The Story Of A House,A Community, AndFinancial Repression(By Inflation)

Dateline: 16 January 2015

My mother-in-law, Evelyn Myers, died last July (my eulogy is HERE). She lived in a simple home (pictured above) on a quiet side street in the village of Moravia, New York. The house has been for sale nearly 6 months, and now has a buyer.

A woman named Emma Westfall had the house built for herself back in 1976. It was built by a local company named Slade and Sovocool. The farmer I worked for back in high school used to refer to Slade and Sovocool as “Spade and Shovelfull.” Funny the things we remember.

Slade and Sovocool doesn’t build houses any more. The business is now a hardware store, owned  by Mr. Emmet Sovocool. Mr. Sovocool is up in years but he's a sharp man, and runs the store with the help of his family. His son, Bob, was in my class in high school. 

Mr. Sovocool once told me that the stretch of land on West Cayuga Street, where his store and several other businesses are located, was the farm he grew up on. When I drive down that way I often try to imagine the farm as it was, right there on the edge of town.

Though I did not know Emma Westfall, I know that she was not married, she lived into her 80's, and the story goes that she had a lot of money—a fair amount of which she left to the Methodist Church. Investing in the stock market was her hobby. I have no idea how I know these things. 

This is, after all, small rural town. People just know. And if they don’t have the story exactly right, it’s pretty close.

When Emma Westfall died, the house was bought by Kevin Genson, who is one of Roy Genson’s sons. Roy owns Genson Overhead Door company. He started the business in the garage next to his house. The business grew, eventually moving to a larger, more official location in a neighboring town.

It was Kevin Genson's brother, Greg, who killed the bull that came down into town from Owasco Meats, up on Oak Hill road, a few years ago. The cops shot the bull and just made him mad. Greg Genson met the beast in his back yard and put him out of his misery. I wrote about that episode of Moravia history here: How Not To Shoot The Bull

What I like about the Genson family is that Roy started a business, taught his sons how to do the work, and it is now a family business. It's a family economy. Click Here to see a picture of the Genson family.

Anyway, Kevin Genson fixed Emma Westfall’s house up, lived in it a short while, and listed it for sale. Evelyn’s husband, Jay, had recently died and she wanted to move into town. The house was perfect. She bought it. I don’t think it was on the market for even two days. That was 1997. She paid $70,500.

The house is on Donald Drive, which is a cul-de-sac of relatively new homes. The land was once the back yard lot of a large old house on Main Street that was owned by the Donald family. The Donalds had a nursery. They had greenhouses and gardens on the land. That was before my time. 

One of the Donald girls, Hilda, married Jay Myers’ brother, Victor. So Hilda was Evelyn’s sister-in-law (or Marlene’s Aunt). Aunt Hilda and Uncle Vic lived in the big house all their married life, until Uncle Vic died and Hilda decided it was time to move into Millstream Court, the senior citizen’s apartments. 

Aunt Hilda was a perky woman who took up oil painting in later years. One of her paintings (a farm scene) is on the wall by my computer. She was a surprisingly good painter. She passed on a few years ago.

Aunt Hilda once told me that her father used to sterilize soil for the nursery by packing the soil in a box, around a long length of coiled-up radiator hose. Then he hooked the hose to the radiator of a motor vehicle and let the hot water circulate through the hose for a period of time. I thought that was pretty clever, and I’ve never forgotten it.

Donald Drive is, in my opinion, the best location in the village to have a small retirement home. It was perfect for Evelyn for the last 16 years of her life. Pleasant setting. Quiet street. Thoughtful neighbors.

Marlene and I actually thought about buying the house. It would be a good place to park some cash, and Marlene could live there after I kick the bucket. But I didn’t have the cash to spare, and the house really needs some updating.

Word has it that a local woman is buying the house for $72,500. No bank financing is involved. And she has people lined up to go right in and start remodeling once the sale is finalized. 

It was good news to hear that the house has a buyer. The selling price is less than was hoped for, but not that much less. The family is glad to have a buyer. I think that is the usual attitude when there is an estate to be settled.

I’ve made a short story much too long (though I could have made it longer) before getting to the whole point of it...

Marlene told me about the sale of the house and said something to the effect that it is selling for $2,000 more than her mother paid for it. So, at least it didn’t lose any value. 

Well, I’ve been thinking about financial repression quite a lot lately, so I couldn’t help but go to the Online Inflation Calculator....

