Things could get better. But they could get much, much worse: An economic preview and personal convicitons.

The Great Wave

The Great Wave

Are you sick of this yet?   Even if you’re unaffected by the recession of late, it’s likely you’re sick of the news, commentary, posturing, and problems.  I know I am.

Yet I can’t seem to let it go.  As a culture, I think, we all tend to look for some as-of-yet undefined, great, “The End,” somewhere ahead – a cataclysmic final page to the story of the individual, nation, or world.  It’s built into our upbringing as Americans.  And, just as I did during the first few days after September 11, 2001; I find myself wondering, “Is this it? This time?”   And though I find myself feeling more worried over time instead of less, I still feel confident in answering, “Nope.”

Similarly, I’ve been asking myself over the past few months “Is it over yet?  Is this it? Is now the time when things start turning around?”  Agian, I feel some level of confidence in answering, “Nope.”  What I want to do is tell you why I think that way.

The problems we face today, I feel, are caused by two problems with the great American economy.  They are specifically that we embrace debt, and that certain parts of the American Lifestyle grow in expense faster than the average earnings of the average American.   This second problem simply feeds the first, as we buy on credit so we can have the things we can’t truly afford.   We do this again and again for things as basic as insurance coverage to cars, homes, groceries, and any number of other things.  Eventually our flow of income is completely diverted to other sources and bills start going unpaid.  The once profitable flow of cash and income turns back upon itself in a crushing wave of debt.

Because Debt and payment plans in general are  such a basic part of the American Lifestyle it’s become an investable and insurable asset in the economy.  But when this debt wave began to crest  and break, those companies who invested heavily in debt instruments found themselves suddenly worthless.  (An example, I recently read that insurance giant The Hartford has a stock value now less than the actual value of it’s vast cash reserves.  Wild.)

It’s been a rough ride so far.  I’ve worked with several young families who one week had plans to begin their retirement investment program, or insurance program; and the next week they call to say they’ve lost their jobs and will be moving home with mom and dad.  (Mom and dad are usually in pretty dire situations, too.)

The big problem is that there are certain parts of the average American’s budget which grow bigger and bigger each year or each generation.  These monsters eventually consume the rest of the budget and force the individual into insolvency.   These are especially:  The cost of Health Care, which inflates at about 7% per year (or doubles in cost every 10 years if you want to think of it that way) and which increases as a person ages;  the cost of housing, which, on average, inflates at about 5% per year;  and the cost of an advanced education, which costs, on average, 7% more each year.

Most people only gain about 3% per year on their income.  Do you see the problem here?

With the help of the recent government plans and bailouts, etc, there could be an end to the current financial crisis very soon.  Things could get better.  But it could get much much worse.  Here’s how:

The U.S. Government is just like an individual in some ways.  The Government also has a budget, has ongoing financial obligations, and carries a huge amount of debt.   In recent times, that ebb and flow of income and payments has remained essentially in balance – though there are always those who disagree.

However, by the end of the next decade, a massive swell is moving down the pipe.  For most of us, we’re hoping that if we ignore it it will go away.  It wont.  It’s the cost of social security, medicaid and medicare.  In about ten more years the monster of health care doubling yet again plus the huge amount of retirees combine to completely devour the federal budget as it is today.

There are only two outcomes:  the federal aid programs continue, thus necessitating a vast tax increase; or the federal aid programs are diminished, thus requiring each individual to care for his or her own families’ needs.

It is most likely, in my opinion, that the government will write itself a credit line, trying to swallow up this problem in a long stream of gulps rather than all at once.  More credit means a much larger debt payment in the budget.  More payments means more taxes and cut programs.

Now imagine for  yourself – your health care costs have more than doubled as you are now 10 years more unhealthy and health care costs have inflated at 7%.  Your children’s education now costs twice as much as it does today.  And your tax bill has just increased.

Add to those the car payment, house payment, utilities, and other living expenses.  Will you have enough to even get by?

Now imagine if this begins to happen today.  More debts go unpaid.  More banks become insolvent and start to call in the debts they’re owed by the average cardholder.  The cycle continues and industry after industry fails.

