Tag Archives: Economy

QE3 Strengthens Yuan While Devaluing Dollar

Just to recap, the Federal Reserve is now pumping cash into the money supply at a rate of $40,000,000,000 a month (that’s forty billion) and buying mortgage-backed securities with the fresh cash. These are derivatives (bets) on home mortgage packages.

So in other words these potentially toxic assets (underwater mortgages) are being bought up by the Fed to strengthen the value of mortgages. In other words if the mortgage derivative market collapsed it would likely collapse the value of homes. You might also think of it as the powers-that-be directly protecting and extending our current way of life.

But pumping cash into the U.S. Dollar is the definition of inflation, which can also be described as devaluing the dollar. Understanding this is as simple as understanding supply and demand… the more rare a desirable thing the more it’s value increases. So as the money supply increases the more the buying power of each dollar decreases.

So while the dollar declines the Yuan appears to climb in value, improving the prospects of the Chinese currency becoming a de facto reserve currency. This would crush the U.S. Economy.

China’s yuan climbed Friday to its highest level against the U.S. dollar since the currency was revaluated in July of 2005, buoyed by the U.S. Federal Reserve’s recent QE3 program as well as data this week showing that the People’s Bank of China injected a record amount of cash into the financial system, according to analysts. - MarketWatch.

So on one hand, Washington D.C. is seemingly trying to protect the world’s reserve currency status of the U.S. Dollar by attacking any nation (next up, Iran) that trades for oil with something other than the petrodollar – and on the other hand they print U.S. Dollars wildly, forcing the value of the Dollar down and weakening it’s desirability as a reserve currency.

Why? I don’t now. I won’t go there.

What I do know is that these policies are doing two things that can’t be obscured.

  1. We’re being led to war with Iran and possibly China and/or Russia. Yes a world war.
  2. The U.S. Dollar is at risk of becoming worthless. Why? Paper (fiat) currencies are only valuable because people agree they have value and use them for trade for things that have real value like commodities (food, water, shelter, security, etc). If people (or markets) decided that a currency has low or no value then the commodities themselves would likely become the new preferred form of trade. Gold and silver would also rise in value exponentially in this scenario.

Since I have no idea why the powers-that-be would risk these two things, I simply have to assume that these outcomes are not only on-the-table but increasing in risk daily as the war drums beat in Washington D.C. and the Fed’s presses roll.

QE3 – Bernanke Throws Gasoline on the Fire!

So here we are, QE3. Many of us watching this slow motion train wreck have been wondering when this big milestone would be reached.

“To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee agreed today to increase policy accommodation by purchasing additional agency mortgage-backed securities at a pace of $40bn per month.” - Fed launches QE3: the full statement – Telegraph.

I’m a bit surprised that the freshly printed money is being used to buy mortgage-backed securities. Tossing more money at these derivatives just seems like throwing gasoline on a fire to me – a very bad sign me thinks.

By the way, I really love this photo of Bernanke! It really shows his mad-scientist side well.

 

David Stockman Offers an Honest Look at the Economy

Between January 21, 1981 and August 1, 1985, David Stockman was Ronald Reagan’s Director of the Office of Management and Budget. He also served in congress between January 3, 1977 to January 21, 1981.

If you’ve been looking for a better understanding of what’s really happening in the economy and what to expect in the next few years, listen to this interview. It’s an alternative view to what you might hear in the main stream media and sounds much more realistic and reasonable.

He has some very hard words for the keynesians (economic philosophy of current powers-that-be) in this interview saying that we’ve been riding an economic bubble inflated by debt creation for the last 30 years. At some point he expects ‘the great margin call in the sky to come down’ and crash the markets when the speculation and borrowing is forced to stop.

His advice is simple, take the manipulation out of the markets and preserve your own wealth by staying out of the markets. He doesn’t expect hyperinflation but he does suggest holding cash and precious metals.

My Home’s Value is Dropping Again

I was listening to Kunstler’s podcast (#122) tonight and he gave a fairly good explanation of how parts of the financial world work; including the reality that many financial institutions could be holding toxic assets. The truth is that an asset is only toxic if it brings the show to an end.

Take my mortgage for example. My home’s value has been fairly stable for about a year, bouncing along the bottom. I’ve been hoping it would creep back up and meet me half way so I can refinance or sell. I’m an optimist.

But sadly it just took another downturn. I suspect it’s partially due to the the time of year and all the talk in the media about the possibility of a double-dip recession. Who knows what the cause is, but it definitely gives me a moment of pause but doesn’t change my plan.

I’ll keep paying this mortgage until I can’t. I’ll also keep noodling over low-cost simple housing options and looking for ways to move in the right direction. Tiny houses are great therapy for that.

The other thing I take solace in is that while nobody can predict the future, we can all tell when we’re walking on thin ice if we’re paying attention. So I’ll take each step with care and keep that rope tied tightly to my belt. I might take a dip in the ice-cold water but I’ll always be able to pull myself to shore.

Less is More Sustainable

On my blog, TinyHouseDesign.com, I use the tagline Less is More Sustainable. While this probably makes a lot of literal sense for a blog about tiny houses, but I hope people read more into this statement.

