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Old 05-05-2012, 09:48 AM   #21
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Given my wonderful demographic luck thus far...
I think this is the mantra of Generation X -- "born at the wrong time"...
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Old 05-05-2012, 09:59 AM   #22
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I think the information in this video is central to ER. Most of us have run firecalc, have analysed our swr, and all of that. The foundation for all those calculations is that the financial picture doesn't stray too far from what we have seen in the past. I have noticed on this and other boards that when someone questions the foundation, it's not a welcome topic. And it is easy to see why...we have all bought into this system, and if it goes too far south, and we go from the good life to something more like the life of those who didn't 'prepare for the future', then we start looking a lot less smart.

But it's not like we, as investors, have our hands completely tied. It might be hard for those of us that have US assets to avoid the possible future tax tsunami, we don't have to ride the USD down the hill, should that come to pass. So having a heads-up on the fact that the US fiscal house is completely out of whack is important to an ER, imho.
+1

So, let's discuss what kinds of portfolio adjustments might be appropriate to mange this risk.

1. More foreign investment?
2. More cash?
3. Gold?
4. Other tangible assets (real estate, art, jewels, etc.)?
5. What AA is best? How would one adjust from his/her current AA?

Here are some very preliminary thoughts (as in I've thought about it about as long as it took me to type it). Primarily, I want to stimulate some practical discussion on how to prepare for this.

1. Yes, in countries without our debt problem and not so directly linked to our economy.
2. Err on the high side of cash on hand (an example would be to keep 6 yrs of cash like the Galeno model) versus just 1-3 yrs.
3. Some maybe??
4. Needs more thought. What was valuable during the Great Depression?
5. More cash per above and more investment in foreign debt. What about equities?
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Old 05-05-2012, 12:01 PM   #23
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Guns, Gold and 7 years of freeze dryed food. I was a tad younger(late 60's and 70's) then.

Ying and Yang wise - Mother Earth News and Howard J. Ruff are still in business.

In fact Ruff has a relatively new book out.

Heh heh heh - Me? Ate the food back packing(not 7yrs worth though), the guns went in Katrina, and I still have a few gold coins in the safety deposit box. Sold the mining stocks long ago.

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Old 05-05-2012, 12:22 PM   #24
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+1

So, let's discuss what kinds of portfolio adjustments might be appropriate to mange this risk.
If you look at what worked the last time around (not that next time will be a carbon copy), it was commodities and related items/equities, real estate and cash, pretty much. The one thing you absolutely want to avoid is very long duration bonds. Stay away from 30 year treasuries, for example. If you have a mortgage, it might be wise to get a 30 year fixed rate loan and leave it in place. That all assumes next time looks like this time. Inflation linked bonds are probably a good idea, too (I have been buying my yearly allocation of I bonds since TIPS have gone nuts).

Personally, I have been trying to include commodity equities in my portfolio and am staying away from bonds longer than 7 or 8 years out. I hope to refi my mortgage this summer to a 30 year fixed. Otherwise I just keep a diversified portfolio.
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Old 05-05-2012, 12:33 PM   #25
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So, let's discuss what kinds of portfolio adjustments might be appropriate to mange this risk.
If you see more inflation ahead, this link discusses tangible assets and a large mortgage
http://www.financialsensearchive.com...2007/0919.html
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Old 05-06-2012, 03:32 AM   #26
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Originally Posted by sengsational View Post
I think the information in this video is central to ER. Most of us have run firecalc, have analysed our swr, and all of that. The foundation for all those calculations is that the financial picture doesn't stray too far from what we have seen in the past. I have noticed on this and other boards that when someone questions the foundation, it's not a welcome topic. And it is easy to see why...we have all bought into this system, and if it goes too far south, and we go from the good life to something more like the life of those who didn't 'prepare for the future', then we start looking a lot less smart.

But it's not like we, as investors, have our hands completely tied. It might be hard for those of us that have US assets to avoid the possible future tax tsunami, we don't have to ride the USD down the hill, should that come to pass. So having a heads-up on the fact that the US fiscal house is completely out of whack is important to an ER, imho.
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OK, but I'm trying to figure out how this could be seen as NOT being related to FIRE? Why would the level of debt's effect on the economy even be questioned? Or what some threads in this forum had to do with FIRE, but were not questioned.