In reality, these things have been going on bit by bit for a long time and will continue long after we’re through the current crisis.  It is unlikely that the ’08-’09 recession will suddenly be driven into a second great depression.  If things get worse it will probably be gradual and will take place after the recovery from our current recession.  Putting off problems is our national pastime today just as it has been for the past century or so.

(It’s no wonder, then, that the youth of today have to take on more and more debt to get through college.  Nor, then, should it be a surprise that people are choosing to live with their parents for decades longer than they did a generation ago, or that the last thing a person does before leaving this world is to devour all their estate on paying for the high cost of long term care and other medical needs.  But I get off subject.)

The answer to this impending crisis, both individually and in a worldwide sense, is to avoid debt.  If, as a society, we weren’t clamoring for bigger and better homes than our parents and their parents had, and if banks hadn’t been willing to give it to us, treating debt like an unfailing and perfect resource,  it would not have come to this.

Avoid debt as much as you can.   Save up for yourself.  Only those who aren’t already stretched to their budgetary limits will survive if this next wave comes crashing down.

The recession, inflation, and other exciting economics – Or “Why do I pay too much for my car insurance?”

I thought I would express today the reasons, both non-specific and specific, that I believe this country is in a recession and will stay in a recession for some time.

A recession is a decline in business activity over a period of time. Recessions have historically happened in this country a couple times every decade. During recessions there is less money spent and invested and more money put into savings accounts. Recessions may be times of lost jobs and general slowdown in how much we spend as citizens.

There are some people out there who say we’re in a recession right now. They point at the housing market and say “See! There, that proves it! Nobody is buying homes!” The important thing to remember about investment advisers and economists is that it pays to be pessimistic for them. If they project a gloomy future, nobody is upset if they are wrong. Conversely, if a manager of a mutual fund were to come out and say that the future looks bright, he will only keep his job if he’s right.

Don’t listen to these bozos. At least, not for the reasons they’ve come out with so far. Only the history books will be able to give us the true reasons for any recession or, heaven forbid, a depression. What I want to do is do my part to add to the doom by giving you my reasons – and I think they’re pretty good.

Back to the recession problem. The problem that we face is that people just aren’t spending enough. When I don’t shop and Lyn’s grocery store, Mr. Lyn has less money to spend. When he can’t spend that extra money to get the I-pod he always wanted, Mr. Jobs has less money. When Mr. Jobs has less money he can’t hire me to work for him.

The current management takes the stance of “Print more money,” and sends us a few hundred dollars to try to encourage spending. In the short run this makes sense, but once we’ve gone out and spent our tax refund, what then? The fact is that we are in the midst of a massive amount of government spending on military actions right now and yet somehow we still face an impending recession. Imagine what our situation would be like if we hadn’t gotten ourselves into a mid-east military miasma. The government is already pumping billions into the economy and yet it’s somehow not enough.

There are some underlying problems that need to be addressed. I believe that the problem is the increasing cost of things such as homes, cars, health care, and other ‘indispensable’ goods. The analysts point at the housing market as a symptom. I say it’s one of the underlying problems.

The real problem is that there are certain things out there which we call needs which we can’t afford not to purchase. These needs also have associated salespersons, producers, and various clingers-on. Let’s look at homes as an example.

I want a home. I have an income. My home cost can be expressed as a percentage of my annual income. Or my monthly payment can be expressed as a percentage of my monthly income. Traditionally (I mean going back 30 years or more) a home would cost no more than 3 times a household’s annual income. Similarly, the generally accepted advice even as recently as last year was to spend no more than 1/3 of your monthly income on housing. In the last 15 years or so, things have changed drastically.

According to the San-Francisco Gate newspaper, hardly anybody spends less than 50% of their monthly income on housing. Most people spend much more than that. How did this happen?

The price of homes rose much faster than income levels.

Why?

The efficient market hypothesis says that as demand increases (like when I want to buy my home) the price will go up a bit to match. The efficient market hypothesis makes no allowance for “sales” or “greed.”