What the inflation calculator tells us is that, as a result of inflation over the past 16 years, the house did not increase in value by $2,000. It actually decreased in value by around $30,000.

If the house sold for $102,138.93 it would have simply maintained it’s value, and anything over that would have been a true increase in value.

When I say value, I am talking about the buying power of the dollars. As the inflation calculator shows, the value of our American dollars has declined by 44.9% in 14 years.

Some people think of their home as an investment, and if they sell at a later date for more money than they put into the place, they think they have made a profit. But, in order to make a true profit, your investment must outpace inflation. The inflation calculator tells the real story.

But almost nobody looks at investing with financial repression in mind. The numbers are too depressing.

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P.S. I have never looked at my home as an investment. It is, first and foremost, a place to live (out in the country), to raise my family, grow my garden, run my home business, and exercise a degree of personal freedom. Such benefits are worth more than money to me.

Shearing The Sheep(you are a sheep)

Dateline: 14 January 2015

(photo link)

Last month I posted a blog about the Myth of Compound Interest. I recently got a comment there from someone who asserted that I was “all wet” because, among other things, for me to say that compound interest isn’t real is like saying gravity doesn’t exist. I answered the comment, though probably not to the commenter’s satisfaction. 

Financial repression (the point of that post) is so simple, yet so difficult for many people to grasp, that I’m returning to discuss this again. 

In agrarian terms, financial repression is akin to the government shearing the sheep. The sheep are you and I. The “wool” being sheared is the life savings of the sheep.

Governments typically and obviously shear the sheep by means of direct taxes. When this happens, the sheep know full well that they are being shorn. But with financial repression, the government shears the sheep, a little at a time, with most of the sheep not realizing what is happening.

According to This 2012 Bloomberg Article, by Carmen M. Reinhart, financial repression was intentionally and successfully used in America from 1945 to around 1980. A policy of financial repression was re-instituted after 2008.

The key component of government-directed financial repression is low interest rates, coupled with inflation, but not a rate of inflation that is “excessive.”

The net effect of this financial repression is a negative real interest rate, which results in a net loss of wealth. This is the whole point I was trying to make with my Myth Of Compound Interest essay. 

If I understand Ms. Reinhardt’s article correctly, real interest rates (inflation adjusted) have been negative for about half the time since 1945, and below 1% for 82% of that time period.

The easiest-to-understand article I’ve found on the subject of financial repression is THIS ONE by Daniel Amerman. Here are some informative quotes from Mr. Amerman’s article... 

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In practice, there are four primary methods which nations use to pay down huge government debts when they have borrowed in their own currency:

1) Decades of austerity with higher taxes and lower government spending.  This painful choice can lower economic growth rates for decades, and fundamentally change investment returns.  It is also overt and clearly understood by voters, and can thus have devastating political implications.

2) Defaulting on government debts. This radical option can devastate bond and stock portfolios, bank deposits and retirement accounts.  It is also clearly understood by voters, and thus can have devastating political repercussions.

3) Inflating away the value of the debt through rapidly slashing the value of the currency.  Very high rates of inflation rapidly reduce the value of savings, bonds, deposits and retirement accounts.  Because collapsing the purchasing power of savings and salaries powerfully impacts the day-to-day lives of voters, this can have devastating political implications.

4) Using "Financial Repression", a process that is complex enough that the average voter never understands how it works, thus allowing governments to use this potent but subtle method of taking vast sums of private wealth, year after year, decade after decade, with almost no political consequences.

This fourth method that nations use to control or reduce the real value of debt is by far the least known or understood. Which is why if you are a senior government official in a nation that has a huge "sovereign debt" problem – like the United States and almost all of Europe – and you want to stay in power, this method is of keen interest and appeal.

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This avoidance of any political cost is also proven by current events since 2010, for even while the major components of classic Financial Repression have been reappearing for the first time in decades in the United States and other nations – there has been relatively little media coverage or general discussion.

To understand this "miracle" debt cure for governments requires understanding the source of the funding. That is, the essence of Financial Repression is using a combination of inflation and government control of interest rates in an environment of capital controls to confiscate much of the purchasing power of a nation's private savings.

Rephrased in less academic terms – the government methodically destroys the value of money over a period of many years, and uses regulations to force a negative rate of return onto investors (in inflation-adjusted terms), so that the real wealth of savers shrinks by an average of 3-4% per year (in the postwar historical example). 

