Europe / US Debt Issues

[LAndersen]

With all that is going on in both these areas, what do the implications mean? It seems like noone is willing to step up to the plate and make the tough decisions about letting Greece go bankrupt. They are simply to far gone and we need to let them go. What about the US? I don't know but I certainly wouldn't invest there, in my humble opinion! They need to right the ship now, not in 5 - 10 years. The world economy can't continue to go on with all this debt in these failing economies, such as Greece, Ireland and Spain to name a few. It is simply madness.

 

[Thomas Beyer]

Indeed.



But just like an alcoholic or drug addict seeking himself off it, it takes deep commitment and the beginning will be brutal.

This is tough to get in a democratically coddled, spending addicted society with free health care, free schooling, subsidized university, indexed pensions, high minimum wages, high civil servants salaries, short work weeks, long vacations .. tough tough to change and get elected on !



We are borrowing prosperity from the future into the present and that cannot continue indefinitely !



We will have an environment of stagflation for years, likely decades, ie slow real growth or contraction in many countries (ie stagnation) coupled with inflation ie increase of prices of REAL assets such as bread, fruit and vegetables, gasoline, heating, electricity, oil, coal, gold, copper, uranium, wheat ... Thus: invest in economies that are hard asset producers ... With low to no debt .. As opposed to indebted nations or provinces that have few sources !



Thus, be on your knees twice a day that you live in Canada which is relatively immune to all this due to its abundance of all these natural resources .. better of course "out west" than in central Canada !

 

[LAndersen]

Looking longer term though, aren't we looking at a deeper more drawn out recession scenario with stagflation as a result. What does this mean? Will there still be demand for what we have and produce? Yes, oil is needed but will the forecasted demand be correct? Not trying to be a pessimist but trying to get a better understanding of how this impacts our investments here in the west.

 

[housingrental]

LAndersen - most likely lower housing prices

 

[johnsu]

I think there's a real battle between Political and Civil issues that might arise if these countries were allowed to go bankrupt. I think that Canada will defiintely be affected and are not shielded from the effects of Europe and US. We will definitely be the BEST of the Worst though!



Us humans are resilient breed and will do WHATEVER it takes to survive or face total human annialation which means end of the world

 

[LAndersen]

Depending on what happens in Europe, I see civil unrest being very likely! Same goes for the US although most people down there it seems don't have a clue how bad off they are. These next few years will be interesting to watch. Hang on for a wild ride!

 

[Thomas Beyer]

[quote user=LAndersen] I see civil unrest being very likely!


gee .. didn't we have riots in the UK or East-LA or Greece already ?



It'll continue .. and possibly HERE TOO .. as Canada's wild spending, on both the federal, provincial and municipal level with out-of-touch salaries and certainly benefit plans or indexed pensions is a serious issue that is just being started to be debated .. at least in the US it could make you presidential material i.e. Chris Christie in NJ. Chris Christie was being elected specifically because he addresses heads-on the municipal unions and high wages and huge regulations that benefits primarily unionized workers and bankrupt the state. Essentially that is happening in BC, in Ottawa and many other jurisdictions.



See article here on the most powerful union in BC, the municipal employees union, which is of course against audits: http://www.vancouversun.com/news/Editorial+Auditor+general+municipalities+will+help+cities+costs/5261489/story.html



ditto: BC Ferries increased fares 60% and a very large % of employees make over 75,000/year .. see here: http://www.vancouversun.com/business/Opinion+Ferries+bonuses+salaries+soar+while+earnings+sink+Gravy+Boat/5330808/story.html



ditto: Montreal wants to raise retirement age (at the expense of young people of course who are getting screwed and saddled with debt): http://www.montrealgazette.com/life/Mayor+wants+raise+retirement+municipal+employees/4988537/story.html



ditto: Royal Bank has defined benefit (DB) plans still .. as opposed to Defined Contribution (DC) ? Time to unload that stock ? http://www.vancouversun.com/business/defined+benefit+pension+employees/5457743/story.html When I was at IBM in Toronto from 1993 to 1995 it was changed from DC to DB .. over 15 years ago .. and the Royal Bank is just NOW addressing it and stating "oops .. we might have a problem here" !



Let's not be fools here in Canada. The entitlement mentality is well spread here too .. especially in the non-market sector of crown corporations, quasi public firms like BC Hydro or BC Ferries or the entire public sector. In my opinion it is THE MOST PRESSING ISSUE between my kids generation (in their young 20's) and baby boomers (in the late 50's to late 60's) and the key reasons for associated debt accumulation !!



Maybe not yet as severe yet as Europe as we have less older people as a % of population and more immigrants .. but certainly a ticking time bomb hardly anyone talks about in earnest. Politicians, even conservative ones, still are way to shy to address this issue head on.



Where is Canada's tea party ? More fiscal prudence please !! far more !!!!

