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Guest Post: The New Endangered Species: Liquidity & Reliable Income Streams

Tyler Durden's picture





 

Submitted by Charles Hugh-Smith (Via Peak Prosperity),

The causal relationship between scarcity, demand, and price is intuitive.  Whatever is scarce and in demand will rise in price; whatever is abundant and in low demand will decline in price to its cost basis.

The corollary is somewhat less intuitive, but still solidly sensible: the cure for high prices is high prices, meaning that as the price of a commodity or service reaches a threshold of affordability/pain, suppliers and consumers will seek out alternatives or modify their behaviors to lower consumption.

We talk about the demand for commodities being elastic or inelastic, meaning that some commodities such as oil and grain are so essential that the demand for them is less elastic than demand for discretionary goods and services.  Despite its essential role in the global economy, the demand for oil is not fixed; as prices rise, demand falls. Since all commodities are priced at the margin, the price of oil is actually quite volatile, despite the supposed inelasticity of demand for oil.

Scarcity is only one price input.  Another is the cost basis of the good or service.  If shale oil costs $50 per barrel to extract, refine, and ship to market, no supplier can sell it for less than $50/barrel for long.

This leads to an apparent paradox:  Demand can be robust and supplies can be abundant, yet prices can still be high, but not high enough to trigger a profitable search for alternatives if the “pain” felt by consumers does not reach a behavior-modifying threshold. 

There is another input to price: opportunity cost, a concept that describes the relationship of scarcity and choice.  If grain rises in price, consumers could choose to eat less meat, as grain is the primary cost input to the price of meat.  The opportunity cost is what they could have done with the money saved by eating less expensive vegetable protein rather than continuing to buying high-priced meat. 

The point here is that scarcity remains a critical input to the price of goods and services, but the cost basis and opportunity costs are equally important inputs.

Since the world’s resources are finite, it’s easy to extrapolate linear demand and predict much higher prices for ultimately scarce commodities.  But such predictions often fail to account for behavioral and technological changes that lower or shift demand.

Let’s say that copper and cement skyrocket in price as demand for new housing surges globally.  In a linear projection of demand and supply, we might predict higher prices for new homes far into the future. But the supply of housing is not as inelastic as many imagine; for example, the density of residents per dwelling is remarkably low in the U.S., and so a very modest increase of density (i.e., more people living in existing dwellings) has an enormous impact on demand for new housing.

The opportunity cost of buying a home has also changed radically since the real estate bubble burst.  Potential buyers are calculating the opportunity cost not just in terms of mortgage payments but in terms of being stuck in a locale should home prices decline further.  Owners of homes with empty bedrooms are realizing that the Web has simplified access to a large market of potential renters.

Linear projections of higher prices based solely on demand and scarcity fail because they do not include feedback loops from behavioral options, opportunity costs, technological innovations, and the cost basis of goods and services.

Access and Ownership

Much of the supposedly inelastic demand for goods is based on the presumptive value of ownership.  We presume future generations will covet owning a vehicle that requires enormous quantities of materials to manufacture, maintain, and fuel, and that they will demand an expansive home that sucks up stupendous resources to build and maintain.

But what if future generations of consumers instead prefer 'access' to ownership? 

Sharing (renting) existing resources for transport and housing would slash demand for costly “money/resource pits” such as vehicles and houses, and demand for the commodities used in their manufacture would decline, possibly seriously.

It is not inconceivable that a large household of eight adults could manage quite well sharing a single vehicle and using public transport, even if they would at one time have purchased eight vehicles (one for each adult) when each lived in their own dwelling

This trend of eschewing ownership of autos and homes is already well-established among young people in Japan, and is an increasingly visible trend in the U.S. and other developed economies.

Access to transport and housing is sufficient; ownership is not necessary. This reality (which can be described as the systemic reappraisal of the opportunity cost of ownership) will have a profound impact on demand for ultimately scarce commodities.

Income and Scarcity

There is another reason that ownership of resource-intensive assets such as autos and houses is declining on a structural level.  Incomes are declining for all but the top 10% of households, and this trend is likely to accelerate as financialization’s self-destruct sequence pushes the global economy into a deep, and very likely prolonged, recession.

Many analysts (including me) have discussed this decades-long decline in the purchasing power of labor.  The primary takeaway is that this trend is the result of structural forces that cannot be “fixed” by a political policy du jour or central bank intervention.  I have described this misalignment of Central Planning goals and tools many times.  The tools available cannot possibly accomplish the tasks at hand.  Metaphorically speaking, central banks are trying to pound nails with handsaws, as they have no hammers in their toolboxes.

For many workers, there simply won’t be enough income to indulge in the ownership model.  The cost in cash and opportunity are too high.

This leads to a profound conclusion:  What will be scarce is income, not commodities.  The corollary is equally profound:  All the capital that has been sunk into pursuit of commodities and ownership-model assets such as homes and vehicles is in danger of becoming trapped capital. That is, if there is little demand for commodities and resource-intensive ownership-model assets, there will be little demand for these capital-intensive assets.

Another way of describing trapped capital is to say that it is illiquid, meaning that when you place the asset for sale on the open market, there are few buyers at any price above liquidation value.

