The Wedge Between Rich and Poor

[Space Racer]

Copied from http://hvac-talk.com/vbb/showthread.php?1178821-housing-market/page2 and slightly modified:


Let's say you are a one-man country. You live on a very small island you own in the North Pacific. Other people live on the island, but they are residents, not citizens. They live by your rules. Some of them work for you.

You make a living by building widgets and selling them to small companies in various Pacific Rim nations. You import the raw materials. You borrow money from Singapore from time to time to keep your operation running smoothly. You make a profit after expenses of 10%. You plow half of your profit back into the company. You put the other half in the bank.

You have started your own small bank. You take deposits from and make loans to the residents of your island. This is the bank where you put your own money.

You started your bank with a $100,000 deposit. This is money you generated from your business. This is real money.

Now let's say you go into the computer and add a zero to the 100,000, making it 1,000,000. Have you increased your wealth? No. You have injected $900,000 of phony money. You have devalued your currency.

You have made yourself appear to be wealthier than you are. You have taken the first step in building a house of cards.

You are a Bernanke.

Can you get wealthy this way? Yes, of course. You can loan more money and collect more interest. You can invest your bank profits in assets that appreciate in value.

Not only that, you can help your residents buy nice houses. [With all this new money, you can provide cheap loans for everyone who wants to buy a house. You are happy to help them, so you encourage them to buy.]

But what else happens to the residents? Over a period of time, prices go up and buying power goes down. Their money is now only worth one tenth of what it was before the injection. So are their retirement accounts. Soon, all their money goes to food and clothing. They have nothing left to pay the mortgage with.

If your intention was to help your residents buy nice houses in which to live out their lives, you have accomplished the exact opposite.

They would have been better off renting from you.

This side effect of cash injection and subsidized homeownership can be summarized simply:
Inflation is the wedge that drives the split between rich and poor.

http://www.essortment.com/inflation-deflation-61410.html
http://www.bbc.co.uk/dna/mbiplayer/A27371298

People blame the greed of large corporations and rich businessmen for their accumulation of a disproportionate amount of wealth. Some even believe that the accumulation of wealth by rich people is responsible for their own relative lack of wealth. But poor people stay poor because all their assets are in cash. Rich people get richer because they convert their excess cash into assets that hold their value and assets that appreciate in value.

But when government pours more cash into the economy, it does two things:
It allows people who make a profit to invest more cash in goods that hold their value.
It depletes the resources of people whose assets are only in cash and assets which are not easily converted into cash, especially when those non-liquid assets are not paid for.

So when the government decides to “boost the economy” with subsidies and cash injections, with the proclaimed intention of improving the unemployment rate and enabling small businesses to survive, it is in fact making the economic situation worse. It causes temporary relief from economic pressure; it causes people to believe the economy is improving; it buys votes for the ruling political party; but it destroys the economy in the process.

Instead of injecting more cash and subsidizing the disadvantaged with cash, government needs to cut spending.

This is the only way to reduce inflation and its disastrous effects.

This is the only way to level the playing field between rich and poor.

Unfortunately, it's a painful process, and it's a good way for the ruling political party to lose popularity.

[Southern Mech]

stating the obviouse.

take the money the govt blew in bail outs and divide it into every working mortage paying person in the USA and cut them a check. They would have paid a car loan of or bought a new car (helped out the auto industry and banks) they woulda paid off the mortgage or bought a new home (helped out the housing market and banks) and everyone woulda went on a nice vacation and blew lots of money to the local economy of some area (small town bussiness , banks and jobs) it would have worked all to well.

the govt is just ignorant and needs overthrown. Unfortunately the people will never stand up, we will just take it or run like we did when we found this island, only problem is there is no new island to be found... so I am thinking of going and helping mexico out, I kinda like the climate there. hell most of them are here now, so it should be pretty vacant land.

[Six]

stating the obviouse.


take the money the govt blew in bail outs and divide it into every working mortage paying person in the USA and cut them a check. They would have paid a car loan of or bought a new car (helped out the auto industry and banks) they woulda paid off the mortgage or bought a new home (helped out the housing market and banks) and everyone woulda went on a nice vacation and blew lots of money to the local economy of some area (small town bussiness , banks and jobs) it would have worked all to well.

the govt is just ignorant and needs overthrown. Unfortunately the people will never stand up, we will just take it or run like we did when we found this island, only problem is there is no new island to be found... so I am thinking of going and helping mexico out, I kinda like the climate there. hell most of them are here now, so it should be pretty vacant land.

I would tend to agree to a point. The money Obama spent on bankrupt green energy scams, General Motors, the stimulus.

