ERICOPOLY

Okay, so... the Chinese goods on US store shelves will be cheaper now. Therefore people who buy those goods have more remaining money in their pockets to spend at Chipotle, or Starbucks, or pretty much anywhere. So shouldn't a whole raft of companies benefit from this, other than Fairfax? A US company who manufactures in China will spend less to get his product onto US shelves and it will also sell for that much less -- same profit though right? So where do US workers have their incomes hurt because of this, and if their incomes are the same and by habit they spend it all, well then many companies will benefit since the cost of their Chinese purchases will take less out of their wallets.

China devalued by 1.9% and the Aussie is down 1.6%. Pretty close. Wow!

I think our economy would collapse if commodities like oil/steel/etc skyrocketed in price. I mean, imagine if commodities tripled in price overnight. Consumers would go into shock. The funny thing is that we are faced with the reverse and it has people even more terrified. Such a funny world.

Since people are so certain of what communism is... go tell Plato that he needs a linguist to tell him to stop talking about communism of wives. http://www.yourarticlelibrary.com/political-science/platos-theory-of-communism-including-2-forms-of-communism/40134/ Plato! That's not communism! I'll reiterate that what you think of as communism is the implementations that you've been exposed to. Read the section on "communism of property": Plato’s communism of property is in no way related to the modern communism or socialism because there was no mention of socialization of the means of production. Plato’s approach was mainly concerned with one factor of produc­tion, that is, property that has to be socialized. This should be eye opening -- that communism can be applied in some areas and not others. So a thing like an estate tax can be a form of communism of property (a mild form) but that can exist without being alongside every facet of communism as you know it. In that sense, it can be a relatively less communist society as compared to a fully communist society. Even in Plato's idea the artisans were allowed to have a controlled range of varying amounts of property, whereas the rulers had to surrender theirs. In our own United States, the incomes of the politicians are relatively small (the President of the US for example might earn less than a typical CEO despite his great important role as one of the "rulers"). Limiting the incomes of the rulers is borrowing a bit from Plato's ideals of communism. And controlling the incomes of the artisans is a bit like progressive taxation.

Here is an article for you that dares to call China "not very" communist. Hmm... sounds like they believe it's on a spectrum. http://www.slate.com/articles/news_and_politics/explainer/2010/07/how_communist_is_china.html

I indeed think that the concept of 100% free market is exactly the same nonsense as Communism. They are both fictitious non realistic ideas. That's why they have to be spectrums in order to be useful in the lexicon. Nothing can be labeled "communist" because there is no pure communism observable everywhere. Hence the reason why I put it on a spectrum... But beware... don't dare point this out or people will jump all over you like RB did for me. Relative communism isn't inherently bad -- you are taking parts that you like (sharing of fruits of labor) but still providing incentives (letting people retain a portion of their income, which amounts to a lot of money if they have a large income). So why the pissing match over the term? It's just the same coin as relative capitalism, but nobody gets pissed about that term even though it implies something that isn't true capitalism (and the parts that aren't capitalism are the communist parts... but shhhh... nobody is allowed to talk about that).

Why is "pure capitalism" an acceptable thing to say... I've seen several times on this board people refer to comments like "in pure capitalism"... blah blah blah... That's obviously a reference to the idea that capitalism lies on a spectrum from very pure to hardly exists. Yet you guys all believe that communism is only 100% or bust? I'm not getting the disconnect here. Explain. It's clearly not 100% or bust. It's also a spectrum. This is weird twilight zone stuff -- you really think it's a 100% thing? Is somebody a 100% Democrat? Is somebody a 100% Republican? Have you ever met somebody like me who takes some from one party, and some from another, and yet takes other things from other parties and forms a conglomeration of viewpoints? Take the best of each one and yet identify with none of them 100%? Well, you've just met your first -- me. I think you guys are hung up on the word "communist" because you grew up watching Red Dawn and listening to Ronal Reagan. Does it read better if you replace every reference to "relatively more communism" with "relatively less capitalism"? Does that eliminate the "bias" for you? Ironically, who is showing bias here??

Dude. Seriously. What's up? Tell us what's wrong. Don't keep it in. :) Communism is a unique concept in the sense that ALL is commonly shared. As in 100%. Saying that governance system X is 76% communism makes as much sense as saying someone is 76% pregnant. Of course with the natural language you can say whatever you want as long as it is grammatically correct but than it is just political talk. Why not compare it to 100% free markets? Bias. Point me to where it is defined as 100% -- I can do it for you... it's at the end of the spectrum. Is capitalism 100%? Yes... at the other end of the spectrum. In between? Lies the spectrum. That would be a two dimensional spectrum where we're only talking about capital and not political decision making issues (the democracy thing vs centralized decision making without voting). It's like you are saying there are only rainy days and sunny days. And thus there is only "bias" if you believe there are also exist cloudy days that don't rain and that also don't have sunshine... correct? Thinking in absolutes is lack of bias? I don't think so. Pshaw... I can't believe I have to point out that there are grey areas in between the absolutes. You know better than that.