I also noticed that Seth Godin recently wrote a post called, Carrying capacity, that sends a similar message; although I suspect he’d say that there’s a sweet spot of sustainability for everything. If so I’d have to agree with him… I’d just add that the sweet spot doesn’t loose track of the human scale.

The only case where more is more sustainable happens when we’re taking about the diversity of all living things that make up the fabric of life on Earth. In other words, more diversity is more sustainable and less impact, risk, rapid growth is more sustainable. Here are a few examples:

Sustainable Ecosystem

Nature teaches us again and again that when a natural ecosystem is thrown out of balance the inevitable consequence is a rebalancing. This might come in the form of a collapse but  collapse can also be looked at as the end of one cycle and the beginning of another. Life is hard to keep down for long.

So if all lifeforms in an ecosystem stay in balance (zero rapid growth) then the system continues to thrive and provide support for every life form in the system.

Our Homes

The smaller our homes, the easier they are to heat, cool, repair, clean, purchase, furnish, and so on. In other words the smaller our homes, the fewer inputs they require to maintain which allows them to give us back time for ourselves.

Small homes also make us less susceptible to economic hard times because few inputs are needed naturally lowering risk. Living within our means and taking on less risk (debt, expenses, responsibilities) also adds to the sustainability of our lives.

Economic Systems

In business we see that rapid growth is only possible if the right inputs are added into the mix. This is usually capital and the right human resources. So one could surmise that more inputs mean more economic growth.This is true. The only trouble is when the inputs become unavailable or too costly growth slows, stops, or reverses.

An excellent example of this was clearly visible at the beginning of the last recession. Credit dried up and many businesses reliant on credit failed. Those left standing were those that ran their businesses on less risk or were big enough to be able to ride through the storm.

Governments

As governments grow past their ability to serve its citizens and maintain central control they fail. Decentralized control, like a healthy democracy, lasts much longer because the entire system is not reliant on the same central supports.

The Bottom Line

Slow steady growth and living simply is more sustainable because the margins of risk are wider. Zero growth is probably indefinitely sustainable.

For example, for the first 190,000 years[1] anatomically modern humans walked around on earth not getting much done; but I suspect they were in a near perfect balance with their surroundings like the other critters around them. Life was not luxurious or terribly comfortable for them but it was certainly sustainable, after all their descendants are still here.

For the last 10,000[2] most humans have been busy focused on progress. We’ve had a few setbacks as different civilizations collapsed under their own weight or corruption but for the most part we’ve been much more productive.

In the last 150 years, supercharged by fossil fuels, we’ve done amazing things and have been incredibly productive. In fact it seems like more people these days are now convinced that more is more sustainable because we’ve gotten so clever at making progress.

But if we take a big step back and look at the foundation we’ve built I think we’d see a delicate framework.

I’m not suggesting that we pull the plug on the whole deal and go back to living in caves for the next 190,000 years. I am suggesting that we get smarter and find a way to have our cake and eat it too. I think we are clever enough to find a sustainable way to keep most things running and moving smoothly but it’s going to take switching to a different pace and refocusing diversity and a sustainable scale.

The Real Problem with Greenwashed Marketing

I got into a little bit of a row recently with the guy that runs Holy Cow Products. We had a little back and forth in the comments section of a greenwash of the week post on The Good Human.

The interaction itself and the little bit of product research I did on green cleaning products started me noodling over the real problem with greenwashing; which is that most people make product decisions based on product packaging and marketers know it. It’s a marketers job to do everything they can to sell products and build positive brand reputations. So it is a natural step for some folks to skirt the edge of what is legal and ethical especially during hard economic times.

I realize that most folks are just trying to realize their own dreams. In many ways I respect this kind of entrepreneurial spirit. The problem is that unsubstantiated product claims and product design mislead people and will eventually cause the business failure as the truth emerges. Failure is not inevitable because guys like me and David (The Good Human) that point out the truth. Failure is inevitable the moment the decision is made to market the product as something it is not.

Choosing to put people and the planet before profit is a more sustainable business model. As the internet and social media become more popular business ventures that don’t adopt a high level of ethics will fail faster simply because the truth will always surface.

I hope more business folks realize that by taking the high road they are choosing to make more money over a longer period of time. If you make a product or are working to build a brand put a focus on ethics, people, and the planet, and your profits will be longer lasting. Social media is here to stay… well at least until the power goes out permanently.

The Saga of the Debtors Prison Continues – More Bad News from Zillow

This bubble burst is one lesson I will never forget. Today I got my monthly report from Zillow in my email inbox. It brought more bad news. On the positive side I can already see some good indications coming in from elsewhere that say the economy is beginning to turn around. It just doesn’t look like it by looking at my home’s recently reported value.