Indeed, over time Financial Repression can be every bit as destructive to wealth building through savings and retirement accounts as is austerity, default or high rates of inflation. 

When many people think of inflationary dangers, they think of high rates of inflation, perhaps 10% per year or more. They take a "High Drama" approach, and think that if rates of inflation are more moderate, then there isn't that much to worry about.

Ironically, however, this belief could not be more mistaken, for what history shows is something else altogether. "Moderate" rates of inflation have historically been quite effectively used over a period of decades to redistribute wealth from individual savers to national governments on a massive scale with virtually no political costs – because the general public has no idea what is being done to them so long as it is done relatively slowly and subtly, and they aren't reading about it in the paper.

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The fundamentals of Financial Repression are for governments to pin down their citizens, force them to take interest rates that are below the government-induced rate of inflation, and make it almost impossible for an older investor with a conventional financial profile to escape. 

Whether Financial Repression will successfully prevent another and perhaps even larger round of financial crisis is a different question. But regardless, the attempt is still likely to dominate markets as well as government regulations and policy for years and possibly decades to come. 

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I searched at YouTube for a simple video that explains financial repression in a nutshell. I didn't find any that I thought were particularly good. But THIS ONE (by a German bank)) does a pretty decent job of it. 

In my next essay I will share a simple example of how financial repression is not a part of the thinking of the average sheep. I'll do this by telling you a story about my mother-in-law’s house. 

Mountain MenvsHappy People

Dateline: 11 January 2015

This man is one of the so-called "Happy People"

I decided to watch Season 1 of the History Channel’s Mountain Men series last fall. It is available on Netflix, and it was something to do in the evenings when I was assembling my Classic American clothespins.

I was intrigued by the show because I saw that it had Eustace Conway in it. Some of you reading this may recall my review back in 2010 of The Last American Man, a book that pretty much idolizes Eustace Conway for being such a self-reliant and capable man, much like the woodsmen of old. In a civilization chock-full of helpless, dependent men, Conway is a standout. But I wasn’t persuaded that he was the best example of a man in all respects. My review is HERE (click and scroll down).

Nevertheless, Eustace Conway is an interesting fellow and I thought it would be fun to watch that Mountain Men show.

Well, I couldn’t get through the first season. I pretty much lost interest after the first show. I half-watched the second show. And that was enough for me. Mountain Men was much too contrived for my likes. “Hokey” is a word that comes to mind.

Now, mind you, I’m not questioning the bona fides of the three “mountain men” themselves. But the showbiz behind the program doesn’t do those guys any justice, or so it seems to me.

The phoniness of America’s television mountain men is particularly obvious when you compare the men and the lifestyles they live to the men and lifestyles of hardscrabble trappers in a remote Siberian outpost, as shown in the oddly-named four-part series, Happy People.

The men in Happy People are the real deal. Theirs is a true, modern-peasant lifestyle in which the community they are part of (men, women and children) lives in harmony with the seasons, deriving virtually all of it’s sustenance from the land (including the river they live on). This derived sustenance is mostly direct, though some is indirect through the sale of sable furs and sturgeon roe.

They “import” items like grain for bread, tobacco, fuel, machines and clothes, but one gets the clear impression that even if these things from the outside world were no longer available, the people of this community would still manage to get along pretty well. They are resourceful and resilient people.

Happy People fascinates me on so many different levels. I’d love to watch this program with a group of Christian-agrarian brethren and have a discussion afterwards. The bottom-line question for everyone would be...

Do you think that you could live the kind of lifestyle that people in a Siberian outpost do, and still be a Happy Person?

It is a question worth asking because people in post-industrial, neo-agrarian America may one day live in communities much like you see in this Happy People program.

Happy People can be seen on YouTube. Here are the links:

Happy People, Part 1, Spring

Happy People, Part 2, Summer

Happy People, Part 3, Autumn

Happy People, Part 4, Winter

This is the man I want to hang out with if I ever end up in Siberia.

Some ThingsYou Might Find Interesting

Dateline: 9 January 2015

Well, so much for my idea of “Deliberate Agrarian Lite,” which I announced late last year. I guess I’m not capable of being brief. So I’ll blog as I have been, blogging and when I get overwhelmed, I’ll just take another month off.