What Will Be Scarce: Liquidity and Reliable Income Streams

If we follow this chain of evidence and reasoning, we conclude that what will be scarce going forward are not commodities or resource-intensive, ownership-model assets but liquidity and reliable income streams.  Ownership-model asset bubbles and the commodity/equity bubbles that arose as a result of ownership-model demand have lumbered off into the sunset.

This realignment of scarcity, demand, cost basis, opportunity cost, technology, and behavioral choice has important implications for investors.  In Part II: Why Local Control is the Best Way to Preserve Wealth, we study these implications and identify the best use of investment capital for the arriving future.

Click here to access Part II of this report (free executive summary; paid enrollment required for full access).

 


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Tue, 08/28/2012 - 16:10 | Link to Comment 3rdgrader
3rdgrader's picture

Endgame: let the kill off begin.

Tue, 08/28/2012 - 17:26 | Link to Comment LawsofPhysics
LawsofPhysics's picture

Maybe, what people miss is the fundamentally different way people handle or treat almost anything that they own compared to something that they rent.

Tue, 08/28/2012 - 17:42 | Link to Comment 3rdgrader
3rdgrader's picture

Funny how in what used to be considered a "poor" country, 99% of the people in Mexico own their own home without a mortgage. Free and clear. Paid for. They may be small, but their built out of rock, brick, block and concrete which does not burn, rot, blow over in the wind, get eatin by bugs or fall down in earthquakes. No home insurance necessary. No interest payments. No balloon payments. No repossession or foreclosures. Low property taxes. No need for that 9 to 5.

Now which country is third world?

Tue, 08/28/2012 - 19:52 | Link to Comment XF
XF's picture

Yeah, all those wetbacks swimming accross the river, crossing the desert, they're to stupid to know what their walking out on.    Leaving a first world paraside for the third world slums of the US.    Stupid does'nt even begin to describe it.

Tue, 08/28/2012 - 22:18 | Link to Comment bunnyswanson
bunnyswanson's picture

It has been over a decade since I was told this so maybe the laws have been changed - but when I was in Mexico on trips, the homes were incompletely constructed, with "second floors" not completed, cables and bars protruding from roughs - because until your home was completed in Mexico, you were exempt from paying taxes on it.

The homes there, were adobe, one or two rooms often, with scant furnishings, no landscaping, shoddy workmanship and on top of every home, a 5-foot across satelite dish.

Mexico did give it's citizens land to farm on which they rented for a nominal fee, and they sold their goods tax free at farmer's markets.

Corruption at evey level is what of course is the issue.  Yesterday, I went to my local grocery store only to see a man running across the parking lot wiht a cart filled with goods.  Two workers stood on the sidewalk of the store observing him, a woman half heartedly chased him.  When I asked why they did not call the police, their response was "the police never show up."  That is when I realized the employees were in on it.  300 dollars worth of goods if not more just gone.  Who knows, maybe to be sold on a black market.  I asked inside 2 different employs about the nonchalant response to a person walking off with 300 dollars or more of products and she said "it's the manager's decision to not call the police." 

We are in for chaos and the loss of peace and ability to feel safe enough to sleep through the night is what we will miss the most.  Soon we'll pray at any church that can give us food.  It's going to be ugly.

Wed, 08/29/2012 - 04:18 | Link to Comment unirealist
unirealist's picture

In reply to BunneSwanson...

A chain I worked for in the nineties forbade employees from interfering with a shoplifter.  Management had determined that they annually lost more money in false arrest suits than they did through the actual shoplifting.

True story.   

Tue, 08/28/2012 - 20:33 | Link to Comment Offthebeach
Offthebeach's picture

Work has been so slow and price so low in the trades. I went on Craigslist, Barter, and traded two bath tile jobs for a sailboat diesel rebuild.
I guess that's why they are called the trades.
The point being, post 8(?)billion Keynesian and FedBernanke, there is little cash.
Anyway, fig the EYE ARE S

Tue, 08/28/2012 - 16:15 | Link to Comment madcows
madcows's picture

nope.  price is independent of scarcity.  Supply and demand became detached years ago. Price is what the Dark pools say it is.

Tue, 08/28/2012 - 17:02 | Link to Comment ZeroSpread
ZeroSpread's picture

Dark Pools can capsize.. get holes and dry up.. and sharks look pretty blunt without water.

Tue, 08/28/2012 - 16:46 | Link to Comment TruthInSunshine
TruthInSunshine's picture

AMAZING analysis, and cuts to the absolute heart of how fractional reserve banking and a reliance on inducing inflation & inflationary expectations is the ultimate paradox where the largest component of aggregate demand for goods and services isn't (yet, at least) the state itself.

With each successive wave of printing incrementally larger batches of fiat, thus stripping away more purchasing power of circulating fiat, there comes a point in time where even many of the original intended beneficiaries of said plan (i.e. Wall Street, the Banksters & the other wards of the state/parasites on the taxpayers, present & future) have their pecuniary interests hurt by its furtherance (there are plans deep in implementation by actors such as Goldman Sachs to transform their business model for this very reason).

