Reinke Faces Life

http://www.lewrockwell.com/duffy/duffy11.html

Financial Markets on Crack
by Kevin Duffy

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How does today’s credit bubble compare to its 1998 and 2000 predecessors? Derivative exposure has more than tripled since 1998. And the balance sheets of the top 5 investment banks have nearly tripled since 2000. Structured finance was in its infancy 9 years ago and the collateralized debt obligation (CDO) market was just being invented. LTCM was a liquidity crisis; the current credit meltdown is a solvency crisis.

Cheap and plentiful credit is what caused the current mess. More of the same can only make it worse. It is only a matter of time before this shot of credit heroin wears off. Sometimes the best medicine is none at all.

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Yup, you don’t grab a falling knife. But it is tempting. Buying quality stuff at a discount is one way to make money in the market.

But, if the market is going over the cliff in an unprecedented fashion, does it matter if you are on the bus going over or just waltzing along.

Bottom line: You’re on your tush saying “what happened”.

Aigh! (Combo sigh and argh)

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http://www.jbs.org/node/1064

You, the Fed, and Inflation
By Llewellyn H. Rockwell Jr.
Published: 1998-11-23 06:00 Economics

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Wall Street remains constantly worried about two forces in American economic life: inflation and deflation. It seems Wall Street worries about inflation on Mondays, Wednesdays, and Fridays. On Tuesdays and Thursdays, it worries about deflation. Or perhaps it worries about both at the same time.

Of course, inflation is one of the most destructive forces in all of human history. In order for an economy to function properly, money must be sound and its value must be honestly gained. For most of human history, soundness and honesty were guaranteed because money was just another name for the most valuable commodity: gold. Gold was ideal as money because it was portable, durable, divisible, fungible, and scarce.

Gold has been money throughout most of our nation’s history, and until well into the 20th century government had little control over its supply and value. But with the establishment of the Federal Reserve in 1913, the foundation of money in gold began to be eroded. Over the decades, the link became progressively less secure, until in 1971 President Nixon did away with the last remnants of the gold standard. If you hid a dollar in a mattress in 1970, today it would be worth less than a quarter of its former value.

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Stunning simple observation of why we as a country are so royally weenied!

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http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/08/19/ccom119.xml

Business comment: Financial services should be there to serve
By Dan Roberts, Business Editor, Sunday Telegraph
Last Updated: 2:14am BST 19/08/2007

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First, the bad news. Don’t be fooled by Friday’s bounce. We are not out of the woods yet. If anything, the Fed’s decision to rescue markets by throwing money at the problem supports our view that this summer’s financial crisis threatens the wider economy.

A slowdown will be painful for everyone, especially here. Despite our Chancellor’s belated words of confidence, the UK is excessively dependent on the City. Even companies far away from the Square Mile will find it harder to borrow their way out of trouble or invest in new factories, shops and offices. It may not tip us into a recession, but the fall in confidence will trigger a big chill that brings some racier parts of the economy to a near standstill.

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Best assessment of Friday’s Fed action is that we are heading into a period of inflation (i.e., the Fed’s “helicopter” Ben dumping more counterfeit notes into circulation) and recession (i.e., consumer and business confidence will “de-invest”).

How does one save and invest going into this climate?

Clearly one has to “surf” the wave of inflation. Don’t even think about sticking money in your mattress. To surf in a falling market is a good trick. Riding indexes south will not only NOT keep up with inflation but may actually be a big loser if you guess wrong. The best strategy might be targeted investments in things that retain value. Defensive stocks, high quality stuff, commodities, essential businesses.

Tie in a recession, and you need to focus on where people have to spend money regardless of their “confidence”: basic food, medicine, healthcare, drugs, commodities.

Look to the era in the USA during Carter’s stagflation and Japan’s Decade of Zero Interest Zero Growth.

Where is growth “guaranteed” — India (where you might get an honest count) and China (where you definitely are at risk of a haircut).

Sigh.

Certificates of Depreciation — on the theory that a small loss is better than a big loss?

Tough times!

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No, not the kind you use to climb to the roof of your house, but the financial kind.

With the recent shakiness in the market, someone has asked me about my blog post about CD ladders. So, here’s a sanitized version of the advice I gave him.

You might be interested in a ladder to maximize the interest your receive on the savings part of your portfolio, you might want diversification to minimize risk, or you want a flow of readily available cash without forgoing a higher interest rate.

In building a ladder, you can use certificates of deposit, treasury bills and notes, or bonds. Regardless of what you use, the principles are the same.

For sake of discussion, let’s look at a simple ladder. Here’s a four quarter four year ladder:

Now assuming that you have 16K$ to invest, how do you: set it up, maintain it, and shut it down.

