ARe there really IRONCLAD rules of economics?

Discussion in 'Economy' started by editec, Mar 15, 2009.

  1. editec
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    editec Mr. Forgot-it-All

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    It DID make sense for people to buy houses with nothing down when the inflationary pressures on housing prices exceeded the interest rate of their loans.

    It made perfect sense right up until the point that it didn't.

    So much for those ironclad rules of sound personal economics, eh?

    What works well in one economic situation works badly in others.

    Take savings for example. Always a good idea?

    In China, I am informed, the average worker saves 25% of their take-home in regular saving accounts.

    Those savers are, I am informed actually losing purchasing power due to inflation on every Yuan they save.

    They should (possibly) be spending more on items which retain their value despite inflation, shouldn't they? Of course that will only work until DEFLATION rears its ugly head, then they're screwed and the savers will be sage.

    If there was a consistent way to increase wealth wouldn't most of us already be doing that?

    If every person could follow the same rules of home economics, wouldn't most of us already know exactly what to do?

    A more affluent man can buy a more expensive item knowing that in the long run, that item actually ends up costing less because it lasts longer or costs less to maintain.

    A poor man, might understand that, too, but still needs that beater (which costs more to maintain and probably more to run, too) because he needs it to get to work and that beater is all he can afford.

    So is the better off person buying a hybrid really smarter than the guy driving that beat up older car which gets less milage and which needs more work?

    Or are the both theoretical people merely maximizing their money in different economies situtations?

    Every person's economic wisdom is more or less different that every other since each person's finances and needs are entirely unique.

    We can, and so, often make pronoucements about what is sage economic thinking, which really doesn't apply to everyone's specfic needs in an every changing economic circumstance.

    It seems to me that there are two tricks to economic solvency and security, neither of which is necessarily doable.

    The first trick is to understand your needs and to invest you money to maximize your return.

    Now that would be a hell of a lot easier if your needs never changed, but does that really describe our lives?

    Well, for some of us for a while it might, but eventually your needs will change and you'd best be prepared to change you economic behaviors to reflect those changes.

    And the other thing one really needs is a crystal ball to determine how the economy overall is going to change.

    Who among us has that crystal ball?

    Certainly I hope that we all understand by now that nobody does...least of all those economists we are all fond of listening to.

    I used to have a chum who said to me in that economy (this was in the early 90's) he thought the best way people seemed to be making was in one of two ways

    1. To bring it with them from the past;
    2. Or, to borrow it from the future.

    Of course the truly superior way of those two is to bring it with you from the past, as in to already had it.

    But if you're one of those miserables who didn't have the forsight to create or inherit that opportunity, then the second best way was to borrow it from your future (as in mortgaging to buy a home)

    I think he might have been somewhat sarcastic, but you know....that's exactly how the economy seemed to be working back then.

    Sadly, I think many of us are now the future that we borrowed from in the past

    Damn us of the past! Why oh why didn't we give a crap about US of the present?

    Well now..there's only one thing left for those of us who didn't have the forsight to bring money with us from the past...

    That's to borrow from US of the future. (Read the bailout?)

    And if US of the future don't like it?

    Well screw, them! What have THEY have done for us?

    Now let's take me, for example. I happen to be the world's leading expert in my own finances so I speak here with enormous authority.

    The editec of the past was smart enough to wait for the RE crash of the early 90's to buy his home, and he underbought his home based on his then current income.

    The editec of the distant past was brilliant enough to only borrow about 150% of his annual income, even though that meant buying less than he could borrow.

    But all the while (during the 90's and 00's) that the market price of RE was exceeding the rate of inflation, editec of the less distant past was looking like a fool for not having borrowed more than he did, as his original investment could have been increasing the equity against his loans in much higher amounts, right?

    Then about two years ago, when editec's investment had about tripled in market value, editec of the recent past thought about selling his house to recoup his equity and pay off his debt.

    But he didn't...because editec of the recent past did NOT have that crystal ball to KNOW when the RE crash would happen.

    So the editec of the present might be losing equity now.

    Should he sell while there's still equity to recapture?

    Possibly.

    But what if the economic environment he lives in changes dramtically again?

    What if inflation rears it's ugly head and RE begins making his debt seem inconsequential again?

    Then wouldn't he look foolish with money in the bank paying him back peanuts when inflation could have been increasing his equity in that house?

    So all editec of the present has to know is this....what will the economy DO in the next few years?

    That's all.

