Debt Not a Problem After All

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These pig-headed would-be fascist bureaucratic monsters are trying to bore us to death and get us to settle for some watered down version of a resource rent tax. It’s a tax that would reduce investment in Australia’s mining industry, lead to lower employment, lower export volumes, and put taxpayers on the hook for failed mining projects.

By the way, you’d think miners would love to flog off losses on taxpayers. It’s worked so well for bankers. So why haven’t the miners embraced it?

Well, for starters, most miners (the ones you want to invest in) don’t go into business to make losses. But more importantly what self-respecting entrepreneur or company would get in bed with the Australian government on a deal that theoretically promised to pay for losses later?

After all, as this legislation shows, this is a government that is willing to change the rules in mid-stream. Fickle. Temperamental. Impulsive. Vindictive.

In this case, the impulsiveness takes the form of the retro-active taxation of projects that were made with an entirely different set of assumptions by the companies and their shareholders. What’s to prevent the government from telling the miners at some point in the future, “Sorry, we know we promised to offset your losses, but we don’t have the money! We already spent it! Suckers!”

Ever since our plane landed in Melbourne early Wednesday morning we have been channeling the energy from all those wide open Western spaces we flew over in America. It’s turning into aggravation over how much time we have to spend dealing with plundering and arrogant politicians. Granted, these are the duly elected representatives of the people. But they seem to be behaving in a pretty high-handed fashion.

Something about big sky and open space reminds you that countries like Australia and America were built and made great by risk-taking settlers and entrepreneurs and explorers. Not by grasping, lecturing, hectoring, scolding, smarmy and dreadfully boring career politicians.

Another by the way…why hasn’t the government revealed some of the basic assumptions of its tax scheme, like what it expects commodity prices to be?

One answer: its $9 billion RSPT cash haul for next year is probably based on the assumption of high commodity prices. If the government is basing its projections on an analysis of the mining industry done by the Treasury, that analysis probably also figures high but gently declining commodity prices.

You can bet it doesn’t figure crashing commodity prices from a blown up Chinese real estate bubble. Because that could never happen again..like it did in 2008 (by the blowing up of the American real estate bubble).

Frankly, we’d be surprised if there was a lot of thought put into a scenario where commodity prices fall. Why? After all, if the world is coming off a 20-year credit boom and is now reducing leverage and debt, you’d expect lower economic growth and lower demand for the key commodities which Australia exports and which the government wants to tax.

You’d expect that if you had two brain cells to rub together and weren’t running for public office. But if you’re trying to cover a huge hole in your budget because you spent the nation’s accumulated $20 billion budget surplus in an act of blind devotion to a failed orthodoxy (Keynesian stimulus), you don’t do much thinking.

You act first and make excuses later! And you spend more of other people’s money to buy votes. And when you don’t have the money, you find ways to take it from people that do (the miners).

In any event, we wish nothing but abject failure and embarrassment for the government in its mining policy. A wholesale repudiation of the plan (and the leadership of the government) might begin to restore some of Australia’s credibility on foreign capital markets. And as a bonus, we wouldn’t have to endure being lectured to and bored to death by the Prime Minister.

Yet why so cranky Daily Reckoning?

Stocks are up eight days in a row. Gold is rising. Though it looks like Spain is the next Greece (only bigger), stock markets are again embracing risk and turning their back on the possibility that widespread asset deflation is inevitable. Is it time to hold your nose and buy?

With central banks determined to keep interest rates low, doesn’t money have to go somewhere? And if not bonds, why not stocks? Gee. That doesn’t sound like speculation at all, does it?

-Back here in Australia, we hadn’t realised that RBA Governor Ric Battellino had once and for all settled all those pesky but mostly irrelevant concerns about the level of debt in Australia. Thank goodness he did!

We were beginning to think that having your banks borrow overseas to fund a house price boom was a case of inflating an asset class with other people’s money and putting lots of your own people in debt to keep an entire industry of bankers, real estate agents, and real estate spruikers happy, stylishly-dressed, and no-doubt well coiffed.

But that’s not what’s going on at all. According to Battelino, Australia has borrowed mostly to buy assets, and that makes people richer. What’s more, even though debt levels have grown relative to GDP and income, low interest rates make the debt serviceable. Battelino says that financial deregulation and “the structural decline in interest rates” contributed most to the house price boom.

Phew. That is SUCH a relief to know. Global deregulation and a worldwide credit boom drove down the cost of capital for Australian home buyers. Even though prices are way ahead of income growth, houses are affordable because credit is still cheap.

What’s that? What happens if the cost of capital rises and credit becomes harder to come by? Oh…well that would never happen. Ever.

Or would it? If one of the consequences of deregulation was a worldwide credit boom, doesn’t it follow that in a worldwide credit bust, credit is going to be less available to households, including Australian households? And doesn’t it follow that houses inflated by capital inflows into Australia would be deflated by a dearth of new capital or buyers?

Both probably follow. But Battelino persists. He says, “This structural decline in interest rates has facilitated the increase in household debt ratios because it reduced debt-servicing costs. Households have therefore found that they can now service more debt than used to be the case.”

They can as long as they have jobs and rates stay low. In a real China bust, unemployment in Australia is going to rise. And then? And then, in a true China-bust, the cost of capital is going to rise too as bad credits are written down globally and balance sheets are de-levered and banks get back to prudent lending.

We realise there is a very real debate about whether long-term interest rates can rise when central banks are determined to keep short-term rates low. But we’ll leave that one for next week. Until then…enjoy your weekend.

Dan Denning
for The Daily Reckoning Australia

Dan Denning
Dan Denning examines the geopolitical and economic events that can affect your investments domestically. He raises the questions you need to answer, in order to survive financially in these turbulent times.
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Comments

  1. You are not alone in your well-placed dislike of the current administration. I didn’t care when they wallied about doing token gestures to their support base, didn’t really even care when they faffed about with industrial relations, even though it’s a stone age policy.

    When they grabbed the first crisis to come along to plunder the surplus, drive us into debt and then lecture everyone how clever they were, I started to get upset.

    Now that they’ve wasted most of that money on unproductive trash, and are now raiding productive industries to cover up for their foolishness, I’m just about ready to march in the streets.