January and February are very slow months for my Planet Whizbang business (so it’s easier to find time to blog). I still ship mail orders out every single day but not in large numbers. Ricky, my mail man, appreciates this time of year too.

Things start to pick up in March and take off from there. We thoroughly enjoy the downtime. It’s a season for updating my web sites, building up product inventory, dreaming, and doing some creative projects. 

Here’s a few odd things that I find interesting, and you might too...

The Deliberate Agrarian 

Is A Top Prepper Web Site (?)

While I don’t present this blog as a “prepper” web site, it is, apparently, interpreted as such. I recently found it mentioned in Michael Snyder’s Get Prepared: 122 of The Best Prepper Web Sites on the Internet.

Dale Nichols

Agrarian Artist

I posted a picture of a painting by Dale NIchols awhile back. That picture led me to a nice 5-minute YouTube clip about him and his art. Here is the link: The Forgotten Artist: A Nebraska Story

Pastoral Symphony &

Rethinking The

Wringer Washing Machine

I have added a new blog to my list of agrarian bloggers (on the right side of this page). Check out Pastoral Symphony and, in particular, be sure to read The Economics of Laundry, which had me looking for old wringer washing machines on Craig’s List. They are out there, and they are still working, and they are reasonably priced.

Granny Miller’s 

New Shed

Granny Miller’s blog is back and she has a new studio shed that is simply beautiful. It has me thinking that I need another shed (for my business) and that it doesn’t need to look like just another shed. Click Here to see what I mean.

Also, “Granny” has a new photo blog at The Homestead Daily.

Getting Boys ToEnjoy Work

Dateline: 7 January 2015

I was working in my shop today, listening to an internet program about teaching boys how to work, and I think it was such an exceptionally good program that I am interrupting my regularly scheduled blog to tell you about it. 

The program is How To Get Boys To Enjoy Work. It is an interview with Bob Schultz, author of Created for Work: Practical Insights for Young Men.

Early in the show, the host, Kevin Swanson, makes this great statement: "[Public] schools have nothing to do with real life." When you hear that in the context of the conversation, it makes a lot of sense.

And everything Bob Schultz has to say is just pure, down-to-earth wisdom. He says it's hard these days to get a young boy to grow up into a man that enjoys the challenges that go with manhood. "But when you become a man in your skills and your thinking, it's a tremendous joy to be what you were created to be."

Mr. Schultz works in the building trades and he tells the story of a man who hired him to build a house. But he didn't just want a house, he wanted Bob to teach his three boys (ages 8, 11, and 14) how to work and build the house. Wow, that was one smart father. 

It took months to build the house. The boys worked from foundation to finish, and it wasn't easy.

That sort of thing is better education than anything you'll get in the government schools.

I've written before of my own work experiences (see "My Story" At This Link) and I can relate to the importance of boys working with men, doing man's work. It is the time-honored (and Biblical) way that boys learned not only how to work, but to find satisfaction in their work. Or, as Bob Schultz says, to find joy in doing what they were created to do.

Popular culture does not give young boys manly role models. It gives them vain like-men, selfish like-men, confused like-men, perverted like-men, foolish like-men, buffoonish like-men, brutish like-men, or virtual superhero like-men as role models. Some of these role models are sports-men. I'm not impressed.

Young boys need down-to-earth, truly manly role models that, among other things, work hard at creative and productive work, and enjoy their work.

Listen to How To Get Boys To Enjoy Work and see if it resonates with you like it did with me.

Futureman Is Back!

Dateline: 6 January 2015

Some readers here will recall my recent post about my grandson, Futureman, leaving with his mother to go to Ohio and live with her family (Missing Futureman). Well, on December 30th, Marlene (my wife) and Futureman’s father drove half way to Ohio to meet my daughter-in-law, get Futureman, and bring him back here for a visit. I understand it will be a few weeks. 

The picture above was taken by Marlene after they got Futureman and were on their way home. She texted the photo to me (I get text messages on my computer) and said Futureman was talking to me on his phone. His little cell phone is an old one that doesn’t work. You have to use your imagination with it. I got misty-eyed when I saw that picture.

So, as you can imagine, Marlene and I are very pleased to have our grandson here with us. He is sitting next to me as I type this, watching Five Little Monkeys Jumping On The Bed, on an iPad. He’s much too technologically attuned for a nearly-three-year-old, or so it seems to me.

