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Archive for June, 2009

One of the lead stories (and photos) in todays Newspaper was about a little girl who’s family had just been burgled for the seventh time in 2 years. (under the above headline)

girlLeaving aside for the moment whether:

a.) Is it true?

b.) Would moving have been a good idea – a year ago?

c.) Is this just a clichéd and crass grab at our heartstrings?  (by the MSM with a photo of a “Sad little (white) Girl”, where the photo is twice the size of the article)

I did have some other, less cynical, thoughts on the matter too.

Yes, that really is a shitty sort of thing to happen to a family and young kids, and she is right to say it is just mean and selfish.  The neighborhood they live in is on the poor side of town, so you have the poor stealing from the poor. But what can you do?

Well no doubt there will be an up-welling of support for the family over the coming days, and money and goods will be donated, etc etc.

And no doubt that was anticipated by the Newspaper as well.  And thats not a bad thing at all.     But…!

One family is fairly easy to do something for like that.  What about all the other people and families and little girls out there that have also been shafted by circumstanced they in no way deserved?  If it is one family that has been robbed, maybe you can catch the thief and effect some sort of restitution, or gift something to compensate.  Maybe you can even do that for a hundred families. But what about when it is thousands of families, or tens of thousand, and it isn’t the local scum-bag hood down the road who is stealing your TV and stereo to support his drug habit. What about if it is your biggest Banks, insurance companies, financial institutions and even the financial regulators themselves who either defacto or dejure are wiping out your livelihood and life saving.  When the habit they are feeding is a greed for more, more power, more money and to hell with the hindmost.

Well, we don’t have to imagine it, it is happening as we speak. Scumbags are busting up the lives of regular honest working folk while hiding behind self serving laws and institutional fronts.  And because they wear a white collar and get called Sir and your Honour and CEO, they get away with things that would get other people thrown in jail. Its also not so easy to draw the direct linkage between the actions and the results. But it is still just mean and selfish, it’s just on a vasty bigger scale.

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(did you notice that apparently I am not above a little emotional manipulation either – and have made use of the same photo)

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Hat Tip

After reading this article I decided to re-post it here in its entirety.

But I entirely recommend you go read this and his other articles at:

http://www.oftwominds.com/blog.html

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Devolution: 20 Predictions

June 23, 2009

As cities, counties and states default on their obligations and unemployment insurance runs out, devolution sets in.

While some see a collapse of society in our future, right now I see devolution, not revolution. Devolution is both the process of degeneration and the surrender of governmental powers from central authorities to local authorities.

Devolution will take many forms. The key driver behind devolution is simple: there’s not enough money to fund the status quo, so something has to be cut, axed, trimmed or devolved. Examples already abound: the number of school days in the year are reduced to shave expenses, two-times-a-week trash pickup is cut to once a week, etc.

The key constraint on devolution is also simple: the status quo power structure must be left intact. Nobody will willingly surrender their power, so devolution means services and front-end expenses will be cut in order to protect back-end administrative powers.

Thus public union bosses won’t be suffering any big cuts in pay or benefits, and neither will their municipal and state administration counterparts. (Of course there will be symbolic cuts for PR purposes, but nothing deep.) What will be cut is part-time librarians, custodians, county park staff, etc.–the powerless people who actually serve the public.

As the states run out of money, they will surrender some limited powers to local authorities as a mechanism for ridding their budgets of certain costs. As cities and counties go broke, then they will devolve some modest authority to non-profit groups or volunteers.

As laid off workers’ unemployment insurance runs out (yes, even the extensions run out as the states’ UI funds drain to zero) then their lifestyles devolve/degrade: first, eating out and vacations go, then new clothing, then the second car, then college, then the house, and so on.

Devolution is a painful process, but the State (all government at all levels) and the Plutocracy (owners of capital and productive assets) vastly prefer devolution to revolution because devolution doesn’t threaten the current status quo/Powers That Be at all.

Devolution depends on humanity’s innate ability to habituate to nearly anything. Thus humans somehow adapt to concentration camps, bitter cold, intolerable heat, mind-numbing work, etc., especially if the new environment is introduced over time in stages.

Thus the middle class household might actually respond with an anger deep and hot enough to become political if their middle-class lifestyle was taken away in one swoop. But devolution insures that the process is akin to the famous analogy of the boiled frog: if the temperature of the water is increased slowly enough, the frog never notices (or so the story goes) that he is being boiled alive.

The middle class household forced to sell everything and move (surreptitiously) into a storage locker or into an RV will feel a shock of recognition that all has been lost, and that perhaps forces beyond their own personal decisions might be at work: forces which benefitted from Federal bailouts, for instance, in a way they can never hope to. (That $150 billion transferred through AIG to Goldman Sachs would have funded a very large national unemployment insurance pool.)