    You cannot tax a country to prosperity, and any fool can spend money. Yet the majority of the population don’t see that and fall for the fool’s waffle.

    Excuse me while I go and kick something

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  2. 1. Changing the rules – that’s not even an argument. Rules have to change to reflect changes in the world. The question should be whether it is a change for the better.
    2. Flog off losses to the taxpayers – inevitably, when a company goes down, taxpayers end up footing the bill. The question is whether (current above trend) gains are fairly distributed to all Australians.

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  3. To put your mind at ease, the all mighty Australia economy is a shining example of how the world ha take stock of the perils that threw the US into this economical quagmire. On the weekend an article was printed in the back pages of our state newspaper showing that homes 43km out of the city sold on average for around AUD$500,000 (US$420,000) the average 2 bedroom apartment price is around AUD$460,000 (us$390,000). This is with a median annual income of $53,000 (US$45,000)

    One of our senior reserve bank members went on public record to state that although our median house prices are around 9-10 times our annual median income, the concept of a housing bubble is “merely a myth”

    I had a conversation with a lady at work today about housing, she said with a smile “we have just been approved on the 3rd investment property, we will buy again in the next few weeks”. Being a small office a few others were listening in and decided to chime in, before i knew it i had 2 others in front of me telling me how they are redrawing on current investment properties to get more in the upcoming months, they tell me its “money for jam”

    I feel like i am in a sphere or a parallel universe, my logic or reasoning tells me that this is a bubble that is about to EXPLODE but on the face of it it appears that its a never ending source of wealth i can;t seem to tap into even though i already own a property (i can barely afford the one i have)
    I wonder whether this is the same trodden path the rest of the world tread before they fell off the cliff or are we incredibly unique ???

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  4. “I feel like i am in a sphere or a parallel universe…”

    Indeed you are.

    As Plato noted, a couple of thousand years ago, the world of your experience, which you take to be real, is only a shadow world. The real world is the world of Ideas.

    In our unreal world, men trade a week of their labour for a single ounce of heavy metal, whose practical use is limited; or for printed notes whose combustion in the cave would provide but a minute’s light or heat. Madness!-

    But now, as then, the Cave, the shelter itself, is real. In the world of needs, the Maslovian world, it ranks highly… beyond the glitter of refined ore, or the printed papers cranked out by the billions.
    Welcome to reality… or, if you prefer, realty… . ;)

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  5. the housing economy seems to be in a world of its own

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  6. You are not alone Realist. I’ve had very similar experiences myself. Last year I did a brief search and also found that the median house price/median income ratio in Ausralia was running at around 8 or 9 to 1. At that time I found that in the US housing market before the crash their ratio was at about 6/1.

    I despair at the way Government has introduced poilicies to push up house prices – in particular, the huge first time vendor’s grant (sometimes referred to as the first time buyer’s grant, and the lunacy of opening up the Ausstralian housing market to foreign buyers (primarily Chinese) who already have super leveraged property markets themselves against which they are borrowing to invest in Australia! Not to mention the opportunity for cashed up overseas criminals to launder money through the Aussie market. All overseen by a toothless FIRB.

    All this kicked off about 30 years ago. When money lending rules were abandoned, and cruicially, house prices were removed from the CPI figures and therefore house price inflation could no longer trigger interest rate rises which would have provided a natural brake on housing inflation!

    I can’t believe that this was not the deliberate policy of powerful people. It would see generations of ordinary people in slavery just to pay for off the chart property prices and stimulate general demand for goods. An awful lot of demand has been brought forward, it will take generations to pay for it all.

    eyes wide shut
    June 19, 2010
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  7. I’m with you realist. there may be fewer of us living in that parallel universe as you nicely put it, and that generates the perplexity. To me your instincts are spot-on, and from the way you write, you know that too. To put it another way, there are a lot of people doing it tough out there in the ‘burbs, you can see it, it is obvious. And you put the hammer down, on any front (peak oil, climate change, global debt) and they’ll start to squeal. And it is “Hammertime”…great tune, loved it…
    I am responding to this cliff, I think we went over it in May, and it will start to accelerate down now, by travelling heaps. Air travel will never be any cheaper than it is now, and my kids will be in five different countries this year, and hopefully learning not to be as mediocre as your average aussie student. We are currently in Russia and heading for Finland for six weeks. Most people bag Russia too but it is a wonderful, highly educated culture. My home in aussie is already zero net energy. Insulated at least 400% more than minimum recommendations. Water tanks, triple-glazing, raised garden beds etc. But I’m just a tin-foil hat guy at work I reckon. No, you are right realist, and the implications of your knowing are deadly serious. Carpe Diem and good luck!!

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  8. Perfect Eyes Wide Shut, the best summary of aussie politics I’ve read!! I mean, just look at our current Prime Minister. One of the coldest fish I’ve ever seen. It is a hierachy of exploitation and property investors are often just aping the politicians. Completely and utterly selfish. But don’t despair man; “…keep as cool as you can, It riles them to perceive, You believe to outwit them”. Moody Blues, Seventh Sojourn.

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  9. EYES WIDE SHUT – I know biker will see these comments as mere fodder from an intellectual simpleton and in some ways it will be seen as paranoia but your remarks of “powerful people” ring true for me. I sat and read the state paper today and sure enough they had a precursor article for the auction day ahead, tips and advice and supporting statistics that the market is still “very stable”. They then had the usual real estate lift out reinforcing the same ideals, i then turn on the national news to have a head line report of a “bumper” weekend auction session.

    There is to much saturation for me to think that there isn’t a whiff of interference from many many quarters, land rats, their associations and governments (who influence the media accordingly). It’s all far to contrived to be anything other than orchestrated.

    I do have hope that we are unique but for every weekend that passes where the sheep herd out and buy at any price i fear that we are on the verge of disaster.

    I did the exercise on a median house and the ability of a median income earner to purchase such a house. The terms were quite simple 25 years principal and interest payments and a 10% deposit (which for most people on these wages is a reasonably unachievable goal of $50,000). The repayments work out to be $819pw before you even calculate stamp duty and legals, the median income is around $719pw after tax.

    It is clear our lending standards of no deposit and interest only loans have allowed this stupidity to get to unmanageable heights.

