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How's about the local workers invest in stocks like the capitalists do?

That worked for you, and it worked for me. But for someone starting out now, with a 5 figure student loan, wife, mortgage, spawn on the way, it's harder to shake loose that discretionary income for investment.

Steve
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No. of Recommendations: 8
The current administration has telegraphed that their success is evidenced by the rise in the equity market over the past few years. It has been stated uncategorically that, if our leadership is changed, we will suffer a stock market crash and recession.

The equity market is a very small slice of the financial markets and the Fed is being used to juice it. So are rumors about about upcoming progress in our trade relationship with China which modulate the market.

As Wendy pointed out, it is hard to know what is taking place if the definitions of the chart axis keeps changing.

We find ourselves in a "this time it is different" position in believing that, firstly, the Fed's moves will be successful in navigating us to escape the storm and secondly, that when the market reverts to the mean political rhetoric will not be sufficient to modify the business cycle and our current rhetoric could create a self-fulfilling prophecy.

Many here on METAR have little experience with the double digit inflation which our country experienced for over a decade. The easiest way to demonstrate its result is to consider that, in my youth, the stores we now call "dollar stores" were known as 5 cent and 10 cent stores.

The Fed should have no political input or threats against it and should not modify its behavior to suit political whims. It is clear that the recent tax "reforms" have created a huge additional budget deficit and it will be Congress's job to address the fiscal side of the economy, as the Fed corrects its current course on the monetary side. The question is whether either has the fortitude to cause a "little" pain to avoid much greater pain down the road.

As Wendy has eloquently pointed out, the weather is still fine - so party on while you can.

Jeff
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Great post and historical summary.
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A Fed chairman who caves in to political pressure can cause long-term harm.

A President who does NOT understand economics can severely damage the economy for multiple generations by trying to force irrational economic policy.

https://www.federalreserve.gov/BOARDDOCS/TESTIMONY/2001/2001...

Relevant paragraph:

"Short of an extraordinarily rapid and highly undesirable short-term dissipation of unified surpluses or a transferring of assets to individual privatized accounts, it appears difficult to avoid at least some accumulation of private assets by the government."
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No. of Recommendations: 7
Young'uns might not remember stagflation -- the combination of economic stagnation and high inflation -- that was prevalent for many years. Could it return? The business cycle has been dampened by not abolished. Could stagflation return? Not soon...but yes.

Wendy,

This is exactly what I believe will occur - stagflation.

https://www.investopedia.com/terms/s/stagflation.asp

Japan has been trapped in a state of stagflation for more than two decades.

...[L]ow inflation and low unemployment rates can also mask low demand...
Japan is a textbook case of persistently low demand due to an economy that has been in stagflation for the last two decades.


https://www.investopedia.com/terms/m/miseryindex.asp

Japan's past is our future, since our central bank (and virtually all central banks) have followed Japan's example of increasing market manipulation.

So long as the central bank is willing to print unlimited amounts of cash and purchase assets, politicians' deficit spending doesn't matter. Stagflation is going to exacerbate this trend.

Our current taxation scheme in the United States is an almost textbook implementation of the first tenet of Modern Monetary Theory, whereby:

...[A government that issues its own money can] pay for goods, services, and financial assets without a need to collect money in the form of taxes or debt issuance in advance of such purchases...

https://en.wikipedia.org/wiki/Modern_Monetary_Theory

Modern Monetary Theory is a sort of "political capture of a central bank," since the central bank's continued purchase of bonds is key to suppressing interest rates and enabling politicians to make ever-bigger promises while refraining from raising taxes on the constituents whose votes or contributions they seek.

=:-o
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No. of Recommendations: 4
A President who does NOT understand economics can severely damage the economy for multiple generations by trying to force irrational economic policy.
"Short of an extraordinarily rapid and highly undesirable short-term dissipation of unified surpluses or a transferring of assets to individual privatized accounts, it appears difficult to avoid at least some accumulation of private assets by the government."


Unfortunately, once the Federal Reserve has capitulated to politicians' demands, the die has been cast.

It is the Fed that enables politicians to damage the economy with irrational economic policy.

Only the Fed has the power to force politicians to come to terms with reality. With every single Quantitative Easing activity, asset acquisition, interest rate manipulation, and act of financial repression, the Federal Reserve increases the power of the politicians to dig a deeper and more destructive economic hole.

It's like a bartender that simply refuses to stop pouring shots for an irrational drunk.

With every indulgence, the bartender increases the likelihood that the drunk will break things and cause irreparable damage.

=:-o
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No. of Recommendations: 6
My MBA teachers spoke of a "post-industrial" America. I knew, literally from the inside of the boilers I inspected that powered industrial America, that there could be no such thing as a post-industrial America as long as Americans bought consumer goods, which they always would. Post-industrial America would sink into ever-increasing deficits...which it did.

But what is a capitalistic society supposed to do? If goods can be made cheaper overseas capitalism WILL migrate that overseas. To not do so would be "wrong" and a "misappropriation of capital". In similar vein this is why companies started migrating to China even knowing full well, even 20+ years ago, the IP theft that came along with it.

Reagan started union busting. Deregulation. Let the free markets decide. I see where we are now as a direct and unavoidable consequence of those actions.
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Let the free markets decide.

There is the contradiction. The current administration is opposed to "free markets".
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<But what is a capitalistic society supposed to do? If goods can be made cheaper overseas capitalism WILL migrate that overseas. To not do so would be "wrong" and a "misappropriation of capital".>

Consumers benefited greatly from capital being invested in the most efficient way. Prices have been kept low and inflation kept in check.