 

[AlexS]

I managed to short tons of RIM shares and made a killing recently. I intend to do the same with many companies that reside in the U.S. The stock market is not stable and i've been able to use this to my advantage.

I'll probably be investing in long term development such as a bio fuel company that i've been in contact with. I also believe green energy is a great investment... as the global economy gets worse the frequency and intensity of the changes that are to be made also increase.



At the moment high risk yields VERY high reward. The added benefit to this is that it's not as long term anymore either.

 

[Thomas Beyer]

[quote user=AlexS]bio fuel company some possibly .. but also many scams in that space based on unrealistic assumptions.



Low natural gas prices will make this sector specifically risky in my opinion !



[quote user=AlexS]At the moment high risk yields VERY high reward.


Elaborate please .. what specifically ? High risk CAN yield high reward but could also yield zero !

 

[AlexS]

RIM being one example, or even NETFLIX. These are companies that have dropped incredibly. And in some ways this is a good thing because you can short them or buy low sell high etc. What I mean by high risk VERY high yield is that the state of the current economy has had a very large impact on the emotions of many investors.. the question is when do we take advantage of this? When exactly do we buy before we see it skyrocket back up? I remember around the time when boehner introduced the cut cap reform, shares RBC shares dropped to around 30 dollars, and now look at where they are! This same concept applies to real estate... We should be rejoicing about these price drops but at what point should we celebrate?

 

[Thomas Beyer]

[quote user=AlexS]We should be rejoicing about these price drops but at what point should we celebrate?


When DOW and/or TSX is below 8000

 

[LAndersen]

So what would be the solutions to problems like these? I have a tough time here somewhat as my wife is a public sector employee with all the trappings of that. If we could we would look at other options with the retirement money but we don't have that privilege currently. Long term, this I deserve it mentality is going to ruin us. I think we have to take on more responsibility ourselves and get out of the having the government take care of us. Yes, there will always be some whom need the state to care for them but we as society shouldn't be forced to pay into schemes such as CPP which probably won't be there when we need them. While Canada is in a good position currently, look out down the road as our boomers retire and our work force ages. I think that we in Alberta are in a pretty good position but must make some tough choices going ahead to maintain our competitive advantage.

 

[Thomas Beyer]

[quote user=LAndersen]So what would be the solutions to problems like these?


Some radical solutions such as:

a) free schools to grade 8 .. then fee based to grade 12

b) reduction of minimum wages by 50% or complete elimination of minimum wages

c) very basic public healthcare, rest for fee

d) no forced unions i.e. right to work legislation

e) RRSP accounts fed by employers and employees and state

f) lower income taxes .. rising %wise gradually to 60% if over, say $200,000

g) far lower salaries for municipal, provincial and federal employees .. and far fewer of them

h) higher interest rates .. say 6% prime rate (and not 3%)

i) higher consumption taxes .. say a GST/VAT/HST of 15%

j) tax of stock trades of 2%

k) capital gain elimination if stocks are held less than an hour (ie taxed at 100%), 80% if held less than a week

l) elimination of capital gains exemptions (as income tax is now lower)

m) tax on base capital of large firms or banks (ie cash hoarding is taxed and is forcing cash back into loans .. today most banks borrow at 1% and lend at 4% almost risk free .. why lend to a small business .. see item h)

n) legislated no deficit balance sheets for municipalities, provinces and federal government

o) a tax on each immigrant

p) far higher gasoline taxes, say $4 a litre (phased in)

q) a child cash payment of say $1000 per child per month plus a $10,000 new baby bonus

r) family income tax splitting if married

s) an import tax on manufactured good from abroad, especially from countries with high pollution, human rights abuses or not a democracy (ie folks that compete unfairly)

q) a very high waste tax as too much short-lived stuff is produced that ends up in the garbage bin (2 seconds after use, a wrapped plastic spoon, for example or a cheap toaster after 3 month or a car after 12 years)



All those have to be phased in, of course .. but the goal has to be stated. It is not today !



Since they are so radical it will take a while to discuss each items and implement them gradually as each group affected will lobby hard to not have that item eliminated: say capitalists will argue: taxes are too high on the top end and there should be capital gains exemptions .. teacher will argue: I need a raise .. stock traders will argue: it'll kill the stock market etc .. car manufactures will argue: it'll kill the car industry ... etc etc etc .. whine whine whine !



We need some politicians with spine. Likely it has to get a lot worse first before it gets better. In that aspect the US is far ahead of us. They at least recognize the debt issue and the union issue and the fat salary issues of civil servants and are debating it. In Canada it is all "hum ho .. all is well."



The state cannot insure every person for every reason in every instance .. it'll go broke !!



Plus, we allow far too much imports with far too little restrictions ruining our own economy !



The welfare state nurtured the last 50 years is coming to an end .. FAST !!!

