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Why can't a country downsize its economy to match its population?


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#1 cornflakes2

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Posted 23 January 2015 - 02:18 AM

Hey guys, serious question here.  I've been thinking about countries that have an aging population

issue and I believe one of the major problems of an aging population is the shrinking workforce.

As more people go into retirement, less people are being replaced naturally to fill those empty jobs,

so a country would need to invest in bringing in massive migrants or immigrants to a) fill those jobs and B) keep it's population growing or at least stabilized?

 

Why is this important? Couldn't a country simply downsize it's economy to operate within their limits as far as human resource is concerned?  I know that a shrinking workforce means a shrinking tax base which means a shrinking GDP for the country and whose going to pay for the pension for all those elderly folks?  

 

I know it would be extremely harsh and difficult for a country that was used to making "x" amount of dollars and asking them to accept maybe half or three quarters of what they used to get in revenues. But what's wrong with that?  If we were living like kings and had 25x more than the average person in the world, why would it be so bad for us to drop down a few notches and only have 10x or 5x more than the average person in the world?  If you were earning say 10 billion in income, you could certainly do almost anything you wanted with that amount.  Probably, you wouldn't be able to spend it all even if you tried.  Now if I asked you to slash your income down to say 5 billion, is that still not so much money that you still couldn't spend it all even if you tried?  I mean, most people could probably live off of 10 million dollars for the rest of their lives and live very very comfortably. 

 

So does it all simply come to down to greed, money, and power?  Is that the main reason why a country wouldn't be able to downsize willingly in order to operate within its own limits rather than to continue to grow exponentially by bringing in millions of migrant workers, or being under foreign investment control and power (ie. foreign companies buying up your countries land, property, and companies, or at least being 'majority' owner of it).

 

I'm not an economics or political science major, so I know very little of the details of how things work but in principle, I don't understand why it's such a no-no for a country or even company to downsize their earnings so that we could at least operate within our own limits (still turn a profit, but maybe not be so lavishly rich as before, but so what, we'd still be doing well).

 

Thanks


Edited by Chris Cosgrove, 23 January 2015 - 07:31 PM.
Moved to 'The SpeakEasy'


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#2 georgehenry

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Posted 24 January 2015 - 05:11 AM

I remember, when I was working, asking a question at a conference. "Why is it so important to have an increase in sales volume and profit every year? Especially when last year's figures were hailed as excellent." Apart from the shareholders, I got a lot of words that seemed, to me, to make little sense. I still don't understand. I don't really care now, as long as they keep paying me a pension.



#3 Chris Cosgrove

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Posted 24 January 2015 - 07:39 PM

A different solution is being tried in a number of countries, including the UK, and that is raising the retirement age.

 

The state provided old age pension originated in 1909 and was payable to those over age 70 !  This was reduced to age 65 for men and 60 for women in, I think, 1925 and stayed at that level until about five years ago when the UK government started a staged rise to age 65 for both sexes.

 

In 1925 relatively few blue collar workers lived past age 70 so the pension was only payable in effect for about five years. The situation now is that on average men live to about 83 and women about 88 and generally enjoy reasonable health and fitness into their 70's. It is the increased life expectancy that is creating the biggest part of the problem, not so much the increase in the average population age.

 

A proposal to increase the normal pensionable age to say 70 would do much to eliminate the problem raised by the OP and while any such proposal would be strenuously objected to by the population at large and by organisations such as the trade unions it would probably be an easier sell than trying to reduce average living conditions.

 

It's alright for George and me - we have both collected our pensions !  But I seriously think that if given a choice, as a younger person, between a 10 - 20% cut in my income in my declining years or voting to raise the retirement age I would go for the increase in retirement age. After all, most people when they retire take a fairly large hit on their disposable income any way. Yes, there are reductions (some) in your costs, and there are some additional benefits available to pensioners but it still adds up to less money than you were making before for the vast majority.

 

Chris Cosgrove



#4 cornflakes2

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Posted 24 January 2015 - 11:31 PM

Yes, that would be an interesting experiment to raise the pension age from say 65 to 70.  