-ERD50
Thank you both. The relationship of this topic to FIRE seemed self evident. I am glad the moderator questioned my intent rather than delete the topic. However I really couldn't believe I had to justify the relationship of this subject to FIRE. To be challenged by a moderator is a bit unwelcoming. I don't post very often but I do try to share relevant material or ask pertinent questions. I am glad that some of you found it intersting enough to respond because I believe whether the debt is addressed or ignored by the politicians either way is going to affect us and affect us a lot.
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Old 05-06-2012, 09:52 AM   #27
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Many of us have just given up on posting or commenting on relevant information. Where are those darn cats when they are needed?
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Old 05-06-2012, 10:02 AM   #28
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Old 05-06-2012, 10:47 AM   #29
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Many of us have just given up on posting or commenting on relevant information. Where are those darn cats when they are needed?
You don't seem to have given up posting or commenting.
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Old 05-06-2012, 05:47 PM   #30
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OK, but I'm trying to figure out how this could be seen as NOT being related to FIRE? Why would the level of debt's effect on the economy even be questioned? Or what some threads in this forum had to do with FIRE, but were not questioned.


-ERD50
Some threads are more fun than others. The topic of this thread is decidedly not fun because if the rules change drastically, then why did we all do so much careful planning? This board treated the topic fairly. On other, less refined boards, the mention of an upset in the financial system generates a huge pile of "better stock up on guns and ammo"' comments, even though no one mentioned civil unrest.

I wouldn't mind continuing this conversation toward FIRE but asking, what are the ways that the US can get though this, and how can I defend my nest egg? One comment was that the US would inflate it's way out of the problem. I guess the last time we had 200% GDP problem was WWII, which is a pretty good excuse for such a big credit card bill. This time, I'm not seeing such a good excuse. As to how to defend the nest egg, my dad, who FIREd at 45, used to thank a certain unnamed president when he clipped 15% APR coupons on his way to the bank. Would that be a good defensive move? Buy real long high % bonds when rates are high?
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Old 05-06-2012, 07:18 PM   #31
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Some threads are more fun than others. The topic of this thread is decidedly not fun because if the rules change drastically, then why did we all do so much careful planning? This board treated the topic fairly. On other, less refined boards, the mention of an upset in the financial system generates a huge pile of "better stock up on guns and ammo"' comments, even though no one mentioned civil unrest.

I wouldn't mind continuing this conversation toward FIRE but asking, what are the ways that the US can get though this, and how can I defend my nest egg? One comment was that the US would inflate it's way out of the problem. I guess the last time we had 200% GDP problem was WWII, which is a pretty good excuse for such a big credit card bill. This time, I'm not seeing such a good excuse. As to how to defend the nest egg, my dad, who FIREd at 45, used to thank a certain unnamed president when he clipped 15% APR coupons on his way to the bank. Would that be a good defensive move? Buy real long high % bonds when rates are high?
Post WWII the rest of the industrialized world lay in ruins and the US had created a huge manufacturing base. Today the US is a consumer nation and we have the Chinese to compete with. After WWII we still produced most of our own fossil fuel, now we are dependent on others. My crystal ball is murky but I wonder if we are seeing a move to a general decline in the US standard of living as other nations improve theirs. I think inflation is coming too. Will it be as bad or worse than the late 70's? How does one position themselves?
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Old 05-06-2012, 08:59 PM   #32
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Post WWII the rest of the industrialized world lay in ruins and the US had created a huge manufacturing base. Today the US is a consumer nation and we have the Chinese to compete with. After WWII we still produced most of our own fossil fuel, now we are dependent on others. My crystal ball is murky but I wonder if we are seeing a move to a general decline in the US standard of living as other nations improve theirs. I think inflation is coming too. Will it be as bad or worse than the late 70's? How does one position themselves?
I think this pretty much sums it up.
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When it gets down to it — talking trade balances here — once we've brain-drained all our technology into other countries, once things have evened out, they're making cars in Bolivia and microwave ovens in Tadzhikistan and selling them here — once our edge in natural resources has been made irrelevant by giant Hong Kong ships and dirigibles that can ship North Dakota all the way to New Zealand for a nickel — once the Invisible Hand has taken away all those historical inequities and smeared them out into a broad global layer of what a Pakistani brickmaker would consider to be prosperity — y'know what? There's only four things we do better than anyone else:
music
movies
microcode (software)
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Old 05-07-2012, 03:07 PM   #33
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Nice that software is in somebody's list as one of the things where the US will retain an edge, since I'm a coder. I'm not sure the US can keep the edge there myself.

One thing we have in abundance is crop land. I say "we", but who knows how much of it is owned by those beyond our borders. What a mass of complexity is the world lately.
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Old 05-07-2012, 07:44 PM   #34
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What was amazing is the absolute low level of interest payments relative to the size of the budget and the debt 225 billion on 16 trillion of debt. 1.4% interest, so that a rise to a reasonable interest of 4.5% (inflation of 3% and 1.5 % real income) results in an increase of 500 billion on the national debt, which I think will limit the economy as an offset to any growth initiatives.