    Now tell me, those of you who think that there are ironclad rules for making it in America....what ironclad rule of economics should editec of the present be applying in that case?

    Take the money and continue hoping for deflation or noflation? (and then what to do with THAT realized capital gain?)

    OR....

    Bite the bullet and hope that inflation rears its ugly head so that his investment begins keeping up with inflation or better?

    And if editec of the present makes one move or the other, and it doesn't work out as he'd hoped, should editec of the future blame him for NOT knowing what tomorrow's economy would bring?

    Here's what I think...

    I think life is a crapshoot.

    I think that the best laid economies of mice and men oft times go astray.

    I think we are masters of our destiny when we get it right, and victims of circumstance when we don't.

    And while we can ALL SEE how our neighbors have screw up (and maybe even ourselves if we're honest) in retrospect, not even a single one of us, -- not even insert your favorite brilliant investor here can say with certainty that what they are doing with their investments TODAY, is the right path for a brighter tomorrow.

    That's just one man's opinion.

    One many who truly does know what Sinatra meant when he sang

    you're riding high in April
    And seriously shot down in May​

    If that's never happened to you, my congratulations.​

    If it has, my condolenses.​

    But either way, my advice is to understand that the YOU of the PAST was working with uncertainty, either way as is the YOU of the present

    And regardless of the outcomes that you of the past brought you NOW, tomorrow is another day.

    Good luck planning accordingly, fellow citizens.


     
  2. Bern80
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    Bern80 Gold Member

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    Ah, no. Most people don't follow basic rule of economics. Most people in this country are financially illiterate. Smart money management isn't exactly taught in school. Hell we DO teach safe sex to teens and let them know their life is gonna suck if they have a kid before they're ready and that still happens. What point are you trying to make here?

    You believe we are doomed to financial insolvency because of your two theories. Yet those theories are on faulty premises. First most people poorly define what their 'needs' are. Needs don't require an exhorbatant amount of money to achieve and thus and inordinate level of skill and ambition isn't required to meet them. After a point everythig else is a want. the financies required to maintain a certain standard of living may change, but that is different than providing for needs.

    then you talk about the crystal ball. We don't need a crystal ball. No we can't see the future, but you can help yourself out a lot by looking to the past. Nothing goes up forever in the economy. the stock market, housing prices, etc., NOTHING. You can say no one saw this coming all you want, but I would guess you weren't doing your due diligence in looking for it either.

    What a truly pessimistic, victim playing piece of shit this is ed. Let's call it your Ode to Futility. The victim's MO. What is the point of crap like this? That there will be things you can't control so don't even bother trying take control of your destiny.
     
    Last edited: Mar 16, 2009
  3. RightofCenter
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    RightofCenter Member

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    Ironclad rule of economics: if you have money, you can, or will spend it. Unless you die. Then your relatives will gladly spend it.
     
  4. neurosport
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    neurosport BANNED

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    here is an iron clad rule - somebody will always be trying to f*ck you out of your savings whether they're stocks, money or gold

    every once in a while you gotta pack your bags and move to another country

    until we get one world government then we're gonna be f*cked for good
     
  5. manu1959
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    manu1959 Left Coast Isolationist

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    but only after the government taxes it again.....
     
  6. manu1959
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    manu1959 Left Coast Isolationist

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    which country
     
  7. neurosport
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    neurosport BANNED

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    i moved to US from Ukraine in the 90s for economic reasons ( it was pretty bad ) .

    but in this global economy if i were to move it would be to protect my freedom, not money. because the economy is going to tank more or less evenly across the globe but hopefully martial law and fascist dictatorships won't take over all nations.

    people who spent their entire life in one nation don't understand how important it is to have the option to move out when things get really bad which is an option they will forfeit when they accept one world government.

    i don't really care how bad it gets economically as long as we don't end up with a world government as a result which we very well might :eek:
     
  8. wcurr02
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    wcurr02 Rookie

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    To start, yes there are iron clad rules to economics. The problem lies in the fact that government NEVER follows them...

    Exhibit 1: This is one of the costs of inflation, you can thank none other then uncle sam for leading us down this path of mal-investment(with out him it would not have been possible)

    Exhibit 2: Yes savings is good, the problem you present here is brought apon the Chinese because their government has been artificially surpressing the value of the yuan to maintain their exports. The min. their gov allows their currency to appreciate they will be able to(finally) consume a larger amount of the wealth they produce, which is going to give a tremendous boost to their quality of life.

