America's Mountain of Debt: The Good, the Bad, and the Ugly
Collectively, Americans have accumulated a mountain of public and private debt in the past 20 years. The essential nature of all debts is that they someday must be repaid. Debts can be broken down into three categories:
The Good. This is debt with low fixed interest rates, secured by tangible assets that have value that exceeds the amount of the loan. Everything is copasetic as long as the borrowers have a steady cash flow and can make their payments
The Bad. This is debt that is either insufficiently secured, or that has a nasty contractual surprise waiting, such as an adjustable interest rate reset date, or a balloon payment date.
The Ugly. This is the call loan. It can be called at any time, for any reason.
An interesting thing happens when an economy heads into a deep recession. Credit tightens, and assets begin to lose value. The quality of debt drops. Employees get laid off in large numbers and installment credit delinquencies and then defaults soar. In very rough terms the following plays out:
Good Debt starts to resemble Bad Debt,
Bad Debt starts to resemble Ugly Debt, and
Ugly Debt becomes Hideously Ugly Debt.
Hedge fund managers are in some ways like high states poker players. The risks are large, but so are their potential rewards. Well-managed hedge funds make gobs of money in good economic times, when there are stable--or at least trend-predictable--interest rates. They apply leverage, often as much as a 30-to-1 ratio, to make their profits. They make most of their money by borrowing short but lending long. Again, this works fine in good economic times with stable interest rates. But when interest rates fluctuate wildly, hedge funds can run into trouble. Periods with an inverted yield curve can be the most perilous.
The collapse of the subprime mortgage bubble signaled an end to a decade of debt-driven good times. Almost overnight, liquidity dried up.
Now we are entering some very scary times. Bankers are getting margin calls. The only way that they can meet those call demands is to call in loans that they have made. So, at present, the bankers are making margin calls of their own: They are calling their loans made to hedge funds (among other borrowers). This is putting many hedge funds in an impossible situation. Many hedge funds will collapse.
There is an old saying on Wall Street: "A one million dollar debt keeps the borrower up at night, worrying. But a one hundred million dollar debt keeps the lender up at night, worrying."
Exceptional times like these will result in some huge write-downs and write-offs. The only good news is that many assets will lose a lot of value. Everything from vintage cars to vintage wines, to grand estates will drop precipitously in price. Desperate for cash, the holders of those assets will be offering them at fire sale prices at the bottom of the market. If you are one of the few people with extra cash in your pocket, you will be able to pick up some tremendous bargains. (OBTW, the firm J.P. Morgan just did exactly that. They just inked a deal to buy troubled Bear Stearns for 2 cents on the dollar from its value of just one week ago.)
Letter Re: Galloping Bulk Food Prices
James,
Just a quick report on what I've learned about buying bulk grains and beans.
We have a local bulk food depot. I called to place an order. The guy checked with his wholesaler for prices, then called me back. He was aghast. He said everything was up around 25% since he had placed his last order two weeks ago. And up about 100% since the first of the year. The reason, the wholesaler reported, was demand from folks stocking up. The wholesaler was sold out of many items. Then I called an Amish bulk food store about an hour and a half away. Same story. (Yeah, I wondered about the Amish answering a telephone, too. Apparently the rules are flexible.)
Well, finding the prices a bit high, even for 50-pound bags (like 61 cents a pound for red wheat, 93 cents a pound for black beans, 53 cents a pound for white rice), I decided to check out the local "budget" supermarkets. Surprise, surprise. They were less expensive. Sometimes by a lot. For example, Sav-A-Lot had black beans for 70 cents a pound. ALDI had long grain white rice for 39 cents a pound. A further surprise, even Kroger's beat the bulk food prices. Of course, these things may change when the supermarket's wholesalers have to replace their stocks.
I' sure things vary from region to region, even city to city. But, as always, caveat emptor. One shouldn't assume that sources that should be cheaper actually are. And prices are unlikely to be any cheaper in our lifetimes than they are this afternoon. Best wishes, - Dr. Jack
Just a quick report on what I've learned about buying bulk grains and beans.
We have a local bulk food depot. I called to place an order. The guy checked with his wholesaler for prices, then called me back. He was aghast. He said everything was up around 25% since he had placed his last order two weeks ago. And up about 100% since the first of the year. The reason, the wholesaler reported, was demand from folks stocking up. The wholesaler was sold out of many items. Then I called an Amish bulk food store about an hour and a half away. Same story. (Yeah, I wondered about the Amish answering a telephone, too. Apparently the rules are flexible.)