I for one never thought the government would be able to sell these large deficits for so long, it would appear to me that whether there is hyperinflation or a deflationary spiral Treasury Bills would be one of the safest investments to hold. Likewise in an inflationary spiral stocks would be necessary as the one of the better investments that would hold it's value.

The United States is lucky in that results in Europe will be evident sooner and Americans should be better able to prepare as a result of the actions that occur there, whether inflation or deflation.

But I do think as is apparent in the President's budget the government will not be able to afford all the promises on Medicare and Social Security and a 35% haircut on the value of those services would be the minimum I would plan for as that would be the average amount of spending cuts needed to balance the budget and at some point, and this could be years from now as well, cuts will be required.
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Old 05-08-2012, 04:31 PM   #35
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I'm less dismissive of Krugman after years of everyone else saying interest rates were going to explode (myself included), only to watch them go even lower.

He's been dead right on interest rates since the crash, while his detractors have been dead wrong.

He's been right in his predictions about the effects of austerity in Europe, while his detractors have beend dead wrong.

At what point to people begin to consider the possibility that he may be right?


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Yes, Paul Krugman has been saying this, too, for a long time. And he's been wrong as long as he's been saying it. Just ask him--The problem with the stimulus and all the other government spending isn't the deficit hole we're digging, the idea that bondholders may decide they want a higher interest rate to loan us more money, and the drag on our economic future from all the repayments we'll need to make. No, the problem is that the spending hasn't been big enough.

Is "economics" as (practiced by columnists) a science if nothing is testable/falsifiable?
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Political Yes, but definitely related to FIRE
Old 05-09-2012, 01:11 AM   #36
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Political Yes, but definitely related to FIRE

