America Headed for a Depression

I say, “What he said! Amen!” (Points to Karl Denninger at the Market Ticker)

Why America is Headed for a Depression:

“We simply must recognize that:

We cannot spend more than we make.

We cannot send trillions of dollars overseas to buy cheap imported goods while denying our citizens good jobs at the same time, then expect to have a high standard of living. If we do that our standard of living goes down and theirs (China's) goes up. The poor farmer going from living in a stick hut to a bunkhouse in a factory gets quite a (relative) boost in his standard of living. How far down does your standard of living have to go to meet parity with him?

We cannot demand that the government provide things, whether that be retirement, medical care, or anything else, that cannot be fully funded from today's tax revenues. This, unfortunately, means that in their present form Social Security and Medicare cannot be allowed to continue to exist. This is a fact whether you wish to admit it or not. Playing partisan politics and calling names will not fix this. The original design of these programs was defective - intentionally so. Use your heads and face the math.

We cannot own a house if we are unable to put 20% down, finance it for 30 years on a fixed mortgage, and pay no more than 36% of our pretax income for all debt, including our mortgage payment. This is a mathematical fact; those who are levered beyond this are at high risk of default and should default so prices can correct to sustainable levels. Do you want to be able to afford a home, or claim to own one that you'll never actually have clear title to? We must stop lying to both ourselves and our neighbors.

A home is a place to live. The laws of common business balance prohibit it from rising in value faster than prevailing wages over extended periods of time. Unfortunately, prices in the general economy tend to rise at the same rate as wages, and houses come with costs (maintenance, property taxes and utilities) which means that on average, they make poor investments - but are great places to live. If you want to invest in housing and not go broke, you must buy it when cheap and sell it when expensive, just like a stock - whether you like living in the place or not.

We cannot buy a car if we do not have a 20% down payment or need to finance it for more than the duration of the warranty if new, two years if used. If that makes the car too expensive, we need to buy a cheaper (or used) one.

We cannot use credit on an ever-expanding basis, nor can we tap phantom equity to pay it off. Revolving credit used for true emergency purposes is reasonable. Carrying ever-expanding balances and then taking out a HELOC to pay it off is not. Down this road you will lose your house - eventually. Just ask those people who have or are. And oh by the way, its not credit - its DEBT. Don't forget that.

$30,000 a year to attend a university is unconscionable. A person graduating with a Bachelors carrying $100,000 or more in debt is outrageous and that we allow the university system to exploit our children like this is even more so. Never mind the debt merchants at the student registration table handing out credit card applications to young people with no income, no job, and no assets! Bankrupting our children starting at 18 must end now, and it will only happen when we as adults say no f*ing way is my kid going to spend that kind of money he or she doesn't have to go to your school. Cut that crap out or go out of business. Why are you permitting your children to be violated by these clowns?

Our retirement security is our problem. It is not our children's bill nor is the government's issue to solve. If you are not saving and investing 10% of your gross income you are going to be in trouble when you retire. As an example, if you make $100,000 and save 10% of it in a retirement account that earns 9% in yield (entirely possible using a simple timing signal I have discussed in The Ticker before), start at 21 and retire at 65, in a 401k with a predicted inflation rate of 4% you will have $88,000 annually to live on. The bad news is that if you wait until you're 30 to start you'll only have $53,000 a year (!), and if inflation is 6% instead of 4% as well you will have just $30,000 in today's purchasing power. That's a hell of a haircut from your $100,000 salary! Still think you can get by saving less? If you don't act prudently now, you'll be working well into your 70s, and it won't be by choice. So much for those MaiTais on the cruise ship.

We MUST frame the political debate in this nation around these principles. We MUST teach these facts to our children. We MUST stop demanding that the government give us that which as a nation we cannot afford, and WE MUST shout down those in the public space who continue to insist on unsupportable, unsustainable spending both by individuals and by the government.”