It's not a Greek Crisis

"There is no money. There is no one else’s pocket left to pick. You can’t borrow anymore, you can’t print anymore, and you can’t steal anymore from anyone else....You object to the bond market, but the bond market is just the voice of reality calling. It’s telling you that 2 plus 2 is still 4, no matter what your union bosses would have you believe. Your bosses tell you that ‘the people’ didn’t spend the money, but it’s not true. That’s exactly who has wasted the money, and now the bill is coming due....You’ve thrown your bottles, burned your flags, waved your signs and had your fun. Now it’s time for you to learn the lessons of history and abandon this idiocy before we finally lose our patience with you. Grow up – and get back to work."
Daily rant directed towards the recent Greek Protesters

It may be all Greek to you, but the effects of the bond bubble is here for all to view (already a wiki page has formed). As soon as the so called economic professors proclaimed the financial crisis to be over (the very same individuals who said 'What housing bubble?') another one has begun to erupt and its only just begun. The location or nation doesn't matter, the important point is no politician, government official or prominent academic has a clue what to do next. A 'bailout' is required to avoid financial contagion, horror stories of Lehman are retold. It doesn't matter that no one in the West can cope with their own domestic liabilities never mind take on others, instead a short term fix is proposed as the solution. In reality it can only exacerbate the problems down the line.

Euro bashing has taken center stage. All the Euro sceptics have suddenly come out of the closet. They never knew in the first place why the UK shouldn't join the Euro but recent events have given them the confidence to speak out once more. Is the Euro doomed? Wrong question. All fiat money is doomed. Despite what has been said regarding the Euro, the Germans hold the key to it. Their Deutschtum regarding sound monetary policy does not bode well for future bailouts towards the more irresponsible European nations. Germany should have got rid of Greece and let them fail. But politicians prefer short term fixes rather than the tough long term ones - they won't be around when they break again. Our old PM Tony Blair can attest to that.

Many falsely believe that Greece is the Canary down the coal mine. Put it this way, did we expect better of the Southern Mediterranean nations? We could list the historical facts, the Inquisition, Catholicism focus on the collective rather than the individual, corruption, even the hot weather but that's what history teaches you - what to expect. Greece isn't the canary down the coal mine, the drachma when it existed was very weak, and the Greeks vigilance at the printing press had a terrible history. Britain, as I have mentioned, is the canary down the coal mine from what I can gather. It is a member of the monetary core - nations such as Germany, Switzerland, the Scandinavian countries, the US - these countries have historically had relative sound money (a few periods of exception can be noted) and have respected individual liberties as early leaders of free markets. When the crisis spreads to the core then we will see real problems. Who will bailout the last resort? There is only one tool. A printing press, others such as China wait to see what destruction we can inflict on ourselves. They gave us cheep goods, gave us their savings to buy more of their goods and saturated us with consumption based debt as we have already struggled to grow our economies over the past decade. If you can't beat them militarily then use economics as a weapon, as Sun Tzu said, '...one hundred victories in one hundred battles is not the most skillful. Seizing the enemy without fighting is the most skillful'.

Portugal and Spain are showing signs of stress also, how long it takes to spread northwards remains to be seen. Eastwards Dr Faber says bubbles are forming in China, nothing I haven't observed but good to hear from the doom prophet whose practically called every bearish situation before it happened for the past 25 years. Where can an investor turn in times like these? The answer should now become obvious to anyone who is following such events closely.

Tonight we have the election here in the UK. Will we have a hung parliament? I hope it lives up to its promises as the most exciting election in a generation. The last two were very boring for a neutral like me, I was too young for the elections previous to these. On that note its time to go watch what Government will 'solve' our domestic crisis. Unfortunately as the quote hints at the start, no politician or bailout offers a cure. Only ourselves as individuals can put things right. Politicians will just keep putting our problems back for the next guy to solve.

General Motors - another British Leyland?

Already dubbed as "Government Motors", the former giant of car making has finally admitted defeat and been forced into bankruptcy. American taxpayers now own 60% of the company that the market decided couldn't cut the mustard any longer. Despite decades of stagnating wages and cuts to company benefits, GM just couldn't get market share and profit margins back to its former glory days. The event could be seen as a signal for the beginning of the end for American manufacturing but in truth this has been happening for years. Many companies tried to sustain the illusion, wrestling with superior Japanese or Korean productivity.