Wow, George, that's exactly what I'd be asking too and I'm not surprised that the answer you got were things that seemed to make very little sense. I guess talking about this issue does branch out into a lot of other controversial topics and some people might wonder why I'd want such a thing (to downsize the economy to operate within it's limits/population/resources).  What is bothering me about this is that it seems to me that money (and everything that comes along with having a lot of it) is the only reason why we running the world the way it is.  Everything else has become expendable, and for wholesale/liquidation simply because if it can make more money, than it must be the only way to do it.  And the thing about it is, all that money is really only benefitting say 2% or less of the world's population.  The rest of us are being dragged along with these systems for the tiny percentage that profit greatly from it, while for the rest of us, the gains are very minimal but we have a lot more problems to deal with.  It seems like everything is working towards establishing a one-world economy and government or we the countries and peoples of those countries are being stripped of our DIFFERENCES (which I personally believe is a good thing) to be groomed into citizens of corporations, uprooted from our past, and planted into a brand new mold and identity of people.

 

Sorry, to get back to my main question, for the countries that are facing the challenge of the so-called "aging population" and the tasks that lay ahead to dealing with it seem to me to be a direct by-product of the simple contrast between the previous generation (the baby boomers) and the following generation where families averaged just 2 kids.   So on a chart, you'd see the huge discrepancy between the previous generation (6 to 10 kids per family) vs the following generation (2 kids or less per family).  Now when we hit the retirement stage, the exiting of all the baby boomers is leaving a massive hole in the workforce since the following generation of only 2 kids or less are not enough to fill those jobs.  Therefore, the solution is to increase immigration or bring over more migrant workers (this is the complicated issue that will lead to a dozen more issues).  But isn't this so called "problem" only temporary because once the pensioners all pass away, the next wave of pensioners will be from the generation of the 2 kids or less families.  Then the following generation after them will not be as drastically less, although still smaller (say 1.5 kids per in this generation).  So the need for supporting the pensioners in the future won't be as daunting a task as it is currently since we are in the phase with the greatest gap of age demographic.   So, essentially then this will only last for a few decades (maybe even just 20 years since the bulge of old agers will most likely have passed by then).   So things would naturally start to stabilize after this phase.....why couldn't we simply let the population drop including the economy  (businesses/industries) and then let it stabilize, instead of constantly trying to replace the aging population and constantly trying to grow the economy or businesses further when we already can't sustain that growth due to lack of workforce?  

 

It always feels like "someone" (media? government? certain interest groups?) is trying to scare us into thinking that we can't survive or the country will be destroyed and we'll all live in poverty if we can't find a way to support the old age pensioners, and so we must look to the option of bringing in millions of migrant workers (who may eventually just naturalize and become permanent citizens).   



#5 Orange Blossom

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Posted 26 January 2015 - 01:17 AM

If there's such a massive hole in the work force, then why is unemployment so high?  Why do folks have to work 2 and 3 jobs to make ends meet?  Why are there well over 450 applicants for a single job at the mall?

 

Yes, we have more older people, but I don't think we really have a shrinking work-force because of fewer younger people.  We have a smaller work-force because we have eliminated jobs or shipped them elsewhere.  Many of the new jobs pay a much smaller wage which in turn reduces the amount paid into Social Security etc.

 

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#6 passacaglia

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Posted 11 April 2015 - 12:40 PM

Now, why would anybody want to reduce the country's GDP?

 

A growing economy means less unemployment as well as a higher income to persons and government (through taxes). This way the government will have more resources to pay pensions. A drop in GDP causes a reduction in the productive workforce and increases the layoff benefits a particular country may have. Average income will drop and you will make a lot of people miserable.

 

I think the best solution is to gradually move towards private pension plans. In that case, the government doesn't need to spend any money at all.

 

The standard reduction to your salary for pensions won't go to the government but to a private financial institution. This institution would invest your money and charge a small commission for their work. You will contribute every month to increase your nest egg.

 

It goes without saying that all that money and revenues it would generate will belong to you. Not the government. It would be like having a deposit account in your name. These financial institutions could have three types of investment strategies: risky (but with a probability of higher retirns), normal, and conservative (where the main investment portfolio is comprised of government bonds and other small risk investments).