That point arrives when the urge to save & deleverage so deeply affects the component of the society that is the catalyst for the largest respective % of purchases made and total aggregrate demand, that "consumers" (whether individuals or entities) save instead of consume additional units for whatever reason (it could be future uncertainty, an economy that is so mal-aligned & distorted [true price discovery doesn't exist; supply/demand curve no longer normally functions; shadow debt/credit, inventory & other asset/liability classes are so opaque as to prevent rational investing & consumption decisions]), and income flow becomes impaired.

At this point, inflationary policy become toxic & poisonous and thwart increased consumption, and actually prompts further deleveraging and saving, very quickly.

Inflationary policy simultaneously decreases real wages (wages become a lot less "sticky" when the labor pool for many goods and even a lot of services is a ruthlessly competitive, global one) while dramatically increasing the real cost of many goods (especially non-discretionary goods), and aggressive sepsis sets into the veins of the economy.

Tue, 08/28/2012 - 16:48 | Link to Comment Ghordius
Ghordius's picture

+1 in short: misallocation of capital
One thing, though: eventually, the inflationary policies do traduce in higher prices vs disposable income. It's like a shift in a different plane. With a tipping point.

Tue, 08/28/2012 - 18:08 | Link to Comment TruthInSunshine
TruthInSunshine's picture

With increasing automation of the labor force and an always growing more competitive global labor pool battling for the jobs automation doesn't soak up, higher real prices for many goods (and even services, as the guy owning the service company may or may not make more depending on the regulatory/tax environment, but his employees who "do" the services will be lucky to keep apace of inflation) will not inevitably translate into higher wages.

So, the toxic combination of higher real prices and lower real wages can grind on, perpetuating the rich man-poor man (aka shrinking middle class) de-evolutionary economic trend.

By the way, the "virtuous circle" equity ponzi "wealth effect" that the Bernank has set as a priority is truly perilous long and even intermediate term, as it's nothing but another intentionally inflated bubble that allows phantom wealth to appear 'on the books,' but will be short lived, which will induce yet another bursting of yet another bubble, and increase the already massive mistrust of what's already perceived as an equity scam. It's possibly the worst "wealth transmission" mechanism ever created (assuming one even subscribes to a single grain of wisdom in having an entity such as the Fed intentionally establish "wealth transfer mechanisms") in terms of benefitting the economy long term, or benefitting any significant % of the population (not to mention that equity markets are reeling under a 14 year real -40% loss tally, that the market capitalization of equity markets is a dreadful barometer of economic health, and that equity market valuation is, in The Bernank's own parlance, truly "transitory").

For those wondering how great economies are built, it's not by having relatively few wealthy, massive numbers of people on the dole, and a scarce to non-existent middle class.

A broad, relatively well off, productive middle class, able to purchase goods and services with some degree of relative ease while also accruing a relatively significant savings base, and who are able climb the economic ladder based on their ability and desire, is the most central identifying characteristic of prosperous nations.

Tue, 08/28/2012 - 23:56 | Link to Comment Muppet
Muppet's picture

t-i-s: several excellent posts.  appreciated.  the current focus on a service economy is an added accelerant ....  too many are attempting to "earn" their wage  by providing services (cpa, lawyers, realtors, brokers, home inspectors).  Ultimately such services  are unproductive and a misallocation of human capital.

Wed, 08/29/2012 - 03:09 | Link to Comment r3phl0x
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The service economy is really the serfist economy. Capital enslaves Labor by denying its ability to scale - i.e. by preventing it from organizing, and by making Labor toil on things that either cannot scale (i.e. personal services), or which scale in a way that requires and benefits Capital over Labor. The only way to get truly rich quick is to skim 25%+ or more from the labor of hundreds of minions.

Wed, 08/29/2012 - 04:07 | Link to Comment StychoKiller
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"I'd rather have one hour of the efforts of 100 men than 100 hours of my own effort." J. Paul Getty

Wed, 08/29/2012 - 06:16 | Link to Comment Snidley Whipsnae
Snidley Whipsnae's picture

TIS... Excellent observations.

"With increasing automation of the labor force"

This is much bigger than most believe. I have considered the possibility that the US off-shoring of manufacturing jobs was because TPTB long ago realized that most future factory jobs would be automated.

Since I am older I have seen this shift to automation first hand.

For many years I have wondered what sort of economic model, if any, could accomodate the enormous pool of labor left idled by automation. I have found no suitable answer to this question that would not require a drastic decrease in world population.

We live in interesting times.

Tue, 08/28/2012 - 16:49 | Link to Comment Omen IV
Omen IV's picture

watch what happens when the republicans limit SS and Medicare to those over 55 - they will change the consumption paradym as people save in anticipation of the retirement "cliff" with NO support on the other side 

to make the equivalent today of $25,000 in after tax income plus the medical insurance and deductibles you need north of $1 million at a 3% yield and much more in future inflated dollars. the percent of americans that have that amount today at any age is few and far between -the big sucking sound is consumption demand going away which many white collar small business depend including doctors, dentists / lawyers etc  -- people are focused on the bottom line with smaller government but without the top line -   sales - there is no bottom line and that will go away for goods and services

Tue, 08/28/2012 - 17:09 | Link to Comment Whoa Dammit
Whoa Dammit's picture

+100. Great comment.

