Let me use a real life example to explain how that works. In 2009, Microsoft unveiled a new search engine. To get people to begin using it, they started a promotion. If you used Bing to arrive at a website and made a purchase, any purchase, on that website, you would get a ten percent discount (maximum $100) and you could do this once per day for ten days.
Armed with a new $10,000 credit card that offered zero percent interest and no payments for the first year, I bought 8 one ounce gold Eagle coins from Ebay. They were costing $1000 each, and with the discount, I managed to only pay $900 each for them. Why didn’t I buy ten? Because a lot of other people were doing it, and the coins had risen in price quickly and it was no longer a deal. In les than two weeks’ time, the price of gold Eagles went from $1000 to over $1100, even though the price of gold didn’t move.
Why did that happen? Because the demand side of the supply/demand equation was pressured, while supply remained the same.
The coins: I held on to them for almost a year, sold them for $1800 each, used the proceeds to pay the credit card off, and walked away after doubling my money- well, their money. I made $8k using the credit card’s money.
Many people who are in the general public don’t like “bankers” but without them, it is very difficult to build wealth and for a modern economy to function. Money is the means with which we engage in trade- it enables two people to trade goods and services.
Money permits the farmer to barter for medical services without having to travel to the doctor’s office with a lamb in tow to use for barter. It permits the doctor to barter with others for things that can’t readily be traded for- the doctor can’t mail a leg of lamb to the electric company, and it’s difficult for the electric company to barter with a bushel of electricity.
Once we admit that money is a necessary commodity that permits modern trade, we also realize that we sometimes don’t have enough liquidity to make large purchases. In these cases, we find someone willing to loan us the money. Seldom do we have friends and family that have enough in liquid assets to loan us money for a house or a car, so we enlist strangers and acquaintances to loan us money.
Those people aren’t going to loan us money without knowing the risks of not being repaid. They evaluate that risk, and looking at people with similar financial profiles, determine how risky it is to loan you money. That is, how likely is it that you will default on the debt and walk away with their cash? So let’s say that the lender determines that people whose financial situations are similar to yours default on loans 1% of the time.
The lender needs to be compensated for his administrative overhead, the risk he is undertaking, and still have enough for a profit. If he were to invest that same cash into a mutual fund, he would have significantly less risk and expense, so he needs to make more than he would make investing in that mutual fund.
In this case, the mutual fund would pay 2.5%. The lender’s overhead is another 1%. If the lender doesn’t get to charge at least 3.5% interest on this loan, he is only breaking even with that mutual fund, and that doesn’t even account for risk.
In order to measure risk, the lending industry has developed credit scoring, with Fair, Isaac, and Company (FICO) being the company with the most widely used scoring model. Let’s look at default rates for different FICO scores:
You can see that loaning money to people with a FICO score of 700 or higher means that you have a 6.4% chance of losing your investment. Using the numbers from our example above, if we were the lender, we would have to charge 9.9% interest to get the same 2.5% we would get from that mutual fund. In this case, we have one of two choices: we can lend to people with a 700 credit score or more, but at 10.9% interest, or we can loan to people with a 750 FICO or higher, and because the risk is lower, we could offer loans at 6.5%.
The issue here is that only 40% of the public has a score of 750 or higher, and everyone wants to lend to them because the risk is so low. For those reasons, competition is fierce for their business, and we will likely only be able to charge 5.9% for loans without collateral, and 5.7% for loans with collateral, because collateral reduces our risk.
This is of course a simplified example, but it does show that this is a simple math problem that balances risk with reward. This doesn’t mean that bankers are evil.
Let’s suppose that you had a chance to choose between two employers. One offered to pay you $20 an hour, and there was a 99% chance that your paycheck would cash without a problem. The second employer offers you $100 an hour, but there is a 35% chance that your paycheck will bounce. It’s a choice that you want to be careful with.
Banks do the same thing. Why would someone loan you money unless there was a reward for them doing so? Anyone who has loaned a friend or family member knows that there is a chance they will never see that money again, and that is for people you know. Absolute strangers are even more likely to walk.
I discovered that myself when I invested money in some peer to peer lending on Prosper.com. I put $500 into that website, loaning that money by partially funding several different loans. The terms there are simple- people see the credit scores of lenders, and bid on funding those loans at whatever interest rate they are comfortable.
So let’s say that you want to borrow $1,000 and your credit score is a 740. There is a 6.4% chance of a default, so the bidding begins. Your loan is funded by 30 people who offer to lend you the money at 8.9% interest. You have to repay that loan in 36 months, with a monthly payment of $31.75. At the end of the three years, the people who funded your loan would have received $1.10 in return for every dollar that they loaned you- a profit of 10% over three years. (some of the interest charged is given to Prosper to cover their expenses)
If you only make a year’s payments before defaulting, each dollar invested would only return 69 cents, meaning that the investors lost 31% of their investment.
