Home » Welcome to the Third World » Welcome to the Third World, Part 9: Entrepreneurs Can’t Retire

Welcome to the Third World, Part 9: Entrepreneurs Can’t Retire

by John Rubino on September 3, 2012 · 41 comments

For most small business people, the ideal life goes pretty much like this: a few years of all-consuming obsession to get set up, followed by a few decades of 12-hour days to build a reputation and client base sufficient to make the business valuable. Then sell out for enough to retire comfortably.

This is easier said than done, of course, since most small businesses fail pretty quickly. But over the past half-century it was common enough to be a realistic goal for generations of American entrepreneurs.

Today, not so much. When the pie is shrinking, as it has been since 2008, small businesses begin to cannibalize each others’ customers and niches, making each business less viable. Entrepreneurs find themselves on a treadmill where ever more work produces ever less reward, and the prospect of selling out for enough to retire recedes ever further into the future. Last Thursday’s Wall Street Journal published two long articles illustrating this process. Here’s an excerpt from one of them:

‘The Economy Stole My Retirement’
Danny Sullivan dreams of gardening and spending time with his grandchildren, but that’s just a fantasy. Retirement is out of his reach, at least for the foreseeable future.

 

The 62-year-old founder of a small catering company spends his days helping stock bars with beer and ice, wooing potential new clients and juggling the 20 to 30 different events his firm handles daily.

“I am so tired,” he says. “I don’t know that I’ll ever be able to retire.”

 

The weak economy has been tough for small-business owners across the board, with their total revenue inching up by just 3% since 2007 and declining in fields such as construction (-12%), real-estate services (-3%) and retailing (-2%), according to financial-software maker Intuit Inc. But for entrepreneurs in their 60s and 70s, the consequences have been particularly vexing.

 

Right Time?
Many of them are stuck in “business purgatory,” unable to retire and forced to hang on for a recovery that economists say could still be a long way off.

 

Mr. Sullivan has struggled to sell Arguello Catering Inc., the Redwood City, Calif., business he started 21 years ago, at a price anywhere near the $850,000 or so he figures he needs to stop working. He reckons that about 70% of his nest egg is tied up in the 25-employee company.

 

Its annual revenue has fallen to roughly $2 million from $3 million before the recession, Mr. Sullivan says. He has tried, without success, to boost the business’s value by branching into new markets, expanding hours of operation and adding healthier menu options. He says he got three offers for Arguello this year, but they were far too low.

 

Nearly half of the 799 small-business owners surveyed in August by The Wall Street Journal and Vistage International, an executive-mentoring organization, expect to retire after age 65, with 38% saying that their planned retirement date is later than they had predicted five years ago. In addition, 56% said most of their retirement nest egg is tied to their business.

 

Stuck in ‘Business Purgatory’
Baby boomers, in many cases, were blindsided by the recession and its effect on their retirement plans, says George Vozikis, director of the Institute for Family Business at California State University in Fresno.

 

“Boomer entrepreneurs grew up believing in the American dream that you could start a business and eventually sell it for a good return or pass it onto your kids,” adds Aaron Chatterji, associate professor at Duke University’s Fuqua School of Business in Durham, N.C. “Because of the financial crisis and subsequent recession, that is more difficult today.”

 

Judy Lawton, 69, says she would like to sell the small staffing company she started 27 years ago. She figures she needs to sell it for close to $2 million to live comfortably. But her company was hit hard by the job-market slump, and its revenue is down by about 60% from before the recession.

 

Ms. Lawton says she continues to work 12-hour days, meeting with prospective clients sometimes until late at night. She says she can’t afford to expand her business, which is down to 13 employees from 35 a few years ago. She recently sold her office building for $3.1 million to help pay off a $900,000 Small Business Administration-backed loan that she secured to survive the recession.

 

Ms. Lawton listed her business for sale last year through a broker, but all of the offers she received were “insulting,” she says: as little as $250,000, plus installments that would vary depending on performance. So far, she has turned them down.

 

“You don’t work for almost 28 years at [building] a company and give it away,” says Ms. Lawton, adding she won’t settle for what she considers a low offer, given the strong reputation and client base she has cultivated.

 

She hasn’t taken a vacation in years because she can’t afford to travel. “The economy has stolen my retirement,” she says.