But if their middle class life is taken away from them over time, in pieces, they will habituate to each loss without any political enlightenment; they have fully internalized the MSM propaganda (and recall the mass media is owned by less than 10 global corporations) that the “problem” is their own, not “the system’s.”

A revolution occurs when great numbers of people realize that the system benefits the Powers That Be, not the citizenry, despite the PTB’s constant assurances that this is the very best system on Earth.

So the surest way to secure one’s lofty privileges and powers is to convince the people who have lost everything that it’s all their own fault; if they were just smarter, possessed more degrees, had better judgment, weren’t hooked on anti-depressants, etc., then they would be jolly, wealthy, etc.

In a similar fashion, local government will attempt to manage the degeneration of their services in such a way that the public does not realize it’s being boiled. If the trains and buses all stopped running, people might be angry enough to turn off their TVs and demand some actual, real political change. But if services are slowly degraded over time, the public will sigh and habituate to it.

Meanwhile, the police chief, mayor, union bigwigs, et al. will be driving by in their chauffeured vehicles, making sure “the little people” are swallowing the devolution whole. The politicos’ Masters, the Plutocracy who fund their campaigns, will fill their coffers at election time as long as nothing rocks the boat. If the citizenry gets restive, then the politicos will find their funding drying up (Heaven forbid!).

Here are some random devolution predictions for the coming year or three.Many are already visible, so the “prediction” is simply a recognition of a rising trend.

1. Listings on craigslist announcing the selling/giving away of the entire contents of storage lockers will rise.

2. The number of people living in storage lockers “illegally” will rise.

3. Citizens with numerous outstanding traffic tickets will abandon their vehicles when “booted” (locked) by cities as the cars are worth less that the fines due. Cities will start auctioning/scrapping hundreds of abandoned vehicles.

3. The dumping of abandoned clothing, furniture, old computer equipment, etc. on sidewalks and public parks/byways will increase dramatically.

4. Homeless camps will appear in parks and locales which were previously considered off-limits to such public poverty.

5. The number of citizens cited/arrested for unpaid moving and parking violations will rise; judges will begin dismissing the amounts due as the citizens before them have no means of paying the huge fines.

6. Government at all levels will devote increasing resources to revenue collection; new laws giving the State (all levels of government) new powers to stripmine private assets will be passed with strong support from government-dependent special-interests.

7. Government at all levels will assign domestic intelligence assets to the search for additional tax revenues; these actions will be strictly secret.

8. A major sports franchise or two will declare bankruptcy.

9. Spontaneous protests (over evictions, reductions in service, etc.) will increase both in frequency and in the number of participants.

10. Tourism will devolve to visiting relatives and/or car camping; hotels and restaurants in tourist-dependent locales will start closing in ever increasing numbers. Only the top 10% “high-caste” professional and government-technocrat class will be able to travel overseas.

11. Cities and corporations which were previously considered immune to the “recession” will declare losses and huge layoffs.

12. Houses which were snapped up in 2009 for $350,000 on the basis that they once sold for $550,00 will be auctioned for less than $200,000 in late 2010.

13. Local governments outside of the Rust Belt will start aggressively taking over abandoned houses as banks fail and ownership of the properties becomes ambiguous.

14. Local government fines, fees, permits and other business-related licensing will plummet, decimating what was once considered a “safe” revenue stream.

15. State and local government services will rapidly devolve: twice-a-week trash pickup will devolve to once a week; fire stations, libraries and schools will be consolidated; other services will become sporadic.

16. State and local government hikes in fees to use parks, park downtown, drop junk at the dump, get a building permit, etc. will backfire: people will stop going to parks, stop shopping downtown, start dumping junk at night on quiet streets now that the dump is too expensive and start remodeling without permits. Contrary to government expectations, revenues will actually drop faster after all these fees are raised.

17. Church/temple/mosque attendance will rise, as will participation in church/temple/mosque events.

18. Major rock/pop concert tours will be cancelled due to low ticket sales; acts which were “guaranteed to mint millions” wll be forced to cancel their tours.

19. Veterinarians will demand cash to examine pets; people will increasingly be unable to pay for costly procedures for their pets (teeth cleaning, hip replacements, chemotherapy, etc.). Vets will consolidate/close their doors.

20. State/county attempts to openly raise taxes will increasingly trigger tax rebellions and demonstrations; the trickle of residents leaving high-tax states and counties will grow to a flood.