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  10. Let’s hope the population bubble deflates slowly rather than popping per se maybe Lachlan? :) :

    http://www.smh.com.au/business/population-fall-poses-immense-new-challenges-20100618-yms8.html

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  11. “gains are fairly distributed to all Australians” – I always have a few quiet reservations when I read such statements (at least to the point where I’d like to know a bit more maybe) – As in, if the author has ever purchased a coffee latte, or worn a pair of jeans that cost more than $50, or a car that costs more than $5,000; And ALSO figures he is a bit needy and deserving; I’ve got a few reservations about just where he might be coming from when making such a statement? Could all be PERFECTLY reasonable and above board of course. But more info required before I just naturally jump to agree.

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  12. wow, I am with you guys completely. This hierachy of exploitation is based on power. And how it works is through the manipulation of the interests of those lower in the food chain. So rightly you are seeing the massive propaganda, it is a huge interconnected web of s@#$, you know what, but it is impolite to say so on this forum. I don’t know if the powers at be are entirely conscious of what they are doing. I don’t think they could be that smart or unkind, and maybe their behaviour has a historical element to it of conditioning. I could be wrong here but look at ‘negative gearing’ and to some extent religon. Isn’t the govt really saying:”Social obligations are for suckers, let the poor pay for it. Come on, get into bed with us.” I cannot imagine how a civilised society could have come up with negative gearing, it disgusts me.

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  13. “let the poor pay for it” – The genuinely poor genuinely can’t pay to have their own toothaches fixed. And by and large, the genuinely rich can cope with the fact that the genuinely poor’s toothaches remain unfixed – Which is quite possibly why the middle class is encouraged to think that it exists? :)

    Neg gearing – It seems to me to have both pros and cons potentially; Depending on whether a guv and the people who elect said guv, specifically wish at that time to pay for housing the nation’s tenant population collectively, or if they’d prefer to see indidual taxpayers given tax concessions to do it? It really isn’t that big a deal – Just a bit more of the usual and expected guv fiddling over time.

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  14. “I know biker will see these comments as mere fodder from an intellectual simpleton…”

    Not at all. You make some good points.

    Whether they’re appropriate on an investment site is questionable. Since when did ‘fairness’ or social consciousness play a major role in investment? When Ruddy Kevin yabbers on about these issues we all recoil with horror… .

    And yes, there is conspiracy in _most_ business dealings. I’m daily conspired agains by those who want to sell me a new car; to flog me a new health plan; to sell me shiny stuff. These conspirators play on my fears, saturate my internet mail… . Some even remind me _daily_ my world of paper money is about to end.

    Realist, from your first post, your comments have been loaded with Americanisms. You don’t notice this (how could you?) because they’re mostly cultural, rather than simply linguistic. You’re not a US citizen ‘conspiring’ to have an Australian perspective are you? Nahhhh…. :)

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  15. Again, such enviable expression. And excuse me if I am being a too forthright or appearing to point the finger. My intention is just to figure out what is happening inside and out of me and then try and capitalise on that, which is true investment I would think.
    I think that is the arguement as I understand it Ned, as you expressed above, for negative gearing. And then you have all these (hopefully) unintended consequences flowing from it, where government ‘good’ or ‘righteousness’ actually ends up counter-productive, harming the tenanted population, who are now even less able to get a home of their own. And lets face it, your own place, however modest, has an overwhelmingly positive effect of one’s mental health. And maybe having more than that for yourself is a kind of stealing, even if the govt legitimises it.
    I’m just uneasy about neg gearing and a whole pile of other stuff to do with economics. It is that linearity of thinking that you really have to watch out for. Your thinking can get institutionalised.

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  16. “I’m just uneasy about neg gearing and a whole pile of other stuff to do with economics” – I certainly agree with that.

    One of the one’s that I struggle with a bit is CGT – Like what could possibly sound reasonable about taxing a bloke on profit he made on an investment? Unless the investment HAD been propped up along the way by the tax payer generally using something like neg gearing perhaps.

    Otherwise it just boils down to a case of guv saying Well, you earned some loot as a wage slave and paid the tax on it, and rather than wee it up against the wall, you lived frugally and chose to try and invest it for your future, and given that you got lucky and didn’t lose it, we now want some more tax on any profit you made. (Although, yep, the welfare lobby probably feels that anytime anyone makes a buck, they are entitled to a chop of it! :) )

    To me, any sort of debate about whether neg gearing is a “reasonable and good thing” (at any given point in time because people’s attitudes on what is reasonable and good tend to be pretty flexible over time depending on many factors) needs to go hand in hand with a debate about whether CGT is a reasonable and good thing.

    But again, as you quite correctly observe (IMO), most of this financial stuff probably doesn’t really have a whole lot to do with guvs being “good” and “righteous” like they try to tell us. Rather, it’s more about who they figure they are best advised to remove tax from and redistribute it to, to on balance buy more enough votes to stay in power, whilst not crashing the economy and getting turfed out for that.

    Maybe I’m unjustifiably cynical? But I’ve not seen anything that even goes close to convincing me of it.

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  17. PS: My one and only real personal experience with neg gearing was probably a bit less positive than some – I bought a neg geared investment property and then took a job overseas and realised rather quickly in hindsight that neg gearing didn’t seem to have especially huge benefits if a bloke had no Oz income to be negatively geared against! :)

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  18. But yeh, the guv will still want their CGT on any profit I might happen make if I ever should feel inclined to sell. So they can dole it out to the more needy and deserving than me to buy their votes … Such is life (In Oz; At this time)! :)

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  19. I like where I live; I fit in reasonably well; The neighbours are a nice average mix of working class and welfare dependant Aussies – The sorts of people I relate to reasonably readily. But Jeez, some of them do verge on the bludger category – Ned, can ya loan me $50? (or $200; or even $2k to keep me outta jai!) – Well, I could mate – But what’s wrong with asking ya mum? – She lives just down the road. Answer: I did – But she won’t give it to me ’cause I NEVER pay her back!

    Gotta luv ’em! … :) :) :)

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  20. Negative gearing? A few of ours are negatively geared. They tend to be the bigger homes we built when the market was peaking… and rents were going ballistic. Let the missus overdesign and upspec them. The plan was to be either neutrally-or-positively geared. Didn’t happen because Rudd’s FHOG took 200,000 tenants out of the pool and rents plateaued!~ These tenants are now subsidised by us… and the government, through negative-gearing. The FHOGs are gone. Around us rents are going sky-high again.