    - The free market rewards thrift(savings) and punishes exuberance(I will breifly explain below)

    Exhibit 3: All I have to do is point towards 1873-1896. The largest period of sustained deflation the country has ever seen - 1.7% year over year for 33 years - but it also happened to be one of the largest periods of economic growth. Dispite what the 'conventional' economic logic leads us to believe deflation is GOOD(who likes lower prices?) The misconseption must stem from the fact that during corrections you will typically see very rapid deflation, but these 2 occurances do not stem from the same root causes. One happens due to the competative nature of free enterprise, market advancements, and an increase in purchasing power. The other results from inflationary monetary policy which causes the bidding up goods, services, & asset prices above what genuwine demand other wise would have and results in a required correction or drop in their prices(deflation) to their other wise appropriate levels.

    Exhibit 4: And this is where government intervension really f*cks the market. Dispite what people may think about the word 'profit' it is the prime regulator of the market. No one acts(consumer or producer) with out the idea that the end result will bring about a profit. It is the tool that seperates capitalism from communism(or any form of collective thought) as it is the most efficient way of figuring out where and when to allocate you resources - time, land, labor, capital, ect. - which is a question any system MUST answer. Profit has been the only answer to this question(unless you think bureaucrats can figure out how to allocate millions of products and commodities to successfully satisfy demand while minimalizing waste(profit - LOSS). The pricing system is how the market relays this information to people and their ability to read these signals and structure their bussiness or life to this information(knowingly or unknowingly) is the determining factor between success and faluire(from which we learn)

    - Just think about any government intervension in the market place and using deductive reasoning you should easily beable to extrapolate the unintended consequences that they have - unless you are one who thinks that consumers are idiots who will float through life being taken advantage of.

    This is the only trick, some are born able to maintain their financial stability(regaurdless of incomes), some have to learn through their trials and errors, and some are just dumb(again, regaurdless of incomes)

    The key to a financially stable economy is the financial stability of the individual.

    With out 1 there is no 2.

    #2 is borrowing from # 1 with the promise to pay him back with interest in the future.

    By that I mean, assuming there is no artificial credit expansion in country A, the only way for credit to come into existence is through savings(this is the natural or freemarket way) and it is actually this that maintains stable economic growth. Its when you introduce the artificial or inflationary credit that the bussiness cycle begins.

    Correct. We have squandered our wealth.

    Better question is what are we doing to them.

    Answer the samething our past selves did to our future(current) selves....but we are raiding the balco lab on this one.

    That depends on what the future actions of government will be. At this moment, there is nothing that will stop MASSIVE inflation, we already are experiencing 5% inflation(.4% in feb.) during the largest economic contraction since the great depression(they are going to be lucky) as reported by the BLS' CPI(which is off rip a peice of sh*t, it is probably like 8-9%) those are some serious inflationary forces at work and with the feds recent anouncement it is only going to get worse(wait for the dollar index to hit 20 matched with 15+% inflation) get out of the dollar. Foriegn investment, foreign currencies, metals, commodaties, mining companies, refining companies, so on....and you should be alright(relatively)
     
  9. editec
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    editec Mr. Forgot-it-All

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    wcurro2,

    First of all thank you for responding.

    Sadly what you appear to be doing is telling us what we did wrong in this economy, without actually telling us what ironclad rules we should have followed.



    If you would be kind enough to enumerate those ironclad rules for how nations should maintain their economies, I'd love to read them.

    Let me give you an example of an ironclad rule that might appear to make sense to some of us, shall I?

    Rule 1 - Never let the government spend more money than it takes in as revenue

    Now, does that seem to you to be one of those Ironclad rules that makes sense in EVERY case?

    Or can you see a situation where that ironclad rule might actually not be such a good idea?
     
    Last edited: Mar 21, 2009
  10. wcurr02
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    wcurr02 Rookie

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    The iron clad rule to economics is profit. When ever government acts you can bet your bottom dollar it is not with this in mind. For if we are to understand that profit is an inate characteristic of human action, why should government do what the private sector is already doing? Not to mention the fact that since there is no ownership under government, prices are never set thus even if they try to allocate resources efficiently(profitably) they fail. Why socialism doesnt word 101.

    So if I were to make a list of rules for government to follow(which we have and they dont...constitution) it would break down to:

    Rule 1: Governments only function is to protect your life, liberties, properties, and to enforce contract law.

    Which is actually about the jist of the constitution. A 2 cent purchasing tax would more then likely bring in more revenue then this type of government would need.
     

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