Bonus prediction: California’s current deficit of $24 billion will widen by another $10 billion in 2010. What was once considered “impossible”–state default on bonds, pensions and much else–will come to be viewed as inevitable.

The political propaganda which infuses every moment of our lives tries to maintain an artificial distinction between our Tweedledum and Tweedledee political parties: The Dees are all for using the power of the State (all government) to “help the little people” while the Dums are all for unleashing the power of free enterprise, a.k.a. the 1% who control the capital and 2/3 of all productive assets in the nation (the Plutocracy).

The truth is that the State and the Plutocracy are two sides of one coin; each rules with the support and complicity of the other. The distinction drawn between them is a useful distraction, somewhat like drawing a distinction between professional sports teams who swap players in the off-season. “My team” is an abstraction which serves the goal of enriching its owners; “fan” loyalty draws smirks from everyone in the know even as they proclaim “fan day” and “fan appreciation day.” (The crosstown rival team is of course “the hated enemy.”)

As we watch devolution in action over the next few years, observe how it is managed so the hapless frog won’t jump from the pot. That is what they’re counting on, of course; a devolution passively accepted by a media-duped, gadget-addicted, self-blaming, depressed, drugged-out populace.

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I am interested in why it is that Iran is currently having a social revolution/convulsion.  Sure the economy isn’t the best, and the political situation is corrupt.  But hey, quite frankly there isn’t anything new there.  That has pretty much been Persia’s eternal state. Dirt poor population exploited by an Elite of one description or another.  Typically claiming to be doing so by divine right as well. Amazing how everyone gets to the top of the heap by divine right isn’t it.  Amazing too how surprised everyone at the top is when they get toppled by an insurrection complaining about the lying, cheating, fraud and corruption.  Apparently there is a certain tolerance for all of that, but you cant let it run too far out of hand.  People will start bitching and moaning, well they do that anyway of course, but you sure don’t want the herd agitated into stampeding.  It is the line between the whining and the trampling that is so critical, and hard to pick.  The wise ruler stays on the correct side of that line – and that way you can loot and plunder, almost with abandon, while the sheeple graze on.  Well, like I said, nothing new there then.

What is new though is communications and expectations.  Better communications are giving people an insight into what is happening elsewhere, different standards of living and alternative political conditions. Expectations altered by that communication of new ideas creates an opportunities for social ferment.  The sheeple start looking up, start communicating, start getting agitated, and start running amok.  Particularly when they see the wolves hiding in sheep’s clothing, and the predators are moving amongst us, disguised as normal human beings, predators who view the common herd as just there to be fed upon.  Distressingly commonly our leaders actually are psychopaths, sociopaths or just plain nuts.  Even the sane ones typically aren’t above a little lying, stealing, cheating and nepotism.  Why…?  Because they can of course!  Well, wouldn’t you – if you could get away with it?  Which is were the communications thing comes in.  It is getting harder to get away with things these days – damnit!  What with cellphones with camera’s etc… and people having a distressing attitude and inclination towards questioning their superiors as well.  The cheek of it, who do they think they are?Apparently they think everyone should be equal before the law.

What a revolutionary concept – one sector of society not getting to lie, steal and cheat from another.  Well its a lovely idea I’m sure, but we are a long way from that at present.  Even in the place where that ideal is perhaps most explicitly enshrined, the American revolution’s constitution and social compact has shown itself to fall far short in the application and practice.  That other revolutionary movement, communism, was just as explicit about its social justice objectives – and was an even more abject failure.  Liberté, égalité, fraternité, another fine part of that revolutionary tradition, but to which we now rather need to add: honesty, integrity and morality.  Is that expecting too much, is it beyond human nature to be both a leader and honest?  Well, no its not, that is the substantial part of the whole concept of a Bodhisattva.  So it can be done, albeit unquestionably there is a distinct shortage of the great and the good.  For us general run of the mill types, surveillance and accountability are the best guardians of our morality.  Secrecy and double-speak are the refuge and opportunity of the scoundrel and the thief.  Society can definitely do a much better job of supporting and promoting ethical behaviour.  Openness and  transparency need to be an integral part of  social interaction and transactions – whether we want it to be or not.

It would certainly be a wrench to our Weltanschauung.  Yes, there are nominal processes and requirements to be accountable in many public spheres, but quite frankly they are most often being observed in the breach.  The ongoing British scandal regarding MP’s expenses. The whole implosion of the American financial system, which has as much to do with dishonest accountability as anything else: Madoff, Worldcomm, Parmalat, UBS, the Rating Agencies(Moodys Fitch, S&P), Arthur Andersen LLP, Enron, Stanford, even the SEC.  And those are just the recently exposed ones.  America even gives us the generic name for an accounting fraud, the ponzi scheme.  So apparently our surveillance and accountability processes leave something to be desired.  Or perhaps that should be that our desire NOT to be open and honest exceeds the processes to be so.  We simply aren’t in the habit or expectation of honest dealing, otherwise corruption and bribery simply couldn’t exist.

