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The debt bomb, buy a farm and ammo.
Old 02-15-2010, 07:52 AM   #1
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The debt bomb, buy a farm and ammo.

I read this article yesterday:

How to invest for the debt-bomb explosion Paul B. Farrell - MarketWatch

, and thought that even I agreed with some of what the guy said, it seemed a bit alarmist to me...I mean, really, buy a farm and prepare for civil unrest?


Then I read this article today:

US debt will keep growing even with recovery - Yahoo! Finance

and if this guys facts are right, ten years from now, 80% of the fed govt budget is going to be needed for just SS, medicare and interest on the debt.

This is really starting to look like something that is not going to end well - and soon; Maybe the doubling of all the tax rates AND gutting of services is the best case scenario, if collapse of the economy is the alternative...

So where are these two guys wrong? What is going to happen so that neither of these two outcomes come to fruition? Are there any plans or proposals on the table that are going to push of this day of financial reckoning?

And please, lets not blame this on Bush or Obama (or the democrats or the republicans) - NEITHER party has done a thing to solve this problem for the last 40 years and I have little hope that any of them will be different in the next 10 years.
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Old 02-15-2010, 08:21 AM   #2
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NEITHER party has done a thing to solve this problem for the last 40 years.
That's not entirely true. In the early 1980's we had a bi-partisan compromise on Social Security that raised taxes and cut benefits. In the 1990's both Bush and Clinton took steps (remember "Read my lips, no new taxes!") that ultimately resulted in budget surpluses by the end of the decade.

At the moment we have a stalemated government with no apparent ability to reach a compromise of any kind. That's not good because the entitlement problem that is driving the long-run structural deficits will not fix themselves. We are going to need actions that again require both higher taxes and lower future benefits. This isn't impossible to achieve. We've done it before. But maybe what we need to get there is a return to divided government where both parties have a vested interest in actually governing instead of the current situation where the party in power tries to pass its preferred solutions and the party out of power resists at all costs.
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Old 02-15-2010, 10:00 AM   #3
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farmerEd the deficit has been a huge concern of mine for a long time. I can't bear to think about it. I keep wondering where the point of no return is; the point where we are too far in debt to dig our way out.

Didn't the Fed Chairman recently say we are 15 years away from needing all our tax receipts to service the debt?
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Old 02-15-2010, 10:09 AM   #4
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How to invest for the debt-bomb explosion Paul B. Farrell - MarketWatch

Wow, I can't believe the MSM printed that story!
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Old 02-15-2010, 10:16 AM   #5
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These end-of-the-world scenarios assume that there won't be some sort of medicare reform deal. It is inevitable as the bond markets will see to it.

Social security isn't the problem that medicare is. SS can be cured with some modest tax hikes or some scaling back of benefits and retirement dates.
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Old 02-15-2010, 10:26 AM   #6
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Didn't the Fed Chairman recently say we are 15 years away from needing all our tax receipts to service the debt?
That would be surprising considering the current budget projections show interest at 20.7% of receipts and 3.5% of GDP in 2020 . . . not really unmanageable.

Keep in mind too that it is the growth of debt relative to the growth of the economy that matters. 2-3% deficits aren't a problem as long as the economy is growing at a normal rate. You'll actually see debt / GDP decline, or at least not grow, under that scenario. Higher deficits than that are more worrisome and need to be addressed over the long-term.
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Old 02-15-2010, 10:29 AM   #7
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I didn't find the Farrel article to be very convincing--all rant and hand-wringing, no backing data and analysis.

But he is right about one thing--we are "asleep," and there will be no big changes until there's a shock that wakes people up and provides a motivation to take the bitter medicine that is required. One negative aspect of the government infusion of cash that helped temporarily stabilize the financial system is that we've put off the wake-up call. We hit the snooze button, and it only let us delay the inevitable and put us in a much deeper federal budget hole.