Imagine selling a home. You built it for a certain cost, say 100,000 dollars. A few years later you want to sell it. Has the house changed? No. If anything, it’s developed defects and flaws. Yet rather than sell it for less you want to sell it for more. And not just an amount adjusted for inflation, either. A home bought for 100,000 dollars 5 years ago in the area where I live is now for sale for 235,000 dollars or more. Again, why is that so? Because people are greedy.

First the owner hopes to move up the ‘property ladder.’ He wants more than he paid for it. Second, the real estate agent wants more and has an incentive to sell the home for the maximum amount possible. Third, real estate developers who purchase and inflate the cost of homes for a profit.

People need homes. Human beings require shelter. We buyers, therefore, cough up the dough – even if it is more than we had expected or hoped to pay.  Even if the price of the home is more than the cost of the materials which form it.  We can’t afford not to. The only possible outcome is the inflation of the cost of a depreciating item. (think about it: homes don’t stay valuable forever.  They are about the only “investment” which increases in price year after year till suddenly becoming worthless when the property is judged as condemned.) Some possible outcomes to this scenario include either the beginning of government regulation on home prices, or the formation of an elite property owning class who charges the lower classes rent (only slightly lower than the cost of owning) and thereby prevents the lower classes from ever owning property.

As long as people are “selling” what we humans need, there will be the potential for drastic inflation and drastic recession.

Health insurance.

Think about it. We all need health insurance, yet it’s becoming more and more unaffordable. Why? Because there are people who make a living selling it. Because there are companies getting richer and richer providing it. Because there are lawsuits that justify the health care provider in charging more and more. It has become so expensive to insure employees here in the united states that some companies are paying to fly sick employees to other countries such as India where they receive world-class treatment and stay in 5 star hotels during recovery – and it’s cheaper to the company than the health insurance premiums.  I discovered for myself that it’s cheaper to fly to Taiwan to have my dental work done there (even without the government insurance!) than to pay for it here.

Cars.

As I remember the story, one day an analyst came to Henry Ford and told him that he was doing great, that his business was great, and that he would be out of business within a year. The reason was simple: His cars cost something like 600 dollars which was basically the average American’s annual wage. The people who could afford cars had bought them and there were only a few people left to sell to. Henry went away for a couple of days and when he came back he did something incredible: He increased his employees wages by 600 dollars per year, to be applied 1 year retroactively if they would accept payment in the form of a new car. Naturally, every Ford employee became the new owner of a new car. His decision rocked the world. No other car company, manufacturer, engineering company, or any related firm could compete with the wages he offered. Wages around the nation went up and cars became a necessity for all Americans rather than a luxury for the rich.

Today, perhaps because of strong competition, car prices are not rising as sharply as home or health care prices, but remain a massive strain on the average household’s income.

Education.

Education inflates at about 7% per year, meaning the cost doubles about every 10 years. Income inflates at about 3% per year on average. If nothing changes, we’ll either have an elite, educated class who can afford education, or the creation of a debt class – a generation who starts out their financial lives with enormous debt payments.

Back to our current situation:  the recession.  How can the average American afford to invest, spend, or otherwise help stimulate the economy when the cost of our ‘needs’ has grown to consume our entire income? We can’t.

If nothing changes this mini-recession will become worse and worse. Classes will become divided more and more till there is no more middle-class, just an upper and a working class.  We’re seeing it happen before our very eyes. Unchecked, the recession will grow into a full-blown depression. In the wake of a depression I would not be surprised to see as harsh controls placed on real estate, health care, and the like as there currently exists in the investments world.

The big question, then, is how do we make the change? And will we do it before it’s too late?
I’m afraid I’m not smart enough to know for sure, but it looks to me like it’s either going to be the whole nation suddenly becoming more selfless and less greedy, or it’s going to be the government stepping in more and more.

As much as we fight and hate things like nationalized health care in this semi-free-market economy, it may be the only solution that we can find.  Our only other realistic hope is the creation of businesses which drastically undercut their competition and somehow avoid the trap of inflation (or at least postpone it for another few decades). Realistically, this kind of business doesn’t come into existence until after a depression.

