Economics Questions

Re: Inflation, Austrian economics and investment

NidStyles — Mon, 02 May 2011 06:22:12 GMT

What, in your estimate, would keep those hungry mobs away from your produce-filled fields?

Teaching them how to grow their own. My own produce-filled fields as you put it, are not so visible either. There's a 15 foot high concrete wall between my field and the rest of the world. None of my nieghbors know that the greenhouses are back there, or that my entire back yard is filled in such a manner.

The only indicator they would have is that while they are getting skinnier, I am staying the same. I have no issue with employing a defensive arena of employee's paid in food, seed, and knowledge, if thing's get as bad I have have hinted at. Once thing's settle down, or if a person is acting rational I have no issue with helping them in a manner that will not put me at risk... I may be a cold rational man with my reservation's on human worth, but I am not heartless.

Re: Inflation, Austrian economics and investment

z1235 — Sun, 01 May 2011 21:55:11 GMT

Now that you put it that way, it's starting to make sense.

Re: Inflation, Austrian economics and investment

Clayton — Sun, 01 May 2011 21:26:57 GMT

z1235:

Clayton, the risk is there, I agree. But following this logic, any bank account, or any known account or property, for that matter, is also at risk of being confiscated. I don't think the nomenclature (401k, IRA, penalty, savings, income, tax, etc.) would make much of a difference. Btw, in the USA the obligatory portion of pension "savings" (Social Security) is already "nationalized".

Using ordinary logic, you are right, but you are forgetting that we're talking about Washington, DC where tax breaks are called "tax expenditures", that is, the Feds think of all those little deductions and credits they sprinkle across the tax forms as "spending." Using this logic, the government is already spending money on our retirements by giving us tax breaks under the 401(k), IRA and other tax-incentivized accounts. All those middle-class millionaires who built large savings with tax-deferred growth (or are expecting untaxed withdrawal) "owe" the Federal government which has been "spending" its "revenues" to incentivize their retirements. It is only "fair" that the Feds might call on the beneficiaries of these programs to "do their part" to avert the "crisis" in Social Security, the deficit and the Federal debt.

You can all pay me $5 when the talking points start coming out 5 years from now and it is word-for-word as I've predicted here... I'll become a millionaire.

Clayton -

Re: Inflation, Austrian economics and investment

z1235 — Sun, 01 May 2011 19:40:59 GMT

Clayton, the risk is there, I agree. But following this logic, any bank account, or any known account or property, for that matter, is also at risk of being confiscated. I don't think the nomenclature (401k, IRA, penalty, savings, income, tax, etc.) would make much of a difference. Btw, in the USA the obligatory portion of pension "savings" (Social Security) is already "nationalized".

Re: Inflation, Austrian economics and investment

Clayton — Sun, 01 May 2011 17:37:35 GMT

z1235:

Everything is possible, of course, but I don't think "nationalization" of 401(k) or IRA accounts is likely in a crisis. They are voluntary accounts/contributions with $0 obligatory state minima and in that regard they are indistinguishable from any investment account or savings account -- the only difference being that most of them are untaxed income. Even the rabid Argentinian socialists knew enough in 2008 to keep their paws off the voluntary portions of the private pension funds:

FACTBOX-Elements of Argentine bill to nationalize pensions

"VOLUNTARY CONTRIBUTIONS - Pension savers who made extra contributions to their retirement account can chose to move that amount to the state or keep it in an individual retirement account in a private fund. The private pension fund administrators can continue to handle private accounts for individuals who choose to maintain accounts above and beyond their obligatory state contributions."

Just adding some color and nuance to the discussion.

I think you're underestimating the avarice of the Feds. The US government has the largest revenues, debt and budget of any government in the world. It also has the largest military outlays. It has 700 military installations (not all of them are bases) in 170 countries (there are only 200 countries in the world). The current political nincompoops are talking about "closing the deficit" - while keeping taxes flat and not cutting spending. It's an exercise in insanity that is politically impossible to stop. The US government can't raise taxes because they've done a great job concealing the extent to which Americans are actually taxed (over 50%) and people just won't accept any more privation unless there is a war or something. They can't cut spending because the whole system is a gigantic network of bribes (lobbies) and other entitlements.

