Money and economics

The French are Planning a Run on the Banks

.

We’ve all seen the protests against austerity measures that are happening all over Europe. The French seem to be particularly passionate about protesting against the Government and big banks who they see as having caused the financial crisis. The country known for it’s bloody and violent revolution at the end of the 18th century now looks set to try and start another, with a run on the banks.

The idea seems to have spawned from a recent interview in which former Manchester United star, Eric Cantona, recommended a run on the cash reserves of the world’s banks. (watch the interview at the bottom of the page).

We don’t pick up weapons to kill people to start the revolution. The revolution is really easy to do these days. What’s the system? The system is built on the power of the banks. So it must be destroyed through the banks. This means that the three million people with their placards on the streets, they go to the bank and they withdraw their money and the banks collapse. Three million, 10 million people, and the banks collapse and there is no real threat. A real revolution. ~ Eric Cantona

Cantona’s call to action has inspired a new political movement, first in France and now spreading virally around the world. The French-based movement – StopBanque – has taken up the campaign for a massive coordinated withdrawal of money from banks on 7 December 2010. Their facebook page indicates that already people in 24 countries are supporting the movement.

Are you prepared?

If this movement continues to build momentum and spreads to all the continents of the world where people are upset with bank bailouts and indebted governments, this bank run may be enough for the governments to declare a ‘bank holiday‘. Remember, banks only have a very small fraction of cash on hand and if enough people withdraw their money on 7 Dec 2010, it will not be long until the banks are forced to close their doors to avoid further withdrawals.

If this movement gets REALLY big, it could well bring down the banking system when banks find their balance sheets out of kilter as their deposits disappear. I think this is unlikely. Governments would step in before it got that bad, but the likely result would be an extended bank holiday until the threat subsides.

Of course, all of this might result in nothing at all. My point is: if the banks close their doors for a day or more, if your ATM and credit cards stop working, will you have enough cash on hand to go about your business? Would it be worth getting some out in advance….just in case?

Self-Sufficiency and Resilience – Plans upon Returning to Australia

 

Back in January of this year I wrote a post about Self Sufficiency, Independence and Lifestyle Planning . In it, I explained how I wanted to become less reliant on the current industrial system and to take more control of my own life. I’ve achieved a lot since then, but knowing that we were moving back to Australia in less than a year meant that I put off some changes. Now that we are only about 10 weeks away from returning home, I thought it would be worthwhile revisiting that post; to envisage what I want our new lifestyle to look like and to outline some goals for the next few years.

1. Getting off the Economic Grid

In 2010 I finally paid off the last of my mortgages. Now that I’m no longer paying any interest, my cashflow is healthy and I’m saving a large percentage of my after-tax income. Knowing that we have to buy a car and appliances when we get back, my priority now is to save for those big-ticket items. The last thing I want to do is go into debt to buy depreciating assets.

Upon return to Australia, my income drops but Brendan will be back at work so it should even out. We don’t relish the thought of both being back to full-time work, but at least in the short-term we see that it is necessary. We both have secure jobs for the moment, so we plan to use this opportunity to save like crazy. Comparative to the rest of the world, the Australian economy looks reasonably healthy at present. But in this globally connected world I can see that a number of potential crises could impact Australia quite heavily within the decade. I still think the biggest risks come from the Australian Housing Bubble and the reliance of the Australian economy on China. I anticipate that any crisis in the European and American economies (looking more and more likely) will result in rapidly rising interest rates in Australia. Australian homeowners are already struggling with their mortgages while the cash rate is 4.5%. How will they cope if it increases to 9%? 

Holding cash in an economic environment like this just makes so much sense to me. We are using the current ‘recovery’ to prepare for the hard times we predict will come as the global debt bubble unravels.

2. Reducing Energy Dependence

Cheap energy will not last forever and my family and friends in Australia are already seeing rising prices, especially on the electricity bill. There are a few lifestyle decisions we’ve made which should help us to reduce our energy dependence once we are back in Australia.

Firstly, we are renting a detached townhouse just a 15 minute walk to the city centre. It has any excellent walk score which was really important to me. My daily commute to work will be about 4km each way, so I’ll easily be able to do that by bicycle and Brendan will be able to do the same to his work. By carefully choosing where we wanted to live we can reduce our dependence on a car. We will still buy one car, but I anticipate that it will remain in the garage for much of the time. Removing the requirement to buy a second car also saves us a lot of money.

In selecting what car to buy, we have been referring to the Green Vehicle Guide. It’s an excellent website which rates Australian vehicles based on greenhouse and air pollution emissions. It also provides statistics on how much fuel each vehicle consumes. We are very keen to find a fuel efficient, second-hand car.