Scary to some, but it makes sense to me. The math is simple. Products with prices that inflate faster than income will eventually be out of reach. If those products are needs then we’ll soon find out just how badly we really need them.

The ebay crackpot of the day…

Making money is so easy!Want to bid 20 million for this guy’s work? He says it’s pretty much a sure thing you’ll make back hundreds of millions over the next few years.

The idea is that he has spent decades discovering how the behavior of the T-Bond value can be predicted by what he calls “quantum gravitational optics algorithms.”  Having his data would be a sure way to make a fortune managing funds.  How could he not ask for 20 million?

My favorite part- after talking about how reliable and simple it is and what a genius he is he has the following to say: “There is ONE Caveat: I suggest that you have a deep technical background in Riemann Geometry, Tensor Calculus, Topology, Optics, Quantum Optics, Particle Physics, Quantum Mechanics, Quantum Electrodynamics, Quantum Chemistry, Quantum Chromodynamics, String Theory, General Relativity and Special Relativity and computer programming if you are serious about purchasing this entire body of work.  If not, you will need to contract a person or assemble a team of individuals with at least a graduate level technical background in these areas of physics, and a background in scientific programming.”

No problem, buddy.  No problem.

-Greg

Don’t Do Evil: How a search engine became the business that could take down Microsoft.

I still remember the day when my younger, more tech-savvy co-worker introduced me to Google.  It was in 1997 while I still worked as a tech-support phone call person at my local ISP.  It was the simple interface and pretty colors that kept me coming back.  I knew nothing of algorithms and the like, I just knew I liked fast-loading, simple web pages.

Ah, the heady days of youth.

Google was my home page for years, and every time I did an installation for the ISP I would set their homepage as google.com.   To this day I still don’t know the appeal of this tremendously popular search engine. 

It was this uncanny appeal that let Google really corner out the search engine market.  And, unbelievably, the borg-like Microsoft didn’t seem to care – apparently not seeing a search engine as any kind of threat.   Really, who would?  A search engine?  Who cares?

I still remember the day that I started hating Microsoft.  I was only about 15 or 16.  Netscape had come out and changed my whole world, forever.  The Internet was something amazing!  I learned HTML and made a website of my own!  I could meet in a star-wars based chat room and be nerdy!  There were flaming pop-tarts!  Then Microsoft, in a maneuver that I felt was them trying to deny anybody else any kind of success, released Internet Explorer. 

Then bundled it with Windows, and in any way possible seemed to try to smother any independent thought.   That which they did not compete directly with they absorbed.  I think I cried the day hotmail vanished into the terrible maw of MSN.  The purchase of NBC only served to confirm my fears.  Subconsciously, CNN became the Netscape of television news in my mind.  When the X-Box was announced, I yelled to the heavens: “Why can’t you just let us be happy?”

Yet somehow, perhaps simply by seeming so small and insubstantial and unimportant, google survived.  Google became the norm for all searches.  Google became a verb.  Google expanded slowly, unobtrusively into new arenas.   

Then came the IPO.  I don’t remember this so much, because I had been out of the country for a few years.  I do remember that it was astounding.  Googlers became billionaires literally overnight as stock prices soared to the 400’s.  The cute little search engine became as powerful as a very powerful thing.  With power, however, comes responsibility.  Their motto: Don’t Do Evil managed to make some people even more suspicious. 

Google has been expanding quickly into new areas.  Gmail has caused Microsoft, the professional copycat, to scramble to implement windows Live Mail.  Google Video was created, but then they purchased You Tube.  This makes people wonder just how immune to Microsoft-like-evil Google really is.   Adwords produces over a billion dollars in annual revenue for the company.  With this tremendous wealth google isn’t just developing new ideas any more, it’s buying them. 