I am going out on a limb here to give my 2 cents on this without being political on a clearly political subject. I do not endorse any party and lay blame where it should be with all past administrations. Both have gotten us into this mess. Anyway, this is a particularly scary prospect and concerns anyone who is either currently retired or contemplating retirement soon. Money, particularly in a fiat currency such as the US dollar or the EU Euro is only as good as the belief that it is good. There is nothing to back it up except faith in the economic system. Clearly each government is approaching this in different ways and the citizenry are reacting in response, sometimes in unpredictable ways. It is extremely interesting to observe and I would only be academically interested except all my money is tied up in the US yet I am living in Europe. So for us what happens in both systems is vitally important. Luckily Hungary where I live is not in the Euro zone and the Hungarian Forint is not a fiat based currency but it has been and remains weak so I am not eager to move my money here. There are 2 basic schools of thought regarding how to get out of a recession (although this could arguably be a depression). The first is the Keynesian concept of spending your way out by creating money and infusing the system with it thus creating jobs which subsequently bolster the economy. This is what has been happening with little effect in the US, perhaps because it is the wrong approach or we haven't created enough money ($15 Trillion isn't enough), or it was put into the economy the wrong way by giving it to banks who then refuse to loan it back out. In Europe they have been using the austerity concept of cutting spending, increasing taxes, and pressing everything hoping to pay it down until things recover. Clearly that isn't working and the people are tired of increasing taxes, rising unemployment, and inequities between countries in the same federalized government (Germany is clearly richer and fully in control over the EU although France's revolt on Sunday by electing a socialist is a clear sign things are not stable). What is interesting is that neither system is working or at least not to the extent it should have by now. In the US no recovery from a recession has ever occurred without the housing market recovering first and the market is actually getting worse so obviously something isn't working. Unemployment is actually increasing but the corporations and banks are seeing record profits so there is a clear disconnect. So, given that it is clear that no one really knows what to do and we seem to be in new territory not amenable to historical economic theories what is one to do? In my own case I am relying on the US government for my military pension and hopefully social security in 3 years. This also BTW pushes people to start considering drawing SS at the minimum age on the assumption it won't last long which will affect SS by moving the drawdown to earlier ages (not older which is what they have been using as a model) which has not been calculated into the plans for SS. I intend to start collecting at age 62 but had previously been planing for age 66. I would rather get something now rather than the increasingly likely prospect of getting nothing in the future. Then we have about $650K in 401K accounts which are in US banks. Actually that isn't so clear cut either as it is invested in IRA's at Scottrade which may or may not be insured. We also have a brokerage account with them at roughly the same amount. If the banking system completely collapses and the US government collapses as well, arguably a worst case scenario, then we have nothing except the house we are living here in Hungary which is free and clear. [MOD EDIT] Defaults on loans here in Europe will really only affect the banks as they are the ones floating the loans. But, the US also has opened up dollar swap lines with the IMF to help the EU deal with it's problems. This ties the US economy directly to Europe and takes on a huge risk particularly in light that the US economy itself is far over-extended. [MOD EDIT]Just having all of our fighter fleet and 3 carrier groups fully deployed is almost as expensive as fighting a war and is unbalancing the economic futures. [MOD EDIT]
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Old 05-09-2012, 01:14 AM   #37
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BTW, Social Security and Medicare are separately funded programs with their own tax. The problem is that Congress repeatedly borrows from these funds and never replaces the money they borrowed. Both are self-sustaining and not in Jeopardy if they would leve them alone. Why they come up repeatedly in discussions is an interesting subject all of itself.
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Old 05-09-2012, 08:09 AM   #38
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Originally Posted by borschelrh View Post
I am going out on a limb here to give my 2 cents on this without being political on a clearly political subject. I do not endorse any party and lay blame where it should be with all past administrations. Both have gotten us into this mess. Anyway, this is a particularly scary prospect and concerns anyone who is either currently retired or contemplating retirement soon. Money, particularly in a fiat currency such as the US dollar or the EU Euro is only as good as the belief that it is good. There is nothing to back it up except faith in the economic system. Clearly each government is approaching this in different ways and the citizenry are reacting in response, sometimes in unpredictable ways. It is extremely interesting to observe and I would only be academically interested except all my money is tied up in the US yet I am living in Europe. So for us what happens in both systems is vitally important. Luckily Hungary where I live is not in the Euro zone and the Hungarian Forint is not a fiat based currency but it has been and remains weak so I am not eager to move my money here. There are 2 basic schools of thought regarding how to get out of a recession (although this could arguably be a depression). The first is the Keynesian concept of spending your way out by creating money and infusing the system with it thus creating jobs which subsequently bolster the economy. This is what has been happening with little effect in the US, perhaps because it is the wrong approach or we haven't created enough money ($15 Trillion isn't enough), or it was put into the economy the wrong way by giving it to banks who then refuse to loan it back out. In Europe they have been using the austerity concept of cutting spending, increasing taxes, and pressing everything hoping to pay it down until things recover. Clearly that isn't working and the people are tired of increasing taxes, rising unemployment, and inequities between countries in the same federalized government (Germany is clearly richer and fully in control over the EU although France's revolt on Sunday by electing a socialist is a clear sign things are not stable). What is interesting is that neither system is working or at least not to the extent it should have by now. In the US no recovery from a recession has ever occurred without the housing market recovering first and the market is actually getting worse so obviously something isn't working. Unemployment is actually increasing but the corporations and banks are seeing record profits so there is a clear disconnect. So, given that it is clear that no one really knows what to do and we seem to be in new territory not amenable to historical economic theories what is one to do? In my own case I am relying on the US government for my military pension and hopefully social security in 3 years. This also BTW pushes people to start considering drawing SS at the minimum age on the assumption it won't last long which will affect SS by moving the drawdown to earlier ages (not older which is what they have been using as a model) which has not been calculated into the plans for SS. I intend to start collecting at age 62 but had previously been planing for age 66. I would rather get something now rather than the increasingly likely prospect of getting nothing in the future. Then we have about $650K in 401K accounts which are in US banks. Actually that isn't so clear cut either as it is invested in IRA's at Scottrade which may or may not be insured. We also have a brokerage account with them at roughly the same amount. If the banking system completely collapses and the US government collapses as well, arguably a worst case scenario, then we have nothing except the house we are living here in Hungary which is free and clear. [MOD EDIT] Defaults on loans here in Europe will really only affect the banks as they are the ones floating the loans. But, the US also has opened up dollar swap lines with the IMF to help the EU deal with it's problems. This ties the US economy directly to Europe and takes on a huge risk particularly in light that the US economy itself is far over-extended. [MOD EDIT]Just having all of our fighter fleet and 3 carrier groups fully deployed is almost as expensive as fighting a war and is unbalancing the economic futures. [MOD EDIT]
One word: paragraphs
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Old 05-09-2012, 10:37 AM   #39
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. Money, particularly in a fiat currency such as the US dollar or the EU Euro /snip/

Luckily Hungary where I live is not in the Euro zone and the Hungarian Forint is not a fiat based currency

How is Hungary's currency not fiat based

Also, from Wiki... but who knows if it is correct...

"As a member of the European Union, the long term aim of the Hungarian government is to replace the forint with the euro"
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Old 05-09-2012, 12:23 PM   #40
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the Hungarian Forint is not a fiat based currency
Can you provide supporting evidence?
I could not Google anything like this - it's certainly not gold based, as the price of gold expressed in Forints changes in time.
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