Episode-660- Listener Feedback Economics Edition for 5-9-11 — 22 Comments

  1. I bought from the Silver and Gold Shop with good service. But I recommended them to a friend and they sent her the wrong order twice and it hasn’t yet been resolved after a few months.

    She asked if they had the 2009 Tea Party round. They sent her the New Buffalo Round. She tried again and they sent her something else.

  2. i thought of this while listening to the show. Why are gas prices so high when oil isnt that high? oil hasnt been over 112 a barrel yet gas prices are over $4 a gallon. in 2008 oil was 150 and gas was 3.50. whats the deal?



  5. Jack,

    Thanks for answering my question on the “cash” inside of a 401(k). I’ll look into finding the money market fund and let you know what I find out.

  6. Jack,

    Found the fund that I believe is a Money Market fund. Here is the description of that fund: “The fund invests primarily in high-grade money market instruments with short maturities such as U.S. government obligations, commercial paper, and certificates of deposit.”
    CD’s sound find. “Government obligations” sounds awful, LOL.

  7. Harry,
    There are various factors causing it to be so high:
    1. The spike in oil prices and Mideast unrest hit when the refineries were switching from their winter to their summer blends.
    2. Corn (and other commodity prices) are way up. Due to the ethanol mandate, this means that gasoline is more expensive.
    3. When the fed dumped all of the money into the economy, the people who received the money had to find somewhere to put it. One of the prime places they put the money was in commodities (including gasoline futures) which drove up prices.

  8. I’ve gotten caught up on my TSP’s as I worked on organizing my food storage. I’m getting ready for the garden to come into production and hoping we’ll have lots of fresh fruits and veggies to eat, along with lots to store. I really got excited with your “maple syrup” analogy as I looked over and saw how much syrup I had on a shelf.. but then realized that most of it had very little REAL maple in it.. just maple flavored. sigh. All kidding aside, I appreciated the lesson on how USA being anything but #1 will change how we function. My husband and I are going through our own personal challenges with the news that he and one half of his fellow employees are being laid off to make way for cheaper labor from India. We’ve been through layoffs before, and in some ways we will be able to handle it better this time around thanks to prepping, but in other ways we are in a more precarious position because we have a house payment (but no other debt, thank goodness) and the economy is not so great. These coming changes have forced us to take a harder look at what we really want from our lives, and to decide if we can continue to face what has become a “norm” for most people, switching jobs, moving around, always allowing the decisions of some other person (or company)to rule our lives and livelihood. Thanks for a great show. I’m looking forward to this week of economics-based shows.

  9. Jack, about the US being the reserve currency, you stated the only reason we were granted that status is b/c we are the biggest economy. I think your listeners might be interested in Bretton Woods, which is what instituted the reserve status of the USD. At the time it made some sense from the perspective of other countries, since the dollar was backed by gold. I don’t know how the US GDP compared to other economies at that point in time but being post-WWII obviously there was more to it than just GDP.

    In contrast, when considering an abandonment of the USD by the world in general in modern times, what are they going to choose? From a fundamental point of view, any other reasonable choice is also fiat. There isn’t another gold-backed USD-like currency to use as a replacement. Any move to alternatives will be far from happening over night, there might not be significant movement toward the alternative credit system you talked about in an earlier show for 50 years or more. While I am bearish on the USD (especially relative to commodities) the bottom is a long ways away compared to other fiat.

    From a technical perspective, there is some evidence that the USD could rally in the short/intermediate term (look at a USD index). The EUR still has some significant problems imo. If they don’t institute a true European govt (which could happen) with taxing authority, the EUR won’t last. 1.4850 in the EURUSD looks like a good retest of the late 2009’s highs, providing some probability of a lot more down movement (which will elevate the desire of the USD). The Yen is still strong but I think that has to be discounted b/c of the recent damage in that country, which would naturally cause increased domestic (in Japan) demand.