Meanwhile, Microsoft continues to flail about in what appears to me to be a panicked kind of way, trying to do everything that Google does, but better.   So far, Microsoft seems to be failing, and my hopes are rising.  I hope that soon there will be a web-based office suite,  web-based financial programs,  ABC will become GooBC and every show will be free to watch on GooTube,  long distance will be free through Phoogle,  and gasoline prices will plummet as the alternative energy source, googaline, is introduced on the world market.

I think I may be a little over the edge, here.

The point is this:  It would be difficult to find a software product from Microsoft which could not be done by Google for free.  Google really could put the smack-down on the evil empire.  Obviously they’re not going to be making any operating system any time soon.  Clearly they have no interest in creating the Goo-box to join in the console wars.  But Google really could do some amazing things.  Listen to me now, Google:  Take everything you can from the people who want to charge us for it and give it to us for free.  Starve the enemy!  We will click your adwords!

Would this make Googlewicked?   Does this make me Evil for endorsing Google before they do it?

There are many sites online dedicated to the idea that Google has already given in to the evil that lurks in the hearts of all mankind.  Imagine what people would think if suddenly Google seemed to follow in the footsteps of Microsoft by producing and buying other people’s good ideas.  The only thing that could keep Google from evil at that point is by keeping the products free for use, just like the search engine and gmail.  Products that are completely original, like Google Earth, well a certain level of pay-for-play is understandable, but certainly not paying for something made by somebody else that was subsequently purchased.  The other thing that could make Google seem evil is if it does manage to do damage to Microsoft’s bottom line and thereby end people’s jobs.  Nobody likes that, but could it be avoided, really?

These are my thoughts.  It will be interesting to see what happens.   I, for one, feel fine letting Google search my whole hard drive, save my documents on google base, give me directions on google earth, and so on;  but many do not.  Do I have a false sense of security?  Are they being paranoid?  Only time will tell if the once-david-giant-Google turns out to be as evil as the evil-giant-Microsoft now poised for a fall.

-Greg 

Monday will be the hardest.

lappy 386Kayeleen and I had pretty much decided not to get this item, but then, simply when looking at the ad again tonight I become so awash with excitement that if it had had a “Buy now” button on the Wal Mart website it would have been on the way already and I’d have been doing some quick explaining to my lovely and talented wife.

Even so… It’s a mighty mighty fine deal, and my mind grasps at any excuse.

Those who know me know that I’ve had a decade long lust for anything laptop. Now, as they become more popular in students-who-go-to-SUU-type-circles, I find my lust resurfacing and mingling with the sin that is covetousness.

Monday will be the hardest. If I can avoid going to walmart on monday… the day when most people who read this will read this… I will be fine. The sale ends in 5 days. Be calm.

Deep breaths. Do not spend the money that you actually have for once one something you’ve always wanted.

My reason for writing this post in the first place was actually to inform you, dear user and friend, that there is a pretty decent laptop for about 400 dollars available at walmart this week.  For those who have no qualms or reasons not to splurge.  Limited supplies, et cetera.

-Greg

Anybody know anything about miniatures?

I was wandering around the ol’ interweb and found myself, once again, on About.com.  It’s a great site.  They have lots of really well-informed people on there telling us about pretty much anything for free.  I make it a point to frequently go to the “urban legends” part of About.com to see what is in the vogue as far as stupid people go. 

This time I discovered that About.com actually pays it’s writers.  At least 500 dollars per month.  Some earn 100,000 dollars per year just writing for about.com.  The problem is that they only let you apply for currenlty available topics.  None of these topics, by the way, are any of my vast array of specialities. 

But I figured I had better post the site in case any of you are really knowlegable about bladder cancer, gay teens, or event planning.  You could make some money.

Final

Mic

It’s official.

$2,800.

W00T.

I’m now going to start looking into going to more surplus sales whenever possible.

The better price was found by looking online at sites of audio equipment buyers and sellers.

It took about 2 weeks longer than going through ebay, but I got about 1,000 dollars more for it.

So I bought pizza from Bruno’s tonight to celebrate.

yum.

Now I’ve finished writing so this image doesn’t push all of ben’s text out of the way.

-Greg