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A run on the bank, or bank run depending on where in the world you are from. The truth hurts and that truth is that if this whole situation were not downplayed, then the concept of a new Great Depression would unfold almost instantaneously. Everyone knows that the banks do not have enough money to cover all of their accounts, especially not right now with all of the mortgages being foreclosed on. People will panic and get their money in cash form. The banks will not be able to handle it and will end up going bankrupt.... we are talking on a world wide scale and not just in the United States neither. At the same time, those with money in the stock markets or FOREX markets will try to pull out their money before it is too late and the banks close.

 

Won't happen and if I go to your latest post, you answer the way it won't happen.

 

Well actually it was British economist who outlined the ideas that the only way for a nation to leave a depression, is by the government letting inflation sky rocket, lowering taxes and bailing out businesses until everything levels out. Of course this is hard to happen because nations do not want their inflation to get to high, they do not want to lower taxes and they surely do not want "print money"just so they can bail out a business. I do say print money because the world is based on fake money. The 85 billion for AIG was not tax payers money, they are "guaranteeing" the company and as such is equivalent to printing money.

 

In the early 30's, they had runs on the banks because of fear. Solvent institutions were affected because their long term money was held up in non-liquid assets so they couldn't turn over cash to those who wanted their money. Because of the gold standard, new money couldn't easily be just printed up.

 

Nowadays, they just need to order more money and more will be printed up. They can inflate their way out of this crisis and in the end, it might be the best thing they can do.

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Here's an interesting article -

 

More financial rescues, taxes and socialism. What happened to common sense in America?

By Dr. Laurie Roth Wednesday, September 17, 2008

 

"Let the bail outs begin. AIG, the insurance giant has just been bailed out by the FEDs with nearly a hundred billion dollar infusion for starters. Translation, U.S. taxpayers aren

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Gold jumped almost $100 a troy ounce in the last 24 hours. I was reading the the AIG buy out by the government caused more worries on Wall Street then it did for reducing the panic. Of course, this whole thing has me flustered as well. As everyone knows, my wife and I are looking at purchasing a home with pag-ibig. However the last thing I want to do at this particular time is create any form of debt. I tried explaining to her that should her brother want us out of the house, until the financial crisis is over, it is safer to rent. I even told her that should the market crash, we will loose all of the money and the house.If we rent we loose the money anyway but chances are we would still have the house as long as we can afford the rent.

 

I explained that building materials were up due to this whole financial crisis and when it is over, they will go back down. The value of land is up here in the Philippines because everyone knows that foreigners have the money to buy at their rates and that Filipinos have OFW sending money to pay the rates. After it blows over whether it stays as a recession or goes all the way into a depression, the land value will have no choice but to go down because the foreigners will not be wanting to immediately come over here and buy and the OFWs will be tighter on their control of the money.

 

My wife's simple answer:

 

"It will never happen."

 

I ask her what wont happen, the possibility of a depression or an increased recession or the lowering of building materials and land after it all blows over. Her inability to answer that straightforward question only leads me to believe that for some reason she seems to think that the Philippines is 100% immune from the effects of the world markets irregardless of the facts that everything here is based on them and many things are imported from other countries. The Philippines is just as volatile as any other country in this world. There is not one country in this world that is secluded enough that the effects of the world markets will not exist there.

 

I do not care what she says, no matter how difficult she can get, I have to make financial decisions for my family on a daily basis which keeps it a float and ensures we have what is needed to survive first before anything else. I will not purchase a house with financing until this is all blown over. Should I manage to save enough to buy in cash, that will be a different story. Until then it will be a bumpy road but I have to do what is best no matter how much pressure is put on me.

 

-Nick

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I do not care what she says, no matter how difficult she can get, I have to make financial decisions for my family on a daily basis which keeps it a float and ensures we have what is needed to survive first before anything else. I will not purchase a house with financing until this is all blown over. Should I manage to save enough to buy in cash, that will be a different story. Until then it will be a bumpy road but I have to do what is best no matter how much pressure is put on me.

