No Pension Recovery, More Loss for 30 Years

When a financial advisor uses terms correctly, give him a listen:

“Either deflation is going to accelerate, which is most likely, or they [central banks] will turn to real inflation, real printing, rather than just credit inflation. Either way it’s disastrous.”

Good, he has money and credit right.  But disastrous for whom?  Just about everyone, since just about everyone in in this pickle:

 “The whole idea you buy stocks and hold them for 30 years was never correct. … The typical investor should be out of stocks and out of bonds and wait for a crisis, and buy during a crisis.”

But our entire patterns, practices and laws are based on this being true.  For anyone who has been deferring income into pension plans, guess what, the longer you wait, the less you get.  Since how and when you withdraw is set by law, you are a sitting duck.   With inflation your money will buy less as it comes out, with deflation it will bu more, but Uncle Sam will them tax is more heavily on the way out, even if it is tax exempt.

People who think medicare or social security will do, well, it is worse off than the pensions.  This from Mish:

My favored scenario is a series of five to fifteen percent declines over a number of years, with smaller and less frequent rallies, where every rally is a trap.
Such a slow bleed would be far more painful to pension plans counting on eight percent annualized returns.

Crash?  It probably already happened.  The damage is done during the boom.  What have we seen?  The slow bleed. The elders are the first to be harmed, and they are not in a position to complain.  This will get around to everyone, no matter what happen on Wall Street or in Washington.  Neither has anything to offer Main Street.  A real estate crash is inevitable at some point, since it is wildly overpriced.  The bottom of the market is not low prices, but no customers.

Don't get in the fight over dwindling assets.  Start creating your own by starting up your own business.

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Distressed Merchandise

A student writes to me regarding a company, we'll call Xcorp, that offers to find buyers for distressed merchandise you might find.  It is a club.  You pay to join.  There is no selling on your part, you just call around, even from a list they give, and find distressed merchandise.

The person inquiring said she found some items, but the XCorp keeps telling her they have not found a buyer.  Why would they?  The game is the club fee, not the service.  After they got your money, they can safely ignore you.  It is a great scam.

First off, there is no such thing as distressed merchandise, only distressed importers. Second, there is already a very efficient system for getting distressed merchandise sold. 

I have in the last 40 years had to liquidate mistakes from time to time.  It happens.  And I know what to do.  I go straight to BigLots. (40 years ago it was AAA liquidating, then it was Macfrugals 20 years ago, now it is BigLots, bless their hearts.)  They will buy every piece of my mistakes, whether I have 100 pieces or one million pieces.  At what price?  Well, say I paid $10 each for my item.  And I have 5000 pieces.  So they cost me $50,000.

BIgLots will look at those 5000 pieces and say at what price can we sell all of them in 30 days?

hmmmmm... say 50 cents each, the can move the 5000 pieces out their door in 30 days at a retail price of $2500 for all 5000 pieces.  $2500 is what they will gross on selling my dead stuff.

Then BigLots will offer me 10 cents each for those, because they need to make 5 times on everything they buy in 30 days.

So they will pay me $500 for what I paid $50,000 for, and they will get $2500 for it.  If BigLots could get more, you know they would, because they want as much as possible.  This is one company I never hear anyone complain about.  Straight as an arrow.

BigLots, as you might imagine, always pays their bills,  first rate company to work with.

Can I get a better price elsewhere?  Never.

You mean I am taking a $49,500 loss?  Yes.

Is there an alternative?  No.

Why don't I offer it on sale to my regular customers?  I said 'No!"  My customers want to buy new, not dead on sale.

Can't I sell these at flea markets or craigslist or ebay and get more?  No.  first you are not in that business of selling on eBay.  Second the time and effort to sell the $50,000 will be more than the "more money" you might ever get.  You job is to rip the band-aid off fast.

I bless my lucky stars there is a BigLots to buy my mistakes.  When I have a dead item, they move it at a very fair price.  They take it all, I no longer pay rent and insurance on a dead merchandise.  The $49,500 comes straight off the bottom line, so my taxes are lower, but I learn from my mistakes or fire who needs to be fired.

Never hope the market changes its mind, and hope a dead product will sell.  Better to rid yourself of it instantly.  Then put that $500 back to work.

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Small Business To Save Poland?

Heres another Bloomberg/ Businessweek article:

With Poland’s economy in its worst stall since 2001, Zdzisław Polański, 64, is betting the farm at an age when most entrepreneurs are thinking about calling it quits. He’s planning to invest $10.3 million—about four times his annual sales—to build a new food packaging plant alongside the 1970s prefab facility he leases in a forest near Warsaw. Sixty percent of the funding comes from a European Union loan. A new production line, chemical and microbiology labs, and equipment for making and testing coatings and inks are Polański’s answer to sales that haven’t regained 2008 levels and the squeeze retailers have put on his customers for price cuts.
“If I don’t do this, there’s no chance for the company to survive,” says Polański, a lieutenant colonel in the communist-era air force, who took over his wife’s wrapping-paper business in the post-transition slump of 1990-1991.

False dilemma.    A loan or death?  I don't think so.  The world is swimming in excess packaging production capacity.  he ought to tap into that before he borrows ten million to speculate with taxpayer's credit.  Since it is easy to speculate with taxpayers, he does.  And he misses a more rational business move.

Contrary to this one unfortunate example, Poland's small biz is saving their economy.

The resilience of small and midsize manufacturers such as Polański—counterparts to the German Mittelstand companies with which many do business—is the one bright spot in Polish industry as the euro area endures its second prolonged recession since 2008. Exports are the only reason the economy grew in the fourth quarter, and they’re still expanding 7.5 percent in dollar terms in the first quarter of 2013.