But TARP no. TARP was a necessary evil and if the government hadn't done it thousands of banks world wide would have claimed massive losses all on the same day.

Imagine waking up and none of your gas/credit/debit cards work Banks are closed indefinitely and even ATMs are down.

Ok so distributing free cash to millions of residents would be a a quick shot in the arm for the economy but it would be very temporary.

Sustained economic improvement comes from confidence and policies that are pro-bussiness and anti tax.

A president with such a radical ideology like Obama who agrees with redistrubition basically by his presence alone causes investors and corporations to hold their capital.

This is the fundamental fallacy of redistributive policies. ( liberals are so so stupid ) The fallacy is that redistrubition gives poor people wealth but it doesn't address why they are poor to begin with.

So they get cash stolen from the rich and they blow it on nonsense, rims, tvs, gold teef', jewelry, cars, drugs, beer and cigarettes, etc.

So the rich get their money back and the cycle continues.

Its a pointless step with maybe some people in the middle picking up some scratch in the interim.

[canusayinsanity]

Make the big corporations responsible for their actions. Chevy took bailout due to sh?tty vehicles that don't sell. If any smaller business owner starts to crash they don't get bailouts they just close their doors. I don't believe chevy didn't have the money to put forward and save them selves. Inflation, inflation,inflation. Look at the big cable company, 15yrs ago cable was around $25 for expanded option, less peolpe had it. Now cable and dish is all thats available and %90 own either one and paying thru the nose. You would think it would have been more expensive then then now:confused:
Now you got landlords taking advantage of citizens left and right due to housing crash. $1000 average for rent for 1 bedroom come on!! Never owned a home but sure would like one cause it'll reduce my monthly payment to 750-800.Inflation of homes and giving loans well over a persons income was the problem. Buddy bought a house, got approved for $300,000 loan-income less than $15 an hour a year ago at the time. He was smart an took 120,000 home, have the lenders learned anything yet? So I guess if I make 20 an hour I can get a $700,000 loan but not feed myself of course.Not to mention every moron under a rock started flipping houses, even the waitress at steak n egger. I believe greed is one of the big hitters to the problem. I do agree that people have a lack of motivation, unless they're making triple digits a year they don't want the job. No one is happy to be a blue collar and have pride of supporting themselves anymore. Everyone wants to do business management, how many freakin managers do we need to manage other managers my god. Get rid of the titles: government, big box corps, senators, congressman, doctors ,lawyers the list goes on .. just people screwing people- thats sad. I can break this whole thing down, have more to say, and novel. just isn't worth it.

[Southern Mech]

I would tend to agree to a point. The money Obama spent on bankrupt green energy scams, General Motors, the stimulus.

But TARP no. TARP was a necessary evil and if the government hadn't done it thousands of banks world wide would have claimed massive losses all on the same day.

Imagine waking up and none of your gas/credit/debit cards work Banks are closed indefinitely and even ATMs are down.

Ok so distributing free cash to millions of residents would be a a quick shot in the arm for the economy but it would be very temporary.

Sustained economic improvement comes from confidence and policies that are pro-bussiness and anti tax.

A president with such a radical ideology like Obama who agrees with redistrubition basically by his presence alone causes investors and corporations to hold their capital.

This is the fundamental fallacy of redistributive policies. ( liberals are so so stupid ) The fallacy is that redistrubition gives poor people wealth but it doesn't address why they are poor to begin with.

So they get cash stolen from the rich and they blow it on nonsense, rims, tvs, gold teef', jewelry, cars, drugs, beer and cigarettes, etc.

So the rich get their money back and the cycle continues.

Its a pointless step with maybe some people in the middle picking up some scratch in the interim.

So we bailed out the major problems that started the whole problem. Let them flounder. I built my house in 2008, and when I say I built... I built the S.O.B. Every nail,board,shingle, pipe, duct etc. took me 14 months 7 day's a week while working only 4 hr day's mostly at work and 16 on the house. You know it took me 14 month's to close after construction. The bank said it was not valued for what I built it for. All they were doing was bumping my loan to get intrest paymt.

I have l have lost all and any faith in the banking system, and my wife works at said bank.

The major problem with today's economy and we pissed money away to bail them out.

[canusayinsanity]

Damn straight. Can you help me build a house? I'd really like one and I'm good with my hands lol

[AStudent]

Damn straight. Can you help me build a house? I'd really like one and I'm good with my hands lol

Ever heard of cordwood construction?

It's hard work, but it's cheaper if you have the trees available, and the house lasts a lot longer.

[Space Racer]

Small clarification about "profit":

In the OP, when I said "It allows people who make a profit to invest more cash in goods that hold their value," I wasn't just referring to people in business. I meant anyone who lives beneath his/her means and manages to put some money aside. Anyone who spends less than he/she earns is someone who makes a profit.