Below is a screen shot of a report on Zillow.com for the Sacramento, California housing market. Looks pretty bad. You can also read the full report.

zillow-bad-news

Below is a snapshot of my home, local market, and the national market. As you can see the Sacramento area has been hit very hard. My take is that this is what happens when McMansions go up like mushrooms and then the roof figuratively caves-in.

my-house

I’m no economist but while we see positive trends in consumer confidence and in other areas I don’t expect to see any real economic rebound until all our homes get a little less upside down. Too many Americans feel like they are stuck in debtors prisons. When people begin to feel less stuck I’m certain that overall consumer confidence will rebound and spending will return.

While this is sad for the rest of America, (more spending means more debt), it will have a positive side effect for those of us that are looking to downsize. We will be able to make our move, literally. Until then we sit patiently paying the piper for our past presumed prosperity.

(Sorry… I couldn’t help the allure of an awkward alliteration.)

My letter to those who banned The Story of Stuff

Below is my letter to the school administrators who banned The Story of Stuff. Please write a letter too. Read the call to action that inspired this letter.

Hello,

The evidence is overwhelming and pollution and the economy are not partisan issues. No matter what personal or political beliefs each of us holds dear we’re forced to face these challenges together. We’re stronger together.

Humanity is consuming natural resources at an increasingly rate. Waste of all kinds is being produced at alarming rates. Pollution is spiraling out of control around the globe as nations require more energy and consume more natural resources to produce more consumer goods. But lets not focus on mother nature for a minute and instead turn to the immediate impact on humanity.

The economic meltdown was triggered by an over-extension of credit at every level. The abundance of credit fueled an artificial increase in the economy, like air filling a balloon. When the balloon popped, banks stopped lending money and corporations began to fail because the margin they had built their business on had disappeared. This collapse triggered repercussions throughout our economy. But all this should go without saying, we all know what happened.

The underlying problem seems to be that the American dream has shifted from real freedom to one built on visible material wealth. Borrowing money has become the norm. Mortgages, auto loans, and credit debt seem perfectly natural today and it’s almost unheard of that someone actually owns their home and is debt free. Over consumption has destroyed freedom through its reliance on debt. The majority essentially live an existence of voluntary indentured servitude simply because there’s no obvious alternative.

The Story of Stuff tells this story and quite clearly shows how consuming at an unsustainable level steals our freedom. The film is not about eliminating commerce but simply encourages us to do a better job of living within our personal and planetary means. By labeling The Story of Stuff propaganda and banning it from your school you are in effect condemning your students to a life of debt, not to mention a world filled with trash and a future full of trouble.

Please reverse your decision and give your students a chance. The Story of Stuff is not propaganda. It is a lesson in protecting freedom and our future.

Regards,
Michael Janzen

http://www.michaeljanzen.com

Don’t wait to hear the D-word

I saw this CBS video the other day that focused on Obama and the economy. One of the things he said strait-out was that he’s working to avoid total economic collapse and a depression. This is not news of course but to hear him dance around the d-word was a bit of an eye opener. It’s one thing to hear our media talk about it and another to hear him say it.

I hope the work he’s are doing today will actually help us avoid more trouble. But I’d argue that we the people shouldn’t wait for the official announcement of a full-blown depression or our own personal financial demise. We should change our lifestyles today, live frugally, and prepare ourselves for the possibility of harder times. Here are some things you can do right now to prepare:

  • Always work to improve your personal health.
  • Buy bulk dry food (beans, rice, grains) and always have a reserve.
  • Learn to cook creatively with beans and rice.
  • Learn to bake from scratch.
  • Switch from coffee to tea, it’s so much cheaper.
  • Plant a victory garden.
  • Raise chickens, if your community permits them.
  • Downsize everything you can.
  • Sell possession you don’t use or need via craigslist, garage sales, and ebay.
  • Create additional revenue streams by monetizing hobbies, blogging, etc.
  • Prepare a worse case scenario plan (job loss, homelessness, etc).
  • Build a tiny house on wheels.

For optimism’s sake lets say we’re not headed for the second great depression. In any event this advice is good advice. By preparing for the possibility of a depression today the worst result is that you’ll be better positioned for the future.

“It is not the strongest of the species that survives, nor the most intelligent that survives. It is the one that is the most adaptable to change that survives.” – Charles Darwin

424px-charles_darwin_seated

Don’t Dwell On It… Just Have A Plan

I was just reading the news this morning on Google and ran across another sad story about our collapsing world economy. This time it’s Nissan announcing major cutbacks. 20,000 jobs will be lost. But that’s not the part of the story I wanted to point out. Take a look at what the CEO of Nissan said:

“In every planning scenario we built, our worst assumptions on the state of the global economy have been met or exceeded, with the continuing grip on credit and declining consumer confidence being the most damaging factors.”

Get it? Even the people running the most successful corporations are getting blind-sided by the collapse. Their worst case scenario planning is being surpassed. Has your worst case scenario planning been surpassed yet? Do you have a worst case scenario plan? No matter what your plan is, or your prediction for the future, you might want to spend a few minutes thinking about what you’d do if you lost your income.

I know that’s a dark topic, so don’t dwell on it, just ask yourself what you’d do differently today if you knew that you might loose your job or house in the near future. It’s not paranoid anymore; it’s prudent.