We’ll also be using the Government’s energy rating guide when shopping for energy-efficient appliances. Our new home is centrally heated with natural gas and we are hoping that the smaller size will reduce our heating expenses. Otherwise, we plan to rug up in order to avoid using too much energy to heat our living space.

3. Improving Food and Water Security

My first priority once we’ve settled into our new home it to begin stockpiling some food and water for emergencies. Knowing that we can sit out a short distruption to services is very comforting. I would never want to put myself in the position where I had to rush off to the shops in a time of emergency to stock up on food and water. It also makes good economic sense to stock up on more than you need. Food is increasing in cost faster than just about any investment right now and certainly faster than the rate of inflation. When things are on sale, we’ll simply stock up and we’ll buy in bulk every six months or so.

I’ve already identified a food co-op not too far from my house where we can buy bulk-goods without all the packaging you get in the supermarket. It also looks like they stock fresh fruit and vegetables.

We don’t have a lot of room for it, but we intend growing some of our own food. The courtyard we have is not very big, but we’ve been surprised how much we’ve been able to grow in our small courtyard in California. Of course, the climate in California is much more condusive to growing food all year round than Canberra, but I’m sure we’ll learn as we go along.

4. Building Community

It’s important to me to get involved in the community when we get home. We feel like we’ve been in limbo for the last three years, but once we are back in Australia I hope we feel a bit more settled. We already have a lot of friends in Canberra, but I’m very keen to meet more like-minded people as well.

I’m especially excited about checking out SEE-change, the local Canberra community for creating a sustainable future.

I finally feel like things are falling into place. I’m now at the point where I can visualise our new life back in Australia and I’m even starting to get a little excited about the move.

Photo by : jef safi

The End of Retirement

A while back, I wrote about the coming en masse Boomer (1943-1960) retirement and how it is likely to affect the economy. Today, after reading the post and comments about The Grey Tsunami over at Down To Earth, I’d like to take that thought process one step further.

I’ve previously discussed how populations in industrialised nations are ageing. As an example, the number of people aged 65 or older in Australia will increase from 2.9 million to an estimated 7.4 million by 2049. The percentages are similar for most of the wealthy nations.

Additionally, mounting government debt poses a painful choice for developed countries; either a deep reordering of public expectations about everything from the retirement age to tax rates, or slower growth. In all likelyhood, it will be both.

Raising retirement age

The growth in the proportion of older people has major implications for the aged pension and for Federal and State budgets if taxation revenues were to shrink. If we were to ensure the proportion of five people of working age for every one retired was maintained, retirement ages would have to be lifted dramatically in the decades to come. There is no question that difficult decisions will be required.

To keep the economy moving in the face of a greying population, the Business Council of Australia (BCA) has recently called for the retirement age to be raised to 73 by 2049. I’ll be 72 in 2049, so this will very much affect the younger Gen X (1961-1981) and Millennials (1982-??).

The best way to deal with this issue ( from the government’s perspective),  is to raise the retirement age so you can’t begin drawing your old age pension till later …….preferably not before you die. This keeps you paying into the system longer without drawing any benefits.

Superannuation (401K) will not save us

It turns out Australians face a collective $695 billion “shortfall” between what they’ll have to retire and what they need. A professor at the National Centre for Social and Economic Modeling pointed out the following in an Age article:

  • The average super account balance for males aged 60 to 64 is $135,000.
  • For females it is $62,000.

But, apparently, the average isn’t terribly descriptive, because of a minority with very large Super balances. So, let’s check out the medians instead.

  • The median balance for men is $33,000
  • The median balance for women is a big fat 0.

So, half of women have no super. Please let that sink in. Here is the link to the article again. It’s still 0 when you read it a second time. Of course, this is misleading, as it includes those women well before retirement.

  • the median account for men aged 50-59 is $44,000
  • the median account for women aged 50-59 is $10,000

Retiring on $10,000 in the next few years isn’t an attractive proposition. But wait, there’s more. The professor reckons that “the old assumption that people would retire debt-free will not hold true for the next generation of retirees.” They have debt too. That means interest as well.

This is the reason that Governments of wealthy nations are worried. We can see this in Australia, where the Government is encouraging mass immigration and encouraging a new baby boom through the ‘baby bonus’.

The Solution?

So what happens if the government raises the retirement age to the point where it’s likely that you’ll die before you can retire? What happens if the purchasing power of your Superannuation (401K) is steadily eaten away by a sluggish economy and rising prices? Assuming you can keep a job, do you just keep working until you die?