Plenty of people know what to do, and must be doing it.  I see it at the Asian trade shows, crowded with young people from around the world, except from USA.  We have a terrible combination of entitlement and ignorance.  The pendulum needs to swing back to more freedom, which means less false security.

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We Need Cascading Cross Defaults NOW!

The worldwide capitalist system is creaking and splitting and the minions are aflutter as the dragons on the commanding heights breathe fire and threaten death and destructions if they are not bailed out.  The technical term for the putative danger is cascading cross defaults.

The heart of the problem is usury, a term euphemized as "interest" that is at the heart of the damage being done.  The bad guys want to keep this going, and people of nominal good will want to believe the bad guys would do them no harm.  Western capitalism is dependent on Stockholm Syndrome citizens.

What would happen if we just defaulted on the debt?  Then those benefitting from the abuse would simply not be abusing anymore.  Here is an example from history.  After the Babylonion captivity, Artaxerxes gives Nehemiah leave to rebuild Jerusalem.  The surrounding peoples are not pleased with this, so the Jews are obliged to be half-armed and half-working.  Under these harsh circumstances, what is Nehemiah's greatest challenge?  Usury.  Nehemiah Chapter Five:

¹ And there was a great cry of the people and of their wives against their brethren the Jews.

² For there were that said, We, our sons, and our daughters, are many: therefore we take up corn for them, that we may eat, and live.

³ Some also there were that said, We have mortgaged our lands, vineyards, and houses, that we might buy corn, because of the dearth.

⁴ There were also that said, We have borrowed money for the king's tribute, and that upon our lands and vineyards.

⁵ Yet now our flesh is as the flesh of our brethren, our children as their children: and, lo, we bring into bondage our sons and our daughters to be servants, and some of our daughters are brought unto bondage already: neither is it in our power to redeem them; for other men have our lands and vineyards.

⁶ And I was very angry when I heard their cry and these words.

⁷ Then I consulted with myself, and I rebuked the nobles, and the rulers, and said unto them, Ye exact usury, every one of his brother. And I set a great assembly against them.

⁸ And I said unto them, We after our ability have redeemed our brethren the Jews, which were sold unto the heathen; and will ye even sell your brethren? or shall they be sold unto us? Then held they their peace, and found nothing to answer.

⁹ Also I said, It is not good that ye do: ought ye not to walk in the fear of our God because of the reproach of the heathen our enemies?

¹⁰ I likewise, and my brethren, and my servants, might exact of them money and corn: I pray you, let us leave off this usury.

¹¹ Restore, I pray you, to them, even this day, their lands, their vineyards, their oliveyards, and their houses, also the hundredth part of the money, and of the corn, the wine, and the oil, that ye exact of them.

¹² Then said they, We will restore them, and will require nothing of them; so will we do as thou sayest. Then I called the priests, and took an oath of them, that they should do according to this promise.

¹³ Also I shook my lap, and said, So God shake out every man from his house, and from his labour, that performeth not this promise, even thus be he shaken out, and emptied. And all the congregation said, Amen, and praised the LORD. And the people did according to this promise.

And note the sanction for those who do not go along:  Ostracization.  Necessary and sufficient.  You starve to death if you try to enforce you usurious (interest) contracts.  What will happen if we simply default on these abusive contracts?  Cascading cross defaults, with absolutely no harm done.  it sounds scary, but like most water rides in an amusement park, after the first time, you'll want to do it again.  Yippee!

Once people realize that usurious deals can be repudiated with no effect, it takes a long time for usury to re-emerge.  Even states outlawed it for a few thousand years after that.  But about 200 years ago it began to get legalized.  And the last 100 years were the bloodiest ever know to mankind.

To effect the benefit of cascading cross defaults, we do not have to make a law, we just ostracize anyone who insists on being paid.

Why have you never heard of this passage in the bible before?  Is it because the preacher man is bought and paid for, or at least taxed into oblivion if he touches a political topic?  It is because the faithful are syndrominally Stockholmish?  Who knows?  But there is a simple and easy solution at hand to our economic straits.  Cascading cross defaults.

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Bankrupting Government Pensions

This is how it works:  Police, fire and other unions endorse the candidates that will give them raises at the next contract time.  Over the years, public-employee union members saw constant sweeteners to their contracts.  Such sweeteners cost the politician nothing.  It was a deal in which the Government unions and the politicians agreed taxpayers would pay all costs.  The people inside of government agreed the people outside of government would would pay.  There is a rule against this, it is called thou shalt not steal.

That rule you can violate, because religion is voluntary.  There is no way you can violate the rules of economics.  That which cannot go on will eventually stop.  The costs of police and fire in San Bernardino have resulted in that city joining the growing list of cities filing for bankruptcy protection.

In bankruptcy a judge overrides all of the earlier agreements, based on the arguments of creditors.   The Government pensioners are not going to get zero, they will be awarded, on paper, something, some percentage.  Say 60%.  In this way San Bernardino can limp along.  Until such time as they cannot afford that.    Since no Government entity at any level is addressing the economic concerns facing us, there is no way our economy can improve.  In fact, they are making it worse, for in total breakdown the State becomes more powerful.

But we see here the results of what I've been talking about since 1982: unfunded pension liability.  Political action in Wisconsin wherein the powers that be begin to make Government workers pay some of their costs (since Government workers pay no taxes, it is really just a pay cut.)    So pay is reduced, and there is no logical limit to that.

Another is that cities go bankrupt, and obligations are reduced.  There is no rational limit to this.

Another is the powers that be inflate the currency, lessening the buying power of what checks show up.

Between the two, there is a viable balance, for a time, struck.

Pensioners adjust to tightening circumstances, downsizing homes and selling off summer cabins, travel less, replace things less often and buy Alpo at Costco.  It is a downward spiral.