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From . . . Yrs to Go
. . . At the moment we have a stalemated government with no apparent ability to reach a compromise of any kind.
In some cases, "compromise" isn't possible. Compromise is easiest when both groups agree on a basic course of action, but differ as to the degree. But, especially with regard to health care, the political parties have fundamentally different visions about how to address the problem. This article addresses the issue well. In part:
Quote:
Both sides agree there are huge problems with the current system, and they even agree on what some of those problems are: there is a shortage of incentives for efficiency, and therefore costs are rising much too quickly, which leaves too many people unable to afford coverage. The system we have is neither a market nor a government program, it’s a private third-party payer system, and so makes very little economic sense. The question is, given that we want to change the existing system, how do we want to change it?
Liberals argue that we should move in the direction of socializing insurance coverage: that the efficiency we lack would be produced by putting as much as possible of the health-care sector into one big “system,” in which the various inefficiencies could be evened and managed out of existence by the rational arrangement of rules and incentives. The problem now, they say, is that the system is chaotic and answers only to the needs of the insurance companies. If it were made more orderly, and answered to the needs of the public as a whole, costs could be controlled more effectively.
Conservatives argue that we should move toward a genuine individual market in insurance coverage: that the efficiency we lack would be produced by allowing for price signals to shape the behavior of both providers and consumers, creating more efficiencies than we could hope to produce on purpose, and allowing competition and informed consumer choices to exercise a downward pressure on prices. The problem now, they say, is that the system is opaque, hiding the cost of everything from everyone and so making real pricing and therefore real economic efficiency impossible. If it were made more transparent and answered to the wishes of consumers, prices could be controlled more effectively.
With a philosophical difference as deep as this, it's hard to know what a "compromise" might look like.

Then, we have the issue that both sides are guilty of trying to make political hay out of the situation. For example, Congressman Paul Ryan of Wisconsin has proposed some steps to address the issue of government growth and our increasing debt problem. Here's how that initiative has been received.
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Old 02-15-2010, 10:33 AM   #8
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Farrell's answer is "make a ton of money and buy a farm". So I ask: since it doesn't take a lot of money to buy a farm, what should one do with the rest of one's money once the poop hits the fan? The title of his article is "how to invest for a global-debt -bomb explosion". He proposes to make tons of money pre-apocalypse by shorting the markets, but not once does he tell us how to invest all that money once we plunge into anarchy. Not even a hint of an answer. He obviously thinks that money will still be worth something post apocalypse, otherwise why bother making tons of it if it's all going to be become worthless anyways? But if money is still worth something, then it can be used for trading, and if you have tons of it what's the meaning of this survivalist crap? The whole thing gives me the impression that Farrell is as confused as the rest of us... Quite frankly I am as skeptical of people telling me what happens after a worldwide apocalypse as I am of people telling me what happens after death. No one on earth has ever experienced either and lived to tell the tale.

Edit: Hopefully the "fat cat bankers" buying remote farms are also working on their farming skills during their weekends. It's one thing to own a farm, and quite another to actually operate it successfully.
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Old 02-15-2010, 10:43 AM   #9
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Originally Posted by samclem View Post
For example, Congressman Paul Ryan of Wisconsin has proposed some steps to address the issue of government growth and our increasing debt problem. Here's how that initiative has been received.
Paul Ryan's proposal isn't an exercise in trying to find a middle ground. His budget pretty much reflects standard partisan positions . . . tax cuts, spending cuts, privatize Social Security and Medicare.

A middle ground here is actually pretty easy to find. He might have started by saying . . . "With tax receipts expected to be just 14.8% of GDP in 2010, the lowest level in 60 years, it is clear that some tax increases need to be part of the long-term fiscal solution . . . "

Instead he says . . .

Quote:
[Our budget] halts the borrow-and-spend philosophy that brought about today’s economic problems, and puts a stop to heaping ever-growing debts on
future generations – and does so by controlling spending and not raising taxes. (emphasis original)
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Old 02-15-2010, 11:11 AM   #10
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I also have been concerned about the debt bomb for a very long time(at least 20 years)...maybe its the logical computer programmer mind in me that tells me mathematically, things just can't continue the way they have been going.