Which isn’t to say that things couldn’t change.  Merely that the effort would have to be substantial and start from the top. And quite frankly, seeing as how the top is where the best liars and cheats have made their homes, then the only way to clear that vipers nest and start fresh is with a vigorous revolution.  Interestingly, I am not even necessarily talking about government or our elected representatives, although there is no shortage of liars and cheats there as well. One comment which rather says it all is “if voting made a difference, it would be illegal”.  Yes that does infer in part that the politicians and parties we get to vote for are already all bought and payed for by powerful entrenched lobbies, but it equally means that nothing MP’s can do is going to change the status quo anyway.  They only get the illusion of power, and to play at the margins where it doesn’t actually matter. If they tried to actually change something significant (re/move the money), the power brokers would move and they would be quickly deposed, or even liquidated.  Political assassination has a long and infamous history.  Money, politics and power is a rough game and people don’t give up their gilded nests voluntarily. There are a lot of vested interests and there would be a fair amount of shoving involved(from all sides) before you could clear the decks.

There would need to be some pretty astute calculation and observation too.  Because figuring out where all the scoundrels are hiding would not be as straight forward as you might imagine.  These people are expert at hiding in loopholes as well as in plain sight.  Often too, it is a system as much as a person.  We are costantly cheated and ripped off by what I have called irredeemable Institutions.  The waste of money in the big govt departments is legendary, it constitutes a huge and unnecessary  tax and burden on us all.  It takes our money from us to do things we neither need nor want. The genius of the system is that it does it right in front of us and all too often we fail to see or recognise what is going on. But don’t just think government institutions like schools, hospitals or ACC – think Banks, Insurance companies, Utilities (phone/power/water), local councils, even churches.  Lying and cheating knows no boundaries. The best (only?) defense is genuine, open accountability.  Everybody needs to expect to be able to check the books and demand an explanation. There are realistic ways of achieving that too, before everyone starts wailing that its too hard and nothing would be able to get done.  Honesty IS actually doable, and it needs to be seen to be done.

If the stench from the corruption gets extreme enough to motivate urgency and action, then we could get some worthwhile change.  (Oh, and just so we are clear, when I say “corruption” I include in that Financial Playa’s gaming the system to extract ridiculous and fraudulent “profits” and in the process wiping out peoples livelihoods and life saving) Some situations and institutions would only need proper surveillance and transparency to be accountable, honest and efficient.  Others would need to be swept away and replaced completely.  I have my own thoughts on that, as I am sure does everyone else too. Beyond a little recision, excising the liars, cheats, crooks, parasites and scoundrels…..  If it was your revolution(assuming you were prepared to fight to achieve one), what would you change?

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I had a friend visiting from out of town over the weekend.  He and I both did apprenticeships in aviation, but we both moved on from that and he ended up in the building trade.   We had an interesting talk, because he is in a perfect position to know what is happening in the home building sector. As it happens, he and his wife are also in the middle of looking to buy their first home.  So he not only knows what the builders are doing, or are not doing, but he also is getting to see close up what the banks are doing as he looks into getting a home loan.  The reason I am interested in this is because I believe that if New Zealand is going to have an economic meltdown, this is where it is all going to start.

Yes, NZ has a significant and growing unemployment problem.  Yes, there are trade issues and terms of trade issues and balance of payment issues, etc, etc, etc… The same sorts of problems that are affecting the rest of the world are affecting us here too.  But interestingly, nothing like as badly as the rest of the world to date, and nothing like as badly as we have suffered from these issues in the past either. In the last thirty years or so, we have had unemployment  reach around the 10% mark, we are still currently not even at 5%.  Mortgage rates are still under 10%, they have been up to and over 20% in the past.  During the 80’s NZ suffered through, and corrected, many of the types of  economic maladies and miss-adjustments that are now afflicting other economies around the world.  Also, what was previously highlighted as a concern regarding the balance of our economy is currently something of a saviour for it.  We have always had a vast preponderance towards agriculture as the main driver of the economy. Other sectors have never individually been terribly economically significant in the grand scheme of things, and that is now looking like a significant benefit for the country, because we don’t suffer from their down-turn so much either.