Without a cut in the size of the state, a cut in taxes, a vast deregulation or a narrow deep unregulation (banking, medicine, education...) there will be no growth for anyone.

Start a business and begin the process of reviving the economy.

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Visiting Trade Shows From Home

Amazon.com has something called MyHabit.com, a push service for businesses, I suspect mostly small businesses.  It is heartening to see all of the he companies and products.  Since it feature so many products so often,  it is like walking through a trade show.

You see so many products that are like other products, says shoes, but are competing on design.  You see so many ides, you may get your own, plus you cans see what is being done and therefore, you should not do it.

I suspect these are also overstocks, so the prices may be low, but in any case you can check right there on line for the other prices and get a sense of what such products do sell for, at retail.  Well, Amazon says $190, normally $950. A men's version sells at NM for $1095, so $950 sounds about right.

Amazon should be tighter on its inclusions though, because I have seen claims made with these occasionally that cannot be true.  I have no doubt Amazon would back up any complaint 100%.

This service is too new to figure out its impact, but I don't think it will do much but help makers be better at getting production right to meet demand.  The other thing is we cannot have an economic recovery without falling prices, and these represent falling prices. Good on Amazon.com!

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How Recovery Happens

Mish has a story on a 55 room Irish seaside resort, that was sold at auction for $6 million a few years ago, and sold again of $860,000.  Auctions are normally for distressed owners, so whoever thought the price at $6 million was good, calculated wrong and had to take quite a haircut.

The buyer, who no doubt was smart enough to save money during the boom for just such an eventuality, announced he can keep the 25 employees on staff.  No doubt...  At $6 million the 55 rooms cost about $110,000 each, twice what a standard city hotel room costs in USA.  At $860,000 the rooms are a little over $16,000 each, about a quarter of the going cost.  The new owner will make better profits than his competitors charging less for comparable rooms.  When more dollars chase goods, we call it inflation.  When fewer dollars chase goods, we call it deflation.

Deflation, which our government works hard to fight, is a very good thing.  Yes, the person who foolishly paid 6 million for the hotel is no doubt out some money.  Perhaps a Warren Buffet is down $5.5 million.    But 25 people, make that 26 with the owner, are gainfully employed.

What we badly need is more of this.  This is an important aspect, facet, of recovery.  The sooner interest rates hit a natural level and the banks are no longer enjoying a continuous bailout, the important work of recover can begin.  The powers that be are counting on a new war to change the topic.  That usually works.

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Good News For Apparel Importers

Mish Shedlock has a graph that seems to show massive inflation and dropping demand for apparel in the USA, starting about Oct 2010.  If so, this is great news for anyone starting an apparel business, because those importers with fixed overhead and debt to service will find they cannot stay afloat under these circumstances.  Otherwise perfectly viable businesses will fail, creating a vacuum for new businesses, with lower overhead (your business) to come in and fill the void.  This will help prices drop, and we cannot have an economic recovery without massive falling in prices, wages, costs, taxes, etc.  Don't feel bad, plenty of people knew what was going on, so anyone failing had it coming.  They can start up from scratch, just like you are.

But there may be another interpretation of the graph, and that is, clothing importers are going up market.  The graph shows the price per M3 of fabric garments...  it does not show the quality of the fabric or the complexity of the construction.  I do not know the answer to this question, but one could find out by studying the HTS and NTDB trade data.

Either way, it is a good time to start up.

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A Case Study In How To Save The USA Economy

I advocate deregulation for saving the USA economy.  Now the that government has announced the taxpayers will lose even more on the auto industry bailout.  Here is the justification:

"In 2009, the government initially forecast it would lose $44 billion on its auto industry bailout. It revised it down to $30 billion, and later to as low as $13.9 billion earlier this year.The administration and President Barack Obama have argued that any losses on the auto bailout were worth the hundreds of thousands of jobs saved."
From The Detroit News: http://detnews.com/article/20111114/AUTO01/111140434/U.S.-boosts-estimate-of-auto-bailout-losses-to-$23.6B#ixzz1dtSke9ax

But those much heralded reductions have proven to be, like most government claims, nonsense. There is an alternative degenerate bailouts, and an excellent example of how USA could turn the economy around.

Big Auto enjoys massive support in regulation and subsidy.

1. You cannot buy a car in USA from the factory, you must buy it from a dealer.  This allows the industry to control the market.

2. Government auto regulations require unnecessary features that add huge cost to a car.  The features are patented, so their prices are too high as well as mandatory.

3. The government has regulations on what a car can burn.  To support the Iowa corn growers, cars must burn ethanol mix, which causes cars to degrade quicker than usual.  This means cars will not last as long, so we need to buy cars more often.  This is an indirect subsidy to the auto industry, and means no one can recommend "no ethanol" in their cars and compete with Detroit on that basis.

4. The USA auto industry pools patents and you cannot make a car without the permission of the USA auto industry, because you will necessarily violate patents, especially on the nonsensical required safety features.  If you play the game and try to license the patents, you will find that the more you sell the more your competitors make.

5. Ally Bank is GMAC now that the government took it over, bailed out GMAC can continue to lose money financing cars.  A start-up will enjoy no such subsidy.

6. Workers ought to be free to unionize, but USA Labor Relations rules reward management that agrees to unsustainable conditions, with a guarantee that big auto would be bailed out. Today the pensions are guaranteed by ownership of a failing company.  Labor laws only require people meet and confer, not meet and agree.  Nonetheless, Big Auto agreed to impossible-to-sustain benefits because they know they would never be responsible for them.  

So what to do?

The programs would be -

1. Scrap the dealership rules.  Anyone can sell anything they make wherever they want.

2. Insurance companies decide what they want to see in a car, not government regulators.  Let buyers consult insurance companies on which car is best.   If the insurance companies know that airbags make things worse, or first responders hesitate around electric cars, then let the buyers know that and not be obliged to buy expensive and pointless safety or deleterious efficiency features.