Well, finding the prices a bit high, even for 50-pound bags (like 61 cents a pound for red wheat, 93 cents a pound for black beans, 53 cents a pound for white rice), I decided to check out the local "budget" supermarkets. Surprise, surprise. They were less expensive. Sometimes by a lot. For example, Sav-A-Lot had black beans for 70 cents a pound. ALDI had long grain white rice for 39 cents a pound. A further surprise, even Kroger's beat the bulk food prices. Of course, these things may change when the supermarket's wholesalers have to replace their stocks.
I' sure things vary from region to region, even city to city. But, as always, caveat emptor. One shouldn't assume that sources that should be cheaper actually are. And prices are unlikely to be any cheaper in our lifetimes than they are this afternoon. Best wishes, - Dr. Jack
Letter Re: Surplus Ambulances as BOVs
Mr. Rawles
I am a long time lurker on your site and would first like to thank you for all you do. I learn much from your site and finally read a topic I have some knowledge of. I operate a large ambulance service (75 units) and read the article about using ambulances as BOVs. I thought I might make a few observations.
It is true that the truck type ambulance have factory 4WD. However the majority of van type units have good aftermarket conversions. Most are done by Quimby. In fact I would only purchase a van type 4x4 from them. One down side to the truck type unit is that rescue squads are notorious for building a unit well above GVW. This causes all sorts of brake and suspension problems in the long term.
As for durability you may be surprised but the van type units have a longer service life as well as a lower cost of operation. They are usually lighter and have far more payload than the truck type. One big concern of a truck type ambulance is that the module is designed for remount. Now from a factory they are built well but at remount time all bets are off. They can truly be done by a shade tree mechanic and the electrical problems can be a nightmare. The van units will almost always come with the factory wiring and since they are all one unit the cabinets and structure seem to hold up better.
Excluding 4WD units, if I was getting one as a BOV, I would consider a van type Ford E350 built between 1990 and 1994 with the non-direct inject, non turbo engine. These units can easily go 400,000 plus miles. Consider keeping [one or more] glow plugs, a fuel pump, an extra set of injectors, and a crank position sensor as spare parts. These units are small, durable and easy-to-maneuver vehicles that handle well get acceptable mileage and are easy to obtain parts for.
One other thing to consider. How to paint the unit. In a true pre-TEOTWAWKI Get Out of Dodge situation having a vehicle that can appear similar to an emergency vehicle may not be a bad thing. With a van unit you could even have a magnetic sign with some sort of logo that could be added and removed at will. I can tell you an ambulance is rarely stopped or harassed. It is not unusual for them to go long distances and both LEOs and the public see out-of-area units all the time so it does not arouse a lot of suspicion. Of course you would have to check state and local laws.
Hope this gives some insight into ambulances. It is true they can often be found at low prices with low mileage and could make a great BOV, if selected carefully. - RB
I am a long time lurker on your site and would first like to thank you for all you do. I learn much from your site and finally read a topic I have some knowledge of. I operate a large ambulance service (75 units) and read the article about using ambulances as BOVs. I thought I might make a few observations.
It is true that the truck type ambulance have factory 4WD. However the majority of van type units have good aftermarket conversions. Most are done by Quimby. In fact I would only purchase a van type 4x4 from them. One down side to the truck type unit is that rescue squads are notorious for building a unit well above GVW. This causes all sorts of brake and suspension problems in the long term.
As for durability you may be surprised but the van type units have a longer service life as well as a lower cost of operation. They are usually lighter and have far more payload than the truck type. One big concern of a truck type ambulance is that the module is designed for remount. Now from a factory they are built well but at remount time all bets are off. They can truly be done by a shade tree mechanic and the electrical problems can be a nightmare. The van units will almost always come with the factory wiring and since they are all one unit the cabinets and structure seem to hold up better.
Excluding 4WD units, if I was getting one as a BOV, I would consider a van type Ford E350 built between 1990 and 1994 with the non-direct inject, non turbo engine. These units can easily go 400,000 plus miles. Consider keeping [one or more] glow plugs, a fuel pump, an extra set of injectors, and a crank position sensor as spare parts. These units are small, durable and easy-to-maneuver vehicles that handle well get acceptable mileage and are easy to obtain parts for.
One other thing to consider. How to paint the unit. In a true pre-TEOTWAWKI Get Out of Dodge situation having a vehicle that can appear similar to an emergency vehicle may not be a bad thing. With a van unit you could even have a magnetic sign with some sort of logo that could be added and removed at will. I can tell you an ambulance is rarely stopped or harassed. It is not unusual for them to go long distances and both LEOs and the public see out-of-area units all the time so it does not arouse a lot of suspicion. Of course you would have to check state and local laws.