That’s why interest gets charged, and a basic idea of how it’s calculated. If interest wasn’t charged, then there would be no money to lend to anyone.
In New York city, rents have become so unaffordable that people are paying to live in communal living spaces- you get a small bedroom to yourself while sharing a bathroom with one other person, then share a living room, a kitchen, and a gym with the rest of the building. You get a shelf in the refrigerator that you share with four other people, and a small locker to keep food in. Amenities include WiFi, breakfast once a month, and a weekly cleaning service. In all, you share this stuff with 23 other tenants for the low price of only $2100 a month.
The building in the story has four stories- six people to a floor. Each floor has a small living room and kitchen, three bathrooms, and six bedrooms. The basement has a laundry room with three washers and three dryers, as well as a small gym with a few workout machines.
When I was broke and young, I had roommates. What gets me here is both the price and the fact that these are people in their middle age years doing this. The guy in the story is 33 years old, and isn’t facing some new temporary situation like a divorce. He is choosing to live like this because he likes “the vibe” of living in New York city.
Star Wars came out when I was a young boy. When I was a kid, I used to fall asleep wishing I had a lightsaber and an X-wing fighter. I dreamed of what it would be like to fly it to school. Those are the dreams of a young boy.
In this scenario, there will likely be a good amount of cheating involved, just like in 2020. How hard we are screwed depends upon how far down the cheating goes. Heading into the election, the Republicans have a 220 seat majority over the Democrats’ 215 seats. (There are three vacant seats.) Democrats need to gain five districts to win a majority in the chamber. That would be bad.
The silver lining there is that the Democrats would need to gain 75 seats to have an Amendment approving 2/3 majority, and that isn’t likely to happen.
Things are almost as bad in the Senate, where the Democrats hold a 2 seat majority. There are 34 seats up in 2024 – including a special election in Nebraska. 23 of those seats are currently held by Democrats or Independents. Republicans can retake control with a net gain of two seats.
If the Democrats win the Presidency and both houses of Congress, Kamala is planning on Federalizing the patents of any company that doesn’t comply with her price controls.
Now on to the other possibility:
What if Trump wins and takes office?
OK, now what? The US has more than $142 trillion in unfunded liabilities, and we are bleeding to the tune of $3 trillion or more per year. That number is so staggeringly large, it’s difficult to imagine. To put it in perspective, this number is equal to more than 93% of everything that every American has. This includes all of their assets in savings, real estate, corporate stocks, private businesses, and consumer durable goods like automobiles and furniture.
More than two thirds of that debt- $104 trillion- is Social Security. The only way to save everything that you own, the US will need to repudiate Social Security. The money that’s been coming out of your check every week? That money is gone. Even amongst my readers, I can hear the cries of “but, but, I had better get paid, that’s my money.”
What do you think will happen to any politician who tells you that the US can’t afford social security? Yeah.
So Trump can’t and won’t do a thing to stop that bleeding. Even were he to try, Congress won’t buy into that, and neither will the American public. There is no stopping this juggernaut. So everything that you own, all that you have saved, everything, is going to be gone. There is no choice but for the economy and the government as we know it to collapse. It’s just a matter of when.
Once the money stops flowing and people are hungry, they will cry out for a strong leader to fix everything. Sure, the government will be out of money, but they will still have guns, ammo, and lots of hungry enforcers. In collapsing governments, the people with the guns and the authority never go hungry. That’s why Kim Jong Un is fat in a country full of starving peasants. We will see a dictatorship in this country that will last for generations, and many in the government will support this if it means becoming rich.
So with the above facts, if you disagree, tell me how Trump winning will fix everything. I just don’t see any other end to this.
Knowing that, all we can do is prepare for the worst. Sure, vote for Trump because that’s all we can do, but that doesn’t mean that you don’t prepare for what is to come.
My prediction remains the same: The bureaucrats and Democrats (I know, same thing) will make sure that Trump doesn’t again become President, and we will be on the road to communism in short order. Even if Trump were to win and take office, we will wind up in a collapsed economy and people will demand that debts are cancelled, the rich will be blamed, and we will still be on the road to communism.
Tell me how I am wrong. Don’t just say silly, childish wishes like “Just because YOU can’t see it, doesn’t mean that there’s no way out.” Tell me how I am wrong, give me a realistic path out of this. If not, you are engaged in childish wishes that your government betters are going to somehow come up with a solution, and you might as well wish for an X-Wing fighter and a lightsaber.