3. Dump all regulations on what a car burns.  Right now the auto industry simply meets govt standards, and quits trying. Private industry will come up ever better more efficient power plants, because when there are no regulations, industry exceeds them in competition with each other.  Along these lines, let the courts return to the rule of law and property rights.  Let litigants sue auto makers for violating the "bundle of rights" that come with land ownership under common law.  Watch auto pollution disappear.

4. Eliminating patents in USA is desperately needed, but is not going to happen.  Happily for the auto industry, there is an excellent case for open sourcing all auto patents. The USA taxpayers own all auto companies in USA.  (Don't believe it? Withdraw government support of any company that disputes it.) Since we own the auto companies, we can agree to open source the patents.  Then people can make cars for what they cost, not what they have to pay over to billionaire welfare queens in Grosse Pointe.

5.  Liquidate Ally Bank.  In a free market those cars will get so cheap people will pay cash or put it on a credit card, like we do with computers, which is a relatively deregulated market. An iPhone today has more computer power than NASA had when it put a man on the moon, and it can do far more.  So it would happen with automobiles.

6. Unions are private associations and government should have no part in their activities.   There is no such thing as an outrageous union demand, only outrageous management concessions.    People say, "there are unions, therefore there are problems."  In fact, "there are problems, therefore there are unions."  Well managed companies are not unionized, because the treat workers fair.  The best place in the world to make autos right now is Detroit.  There is no place on earth with so much talent and skill concentrated from auto design down to factory assembly.

I've seen what freedom can achieve in Hong Kong.  I've been in the factories of our competitors around the world.  I am an importer by profession.  We, the USA, can beat anyone anywhere, in any field, if we are free to do so.  We are not, and that is not going to change.

There is no way that USA could ever act on this opportunity.  What might work is for USA to create a Hong Kong in the Detroit metro area.  One Nation, Two Systems.  In a free market, all of that talent would re-associate into the most awesome automakers in the world.  We've seen it before, but we cannot do it with our present system.  We need an alternative:  Freedom From, Freedom To.

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Solution: Legalize Falsified Appraisals

Not.

Circa 2005, at some exotic location, I was at a table of top performers for Washington Mutual Loans.  They were all planning their exit strategy from WaMu, into retirement, based on their rate of income, which would never decrease, since housing prices never went down, and it did not occur to them that interest rates might go up, or worse, banks might stop lending (or tighten requirements.)  In any event, they were super-successful based on native talent, and no external forces were going to get in their way.  Every one of them, and it was true, could command a signing bonus with any other bank. Countrywide had approached every one of them. I offered that Washington Mutual would be out of business before any of their dreams could come true, and their options with it.  It was an easy prediction to make, because 100% of WaMu business was based on a false economy, and at some time the boom would bust.  At that point plenty of people were predicting the bust, on solid grounds.  This information was available to anyone who wanted it.  Extremely few wanted it.

Stories about foreclosures being 100% of the market like this were easy to predict.  It will get much worse.  I am no financial adviser, but if anyone asked me, I'd say get out of "paychecks, property and pensions" and into means of production.  Take money from the one and put it into the other.  (Have nothing in stocks or bonds, which is either property or pension). Any tax and penalty hits today will be nothing compared to future taxes and losses.  Better to have $100,000 in beehives on rented land today than $150,000 in a pension.  Have something you trade in.

Don't plan on bugging out, because things are worse overseas, and if it gets bad, it will be easy to blame the American, where you are the only American.  Especially if your income is pension money, and the locals love you for your money, and your money stops coming in, why, they will no longer love you.

One of the most terrifying phrases I ever hear is "John, I think you are right..."  None of us has the whole picture, and I am especially happy to hear from people who disagree.

But for the economy to improve, prices must fall.  Indeed, in a properly functioning economy prices are always falling, as options widen.  So getting out of property pensions and paychecks is an act of confidence in our recovery. It will take at least 30 years to get out of this mess (as long as it took to get into this mess) and that is too long to watch your paycheck, property and pension shrink.  Get over to production, but own it free and clear, so as prices for your items drop too, it is ok, because the prices on everything else is dropping as well.

And another phenomenon is crimes are converted to government policy in due course.  One factor contributed to the housing debacle was falsified house appraisals, a very wide practice during the housing boom.  Appraisals mopped up what "money" was available to the borrower. Q. "What is the appraised value of the house?"  A. "How much money do you qualify for?" Now comes a legislator who desires to make the falsification of appraisals a legal requirement.

After Ponzi made famous his scheme for swindling investors, the United States Government introduced the Social Security program, in design and fact a Ponzi Scheme.  What was illegal for Ponzi, is legal for Uncle Sam.  Madoff did the same and is off to prison.    While Christopher Cox was responsible for policing people like Madoff, and private citizens were demonstrating Madoff was a criminal, the SEC was unable to perceive any Madoff wrongdoing.  There is a very simple reason for this:  Christopher Cox's entire adult life was working for the government.  If governments run Ponzi schemes, they must be good.  In this foggy state, Cox cannot perceive that what Madoff is doing is wrong, since Uncle Sam does the exact same thing.  Government regulators simply cannot tell right from wrong, for the internal contradiction would be overwhelming.

As a matter of power politics the scheme cannot be stopped, but in terms of results the outcome is exactly the same.  People get hurt.  Had Madoff been subject to the market he would have been brought down very early, or perhaps he would not have tried.  But as it was, Madoff could count on hiding behind the morally obtuse (and economically ignorant) SEC to advance his ponzi scheme.  People got hurt.

