It's Delightful, It's Delirious, It's Deflation

In the usual bombardment of suspect statistics subject to revision next month there are a couple with considerable prospects for amusement, only partially because Messires Obama, Geithner, and Bernanke did not enjoy them if they even bothered to look. We here in the Bar seldom believe official numbers these days, partially because we all know that whatever the jobs report is it will be “revised” downwards at least a hundred thousand during the next reporting cycle while jobs lost will increase hefty numbers mysteriously.

Reports are that economic “growth” slowed from 3.5% to 1.9%. Just off hand can any of you think of anything that is growing other than the deficit, regulations, politicians salaries, and voter outrage? If we take those numbers as representative of the full faith and credit of the United States you may choose to view that as a modest 1.6% decrease which shouldn’t bother anyone. Not so for those of us who turn numbers into percentages automatically. That is a drop of over 40%! (40% would be 1.4, 50% is 1.75%, and anyone who really cares can work out what to do with the remaining .2, which is 1/7th of 40%…Contrition; not everyone shares a passion for arithmetic, which is a pity because that subject is a great deal simpler than Boolean Algebra and far more useful.) That certainly sounds like an additional painful pothole in “just another bump in the road.”

Now to the report which should cause rejoicing in the streets for those not part of management of big corporations, Bankstas, and government. As a prank perhaps we should send Turbo Timmy and Helicopter Ben recipes from Gilroy, California, the Garlic Capitol of the world, because the vampires of stimulus, taxation, and “quantitative easing” are surely recoiling in horror over learning that 12% of manufacturers/corporations/retailers are raising prices, encouraging the Inflation Monster. Far, far worse from their viewpoint, however, twice as many, 24%, are lowering prices. “Why?” should be obvious to anyone other than a Keynesian: because their goods are competing for ever-scarcer dollars (Timmy’s fine product being locked away in banks and what I can only describe as money-laundering schemes, and the terrified populace is loathe to part with their greenbacks), and if businesses want to sell much they have to slash prices. I keep reminding everyone to peruse the classifieds to see what luxury goods are real bargains and what sectors are down (in the last two years, bass boats, farm machinery, vehicles, cattle, horses, trailers, motor homes, hay, and building materials, among others. Today Charles picked up a hundred sheets of brand new plywood at two-thirds retail, no sales tax!)

This is marvelous for the rest of us — at least those who have some cash set aside for buying opportunities, upgrades, and replacements. There is no reason to suppose other than very poor results from “Back to School” sales, Hallowe’en, and Christmas. “Tax Free!” weekends never do more than shift timing on purchases. Those, combined with possible higher-than-usual end of the year selling for tax reasons* should cause a giant “Ka-WHUMPF” of collapse in January, just in time for the reality of “Health Insurance Policies are Taxable as Income and Your Taxes Got Raised, Too” to deliver a giant dose of reality to Main Street and the ‘burbs.

It gets difficult to keep up with all the dangers in this video arcade; have you thought about the coming crash in the commercial real estate market and the fate of the bond market, recently, to say nothing of increasing hostility from China? There are a lot of loaded freight trains headed into the yard at full speed and Timmy and Benny are pulling all the wrong switches. If you have been following the advice dispensed for some years from the Agora crew, if only the freebies from The Daily Reckoning, Gary North, Whiskey & Gunpowder, and Taipan Daily, you should be in good shape to take advantage of many of the disasters headed our way.

“Mrs. Traynham! You ought to be ashamed of yourself for rejoicing over coming catastrophe!”

Really? Do you think so? I didn’t cause any of it and my reasoning is conservative and flawless. Until Mr. Market gets his several cwt. of flesh he isn’t going to calm down; until taxes are lowered and regulations scaled back we aren’t going to see job creation or start-up operations; leaner corporations are learning happily exactly how dispensible a lot of former employees were and eyeing others thoughtfully in terms of pink slips; until the “off budget” “entitlement” programs are scaled back vigorously there is no way out of the dilemna; and until all of these things happen at once, the USA will continue to skid down the economic slope increasingly faster. Some of us have been insisting that mixed inflationary and deflationary results are inevitable all of this century, and Howard Ruff and others began several decades ago.

Far worse times for all save the “elite,” are inevitable, so take advantage of the process where you can.