 

Some thoughts
Of all the stories in the “Welcome to the Third World” series, this might be the most disturbing for a couple of reasons. First, entrepreneurs drive a modern economy. They come up with the ideas that change the world for the better, while creating millions of good jobs – and while working harder than just about anybody else, both for the love of what they do and in the expectation of a big pay-off down the road. Take that pay-off away and the rational choice for a lot of these people is to play it safe, put in fewer hours on less risky projects, spend more time with family and less at work. That’s great for the families but, in the aggregate, will make the US economy more like Europe, where jobs are scarce, innovation is slow, and most people depend on government jobs or handouts.

More immediately, entrepreneurs who can’t sell out don’t generate big capital gains, which means lower tax revenue for governments at every level. This creates a feedback loop in which bigger deficits lead to cutbacks in services and/or higher taxes, which make the business environment even tougher and business valuations even lower, and so on. Given the number of cities and states that are already functionally bankrupt, this might be the last straw for a lot of municipal credit ratings. So it’s only going to get worse for entrepreneurs.

And this is all happening with interest rates at almost surreal lows (today’s prime rate, on which many business loans are based, is 3.25%), which means that a solvent small business — or a would-be buyer thereof — has access to the cheapest money they’ve ever seen. And they still can’t seem to put it to productive use. What good is a bank loan if your customer base is shrinking?

The Fed is obviously aware of all this and understands that just cutting interest rates by another quarter-point or adding a bit more reserves to money center banks won’t energize small businesses. So look for something different when the next QE is announced.

  • hjb

    i am 72 i have a really small business for 15 years now …i am down 45% from last year …i am an independent …i have to say that when Bush was in office i made decent money…i have a good product it is reliable and i have a good customer base the problem is the clientele has no confidence in the economy and this president(who i will vote for) was in over his head and got no help from congress and as a result people are NOT SPENDING …i am not spending i have learned to stay away from banks….they are not to be trusted so i send very few checks and pay the electric company manually etc the economy is changing not crashing …i own my house (mortgage) but if it got too bad i would just walk away and rent .. i own my own car i bought it used paid cash i am saving for another one…my fixed costs in the business are the same my taxes are less i am making less, my variable costs are less because i sell for less..i have no employees now. i worke harder longer and really i hope i never retire ..i am also partially crippled and so is the nation and the economy ….if the rent gets too high in the business i will resist by downsizing or moving all is not lost i am in the poor class the free sh t people …..the rich people are now the middleclass they will get taxed out of existence until they long for another middle class to rise up from the poor people by then we will be happy with balony sandwhices and ice water meals 20 year old cars (this computer is a 7 year old laptop ..i love it) used but clean clothes …40 year old trailers fans instead of central air and i hope i will have my little business just rolling along then they might realize they really screwed up but being a 3 rd world nation isnt that bad ..let someone else bail out the poor(us).finally i wish the repubs were running JEB BUSH in stead of this dope he is going to get us into a war over there or a war in our
    streets he is an out of touch untaxed child who is worse than our president i cannot in conscience trust this guy sorry for the lack of brevity but i am bleeding like everyone else i am just aware of it

    • Whiner

      God bless and prosper you and your biz. Your p art of the solution not the problem. I think you intended to say you willNOT vote for Obama. Either way, keep on truckin.

      • St. Roy

        Whiner:”

        Right you are! The banksters control the economy and the government. The three branches don’t matter nor does the election. Romney or Obama, nothing will change other than the economy will continue to contract and sooner or later the country will collapse. I’m 69, but I think I will live to see new borders, ala the former Soviet Union.

    • Dan

      Read the book 15 Steps to Corporate Feudalism, by Dennis Marker and you’ll find out what happened to the middle class, and it all started with Reagan.

    • http://comparegoldandsilverprices.com/ Silver Bullet

      hjb,

      It doesn’t matter who is in office because they’re all puppets. Mark my words, Romney will win and nothing will change, just as Obama was no different than Bush.

      • LORD ROTHSCHILD

        Both parties are owned by the Banking Families. Been that way for 100 years.

      • Helix

        Actually, Romney will “win” and we’ll get more of the same. Much more. The difference between Obama and Romney is that Obama smiles at you until you turn away, then stabs you in the back. Romney smiles at you as he stabs you in the chest.