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Escape To Anarchy

I am reading medieval history and delighted with the stories of Roman citizens fleeing to the barbarian lands to get away from Roman "order" in early medieval times.  Escape to anarchy!  They may start over with nothing when they get there, but at least they will be free to build something good, even if from scratch.

Here is a fellow who has a widely followed website on how to break free from the USA.  He hides his true identity but he vaguely suggests his background is in intelligence work.  As usual the comments are better than blog articles, and in this one a fellow objects to people escaping the USA.

Aside from the possibility this website is collecting info on people who desire to escape the USA for the USA (doubt it, did you know Gloria Steinem was a CIA asset?) if things go bad for USA and around the world, about the last place an American is going to want to be is outside the USA.  If you are rich and American, expect the locals to disappropriate you.  Who are you going to get to help you, Uncle Sam?  If you are poor and outside the USA, you will learn what it is like to be black in USA.  Uncle Sam is looking forward to shaking down Americans returning home after escaping.

Let me explain a very important point:  those people overseas who were educated in USA in the 70s 80s 90s got advancement over any locals in business and government.  Envy followed.  Now that the USA has generated such disaster worldwide, those people who benefitted from their USA association are now on the defensive.  They must be doubly anti-american as a matter of self-preservation.

Badmouthing USA yourself will do not good.  It only makes things worse, because if you know our policies are bad, why are you not resisting?  My strategy is to point out we small merchants are disdained wherever we go, I've got enough problems without having to answer for Uncle Sam?  (I was very happy to be able to explain I refused to join in the US invasion of Vietnam as a conscientious objector.  When I explained the difference between a draft dodger and a conscientious objector, that was a real head scratcher.  "You mean, you do not have to go to war, even in a draft, but they came anyway?"  Yep.)

Escape to Anarchy happens when the capitals are looted by invaders, very extreme stuff.  The Ming army opened the gates of the Great Wall to let in the anarchic Qing to rule China.  North African Christians welcomed Moslems to overthrow Roman oppression.

As Dr. Hans Sennholz advised, the powers that be have very many options to exercise before "the end" before escape to anarchy is preferable to staying put.  Right now you can "escape to anarchy" right here. Just get self-employed.

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Teachers First, Cops, ATC

This rash of stories about air traffic controllers and deleterious duty has me suspicious.  it doesn't just happen coincidentally that air traffic controllers are misbehaving.  If they are now, they always were, but before people let it slide.  It sounds like a crack down to me.

I know three teachers with seniority, one making $80,000 per year teaching grade school, and the others nearly as much, but not as much seniority.  After countless years of top ratings, they are being written up for infractions.  Two of them have ended their careers.  The third hopes to navigate the waters well and keep the job.

Cops are being portrayed in a negative light with increasing frequency.

Four kids can be hired at $20,000 each to replace one $80,000 teacher.  The powers that be are going after their expensive factotems.  Where will these people turn for help?  The republicans?

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Natural Law Solution To The Housing Crisis

I am reading Norman Cantor's Medieval History and came across a trend he points out from the violent 900s...  as Europe began to organize, churchmen with large holdings (read the book to find out how they got them in the first place) would rent out lands the churchmen could not profitably work themselves to peasants.  Cantor suggests this practice gave an idea to the dukes and kings, who in turn perfected the practice into enfeoffment. (I have his 1969 edition, which is not available on amazon, but his updated edition is.  Read the reviews.)

Natural law says what you can work is yours.  The flipside would be what you cannot work is not yours.  That is to say if you have something to which you have title, and you cannot profitably work it, it is free to be homesteaded by someone who can.  Now the law does not work that way, but perhaps it should.

We actually recognize people legally assuming unused real estate in USA property law, what we call adverse possession.  Say you and I have contiguous lots, and one day I put a barn on your lot, which you cannot and do not use.  I do not have your permission.  Everyone can see what I am doing, and you should notice.  Well after ten years (in most jurisdictions), that portion I am using is mine, it is not yours anymore.  In fact, even if you continue to pay property taxes, it is not yours.

Adverse possession developed in common law to settle the problem of title disputes, it is not a means of land reform or redistribution.  But why not use it as such?  For example, banks are sitting on a large portion of 19 million empty homes in USA, make a law if you live in a house for a year under adverse possession, it is yours, free and clear.  Of course this would introduce chaos, but we have chaos now.  What it would do is allow taxpayers to get something for the bailout money we forked over on these houses, and lower property values and taxes possibly enough to clear the decks enough to restart the economy.

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Hedging By Being in Business

When pensions won't cover anywhere near costs, when inflation is killing your ability to pay, to have a significant portion of your warehouse devoted to things people need and want will prove a great hedge.  Organic tinned imported fresh butter will shoot up in price just as everything else does. And you can always trade butter for something you need if cash is not possible. It seems to me that a fundamental part of any asset allocation should be something devoted to self-employment.  If and when things go more south, to have something to trade.  Anyone with any money should be in some sort of business, too. Is it not true, that in addition to what investments you have, you also maintain a small business selling ideas?  A renaissance in small business is not just a good idea, it is a part of the solution to our current woes.

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Retirement Age

Of course if you are self-employed, you are doing what you love, so retirement comes when you grasp your chest, wheeze, and drop dead mid-sentence.  Tag 'em and drag 'em.

California next year will owe 550% of its budget in pension payments.  At some point taxpayers will say no more.  Oregon has gone stagnant over two decades in taxpayers jobs, while doubling tax-paid jobs.  Ouch!  Private industry has been talking about this at least since 1982, as I recall unfunded pension liability being the "strike issue" of the longshoremen against us importers in the master contract negotiations that year.  The problem was a crisis that had to be solved immediately.  Ha! The can got kicked down the road for 30 years...  maybe finally it does not get solved, just society tears apart.