    And, as we know, those who buy shares are treated more generously tax-wise than those who provide rental homes. Seems odd to me, but who’s bitchin’?

    Capital Gains Tax? It applies to all investments: shares, property, bullion, interest from money in the bank. Where’s the beef?

    This is an investment site. Anyone here who has mistaken it for a social welfare site needs more googling practice. To argue that homes should be limited to one per family is quite a comic argument in a world which has tolerated and welcomed the principle of rental accommodation for millennia.
    Why, Australia’s King of Tenants has told us it’s the lesser of two evils, that to rent is the far better proposition, that Europeans overwhemingly prefer tenancy to home ownership. Listen to your guru keenly. His Sermon on the Mount speaks volumes to those who would plunge into the perils and pitfalls of property purchase… . ;)

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  21. “Capital Gains Tax? It applies to all investments: shares, property, bullion, interest from money in the bank. Where’s the beef?”

    No beef from this quarter as such Biker – Providing neg gearing is allowed to apply to all such same! (With the fact that I stuffed up on my one venture into it being presented as a potential object lesson to those who mightn’t be especially aware of the value of concerning themselves with the various tax related pros and cons re investments.)

    “His Sermon on the Mount speaks volumes to those who would plunge into the perils and pitfalls of property purchase” – Amen! :) I look forward to many years of subsidising accomodation costs for those who don’t feel inclined to purchase.

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  22. “I look forward to many years of subsidising accomodation costs for those who don’t feel inclined to purchase” – I see it as my Christian beholden duty in fact! :) ; Given that guvs aim to destroy me cash holdings with inflation and the likes of Goldman Sachs are always gunna pinch me money off me if I venture into other asset classes … :)

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  23. “I look forward to many years of subsidising accomodation costs for those who don’t feel inclined to purchase.”

    You’re a man of sterling, nay _golden_ qualities, Ned. :)

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  24. Negative gearing? A few of ours are negatively geared!

    Thats ok Biker I am very happy to have my taxes pay to make you such a humble man more richer, would you like me to buy you a round too?

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  25. “Again, such enviable expression.”

    It’s termed ‘eloquence’, my son.

    At the other end of the continuum we have bottom-speak, such as “Your talking out of your stinkhole again biker” {Cerebral dwarf who was invited to leave school at 14, votes for a Prime Miniature he now _despises_; and has predicted a 60% crash in property… for years… happy soul!~ ;) }

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  26. “…more richer…”

    Says it all.

    Another one… .

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  27. Must admit I did feel a certain vague affinity with a statement I once heard that went along the lines “Charity begins at home!” … Or somesuch? :)

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  28. Charity? Hmmm… . I see it more as an agreement between three parties: an owner, a tenant and a government (of any colour) to ensure that voters have affordable accommodation. I lived for over a year in Vancouver at a time when ordinary houses were $700K… and rents three times those here. Those same homes start at around $2mil+ now. The message to me, at the time was: “_You_ cannot afford to live here!” No use bitching about it. It was true.

    Yet the bleating here shows a significant number of city-livers haven’t got that very simple message. Their perception is of a great conspiracy.

    Reading the Weekend Australian this evening (we both worked non-stop all weekend on this current rental) I’m prepared to acknowledge that I may have written Rudd and Henry off too soon. Gotta get myself a copy of ‘Shitstorm’ (Taylor & Uren). History may well judge them a little differently than most of us do right now… .

    Charity? Our tenants can’t complain. All the rentals we provide have money-saving environmental features no other rental homes in this upmarket beach suburb offer.

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  29. I see I’m being censored again, Ned!~ :)

    Biker Pete
    June 20, 2010
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  30. OK… got it… I’m not being censured… I AM being censored. I referred to Taylor & Uren’s new book, ‘Sh*tstorm’ without using the asterisk.

    Is it true this would cost me $100 in QLD, Ned? ;) I guess DRA will eventually print my post, given that the book may well help rewrite this period of history… .

    Biker Pete
    June 20, 2010
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  31. Nevermind Biker. – I found I couldn’t gain access for many months. But never felt that I was particularly impoverished by the experience personally?

    It’s just a convenience to be able to keep abreast on one site of what is the very worst imaginable stuff that could ever happen to the world if it ever should all happen simultaneously perhaps? :)

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  32. Still giggling at your last comment, Ned. :)

    I’m blocked frequently. To beat it, I go into ‘Tools’ and then click ‘Clear Recent History’. Once in, I tick ‘Cookies’ and hit ‘Clear Now’.

    Quicker than you can shout “Snow White and the Cerebral Dwarves’ the poisoned cookie crumbles. I can then rapidly access DRA. Now I’m not so paranoid that I think DRA is ‘conspiring’ against me(!) After all, my views are, at best, ineffectual, mostly quite flawed and easily rebuffed…. .

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  33. Never heard of that particular publisher’s book Biker? Nor have I kept up to date on Ms Bligh’s fines on four letter words for revenue raising purposes over this way. (Although I DO recall that me Mum used to make me put $1 in the pot when I erred re such as a kid when me weekly pocket money was about 30c – If that specific historical financial info should be of any huge potential use to anyone? :) )

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  34. Meanwhile, I see that China is _indeed_ in deep excr*ment, Ned:

    “China’s exports jumped 48.5 per cent in May from a year earlier, the biggest gain in more than six years, according to customs bureau data June 10. Exports exceeded imports by $US19.5 billion, from $US1.68 billion in April and a deficit of $US7.24 billion in March that was the first in six years.”

    A prediction I read today claims we should expect another 25 years of this.
    A third item predicts unemployment of 3% in WA by late 2011.

    We’re in deep man*re, Ned!~

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  35. ‘Sh*tstorm’ (Lenore Taylor & David Uren) available next week: $34.99.