Personally, I am not expecting to ever see a cent from the government for my retirement. I’m not even expecting to see any money from my Superannuation. After all, it relies on the economy growing steadily for the next 40 years and I have my doubts about that.

For me, the answer is to become as resilient and self-sufficient as possible. Realigning expectations to this reality, getting out of debt, reducing expenses, finding work that I love and will enjoy doing into my old age. These are all maxims of voluntary simplicity and I hope they will all serve well to deliver a dignified ‘semi-retirement’. The notion that we can all play lawns bowls and jetset around the world during our final years will not last much longer.

To end, I wanted to include some of the comments from the post, The Grey Tsunami over at Down To Earth as I think they amplify my thoughts on this topic.

What are your thoughts?

This is an important message. My husband and I are in our early 30’s, and we understand that here in the US, there will be no social security for us, and that the age of retirement for those who do receive a pension might well be 70. Simple living, with an emphasis on health in terms of meals and lifestyle are going to be the only comfort for us and others like us. ~ The Simple Poppy

This is one big reason why I am so glad I stepped forward into this life while I am young. This issue actually makes my DH angry, because he has believed for a long time that we will not get this money back. And here in Canada, it’s a lot of money. My goal is to have an entirely self-sufficient home, where we can live without electricity, gas, even plumbing if need be, and that it be modern and beautiful at the same time. My DH is making me a solar oven and a cob oven so that we will have two alternatives from the modern oven. Things in my home are getting slowly replaced- the essentials, so that if we don’t have money for them, we aren’t in the bind. We aren’t counting on a pension, we never were. We are preparing. I’m glad you raised this issue though- we need to all know we cannot rely on the government to take care of us, and take steps now. ~ The Girl in the Pink Dress

I’m 43, and hubby is 46. I was told by my financial planner not to count on any social security or state pension being available when it came time to retire. It was all up to me. So, we have a house with no mortgage, have no debts, and are saving, saving, saving and becoming self sufficient as much as possible. The government coffers are bare, and it is up to us to fill them ourselves if we don’t want to be working until we drop. ~ AM of the bread

The objectives of the welfare state were undoubtedly noble and humanitarian, but the results have been disastrous. As harsh as it may sound, I think it would have been better if entitlements like the aged pension had never been enacted in the first place. And I didn’t need the benefit of hindsight to help me arrive at this conclusion. Instead of incentivising self-reliance, hard work and financial responsibility, what we have now is a system which actively encourages dependency and tells us that becoming a ward of the state is something to which we should all aspire. Anyone listening to talk-radio in the lead-up to the recent federal election (in Australia) would have heard what this does to a person’s moral compass. Instead of expressing concern for the country as a whole and acknowledging that profligate spending is unsustainable and destabilising (see Greece), most callers were only interested in what was in it for them personally…and to hell with where this leaves their grandchildren and all future generations. Obviously the current system cannot be abolished overnight and the transition from welfare dependency to self-reliance needs to be fair and just, but the fabric of our society will be made all the stronger once the aged pension is all but eliminated (some kind of safety net will no doubt still be available). ~ Simone

More content now on Facebook

 

I’m finding lately that I’m doing more reading than writing, and I’m not updating this blog as often as I’d like. I do however, have lots of great links to share and this blog just doesn’t seem to be the right platform for it. I’ve therefore decided to create a new Facebook page. Here’s what it’s about:

Energy depletion, environmental destruction and economic crises are the biggest three issues of our time and they are converging to a point where the next two decades are unlikely to be anything like the last.Here I’ll discuss the great challenges we can expect to experience over the coming decades and provide links to relevant news articles which discuss these issues. I’ll also link to people and organisations doing the good work of moving us towards a more resilient, sustainable and just society.

If you are on Facebook and would like to receive daily links please ‘Like’ this new page. I’d love to create a parallel community over there.

Becoming A Good Human 

A tribute to The Automatic Earth

The Automatic Earth is very different to most financial sites, because, quite frankly, most financial sites are about exploiting the misery of others for personal gain.

We are trying to help ordinary people rescue what they’ve worked hard for all their lives from the grip of the system, so that ordinary people get to keep some of it. Why should it all just disappear into a giant black hole of credit destruction? Why should the bankers get it all? ~ Stoneleigh @ Automatic Earth

Australia’s first female Prime Minister

Photo from news.com.au

Thank goodness for live steaming TV on the internet. I’ve been glued to the Australian news all afternoon, waiting to see if Australia was going to get it’s first female Prime Minister. Sure enough, we did. Julia Gillard was sworn into office sometime after noon local time and is now attending her first question time in Parliament.