Because the NZ economy is based on agricultural commodities and commodities have been one area where international markets have actually held up well relatively speaking, our economy has also held up relatively well.  Yes there has been volatility, as with everything, but food still has to be grown and consumed, that is an absolute. So while people all over the world have been economizing and cutting back on luxuries and other discretionary spending, eating isn’t discretionary, and NZ’s agricultural export trade has continued apace.  All in all NZ is looking OK, even ‘great’, compared to some other countries.  Yes times are tougher, but hardly so tight that people are squealing or anything.  People are still out enjoying the Cafe lifestyle.  Recession – yes, depression – no, and a meltdown…what meltdown?   That is so far off anyone’s radar it is over the horizon.

Well, it might be off their radar, but is it truly so far away or has infact the threat just been sneaking up on us beneath our radar?  The way I am seeing it, it isn’t going to be about what we are, or are not doing anyway, it is about what is happening overseas that determines what results here.  We are just a cork bobbing on the ocean, subject to being battered by any passing storm.  So far the storms haven’t hit direct, and maybe they wont.  Things may just rumble along threateningly for a while and then just fade away.  But I see at least two gaping vulnerabilities for the NZ economy.  Neither of which we have any control over whatsoever.  One is inbound tourism and the other is international debt markets.

The first is pretty easy to summarize. While agriculture is by far our biggest foreign exchange earner, the next biggest is tourism.  In the NZ service sectors, tourism is the elephant in the room.  I even worked for two companies that serviced that market myself, Air New Zealand and Kea Campers (campervans).  I have just read a report stating that currently, inbound tourist numbers are 2.4 million, down something like 3% year on year and as a result the sector is definitely squealing.  Well try 50-60% down and then come back and tell me how bad things are.  Can’t happen…?  Well, it actually is already with some markets, only increased arrivals from Australia have so far held up the numbers overall.  How tight are things going to get in the US, Europe, Japan and Australia? And by extension for us?  Flying off for a foreign holiday at the far end of the world may not be a huge priority for a while.  One statistic I read suggested that anything from 10-20% of the workforce (depending on who’s numbers you use) was employed in the tourist sector or related industries.  A 50% fall in visitor numbers could equal a 50% drop in people employed there too.  If that adds a cool 5-10% to the nations unemployment rate then we are totaling something closer to 10-15% total unemployed. Hmmm, that does start to get seriously significant.  However, is it enough to  get people out on the streets and provoke social revolution?  I doubt it!  Debt could be the thing that does though.

NZ has always been undercapitalized.  It has been a small colony at the end of the world trying to build itself up from scratch and it has had to rely on foreign investment and foreign debt to do it.  In the past that capitol came from Britain and a large part of it still does, but things have changed in the world over the last century and a half. Now a lot of the capitol that NZ has been built on comes from the United States, Japan and even places like Singapore.  The one thing that has never changed though is that NZ has never been able to manage to boot strap itself exclusively from domestic productivity and retained earnings.  Collectively we have always consumed more than we produced.  Interestingly, Kiwi Saver is a commendable attempt to address this situation, but it also wont be material sufficiently to the outcome for a considerable period yet.  In the meantime, the savings rate in this country falls far short of the demand for loan money, and the balance has been made up from oversea’s by international financiers.  So what, you may ask?  Well, because the runaway bubble and inflation of housing prices of the last decade has been financed and made possible by overseas money. Hence the country’s huge foreign debt load and surprisingly it isn’t the Governments finances that are in debt, it is the private sector…. Mortgages!  Banks in NZ couldn’t cope with the demand for mortgage financing without borrowing that money themselves from foreign banks.

There is an investment truism that – an asset you own that doesn’t actually earn you an income, isn’t actually an asset at all, it is a liability.  In other words, a house you own that earns a rental income is an asset, while a house you live in and pay a mortgage, rates and repairs on and earns you nothing, is a liability.  Thats NOT the way that most people look at it – and most people are wrong!  While under certain particular circumstances it is possible to make money out of the house you live in, ie a capital gain, in the long run… actually not so much.  Plenty of people will bleat that over the last decade they have made big money on the appreciation of their house, or on the buying and flipping of houses.  Well, lets just see what happens over the next ten years, because I am guessing they are in for a horrible surprise.  Yes, under the peculiar circumstances of the last ten years housing has risen in price dramatically and no doubt a number of people have done very well out of it (just so long as they are no longer still invested in real-estate)!  Real-estate is no longer rising in price dramatically and my bet is that it is in the start of a dramatic correction, meaning prices are going to Decrease dramatically.  Interestingly, pretty much no-one else thinks that though, so one side or the other is going to have to be wrong on this, and I am happy to be contrarian.  I am estimating that a very large number of people are going to end up underwater on this – a nett Loss.  Their “Asset” is about to become a genuine Liability – if it isn’t already.