Modern monetary theory, the idea that the government can print all of the money it needs, is the pet idea of the left. MMT theorists explain that debt is simply money that the government put into the economy and didn’t tax back. That’s how you get morons who can’t explain how the economy works running the country, for example the Biden administration’s chief financial advisor:
In case you were wondering how we got the Kamala Crash:
This is the Biden-Harris Administration’s handpicked Economic Advisors Chair, Jared Bernstein, struggling to understand basic economics and the consequences of uncontrolled money printing
The adherents of MMT believe that the government can print all of the money it desires, without consequence. Bonds and taxes are the means with which the government controls inflation and levels the playing field. If the economy gets too hot and inflation results, all the government has to do is sell more bonds. This reduces the money supply and cools the economy. If this causes too many people to get rich, raise taxes on the rich, and that levels things back out.
Stupidity. It hurts me to even type that drivel. The simple fact is this- the left has little to no understanding of how economics, or even money, works. That’s why so few of them run businesses, why so many of them are struggling financially, and why our nation is in the financial crapper.
Let’s say that you are making and selling a product. You sell that product for $4 each, but no one really wants it. You won’t sell any. What to do? You change the product you are making to one that people actually want, and now you can sell them at $4 each all day long.
Until someone sees how much you are making on it and offers a similar product, but for $3 each. Your sales drop as customers buy your competitor’s product. So you make changes to make it even better, and now everyone wants it. The problem is that you can no longer keep up with demand, so people who NEED that product offer you $5 each. A bidding war ensues, and eventually you are offered $100 each. Do you turn it down? After all, that would be price gouging…
Of course you take the money. All transactions are a combination of a willing seller and a willing buyer. All sales of all products are negotiable.
That happens every day with your labor. The labor that you perform is the product you are selling. Michael Jordan played basketball like no one else, so he made millions. When people saw the shoes he wore, they wanted to be like Jordan, so millions bought his shoes. He added hundreds of millions of dollars of value to the Air Jordan brand, so they paid him.
Robert Downey Jr made the Avengers movies what they are. Few people would pay $20 to see a movie starring Steve Smith. However, tens (hundreds) of millions of people did so to see RDJ in the Avengers movies. That’s why he makes $40 million per movie. Without him, that movie is a losing proposition. Without RDJ, this movie isn’t going to be made at all. This makes RDJ’s value in the movie industry sky high. No one goes to see a movie because some rando that no one has even heard of was 1 of 40 other nobodies in the costume department. That’s why jealousy fueled rants like this are stupid.
I will repeat it until I'm blue in the face… I made $12.50 an hour working 70+ hours a week on Black Panther Wakanda Forever… went up to $14 on Blade v1.0… https://t.co/ggKTWik5lM
If you aren’t happy with the money you are making, you need to find a way to make your labor more valuable. No one is going to pay you $50 an hour for labor that literally anyone can do, because there will be a line of people behind you who are willing to do that job for $40, $20, or even $15 an hour. In order to make more, the value that you add to the deal dictates how much you will make. Simply saying that the employer owes you “a living wage” as you whine and complain on Social Media isn’t helping.
That goes for literally any job. That’s why Gordon Ramsey makes what he does- he adds enough skill to the deal that people are willing to pay $40 for a hamburger (not me, but people). Find a skill that is valuable and become good at it. It may take some time, but the money will follow.
We can’t all be Robert Downey Jr, Michael Jordan, or even Steve Jobs, but all of us don’t have to be making minimum wage, either.
You all know that we moved to a new home at the beginning of the year. We placed our house on the market about two months ago. At first we tried to do a sale by owner. No dice. We had only one person contact us to inquire, and that led nowhere. After a month or so with no leads, we hired a realtor, who has had at least four open houses, but no dice. So we cut the price by $25k about two weeks ago. Still nothing.
No other houses that are listed in the area are selling, either. It looks like the bottom is falling out of the housing market. Nothing is selling. The realtor says that he isn’t moving inventory, and he thinks that people are waiting to see if sleepy Joe is going to get ousted, which will change the nation’s economic course and lower the insane interest rates.
In the meantime, Zillow is still showing that prices are falling like a rock. The price that Zillow is estimating for our house is a full $60k less than it was six months ago, and $10k less than it was two weeks ago.
All I know is that we have decided that, should our house still not sell by the end of our contract with the realtor, we are not going to cut our price again. Instead, we will convert it into a rental and ask for $2500 to $3000 per month in rent for an 8 month lease. Then we will see where the market is in 8 months.