I don't expect nationalization of the 401(k) and IRA programs to use that label. It will be a stealth nationalization. Voluntary contributions are already held hostage by the 10% penalty, it wouldn't be that difficult to say that "because of this crisis in American retirement, we must increase the 'nudge' we are giving to Americans to save their money so we are increasing the early-withdrawal penalty to 25%" at the same time the program is being nationalized. See how many people are willing to give up 1/4th of their wealth to escape nationalization.

Clayton -

Re: Inflation, Austrian economics and investment

z1235 — Sun, 01 May 2011 09:56:30 GMT

Everything is possible, of course, but I don't think "nationalization" of 401(k) or IRA accounts is likely in a crisis. They are voluntary accounts/contributions with $0 obligatory state minima and in that regard they are indistinguishable from any investment account or savings account -- the only difference being that most of them are untaxed income. Even the rabid Argentinian socialists knew enough in 2008 to keep their paws off the voluntary portions of the private pension funds:

FACTBOX-Elements of Argentine bill to nationalize pensions

"VOLUNTARY CONTRIBUTIONS - Pension savers who made extra contributions to their retirement account can chose to move that amount to the state or keep it in an individual retirement account in a private fund. The private pension fund administrators can continue to handle private accounts for individuals who choose to maintain accounts above and beyond their obligatory state contributions."

Just adding some color and nuance to the discussion.

Re: Inflation, Austrian economics and investment

boniek — Sun, 01 May 2011 01:03:11 GMT

I agree with Clayton about 401(k). It will be nationalized sooner or later and there is a lot of precedent for that in other countries. Argentina in 2008 for example. In time of relative peace and prosperity this may seem impossible to do, but thats what crises are for ;)

Re: Inflation, Austrian economics and investment

Clayton — Sat, 30 Apr 2011 23:25:02 GMT

they should focus on equities instead.

That's absurd. I bought my gold at around $900 back in late 2008. It's now over $1500 - its rise has outstripped the devaluation of the dollar precisely because investors have been piling in, trying to escape devaluation and the crashed market. The market will revaluate and gold will definitely go down in inflation-adjusted terms (its absolute value might remain flat from here or go down slightly or rise some more before the bubble bursts) but timing is everything. If I had "bought the market" at the same time, I'd be looking at even money in 2011 dollars - assuming I hadn't lost my nerve and sold on the way down. Given the massive inflation which has occurred between 2008 and today, I'd be down in real terms.

Everything affects everything else. What is happening in the political arena matters. You can't close your eyes and blindly "invest in value." The actions of the government can crash the entire economy. Of course, you can't close your eyes and blindly buy gold, either, something that a lot of the Ron Paul types and other gold bugs don't understand. I would recommend against buying gold right now. Not sure if it's time to sell yet but there's definitely better things to buy than gold. I don't know how much further it's going to go before the bubble bursts but it's definitely in a bubble. It's up 2.5x since just 2006. There was a front page article just the other day in the WSJ encouraging people to buy gold. The cable news channels are running every other commercial for some gold seller. Never buy with the herd.

The gold price manipulators (London Bullion Market Association, BIS, and their ilk) are going to be looking for an opportunity to spank gold buyers. They lost all control of the gold price between 2005 and 2007 - it had not gone significantly above $400 for two and a half decades prior - and blowing a bubble is the perfect way to do it. I suspect this is what happened to the gold price in 1980.

I appreciate your education in the financial industry but my recommendation to you is to wake up and smell the coffee. The world is a significantly different place than you were taught in grade school. If you want to get an idea of what I'm talking about, try reading this.

Clayton -

Re: Inflation, Austrian economics and investment

John James — Sat, 30 Apr 2011 23:12:32 GMT

Again, first off, I'm gonna ask you one more time. Please read this and learn how to quote. It took me way too long to make any sense of that.