    Additionally, there have been a few hints that the Fed could begin slowing of monetary easing, such as recent comments from St Louis about the relationship between monetary easing and unemployement. Also the ECB elected to not raise rates, as was widely anticipated. If the US Fed gave a similar indication, say that it would slow down QE, the dollar would jump significantly.

    My main point: While all fiat currencies devalue over time one should not make the mistake of being overly bearish on the USD relative to other FX. My final conclusion is the same as yours I think, more or less: prepare oneself by diversifying into real productive things (a garden, solar at home, alternative sources of income, commodities as a form of savings, etc) but I just want to caution anyone against being overly bearish of the USD in favor of another fiat currency, such a person may be in for a surprise.

  10. When Jack was talking about the driving tax and said something about an incentive to buy an electric car once again this popped into my head. Call me crazy kids do but I just don’t get it we are suppose save the planed cut back on electricity and buy compact florescent bulbs and at the same time buy an electric car? Doesn’t electricity come from cole? At least a lot of it and doesn’t that put nasties into the environment we are suppose to be saving? I thought back in the early 90’s? they were talking about putting a ban on florescent fixtures(maybe that was because of the ballast whatever)an don’t CF bulbs have mercury in them? Well call me crazy I guess the gov. knows what they are doing and really need that tax so they can & will responsibly clean up the toxic mess? Did I tell you I have flying pigs?

  11. Oil and Gas is much different than most people see them. From the comments above and what I hear other places, people believe that oil and gas is the same thing and can be tracked side by side monetarily. To this I have to tell you that you are wrong. Gas is a product of oil and while dogs and cats are animals they to are different species.

    Oil is in the ground to the refinery door and gas takes over from there. Meaning that the price of oil is not tied to the price of gas, now here’s the kicker, because, the price of gas is controlled by the ability to refine oil into gas.

    There are oceans of oil in the ground that could be pumped out every minute of every day. Where are you going to put it? This is where the gas tank is controlled as there have been no new refineries built since the ’70’s, chemical plants yes, but no refineries. Now the oil people take a seat while the gas people rape everyone. You see the oil folks rape you with their whinny BS and when you turn around to tell someone about it the gas people rape you. What I really think is funny, above I said that there have been no new refineries built that is the very reason given for higher prices, refining capacity.

    I hope this helps.


  12. I’m a new listener and am not sure I can make it through this show. Your presentation is great but I cannot accept your suggestion that I should use a time picking stock strategy and that you can tell me when to be in stocks and when to be in cash. There are thousands of professionals and huge amounts of resources dedicated to managing money this way and they almost always fail miserably. (thousands of mutual and hedge funds with dedicated staff). If they can’t do it, why can you? I’d reccomend becoming acquainted with the statistical arguments for indexing / asset allovation. Harry Browne also has a very well tested asset allocation. John Bogle has also written on the topic. Maybe you’ve covered these ideas in the past but to a new listener this notion that you can predict financial markets doesn’t comply with the body of evidence on the matter.

  13. Jack,

    About your comments on “Protecting a paid for property if you default on another.” The caller’s best bet is to put it a trust.

    Whether a creditor go after the caller’s BOL is very state specific. In Texas, your advice is generally correct due to a state constitution provision limiting the grounds upon which a lien may taken on homes for debt. (Side note – Until relatively recently, no home equity lending was done in Texas until the state constitution was amended to provide for a lien.)

    Off the top of my head, Florida is another such state. However, I seem to recall it was modified to apply only to certain dollar values. People were moving their assets into Florida homes to escape potential creditors.

    In other states, however, the analysis is very different. Generally, the first inquiry is whether a creditor may obtain a deficiency judgment for the amount still owed after the property is foreclosed upon and sold. Some states, like California, provide that a creditor may not sue for a deficiency for certain types of loans. Again, off the top of my head, I don’t think they pursue a deficiency for first lien purchase money mortgages. If that was refinanced, however, the restriction does not apply and they may pursue a deficiency.