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  36. “After all, my views are, at best, ineffectual, mostly quite flawed and easily rebuffed” – No question Biker!!! :) After all, who was that fool, cum tool, cum stool even maybe(?), who once opined something along the lines that the somewhat nebulous concept generally referred to as “wisdom” could just possibly be related in some vague way to having developed some vague awareness there just could be some vague things one doesn’t fully (or even even vaguely maybe?) understand? Or somesuch! :) :) :)

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  37. I have NO idea what’s happening Biker! :)

    Just repeat the mantra Ned!!! – 60% property; 40% cash; With NO stock exposure EVER! And if THAT doesn’t work out, then be prepared to flee your country’s high taxing guv QUICKLY!!! :)

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  38. A few more years on the clock and you’ll never have to worry about tax again, Ned. ;)

    The BFI had an interesting column this week. I don’t usually bothing reading his pap, but my wife occasionally passes an article across the cafe table to me, if she finds he’s written something she agrees with.

    This one, “Such is Life in Crisis”, looked at the BB generation retiring with just two (women) to five (men) years of survival income. His theme, Zero Based Planning was interesting, although we couldn’t help thinking that ‘zero planning’ might actually be the real issue all along. His example was poor, citing a builder near retirement… but some of the strategy works. I know, because I’m doing it. Reliance on cash was a theme, although the $30K suggested seemed minimal… just a buffer against home repossession.

    The patterns we’re seeing here are quite different to those Pape suggests.
    We’re seeing those approaching retirement either a.) selling the family home, to downsize; or b.) renting the family home… and renting or buying something smaller.

    His final view: “If the world changes, I must change” is one we’ve always held. Simply bleating about one’s misfortune won’t change much!! :)

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  39. “A few more years on the clock and you’ll never have to worry about tax again” – Must admit that is most likely true Biker? … Ta! As at some point it just could begin to start sounding unreasonable for our guv to begin trying to tax their SFR’s especially heavily.

    Although there are definitely times when that get’s easy to lose sight of when one’s predominant past life experiences re tax by and large centred on ways to try and step around ways of mitigating the disinclination to pay a marginal rate of 48% + the medicare levy.

    “Such is Life in Crisis” – Thanks – Nearly witching hour over here and I’m heading for the bunk – But will try to read same in the morn.

    “renting the family home… and renting or buying something smaller” – Seems reasonably rational to me?! :)

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  40. Will _this_ work, I wonder?

    http://www.perthnow.com.au/money/bank-exit-fee-rip-offs-face-the-firing-line/story-e6frg2uc-1225881655204

    We don’t need it (we play our two banks against each other) but it may help a shipload of Aussie families…. . ;)

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  41. Banks – Wouldn’t seem that hard to me??? – Just sign every loans officer and those supporting them and their bosses up on contracts that say they are all personally responsible forever for all loans they make that fail; Whilst they get a reasonable % income pa from those they sign up that don’t fail? How onerous could that sound amongst those who reckon they are highly skilled in assessing risk an reward and reckon they should be paid in accordance with their outstanding skill levels???

    Witching hour is well and truly past … Snooze time! :)

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  42. Good to see you can laugh at yourselves. A whole pile of info above which I have only had time to glance through as yet. Just a few points; I don’t see this as an investment site. To me it is more of an economic truth site. i have no desire to invest as I am happy with my life and I don’t need more at the moment. Love my wife, love my three kids, love my quality of life. I’m just interested in finding out what is going on, shouldn’t be a problem with that. I worked in canada for 2008 and got to follow the US election first hand. I couldn’t believe that anyone could regard Obama as sincere but that’s what all the media channels said. I started looking around for another source of info and found it on: Daily reckoning UK, MarketOracle UK, YOUTUBE (Keiser report, Marc Faber,Peter Schiff, Jim Rogers, Gerald Celente). I’m hooked on the info aspect of it, and it also helps me to plan ahead. If you guys haven’t seen Max Keiser, but I guess you have, then check him out as he is the funniest guy around and his keiser report is my favourite. Secondly, I’m new to this and just mentioned neg gearing as an example of the dis-trust i feel towards the govt and managers in general.
    secondly, I’m no social welfare dude. I can’t stand people who want to ‘help others’ as there is always something fishy about it. You just look at them and get a bad feeling. I do have a social conscience though, and if that’s my catholic up-bringing suckering me I want to find out!! Sorry for being a pain in the ……
    As far as I am concerned the game is up, the system is going down. Hence my survivalist mentality. if that was to prove false i would change my game plan but I don’t think it is. So for now it running in the St.petersburg parks for an hour each morning, savouring the bird song and pleasant scenery. Then off to banya with my venek for a feeling of total well-being. Sucking the juice out of life while we still can. OZ in 6 weeks, work a bit, then NZ in Sept, before hopefully back to canada for 2011. I’m not eloquent Biker but i’m no fool either and have tremendous intuition, pity the man who can’t put it easily into words and has zero reparte!!

    Reply
  43. Which province are you from, Shaun? We crossed Canada E – W last year.

    In my view, our two nations survived the sh*tstorm better than most, largely for the same reasons…

    Apart from ‘sucking the juice out of life’ do you have any plans for when the ‘system goes down’? I’ve always wondered what happens to the fella on the corner of the street with the sign ‘The World Ends Tomorrow’, the following week. :)

    Reply
  44. Most likely their unions would veto that one, Ned.

    Personal responsibility for one’s actions in the public sphere? I doubt it!~ ;)

    Reply
  45. Hi Realist:

    “I wonder whether this is the same trodden path the rest of the world tread before they fell off the cliff or are we incredibly unique ???”

    – I wonder about this too.

    gutfeeling
    June 21, 2010
    Reply
  46. Comment by gutfeeling on 19 June 2010: “What errors exactly? Were the errors in some or all of the articles i.e. am I to disregard all the articles or just some of them?”

    – I wonder about this too.