 

This would not be voluntary. Your company will continue to deduct the same percentage of your wage, but it would not go to the government but to your private account. These financial institutions would have to publish their financial performance on a monthly basis. If you are not comfortable with that institution's results, you can transfer all the money you have in the "bad" investment company to a "good" (in your opinion) investment company, at no cost and giving one month notice.

 

However, you cannot spend that money (that legally is yours) until you reach retirement age.

 

Some exceptions would have to be made. For example if you suffer from an expensive illness you might be able to use a certain percentage of your nest egg. Other extraordinary circumstances would have to be worked out. But the government won't go broke because of pensions (like the US Government unless it takes some extraordinary measures). This will shrink government bureaucracy freeing people to do productive work.

 

Be well aware. The Government does not produce anything (with some rare exceptions). It only exacts your money through taxes to finance itself.



#7 shival

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Posted 18 May 2015 - 05:47 PM



 

"So, essentially then this will only last for a few decades (maybe even just 20 years since the bulge of old agers will most likely have passed by then)"

 

20 years is enough for a country to economically colapse and for goverment to be overthrown.

 

Aging population is a part of a bigger problem; the world is in never ending debt. Something bad will happen when we will reach the bottom of the hole. So we strive to swim upwards. At least thats what they teach us.

 

I have no idea what will really happen.



#8 passacaglia

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Posted 18 May 2015 - 07:57 PM

This is not an economics forum, but since you seem so worried about this let me appease you.

 

The Federal Reserve has a printing press (or rather it´s electronic equivalent) which can produce as many dollars as it wants.

 

In the last economic crisis it availed itself of this simple mechanism to produce enough dollars to bail out companies which represented a systemic threat.

 

Inflation stayed at incredibly low figures. So flooding the economy with cash did not produce inflation. I suggest you read Herman Minsky, Lord Keynes and others of that same bunch.

 

Monetarists were shocked, but not as much as the School of Austrian economists. However we had no problems, the economy kept chugging along and we've been having a long streak of a bull market.

 

I also suggest you read some papers and speeches made at Davos by Nouriel Roubini. Who, by the way, was once kind enough to invite me to a party in his loft in New York.

 

Let others worry about your problem. There is nothing that can't be fixed. You may suffer some monetary constraints depending on the policy that should be followed. But politicians won't allow restrictive policies, regardless of how rational they would be.

 

They would rather kick the problem forward because, and don't be shocked, their main priority is to get reelected and not the welfare of their constituents. Welcome to the real world.

 

Enjoy your life and let the problems for others to solve them. :-))



#9 PGHinBKK

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Posted 18 July 2015 - 01:48 AM

Passacaglia,

 

So "this is not an economics forum"? Funny, I thought it was a general chat forum where such issues could be discussed.

 

You will "appease" [us]?   In other words, you are the final font of wisdom, and your answers are the final panacea to all monetary issues? Why aren't you working at a high-level position in the government's Treasury department?

"In the last economic crisis it availed itself of this simple mechanism to produce enough dollars to bail out companies which represented a systemic threat." 

 

Really? So the Fed Reserve just cranked out tons of paper dollars and trucked them over to Sachs, et al, and the issue was solved? How deep is your understanding of the bailout? Obviously not very. The bailout funds were arranged as credit, not paper dollars.

 

"Let others worry about your problem"?  Seriously????????????????????????????????????????????????

 

Isnt that what got the US into this problem in the first place?


Edited by PGHinBKK, 18 July 2015 - 01:50 AM.

Life is strange......and then there's Thailand....

#10 passacaglia

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Posted 18 July 2015 - 06:26 AM

Let me set some things straight.

 

This is not an economics forum nor a general chat forum. This forum is dedicated to analyzing and solving problems you may have had with your PC.

 

I am not the final font of wisdom regarding monetary issues, but I'm not very far. In the past, two foreign governments requested my assistance on how to face serious economic problems at their doorstep.

 

The Fed does not crank out paper dollars. That is done by the Treasury Department mainly to replace old or damaged dollar bills.

 

The Fed creates money electronically (much more efficient than a printing press) and with that money it buys assets (mainly bonds) in the market from distressed companies. This, besides, increases the quantity of money in the economy and helps to fight deflation.