    • MadSat

      Friend, I feel for you, but you aren’t thinking clearly, which is no surprise, most people never do, especially when things are moving their way. Here’s the facts, and the facts are these, any type of deficit spending whatsoever is economic stimulus. Period. There is no exception to this. Taxing Joe ten bucks to give to Jim, no matter the reason, whether to build a road or to buy bread, makes no difference, the GDP WILL BE UNCHANGED, because what Joe didn’t spend, Jim did. DEFICIT spending creates money (federal reserve debt, which is fungible with money) and every penny of that money gets spent, otherwise why create it? Since that money is spent, it adds to the GDP. All of it winds up in the profits of some company. Bush cut taxes and spent heavily, and this was all seen in the GDP as stimulus. You apparently benefited from that stimulus. But you don’t seem to realize the game is played out, we CANNOT afford more stimulus. Deficit spending WILL be cut this December, and blamed on the outgoing Congress, and that WILL cause the actual GDP of the USA to dip towards the real numbers without the excessive stimulus we’ve lived under for over a decade. The fallout will not be pretty. This will happen no matter who wins the White House, Congress spent two years setting this up and they won’t let the opportunity go by. I’ll even wager that the cuts will be announced on December 23 or 24. The fallout as the GDP drops by 100’s of billions will not be pretty. Prepare yourself, and God bless.

  • http://- bob D

    so????

    how is the us$ doing, not to-date, but as an emerging fiat, local +worldwide??

    if your crystal ball will tell, who will win obumma or Romney and whichever what will be the consequences to 1) usa and 2) the world ????

    separately, altho FRS (chair bernanke) has (as continuity to the late brain dead greenspan input) financed all central banks worldwide,

    ———-so as to destroy their each econ and thus destroy world econ and
    thus too destroy usa econ,

    ————-so the world consortium of central banks
    of which he is #2 man (fischer, below is # 1)
    can bust all of them and
    institute their own specially designed for their own purposes central banks, per each nation and world consort…….

    ——- folks think bernanke is stupid but he is smart +crafty +obedient to the world consortium, above, seeking a better paying wage (for himself) and
    bonus etc, (for himself) :: which he is sure to get

    —————— i keep in mind that Fischer, sole governor of Israel Central Bank was bernanke’s mentor during bernie’s quest for his ph.d. econ, and, still is bernie’s master guiding his every thought and every move,
    altho the popular view of Fischer, above, is he is merely a member of the above worldwide consortium, moreso he is in touch intimately with all their chairmen, so as to coordinate world with usa central banks….

    ——————————–thus i say Fischer designed the today ops of all central banks since institution of Israel centr bank, even when he was doing something else his main focus was the deal of today
    —- the point is whether this will work or not as designed by whoever, even tho i think fischer designed etc,,,,,?????

    my view is that this consortium will fail, go bellyup, bankrupt in entirety, and thus these hotshot chairmen will lose their shirt and destroy the econ of their each nation as well as destroy the world econ, ho ho ho

    if so , then the issue becomes as above plus will central bankisms be reborn, or replaced with something that works, or what??????

    the answer to this issue is that the consortium will have to hire or elect from self a smartass who can manage this unweildy consortium so as to be productive to the nations and at same time, or leading, be hyper productive profitable to the chairman in power today,

    and when they cease, their replacements will either be in the top management or not, if not then the entirety will again soon blow up in the faces of the novices…. ho ho ho

    —- meantime the consequence of idiots operating banks and central banks will produce blood in the streets, big time, most of it theirs….

  • JWRebel

    “… will make the US economy more like Europe, where jobs are scarce, innovation is slow, and most people depend on government jobs or handouts.”

    As somebody who lives astride both the USA and Europe, this hardly seems a fair comparison. Where I live unemployment is half the US rate. Most jobs are not government jobs. The infrastructure is in better repair, the deficit is less than a third the American, consolidated public sector debt is less than half the US rate. There is no permanent union:management stand-off, and a lot less low value-added make-work minimum jobs. There is no poverty blight. There are less billionaires, much less crime and consequently far more freedom, no homeland security business, and society is far less polarized between rich and poor.

