Creating Price-Variable Income Streams
The number one thing I think people need to do to prepare for a possible hyper-depression (=stagflation squared) is to move out of variable-rate, dollar-denominated debt as quickly as possible. You don’t want an ARM or a rolling credit card balance when the prime rate jumps to 45%. Strictly speaking, it’s fine to let the balances roll over right now, but make sure you can pay them off within a month if you had to. And of course the issue isn’t, “Could I pay them off next month if I had to?” Rather, the issue is, “If the ‘unthinkable’ happens such that one of the offshoots is a 45% prime rate, in that environment would I be able to pay off all my variable rate credit card debt?”
The number two thing I think you should do is get your hands on (ideally) a few months’ worth of income (at today’s prices) for an austerity budget, in physical gold and silver. So for example, if your drop-dead monthly expenses right now are $5000, then ideally you would want $15,000 in actual gold and silver–and if we’re really going to be specific, I think you want them embedded in old US coins, so that they will be very identifiable to many Americans.
The number three thing is to get the wheels in motion on income streams that will at least rise with general prices. For me, that vehicle is a book contract. The way my royalty contracts are structured, I get a percentage of the retail price. So if CPI goes up by 50% over the next two years–something I consider entirely possible, though I wouldn’t yet commit to “likely”–at least my stream of royalties will rise too. It won’t keep me whole, of course, since only the lucky recipients at the foot of Bernanke’s printing press will be the real winners. But it’s a lot better than having a salaried job where, at best, I can ask for a cost-of-living raise every 12 months.
If you have a bunch of spare cash, a possibility is buying low-frills housing or office space to rent out. Now maybe real estate per se is risky for obvious reasons right now, but you get the point: If at all possible, you want streams of income that will automatically rise with the fall of the dollar’s purchasing power.
I don’t know what other options exist, but there have to be tons of them. One of my former students used to make a decent amount of money cruising around looking at garage sales for stuff to sell on e-Bay. Now there, it’s not as obvious, since presumably the person running the garage sale would increase the price of the stuff too. But even so, the point is that as an entrepreneur, you can increase your “markup” very flexibly. So whatever margin worked under the old price relations, could also be inflated in the new regime.
Ultimately, you do not want to be relying on a corporate salary–let alone bond payments and Social Security checks–if and when large price inflation hits.
Why Are Yahoo! Answers Terrible?
I had never thought about it much until someone else brought it up (I think when I was down in Auburn for ASC 2009). Have you ever wasted your time checking the Yahoo! Answers when you google something? Seriously, I think I perused those things maybe 8 times, before realizing that they were worse than useless. Worse, because if they were demonstrably idiotic the first 8 times, then why would I trust the mechanism on the 9th time when it appeared plausible?
Obama Will Be Re-Elected
I happened to be in the car for a long stretch this evening and caught most of President Obama’s press conference. As Beavis would tell him, “Heh heh damn you’re smooth.”
I think he will easily be re-elected. Yes, the economy will be in the tank, but if he can casually and persuasively explain his programs are the way to counteract leveraged debt financing, speculation, inflated house prices, and out of control government deficits, then he will be able to convince voters he is part of the solution in 2012.
Remember kids, FDR won four elections. And things weren’t exactly rosy on his watch.
Paul Krugman’s Song
In the comments of my post about Anthony Gregory’s songwriting fan, Douglas pointed us to the Paul Krugman song:
The AG song was much cooler because the writer showed that he really had read Anthony’s stuff. In contrast, although the song above sounds more like a “real” pop song, all the writer really proves he knows is that Krugman (a) writes for the NYT, (b) maintains a blog, (c) thinks a lot (sic),* and (d) won the Nobel. I give the writer a tiny bit of credit for ripping Geithner, but everybody’s doing it.
* This is where I actually go overboard and make unfair criticisms of my intellectual opponents. Everybody’s doing it these days on the intertubes.
Two Blog Posts From the Institute for Energy Research
* This post shows that the Obama budget’s estimate of $646 billion from cap and trade revenues was way below the real belief. According to the deputy director of the National Economic Council, the White House is expecting more like $1.3 to $1.9 trillion. I’m sure it was just an oversight that those numbers didn’t make it into the original release.
* In this post the writers (mostly me) explain Smoot-Hawley and the return to protectionism today under the guise of stopping carbon “leakage.” So on top of all the other garbage going on, we will probably have a trade war too.
China Wants to Dethrone the Dollar
Hey kids, is it really so farfetched to think the dollar (and US Treasurys) will crash this year? As this article reports:
China’s central bank on Monday proposed replacing the US dollar as the international reserve currency with a new global system controlled by the International Monetary Fund.
In an essay posted on the People’s Bank of China’s website, Zhou Xiaochuan, the central bank’s governor, said the goal would be to create a reserve currency “that is disconnected from individual nations and is able to remain stable in the long run, thus removing the inherent deficiencies caused by using credit-based national currencies”.
My colleague (who emailed me the story) said, “Bob, isn’t this traditionally referred to as gold?”
Anthony Gregory in the House
I get a few emails from fans, but nobody has written a song about me. Anthony played it for us at the Austrian Scholars Conference. Yuks all around.
Your Government Is Lying to You
So what’s new? I know I know, but every once in a while these things just hit me, and so I pass them along.
Today’s case in point, the White House’s own estimate of federal debt held by the public. As you can see in Table S-1 here [pdf], the Obama Team in its own rosy forecasts says that the federal debt as a % of GDP will rise from 41% in 2008 to 67% by 2019.
Folks, this isn’t, “Oh, George Bush screwed things up and so now we have to spend money to save money.” You don’t raise the national debt as a share of the economy by 63% over the course of ten years, if you’re really concerned about fiscal responsibility. To say that you are doing everything possible to restore sanity to the nation’s finances would be, well, a lie.
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