President Obama, the peoples president, has gone through with government intervention rather than speedy free market liquidation. Maybe he can do a better job of making cars than all previous failed attempts by states such as communist Russia for example, however I doubt it. The measures are supposed to save jobs, when in reality it will do more harm than good. Someone has to pay for uncompetitive companies if they are not immediately liquidated. If left to the market, the companies assets and labor would have been released. Manufactures who know how to make cars could have bought the means of production, and placed it under their stewardship to make better productive use of these resources. The labor could then have been employed by such organisations, with the excess moving into other areas of the economy that are still productive. As painful as that may have been in the short term, over the long term liquidation is a vital and a key component of economics. If there was no change, we would all have falling living standards as stagnation would occur.

Obama had to bail them out for one simple reason, people voted him into the White House to 'help' them. The problem is they expect him to act, when in reality the best course of action would be to do nothing.

America can catch a possible glimpse into their future as Britain experienced a similar situation a few decades back with British Leyland. A company that was mish-mashed together by government as British manufacturing was in turmoil during the turbulent seventies never stood a chance in the global marketplace. Generally it produced cars no one wanted, for high costs that were shabbily built. The end result after years of fighting market forces, were the good parts being sold to the companies that were productive in the industry, and the left overs put to other uses. In the end the UK could have saved all the pain by just letting the company fail in the seventies and letting the market take over just like what happened eventually over the following decades, but then again what would the politicians do if they couldn't meddle with business, to 'help' the people. Just like the UK then, the US taxpayers are having to foot an auto bailout all because the government says it needs to.

It's no surprise Americans have a love affair with Cars. Vast expanses of land, the largest oil reserves in its day and cutting edge production techniques pioneered by entrepreneurs such as Henry Ford destined America to embrace automobiles. Americas iconic rock band 'The Beach Boys' inter-weaved their lyrics and song titles after famous American models. 409 even mentions saving for a car - how times have changed. As the beach boys sung Fun, Fun, Fun those days GM once enjoyed have gone. It's time for America to stop clinging onto the past, move on from industries they can no longer compete in and look to do jobs they are still competitive in to produce new improved products better than the rest of the world.

Buying is Dead Money

It has been widely assumed for years now that renting a property is a waste of money, or what has become known as dead money. For years now I have rented, moving from property to property, one end of the country to another, and I have never understood the saying of 'dead money'. How can paying for a living space be dead money? I mean, I pay rent to the owner of the property, who then provides me with a house to live in. He maintains all the upkeep, insurance, wear and tear and I get to live in a fully furnished property. Now that property prices are completely collapsing, along with the overinflated UK economy, I can view the events occurring with no worry or stress, in fact with enjoyment as I watch an interesting chapter in human history unfold. I have no huge debt. If I need to move for another job I can relocate within a month or two. If I wish to move into a larger place I can do so. Renting, during a downturn like the one we are about to go through is anything but dead money. It's money well spent and let me break down some of the 'home ownership' myths that have been falsely put forward in the age of stupidity.

• The first one, and I always enjoy hearing this, which reveals the majority of peoples financial illiteracy, is rental payments are dead money as opposed to paying a mortgage. For the type of properties I rent in order to buy them in the past couple of years the interest payments on the mortgage would have been larger than the rent I paid. Now if I actually wanted some sort of payment plan, then it would have obviously cost a lot more, in fact all my wages pretty much. Then of course if I miss payments on a mortgage persistently I risk having the property repossessed and of course obtaining a terrible credit rating, with the bank chasing me for years to come. If I miss a rental payment persistently, the landlord will eventually be able to evict me, but I have no bad credit rating, no legal proceedings. I just have a bad reference, in which case you just don't use for your next property as most landlords are desperate for tenants.
  