Tue, 08/28/2012 - 16:52 | Link to Comment Hype Alert
Hype Alert's picture

Are we there yet?  [/sarc]

Tue, 08/28/2012 - 16:53 | Link to Comment g speed
g speed's picture

True - but falls short--example is shale oil-- in the equation of cost of extraction, the lower cost of extraction because of lower cost of energy adds to the decline in costs--true of all ownership ledgers-- also true for value of labor-

bottom line is if it's not selling it aint worth squat--and if you aren't spending your money it isn't worth anything either.(only perceived value for future purchases) "devaluation is a bitch and then you die"

 

 

Tue, 08/28/2012 - 17:15 | Link to Comment TimmyB
TimmyB's picture

This article has absolutely nothing to do with the fractional reserve banking system.  Read it again. 

Instead, what it states is that the price people can sell their labor for has decreased so much that certain goods, such as single family homes and automobiles, will be priced out of the market as fewer and fewer people can afford to pay for them.  This will lead to individuals sharing these goods, when before each individual would have purchased one for themselves. 

Autos are a perfect example, as young people in the United States are purchasing fewer cars.  Zipcar is expanding for a reason.  

         

Tue, 08/28/2012 - 17:34 | Link to Comment steve from virginia
steve from virginia's picture

 

Okay ... take one more step ...

 

Without the mass market (and mass financing to support it) there is no need for mass manufacturing. There aren't enough 'zips' to pay for 'cars' ... and the factories needed to make them.

 

When mass financing runs out of customers suckers, it doesn't get smaller, it unravels at once.

 

Yeah, there will be cars: 50yr old jalopies wired together running on vodka. 

Tue, 08/28/2012 - 19:02 | Link to Comment Umh
Umh's picture

Try again. Vodka cost to much to be used as fuel.

Tue, 08/28/2012 - 16:18 | Link to Comment Renewable Life
Renewable Life's picture

Actually a pretty profound concept they are talking about here!!  Its essentially going to be the "downsizing" of our middle class in America, which I see happening everyday where I live already, with adult kids and their kids, moving in with (grand)parents who own property and have pensions and social security incomes!!

 

Tue, 08/28/2012 - 16:46 | Link to Comment TruthInSunshine
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Retirees and soon-to-be retirees will be sacrificed via a higher than historical rate of real inflation rate for years to come, along with an outright 'taking back' or cutting down on what was assumed to be a higher level of pension & entitlement payments than promised/contracted, along with the inability to earn dividend income on savings and bonds, if The Bernank's model of monetary policy is allowed to continue, let alone is more deeply applied.

At the same time, younger generations will see continuing real wage declines, continuing high unemployment and underemployment, and the thwarting of their ability to build economic equity and their own pool of savings/wealth, while they are simultaneously raped by higher transaction fees, taxes, credit-interest rates (how's that Bernanke pledge of low interest rates turning out for all but super-prime borrowers on auto purchases and their credit card rates?)...as the growing-larger-by-the-day pool of retirees deleverage their own lifestyles and cut their own consumption to try and offset their own economic contraction.

Tue, 08/28/2012 - 17:59 | Link to Comment francis_sawyer
francis_sawyer's picture

The 'Visigoths' will laugh these forecasts straight out of Rome...

Tue, 08/28/2012 - 18:21 | Link to Comment otto skorzeny
otto skorzeny's picture

I bought a short sale in a nice IL McMansion 'hood a few years ago and the ONLY people that seem to be doing well are the cops and firefighters that have bought in the last few years. kind of says alot about how we the serfs are put on this planet to serve our govt masters

Tue, 08/28/2012 - 16:21 | Link to Comment Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Geithner will give retirees a yellow income stream. 

Open your mouths investors!  Here comes the grand UST income stream!

Tue, 08/28/2012 - 16:21 | Link to Comment Shizzmoney
Shizzmoney's picture
The Servant Economy: Where America's Elite is Sending the Middle Class

http://www.wiley.com/WileyCDA/WileyTitle/productCd-0470182393.html

Jeff Faux, a progressive economist who founded the Economic Policy Institute in 1986, is the author of the new book, The Servant Economy: Where America's Elite Is Sending the Middle Class. "The mantra, as you know, in today's political debate is jobs, jobs, jobs," he told an audience at EPI recently. "Listen carefully because the subtext is low wages, low wages, low wages."

Faux argues that by the mid-2020s, even with the most optimistic assumptions about economic growth, current trends indicate that the average American's wages will drop about 20 percent. One big factor is that more and more good jobs will go overseas, leaving even America's best and brightest no alternative but to enter the service industry.

"You go into an Apple store and you see the future," Faux said. "The future's not in the technology -- the future of the labor force is all in those smart college-educated people with the T-shirts whose job is to be a retail clerk for Chinese goods."

Tue, 08/28/2012 - 16:50 | Link to Comment Cugel
Cugel's picture

Yes, it's sad and all, but what is the American middle class doing today that would entitle it to a larger share of global production (aka rising real incomes) than in, say, 1975? Anything they do can be done better by Germans or cheaper by Chinese. CEOs don't offshore out of malice, but because American workers offer less for more. Everyone understands why a business goes bust when the guy across the street is cheaper and the guy down the block is better, but when it's the American worker trying to sell his labor under analogous conditions, it's always some evil third party's fault. It's painful, but the American middle class just has to realize that it needs to either create more or consume less. There's no way around it, in the long term.