I was early in worrying about the housing bubble (and positioned myself accordingly), but eventually proven right (like a lot of other smart folks on this forum, I am not claiming being alone in that concern).

This ticking debt bomb is seeming more and more the housing bubble seemed 8 years ago...i.e. the warning signs are there, most folks just assume "something will be done", because "something is always done" a crisis will be averted, but can anyone honestly predict that their governement will handle this problem any better than they have handled any problems in the last few years? Heck, the government was at least 50% responsible for the entire housing collapse, not only did they not do anything to stop it, they were a major partner in the crime.

I suspect next crisis it will be more of the same, waiting to long -even after the warning signs are there - and then locking the barn door after the horse has been stolen, only to find out that the horse wasn't actually stolen, it was eaten by those who were supposed to be watching it in the first place.
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Old 02-15-2010, 12:11 PM   #11
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I didn't find the Farrel article to be very convincing--all rant and hand-wringing, no backing data and analysis.
Agreed, but in their book "The Coming Generational Storm" (The Coming Generational Storm - The MIT Press) Scott Burns and LJ Kotliikoff do lay out a rather convincing treatise on this subject. Oddly enough, they come to some of the same conclusions - though not as radical. Their solution is to own things (call them investments) which give "implied" income. e.g., Own a house. (No mention of guns as I recall, but just to be on the safe side, heh, heh, heh.)

At the time I read it, I was a little skeptical, but recent events do seem to lend credence to their arguments - which, by the way, they DO make in detail and supply LOADS of supporting data.
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Old 02-15-2010, 12:19 PM   #12
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Originally Posted by farmerEd View Post
This ticking debt bomb is seeming more and more the housing bubble seemed 8 years ago...i.e. the warning signs are there, most folks just assume "something will be done", because "something is always done" a crisis will be averted, but can anyone honestly predict that their governement will handle this problem any better than they have handled any problems in the last few years?
This may be true, but it also speaks to a lack of fundamental trust in leadership.

I would be first in line to support tax increases, across-the-board spending cuts and reduced SS and Medicare benefits in my future if -- IF -- I really trusted that result would be a lasting fiscal responsibility including balanced budgets and sustained debt reduction. But ultimately, the temptation is always there to give out more when times are good -- the coffers are overflowing, we can afford it! -- and in another decade or two, we'd be back in the same situation we're in now -- with even more unaffordable and unsustainable programs and unfunded entitlement liabilities -- but with even higher taxes and even less "wiggle room" to attack the problem.

So ultimately for me, it comes down to a complete and utter cynicism that we'll ever see sustained fiscal restraint and debt paydown, because there are just too many powerful special interests whose ox would be gored by it.
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Old 02-15-2010, 12:57 PM   #13
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The only Paul left out was "12/21/12" and "the sky is falling"
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Old 02-15-2010, 01:05 PM   #14
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So ultimately for me, it comes down to a complete and utter cynicism that we'll ever see sustained fiscal restraint and debt paydown, because there are just too many powerful special interests whose ox would be gored by it.
True but the pendulum is already starting to swing in the other direction. At the end of the day voters are still the most important special interest. They just need to be united behind a cause. Fiscal conservatism has the potential to be that cause. It is emerging as a winning political issue for the first time in about twenty years. Once the electorate starts prioritizing fiscal restraint in earnest, we'll actually get it from our politicians.

People forget that Ross Perot ran a fairly meaningful third party campaign on fiscal responsibility. For all his faults, he's owed a great deal of credit for making deficit reduction a priority for Washington and the Nation. The result was a large fiscal surplus, at least for a time.

All-in-all I'm a bit less cynical about our ability to deal with this because fear is a powerful motivator . . . and folks are starting to get scared.
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Old 02-15-2010, 01:25 PM   #15
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[QUOTE]We're all trapped in a historic economic supercycle, a turning point that must bleed through a no-man's land of lawless self-destructive anarchy before a neo-capitalistic world can re-emerge. Investors tell me they "feel" it at a deep level, "know" it's happening. They keep asking: "What's the best investment strategy to prepare now?" [QUOTE]

Is buying a "farm" the same as buying real estate in Florida? How about a farm in Florida? Does this person "sound" like an expert in economics? What is a "historic economic supercycle"? Maybe you all should buy some gold (coated) coins, from me, on my web site.