So lets just have a look at the reasons for this, and ultimately the consequences of it.  Actually it rather becomes a case of where to begin, there are just so many reasons and areas of vulnerability.  Lets start at home with the home finances.  In aggregate, NZ homes are mortgaged, or leveraged, to a higher degree than ever before.  More is loaned on a smaller principle or deposit than ever before. Also, because money has been cheap to borrow, people have been able to borrow far more than they  have ever been able to before or would have thought prudent to.  Instead of house prices being a x3 multiply of incomes, they have climbed to x6 and more. And irrational exuberance has meant that people were happy to stick their neck out so far – because house prices “Always” climb don’t they… and just look how much they are climbing…!!!  What can go wrong?

Ohhh where to begin!   How about:

1.) With all the capital destruction going on around the world (imploding/defaulting loans) there is less money available for banks to lend out.  Because banks are taking big losses on their spectacularly bad lending decisions they are both reluctant to lend and in desperately need to recover as much money as they can.  Ergo, interest rates go up and recovery actions accelerate, that is, mortgagee sales and loan recalls. Additionally, they are also required to raise capitol to cover their bad loan exposure, so they are out in the money markets sucking even more money out of the system, money gets even harder to get and interest rates rise further.

2.)  As unemployment rises worldwide, government revenues, come under stress and budgets go into deficit.  Governments  borrow money to finance their deficit spending and shrink the global money supply even further.  Interest rates rise again.

3.) Deflation means that instead of inflation making your loan gradually wither away over time relative to general prices and incomes, the opposite happens and your loan gets bigger and harder to service relative to your income – and the bank gets even more twitchy the ratio between your payments and incomes goes sour.

4.) When your 2 year fixed term home loan comes up for renewal/refinancing, the over-sea’s bank that loaned to your domestic bank is going to either ask for their money back regardless, or at a much higher interest rate.

5.) The bank is going to look at your loan and the interest rate (and projected interest rates) and is going to say;  Do I want to be involved in this loan?  Are you over leveraged, do you have adequate principle/deposit, do you have adequate income.  In this instance “adequate” is a bit of a moving target, albeit definitely a significantly higher target than previously.  No more NINJA loans (no income, no job or assets), in fact no loans to a whole lot of people that would have qualified previously.  So guess what… a whole lot less buyers out there in the market – in other words a Buyers Market, good for them but not so good for you.

6.) The mortgagee sale down the road that just sold cheap, has just lowered the market price of your place too, whether you want to admit it or not. Interestingly, that was the discussion my friend and I were having.  He was saying that just at the moment, people who can are holding their properties off the market because they aren’t prepared to accept the prices houses are actually going for, or getting offers for.  So that’s where we are up to with this game at the moment.  This is a psychological game – Yes/No/I don’t know… and it is the ‘Mourning’ game also.  This is about people getting their head around the idea that they have lost some wealth and maybe even taken a loss.  But that is the last thing anyone wants to accept (seeing as how they are all real-estate geniuses and all…), so they will delay and prevaricate as long as they can. And in the meantime prices will continue to ratchet down and when they finally are prepared to accept the lower price, they find prices are even lower still.  Opps.

7.)  The house you payed too much for in the first place, is now worth much, much less.  The interest rate has gone up and is set to rise higher still.  You are now unemployed and can’t service the mortgage anyway.  You have to sell, but the price you are going to get for the house is now less than the mortgage on the place.  You not only wont get out with any money, you will actually still owe a lot of money to the bank for a house you don’t own and don’t live in.

Now thats a REAL Liability!!!

Yes that will happen to some people, yes it has even already happened – to some people.  But the real question is how many people will it end up happening to.  Because if the answer is: yes a number, but not statistically significant. Then our world is going to mumble and grumble on much the same.  If the answer actually is:  Ohh dear, a very, very large number of people!  Then the consequences are very, very different.  And it is something we are not going to have any say or control over.  We have already set ourselves up for the fall, our debt loading/exposure as a consequence of the previous international monetary environment is what it is. The current and future international debt environment is going to whip-saw us where it will.  We are as a nation historically and comparatively much more exposed to household debt than ever before.  NZ is also one of the leading countries internationally, for exposure to this. Are we nationally in aggregate, catastrophically over-exposed to debt?  If we are, then we can be at the same time Doomed and Saved.  Doomed: because much of our old way of life, wealth and prosperity will be wiped away. And Saved: because there can be an alignment of the forces necessary for revolution.