Ironically, social democrats who believe in making decisions "in common" (aka: voting) are in a sense relatively more communist than Soviets who believed in centralized decision making (no voting, no sharing of decision making). Think outside the box about what communism means. Everybody sharing. Communal living. "Commune"ism. Did the Soviets really share? Were they communist?

You sound angry. You should read my comments again in the morning. I feel like perhaps you have emotional ties to the usage of the word coomunism based on what you've experienced in life from how the word has been reserved for given implementations. But those states that we've mislabeled as absolute communists really aren't pure communists. They have non-communist tendencies. Making things even across society is a communist ideal, and progressive taxation is on that spectrum. It's not a bad thing to acknowledge it as on the spectrum. It's just a realization that sharing ever greater amounts of your income in common is a progression towards sharing all of it. And don't you feel that sharing all of it is communism? If not, then what word do you have for total communal sharing?

You are taking an implementation of communism and saying that is what it is. Communism isn't China and it isn't Soviet Union, but elements of what they did are shades of communism. It's like arguing that there isn't relative capitalism. Of course there is. There really are no absolutes in life as we know it. You live somewhere in between keeping everything for yourself and sharing everything with others. It's relative, it's a spectrum. 0% tax rate is less communist than 99.99%. That makes California relatively more communist. Why do you think communism is a negative term? Too much "Red Dawn"? Forget Emilio Estevez for now and ask what's wrong about sharing and why "social democrat" is more acceptable?

The root word of communism is "common". Fruits of labor and production are enjoyed "in common". Assets are enjoyed "in common". Now, if I go out and work in California and they take 50% of income as taxes, then I am getting a relatively higher share of my income per capita than everyone else (they divide the other 50% equally amongst themselves). But that is relative communism. Under absolute communism I would get an equal pro-rata share as everyone else. It's a sliding scale that depends on how much of my income can be kept to myself. And how much of my assets they get to take back to the community every year (property taxes).

Communism is not a continuum but a single state where all of the productive assets in the economy are publicly owned. What you're thinking of are social democracies. You know those awful places like France, Germany, and Sweden that have longer life expectancy, higher quality of life, and higher worker productivity than the US. I didn't say "absolute" communism, I said "relative" coomunism. A social democracy is on the relative spectrum. Our real property ownership works like a lease -- stop paying your property tax and get evicted. It's not true ownership if you can't hang on to property that was bought and paid for. It's a form of relative communism. You have to pay a continual fee in order to occupy it, which is a lot like leasing something you already "own" from the community -- hence the reference to "commune" ism. Relative, not absolute. It's a spectrum.

I suppose a hippie "commune" is communism. You all supposedly live equally and share everything. In theory (or myth). Relative communism is a spectrum between where you keep all of your assets & earnings, and you keep X% (and pay the rest in taxes to be shared with the rest of the inhabitants). So a state like California is relatively more communistic than a state where the taxes are less. Just thought I'd point out that the more taxes you pay, the more it looks like communism.

Yes, the zero bound is a very different picture. Today's 30 yr amortization schedule mortgages on the books will run-off at an accelerated rate due to the fact that a low-interest loan has a very high principle component. Take a loan at 4% with a 100,000 initial balance. It's first monthly payment has a $144 principle component and a $333 interest payment. Compared to a loan at 8% with a 100,000 initial balance. It's first monthly payment has a principle component of only $67 and an interest component of $666. So the debt runs off at twice the pace in the beginning days of a mortgage. So the household expenditures to service the debt today are night and day apart compared to those historical periods when the household debt to GDP was lower. Most of the household debt out there is mortgage debt. Not only are the household debt service ratios are historically healthy/normal levels today, but the absolute amount of the debt (which is historically high) is running off at a historically high rate. It's not anywhere near as simple as looking at a chart. The charts don't tell us how fast the debt is running off vs other periods in history. I'm in the industry and know that our group has seen a higher percentage of new originations being 15 or 20 year compared to the more traditional 30 year. Again, the 30 year amortization schedule is still the norm, but 15's are gaining popularity in our shop. Project that over the industry and the run-off rate to which Eric refers is amplified. -Crip P. S. Seeking to see what I can get for a more holistic view of this. I find the 15 to 20 yr mortgages to be risky for the borrower and for the economy. Just a like a business, cash flow is very important for a household. Suppose you lose your job -- at that very time you don't want a high monthly payment. It's like analyzing a business -- you want more positive cash flow. Paying a bit more interest to get a lower payment is sort of like buying yourself insurance against the "what if I lose my job" scenario. It also takes away their spending power and puts their savings into a low-return instrument (investing in their own low-interest mortgage). I just think a risk-averse household should go interest-only if possible rather than commit to such a high payment.