Let’s assume you are doing this at a credit union (I love credit unions.) where they have a full spectrum of terms available and a 1k$ minimum.

You walk in on January 2nd with your 16k$ and buy A one year, two year, three year, and a four year cd for 1k$ each. You also buy a Ninety day, One Hundred Eighty day, and a Two Hundred Seventy day cd for 4k$ each.

Now your ladder looks like this.

On the first business day of each quarter, you go in and redeem your maturing 4k$ cd. They will pay you some small amount of interest. So buy a one year, two year, three year, for 1k$. And a four year cd for 1k$ plus the interest.

Now your ladder looks like this:

And, you are in “maintenance” mode.

Each quarter, you go in, redeem your maturing cd, and buy a four year cd for the matured amount.

Now your ladder looks like this at the end of year 1:

Now, to just close the ladder out, you can just take every maturing CD as they come due.

OR if you are saving a big purchase like a car or college education, you may wish to “unwind” it.

Let say at the end of year 21, you are buying a house. in Year 17 you wish to begin to “unwind” it for year 20. It’s really simple. In Year 17, instead of buying the Four Year cd, you would buy a Three Year cd. In year 18, instead of buying a Four Year cd, you would buy a Two Year cd. In Year 19, instead of buying a Four Year cd, you would buy a Two Year CD. In Year 20, instead of buying a Four Year cd, you would buy a One Year CD.

In Year 21, with the First Quarter cd, you’d roll it over into a 270 day cd. Similarly, Second Quarter would roll into a 180 day cd. Third Quarter rolls into a 90 day cd. In the Fourth Quarter of Year 21, you redeem all the cds for the new house.

That’s how a ladder works.

Why do it?

* You are always getting the highest rate of interest.

* You always have cash becoming available for emergencies.

* You are minimizing your risk of interest rate fluctuations.

What is it useful for?

* You can have your own little annuity or steady pension plan (i.e., take the interest and reinvest the principle).

* You can have an emergency fund when you need it that earns a little more interest.

* Your savings can keep pace with inflation.

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http://money.cnn.com/2007/08/13/pf/expert/expert.moneymag/index.htm

Retirement: The 4 percent solution
Many retirees are confused about how much of their savings to take out each year. Money Magazine’s Walter Updegrave explains the 4 percent rule.
Money Magazine
By Walter Updegrave, Money Magazine senior editor
August 14 2007: 10:32 AM EDT

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NEW YORK (Money) — Question: I’ve read that if I withdraw roughly 4 percent of my retirement savings each year to live on, my money will last virtually forever. But does this 4 percent include the money my portfolio already kicks off in dividends and interest? Or is the 4 percent withdrawal on top of that? – Doug Martin, Syracuse, New York

Answer: First, let me say you’re not the only person mystified by the workings of the 4 percent withdrawal rule. I get questions about it all the time, so I’m happy to clear up the confusion.

Money Magazine’s Walter Updegrave gives his advice on the best way to maximize your retirement savings when you are just starting out.

And while I’m doing that, I’d also like to point out that, like any rule of thumb, this one is really only a general guideline. It’s not as if the Retirement Gods have decreed that everyone must use a 4 percent initial withdrawal rate, or that doing so guarantees the best retirement.

But before I get into some of the subtleties about this oft-quoted rule, let me explain how it works. Many people think that the 4 percent rule means that you simply withdraw 4 percent of retirement savings each year. But that’s not right. In fact, the 4 percent figure applies only to the percentage of your savings that you withdrawal the first year of retirement.

You then increase the dollar amount of that initial withdrawal for inflation each year.

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Rules of thumb are great. Even if they made the mistake and took 4% each year, they wouldn’t be far wrong. And, if else fails, one COULD — not recommended — buy a low cost annuity and take all the guess work out of it.

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http://www.lewrockwell.com/rockwell/reality-vs-state.html

Reality vs. the State
by Llewellyn H. Rockwell, Jr.

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So on it went for seventy years, until one day the entire hoax was exposed by the ultimate reality test: the market economy. Bad credit risks didn’t pan out. Those who lent without regard for underlying fundamentals are suddenly seeing red all over the place. Bankruptcy ensues. Those who purchased repackaged mortgages on the open market find themselves with a hot potato and no one to toss it to.

So what does the government do then? It runs to the basement and turns on the printing presses. It creates $37 billion on the spot and buys up the bad loans and calls them assets. The government says that this is to create confidence. But confidence can’t be created by making up reality. That path only leads to more illusion and error.

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Didn’t anyone think that “averting the crisis” was in and of itself a problem? Anyone still believe the gooferment’s core inflation rate numbers? Anyone not concerned where this runaway freight train is heading at full steam?