Tue, 08/28/2012 - 17:05 | Link to Comment g speed
g speed's picture

wrong cugel-- first look at VAT in importing countries world wide --the only country with "fair trade" is US. cheap labor is just that --cheap labor-- If you want a picture of the real world stop believing the BS about US workers -- "its the gov't stupid"  they have made US products non-competitive so multinationals can make profits. "Its the gov't stupid" "its the gov't stupid" " its the gov't stupid."  

Tue, 08/28/2012 - 19:05 | Link to Comment Umh
Umh's picture

Please explain to me what VAT has to do with fair trade. Maybe I'll learn something.

Tue, 08/28/2012 - 19:28 | Link to Comment czarangelus
czarangelus's picture

Fellow pony!

Tue, 08/28/2012 - 19:32 | Link to Comment Cugel
Cugel's picture

/)*(\

Tue, 08/28/2012 - 16:35 | Link to Comment francis_sawyer
francis_sawyer's picture

 "we conclude that what will be scarce going forward are not commodities or resource-intensive, ownership-model assets but liquidity and reliable income streams"...

~~~

What? Like Facebook?...

Sorry ~ but I'll take silver coins (or otherwise 'bullion') & a pantry full of food & supplies (including ammo) as the necessary requisite for CREATING an income stream from the ground up during the new paradigm... Fuck ~ for that matter, buy yourself some cheap PVC piping & coupling elbows (or some fucking bamboo seeds ~ as H20 conduits) if you really want to talk about "reliable income streams" in the future... Hell ~ for that matter, if you want to hedge the potential 'metal monetization' of that as a bonus, make the pipes copper & get some silver solder coils for welding the joints...

This leads to a profound conclusion: What will be scarce is income, not commodities.

So duh... If there's no income, then CUT YOUR FUCKING COSTS!... Best way to cut your fucking costs is to be 'self sufficient'... Being self sufficient means procuring COMMODITIES that you never thought you needed before because instead of sticking a shovel in the ground or producing something you accept FIAT for writing idiot articles then pay that FIAT to craftsmen who do that handywork for you...

The article isn't total nonsense... But I give it a B-

 

Tue, 08/28/2012 - 16:41 | Link to Comment adr
adr's picture

Kind of hard to stick a shovel in the ground today and make your own gasoline. If you don't know how to build your own solar panels the best case scenario is about ten years worth of ever diminishing power generation. Maybe you can live by a fast moving river and create your own hydroelectric turbine.

Any way you look at it, the future looks to have a major drop in living standards unless you possess a rather massive industrial skillset.

Do you really want to live in 1875?

Tue, 08/28/2012 - 16:50 | Link to Comment francis_sawyer
francis_sawyer's picture

No... I call it an IMPROVEMENT in living standards (where the average American is an iPhone zombie, eats GMO food & eats Zoloft like candy... Gasoline is easy to make (it's called 'moonshine')... Notwithstanding that, there's wood gasification (& all that is completely FORGETTING that Nikola Tesla figured out free energy)... The 'hydroelectric river turbine' was your only closet BINGO which has been done for thousands of years & is utterly sustainable (unless you prefer Fukushima power & electric)...

Addition: "There is another input to price: opportunity cost, a concept that describes the relationship of scarcity and choice. If grain rises in price, consumers could choose to eat less meat, as grain is the primary cost input to the price of meat. The opportunity cost is what they could have done with the money saved by eating less expensive vegetable protein rather than continuing to buying high-priced meat"

See? These are all the false paradoxes that occur when folks don't get their fingernails dirty...

Bullshit... Going hungry? & think you have to switch from meat to grains?... In caloric terms, that equals switching from 4 calories (per gram of protein), to 4 calories (per gram of carbs)... Wanna get fed?... EAT MORE FUCKING FAT!... Fat = 9 calories per gram... Raise some pigs... If you're by the sea... FISH... Grow some fucking peanuts or sesame seeds...

There are over a billion Chinese and another billion Indians... I guess they don't know how to survive... Pfft

Bottom line?... 1875 doesn't sound too bad to me right now...

Tue, 08/28/2012 - 16:58 | Link to Comment kito
kito's picture

1875 doesn't sound too bad to me right now...

 yea, until the plague comes along and wipes you out.......antibiotics have a very limited shelf, dont bother packing them for the long haul..........


Tue, 08/28/2012 - 18:09 | Link to Comment francis_sawyer
francis_sawyer's picture

plagues?... PLAGUES???... Really? PLAYOFFS?

Wanna improve your chances?... Stay out of the fucking city... 95% of Californians live in 4% of the land mass...

Plagues... YGFBKM... I'd be more worried about the DNA code manipulation in Bill Gates 'humanitarian' vaccines than I'd be worried about a fucking plague...

Tue, 08/28/2012 - 16:28 | Link to Comment mammoth mo
mammoth mo's picture

 

Furthermore,

The rich can only consume so much.  Just as 8 individuals that used to buy 8 cars may now share, the rich individual who used to buy 8 cars will not buy 16 to make up the shortfall.

Nor will they buy 8 more homes in the same neighborhood or go 8 more times to the restaurant.

 

Their greed has screwed them.  They have deprived the very people who supported them of capital.

 

 

Tue, 08/28/2012 - 17:11 | Link to Comment g speed
g speed's picture

"the rich need many poor"  Voltare '

but the poor don't need a whole lot of richee rich kids-- 

Tue, 08/28/2012 - 19:14 | Link to Comment Umh