[Space Racer]

The Obama administration and Congress have added more financial and regulatory burdens to American businesses. So American businesses have a tripple whammy: inflation, regulation, taxes. These burdens are increasing, with no end in sight. Business owners have no idea how much buying power their dollars will have after all is said and done, or even whether they will survive Obama's administration. They are not about to spend money on non-liquid assets. They are not about to hire and train someone when the cost of hiring is going up and when there is a real possibility that the new hire will be laid off in the near future. They're hunkering down.

And right now, they're preparing to return to hibernation mode for the next four years.

[Tool-Slinger]

The Obama administration and Congress have added more financial and regulatory burdens to American businesses. So American businesses have a tripple whammy: inflation, regulation, taxes. These burdens are increasing, with no end in sight. Business owners have no idea how much buying power their dollars will have after all is said and done, or even whether they will survive Obama's administration. They are not about to spend money on non-liquid assets. They are not about to hire and train someone when the cost of hiring is going up and when there is a real possibility that the new hire will be laid off in the near future. They're hunkering down.




And right now, they're preparing to return to hibernation mode for the next four years.


The economy started crashing upon Obama being elected, He did not even do anything other than win an election. Not even in office yet. Business owners/managers know socialism is bad for the economy and business future. Obama as president is a conceptual jinx on the economy, true to the fear, he is a factual serial killer of the economy as president. It has been a hard 4 years.

[freemind]

Oh yes, Obummer the great satan.....

People forget all too quickly where the nose dive started. Under Bush, the republican... Derp, derp.


If you are all gonna point fingers, better get to pointing at BOTH sides....

[jtrammel]

The downward spiral started when the democrats became the majority in jan 2007... Derp derp

[Space Racer]

Oh yes, Obummer the great satan.....

People forget all too quickly where the nose dive started. Under Bush, the republican... Derp, derp.


If you are all gonna point fingers, better get to pointing at BOTH sides....

This isn't about blame or pointing fingers. It's about identifying the problem and correcting it.

This isn't the first time inflation and taxes and regulations have been a problem. But right now, these are the problems that are killing our economy. These are the problems we need to fix.

If you want to talk about blame, or where it all started, let's start a new thread.

[Vinster]

The downward spiral started when the democrats became the majority in jan 2007... Derp derp

It started way before that, it started slowing in 2000 actually, Clinton's last year in office, it's just the economic lifecycle. Sh*t hit the fan because of the deregulation banking system and Wall St. Not sure who it was either Clinton or Bush. And the bail out was something Bush did also. It's going to happen again because we didn't fix the problem we put a bandaid on a gapping wound. That's why this country is so f'ed up everyone's memory only goes back 4 years. If you want to hedge your bets buy gold

[canusayinsanity]

Ditto. Ur absolutely correct. People only really started paying attention after bush's second term.

[Six]

Oh yes, Obummer the great satan.....


People forget all too quickly where the nose dive started. Under Bush, the republican... Derp, derp.


If you are all gonna point fingers, better get to pointing at BOTH sides....

Its not that we forgot it's that we're educated enough to know that Democrat Housing policies that forced Fannie and Freddie to bundle toxic mortgaes and that threatened banks with charges of racism and unfairly lending to those with good credit and a down payment is ACTUALLY what caused the 2008 Crash.

Look up "The Affordable Housing Act" and try and learn something.

Obama just made the recovery from that debacle far less likely with his stupidity.

Its what happens when people stupidly elect a nobody to be President.

[Six]

It started way before that, it started slowing in 2000 actually, Clinton's last year in
office, it's just the economic lifecycle. Sh*t hit the fan because of the deregulation banking system and Wall St. Not sure who it was either Clinton or Bush. And the bail out was something Bush did also. It's going to happen again because we didn't fix the problem we put a bandaid on a gapping wound. That's why this country is so f'ed up everyone's memory only goes back 4 years. If you want to hedge your bets buy gold


It had nothing to do with deregulations or Wall Street.

Thats just the lefts "eat the rich " narrative that far to many people have bought into.

Govt policies that forced easy and free cedit under " The Affordable Housing Act " caused the bubble and the subsequent collapse.

Read up on Barney Franks involvment.

And he and Chris Dodd, the two most responsible got to write the banking legislation to " prevent this from ever happening again.

Unreal.

By 1995 all loans bundled and sold by Fannie and Freddie HAD TO BE SUBPRIME.

Some of you guys need to educate yourselfs.