 

[RealtorDave]

Interesting solutions Thomas. I agree with many, esp. regarding the environment ones. Only thing I don't like is that, as you said, these will all take a long time.



I think there's steps as individuals we can take immediately to start to change things.



The first is get your own financial house in order. Not only will you not have to be dependent on the state, but you can become a living example for people.



The second step is to do like Thomas, become an educator. Starting a business to help people is a great thing as well.



Ultimately I think we all need to take responsibility. Start with yourself and grow out. The politicans can't help us at this point.

 

[RedlineBrett]

[quote user=ThomasBeyer][quote user=LAndersen]So what would be the solutions to problems like these?


We need some politicians with spine.




I'd agree with this statement most of all. I'd also like to see smaller government.



However I'd be all for paying our politicians huge bonuses and salaries. It happens in business so no reason it shouldn't happen in government. I'd pay our government $100M if they save us $100B! That might be what it takes to attract people with the 'stuff' to do what needs to be done.



The problem is that voters like their quality of life and now that they have these great entitlements they're not likely to vote them away.



That's probably the biggest challenge facing modern democracy. Most of the changes you suggest would greatly affect the quality of life of the lower income demographics... who also make up the greatest % of population. How do you get them to put their country's fiscal self interests ahead of their own? Not an easy sell.

 

[Thomas Beyer]

[quote user=RedlineBrett]The problem is that voters like
their quality of life and now that they have these great entitlements
they're not likely to vote them away. ..



That's probably the biggest challenge facing modern democracy.


Indeed: why vote for short term pain !



That's why autocratic regimes like China are eating our lunch !



That's why most democracies accumulate debt, and thus: and INFLATION i.e. de-valuation of money. That is the best argument for REAL assets like gold, silver, oil, uranium and REAL estate with income producing attributes.



That's why Canada is less at risk than Europe as it has a lot of REAL resources in the ground. The US, btw.

It is mainly smaller, non-resource owning countries that get affected the most, aka Greece, Spain, Ireland, Portugal, ..



[quote user=RedlineBrett]However I'd be all for paying our politicians huge bonuses and salaries. It happens in business


True, managers should get paid for performance . to a point .. unclear to me why many large firms need salaries that top, say $500,000 .. it is another entitlement. Many bankers took multi-million $ bonuses and the banks still failed ..

 

[LAndersen]

The issue with much of this is entitlement. All these ideas are great but we won't be seeing them. Simply put, who will go first? What politician would vote to cut the gravy train?



There is simply only one way that this will change. I am not disagreeing with any of the ideas. They just simply won't work until the pain of staying the same course is greater than making the difficult changes that are needed.



As a country, Canada is doing pretty good but we must have smaller government. I thought that Mr. Harper would do this but apparently not and we must have policies that will be for the future, not just reactionary. We need to elect leaders who have a clear vision for this country, or province and sadly we haven't got them in either place it seems.



Alberta just commissioned a report in the spring about what to do with our resource wealth and what has happened to it, it sits on the shelf, yet again. No one wants to tackle the issues here.

 

[housingrental]

Wow just wow

Thomas your first option is just so outrageous.... to critique further is not needed

What ever happened to equality of opportunity?

Where would you be today if you weren't blessed with the options that you had?

 

[Thomas Beyer]

[quote user=housingrental]Where would you be today
Societies would have less debt .. and the "first" world would be more competitive with Asia today !



"Equal" opportunity is a myth .. and it costs a lot. Someone has to pay for it. Every "right" people want or get costs money .. ideally paid by SOMEONE ELSE ! There could be bursaries for the poor but gifted .. but not for everyone.



The Bismark inspired social welfare state with free schooling has been abused, too.



Asians who come here are shaking their heads and are willing to spends tens of thousand of $s for their kids schools, for example. Why ? Because they come from a country where they know good schools help advance your career. They are willing to pay for it big time. The "white" natives expect it for free. As stated: too much entitlement .. from cradle to grave: all at the expense of "the state". Well guess what: the state cannot afford it all anymore. Cuts have to be made. Small custs today .. or more drastic cuts tomorrow !



Not every person needs to finish 12 years of school [say a hairdresser or a cleaning person or a truck driver or a gardener or a retail clerk or a carpenter ...] . Basic reading, writing, history & math skills can easily be taught in 8 or 9 years.

 

[housingrental]

Hi Thomas



Thank you for your response...From your perspective, and your proposed society, please answer these questions:



What happens when the cleaner, with his grade 8 education, decides he wants to do something else with his life and is shut out of options because of the barrier of cost?



What happens when the grade 8 student wants to continue on to grade 9 and beyond and is not able to because his family - which is not a choice, just luck of birth - is not able to, or willing to, pay for continued education?



Should who you were born from determine your future? Or should the role of the state be to allow for greater equality of opportunity regardless of family wealth?