For people with a government pension, there is simply no way they will collect on it.  they may have the numbers they were promised on a pice of paper, but either those numbers no longer by what they did before, or what they want to buy is either worth less or unavailable.  Where you could afford meat, later it will be Alpo-ish.  Think of the Soviet health care system: single payer, no charge, heavily staffed.  The health care plan of every Soviet citizen was: don't get sick.  People stored their own bandages and syringes for fear of infection should they need help someday.

There will be no wipeout of any single party... there will just be general, relentless grinding down, ala the soviet union.  If true, what to do?

Well, there will be no living on a pension.  Work will be required to survive.  Govt work will be less and less be attractive.  So, pensioners will ned to find work.  If you have a govt job not done in the private sector, better quit now and get an education.  Start over.  Get ahead of the legions of unemployables that will be released from govt service.  Scary!

If you do work that is actually done in the private sector, start a business now.  The only way to defend yourself against the coming allocation of debts and losses (the assets have already been allocated away from us) is to be self employed so you can make the serial adjustments necessary to live an prosperous and healthy life.

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Here's Your Ticket, Pack Your Bags...

Time for jumping overboard... as David Byrne sings in Burning Down the House.  I saw him last Summer in Seattle, and anyone can play his songs... he had a street performer marching band from San Francisco back him up on the same tune in Seattle.  What I also like is he started his concert saying "Any recording of this concert is strictly forbidden, please only put flattering images of me up on the web."  Very funny libertarian.  Byrne's lyrics are text collages, and his music is compelling.  he too seems to pick up on the zeitgeist.  So what does this have to do with time for jumping overboard?

May I recommend some history reading, about what it is like when things that cannot go on, stop going on?  The first is the Forsaken Army, and English translation of a book by Heinrich Gerlach, a Wehrmacht soldier who made it out of Stalingrad.   How do people behave when it gets really, really bad?

The next is the Twelve Caesars, but Michael Grant.  OK, so Suetonius covered this topic, but Grant, a Numismatist, has something unique to offer... emperors put epigrams on their coins, which expressed clearly exactly what the emperor wanted to say.  It is amazing how such a narrow field can offer so much to history in general.

Josephus saw which way the wind was blowing and went to work for the Romans as they destroyed Jerusalem.  His Jewish Wars should be essential reading as part of the library of anyone interested in history, especially when it is time for jumping overboard.  With these witnesses, you are better able to assess for yourself what is going on today.

Remember, we are witnessing the end of only a system, not the system.  If we like, w can come up with one that works, is sustainable.  In the meantime, keep your eye on what matters, a loaf of bread, a jug of wine, a little salami, cheese...good friends...  like these two friends...

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Alan Checks in On a Post

 Alan is responding to this post...

Hi John,
  My first thought upon reading through this thread is if s/he built a 1/2M business why is there so much urgency to move to a small import/export business?  Did he lose the business or just wants a change or it isn't making him as much income as he needs?  Also, did his spousal arrangement change?

I can relate to what he's saying though.  You look at your bank statement/investments, see the balance steadily declining and every day that goes by the pressure mounts to do something, but you're paralyzed fearing that you'll make the wrong decision and be in an even worse situation than you were before.  You have daytime nightmares of ending up on welfare or in a shelter, you drive by the poor side of town and think that maybe you'll be there in another year and could you survive?  Worse yet, if you have dependents who look to you for their comfort and security, you fear letting them down.  What would happen to little Joanne if you couldn't afford her braces, tennis lessons and organic food and she had to live in an apartment on the wrong side of town and walk to school dodging winos passed out on the street?  I know it sounds extreme and it would probably never come to that, but the papers/news have stories just like that, albeit to a very, very small minority of people, but you think "that could be me".  It doesn't help when "everyone" knows that 4 out of 5 business fail within the first year (at least that's the adage).  

I found that there's a word for this, peniaphobia, fear of poverty and I think people like your correspondent (and myself) have it to one degree or another, not because we're born with it, but because we fear that poverty is just around the next corner if we make the wrong decision.  Fear of failure, lack of confidence, poor self-image all contribute to it and you find yourself paralyzed, unable to make a decision.  Under those circumstances, the cog in the machine job that you hate and is killing you with stress seems like the lesser risk.  So, you stay working for someone else, dreaming that there's a better way, knowing there's a better way and seeing people like you, John, who have successfully found it, but still being unwilling to take the risk ourselves.  I think your correspondent is right at that point or near it and that's why he wants a rock solid guarantee that he'll be successful before he makes a decision to try.

The need for a business loan is separate issue related to the urgency and expectations of income, I think.  I saw this in your class last Spring, students who were looking for the big score and wanted to go out and borrow $100,000 to start their business off.  As you noted then, they probably had little chance of getting an unsecured loan for that amount, there was a lot more risk involved and the profitability wouldn't necessarily be any greater than making repetitive smaller transactions.  I think those students had gotten ahead of themselves, they were already thinking of what they could buy with the profits rather than thinking of how they could start and grow a small business from scratch with the smallest amount of risk.

Your correspondent mentions that there is "no money" to start the business.  You talk about $5000 as a starting point.  My reaction is that $5000 does seem like a good starting point and if your correspondent doesn't have it then it makes sense to stay in that dead end job for another year and couple it with more frugal living until the $5000 can be saved.  It doesn't fit into your correspondents "urgency" timeframe perhaps, but there is a low point where all of the advice in the world isn't going to solve all of the obstacles within an urgent timeframe.