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Old 02-15-2010, 01:54 PM   #16
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I didn't find the Farrel article to be very convincing--all rant and hand-wringing, no backing data and analysis.
Agreed, but in their book "The Coming Generational Storm" (The Coming Generational Storm - The MIT Press) Scott Burns and LJ Kotliikoff do lay out a rather convincing treatise on this subject. Oddly enough, they come to some of the same conclusions - though not as radical. Their solution is to own things (call them investments) which give "implied" income. e.g., Own a house. (No mention of guns as I recall, but just to be on the safe side, heh, heh, heh.)

At the time I read it, I was a little skeptical, but recent events do seem to lend credence to their arguments - which, by the way, they DO make in detail and supply LOADS of supporting data.
I've recently read The Coming Generational Storm, which I found both convincing and scary. However, many of the investment recommendations are things I would probably do (or am already in the process of doing) anyway, because to me they just seem like common sense. Eliminate debt—pay off your mortgage and credit cards; guard against inflation with TIPs; buy a little gold; invest in emerging markets, particularly China and India. The recommendations of another book predicting economic doom & gloom (because oil is running out) were quite similar. I'm now about to read a book with an optimistic take—the title is "Preparing for the Retirement Boom" or something along those lines. I wonder if the investment advice in that book will be like the other two. I won't be terribly surprised if it is.

For a long time (in fact, ever since the previous "worst economic downturn since the Great Depression", back in the 1980's) I've had the intention of buying (free & clear) enough land that it would be at least possible to grow much of my own food in case of need. Inflation may go crazy, but the amount of work it takes to grow a peck of potatoes remains more or less constant, and may even decrease over time as you gain skill as a grower and improve the soil. Unemployment rates may skyrocket, but if you own land, nobody (except yourself) can deny you the chance to work and produce what you need to live.
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Old 02-15-2010, 02:13 PM   #17
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For a long time (in fact, ever since the previous "worst economic downturn since the Great Depression, back in the 1980's) I've had the intention of buying (free & clear) enough land that it would be at least possible to grow much of my own food in case of need.
I suspect most ordinary folks would starve to death if they had to rely on their farming skills to feed themselves.
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Old 02-15-2010, 02:26 PM   #18
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I suspect most ordinary folks would starve to death if they had to rely on their farming skills to feed themselves.
+1

Having spent a lot of my youth on grandparents farm, know that true subsistence farming is hard work and not for the squeamish. Takes a lot of forethought and prep work, even then takes a few years to get going from scratch. Oh and better have some money until the farm starts producing raw food.

Few real farmers will pitch in to help the newly minted survivalist.
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Old 02-15-2010, 02:44 PM   #19
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I suspect most ordinary folks would starve to death if they had to rely on their farming skills to feed themselves.
Probably it's true that most ordinary folks couldn't feed themselves completely at their current state of gardening knowledge (I doubt that I could, and I have some experience at growing food), but they could (and IMO, if they got hungry enough, would) learn. After all, growing vegetables isn't rocket science.

At least with land, you may succeed in growing enough to keep body and soul together. Without land, you can't even try. I don't know about you, but I never again want to find myself vulnerable, as I was during the previous recession, to being cut off from the means of feeding and sheltering myself by people and economic forces over which I have no control—inflation and/or unemployment. Owning land that has the potential to feed me is my way of hedging against that risk—YMMV.
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Old 02-15-2010, 04:00 PM   #20
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After all, growing vegetables isn't rocket science.
No but it isn't magic either. The growing season is only once per year so you better have enough provisions on hand to get you through to the end of harvest already. And then you better know how to store and preserve your harvest to make it last for another 9-12 months. And that's assuming your land will start producing food right away. For that you'll probably need to keep the farm in some kind of minimal state of readiness.

No doubt you could make it work but it would take an awful lot of planning and preparation.
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