Hunker down folks we are heading into a depression!

I will not profess to be an expert on economics, far from it, but what I think I do have is a sense of reality. My sense of reality is that the United States, if not the entire world, is heading into a depression similar to 1929. I base my prediction, not on fancy statistics on money supply, money multipliers, Keynes versus the Monetarists, rather I base my prediction of the future based on simple demographics. And there is only a single statistic one need to understand to see where we are headed. For our economy to remain vibrant, we need consumption of goods and services. Each dollar that is spent on consumption has a multiplier effect in the economy. So, when I purchase a particular good or service, that purchase adds money to the economy which in turn creates additional spending producing that good or service, and so on and so forth. So the impact of that single purchase has a ripple effect. Now… as one moves through life we go through purchasing stages. We start by purchasing our first home… which creates a stimulus. Think of the home as a “nest”… this nest is where our consumption begins. First we furnish the nest, then we fill the nest with children, and then we move up to a bigger nest, and again repeat the furnishing pattern. All along the way… we are consuming goods and services. Typically one is a net consumer of goods and services, ie we spend more than we produce, from the age of 20-50. This 30 year period I call the consuming years. From 50 until we die we slowly become negative consumers. From 50 and beyond we downsize our nests, the kids move out, and we generally consume far less goods and services. And in many ways we are negative consumers. WE save money, we invest in our retirement, and ultimately we live off our retirement savings plus Social Security. This brings me to my simple demographic statistic that tells me we are headed towards a depression. 1959 was the last year of the “baby boom”… the generation behind this “boom” is far fewer in number. Given this the number of “consumers” compared to “negative consumers” is reversed. We have entered a period where there is going to be far less consumption, and without consumption of goods and services, our economy will contract. Depending on how significant the drop in consumption, will impact the severity of the coming depression. Again looking at simple demographics, the “baby boomer” generation family size typically was 3-4 children, but the following generation saw family size more in the range of 2-3. This means consumption in the United States could drop by 25-50% simply based on population changes. Given this, a depression is unstoppable… and this depression will likely last for 5 years as the entire economy adjusts to lower consumption. In the meantime, home prices will collapse, the stock market will plummet, and unemployment will rise dramatically. My advice is to move to cash or commodities and away from stocks, homes, or similar assets. I hope I am wrong, but demographics are not favorable. And for god’s sake ignore your broker’s advice.

Social Security… a Ponzi scheme only dumber!

A Ponzi scheme similar to a pyramid scheme requires people to send money or invest money with the goal of getting abnormally large returns on investments. Typically the schemes go like this: First someone convinces another to invest or send money to someone on a list. Each investment or time money is sent to the person on the list, those below move up. In theory eventually those at the bottom move to the top and get huge sums of money sent to them either as checks from those in the pyramid or the Ponzi man who uses other duped people to satisfy the returns promised to the original investors, often one in the same. The big attraction is that there are abnormally large returns.

Social Security is the same thing. Workers today, are sending money to retired workers with the hopes of someday becoming retired themselves and receiving their checks from workers lower in the pyramid. The bad news is that unlike a Ponzi scheme, Social Security returns abnormally low rates of return on investment. One would be far better to invest their money in other financial vehicles. So in the end Social Security is a stupid Ponzi scheme. So I ask all you Liberals out there, do you really want the government to take over healthcare, when it can’t even design a proper Ponzi scheme… one that returns above average rates as compared to a simple “certificant of deposit”? I figure if they can’t construct a smart Ponzi scheme or pyramid scheme there is no chance they will be able to tackle healthcare for ALL!