Let's suppose your correspondent is in a situation that a lot of people reportedly find themselves today; they've lived lived beyond their means for many years and now must pay the piper, but have so much debt they can't.  I don't know if this in anyway related to your correspondents situation, it's just a suppose scenario.  I don't have a lot of sympathy for them and perhaps that makes me a "bad" person, but while they were enjoying their fancy car, flat screen TV, expensive vacations, state of the art cell phones and dinners out, I was saving my money and paying off my condo and car loan.  To those people, including your correspondent if he is in this category, I say get on Craig's list or eBay and sell off the luxuries and then sell off the almost luxuries and then sell a little bit more.  Sure, they probably won't get near what they paid for them, but they can't be choosy in dire straits.

Just getting rid of cable and cell phone service for a year is probably, what, $1200 or so?  Sell off the plasma TV for $500, go to the library instead of buying books at Borders, go to Safeway instead of Whole Foods and make meals at home instead of going out.  Trade the expensive car in for an older less expensive model even if it isn't stylish and stop buying clothes unless it's because your kids are outgrowing them and even then check the Goodwill and all the sales and buy cheap, non-designer labels.  I bet that $5000 would come a lot faster than your correspondent thinks.  It's just that too many people can't imagine living without an expensive cell phone package, an XBox and cable.

You've said a lot of this in your responses to your correspondent, but he doesn't seem too convinced.  I do have some understanding of his plight because of my own fears and lack of confidence and I have them even though I do have $5000 I could risk.

Alan

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Start Up Concerns

K,

Last week you pressed a line of inquiry, and I want to make sure you got my point, especially since it relates to something I was discussing with a  colleague in Hong Kong. My colleague in Hong Kong offers seminars to lucky folks who had a million dollars given to them, and are charged with starting a business.  The attitude on the part of those with the million dollars is, “I’ve done the hard part, the money, now you do the easy part... show me a business at which I can be successful...”

The problem with this attitude is the money makes no difference whatsoever.  We need customers, not money.  Customers are the most important thing in business, and getting the product (or service) right is the hardest thing.  These two aspects take “you,” not money.

If you get the product right, you’ll get the customers.  The money will follow.

If you have no money, you can join the billions of people since the beginning of time who started business with no money.

If you have money, you still must go through the process, the same as people with no money, to get your business going.

Coca-Cola put one billion dollars into launching a re-formulated Coke.  Total bust, one billion dollars gone.  The dot-com boom saw new companies financed with billions, the vast majority of which failed.  The fellow who started Kinko’s with no money but a few rented photocopy machines is now a billionaire.

Products and services are solutions to problems.  Companies are formed to solve problems for others.  Your company starts because you experienced a problem, and you came up with a solution.  In English we use the Greek word “passion,” which means to suffer, for those who start a business.  We suffer a problem.  You’ll hear people talk about the need for passion to be in business, but there is one more part as well, and with the passion is the joy of working on the problem, the solution.  For the business person, suffering and joy are operating at the same time.  The suffering gives us the impetus to start the work, the joy gives us the delight to continue it.  But a key point to realise is all this suffering and joy is extremely personal, this is based on you, who you are.  

This may seem strange, how can suffering and joy happen at the same time?  We usually think it is one or the other.  Well, women will tell you childbirth is suffering and joy.  The closest men ever come to childbirth is starting a business.  Be ready to take the pain, to suffer.  But there will be joy in equal measure at first; then the pain ends, the joy continues.

As the product is developed, you offer it to customers.  Now “you” are critical here too.  You interact with customers, who in turn give feedback and criticism that helps you grow.  Again, who you are as a person will determine how well you work wth customers.  And as you meet and learn more about your customers, you will be given the opportunity to grow in character and skill. You first success is getting to a point where your offer is good enough to get enough customers to cover a suppliers minimum production requirement.  After that, self-employment is a pas-de-deux in which you ever improve your offerings to customers who ever advise you on improvements, an upward sprial that takes you somewhere between where you are now and sitting to the left of Li Ka Shing.  (Or who knows?  To his right!)  For everyone, rich or poor, this all starts in the same place, a solution good enough to cause others to want to buy your solution.  But that starts with you, not money.  This is true in all places and all times.

And here is another key point: the very act of being self-employed engenders a personal transformation. Whereas an employer will gladly overpay you for one specific repetitive skill, self-employment urges you to develop every talent you have, and learn your hopeless weaknesses too.  And then you find yourself farming out the impossible, and weighing cost/benefit analyses on your possibilities, within the contraints of mortal time.

Another problem is we see someone else apparently successful, so we decide we want to copy his success.

Since these businesses are built on an individuals unique array of skills, experiences and psychological make-up, (especially as to how the entrepreneur relates to his customers) no one can copy anyone else's specific business.  Each business is utterly unique, so any one business is useless as an example.  There are countless coffee shops in USA, and countless noodle shops in Hong Kong.  Nonethelss, we have one we prefer, because even a coffee or noodle shop will be in some way unique.   I make the example of Martha Stewart, whose offer seems simple enough, as illustrative of how no one can copy an original.  Every newspaper in USA weekly ofers for free what Martha Stewart sells. But there is only one Marth Stewart. People believe Martha Stewart is a billionaire making the dining table more attractive.  Wrong.  Martha Stewart is a billionaire teachng how to make an attractive table easy. You’ll probably have to reread that sentnence to catch the subtle difference, but the difference is worth a billion dollars.(Also, small businesses tend to die with the owner... and I would never recommend buying a small business.)

Martha Stewart, Calvin Klein, Li Ka Shing are not rich because they are smart, they are rich because they can listen, especially to customers.

My business activities are ordered to accomplishing my goals.  There is no possible way my goals and yours match, so even if one might copy my business activity, and even if following me specifically might yield the same results, you would likely be miserable as can be living my life, since it is ordered to me, not to you.