    Reply
  47. Hi Biker, good on you for travelling across Canada with your wife. i think she is Canadian. Good for you, a canadians hard-drive is usually more politely conditioned than the average aussie’s. Got to admire aussies assertiveness, but the delivery usually leaves something to be desired!! I am not canadian but a kiwi originally. i can get work there and manage taxation somewhat. hypocrite thinks Biker. It is in my interest to work outside of aussie.
    The Sh*tstorm hasn’t started and I don’t think Canada is similar to Aussie other than they both supply commodities. In the canadian constitution they say:”Good government”. and they honour that. Look at Stephen harper. Quiet but much more class than Rudd. How in Gods name did the latter get so far with that modest bag of tricks? and remember that ‘mean and tricky’ PM before him? Aussie has less exposure to global debt because it supplies china,and india to some extent. but china is going down now and aussie will get the smackdown. too much short-term debt in the banks. Canada is vulnerable because it trades mostly in USA which will go the way of UK. May you live in interesting times.
    My plans…my plans. would take pages and pages to describe. Number one: take care of your health, that is your biggest investment. I’m 48 but most say I’m 36 at most. my wife is 34. i’m not vain or dressy but I take good care of myself. Whole house water purification, de-humidification, and air filtration, and that’s just for starters. And i’m no wowser either. I work in a toxic environment in aussie, with other people’s jealously that is. there is nothing more pleasing to me than to turn up to the very occasional work function with my truly beautiful wife. HAHAHA LOL. and it is not trophy-wife stuff either-we love each other very much.
    Number two and three is warmth and affection. By warmth I mean physical warmth in the home so you have to anticipate higher energy costs. Big topic. And affection is doing stuff with your wife and kids and close friends. Avoid rabid consumption which is now the national passtime of aussies. F cricket, it’s consumption OI OI OI!! Aussie should modernise the national symbol and replace the koala or kangeroo with a 52 inch flatscreen with ‘Friends’ on it!!
    Those three things are all that matter to me. Like you Biker, I’m guessing here, but I’m a family man.

    Reply
  48. “…hypocrite thinks Biker.” (?)

    A little difficult to follow your thinking here. You’ve got the health one right. The partnership and family, too… but from that point I’m afraid you’ve lost me.

    I believe Canada and Australia will both ride it out far better than most western nations. Either country suits me, but having lived over two years in BC, I contend Aussie weather eclipses anything in Canada.

    Yes, Australia has some issues, none a really big deal for me. If Aussies want to overconsume, that’s their choice. If they choose to rent, it’s no big deal. Frankly, how they live their lives and plan, or fail to plan, is really none of my business. If they believe they can live on a pension at 65, I don’t mind having paid taxes for 40+ years to give them access to an Old Age Pension.

    Where my empathy is just a little strained is when I become aware that the bears have the sh*tstorm as the _central part_ of their financial planning. Again, it’s their choice. Perhaps if IF rather than WHEN figured more prominently in their rationale, one might empathise a little more. :)
    On the positive side of course are their faith, perseverence, and optimism (that things will all go horribly wrong!~) You have to admire that tenacity, year-after-year. No issue with the true goldbugs here, at all.
    If they have a problem with paper currency, bullion seems an ideal alternative. It’s their choice.

    Won’t comment on the whingers or those who blame previous generations for their own inability to cope; other than to note that unlike others here, these few have virtually no options, but lots of excuses. ;)

    Reply
  49. ” Ned, can ya loan me $50? (or $200; or even $2k to keep me outta jail!)”

    Sometimes, $50 is a small price to pay to get some people out of your hair. Then you just pipe up with “mate, have you got that $50 I lent you? I really really need it right now!” and *poof* they disappear faster than David Copperfield :)

    Reply
  50. Where my empathy is just a little strained is when I become aware that the bears have the sh*tstorm as the _central part_ of their financial planning

    It is not a central part of my plan, it is however something I feel is going to happen and therefore am planning how I can best survive and profit from it.

    Stillgotshoeson
    June 22, 2010
    Reply
  51. BP: “Where my empathy is just a little strained is when I become aware that the bears have the sh*tstorm as the _central part_ of their financial planning”

    Shoes: “It is not a central part of my plan, it is however something I feel is going to happen and therefore am planning how I can best survive and profit from it.”

    It’s clear that the sh*tstorm pollutes the clear thinking and planning(?) of many here. A few appear to desperately _need_ a major collapse to rise from their current sad state. Others with assets are simply gambling that the storm will obliterate those nations which appear to have weathered it well, Australia included. Every kind of possible catastrophe, even nuclear war, has been blackswanned at us over the years… . ;)

    China’s recent currency moves may signal its confidence that _it_ can withstand the buffeting we all anticipate. And, despite its follies, you can’t write America off… .

    Probably time some here developed Plan B.

    Reply
  52. BP Probably time some here developed Plan B

    I am covering multiple bases… never put all the eggs in one basket.
    Bought $135000 worth of shares over 5 stocks last week..
    As of midday today they are $150000 worth.

    Portfolio is about 50% Cash, 30% Gold (leveraged through miners more risk/more potential gain than straight bullion)
    20% other stocks… GPT, AGO, OZL, PLA and TTS
    Gold Stocks NCM, GDO, CTO, SBM

    Whilst I think Gold is the major play at the moment I am not “all in” Have options open for other opportunities that may arise as well.

    Even if houses prices on the whole do not crash I don’t see any decent capital growth for some time from them, better opportunities elsewhere for my money at the moment.

    Stillgotshoeson
    June 22, 2010
    Reply
  53. And, at your age, higher risk is appropriate, Shoes.
    You seem to have it covered well.

    Reply
  54. Congrats on your stocks Shoes..wish I could say same for myself..but we may have to rename you Stillgotshirton :)

    Reply
  55. Comment by Lachlan on 22 June 2010:

    Congrats on your stocks Shoes.

    Hearing mixed whispers on CTO though…

    Whispers I have heard are… they have got the gold but it will difficult and expensive to extract….. JV negotiations have not progressed well with the Chinese Gold Mining Company.. Finance negotiations through the Indian Company are going well are what I am hearing.. they are a long shot.. my exposure is less than 5% of portfolio and stop loss is 8.5 cents (price paid)
    Hoping for some decent reporting in the July report… Last one was a little too vague for my liking, may dump them.

    Stillgotshoeson
    June 22, 2010
    Reply
  56. Yeah I had a sweet spot for CTO for a while Shoes. The high grade visible gold in quartz vein/granodiotite (or one of the granite series..its been a while) is lovely stuff if anything like what Ive seen myself. I dug a very beautiful specimen of this stuff myself (just under an oz) when a bit younger and being uneducated about gold dealing sold it for next to nought to somebody who told me it was crap. And then my best mate who had said nought the whole time I had it, couldnt believe it..reckoned he would have paid triple gold prices for it. Just hope somebody extracts the CTO deposit sooner or later. Wish I could grab CTO those boys by the scruff an gettem diggin ;)
    The gold market has been taken down by naked shorts for the time being..time to buy again soon hopefully.