Again, begin preparing now by reducing expenses to compensate for known increases which will reduce discretionary income severely in 2011, including withholding on the value of your employer-provided health insurance plans, higher income taxes, and capital gains taxes increasing over 50%. Replace or repair household items that will hurt far more a year from now. My dishwasher died at this opportune time; how old is your hot water heater? Your water softener system? Given our demographics at W&G a fair number of you are homeowners, and a reasonable surmise is that most of you aren’t stuck in upside down mortgages. Putting money into a house you will lose would be most unwise, but if you’re perhaps ten or twelve years from paying off a mortgage at rates that aren’t too painful the rest of this year will be an excellent time to take care of any deferred maintenance and make modest upgrades.

My reasoning is that you’re likely to be in that house for a long time since the market is bad and going to worsen and demands that at least energy “efficiency” be brought up to code before you can sell or even rent are going to catch most people unawares and dead in the water. Replacing windows and adding more insulation, alone, is a very pricey project…and what if the Inspector demands a new roof and appliances to say nothing of rewiring a house? Codes change all the time, and so do requirements. If you have to tear anything apart for any reason, use that opportunity to put it back together right. The same holds true for car repairs; ask your mechanic what else could be replaced economically while he has your car in a bunch of pieces.

Odd how events favor those who think long term and expect the worst…when several tons of tree fell across the ranch house last year in a five-minute storm it would have been so easy to call the roofers and have the damaged rafter repaired and new shingles put on in return for the entire settlement check minus the deductible, but nothing out of pocket. Problem is, that gets a ten or twelve year roof, and next time a tree fall might not fall on it fortuitously at just the right time to balance age and insurance checks. The same funds covered materials for a fifty-year roof that meets the new standards for sale or rent that hadn’t even been mentioned at the time, if we provided the labor. True, “We have the technology” as dear Charles loves to quip, but more to the point we have enough deferred maintenance around Mildew Manor from the fifteen years Mother was a widow without making any short-sighted decisions ourselves.

One of the most dangerous trends in the last two or three decades is how few households attempt to fix anything, even granting that increasing regulations make simple tasks all but impossible in many cases. Still, most plumbing problems can at least be diagnosed and a large number can be corrected without “professionals” and permits, for just one example. The really big problem is that something like 86% of you live in the cities now, under Big Brother’s watchful and greedy eye.

I won’t say that any idiot can nail shingles on a roof because I have never tried. I will attest that a couple of even mildly competent and muscular men can 1) screw down 1″ thick OSR; 2) nail on 1″ thick styrofoam “Thinsulite” the same dimensions using special nails with little rubber gaskets to stabilize long enough to; 3) cover the result with sheets of Galvalume and screw them in place with ludicrously expensive screws; and 4) trim the edges neatly to conform to the previous roof and install flashing. This is roughly as difficult as making a peanut butter sandwich, although more time-consuming and expensive. Charles instructed and supervised, Asia and Clay did the work, our electricity bill has seen a pleasant drop, and the new roof is 100% waterproof and should require no maintenance before 2060, if then. “Bad” deflation is when your assets are worth less; “good” deflation is getting all of the materials at deep discounts.

The time is coming fast, dear readers, when if you can’t make repairs and solve problems yourselves you may well have to live with maintenance problems. I will leave you with some wise words from one of my favorite Editors, Taipan Daily’s Justice Little:

“In another theme that has long run through these pages, your humble editor’s solution is to focus on the small things, the personal things… to opt out of the system in as many ways as possible.

“For yours truly that means no mortgage debt, no credit card debt and no auto loan debt. It means no financial accounts at major banking institutions, instead using independent brokerage houses, smaller local banks, and megabank alternatives like EverBank. It means a readiness to profit from systemic breakdown, via the shorting of exposed financial players and/or the purchase of silver and gold. And, in general, a habit of minimizing accidental patronage of the system to as great a degree as possible.”

Splendidly put, Justice.

Linda Brady Traynham
Whiskey & Gunpowder

August 17, 2010

* Being a cynic of the first order, it is my opinion that the stock market “rally” of ’10 is almost entirely an entirely artificial one caused by using Timmy’s fine product to purchase stocks, and I had to stop and work out if it made sense for the government to sell stocks to pay itself Capital Gains taxes, thus proving I can be magnificently dim-witted when I put my mind to it. Of course it does! That completes washing suspect funds all snowy clean. The Feds put up the money to buy the stocks, then sell them to…themselves? The Fed? Agreeable banks/mutual funds?…paying blameless-appearing taxes to themselves, and “justifying” higher bonuses. Yuss…expect higher than usual “tax” sell-off this December. LBT

The Daily Reckoning