They don’t lie when they say things move fast in politics. I first got wind on Facebook this morning that something was up with the leadership of Australia. In less than twelve hours we have history in the making. A female Monarch, female Governor General and female Prime Minister. I certainly wasn’t expecting that in my lifetime.

After the excitement of today’s politics it will be interesting to see what happens in the coming weeks and months. It seems that Kevin Rudd lost the leadership because the Australian people weren’t happy with the way he handled his promises to tackle climate change and the mining ‘super tax’. Will Julia be able to turn it around in time for the next election due within six months?

Aussie politics just got interesting. I suppose I better enroll to vote.

Peak Oil, Sustainability and Economic Collapse – Oil Zenith resources

I’ve just been made aware of this new website which offers a collection of some of the best resources on the web about peak oil, sustainability and economic collapse. I’ve already included some of these links in my resources list, but this website is something else altogether. I think I could get lost in there for days. Check it out –>

Oil Zenith

Aussie Lender to Create Debt Slaves for Life!

Now I think I’ve seen it all! Check out this story of economic insanity from the Sunday Telegraph – Revealed: The home loan that could save you a fortune.

ING Direct, Australia’s fifth largest lender, is preparing to sell loans that have no fixed term and no requirement to repay any capital along the way.

At current rates, the interest-only loans would cut repayments on a $300,000 mortgage by $5000 a year.

“People are needlessly being denied the chance to buy a property while prices spiral rapidly out of their reach” ING Direct CEO Don Koch said. “There is an urgent need to provide more affordable options and borrowers should be able to choose whether they want to repay the capital, or not.”

Mr Koch wants to position the bank as a “mortgage partner for life”, with borrowers carrying the same interest-only loan from property to property for as long as they wish, accumulating equity from rising house prices as they go.

Then, as they near retirement, they could sell their property for a big enough profit to pay off the original loan and buy a smaller place outright, leaving them mortgage-free. Or, they could keep the mortgage going and repay the original capital from their estate, after death.

Banks already offer interest-only loans, but borrowers often are allowed to keep them only for five to 10 years. Then they must start paying the capital.

But ING says this preoccupation with paying off the loan is unnecessary.

“There is no economic reason for banks to insist on regular capital repayment,” Mr Koch said. “It just makes the loan more expensive for the borrower.

Financial comparison website InfoChoice CEO Shaun Cornelius said the move was a welcome innovation: “Depending on the size of the loan, it could add hundreds of thousands of dollars to a borrower’s cash flow over their lifetime.”

Is it really home ownership if you don’t actually own anything? No one ‘saves’ anything by not paying down mortgages, the money is simply spent (most likely wasted) elsewhere. Moreover, home prices do not perpetually go up.

This type of loan is just opening up a whole can of worms in Australia. Just because we didn’t have a subprime mortgage crisis of our very own, it doesn’t mean we need to create one.

The more I see these type of crazy schemes happening, the more I fear that collapse of the global economy is an inevitability!

Read more from Mish and the The Daily Reckoning-Australia.

Photo by: ~ Pil ~

The Stock Market … What Has Become of it?

James Howard Kunstler put out a particularly good essay this week. Honestly, I sit and watch the global financial markets with utter fascination these days. It is just one giant casino. There is nothing real about any of it anymore. It’s so horrific to watch, I just have to laugh. Does everyone else see this, or do they just want to believe in the recovery?  Thanks goodness I sold all my stocks some time ago. I wouldn’t be in the market these days if you paid me.

As if life in the USA wasn’t surreal enough last week. Once upon a time, the stock market was a place where people with capital went to look for productive activity to invest in — say, a company devoted to making soap flakes, an underpants factory. Now the market is a robot combat arena where algorithms battle for supremacy of the feedback loops.  Thursday’s still-baffling fifteen-minute “crash” was an excellent demonstration of the diminishing returns of technology. People too-clever-by-half, aided greatly by computers, have now gamed the investment indexes so successfully that these markets no longer have anything to do with investment — they’re just about shaving micro-points of profit at high volumes by micro-milliseconds off mere differentials in… math! This is truly quant heaven, a place where only numbers matter and there is no correspondence to anything in the real world. …

These algo-robots may be elegantly complex, but they are really no more than triggering mechanisms, and Thursday’s — whatever it was — glitch, let’s say, ought to be regarded as a mere preview of coming attractions … in which the putative contents of these stock markets get sucked into a black hole so vast that the trading desks will have to find a way to arbitrage infinity to ever again catch a glimpse of America’s receding wealth. And it could all happen in a finger-snap.

Why would anybody not heavily medicated stay invested in the stock markets?

Photo by: rednuht