Something about that little clip really captures his attention. It may be that I chime in after Mama calls the doctor and, in a deep and stern voice, say “No more monkeys jumping on the bed!” He likes that.

Life is different with a little boy in the house. But he is a delight, and we are cherishing this time.

One Of TheBest Investments?

Dateline: 5 January 2015

Small-Town Coffee Shop
(photo link)

I’ve mentioned here in the past that I think some of the best financial discussion on the internet can be found at the McAlvany Weekly Commentary. David McAlvany (son of longtime financial analyst Don McAlvany) seems to have a particularly thoughtful, historically-informed, and balanced approach to investing.

In the December 24, 2014 Weekly Commentary, David answers several reader’s questions about finance and investing. It’s all worth listening to but I found the following question and answer of particular interest. I’ll comment on it at the end...

Question

“My family and I have saved enough to start a small business of our own. Nothing fancy. Just a small sandwich/coffee shop that serves good food and atmosphere. This has been a dream for us for years, and we figure we can create several jobs for young people and the local economy.

It’s supposed to be a win-win right? Well, our fear is what may happen to our business, and thus our savings, when and if the dollar collapses, and if there is financial havoc in our country. Is this just a really bad time to start any small business no matter what it is?

Should we just buy precious metals with our money and hold on until something bad happens to our economy and our currency? What if that day doesn’t come for years, or another decade or two?

We’re financially ready to become business owners but we’re really confused and terrified and don’t know what to do. Do you have any advice for people like us?”

Answer

“...[I]f you had your money in precious metals and were sort of waiting it out, there’s a couple of things to consider. .... Gold saw annual returns of 12-1/2% per year for over a decade, from 2001 to 2011.

[But] if you owned your own business in that time frame and were managing it well, managing costs, and had the variables necessary for success in play, you’re talking about compounded returns of 20% to 60% per year.

There’s no doubt that the best investment than anyone can ever make is in their own business. You will never see rates of return in the stock market, in the bond market, in the commodities market, consistently, at a level which you will in a business which you control.

Of course, you’re hitting on a variety of risks and concerns which are reasonable, and it’s difficult for me, not knowing specifics, to really parse this out”

There is more to David McAlvany's answer. He goes on to mention the basic and essential importance of having a good location. And he make the point that having the right staff is critically important.

From my perspective, I would hope that the future business owner doesn't put all his eggs in one basket (that's old agrarian wisdom). You should always have a backup plan, just in case.

Also, I would tell this person that starting a business is always a risk. It's always something of a fearful endeavor. There are no guarantees, even in a really good economy. If there were no risk (and little work involved) then a whole lot more people would start businesses, right?

But the point of this post is to relate to you the opinion of David McAlvany, that one of the best investments a person can make is in their own business... and he has statistics to back this up.

Again, from my perspective, I can relate to this investing advice. My own home business is far more profitable than any job I've ever had. For me to purchase inventory that can be sold, or used to manufacture products that I can sell, is a far better investment than anything else I can think of.

However, I can tell you that I have had business ventures in the past that did not make me a profit. They were financial failures. And the business I have now did not generate much profit for the first eight or nine years.

So, obviously, not every small-business is going to generate 20% to 60% compounded annual profit. But the fact that it happens is worth mentioning, and it is perfectly legitimate to think of developing such a business as a means of not only making money, but investing your money.

As always, I welcome your opinions and anecdotes.

Make Your Own Clothespins(My Newest Web Site)

3 January 2015

Screen shot of the new web site

Today I put the finishing touches on my newest web site— MakeYourOwnClothespins.com. This new web site is an important step towards my goal of helping to bring the manufacture of high-quality, traditional-style clothespins back to America. 

As I've stated here in the past, I don't want to have a big clothespin manufacturing company of my own. Instead, I want to develop a network of independent artisan clothespin makers, which I will be a part of.

If you have woodworking experience, and would like to make some heirloom-quality clothespins, as a personal project to give as gifts, you will appreciate the web site.  

And if you are looking for a unique, small-scale woodworking business, you'll definitely want to visit the web site.

If you are not a woodworker yourself, but you have friends who are, please let them know about MakeYourOwnClothespins.com.

If you have a Facebook page, I sure would appreciate you posting about the new web site there (I don't have a Facebook page). There is a button below for Facebook.

Sincere thanks,

Herrick Kimball