 

Unless you are a Governor at the Fed or a Member of the US President's Council of Economic Advisers or any other job of that nature and weight, I maintain my recommendation: "Let others worry about your problem"

 

I perfectly understand the bailout, but this is not the forum to discuss that.

 

I just wrote a couple of articles on the Greek problem. One was posted while the negotiations were ongoing (A DEAL FOR GREECE) and the other was posted after the deal had been struck (THE FED AND GREECE). These are basically economics posts.

 

You can find these and criticize them in My Profile section of my Linkedin site.

 

If you wish to discuss economic or monetary matters please post your questions in my Linkedin site:

 

https://br.linkedin.com/in/ernestogarciaalexandersson/en

 

Thank you very much.



#11 PGHinBKK

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Posted 19 July 2015 - 06:05 AM

This site is indeed for computer based information, help and otherwise. But the admin people have
provided this PARTICULAR thread for chatting on other issues.

The egos of some folks never ceases to amaze me.

Have a nice, delusional day. :D
Life is strange......and then there's Thailand....

#12 passacaglia

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Posted 19 July 2015 - 11:51 AM

Thank you for your wishes.

 

We all have delusions (and egos) and most of society is based on delusions. Like money for example. We trade things with little paper notes that have no value of it's own. Or do transactions electronically transferring make believe numbers from one to another. I'll quote Yuval Harari:

 

"Cowry shells and dollars have value only in our common imagination. Their worth is not inherent in the chemical structure of the shells and paper, or their colour, or their shape. In other words, money isn’t a material reality – it is a psychological construct. It works by converting matter into mind. But why does it succeed? Why should anyone be willing to exchange a fertile rice paddy for a handful of useless cowry shells? Why are you willing to flip hamburgers, sell health insurance or babysit three obnoxious brats when all you get for your exertions is a few pieces of coloured paper?
People are willing to do such things when they trust the figments of their collective imagination. Trust is the raw material from which all types of money are minted. When a wealthy farmer sold his possessions for a sack of cowry shells and travelled with them to another province, he trusted that upon reaching his destination other people would be willing to sell him rice, houses and fields in exchange for the shells. Money is accordingly a system of mutual trust, and not just any system of mutual trust: money is the most universal and most efficient system of mutual trust ever devised."
 
And a nice day to you too.

Edited by passacaglia, 19 July 2015 - 12:25 PM.


#13 Animal

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Posted 19 July 2015 - 01:24 PM

Just so we are clear here.

As has been mentioned. The admin team has been maintaining this particular forum, from the beginning, just for the purpose of discussing non-computer based subject matter. As noted in the topic description:

"The Speak Easy is a forum for discussing ethics, morals, laws, philosophy, and other controversial topics. Pretty much anything goes, but keep it civil. All new topics will be approved by the moderators before being seen in the forum. Be warned, topics in this forum will be controversial and not in line with your beliefs. If this is a problem, please do not use this particular subforum.

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#14 passacaglia

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Posted 19 July 2015 - 07:35 PM

I sincerely hope I'm being civil here.

 

I will quote what a member wrote:

 

"Let others worry about your problem"?  Seriously????????????????????????????????????????????????

 

Isnt that what got the US into this problem in the first place?"

 

End of quote.

 

I take it you are referring to the latest serious economic crisis (housing bubble)..Why should you let others worry about your problem? Because the problem began as a social upheaval fueled in great part by the investment sector, which tried to get what they are supposed to try to get: profits for their owners and their clients. And this was a spectacular opportunity. And you could not have solved this collective problem all by yourself.

 

We have the profit motive throughout the whole of the event. Profits is not a bad thing. Imagine you bought a house and it's market value started increasing by 10% per year. You could pay back your whole mortgage, sell your house at a tidy profit and buy another one, maybe snazzier. Profits are good, aren't they?

 

Please understand I cannot write a treatise in a blog, so many things will surely not be mentioned. This is a general idea.

 

Banks, as all lenders do, to put it shortly, lend you money IF you have money. Or if they have confidence that, in a specific time in the future, you will have money (plus the honest intention to pay back your loan).

 

Some very high ranking political authority felt this was somewhat unfair. There are thousands and thousands of Americans who were denied the American Dream because the risk officer at many banks denied them mortgages because they estimated that they would not have the means to pay them back in some future, distant or short., time.