    In some states, like Minnesota, whether or not a creditor may pursue a deficiency may depend upon the manner in which the creditor foreclosed. Generally, if a creditor in Minnesota forecloses through a non-judicial power of sale, they may not collect deficiency. However, they may if they go through the judicial process. Different rules also apply if the property is considered agricultural property.

    My guess is that the majority of states permit deficiency judgments. If interested, I can dig a little bit and give you number.

    If you are in a state that permits deficiency judgments, a creditor may then sue for that amount. Assuming they get a judgment, they generally can get a judgment lien on your assets. There are exceptions. Some states provide for a limited homestead exemption for certain items. In Virginia, where I live, this includes being able to your Bible, a few thousand dollars worth of stuff, and, courtesy of a recent change in the law, a gun. In some other states, property may be protect to some extent. (And to a larger extent in Texas and Florida.)

    So, without knowing the state the caller has property in, it’s difficult to give advice on this. Also, I don’t even want to think about situations in which the home is one state and the BOL is in another. That likely will be a judgment call for the court to determine which state’s laws to apply if they conflict.

    Other issues also may affect the analyis. If the home is in the callers name only and the BOL is held jointly with his wife, it may be protected in some states as that debt cannot be attached.

    Anyway, I thinks the simplest approach is the one you recommended regarding setting up a corporation. Trusts are a lot more complicated. I still need to learn more on the subject, but our BOL will be put in one once I can figure out the irrevocable trust rules. From what I understand so far, if the property is placed in a revocable trust, it still may levied against in Virginia.

    The caller’s best answer would be find a trust and estate’s lawyer in his state and talk with him about the issue. Also, I should note that none of this will work if you intend to default or do so within a certain period of time, as there are fraudulent conveyance laws in all states and under the bankruptcy code that will nullify such a transfer.

    P.S. I’m a consumer finance attorney that reviews documents for state law compliance. Yes, I work for the dark side in setting up credit programs. It’s a boring job that essentially involves reading all the fine print on documents everyone sign when they take out a loan. Love your podcast.


  14. So we’re making hula-hoops again.

    I guess what people have in mind when they think of manufacturing jobs returning to the US is taking us back to the time after WWII when we were a net exporter and “Made in the USA” was a phrase that carried meaning. That’s very different from us becoming another China making cheap plastic crap and exporting it.

  15. Getting jobs to come back to the states is about regulation. The governments seem to do everthing they can to to prevent people from starting a business or to determine who will be allowed to stay in business.
    We need to get people in positions of local and state governments that are into liberty.

  16. Hi Jack…

    There is one retirement savings plan that, as far as I know, does not have a money market (or other cash) option… the Thrift Savings Plan for civil service employees. There are various stock funds and a government bond fund, but no money market fund at all. nice, huh?

  17. On phantom loads: This was for a different project, but I made a set of extension cords that had an electric junction box on one end. One side of the junction box had a regular electric outlet and the other had a light switch mounted on it that turned the power on and off. I wish I could post a picture here because I know that’s not a great description. It only coast a couple bucks and allowed me to totally cut power to whatever I had plugged into it. I never thought much about the phantom power issue but now I intend to build a few more and put them on all my electronics.

  18. Jack,
    Regarding the protection of one property in the event of default on another, I just wanted to expand on what David said. I’m not an attorney, but I know a lot about how the debt system in my state works. Alabama is a recourse state, which means that if your home is foreclosed on the lender can sue you and get a deficiency judgment. Once they have that judgment, they can levy your bank accounts and garnish your wages. In addition, the judgment alone automatically places a lien on any other property you own in the state of Alabama, and when you go to sell that property you have to pay up. In addition, if the property is paid off and worth enough, it is my understanding that the lien-holder can then force a foreclosure sale in order to recoup the value of the lien.