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http://www.humanevents.com/article.php?id=21827

Stealth Tax Increase
by Robert Novak
Posted: 08/06/2007

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WASHINGTON — The 42 senators and 196 House members who have signed a no-tax-increase pledge received a stern warning last Wednesday from Grover Norquist’s Americans for Tax Reform (ATR): If you vote for Amendment 2548 to the Democratic-sponsored expansion of SCHIP (State Children’s Health Insurance Program), you will violate your solemn promise. However, Amendment 2548 is not the product of tax-and-spend liberals but of conservative lawmakers and policy experts.

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There doesn’t seem to be anyway to stop the free spending in Congress.

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http://www.survivalblog.com/2007/08/letter_from_lawyer_describing.html

Letter From Lawyer Describing Real Estate During the Great Depression

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The following (courtesy of Tom at CometGold.com) is an excerpt from letter written from a lawyer from Mason City, Iowa in the Corn Belt, recounting the impact of the Great Depression of the 1930s on his town. Foreclosures galore. Tom’s Comment: “Anything sound familiar?” Just substitute residential real estate for farm land, when reading the following:

“The boom period of the last years of the World War and the extremely inflationary period of 1919 and 1920 were like the Mississippi Bubble and the Tulip Craze in Holland in their effect upon the general public. Farm prices shot sky high almost over night. The town barber and the small-town merchant bought and sold options until every town square was a real estate exchange. Bankers and lawyers, doctors and ministers left their offices and clients and drove pell mell over the country to procure options and contracts upon this farm and that, paying a few hundred dollars down and expecting to sell the rights before the following March brought settlement day.

{Extraneous Deleted}

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A sobering read. Neither a borrower nor a lender be? Especially when you’re old and gray.

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http://www.masternewmedia.org/economy/debt-and-interests/money-creation-by-private-banks-Money-Castaways-story-20070804.htm

August 4, 2007

How Money Is Created As A Debt By Private Banks – The Money Castaways

Robin Good
Be Smart, Be Independent, Be Good
Edited by: Luigi Canali De Rossi

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The story I present to you here today has nothing with to do with web 2.0, new media or how to make money with your site. Today’s story is all about waking up. Realizing that something you have given for good and granted since you were born, may actually deserve some heavy rethinking ASAP.

This is the story of how private banks force most of us into the vicious, enslaving circle, in which you have long been feeling trapped. Working your ass off for six days a week only to be able to pay the rent, the gas, the bills and very little more. If getting a mortgage to buy a house means signing a slavery contract for the rest of your life, maybe THERE IS something deeply wrong with the economics of our system and the way create debt out of money THEY DO NOT OWN.

But you know what fucks us bad?

Our ignorance.

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Now I’ll need a little help here. I’ve sent out the “bat signal” to real Austrian economists. This cartoon doesn’t seem right to me. But, I’m an injineer, not an ekkynonnnymist.

I suspect that it is in the quick way it whizzes by the transformation from bartering goods to creating a fiat currency. But, I think it makes some big leaps to an unsustainable conclusion (i.e., money for social justice).

One must always read extra careful when you see stuff by the “social justice” crowd. They are usually Socialists at best and Communists at worst.

While they will criticize the “banker” in their little morality play, they ignore conveniently that the division of labor made possible by free markets and capitalism. We can support more of us with everyone doing “their thing” in liberty. The free market allows us to peacefully decide who “needs” what and to satisfy those needs in an incredibly complex calculus. Thousands of needs all integrated and aligned to come up with the “best” solution. Markets with prices allow everyone to decide what is best for them. It came about organically from the barter economy. And, is singularly responsible for human progress in that it allows needs to be peacefully satisfied.

Money, whether it be those big wheels of the Yap Islands, the tikis of some other island, or gold coins, makes the world go around. Money allows prices. Prices induce people to change their behavior — forgo, substitute, or conserve. Some need is expensive; maybe it’s a want as opposed to a need. Steak is “too expensive”; eat “cheaper” chicken. Maybe for an expansive good, I can use less. The marketplace automagically aligns all these calculations. Prices allow people to adjust.

I agree with the conclusion about “ignorance”. We’ve become too “smart” for our own good.

When gooferment was given the monopoly over “money” that’s where the dead old white guys made their mistake. And, we have been paying for it since 1913 when the Federal Reserve was created. They should have stood silent on what constituted money and allowed the marketplace to decide.

imho

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http://www.web-purchases.com/ECC/EECCH604/landing.html?o=1313749&u=6531875&l=826579

From the Early To Rise newsletter

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I like “free”. I have no idea if it’s good. But the ETR and its writers always seem to have good advice. And, it’s free.

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