Umh's picture

When I look around this little corner of the universe it seems like the poor need a whole lot of people to pay taxes so that they don't have to work. They don't even plan on working which is why they don't care about getting a minimal education.

Wed, 08/29/2012 - 03:18 | Link to Comment AnAnonymous
AnAnonymous's picture

And the 'American' middle class needs much, much more poor people than the rich do.

Tue, 08/28/2012 - 18:50 | Link to Comment JuliaS
JuliaS's picture

Social status in the modern world is often determined by the amount of waste one produces. The more often you go through cars, dresses, cell phones etc, the more prestigious you are.

While there is a fixed minimum to the amount of physical wealth (food and energy) one requires in order to survive, there is no upper limit to the amount of waste that can be generated by those who deprive the producers of the fruits of their labor.

A good illustration of the relationship is China, where the majority of productive citizens live below poverty line, yet at the same time their government spends trillions on useless infrastructure projects. 60+ million RE units sit empty.

 There is a lower limit to the amount of necessities needed per individual. There is no upper limit to wastefulness. Its destructive potential, like human stupidity, is infinite.

Tue, 08/28/2012 - 16:34 | Link to Comment Shizzmoney
Shizzmoney's picture

So Rich, So Poor: Why It's So Hard to End Poverty in America

http://thenewpress.com/index.php?option=com_title&task=view_title&metapr...

Peter Edelman, a law professor at Georgetown University, writes in his recent book So Rich, So Poor: Why It's So Hard to End Poverty in America that the proliferation of low-wage jobs -- not the lack of jobs -- is the single biggest cause of persistent poverty.

"The first thing needed if we're to get people out of poverty is more jobs that pay decent wages," he argued in a July New York Times op-ed. "We've been drowning in a flood of low-wage jobs for the last 40 years… Half the jobs in the nation pay less than $34,000 a year, according to the Economic Policy Institute. A quarter pay below the poverty line for a family of four, less than $23,000 annually."

Low wage jobs aren't bullish for socalist or fascist Presidents who want to raise tax rates on the lower classes.  But we'll probably pay more, anyways.

Tue, 08/28/2012 - 16:46 | Link to Comment Ying-Yang
Ying-Yang's picture

You are correct... great book.

I believe more and more people are realizing the inequality of low paying jobs, hence the coming "soft" revolution. It take an a lot to turn public opinion into action but rest assured it will come.

Wed, 08/29/2012 - 17:04 | Link to Comment mkkby
mkkby's picture

It's quite easy to live comfortably and happily on $34k.  I did it for many years.  You can't live in the most expensive neighborhood of a major city.  You can't constantly have the latest iCrap or cars. 

You can behave like an adult and live where costs are reasonable, and not bellyache that you can't act like a rich person.  My friends all started at the bottom and worked hard, until they proved they were worth more.  Young people today would rather watch TV.  Welfare should be limited to the truely disabled.  Healthy people need to find something to do, even if it means getting dirtly

Tue, 08/28/2012 - 16:36 | Link to Comment adr
adr's picture

Demand for gasoline in the USA has dropped back to 1995 levels, demand in China and India is collapsing, yet gas prices have never been higher at this time in history. The demand model should prove the current price to be too high, yet the commodity doesn't drop in cost. The same exact thing is showing up in commodities of all kinds.

Something other than a supply demand model must be at work. One thing keeping crude prices high is the audacity for central governments to spend far more than they can ever take in. Middle East governments spent at a level that could only be paid for with $90+ barrels of crude. The demand model might dictate $50 crude, however the producers will not allow the price to drop because they have already spent the dollars that were supposed to be made in the future.

You also have speculators who bought contracts for the explicit purpose of seeing them increase in value, in order to sell for a profit at a later date. The speculators will use leveraged buying to put a floor on prices, as to not drop below the price they paid. The market has distorted commodity prices upward by at least 30% and by as much as 200% in some cases. The path from producer to consumer has been filled by an unimaginable number of middlemen, each adding to the cost.

Imagine if a simple coffee mug changed hands 250k times before it reached the shelf at Walmart. How much would that one coffee mug cost?

An easy path to true price discovery is to outlaw the trading of commodities between investment banks and speculators. In fact get rid of the entire futures market. When producers can only sell to consumers of the actual commodity, you will once again have a true demand based price. The only thing we must watch for is the building of monopolies to control both the production and consumption of the commodity. When a corporation owns the drilling rig, the refinery, and the filling station. They can set the price to whatever they wish.

The answer is once again the disintegration of central controls of all kind.

Tue, 08/28/2012 - 17:00 | Link to Comment Tombstone
Tombstone's picture

I agree totally with your last sentence.  All central planning has ever done in the history of mankind is transfer wealth from the many to the few, and that is exactly what has been happening in America for decades.  Throw out the controls and let the free markets dictate supply, demand, value and price.