 

Now, this is common sense to any lender. If you're not reasonably sure the lender will pay you back, you don't lend the money. I mean, you don't want to make the bank lose money. It has to be profitable. Your own wages depend on that. The owner didn't decide to put his money in building a bank, which is something most societies consider useful, to lose all his money plus all the money he borrowed to build his bank. This is business, so you don't lend money to people you consider not to be reliable. Of course, you can't be sure 100% of the time, so to cover possible losses (besides making a profit) you charge an interest on your loans.

 

Then comes this well-meaning politician and dictates, for example, that 10% of the loans the risk officer rejected have to be made available to minorities and other financially distressed people. After all they are Americans and should see their American Dream come closer.

 

It helped that Alan Greenspan, at the Fed, to fight the dot-com bubble had lowered interest rates considerably, and for reasons only this mysterious man who spoke in riddles understood, (that's why some people thought he was a genius I believe) he kept the interest rates low for an unusual amount of time. A word of caution here. The Fed does not set the interest rate by just saying "this is going to be the interest rate". It does so by manipulating it through the purchase and sale of bonds. 

 

So the interest rates were low, making mortgages more affordable, and house prices were stable, so the banks said OK, we'll lose a little money but it won't be much.

 

Then, these minorities were "allowed" to get mortgages and at a low interest rate. Other people as well. And suddenly demand for houses started increasing. The real estate business was caught by surprise since they were expecting some higher demand but not as big as it became. Higher demand for your products is naturally seen in a good light because you can charge higher prices while, at he same time, you begin to increase house "production" to take advantage of the ever rising prices. Business is business and the prospect of higher profits are not the exclusive domain of Wall Street bankers. But, naturally, in a changing market, new profit opportunities arise. So the clever bankers found a way to climb into the bandwagon.

 

Now Alan, the wizard, found himself between a rock and a hard place. This had to be stopped before it ran out of hand. He began increasing interest rates but, alas, by very small amounts every month. If I recall correctly they increased from somewhere around 2% to 5% during the rest of his tenure. And mostly by 25 basis points only. Then Ben Bernanke appeared on the scene. I think it was because of his famous predecessor that he felt obliged to keep on increasing rates. Now from 5.0% to 5.25%.

 

This made mortgages more expensive every month and some people began to renege on payments. By this time the bankers' and investment houses' profits were going full steam ahead. You see, they invented a new investment scheme based on, what's more trustworthy, mortgages.

Until that time mortgage bonds were so safe they paid low interest rates and were classified as AAA investments. This was so because the vast majority of Americans who had financed their homes with mortgages, religiously paid their monthly installments. If not, the bank could take their house away.

 

But now the game was different. The banks had made packages of mortgages, each with a mixture of good, medium and hopeless mortgages. They took these to the classifying agents like S&P, Moodys or Fitch and argued that these packages should all be rated AAA. This is important for banks since they are allowed to hold, let's say, unlimited amounts of AAA rated investments, but very few of a lower standard. This is done to protect depositors.

 

The banks claimed that mortgages had always been good investments, that the AAA mortgages in the package would definitely be paid, some would have to renegotiate and defer the debt (at higher interest rates) and they would take away the homes of those who did not pay, because that was the collateral of the debt. And house prices were climbing. So these investments got classified as AAA. They were called collateralized debt obligations, where the houses were the collateral. 

 

They were much better investments than mortgage bonds since the "bad" mortgages in the package paid higher interests. So the package, as a whole, became a very attractive investment and banks had a lot of these AAA investments.

 

And then things started turning sour. The real estate folks had built so many houses that house demand was struck in the head with a surplus of already built brand new houses. House prices began to fall. Ben Bernanke at the Fed saw he was being struck with another bubble and began lowering interest rates. But it was too late. People began noticing that the mortgage payments, that still were due, were higher than the value of the whole house. So they simply stopped paying, left the keys at the bank and said "take it back". All this added supply of housing made their prices go lower and lower.