  
• Rents will rise and mortgage costs will drop. This is the complete opposite of what will happen over the next few years. As credit becomes tighter and banks try to repair their balance sheets they will seek to deter borrowing and encourage saving. Therefore mortgages will be more more expensive. If I did buy in the last couple of years I would have needed to get a huge adjustable mortgage which would have been in negative equity by the time re-mortgaging came around therefore I would be paying the much higher adjusted rate. I feel sorry for a lot of people in this position who will have to pay a lot more in the years to come, especially when they see rents falling. Despite what the 'experts' say (the same people that were telling you the sound fundamentals of the economy, when I was telling you they were lying), rents will come down, in fact they already are. People are emigrating, moving back in with relatives as jobs are lost and so on, meaning less demand for rentals. This is how it always works in economic downturns.
  
  
• I have no upkeep costs of the properties I live in. If the boiler breaks down, I don't pay a penny, and its the landlord who is responsible. Washing machine breaks? No worries, my landlords wallet can pick that one up. Fancy a change of decor? Rather than buy a load of tat with the stress of getting it and building it, I can go find a house that is furnished to more of my tastes (if I was interested in that kind of thing).
  
  
• In the event I loose my job, I simply give my landlord two months notice and leave. Go back with the parents what ever I want. I can walk away, intact and with money still in the bank.
  
  
• The savings I have acquired so far I can put into savings accounts that will earn interest. If this money was put into a deposit a couple of years ago, it would have long been eaten away by the price drops of the past year.
  

Point is, I'm comfortable and happy renting, and for some reason for the past decade, in particular in the UK and the US if you rent you are almost seen as a second class citizen. The sad thing is, people are still trying to buy property now, thinking because it has dropped 10-20% it is somehow a bargain. People are still viewing property through the tinted glasses of a way to get rich. In reality the equity they will have will be shortly wiped out in the next few years and will not be recovered for decades. The collapse of Bradford and Bingley should completely topple BTL owners and it will bring about even more drops to come, along with the rising unemployment and government budget deficits. Despite the deteriorating state of the economy people are still talking about a bottom on property. A bottom will appear when everyone stops talking about a bottom. It will happen when people have become weary of debt, governments and banks. It will happen when mortgages are far cheaper than rents, and sizable deposits are required, with banks lending to prudent standards once more. It will happen when people have lost their 'pensions' in BTL and say there is no money in property and only a fool would buy now. It will happen when people say, buying is dead money.


Turning to the Bailout

The situation is quite clearly going from bad to worse. I said that the governments and institutions of the world would try and prop the economy up, and this would only make things worse. It's no suprise that the $700 Billion Bailout package has passed on the second attempt. Since the post war period, Western economists and leaders have become drilled in Keynesian economics, a tragic and false theory whereby governments should become active in fiscal stimulus activities during recessionary periods, with the discouragement of saving and encouragment of consumption. I mean it defies logic when you think about it, and its what is occurring at this very moment. We've just had the biggest consumer boom and spending spree, well ever. According to John Maynard Keynes whose theories our leaders are trying to follow, we should be increasing spending and government intervention, trying to prop up the very excesses that were caused during the boom. House prices are too expensive, therefore we throw money at the problem, which is a waste of resources and goes against the very market forces that demand the correction. What the market at the moment is saying, is that we have too much debt in society too little savings and are not producing any real value in the economy due to all the mal investment that has occurred. Therefore prices in certain areas need to fall and fall fast in order to bring about a normalisation to the economy. All good economists recognise the recession is the good part of the business cycle, and at the end of one the economy is returned to a state of optimal efficiency. The media and mainstream 'experts' however, have made economic contractions into something that should be avoided at all costs, even if it induces a worse recession in the end. Its all scaremongering, just like terrorism, rather than looking at causes and reasoning as to why the terrorism was created in the first place. It's how institutions always control people. Religion, for example Christianity, does this by giving the concept of 'hell', a place where people go if they don't conform with convention and ask questions.

This bailout package won't be the last. It's just the foot in the door. There will be more, with politicians proclaiming it needs to be carried out in order to save the system from collapse, when in reality the problems are compounding further, with the endgame of a worse collapse. Government deficits are increasing along with debts, while savings are being depleted further, thus the fundamentals are continually getting worse. I was hopeful we may let the bust proceed but as ever the powers that be have decided to prolong the bust and ensure that we experience the worst recession any of us have ever seen. We are entering a period of great change, as we pass the opening chapter of many chapters to come.