As I write this, there are mass demonstrations, public dissent and rioting happening in the streets – of Iran.  The people there feel that they have been cheated and lied to once too often – Sufficient Conditions.  Here – not so much.  Everyone is hoping that if they just hang on long enough then things will return to how they used to be. Don’t sell the house, prices will recover, interest rates will come down, good times will be here again.  Lets avoid it, ignore it, deny it.  At the moment in this country, we are still a long way from Sufficient Conditions, because basically it is all about a state of mind.  Denial will only work for so long however.  I am saying the overwhelming stench is from the dead corpse of over consumption fueled by over extended debt and credit (liberally stimulated by large scale fraud).  I am saying reality can only be avoided for so long and time is nearly up.  This Frankenstein monster is dead, it just hasn’t hit the floor yet. Everyone else is saying, no hold it up, we just need a little bit more fine tuning to kick-start it and then we are off to the races again.  At least one of us is wrong.

NZ is an interesting country in that so much of the nations and peoples saving and wealth are tied up in homes and won’t earn any return unless there is a capitol gain.  Erase those gains and devalue the “assets” and it will be interesting to see the reaction.  Iranians are protesting about their country’s internal situation and issues.  Will being cheated and lied to by international finance and our own political system provoke similar scenes here.  I think it will if the results are severe enough, impoverishment isn’t likely to go down well.  Sufficient conditions…  At the moment, no, it is all still Insufficient,

…for the moment!

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Mourning

Human nature is an interesting beast.  Take mourning for instance.  Loss, bereavement, death.

Some psychologist somewhere came up with the 5 steps of mourning.

Denial, anger, bargaining, grief, acceptance.

It was originally an explanation of the process a person goes through when dealing with the death of a loved one.  But it has grown from there to encompass a rather wider interpretation of loss.  Here I am interested in the psychological dimensions of the loss of Prosperity.

Not something you might readily compare with a death in the family perhaps, but I will suggest that the same process holds true and to a surprising degree of intensity as well.

And in fact there has been a death.  Our current economic model has died, in large part, we just haven’t realised it yet.  Maybe because the body hasn’t hit the ground quite yet, it is still falling, but it has definitely taken a fatal hit.

So at the moment, we currently have large numbers of people in various stages of the mourning process.  Denial, anger and bargaining. We really dont have people in the grief and acceptance stage yet.

As for me I am not in mourning at all.  I am more than glad the whole corrupted mess has taken a bullet to the heart.  With any luck there will be an opportunity to build something worthwhile over its ashes.  However, I am an exception, and I can see an alternative.  I wont miss the old ways and I can foresee an opportunity for a brighter future.

For most people that is not the case.  They are familiar and comfortable with the status quo.  But not for long.  The status quo isn’t what it used to be….!

So, we are going to live through an adjustment period.  the timing of this process is going to be different for everyone depending on their circumstances.  Some people are going to fight and scrabble to hold together what they have accumulated, in the face of all evidence to the contrary, that what they have just cannot be sustained. Actually probably everyone is going to fight to hang onto what they have got, rather than look towards starting over at something different.  It can be argued that the sooner you let the old system die, the sooner you get the pain over with and the less money you have pissed away into the wind in the meantime, trying to salvage the unsalvageable.  Money you are definitely going to need to have as seed stock (capitol).

It is also remarkable to me just how long the whole thing can teeter and stumble along.  I would have thought is was patently and painfully obvious that we are heading for a god almighty crash, but still the “optimists” talk about green shoots and bottoming out and recoveries. Whatever!  So everyone continues to try to save the system, and hang in there and talk up the situation and keep it all going for just a little bit longer.  Sooner or later thought it isn’t going to be sustainable, all the juggling balls in the air are going to come crashing down. But until then we don’t have to look at the corpse smelling up the living room.  Lets live in denial just a little bit longer, or even a whole lot longer if we can just possibly get away with it.

Considering there are 5 steps to the grieving process and if we are still only in the Denial stage, then that suggests there is still a long way to go and a lot of heart break, pain and reconciling to come.  There could be a lot of  violence and death too quite frankly.  People don’t take this sort of thing well as a general rule. After denial comes anger.  As the sayings go:

“A person is smart. People are dumb, panicky dangerous animals and you know it.”

“Sheep have two speeds: grazing and stampede”  (so do Sheople)

Well whatever will be will be, but I did just read a great column from “Of Two Minds” which I quote:

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1. No living thing (there’s a general argument for you!) can ignore windfalls. If for whatever reason, the grass is greener this year, if you are a rabbit, you eat more of it. And have more kids, which survive in greater numbers. If you were some “sustainable” cautious rabbit that only had 2 kids and only ate what it usually ate, you’d lose out to the greedy ones. Nature selects for optimists that grow more or less as fast as they can.