Hope this gives some insight into ambulances. It is true they can often be found at low prices with low mileage and could make a great BOV, if selected carefully. - RB
Debate on Pending Legislation Reveals the Depth of Debasement of Our Currency and Coinage
The US House of Representatives is currently debating HR 5512, (the "Coin Modernization and Taxpayer Savings Act of 2008") legislation that would further debase our coinage. According to a article in The Chicago Tribune titled Change for a Penny?, pennies will soon be made of steel instead of zinc. Although the bill leaves it up to the Treasury, presumably, five cent pieces would be made of zinc instead of their current alloy of copper and nickel. I've warned SurvivalBlog readers that this was coming, and that they should start saving nickels. Coincidentally, reader RBS sent us a link to an article about how Zimbabwe's corrupt government is introducing a new 10 Million dollar bill. In Zimbabwe, all coins have long since been removed from circulation. The following is an excerpt of Congressman Ron Paul's statement on this bill, speaking before the Financial Services Committee's Subcommittee on Domestic and International Monetary Policy, Trade, and Technology. on March 11, 2008:
"Mr. Chairman, I oppose HR 5512 because it is unconstitutional to delegate the determination of the metal content of our coinage to the Secretary of the Treasury. Under Article I Section 8 of the Constitution, the Congress is given the power to coin money and regulate the value thereof. It is a shame that Congress has already unconstitutionally delegated its coinage authority to the Treasury Department, but that is no reason to further delegate our power and essentially abdicate Congressional oversight as the passing of HR 5512 would do.
Oversight by members of Congress, who have an incentive to listen to their constituents,ensures openness and transparency. This bill would eliminate that process and delegate it to unelected bureaucrats. The Secretary of the Treasury would be given sole discretion to alter the metal content of coins, or even to create non-metal coins. Given the history of Congressional delegation and subsequent lax oversight on issues as important as the conflict in Iraq, it would be naive to believe that Congress would exercise any more oversight over an issue as unimportant to most members as the composition of coins.
While I sympathize with the aim of Section 4 of this bill to save taxpayer dollars by minting steel pennies, it is disappointing that our currency has been so greatly devalued as to make this step necessary. At the time of the penny's introduction, it actually had some purchasing power. Based on the price of gold, what one penny would have purchased in 1909requires 47 cents today. It is no wonder then that few people nowadays would stoop to pick up any coin smaller than a quarter.
Congress' unconstitutional delegation of monetary policy to the Federal Reserve and its reluctance to exercise oversight in that arena have led to a massive devaluation of the dollar. If we fail to end this devaluation, we will undoubtedly hold future hearings as the metal value of our coins continues to outstrip the face value.
HR5512 is a sad commentary on how far we have fallen, not just since the days of the Founders, but only in the last 75 to 100 years. We could not maintain the gold standard nor the silver standard. We could not maintain the copper standard, and now we cannot even maintain the zinc standard. Paper money inevitably breeds inflation and destroys the value of the currency. That is the reason that this proposal is before us today."
"Mr. Chairman, I oppose HR 5512 because it is unconstitutional to delegate the determination of the metal content of our coinage to the Secretary of the Treasury. Under Article I Section 8 of the Constitution, the Congress is given the power to coin money and regulate the value thereof. It is a shame that Congress has already unconstitutionally delegated its coinage authority to the Treasury Department, but that is no reason to further delegate our power and essentially abdicate Congressional oversight as the passing of HR 5512 would do.
Oversight by members of Congress, who have an incentive to listen to their constituents,ensures openness and transparency. This bill would eliminate that process and delegate it to unelected bureaucrats. The Secretary of the Treasury would be given sole discretion to alter the metal content of coins, or even to create non-metal coins. Given the history of Congressional delegation and subsequent lax oversight on issues as important as the conflict in Iraq, it would be naive to believe that Congress would exercise any more oversight over an issue as unimportant to most members as the composition of coins.
While I sympathize with the aim of Section 4 of this bill to save taxpayer dollars by minting steel pennies, it is disappointing that our currency has been so greatly devalued as to make this step necessary. At the time of the penny's introduction, it actually had some purchasing power. Based on the price of gold, what one penny would have purchased in 1909requires 47 cents today. It is no wonder then that few people nowadays would stoop to pick up any coin smaller than a quarter.
Congress' unconstitutional delegation of monetary policy to the Federal Reserve and its reluctance to exercise oversight in that arena have led to a massive devaluation of the dollar. If we fail to end this devaluation, we will undoubtedly hold future hearings as the metal value of our coins continues to outstrip the face value.
HR5512 is a sad commentary on how far we have fallen, not just since the days of the Founders, but only in the last 75 to 100 years. We could not maintain the gold standard nor the silver standard. We could not maintain the copper standard, and now we cannot even maintain the zinc standard. Paper money inevitably breeds inflation and destroys the value of the currency. That is the reason that this proposal is before us today."