    Reply
  57. Yep, it’s great to hear you are having wins Shoes! And I was reading an article just last night by a bloke I regard as pretty sensible who reckons $2k gold is certainly a chance. (He’s a Brit trader who’s in the inflationist camp [for now anyway].) If I had any skills re the stock market, I’d probably be trying to clue myself up on oil at least as much as anything else though? Simply because it seems that nothing much happens without it – Including mining gold. Plan B – Yep, I guess I’ve sort of got one of them. With Plan C going along the lines of consider emmigration to a major oil exporting nation perhaps?

    Reply
  58. I am in Charters Towers at the moment, can’t tell if the mill is turning from the road though :)

    There is another gold mine starting up shortly here as well, similar show – small tonnage high grade – close to town. It will be interesting to see how that plays out, all privately owned though so no shares sorry :(

    Reply
  59. Can’t tell if the mill is turning from the road though – Then you’ve GOT to shift the road mate – No value in having the MGM turn up at work each morning and not be able to comment “Ja, de mill iz turning, dis is gut”; As opposed to “Ju haf a problem!” :)

    Reply
  60. A young exploration geologist years ago made the observation that quite a lot of the mineral deposits discovered in Australia tended to be close to roads so that is where exploration should be concentrated. Bless the young at heart – obviously Citigold should set up a couple of drill rigs a bit closer to the highway then :)

    You da man Ned!

    Reply
  61. ah Don, ’tis the stuff dreams are made of….the cows, the veges, my seed crops….. and a high grade gold mine down the back, minutes from a little town :) Surely I dont ask too much.

    Reply
  62. Kinda reminds me of the storey about the 5 yo who heard his grandad ask his daughter to bring him his glasses so he’d be able to read his book; Who demanded that he got a pair of glasses so he could read books too? Uncomplicated solutions are good – When they work! :)

    Reply
  63. “Surely I dont ask too much” … “Visible gold” in ore runs at maybe 1,000 oz plus per tonne Lachlan??? – Hmmm … Yeh, I suspect it could be a reasonably big ask in Oz these days? :) :) :)

    Reply
  64. “Kinda reminds me of the storey about the 5 yo” – The young exploration geo I mean – As opposed to “cows, .. veges, … seed crops….. and a high grade gold” which would all work just fine for for me if I didn’t know I’d gotten a bit old for at least 50% of them to not be happening things for me! :)

    Reply
  65. It could go that high Ned in patches but but vis gold in quartz goes right down to sub oz/tonne also. A lot of it is patchy. I know an untreated quartz dump left lying in hills closebye. Somebody treated a few tonne for about 20g/tonne a long time ago and its pretty typical of our area. Id settle for an alluvial patch though Ned, I gotta keep it real now :)

    Reply
  66. and the swimwear models to help with the crushing of course…never too old Neddie :)

    Reply
  67. Amen to that, brother!~
    Best thing about the old goldmining towns was the ‘dancin’ girls’…
    (Remember… lingerie…?)

    Reply
  68. An alluvial patch ‘n some swimwear models to pan it – Ya sound like a bloke after me own heart Lachie? If you should happen to find you need a hand managing any of that, please do try to recall that I’m still periodically open to offers?! :)

    Reply
  69. “I’m still periodically open to offers?!”

    But _not_ on Sundays, Ned. Careful, the Sumerians are watching… . ;)

    Reply
  70. “20g/tonne a long time ago and its pretty typical of our area” – Yeh, I strongly suspect I should have said 1,000 g[!!!]/t rather than 1,000 oz/t now that you remind me … :) :) :) With big open cut bods calling maybe 1.8 g/t high grade. 4g/t even if it was reasonably challenging ore. Guess I just blew my employment chances on the mining or milling side of things with your lot?

    Nevermind, I was always more into the ongoing general maintenance type side of things if you figure any of your future potential labour force might need a good man re same? Steady as she goes – We’re here for the long haul. Rather than rip, tear, bust … Well that’s my approach to it anyway? :)

    Reply
  71. Any major oil exporting nation that I might choose to emmigrate to is definitely gunna be cool and predominantly inhabited by people who don’t wear berquas regularly, who do enjoy their grogs regularly – Not that I have huge personal issues with the alternative – But simply accept that they could with me! :)

    Reply
  72. Always said I was born 100years too late BP…not 5000 but ;)
    Ned the last gal I talked into that caper ran away and I dont know why.. but if I get lucky and find some new goers I promise I’ll look for ya. Just not sure I can findem in this country but…they only seem to wanna do yucky things like going to restraunts and movies..go figure.

    Reply
  73. “they only seem to wanna do yucky things like going to restraunts and movies” … Know the feeling well Lachlan; And there isn’t much point in telling them that while you mightn’t mind doing such stuff once or twice a decade, it really isn’t your thing. Because “they” have a habit of saying that’s just fine by me to a bloke’s face whilst more secretly saying I can change him for the better!!! (Maybe? – ’cause who’s to really know what’s going thru their minds???) :)

    Reply
  74. what’s going thru their minds???)
    I’ll be blunt Ned…We get to die without ever knowing..but you already know that.
    Ah maybe we just dont wanna know Ned. John Williamson sang “I dont really mind, if you dont love me. As long as you can stay around for more”

    More what?

    “Hawksbury River lovin” apparently.
    Like the kind you have on a house boat on the Hawksbury.

    That doesn’t sound so bad now :)
    I’ve decided I dont wanna know anymore Ned.

    I better go now. Night Ned.

    Reply
  75. Yeh, Night Lachlan; As I can’t imagine any possible way we aren’t gunna get in the poo tin if we continue talking about such a subject online.

    It just really ain’t politically correct for boys to chat about any possible misgivings they could possibly happen to have about their girls these days I guess. NO SMILEY FACE :( :)

    Reply
  76. “…whilst more secretly saying I can change him for the better!!!”

    Mine changed me for the better, fellas!~

    Now a houseboat… I could go for a houseboat. The stimulus program in New Brunswick, Canada, gave a mate of mine the opportunity to build a _three-level_ palace, with a spa on the top deck. Talk about luxury. Wept when I heard the price: $125K!