 

Now is the time to acquire debt. With these huge bailouts, the only "good" way out of the crisis is to inflate their way out of it. Real estate will go up, but it will be behind the curve. In fact everything will go up, including wages, eventually. What does that mean? You'll be paying off the debt you take on now with inflated money 5 years from now.

 

I guess you can say I am taking the opposite approach. Take on long term, low interest debt, and squirrel as much money as I can into hard assets.

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Now is the time to acquire debt. With these huge bailouts, the only "good" way out of the crisis is to inflate their way out of it. Real estate will go up, but it will be behind the curve. In fact everything will go up, including wages, eventually. What does that mean? You'll be paying off the debt you take on now with inflated money 5 years from now.

 

I guess you can say I am taking the opposite approach. Take on long term, low interest debt, and squirrel as much money as I can into hard assets.

 

Economics is not my forte! But this sounds like good advice to me!

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Now is the time to acquire debt. With these huge bailouts, the only "good" way out of the crisis is to inflate their way out of it. Real estate will go up, but it will be behind the curve. In fact everything will go up, including wages, eventually. What does that mean? You'll be paying off the debt you take on now with inflated money 5 years from now.

 

I guess you can say I am taking the opposite approach. Take on long term, low interest debt, and squirrel as much money as I can into hard assets.

 

Say what???

 

Ok that made absolutely no sense at all and I am in now way an economist by trade. Everyone knows the concept of buy low and sell high You do not purchase things on finance when things are inflated.

 

Ok, let's do it this way...

 

Hypothetical....

 

1 bar of gold equals 1unit of currency let's say the X currency and gold will be G

 

G=X this in 0 inflation.

Lets say that at 0 inflation a house costs 1,000,000G or 1,000,000X

 

Ok...you getting it???

 

Without inflation, purchasing the house with 7% interest over 30 year comes to a total of 2,395,088.89 or a monthly payment of 79,836.3X

 

Now the current inflation rate is 5.37% which is up 3.4% from this time last year which was at 1.97%

 

so lets say inflation is up 3.4%:

 

X=.034G or the house costs 1,034,000X and with a 7% interest rate that works out to be 2,476,522.01X or a monthly of 82,550.73X which is a difference of 81,433.12X total or 2,714.43X more than at normal levels.

 

Now let's say that after the recession everything levels back out to say 1% inflation over the previous year

 

At 1% inflation the house is now 1,010,000X and at 7% this comes to a total of 2,419,039.87X and a monthly payment of 80,634.66X for a difference of 57,482.14X total and 1,916.07X a month over purchasing while there is a substantial amount of inflation.

 

I can purchase a multicab with the difference.

 

-Nick

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Now is the time to acquire debt. With these huge bailouts, the only "good" way out of the crisis is to inflate their way out of it. Real estate will go up, but it will be behind the curve. In fact everything will go up, including wages, eventually. What does that mean? You'll be paying off the debt you take on now with inflated money 5 years from now.

 

I guess you can say I am taking the opposite approach. Take on long term, low interest debt, and squirrel as much money as I can into hard assets.

 

I don't know, no one has a crystal ball here right now.. If you go on the history repeats what occured in the great depression... and does teh change in technology aggrevate the situation or alleviate it ??

 

From this am's headlines. Type in any news service it's splashed all over...

 

Central banks pour $180-billion into markets

 

BOYD ERMAN and SINCLAIR STEWART AND TARA PERKINS

 

From Thursday's Globe and Mail

 

September 18, 2008 at 1:00 AM EDT

 

Another Wall Street icon, Morgan Stanley, was fighting for survival Wednesday night as panicked investors sent global markets into a sickening nosedive.

 

Not even the historic bailout Tuesday of American International Group Inc., the world's largest insurer, could calm investors amid fears that the U.S. government is running out of options to contain a widening financial crisis. The Dow Jones industrial average fell 449.36 points, leaving it 7.1 per cent lower in just three days, while the Standard & Poor's/TSX Composite Index slid 349.3 points to end the day officially in bear-market territory.

 

As a Credit guy the wire issue on this is likely tapping liquidity in the market in a major way. When I looked at CO's with low operating capital and lots of hard assets even, no cash today scenarios could and usually would do them in.