And from what I gather, you didn't answer my initial question, you didn't provide the proof I asked you for, and you simply reposted the same two quotes you did in your last post that have absolutely nothing to do with anything you and I have been discussing.

I would appreciate some actual response to the inquiries I posed to you (and perhaps an actual reading of the post I requested you read) before you start patronizing me as if I haven't said anything substantive.

Re: Inflation, Austrian economics and investment

Clayton — Sat, 30 Apr 2011 23:07:27 GMT

Sam:
And here is Clayton saying: "Yikes. Stay out of 401(k)s and IRAs, those trillions are a fatted calf and the cash hungry Federal government is salivating over them. The tax-deferral is just a lure, IMO. I don't know how much longer they're going to let the program run before they nationalize the assets but rationalization is inevitable." This is most unlikely. If there were a really big radical left-wing party

Anything is possible in an emergency. Social Security/Medicare/other Federal entitlements are necessarily going to create an emergency. Tax rates can't go much higher without total loss of popular support of the government (either party), investors are spooked on US bonds, leaving only the Fed which is already flooding the system with dollars (bailouts, TARP, QE1, QE2, etc.) As Marc Faber points out, the US government is out of options, they have only one course of action: print, print, print. This is why commodities are a sure investment for the present.

(I think maybe Italy and France have parties like this, but never in the US) this may be plausible, but both parties received the majority of their funding from big business, and the politicians themselves have lots of money tied up in these investment vehicles. Are they really likely to let their pensions be nationalised like that?

They can write the rules however needed to make sure they can loophole themselves and their buddies out. The retirement funds are next. I'm predicting de facto nationalization within a decade, depending on circumstances.

"And personally, if someone needs to be told that "hey, it might be a good idea to invest in your company 401k at least as much as they will match"...I would say they're gonna need a lot more than a book if they hope to not end up wearing a "Welcome to Wal-Mart" button on a bright blue vest." I know it's ridiculous but plenty of successful people do not take advantage of these things.

I don't put a penny in my 401(k). It's just a money trap.

Clayton -

Re: Inflation, Austrian economics and investment

Sam — Sat, 30 Apr 2011 22:30:43 GMT

John: "If you realize gold is generally not an investment why the hell do you keep comparing it to equities and saying stuff like "much better return than gold"?"

"I asked you to show me someone who advocated investing most or all directly in precious metals." I couldn't find the post I was looking for (from more than a month ago). Please forgive me. I was replying to all these people who implicitly mentioned gold as an investment. I wasn't concerned with whether or not it was an investment, but simply that they should focus on equities instead.

two examples:

In response to the question of whether gold or silver were a good investment, Smiling Dave wrote: "they are good because they retain their value in times of inflation and low interest rates, because people want gold exactly then."

sonofliberty75 (http://mises.org/Community/forums/t/23192.aspx) starts a thread calling seeking investment advice: "I do currently own
some gold and silver, but I am wanting to get into some other investments as well"

What constructive differences in investment analysis or economics do you have which differs to what I have said? I don't see any areas of disagreement, but perhaps you have something interesting to say. Why don't you add something constructive to the debate?

Re: Inflation, Austrian economics and investment

Sam — Sat, 30 Apr 2011 22:24:15 GMT

John, in reading Clayton's posts do you now see what I'm up against, and why I was posting the basics of investing? There are several vehicles for saving in the UK and US. I only know the terms 401k and IRA - I don't know the numbers associated with, but I assume they work on a similar basis to UK arrangements. And here is Clayton saying: "Yikes. Stay out of 401(k)s and IRAs, those trillions are a fatted calf and the cash hungry Federal government is salivating over them. The tax-deferral is just a lure, IMO. I don't know how much longer they're going to let the program run before they nationalize the assets but rationalization is inevitable." This is most unlikely. If there were a really big radical left-wing party (I think maybe Italy and France have parties like this, but never in the US) this may be plausible, but both parties received the majority of their funding from big business, and the politicians themselves have lots of money tied up in these investment vehicles. Are they really likely to let their pensions be nationalised like that?