    A widely held ideological misperception in the USA is that the public sector is a waste: that is true for military spending (US is reponsible for 50% of global military spending), but whether the sewers, prisons, utilities, public transit, and garbage collection (not to mention health care) are public or private sector does not matter all that much in the end — it all depends on how things are run.

    • sharonsj

      JWRebel–you didn’t say where you live, so how can we judge your comment? However, you say society there is less polarized between rich and poor. According to statistics, the U.S. now has the widest gap between rich and poor in the world, and that cannot continue without us either being a banana republic or having another revolution.

      • JWRebel

        I am living in the Netherlands: unemployment in 2011 was about 5% vs 16% in the USA (U6); the budget deficit was < 6% of revenues vs about 40% for the federal government; consolidated public sector debt was about 163% of government revenues vs 950% in the USA.
        Consolidated public sector debt is fed debt + the states & municipalities + GSE's, together about 23 $Tr in 2011, fed revenues about 2.4 $Tr, fed spending about 4 $Tr. For the Netherlands (€ bill.) €400 debt, €244 revenues, €257 expenditures.
        In Nov 2009 labour force participation rate was 77% with 3.9% unemployment; in the US 65% and 9.9%. FTE employment rate was 59.2%, coincidentally the average for the EU15 and EU27 that month. I cannot find a comparable American number. Less than 10% of employment was government (in the USA, about 8%).

        I do not want to start some contest, just noting that the Eurosclerotic template Americans fondly cite (socialism, most people depend on government jobs/handouts) is not based in facts. Statistics are usually not (completely) comparable and can be hard to find. If you make GDP the denominator instead of government revenue, you get a different picture because the public sector is a larger part of the European economy than is the US federal government [but normal accounting is in terms of revenue]. US labour force participation (16-65) does not include institutionalized populations (1.5% is in prison! + the military), which would be negligible in Europe (everyone 15-65). I have cited the U6 unemployment rate instead of the headline rate ["For the fourth quarter of 2004, according to OECD, (source Employment Outlook 2005 ISBN 92-64-01045-9), normalized unemployment for men aged 25 to 54 was 4.6% in the U.S. and 7.4% in France. At the same time and for the same population the employment rate (number of workers divided by population) was 86.3% in the U.S. and 86.7% in France. This example shows that the unemployment rate is 60% higher in France than in the U.S., yet more people in this demographic are working in France than in the U.S., which is counterintuitive"]

        • Praetorean

          The Vikings and Brent Crude, (brother), if it was not for BRENT crude you be further down the crap hole then you are now. All statistic are lies and all statisticians lie, when are people going to stop believing the gov; statisticians you believe what they want you to believe. Brother, Viking my family came out of the Norseman countries in the 1100’s and found their way to America by the Mid; 1600’s, (Thank God). To say one country is better off then some other part of the world is foolish. The problem is this stupid idea, globalism/world economy its a consolidation of power by TPTB, we are all going to be under the gun or drone in the near future, these people want to be the ( little gods of this world ), they have the power money/technology and brown shirt Nazis of today to do their bidding, technocrat/bureaucrat or what ever you wish to call them, they would sale their mother for a class of milk. We, the people have alloyed these evil bastards to do what they have done to our world and they have done through out history just like obama and all world leaders past and present, promise you everything and give you nothing. The TPTB had to have away to control ALL of use and I mean ALL humans living on this planet, look at whats happened senses horse and boggy, (Newspapers) been around for a long time/Radio/Tv/Computer/Internet and the big one motion cameras all these technologies are to control and brainwash our dumb a%*’es to believe what they want us to believe and we do. So, please stop quoting stats as if they come out of the book of truth there is NO truth in this world. ( Up/Down-Right/Wrong-The Left/The Right-Commies/Capitalist its all the same to these people, all they want is for us to worship them and if you do not your (dead). So, worship them or get ready. Be afraid or be strong. Long live the real AMERICA.

  • Willy2

    I see the same happening in the region I live in. Not a pretty sight.

    BTW: I would take the money and run. Before the value of one’s business goes down to zero. (=bankrupt).

  • systemBuilder

    If anyone is wondering where the money went, well, we have let Alan Greensapn & his minion, Ben Bernanke have 5.0 TRILLION of monopoly money, and most of it was used to bail out his buddies on wall street. I would blame the people who gave all this free money to such gigantic losers as those !!