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One thing that is causing more problems right now, is that investors can select any bank that they feel may be vulnerable, and short the stock, knowing that if the price falls, there is a good chance of a government backed rescue, thus allowing them to take make out of the situation.

 

In fact, such a move is a self-fulfilling prophecy, and, if done carefully, should preent a real-life "risk" that is far les than the perceived risk.

 

As for an individuals best approach, I have always reckoned that a house is a place to live in and not an investment. Similarly, assets are things I want, not what I buy in the hope of making money from them.

As for debt, the less the better, again, from an individuals point of view.

 

However, if one is talking about investing to make money, then that is an entirely different game.

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Say what???

 

Ok that made absolutely no sense at all and I am in now way an economist by trade. Everyone knows the concept of buy low and sell high You do not purchase things on finance when things are inflated.

 

If you studied history, then you probably remember the free silver movement. The goal of the free silver movement was to increase the money supply resulting in inflation so that debts would be easier to pay off for debtors. It certainly made sense to some of more brilliant minds of the 19th century.

 

 

 

Ok, let's do it this way...

 

Hypothetical....

 

1 bar of gold equals 1unit of currency let's say the X currency and gold will be G

 

G=X this in 0 inflation.

Lets say that at 0 inflation a house costs 1,000,000G or 1,000,000X

 

Ok...you getting it???

 

Without inflation, purchasing the house with 7% interest over 30 year comes to a total of 2,395,088.89 or a monthly payment of 79,836.3X

 

Now the current inflation rate is 5.37% which is up 3.4% from this time last year which was at 1.97%

 

so lets say inflation is up 3.4%:

 

X=.034G or the house costs 1,034,000X and with a 7% interest rate that works out to be 2,476,522.01X or a monthly of 82,550.73X which is a difference of 81,433.12X total or 2,714.43X more than at normal levels.

 

Now let's say that after the recession everything levels back out to say 1% inflation over the previous year

 

At 1% inflation the house is now 1,010,000X and at 7% this comes to a total of 2,419,039.87X and a monthly payment of 80,634.66X for a difference of 57,482.14X total and 1,916.07X a month over purchasing while there is a substantial amount of inflation.

 

I don't like your math, let's not do it your way. I have absolutely no idea what you just did, except that the math is wrong, or at least I think it is. :rolleyes:

 

 

First off, a 1,000,000 peso loan for 30 years at 7% interest is roughly 6,653.02 pesos per month. Over the period of a loan, a hard asset will usually increase in value at nearly the rate of inflation or higher over the long term. That's just history.

 

In fact, to illustrate my point, let imagine that I bought a house in January 2000 for 1,000,000 pesos at 7% interest. My monthly payments would be 6,653.02. Knowing what we know about inflation and wage hikes since 2000, where would I be?

 

Well, if the house increased in value at just the rate of inflation, it would be valued at 1,600,000 pesos today. I would have made a total of 92 payments on the house for a total of 612,078 pesos. What does that mean? I gained 600,000 in equity and spent 612,078 to get it, plus I had a place to live in. Whoa, that doesn't sound right. Ah ha, as of now, I would have an outstanding balance of 883,000 on the loan. So actual equity in the home is 717,000 pesos. So that's close to 105,000 pesos of upside on an investment of 612,000. That's a few percent per year.

 

At the same time, I decided to take my own advice and invest the 1,000,000 in hard assets that give a rate of return close to the inflation rate and I'd have 1,600,000 from that.

 

Total upside over the 8+ years = 1,300,000 pesos.

 

Now let's talk about the kicker and why the debt is cheaper now. The monthly payment was roughly 29.8 times the NCR daily min wage in 2000, but as of today, that monthly payment is just roughly 19.4 times the NCR min wage. For the less mathematically inclined, that means you need to work less to make that payment than you had to before and that will always be the case. By the time the loan is due, the monthly payment will probably be close to just 5 or 6 times the NCR min wage.

 

Alternative #1 is that in 2000, you decide to invest the money with a decent rate of return close to 8% per year. You'll have close to 1,900,000 pesos right now. That's upside of 900,000 for the 8+ years, but since you didn't own a house, you'll need to subtract rent off of that. At an average of 5k per month over the 8 years, that's 460,000 pesos.