In the process, local workers lost jobs but capitalists benefited.

I can buy a T-shirt for half and hour's minimum wage work in the U.S. -- which is far cheaper than when I was growing up.

The price of every product and service is set by supply and demand. The products which are being made more efficiently by cheap foreign labor have dropped in price (relative to wages). But the products and services (such as medical and educational services) which are provided locally are still expensive and will get more expensive as demand rises relative to supply.

Wendy
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"We" did manage to exploit a lot of our air and water pollution to China while they produced more and more of the goods we use. Now that people in China are suffering from increased air and water pollution, they will have to pay for the cleanup, and the corporations can move on to other countries and leave it to China to clean up the mess they made, just like they to the U.S.

Multinational corporations are so much more powerful than many of us realize.
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The products which are being made more efficiently by cheap foreign labor have dropped in price (relative to wages). But the products and services (such as medical and educational services) which are provided locally are still expensive and will get more expensive as demand rises relative to supply.

The cost of telecommunications, computing and data storage, for example, have dropped in price by 1000x to 1,000,000x. This is both physical products made in the US as well as overseas and services provided locally.

Mike
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The cost of telecommunications, computing and data storage, for example, have dropped in price by 1000x to 1,000,000x. This is both physical products made in the US as well as overseas and services provided locally.

And my preliminary, tentative, unscientific, "sample size = one family library" analysis indicates that the price of books has been declining about 10% per year due largely to electronic publishing.

(Now if you insist on PAPER books, the story is a bit different...)
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"One option that received considerable discussion was a so-called standing repo facility – essentially a mechanism where the Fed will step in whenever needed to supply banks with reserves in exchange for ultra-safe collateral like Treasury debt."

Looks like this might become formalized and permanent feature of the Fed. :(

https://www.cnbc.com/2019/11/20/the-fed-is-looking-at-a-stan...
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Thank you for recommending this post to our Best of feature.

In the process, local workers lost jobs but capitalists benefited.

Solution?

How's about the local workers invest in stocks like the capitalists do?

25-Year Dividend Increasing Stocks

The following dividend stocks have been increasing their dividends at least once per year for at least the past 25 years.
https://www.dividend.com/dividend-stocks/25-year-dividend-in...

11 Dividend Stocks With 55 or More Years of Payout Growth
Dividend Aristocrats are companies in the Standard & Poor’s 500-stock index that have hiked their dividends every year for at least 25 consecutive years. Rising dividends naturally make these stocks more attractive to new income investors, and steady payout hikes reward existing investors with increasingly higher yields on their shares’ original buy-in cost.
https://www.kiplinger.com/slideshow/investing/T018-S001-divi...

Desert (frugal capitalist) Dave
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How's about the local workers invest in stocks like the capitalists do?

That worked for you, and it worked for me. But for someone starting out now, with a 5 figure student loan, wife, mortgage, spawn on the way, it's harder to shake loose that discretionary income for investment.

Steve
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How's about the local workers invest in stocks like the capitalists do?

That worked for you, and it worked for me. But for someone starting out now, with a 5 figure student loan, wife, mortgage, spawn on the way, it's harder to shake loose that discretionary income for investment.


Tru dat!

They'll be amazed at how much they save by cutting out the booze, cigarettes and Netflix. Just think of how much they'll save by skipping "date nights" at restaurants.

Pay off those credit cards...cut'm up! It's amazing how much y'all will save when you're not paying those high interest rates.

They'll find help at TMF's Living Below Your Means board:
https://boards.fool.com/living-below-your-means-100158.aspx
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They'll be amazed at how much they save by cutting out the booze, cigarettes and Netflix.

*gasp!* You want to put the booze and cigarette companies out of business? You are against American "jobs"!

Pay off those credit cards...cut'm up! It's amazing how much y'all will save when you're not paying those high interest rates.

Seriously, I have had that sort of conversation with coworkers whining about being broke more times than I can count. My dad was particularly clueless about managing money. That's why we have Social Security. It's easier to use the tax power to force participation in a retirement plan than it is to educate people.

My point was, it's even harder to save and invest now, than it was for our generation, when education was not being rationed by the individual's ability to pay and there was real growth in pay rates.

File:U.S. Hourly Wages - Real or Adjusted for Inflation 1964-2014.png

https://commons.wikimedia.org/wiki/File:U.S._Hourly_Wages_-_...

Steve
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*gasp!* You want to put the booze and cigarette companies out of business?

Ayup! I'd be all for putting booze and cigarette companies out of business.

However, experience (prohibition) has taught us that doesn't work.
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No. of Recommendations: 4
Back "in the day", I did a bit of back-of the-envelope calculation of the average portion of my employee's take-home salary went to assorted phone, internet and cable TV charges and came up, in many cases with 15-20% if they had kids. That's nuts. I've made a practice of minimizing these expenses by avoiding stuff I didn't actually need and our costs are a small fraction of theirs. It takes a bit of effort and maybe giving up a handful of sports channels, etc., but the aggregate savings are huge.

The same goes for self-cooking, instead of going out to eat. OK, it's true both of us enjoy cooking (healthier, generally tastier food than we would get in a restaurant), so it's more a pleasure than a task, but when I walk through neighborhoods populated with Millennials, I am amazed at the number of people frequenting restaurants. Again, this is more than just picking up dimes from the street.

Similarly, kids today (or their parents) don't consider the potential benefits of going to college in Europe where the higher education (even for foreigners) is general either cheap or free.

Many of the wounds of our young are self-inflicted, as are the eventual retirement challenges, but we are all the victims of life-long marketing campaigns designed to promote poor decisions.

Jeff
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