[canusayinsanity]

I've always agreed the house market was a big factor for crash. Besides the housing market crashed due to unfair lending to individuals who couldn't afford the loan in the first place. Example; 10.00hr guy got a 300,000 a loan. Housing began the snowball in 1999 people were too mesmerized to see it.

[Southern Mech]

I've always agreed the house market was a big factor for crash. Besides the housing market crashed due to unfair lending to individuals who couldn't afford the loan in the first place. Example; 10.00hr guy got a 300,000 a
loan. Housing began the snowball in 1999 people were too mesmerized to see it.

Not only that, but banks apraising a home saying its worth 350k and only worth 150k, then loaning dumbass' 200k to go buy rv's, boat's, harley's etc.

You are right the housing market took a sharp razorblade sharp rise from 1999 to 2003, and by 2006 is when it all went to hell in a hand basket.

So for me to forgive this govt to bail out banks that shoulda been out of business is just assanine and I will never back a business decision those sob's in the white house circus again.

Our money could have been better spent

[Space Racer]

OP edited and re-posted as one comment
(suitable for forwarding, if you are so inclined):

The Boost and the Wedge

The Boost

Let's say you are a one-man country. You live on a very small island you
own in the North Pacific. Other people live on the island, but they are
residents, not citizens. They live by your rules. Some of them work
for you.

You make a living by building widgets and selling them to small companies
in various Pacific Rim nations. You import the raw materials. You borrow
money from Singapore from time to time to keep your operation running
smoothly. You make a profit after expenses of 10%. You plow half of your
profit back into the company. You put the other half in the bank.

You have started your own small bank. You take deposits from and make
loans to the residents of your island. This is the bank where you put
your own money.

You started your bank with a $100,000 deposit. This is money you
generated from your business. This is real money.

Now let's say you go into the computer and add a zero to the 100,000,
making it 1,000,000. Have you increased your wealth? No. You have
injected $900,000 of phony money. You have devalued your currency.
You have made yourself appear to be wealthier than you are. You have
taken the first step in building a house of cards.

You are a Bernanke.

Can you get wealthy this way? Yes, of course. You can loan more
money and collect more interest. You can invest your bank profits in
assets that appreciate in value.

Not only that, you can help your residents buy nice houses. With all
this new money, you can provide cheap loans for everyone who wants to
buy a house. You are happy to help them, so you encourage them to buy.

But what else happens to the residents? Over a period of time, prices
go up and buying power goes down. Their money is now only worth one
tenth of what it was before the injection. So are their retirement accounts.

Soon, all their money goes to food and clothing. They have nothing left to
pay the mortgage with.

If your intention was to help your residents buy nice houses in which to
live out their lives, you have accomplished the exact opposite.

They would have been better off renting from you.


The Wedge

This side effect of cash injection and subsidized homeownership can
be summarized simply:

Inflation is the wedge that drives the split between rich and poor.

http://www.essortment.com/inflation-deflation-61410.html
http://www.bbc.co.uk/dna/mbiplayer/A27371298

People blame the greed of large corporations and rich businessmen for
their accumulation of a disproportionate amount of wealth. Some even
believe that the accumulation of wealth by rich people is responsible
for their own relative lack of wealth. But poor people stay poor because
all their assets are in cash. Rich people get richer because they convert
their excess cash into assets that hold their value and assets that
appreciate in value.

But when government pours more cash into the economy, it does two things:
It allows people who make a profit to invest more cash in goods that hold
their value.
It depletes the resources of people whose assets are only in cash and
assets which are not easily converted into cash (like houses and cars),
especially when those non-liquid assets are not paid for.

(By "people who make a profit," I mean people who live beneath their means,
not just businessmen. If you spend less than you earn, you make a profit.)

So when the government decides to “boost the economy” with subsidies and
cash injections, with the proclaimed intention of improving the unemployment
rate and enabling small businesses to survive, it is in fact making the
economic situation worse. It causes temporary relief from economic
pressure; it causes people to believe the economy is improving; it buys votes
for the ruling political party; but it destroys the economy in the process.

Instead of injecting more cash and subsidizing voters and corporations and
unions with cash, government needs to cut spending.

This is the only way to reduce inflation and its disastrous effects.

This is the only way to level the playing field between rich and poor.

Unfortunately, it's a painful process, and it's a good way for the ruling political
party to lose popularity.

[Gib's Son]

Zerodegeec,

Your last post was removed. Please do not post links to your web site. Please read site rules.... esp. #4.... get your post count up and apply for professional membership. Thanks.

[Space Racer]

What can we cut to balance the budget?

http://www.youtube.com/watch?v=asRDOhgN70Q

[Tool-Slinger]

We could start by eliminating entire departments, just dis-band them and send them home.