T Nation

Money and the Crisis of Civilization

http://www.realitysandwich.com/money_and_crisis_civilization

I have no doubt we are in a 30year depression. The only question is to what degree our standard of living would be improved without a 30-40 year disaster of gov’t regulation and bungling in markets. Here are some of my opinions :

Health Care would be massively less expensive - think AMA, third party payer, and regulation of insurance requirements.

Goods and services would be massively less expensive - think tarrifs, price fixing, taxes, subsidies for the inefficient, cost of regulation, cost of being profitable.

We would have more money to spend and invest - think taxes, higher salaries, more investment opportunities, lower unemployment.

Our childeren would be much better educated and equipt to compete in a world market. Education would be much less expensive.

Much less poverty - there is no telling how much damage the social programs of the 70’s have done to generations of people and entire communities. This, in my mind, is the most serious crime against humanity.

[quote]Rebel Shuttle wrote:

Suppose you give me a million dollars with the instructions, “Invest this profitably, and I’ll pay you well.” I’m a sharp dresser – why not? So I go out onto the street and hand out stacks of bills to random passers-by. Ten thousand dollars each. In return, each scribbles out an IOU for $20,000, payable in five years. I come back to you and say, “Look at these IOUs! I have generated a 20% annual return on your investment.” You are very pleased, and pay me an enormous commission.

Now I’ve got a big stack of IOUs, so I use these “assets” as collateral to borrow even more money, which I lend out to even more people, or sell them to others like myself who do the same. I also buy insurance to cover me in case the borrowers default – and I pay for it with those self-same IOUs! Round and round it goes, each new loan becoming somebody’s asset on which to borrow yet more money. We all rake in huge commissions and bonuses, as the total face value of all the assets we’ve created from that initial million dollars is now fifty times that.

Then one day, the first batch of IOUs comes due. But guess what? The person who scribbled his name on the IOU can’t pay me back right now. In fact, lots of the borrowers can’t. I try to hush this embarrassing fact up as long as possible, but pretty soon you get suspicious. You want your million dollars back – in cash. I try to sell the IOUs and their derivatives that I hold, but everyone else is suspicious too, and no one buys them. The insurance company tries to cover my losses, but it can only do so by selling the IOUs I gave it!

So finally, the government steps in and buys the IOUs, bails out the insurance company and everyone else holding the IOUs and the derivatives stacked on them. Their total value is way more than a million dollars now. I and my fellow entrepreneurs retire with our lucre. Everyone else pays for it.

[/quote]

You forgot to add that the government also makes sure that the people who took the $10K and wrote out IOU’s for $20K, get the $10K they were supposed to pay back to the first guy.

If you lend someone 10000 for five years and get back 20000 your annual return is 14,87 %, not 20%.

1*1,1487^5=2

[quote]orion wrote:
If you lend someone 10000 for five years and get back 20000 your annual return is 14,87 %, not 20%.

1*1,1487^5=2

[/quote]

Dude, your math is terrible. You get your origional 10,000 back, plus an additional 10,000 in profit. 10,000/5Years is 2,000 annual return, or 20% of your origional investment per year. It is a 100% return per 5 year cycle.

V

[quote]Vegita wrote:
orion wrote:
If you lend someone 10000 for five years and get back 20000 your annual return is 14,87 %, not 20%.

1*1,1487^5=2

Dude, your math is terrible. You get your origional 10,000 back, plus an additional 10,000 in profit. 10,000/5Years is 2,000 annual return, or 20% of your origional investment per year. It is a 100% return per 5 year cycle.

V
[/quote]

I guess it all matters if your original investment was compounding interest.

[quote]Vegita wrote:
orion wrote:
If you lend someone 10000 for five years and get back 20000 your annual return is 14,87 %, not 20%.

1*1,1487^5=2

Dude, your math is terrible. You get your origional 10,000 back, plus an additional 10,000 in profit. 10,000/5Years is 2,000 annual return, or 20% of your origional investment per year. It is a 100% return per 5 year cycle.

V
[/quote]

My math is indisputable, you forget compound interest.

If you made 20% in the first year, and in the second, third and so on, your would end up with:

10000*1,2^5=24883,2

because you could re-invest your annual return at 20%.

That is not what he does, he gets 2 for 1 in 5 years and that means a yearly yield of 14,87%.

In real terms that would not even be true, you´d have to factor in inflation.

[quote]AssOnGrass wrote:
Vegita wrote:
orion wrote:
If you lend someone 10000 for five years and get back 20000 your annual return is 14,87 %, not 20%.

1*1,1487^5=2

Dude, your math is terrible. You get your origional 10,000 back, plus an additional 10,000 in profit. 10,000/5Years is 2,000 annual return, or 20% of your origional investment per year. It is a 100% return per 5 year cycle.

V

I guess it all matters if your original investment was compounding interest.[/quote]

Ha!

[quote]AssOnGrass wrote:
Vegita wrote:
orion wrote:
If you lend someone 10000 for five years and get back 20000 your annual return is 14,87 %, not 20%.

1*1,1487^5=2

Dude, your math is terrible. You get your origional 10,000 back, plus an additional 10,000 in profit. 10,000/5Years is 2,000 annual return, or 20% of your origional investment per year. It is a 100% return per 5 year cycle.

V

I guess it all matters if your original investment was compounding interest.[/quote]

It doesn’t matter, because once you take it and use it for something else, it’s no longer in that investment, it is in a new investment that is in no way shape or form impacted by your last investment for the 10,000. I mean what it it was 10,000 that was in the stock market over the last 3 weeks, well then it would have lost value, not gained value, so by that logic, his return could be even greater than 20%. Or it could be less.

V

Nevermind I see what you are saying, but that is obviously a different financial model than the example the origional poster used. Why even bring it up it’s apples and oranges.

[quote]Vegita wrote:
Nevermind I see what you are saying, but that is obviously a different financial model than the example the origional poster used. Why even bring it up it’s apples and oranges. [/quote]

Yeah we really just hijacked this thread

[quote]dhickey wrote:
I have no doubt we are in a 30year depression. The only question is to what degree our standard of living would be improved without a 30-40 year disaster of gov’t regulation and bungling in markets. Here are some of my opinions :

Health Care would be massively less expensive - think AMA, third party payer, and regulation of insurance requirements.

Goods and services would be massively less expensive - think tarrifs, price fixing, taxes, subsidies for the inefficient, cost of regulation, cost of being profitable.

We would have more money to spend and invest - think taxes, higher salaries, more investment opportunities, lower unemployment.

Our childeren would be much better educated and equipt to compete in a world market. Education would be much less expensive.

Much less poverty - there is no telling how much damage the social programs of the 70’s have done to generations of people and entire communities. This, in my mind, is the most serious crime against humanity.[/quote]

I don’t know man. The more I think about the state of the economy, the crooks in Washington, the banking cartels, the defense contractors, record petro profits etc etc… it seems that this whole crisis of civilization is orchestrated. But then again, I haven’t slept much lately.