Today's environment in the US is one of: A: Normal household debt service ratios B: Existing debt running off at an accelerated pace C: Reasonable lending standards that suggest the economy is not being supported by a credit-driven boom Oh well. I know it won't convince anyone looking for grey clouds in the household debt to GDP numbers. Recap: 1) Rapid legacy household debt growth created a boom that already busted. 2) Unwinding the remaining debt is sustainable (normal debt service levels) 3) There isn't currently a boom in new credit (reasonable current lending standards)

Yes, the zero bound is a very different picture. Today's 30 yr amortization schedule mortgages on the books will run-off at an accelerated rate due to the fact that a low-interest loan has a very high principle component. Take a loan at 4% with a 100,000 initial balance. It's first monthly payment has a $144 principle component and a $333 interest payment. Compared to a loan at 8% with a 100,000 initial balance. It's first monthly payment has a principle component of only $67 and an interest component of $666. So the debt runs off at twice the pace in the beginning days of a mortgage. So the household expenditures to service the debt today are night and day apart compared to those historical periods when the household debt to GDP was lower. Most of the household debt out there is mortgage debt. Not only are the household debt service ratios at historically healthy/normal levels today, but the absolute amount of the debt (which is historically high) is running off at a historically high rate. It's not anywhere near as simple as looking at a chart. The charts don't tell us how fast the debt is running off vs other periods in history.

The last time I got a loan, they asked about my household debt outstanding but nobody put my government's debt outstanding into the underwriting equation. You can stop working at 65 without worrying about whether you've paid off your government's debt. Household debt is extremely different as compared to government debt. IMO.

People only post about Gary Shilling when he is saying something negative. So nobody talks about him when he is less depressing -- why is that? He started talking about a coming decade of deflation in 2003. Too early -- then we almost got some deflation. People posted his negative commentary and now that he's changed his tune, nobody posts about him anymore. Here are his latest comments: Is the U.S. economy stuck in an endless loop of sluggish growth and high unemployment? Many distinguished economists think so, and there is some evidence to support them. But looking at much the same data, I come to the opposite conclusion: The U.S. could soon experience a period of strong economic growth once deleveraging is over. http://garyshilling.blogspot.com/

If you really desire efficient markets, then allow equity investors to sell and buy other equities, or sell equities to buy real estate, or sell real estate to buy equities, or any other asset. All without triggering capital gains tax so long as all equity is reinvested. Don't disincentivize capital flow from overvalued to undervalued corners of the market. Tax only the equity that is not reinvested -- AKA the actual income that the investor chooses to spend and not reinvest. Just create a new form of account similar to how IRAs are taxed except with no contribution limits and no withdrawal restrictions. Pres Bush proposed this very thing.

Absolutely I would trade more frequently. And to the economy's benefit. Similarly, Buffett refused to sell KO during the 2000 bubble -- he had a low cost basis and with 35% cap gains he has to think about reinvesting the after tax proceeds at superior values. Difficult for him to find better values with absolute certainty. So that mentality leads to a less efficient market because it disincentivizes selling. Just look to real estate where you can trade properties without triggering capital gains taxes. Would having capital gains improve anything?

It would be very item specific. You aren't going to wait to buy food even if you think prices will be down 50% next year. Computers -- it will cost you in other ways if you try to go without one. So I don't know how good that example is. I'm not sure if anything I buy is driven by the expectation that the price will be higher or lower -- unless it's an investment item. However if my income was suffering and I was budgeting I would be thinking different. So perhaps during times like that (The Great Depression) people are closely watching prices. So maybe it's a combination of weak buying power as well as oversupply that is necessary to drive deflation that leads to people putting off purchases. Somebody flush with excess income isn't in the mindset to pay close attention.

The country keeps it's resources to itself (there is a wide disparity of incomes throughout the world). The nation does not willingly let other nations come and take things away. You have very poor nations that look nothing like the US. The nation is never going to willingly cough up it's resources to spread around the rest of the world under the argument that it's unfair to be born in the US and automatically dealt such a great advantage. I just find it somewhat ironic that the citizens of this nation think it's unfair for some people to be born with huge advantages over others and that the situation must be equalized. Just imagine the rude shock if that really happened (if the assets of America were equalized with the rest of the world population).

Tombrt, Lottery winners or NFL players should have no trouble remaining wealthy unless it really is family culture/education/etc... that plays the strongest role.

Let's suppose you start with a very poor family in the first generation. With each passing generation, the number of branches of the family explodes. The further along we go down the generations, the more likely it will become that you will find a wealthy family. By the 5th generation or the 10th generation or the 15th... etc... etc... , it becomes ever more likely that there will be a rich family. So is that rich family a result of what happened in the first generation? And of course if you start with an educated poor family in the first generation, I would bet that you would need to wait fewer generations before finding a wealthy family. All that study did is look at wealthy family today and ask if that particular branch was wealthy five generations ago. It did not say that every branch remained wealthy over the generations, or even that an above-average number of branches remained wealthy.