Tue, 08/28/2012 - 17:18 | Link to Comment g speed
g speed's picture

So its true--gov'ts are obsolete--- 

Every stinking problem we have is caused by some govt. with out exception-- half of the worlds energy is used fixing the gov't fuckups everywhere-- 

that brings us to COG-- the single biggest slave owner concept in the world today-- its main purpose is to kill you so gov't can survive--

Tue, 08/28/2012 - 19:50 | Link to Comment steve from virginia
steve from virginia's picture

 

Demand model isn't set in stone.

 

You just had five + years of house builders adding a cumulative million more houses than there were buyers ... while prices sky-rocketed.

 

After awhile, the demand/supply imbalance was 'addressed' by the marketplace. There is still an excess of housing, prices have farther to fall.

 

Keep in mind, US businesses cannot afford to pay high wages (and still pay excess compensation to executives at the same time). If product prices are lowered the US businesses fail.

 

Indeed, US businesses are that unbalanced and fragile. Nothing new this is a trend from the early 1950s. Big businesses are now 'brands': hollow hedge funds existing only to borrow from the finance markets to direct the borrowed funds to executives.

Tue, 08/28/2012 - 17:41 | Link to Comment LawsofPhysics
LawsofPhysics's picture

American demand is irrelevant, it a global economy stupid.  If Americans won't buy commodities that they need to survive someone else surely will.

Tue, 08/28/2012 - 18:41 | Link to Comment Bicycle Repairman
Bicycle Repairman's picture

As stated above:  "Demand for gasoline in the USA has dropped back to 1995 levels, demand in China and India is collapsing, yet gas prices have never been higher at this time in history."

Tue, 08/28/2012 - 20:26 | Link to Comment Umh
Umh's picture

They don't want to maintain refineries in the current environment. I'm pretty certain that most of the US's refined oil products will be imported in the future since we keep making it harder to do business here.

Wed, 08/29/2012 - 01:10 | Link to Comment pavman
pavman's picture

We can blame BarryO and the marxist EPA regulations for this problem.  Let's face it, we're all frucked.

Wed, 08/29/2012 - 10:44 | Link to Comment Bicycle Repairman
Bicycle Repairman's picture

Refineries are just another chokepoint in a very complicated system designed to manage prices.

Tue, 08/28/2012 - 18:36 | Link to Comment JuliaS
JuliaS's picture

The gas prices have been rising all the way though $147 mark. First they did so though price inflation, then though wage deflation. More people could afford to fill up their cars when oil was at $147.

Tue, 08/28/2012 - 18:43 | Link to Comment Bicycle Repairman
Bicycle Repairman's picture

@adr.  Total agreement.  If prices are not allowed to deflate along with wages, game over.

Tue, 08/28/2012 - 20:56 | Link to Comment tip e. canoe
tip e. canoe's picture

don't forget, the US Military is the #1 consumer of petrol in the world.

Wed, 08/29/2012 - 03:34 | Link to Comment AnAnonymous
AnAnonymous's picture

Demand for gasoline in the USA has dropped back to 1995 levels, demand in China and India is collapsing, yet gas prices have never been higher at this time in history. The demand model should prove the current price to be too high, yet the commodity doesn't drop in cost. The same exact thing is showing up in commodities of all kinds.

---------------------------------

 

'Americans' as they are environment grabbers, have a warped perception of demand and supply.

Demand, just like supply, works like a continuum of bids. A decreasing demand while supply remains the same or even increase does not mean prices are to decrease. It all depends on what bid levels the bidders can afford.

There is not enough resources around the world to sustain the 'american' middle class. It has to be thinned in order for the 'american' middle class to keep living.

One part of the 'American' middle class is simply in a position to outbid the part whose middle class status is shaking. Prices will stay high as it starves the part of the 'american' middle class that must be eliminated in order to allow the other part to thrive.

Wed, 08/29/2012 - 12:17 | Link to Comment akak
akak's picture

Nuts!

Wed, 08/29/2012 - 08:11 | Link to Comment chaartist
chaartist's picture

my only question is how will the producers hedge their prices and therefore be able to calculate their business revenues in some stable way if you want to outlaw futures markets?

Wed, 08/29/2012 - 17:13 | Link to Comment mkkby
mkkby's picture

It doesn't even work that way.  Large buyers and sellers contract with each other directly.  Commodity producers lease their product to banks, so the banks can manipulate the futures.  The futures market is nothing but a gambling casino with the house in control -- nothing to do with supply/demand.

Tue, 08/28/2012 - 16:41 | Link to Comment Ying-Yang
Ying-Yang's picture

For many workers, there simply won’t be enough income to indulge in the ownership model.  The cost in cash and opportunity are too high.

Strikingly well said.....

Wed, 08/29/2012 - 01:15 | Link to Comment pavman
pavman's picture

Why own when u can rent?  Only doing both is desirable...e.g. owning w/o debt.  Otherwise, you're an idiot.  When your paying 80K+ for the privilege of ownership (thank you property taxes) over 10 years, who's the sucker now?  Add in $2400 a year for 'assessment' and you're even more of an ass.  And where is that money going? Most of it to the craptacular school system... or to some corrupt board's pocket... the ponzi of never ending bullshit.