    The major issue the NBers have is that the icing up of their rivers and lakes means this immense, beautiful home needs to be lifted out and drydocked before winter. I was thinking of shipping it back home, until I was slapped about a bit and sent to my room to consider the error of my ways.

    Told you I’d been ‘improved’ and have evolved, didn’t I?? :)

    Reply
  77. you dudes getting enough? any?
    I’m probably just a bit nervous about writing on this site. but everyone seems OK.
    I felt a little hypocritical when I realised that I minimise tax through choice of country to work in so why object to neg gearing? I thought i’d get called on it.
    I think Canada will do worse than aussie even though it has better govt. I think aussie has trouble coming its way but it will weather it better than basically anywhere else in the world.
    I don’t think this bear is moving too far into the realm of the future and ideas. My basic proposition, higher energy costs, stands and I am planning for that. Seems sensible.
    I cannot believe anyone on this site would argue otherwise. that being the case then alot follows as to what to do. eg. higher energy costs means alot more youth without pimped WRX’s to prove their machissmo. That means more crime and civil unrest which means for me a good, high colourbond fence along the most vulnerable lines of my property. A good dog and the golf club under the bed.
    If the sky doesn’t fall then I’ve got a good fenced off property for the kids to play on and the good dog ‘gino’ can run around. I’m thinking at this level.
    I took a different path and was very interested in climbing. I spent alot of time in the himalayas and met my wife, a russian engineer in India, and started on another life with basically nothing behind me at 40. Fast forward eight or so years and I’m settled and trying to use my time as wisely as possible. Good house, $90,000 a year which is alright I suppose and alot of hope in my heart.

    Reply
  78. A house, a lady, an income and an attitude you are comfortable with, all sound like real good starts on the basics to me Shaun! Minimizing tax – Given the alternative, it certainly sounds like a natural enough human type thing to try and do. While I enjoy letting a few thoughts about human nature etc rattle around my skull occasionally, I try to not take philosophy too seriously – Given that those who do, often enough seem to either end up consuming hemlock or deciding the world would be a better place if someone else did! :) While I’m not Catholic, Mother Teresa certainly won a lot of brownie points with me when she said in her Nobel Peace prize acceptance speech If you want to contribute to world peace, go home and love your family. By and large with human beings it probably doesn’t do to try and raise the bar unreasonably high I suspect?

    Reply
  79. Ned you and Biker always seem to go into these deep philosophical modes sometimes and you get way off track with the subject matter

    Don’t worry about mother Teresa trying to score brownie points, you are hell bent on trying to score Brownie points with Sir Master Biker Pete

    Reply
  80. Ah, but were you a fully committed and willing participant in your re-edumacation process at all times Biker? If not, there always remains a slight chance one could revert to his somewhat more natural nearderthal condition if he isn’t appropriately and continously supervised and encouraged perhaps? :) Anyway, it’s good to have a laugh with mates regardless – Ta fellahs!

    Reply
  81. Mother Teresa – Brownie points – Biker – I was talking to Shaun actually? Albeit admittedly off topic. Let’s see; What was the topic? – Oh yeh, the world as we know it is ending soon and we’ll all ultimately be way better off – Except for those of us who won’t be! :)

    Reply
  82. what do u do with yourself Ned, what is your day job?

    Reply
  83. I’m a self funded retiree Steve.

    Reply
  84. ok where did u get the money for your retirement from?

    Reply
  85. Never having had much understanding of risk and debt, or as such, very high tolerance levels for same, by and large I got my filthy lucre by working and saving. Which was one of the reasons I started reading the stuff on this site – To see if I could learn a bit about investing. Must admit, there is something fundamentally attractive about the thought one just might be able to make lots of loot by executing some well timed investment decisions occasionally.

    I doubt I’ll ever get the hang of it personally. But it is still interesting to read a bit about how others do it.

    Reply
  86. Philosophy? Most of my quotes are straight from sixties R & R… ! :)
    I’m pleased to note that others quote The Classics, too.

    Look Steven, I spare you a great deal, son. I toyed with a zombie quip about the reason to avoid bathrooms (double tap!) and discarded it. Your problem is not that ‘philosophy’ is part of the whole DRA picture, but that you’re excluded… not deliberately. It’s that whole “Where have you been all my life?! Well, two thirds of it I wasn’t even there!” thing.

    Not saying I totally understand everything I read here, either. I often ponder over a post Ross has written, for daze, trying to fill in the gaps in my total ignorance of things which may be critically important.

    DR(US) is running the ‘Leaving Dodge’ theme, at the moment. Knowing numerous Americans (and Canadians) who have emigrated to Australia, I’ve often wondered if we won’t see more move here soon. Letters from those who have left the US are insightful and often poignant. I’m not sure we’ll see the next wave of letters published here, but I was particularly impressed with one respondent’s comments, in which he took another view. He found that he missed many of the freedoms he’d enjoyed in the US. Dutch and German biker friends who have just moved here love our lifestyle, but they too were surprised to discover they’d taken for granted many ‘rights’ they had in Europe.

    Y’know, we’re so busy knocking Oz that we often fall into the same trap. Trying to get into a frozen car and de-ice a frozen windscreen, in a uni carpark at 3:00am, you start to realise that _weather_ is something we sometimes bitch about in Australia, without recognising that our climate is spectacular! And though we whinge about socialist governments non-stop, our safety net is undoubtably far better than the US absence of same in almost every respect… .

    Travelling abroad nearly every year for over thirty years, often with two little kids in tow, we’ve learned to appreciate the _true_ wealth we have.
    Yes, the money helps insulate one from the cold, but to retire happy, wild and free some altitude in attitude is also essential. Give me levity over leverage, every time… ! :)

    Reply
  87. “…were you a fully committed and willing participant in your re-edumacation process at all times Biker?…”

    Yes, too true, Ned. I was the original WCB until the missus interrupted her seven-years-around-the-world trip, to make a man out of the boy… and unshackle my colonial chains… .

    Your answer to our mutual friend indicates you’ve missed your true calling-in-life, Ned. You’re every bit a match for Kerry O’Brien!~ ;)

    Reply

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