 

The total upside is 440,000 pesos for the 8+ years.

 

Ok, the alternative #2 is that in 2000, you went ahead and bought the home outright for 1,000,000 cash. Today, you'd have a home valued at 1,600,000.

 

Your upside for the 8+ years is 600,000.

 

I can purchase a multicab with the difference.

 

By my calculations, taking on the debt for a home and investing the cash, you end up with a total upside of 700,000 over the next best competitor. I can purchase a new car with the difference.

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Anywho...

 

Like I said, the only way to stop the recession is by increasing inflation, raising interest rates and buying out failing companies:

 

The stock market finally found reason to rally Thursday, and Congress promised quick action as the Bush administration prepared a plan to rescue banks from the bad debt at the heart of the worst crisis on Wall Street since the Great Depression.

 

As word of a government plan began to reach Wall Street earlier in the day, the Dow Jones industrial average jumped 410 points, its biggest percentage gain in nearly six years.

 

All it takes is a promise, let the investors do the rest :rolleyes:

 

-Nick

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Now is the time to acquire debt. With these huge bailouts, the only "good" way out of the crisis is to inflate their way out of it. Real estate will go up, but it will be behind the curve. In fact everything will go up, including wages, eventually. What does that mean? You'll be paying off the debt you take on now with inflated money 5 years from now.

 

I guess you can say I am taking the opposite approach. Take on long term, low interest debt, and squirrel as much money as I can into hard assets.

 

Nick, Penguin is right. The inflation is going to hit through the roof. In the past 6 months here prices have easily climbed 10%. If you can get a 7% loan then inflation will pay the loan off for you. Real estate may be the best place to be right now as the value is intrinsic. But stay away from the US based real estate as nobody has money to buy it anymore and the prices are deflating.

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Nick, Penguin is right. The inflation is going to hit through the roof. In the past 6 months here prices have easily climbed 10%. If you can get a 7% loan then inflation will pay the loan off for you. Real estate may be the best place to be right now as the value is intrinsic. But stay away from the US based real estate as nobody has money to buy it anymore and the prices are deflating.

 

 

I am not sure where " here " is but inflation here in the Philippines is running in double digits . Staying away from US real estate would seem to be a bit difficult since so many foreign gov's are into it via deriatives . And isn't it interesting that that a " rumor " saying the US gov . will set up something to essentially " insulate " the US housing market and wall street from further possible collapse sent the asian markets all soaring ? :rolleyes:

 

Another false sense of security that allows the " same old " to continue ?

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I am not sure where " here " is but inflation here in the Philippines is running in double digits . Staying away from US real estate would seem to be a bit difficult since so many foreign gov's are into it via deriatives . And isn't it interesting that that a " rumor " saying the US gov . will set up something to essentially " insulate " the US housing market and wall street from further possible collapse sent the asian markets all soaring ? :wt-hell:

 

Another false sense of security that allows the " same old " to continue ?

 

Lord almighty, what a world. Look at the economic news today. So the fed is setting up a "Special loans unit" to deal with bad credit, whoopee....

 

We're rich, no we're broke, we're rich, no we're broke.....

 

Crystal balls are always cloudy, mine in particular.

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http://www.campaignforliberty.com/blog/?p=564

In this interview Congressman Ron Paul states the solution to the problem. It was quite simple, while it would be painful, that bad debt needs to be liquidated and these companies that have invested poorly, which means they have made bad business decisions, should be allowed to go bankrupt. Government and the Federal Reserve has to stay out of the way and let the market correct itself. Why should taxpayers have to pay for business mistakes? It's not constitutional.

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I have a different take on it. Instead of giving aid to all of these companies, why not give special immediately redeemable tax credits to people to buy a home or start up a new business. They can use also the tax credit as a down payment on a loan needed to fund the small business or buy a foreclosed home. Extend the credit also to those needing to refinance their homes. Heck why not extend those credits to include fuel efficient cars that are more than 51% US content.

 

Let the banks that made the stupid mortgages fail. Any economic problems they cause would be offset by an increase in US economic activity.

 

How to pay for it? Inflate the currency.

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