep dive on America’s moldy crawl space, we invite David Veksler, Director
of Marketing at FEE, to the show.
How Easy Money Is Rotting America from the Inside-Out
By David Veksler
The Federal Reserve has been the main cause of business cycles
in America since 1913. For several decades, it has tried to hide the
consequences of its policies by enabling easy credit during each recession.
As Jonathan Newman wrote
yesterday, pouring trillions of dollars into the financial sector
obscures the external signs of the recession such as low asset prices and high
unemployment and promotes economic malinvestment.
This malinvestment creates the conditions that cause the next
recession. Some of the consequences of the Fed’s policies, such as stock market
and housing bubbles can be directly attributed to its policies. In other cases,
the artificially low interest rates and other “easy money” policies foster an
"infrastructure rot" that erodes the efficiency of the American
economy, the standard of living of consumers, and eats away at American
infrastructure. These effects are difficult to trace back to the Fed's
policies, so let’s concretize some examples to understand how Federal Reserve policies
affect America.
At the city level, low interest rates allow cities to fund new
public projects such as parks and bridges. While this may seem fine and dandy,
all infrastructure projects have a maintenance cost. It’s not sufficient to
build a park. One must also have the money to maintain it every year. If there
is not enough revenue to pay for maintenance, the park will literally rot until
the playgrounds fall apart, the lawns are overgrown, the lights fail, and the
park becomes too dangerous for families to play in.
The same thing will happen to streets, bridges, and plumbing.
This is one of the ways urban decay happens: easy money policies fund
unsustainable urban infrastructure projects which make politicians look good,
but end up crumbling a few years or decades later. The Flint
water crisis happened in large part because the Federal government funded
infrastructure projects that were not sustainable by the incomes of the people
of Michigan.
Easy money from the Fed also rots the guts of American
corporations. New money goes to the most politically-connected businesses
first, and funds projects that would not be possible in a free market. Because
private investors haven’t actually saved enough to see the projects through to
completion, and consumers don’t value the product enough to cover production
costs, the companies getting free money from the government either fail or
receive endless bailouts. For example, easy money encouraged unsustainable
commitments like high union wages and pensions, forcing US automakers to sell
cars for prices that consumers could not pay given their actual savings rate.
When sales dipped in 2009, the government was forced
to bail
out GM, Chrysler, and Ford in 2009.
While small businesses are the last to get access to the Fed's
easy money taps, big banks received over $700 billion in TARP bailouts and even
more selling
U.S. Treasury bonds to the Fed under the QE program. Obama didn’t have clue as to
why that amount of money was required-that sum was literally pulled out of the
air and Obama simply said OK without any kind of review…what the hell,
taxpayers were on the hook and they’re aren’t exactly savvy when it comes to
getting suckered by Washington insiders and the scamsters we elect.
Such subsidies signal to banks that their primary customer is
the government, not consumers. As a result, financial services have stagnated,
and banks have fought rather than embraced genuine innovations like the
blockchain.
The 2009 crisis made banks cautious of making mortgages to
people who clearly could not afford them. But the Fed kept giving away free
money and enabled a new phenomenon: zero-interest auto loans. While this may
seem like a good deal for consumers, the Fed's credit expansion has created an auto-credit
bubble worth 9.2% of all household debt. Consumers are buying and leasing cars
that they would not normally be able to afford.
Instead of being taught to save, millennials are learning to
have a
negative savings rate (acquiring more debt than assets) and trust their future
entirely to the government. If a recession happens, millions of people will
suddenly find that they are unable to keep their cars and lack any emergency
savings. When millions of unwanted cars are dumped back onto the market,
automakers will again be unable to keep up with their inflated liabilities,
requiring another bailout.
Perhaps one of the most destructive products of easy money has
been the War On Terror. The U.S. has spent about $5
trillion on this seemingly endless war, and most of the money has not
come from higher taxes, but from selling bonds to institutions like pensions
funds, and especially foreign countries such as China and Japan. American
citizens have gained nothing of value, while our government has been spreading
death, destruction, and revolution abroad.
While the national economy has gotten away with federal deficits
and a $20 trillion dollar debt for decades, this trend is only sustainable as
long as the rest of the world keeps lending the U.S. money. When they decide to
stop funding our wars and financial irresponsibility, Americans will suddenly
be faced with paying trillions of dollars in liabilities. This overdue
correction will likely come with dramatic reductions to Americans’ standard of
living.
My point in writing this is to help you visualize the
destructive effect of the U.S. government's easy money policies from an
abstract harm to the practical harm: collapsing bridges, kids poisoned from
lead plumbing, millions of cars rotting in junkyards, scandalous bank services
fees, bombs falling on innocent people all over the world, and widespread
poverty once the easy-credit party ends.
Rising education debt may also be crimping consumers’ demand for
other kinds of debt, according to the analysts. Total student loan debt reached
$1.36 trillion in the third-quarter of 2017, according to the Federal Reserve
Bank of New York. That’s up from $530 billion a decade earlier, and is the
largest share of non-housing debt. It’s also "significantly more
burdensome" for lower income households, the analysts said.
We’d like to think we can avoid another recession, but we can’t. Economic expansion followed by recession is simply the way things work in a capitalist society.
Since we know it’s not a question of if, but rather when, a recession hits, we all need to be prepared. For families, that means having an adequate emergency fund. For states, it requires putting enough into reserves to ride out a downturn.
Moody’s Analytics analyzed state reserves to see how well they would weather a moderate recession. The group compared actual reserves, as a percentage of state revenues, with the necessary reserves a state would require to comfortably withstand an economic downturn. (How much a given state needs to hold in reserve varies depending on particular economy and tax structure.) While 16 states are looking good and 19 states could probably squeak by, there are 15 states that are going to be in serious trouble if we have a recession in the next one to two years.
Bruce, the Contrarian curmudgeon!
How to Survive the War on the Middle Class
14 of the best reports I’ve assembled on protecting your freedom…Here is the download link. http://1drv.ms/1d9kfiU
Sticking With a
Frugal Lifestyle
These tips can help you live frugally month after month.
These tips can help you live frugally month after month.
Related posts:
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Can Do To Be More Self-Sufficient
- Small Scale
Self-Sufficiency
- Top 10 Tips
For Urban Homesteading
- Get your
free credit score
- Cost cutting tips and tricks
- Sources of extra cash
A Final Note…
Contributors and subscribers enable the Poor Man Survivor to post 150+ free essays annually. It is for this reason they are Heroes and Heroines of New Media. Without your financial support, the free content would disappear for the simple reason that I cannot keep body and soul together on my meager book sales & ecommerce alone.
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3 comments:
Americans party like it's 1999! Our national motto is the same as Mad Magazine's Alfred E Neuman "What, Me Worry?"
Easy money and the Fed has been a curse to this nation. Politicians are like drunk sailors, one drink is never enough.
Interesting blog-one of the more intelligent I've run across.
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