"And personally, if someone needs to be told that "hey, it might be a good idea to invest in your company 401k at least as much as they will match"...I would say they're gonna need a lot more than a book if they hope to not end up wearing a "Welcome to Wal-Mart" button on a bright blue vest." I know it's ridiculous but plenty of successful people do not take advantage of these things. There are a few references to this sort of behaviour in Nudge by Thaler and Sunstein, and Animal Spirits by Akerlof and Shiller. Alternatively you will probably here a bit more about these things if you take an advanced microeconomics class (it may even have filtered down to intermediate level by now). A large percentage of people do not invest in pensions if they have to make a choice. They lose matching contributions, but still they put it off.

Re: Inflation, Austrian economics and investment

John James — Sat, 30 Apr 2011 22:20:09 GMT

Sam:
I do realise gold is not an investment and I thought you were only arguing with me because you did not. When I realised you did not think gold was an investment I was puzzled that you keep trying to be so rude about me. I'll go and check the forums for people who said gold is an investment.

If you realize gold is generally not an investment why the hell do you keep comparing it to equities and saying stuff like "much better return than gold"?

I'll go and check the forums for people who said gold is an investment.

I'm not sure why you would bother with that. I asked you to show me someone who advocated investing most or all directly in precious metals.

Clayton:
gold is not an investment
Huh? Anything you can buy low and sell high is an investment.

You both need to go read the second post in this thread.

Re: Inflation, Austrian economics and investment

Sam — Sat, 30 Apr 2011 22:08:55 GMT

As far as I can see John didn't really disagree with me, except that I didn't point out gold was not an investment. Well I didn't do that because I thought so many people on here had already taken for granted that gold was a great investment. And so I thought I'd be more likely dismissed if I pointed that out, and so instead I'd simply point out that if treated like an investment, it was inferior to equities, which are basically best. From there I argued that unless you have close to six figures time spent investing would be better spent working. The fees you incur are higher as a proportion so it is even harder to beat an underlying benchmark. Abstracting from these beating the index is hard (to say that is misleading in that one might infer that chances are better if one tries harder, which probably isn't true - if you end up trading more you have even less chance due to the fees). So I said it is best to invest in funds. Few funds will outperform an index, so you could do a lot worse than to pick an index. Personally I have had a lot of success in a fund which has outperformed it's benchmark consistently. I don't really know what did which others didn't. But once a fund manager has established such a successful record it seems reasonable to believe he may be able to maintain it (obviously this cannot be relied upon, but you expect he is better than the average).

And now we have Clayton saying gold is an investment. Also earlier in the thread In response to the question of whether gold or silver were a good investment, Smiling Dave wrote: "they are good because they retain their value in times of inflation and low interest rates, because people want gold exactly then." Implying that gold is a good investment.

sonofliberty75 (http://mises.org/Community/forums/t/23192.aspx) starts a thread calling seeking investment advice: "I do currently own some gold and silver, but I am wanting to get into some other investments as well"

Re: Inflation, Austrian economics and investment

Clayton — Sat, 30 Apr 2011 21:37:54 GMT

If you are in your 20s you should be making investments you will not touch for decades.

Your age should make no difference except that you might be in a position to endure more privation before marriage and children, hence, you may have an opportunity to build capital before you "start life." I don't buy into the "time horizon" thing anymore, it just doesn't make sense. It's an implicit denial of uncertainty. What investment recommendations would you have made to the average German citizen in 1913? Would it have mattered whether their time horizon was 10 years, 20 years or 40 years? Would any of your predictions about the "long-run" trend of the market have mattered once war broke out? We have not reached the End of History. I find it laughable that just 50 years since the close of the greatest social cataclysm in human history (the global wars of the 20th century) some moron has declared that we have reached the End of History.

There is no long-term stability and no reason to suppose there will be no global cataclysmic upheaval in the form of drought, famine, war or something else. Renowned investor Jim Rogers is all but predicting famine in the coming decades and his reasoning is inescapable. I wonder how your stock picks will do when formerly middle class people are starving in the streets of what are today First World countries?

Clayton -