Fuck that shit.  I'd rather have that 80K and contribute to the demise of the Euro (or at least play the roullete of Euro devaluation... up down up down up down).

Tue, 08/28/2012 - 17:07 | Link to Comment dolph9
dolph9's picture

I think this article is for the most part spot on.

What is going to be scarce is income and currency, whether hyperinflation or not.  A hyperinflation of course dilutes existing currency, it cannot produce currency of value.  And after the hyperinflation, the poverty and lack of currency becomes obvious.

Tue, 08/28/2012 - 17:25 | Link to Comment Agent P
Agent P's picture

So....deflation and crime.

Tue, 08/28/2012 - 17:33 | Link to Comment css1971
css1971's picture

Didn't you just describe the 70s?

Tue, 08/28/2012 - 17:37 | Link to Comment ebworthen
ebworthen's picture

Income is already scarce and yes, all assets will be captive to draconian taxation schemes.

Tue, 08/28/2012 - 19:10 | Link to Comment kevinearick
kevinearick's picture

and, for nonperforming assets..

Tue, 08/28/2012 - 19:58 | Link to Comment kevinearick
kevinearick's picture

married people have to get up early and get the bulk of their work done in the morning, to make the day work, embedding the example in their children while the children ask why, because peers tell them that their parents are stupid, and while others who want to be paid for failure get up late, fail to get theor work done, have relationship problems, spend all their time trying to fix things, get less and less done, and fall farther back in time, degraded and depressed, only getting up to the tune of empire currency, to pretend they are something they are not, spending all the "money" before the check arrives, to pay interest on interest, choosing to hope govt god will save them from their own irresponsibility, AND you are the bad guy in theit shared mythological 1%.

have a nice day.

so, you go against the empire 99 times and fail, continuing to th Xth time when you are succesful, learning to complete the circuit without breaking any laws along the way. once you break out, the empire's days are numbered, because it must increasingly break its own laws.

Tue, 08/28/2012 - 22:34 | Link to Comment tip e. canoe
tip e. canoe's picture

anyone with a martenson account wanna please give us a cliff notes of part 2?

for informational purposes only of course

Wed, 08/29/2012 - 01:05 | Link to Comment pavman
pavman's picture

If we follow this chain of evidence and reasoning, we conclude that what will be scarce going forward are not commodities or resource-intensive, ownership-model assets but liquidity and reliable income streams.

Cash is king bitchez!

Wed, 08/29/2012 - 03:23 | Link to Comment AnAnonymous
AnAnonymous's picture

Another 'American' article showing how all 'American' economical considerations lead to dismiss the existence of the physical world.

Commodities are not scarce, incomes are. That is the conclusion of that brilliant 'American' article.

Incomes might come from rents, might come from work.

Rents are derived from commodities' availability.

Work is constrained by commodities' availability.

Once more, as 'Americans' are revolutionaries, they are in love with circular logics.

 

Wed, 08/29/2012 - 03:28 | Link to Comment AnAnonymous
AnAnonymous's picture

The corollary is somewhat less intuitive, but still solidly sensible: the cure for high prices is high prices, meaning that as the price of a commodity or service reaches a threshold of affordability/pain, suppliers and consumers will seek out alternatives or modify their behaviors to lower consumption.

_______________________________

 

This was known from the beginning: the cure for the ailments of 'Americanism' is always more' Americanism'

Solid pattern 'Americans' follow here.

Wed, 08/29/2012 - 12:18 | Link to Comment akak
akak's picture

And the cure for a bad case of AnAnonymousitizenism is the prompt and shameless evacuation of one's bowels on the nearest roadside.

Wed, 08/29/2012 - 07:07 | Link to Comment AvoidingTaxation
AvoidingTaxation's picture

Excellent arcticle and comments. Bitchez.

Wed, 08/29/2012 - 07:55 | Link to Comment chaartist
chaartist's picture

interesting article. my question is how will this work when the monetary system collapses and most of the non working government workers realize that they have nothing. I think the will fight for what is left and psychology will for some time override this supply demand driven forces. It will take time until western countries realize they could not afford their old lifestyle, and there is now way back. If they know there is no way back we are all in until there are food shortages. China is rising in consumption and will, in food consumption for sure, west would not realize they need to cut consumption, when coupled with weather, there is a real danger we stat fight for food security. When that happens all policy actions will be in good of country and we must give our liberties bit by bit, then mix it with some major war that is already running but still we stay in denial...therefore the technological progress could be nationalized and we may not see the desired effect described in article.

 

Another main issue I see is price discovery which is not working at all major markets. We all know that it is regulated in favor of casino owners. Therefore I dont see that someone will realise the deflationary trends expected in not liquid assets.

I may be wrong , but wanted to brainstorm the questions.

Thu, 08/30/2012 - 12:35 | Link to Comment uOptOut
uOptOut's picture

So everybody is going to live in dense housing units and use public transportation. What is going to be used to build this infrastructure??? Commodities!

Authors view is myopic.

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