Take one small point: take home pay.  Some judge success by take home pay.  Self-employed people generally want as little take home pay as possible, for a couple of reasons.  First, there is no rationale for paying taxes (Senate Majority leader Harry Reid says in a taped interview taxes in USA are voluntary, and he is right), so they are to be avoided as much as possible.  Take home pay is taxed at the highest rates.  Second, there is little outside of business that the self-employed, properly oriented, are interested in.  Or, stated another way, there is little that cannot be attributed to business activity. Therefore, almost all time and money is spent within the business, pre-tax.  If your goal is to make a lot of money, you will be working with the Feds against yourself.  If your goal is a certain lifestyle, then self-employment is the mostly likely means.  Given the descent of the USA into kleptocracy, this is more true than ever.

Another aspect of entrepreneurship is, as a process, whether it is up to you to "succeed" on your terms.  There is a seminal book out there by Thomas Sowell called the Politics of Economics of Race.  He may have coined "cultural capital" but certainly uses it, in this context to mean people who build up the know-how in certain areas.  It occurs over time, if not centuries.  Families store up cultural capital generation to generation.  It may not fall to you to be "successful" on your terms, it may be that your role is to accumulate "cultural capital" that is passed on to heirs who exploit it to do remarkable things in business.  If your goal is money and that is just not in the cards, then you'll be miserable indeed.  If the goal is solving problems and living a certain lifestyle, then it does not matter what the money is.

Very often I hear people are afraid to start their own business since they will not have employer-provided health care.  A perceived imperative to have health care is a conditioned reflex.   We are trained to believe we need this. Once we believe it, then we get caught in a false dilemma: Unless I am an employee, I will not have health care.

First, employer provided health care must be what the government defines as health care. Since these definitions are political, what an employer offers in the way of health care is not really healthy, and care is no part of it.  

No where are injured people dumped on the street for lack of money.  If it were true, the first thing you would do is start a business so you never lack the means to pay for health care.  If you have no health care, you will still be attended.

Health care is diet and exercise, and completely up to you.  Broken arms, pneumonia, and a bad rash require medical intervention, and these might cost a few hundred dollars, if you have to pay cash,  if you should be so unlucky.   Such is life.  Some catastrophic injury could costs hundreds of thousands of dollars, but catastrophic insurance is cheap, since such catastrophes are rare.  It is hard to overcome a conditioned reflex, a belief you need something.  You can live without health care.  Even with health care, you can die.  Don’t let this false dilemma trap you.

If not health care concerns, you may have others.  Hard times bring up tough questions.  What make times hard is the anxiety of not knowing.    “Where will the rent come from?”  “My kid needs to see the dentist.”  The employed go to the boss and get an advance on wages when such problems arise.  The self-employed move out of their home into their warehouse, cut a deal with a dentist.  It’s just business.

But what money there is all depends to what extent you serve customers.  That starts with you, and you know the drill:  experience "why dont they just, 2. good idea does not exist, 3. enough orders to cover a suppliers minimum order requirement, in a workable amount of time, profitably.  The part that is true in all times and all places is that process.  The content is you.

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Shoot. Move. Communicate.

A marine once told me the entire battle manual can be reduced to Shoot.  Move.  Communicate.  This resonated with me, since it can be adapted to a business start up, especially when in a jam or busted.

Shoot:  When a marine is on the job he is shooting.  A businessperson on the job is developing customers.  Everyday you should be doing your primary task of developing customers.  If not, you will lose the battle.

Move:  This is literal.  Especially if you are busted, winning most likely means moving.  Where you live now supported a lifestyle that led you to being busted.  So expect the move, embrace it, and figure out from where you would like to work, and pursue that.  Good news: space is cheap and plentiful right now.

This also tracks well with the principle that we solve problems on planes other than we experience them.  Busted is a financial status, with likley psychological ramifications.  A physical move eases the psychological problem.

Communicate.  This presumes you will be concise, germaine and cogent.  Tell anyone and everyone exactly what you are doing.  Secrecy is defeat.  Communication will get you the intelligence you need to make you next shot, your next move.

And so it goes, and upward spiral, out of your jam.

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In last nights course session there was a side discussion regarding a course designed to make you successful in acting as a commission agent, tuition a mere $9,000. I expressed doubts about the course in the transcripts. In essence my argument was take your $9,000 and start a business today, your best teachers are your customers.

All over my website I have testimonials from people who have taken my seminars. But I will tell you myself NOBODY has ever been successful by taking my class. it would be absurd to think that 18 hours of instruction would be responsible for you eventually earning $100,000 per year, or more. Or for that matter, $30,000 per year. (to get to 60, just take another 18 hours!) You see, it is silly to think taking classes will make you successful.

My class is designed to save you time and money. What success you have will be completely yours. Just as a tennis coach can give you some tips that will greatly improve your game, so it is with my class, and anyone else's. You still have to practice and work it through and get it right. Anything I or a tennis coach may show you, you would probably eventually figure out for yourself, after much time and expensive experimentation. There are very kind people who say they are successful from taking my class. I do not use those testimonials, because it is not true. They are being kind, but for me to use those testimonials would be misleading. They are successful from their efforts, not my class. What testimonials I use say: great class, good info, best value, etc. People often tell me I should charge more, because my class is worth so much more. I'll tell you a secret about the price of the class: at $95, it brings in the people who are most likely to use the info well, and most likely to appreciate it. Lower or higher brings in the wrong crowd.

So my advice is whenever someone offers to take your money to make you successful, put your money in your shoe and get out of there. As I stress in the class, your success depends on you, going through a process others have gone through. It is completely up to you whether you decide to do so or not, and it is an existential crisis to make the move. No one can do it for you, no amount of money can make it happen without you putting yourself into it.

So as you consider educational possibilities, critique the offer: are they promising to show me how it works, or promising to make me successful?. Buy the former, avoid the latter.

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