 

Bankers began panicking because their collateral kept shrinking and nobody could know for sure how much the CDO's they had were really worth. At the end of each day, bankers must keep at least a fixed percentage of their deposits in the Fed to ensure that a run on the bank won't leave them without cash. At the end of the day some banks have more and some have less. So they borrow and lend themselves, at what is called the "interbank rate", in order to have the right amounts.

 

But with their enormous amounts of CDO's nobody knew what the real financial situation of the banks were. Something like: "you see, I can lend this bank the $ 500 million he fell short; but how can I know if he has enough to repay me tomorrow? If he has to sell CDO's to repay me nobody knows how much he'll get for that sale"  So, maybe, I won't lend him the money.

 

If banks stop lending to one another the banking system starts to freeze and Bernanke's headache will get worse. The banks disguised their situation by valuing the CDO's in their accounts at purchase value, as if they were fixed assets. But what the Fed, the customers, the shareholders and the bondholders wanted to know is what they were worth at market value, which was getting lower and lower.

 

As the truth began spilling out it became known that many big fish were actually broke or quite close. And not only American banks but quite a lot of European banks also. The CDO's were such an attractive investment they spilled over worldwide.

 

If banks stop lending to each other the whole international trade goes belly up. When I sell a plane to Germany they draw up what is called a "letter of credit", which is a promise made by their German bank whereby, when they receive the plane, they will transfer the money to my American bank. If my American bank doubts if the German bank will be able to pay because they don't know how many or what is the market value of their CDO's, they will not accept the letter of credit and the deal is gone. CDO's began to be called "toxic debt".

 

In America, the Treasury Secretary Hank Paulson, former CEO of Goldman Sachs, with some aides, had to decide which banks were "disposable" and which had to be kept going at any cost. I won't go into details. They are classified information.

 

One last big problem remained. The world's biggest insurer, AIG, had insured a great number of institutions against losses on their CDO's. Now, when an insurer covers your house for fire, they have no problems because they collect insurance fees from the rest of your neighborhood which covers what they must pay you. But now, for AIG, the whole neighborhood caught fire. There was no way they could cover all the CDO losses of all who had taken the insurance, mainly banks. And if the banks did not receive their insurance they would go broke.

 

This is called a "systemic risk" because if it happens the whole financial system collapses. So AIG had to be bailed out.

 

And then we had the effect on GDP. Consumers, in light of the world bank disaster they were witnessing, stopped asking for credit and put away their credit cards. They began buying much less that what they were used to. The effect of consumer spending in the USA is enormous. 71% of the nations GDP is made up by consumer spending. And US consumer spending represents about 25% of worldwide consumer spending.

 

It was imperative to get consumers to borrow and spend again. But propensity to save had the upper hand this time. Despite the Fed having lowered rates to almost zero nobody was borrowing and spent the money they earned paying down debts.

 

I'll stop here. I believe the rest you know, like the increase in the Fed's balance sheet and so on.



#15 softeyes

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Posted 20 July 2015 - 11:20 PM

@passacglia

 

The American Dream  :flowers:

 

 

Let me see...as I type I am in the process of selling "The American Dream"..a second home that has been a rental for 5 years.

What's my pleasure now?  Mandatory 3.3% State Tax either paid up front or via 2016 State Income Tax! (That's on top of the $11,000+ I have already paid out in 2015 for property tax and mello roos!!) 

 

Oh yeah..and since I will not be living in the rental house for two years....I have the pleasure of paying 15% to the Fed's and 11% to the State for "Capital Gains Tax!"

 

Real dream...

 

Oh right, when we purchased the second home, since the rental house did not have an appropriate pay down per the mortgage lender, we were forced to pay a $2,000+ FHA Loan penalty and have paid $286.00 per month of FHA "insurance" since we are "RISK!"

 

Oh yes...let's all continue to spend more hard earned money to keep forking over to the State and the Fed's!

 

(end of rant)

 

P.S.  How is it in Chile these days?  Do you have zero unenployment?  Are 80% of all citizens living in a house they own or are paying a mortgage? 20% people renting?  Did you have a 25% rent increase, like our state did?  Just because they can?

 

I'm real curious!  I sure hope it's lovely for you there!  :thumbup2:

 

P.S.  Please don't quote me...I'm just a humble elder~not an 'pert!'






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