2. We are social animals and there’s a huge cost to being an outsider. Living alone is deadly — you have no one to help you if you get into trouble, no one to look out for you, no one to hunt or gather with, and no one to share food with if you don’t do well today. One mistake and, like solitary animals, you may be finished.

Similarly, we worry about our status in the group. Being unpopular means getting beat up a lot, getting no help, having to give up your food/mates to the stronger members. Also very bad news from an evolutionary standpoint.

So as social animals, we crave status (or at least acceptance) by the group. This is why group-think has such a power over us, from fads and manias to adulation of heros and kings, to religious movements, wars, and revolutions. We think of ourselves as rational beings, but it’s just a gloss over those social instincts.

As long as we are human, we will have these crazy bubbles from time to time. Because as animals, we don’t ask why times are good, we just try to take advantage of it. And because as primates, if everyone else is buying houses, we will too.

Regulators are just as caught up in this as the general population. They don’t want to do the unpopular thing, and they don’t want to kill off a boom. No one does, except cynical “doom and gloom”-ers. Wishing it were otherwise is just futile….

Now that all the happy little consumer-rabbits have eaten all the once-lush green grass of consumer/home-equity-line-of-credit down to bare earth, we might ponder what happens next in Nature when the grass fails to grow back.  Most of the rabbits die off.

If we extend this cruel aftermath of “windfall exploitation” from green grass and rabbits to HELOCs (home equity lines of credit) and other forms of once-abundant credit now shriveled or consumed, we get to a consumer-borrowing/spending “die-off” in which spending that was based on housing/credit bubble “windfalls” vanishes.

The consequences are rather obvious:

1. Businesses which depended on this spending die off.

2. Tax revenues based on this spending die off.

3. Lenders dependent on this borrowing die off.

4. Households which depended on credit to remain solvent die off.

5. Asset classes like residential housing which depended on abundant “windfalls” of credit to fuel valuation increases also stage the equivalent of a die-off.

6. Exporters[and manufacturers] who depended on this credit expansion to sell their goods will also suffer a die-off.

Hmm, now we’re talking about a significant chunk of the global economy, aren’t we?   Extending the “windfall exploitation/green grass” analogy a bit further, we can anticipate that the consumers who require little to no new green grass (credit) will be the survivors. Everyone dependent on abundant cheap credit for their survival, from consumers to governments to enterprises to entire nations, will suffer financial starvation.  That’s the inevitable consequence of “windfall exploitation.”

[“Quantitative Easing” is supposed to sow millions of new little green shoots, but all QE does is burden the government with collossal new borrowing; all the seeds sprouting will devoured because the consumer rabbits have eaten through or lost their collateral and so there is simply nothing left on which to subsist or to “grow” more credit. ~ edited]

Once all the grass and seeds have been consumed, starvation is the result. There is no collateral left in the U.S. except the “full faith and trust of the U.S. Treasury” and that is now (rightly) drawing mocking guffaws from university students in China.

Some see “green shoots” but the ground (collateral) is rock-hard; expect not lush new fields but numerous expired rabbits.

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So if it is not actual bodies on the ground, it certainly will be the hopes and dreams of millions ground into the dirt.  There is no escape, there can only in the end be grief and finally acceptance.

And hopefully, we can start to rebuild again on some sort of sensible basis and foundation.  There is a lot that must and should change.  I have a vision for that. No doubt so does everyone else… or they will have – once they get up to that stage.  Que sera sera!  But we can at least do our best to influence the course of events as far as we are able.  Yes it will be tough, but it doesn’t have to turn into a slaughter house.  The sooner we start going in the right direction the sooner we will be out the other end.

The sooner we can start, depends on enough people recognizing the problem and then all pulling in the same direction.  We need to change the Group-think”, or create a new one.  Heading further in the current direction will be fatal, and pulling in a multitude of different directions will also be fatal.  Regardless – things will change!  Will it be by chance or design?

None of this is new, the world went through very much the same thing in the 1930’s.  The prosperity is gone again, it would be nice to think we could learn a few lessons from previous experience, instead of repeating that disaster over again. But that will come down to human nature I guess. We will move when we are psychologically good and ready.

Well… I at least am ready, how about you? Are there enough of us to form a quorum and take the lead?  Or is there more time and pain needed to “set the scene”?  Where is the tipping point in the process:

Denial – anger -bargaining – grief – acceptance

I would like to hope we don’t have to wait till the bitter end, that we could salvage as much as possible of our prosperity, as soon as possible, and begin rebuilding again. Rationally and intelligently would be nice too  :-).

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