Friday, November 5, 2010

Shattered Dreams - A Reader’s Anecdotal Story…

On the day the Fed announced they were spending $110 Billion per month, a $1.32 Trillion annual pace, “DJ” read my writing about sleepless nights and $4 a gallon gasoline then decided to share his story with me. This is the REAL DEAL in the economy, there are many like “DJ” out there who thought they were doing what was right in order to live the American dream, only to see their dream turn into a nightmare.

Should the “Fed” continue to pour fuel onto the fire, this nightmare is going to get worse.

Here’s “DJ’s” story:

I've never written to a blogger; period. I tripped across your 'Nathan's Economic Edge' blog, looking for confirmation to what I suspected was going on with the equities markets. Mainly, why they kept going higher, and [yet] the economy was getting worse.

I've been following your blog for about a month now, and I anxiously await each day’s update. The other interesting aspect of the allure was that you are a pilot. I was too, and I enjoyed flying so much, but I can't do it because of the destruction of my business starting 2007.

I had 7 employees / friends, and a very successful home improvement company, that has been destroyed. I started letting them go one by one in 2007, based on seniority, and now it's just me. We did additions, high end custom woodwork, etc. Nothing changed [in the way he conducted his business], no bad jobs, no shoddy additions, just a business built over 12 years based on word of mouth, driven by excellent craftsmanship.

...The reason for my correspondence is simply; "What to do with my remaining few dollars?" My financial situation is simple. Married, 3 kids, 2 in college, 1 out working. I built my house in 1999. $300k savings into it, $225K mortgage. I always paid on time, but my first missed payment occurred in May 2009, after eating up a large portion of savings, hoping the economy would get better; but it never happened.

Foreclosure began, but since I had a bunch of equity, the bank would not work with me at all. It got to the point they didn't even return phone calls. Luckily, I got a buyer, and was able to walk away with the $300K I put in. Ten years of payments, and I was lucky to get back my original investment. I played no refinance games, borrowed no equity, and that was the end of that game.

It's water under the bridge now, but my main focus, and I'll live in a cardboard box if I have to, but I will get my 2 kids in college; graduated. I had $240K set aside for them, but that's just about gone. The limited work I get, in most months doesn't cover the rent, food, and insurances. So, we gnaw away at the remaining proceeds from the house sale. I'm fifty, and in my worst nightmare, would have not believed I, and this country would end up like this. I've worked since I was 11, sometimes 7 days a week. I had nothing given to me, and earned every penny. And, to just have it stolen like this, to say the least; first you experience tremendous depression, then lethargy, now an intense anger; all over a 2+ year period.

I write with curiosity, based on what I've outlined, with the limited resources I have remaining, and the remnants of a destroyed business; what would you consider as the first logical step to rebuilding? If that is even possible.

Your post of the last 2 days are so much on point, with regard to the crashing DXY, and the booming equities. It is really starting to impact the daily expenses - food, gas, heating oil. The necessities that are required to subsist. The economy is getting worse, for the construction industry, and yet, costs are accelerating like they did in the boom. Complete disconnect.

Keep up the excellent analysis. I think you are right on the mark!

Kind Regards,


I asked “DJ” if I could share his story with you because I think it’s good to hear what’s really happening directly from the horses’ mouth.

First, let’s note a few things. “DJ” is 50 years old. That means he was born in 1960ish, very close to the end of the Baby Boom generation, but also very close to the very peak number of births. He worked hard, saved and largely stayed out of what most would consider bad debt. He owned a business, a business that benefited from the housing bubble, and collapsed as the bubble collapsed. Note that his small business was actually laying people off at a time the BLS’s “Birth/ Death model” was adding jobs to the Employment Situation Report.

Home gone, business destroyed, savings destroyed, yet two kids to put through college. And here he is at age 50 needing to start over.

It’s enough to make you weep, especially for the non-narcissistic among us who can empathize with DJ’s plight. Shattered dreams.

Could he have seen it coming? Absolutely, but not many did.

While he didn’t have the foresight to see and be proactive in front of the economic bubble, that bubble was not a product of his making, nor was it under his control. Who made it? The central banks made it. They are the financial “experts” who people WRONGLY assume are acting in the people’s best interest to direct the economy. In fact they are NOT! They are acting in their OWN INTEREST. They lie, cheat, commit fraud, and steal, all while telling other people in their society that there’s never been a better time to buy and that interest rates will never be lower.

But the truth is that because of the timeframe that “DJ” was born, by the time he had significant wages and savings to afford housing, it was already well into bubble prices. The 12 years during the time he owned his business was during the parabolic bubble growth phase. Those born before him had already created the roots of the credit bubble and had run up the assets that he would buy after them. Having a family to support he wasn’t ready to just sell his assets and thus rode the bubble down, finally being forced to sell well after the peak. This demographic position is extremely negative – something that people born a decade or two earlier benefited from as their assets were pushed higher by the wave and credit bubble that came AFTER they had bought their major life assets.

Many people of the earlier generation BLAME those junior to them for creating their own problems – they are mistaken, in fact the roots of their misfortune were sown long before and it was in fact multiple generations that FAILED TO ACT TO PREVENT A COMPLETELY KNOWABLE AND FORESEEABLE CRISIS.

Of course his observations about the current situation are correct, and his questions pertinent. I wish I had better answers for him, but the truth is that with what the central banks are doing there are very few truly safe places for your money. It’s just the reality of economic winter. Planting seeds into the winter’s frozen ground will not produce good results, the same is true for planting seed money during an economic winter. It is the spring for which we all await, yet cruelly the seasons of the economy turn through many decades.

My advice for DJ’s situation is limited, but goes something like this… Keep your chin up and your sense of dignity with you at all times. Your situation is not unique, and while circumstances of the macro economy are out of your control, you need to continue to pay attention to that big picture but focus in on the things that are under your control.

First of all, protect the savings you have by diversifying into conservative assets. This should include owning things that will protect you against BOTH inflation and deflation. Do not place all your eggs in one basket as no one can tell the future to you for certain, and there may be aspects of each in our futures. And in regards to protecting your savings, while this may not be applicable to you, in general you should NOT be cashing out 401k and IRA plans for the purpose of making DEBT PAYMENTS on a house or on consumer debt, particularly if there’s a chance of losing the home or of filing bankruptcy! This is because one of the very few protections citizens have anymore is that those retirement plans are protected during the bankruptcy process! So why give your life’s savings to the banks, when you can instead discharge your debt legally by either returning the collateral or discharging your debt via the bankruptcy laws? Collateralized debt is collateralized for a reason, it was their mistake to blow the bubble, it is their mistake to accept an over valued property as collateral. When you borrowed the money, it did NOT EXIST prior to its creation, the bankruptcy laws are a part of the natural restoration of a collapsed credit bubble. So don’t shoot your retirement savings before you take legal action, take that action BEFORE cashing out retirement plans.

The only other advice I can give is to remain out of debt so that you can live your life in the most free manner possible. Actively remain conscious about WHO you work for and what it is that your work is promoting. Pay attention to the world around you and help to create a system that doesn’t do the same thing to future generations. With price stability, there is no reason that one’s timing of birth should matter to their success or failure within the economy. You have been robbed, a crime was committed against you. The same crime will happen to your children unless we uphold the rule of law and take back the power of money creation.