  • http://www.pocketinfo.net Robert

    Still it is much better to work for yourself than get stuck working for someone else and making them richer. The digital age has changed many businesses as information flows have increased access to information and the way consumers access that information.

    At the start of 2012 I was expecting the US economy to really start reeling yet mainstream media has somehow managed to talk up the US economy. How did Obama’s team manage this across all of the networks? It was almost as though a good news switch was requested by the US government keeping the undercurrent f what is really happening to niche sites like Dollar Collapse.

  • Jason Carter

    The low-hanging fruit in small business has been picked. To succeed today, you have to be an animal, really go for the jugular of your competitors. There isn’t enough productive economy to go around so most businesses have to cannibalize their competitors’ business or even their own (if a chain).

    I remember talking with a bank manager of a major bank here in SW Florida late 2009 before I started my own business. I asked him how many small business loan they had approved so far that year. He told me that although quite a few people had applied for a small business loan, none had been approved. Many stopped short during the application process because too much was required now to obtain a small businesses loan.

    I used about $300k from my 401k to start a business that should have required about $500k. I went through the trouble of obtaining a SBA loan. The maximum I was allowed to get: $7500. That’s laughable since my account can fluctuate by 30k in a single day. I don’t blame the banks for not wanting loan money to anyone but those that don’t need it. I wouldn’t loan a small business money in this environment either.

    Expectations have fallen. Companies, will have lower valuations over time like the stock market during this debt deflation. Profits are being squeezed from all sides. My acquisition costs are going up and my reimbursement rates through third parties are falling. Cash customers are greatly discounted to build customer traffic. Many existing types of businesses must shrink or fall away. New technologies must be allowed to emerge in energy production (as well as other fields that help increase living standards) that are exciting, creating new industries and drive the economy out of this long recession.

    But recovery is not around the corner. State and Federal regulations have small businesses by the throat. Creativity within industries is not allowed as regulations have taken alternative methods/ideas off the table. Not until local, state, and federal governments realize they must cut regulations by at least 50% and make it as easy and attractive as possible to start a new business, will we begin to have a sustainable recovery.

  • Ian

    Robert; after reading a couple of other posts, I would say you should qualify ‘working for someone else’ as slaving for a corporation. Many small business operators are suffering as much as the rest of us.

  • anon

    I sold my biz in early Aug 2007, jus after the first Bear Stearns funds went belly up, but before everything else looked like it would go sideways. I count my ucky stars that, even afte some losses in the stock market, I am still ahead than if I had still been in biz.

  • Will

    I’m 73 and sold my business in 2002. I accepted a down payment and ran all receipts through me, took my agreed percentage and the rest went to the purchaser. It took a little over a year to realize the balance due. The guy lasted another year barely. This was the second business I have built and sold, the first one, sold in 1978, is still going strong due to the strong work ethic and customer appreciation attitude. The last business I sold the buyer had neither. My advice is to never sell your business on a payment plan unless you control it. These were very small businesses with few employees. My competition that tried to expand on borrowed money are long gone.

  • andyuk

    although retirement might seem normal, it is anything but. it was really just a short term extreme luxury that is already fading into the past for most normal people. for a few decades, civilization could easily support millions of excess, parasitic people, but only because we had trillions of oil slaves, all working for free day and night. and we found we had more and more every year and thought it would continue for ever, and never listened to the wise men who said ‘make contingency plans for the future’. retirement was merely another minor use mankind used these slaves for, and came to be expected as a right. and the energy slaves, they never rested, and never complained. mainly due to them being made of a vast detritus energy capital ! for a short time, everything we used came from this capital and it was great. life seemed fine. it was a vast party, but all on capital. and like most party s, we wrecked the frickin place and didnt care. because we could.

    but all capital if used and not replenished runs out. now we are slowly returning back to the harsh normality of dreary photosynthetic income. the oil slaves are dying. we have fewer year by year. so excess baggage cannot be supported so easily. and boy do we have alot of excess baggage.

    sow the wind….

  • Jason Emery

    I’m building up a farm on some marginal Appalachian land. I have the advantage that my family has owned the land for 40 years. I’m building it up very slowly, planting fruit trees, building ponds, etc.

    There is no way I could pay any employees and make any money at this. I’ve hired some relatives to a few odd jobs, but other than that it has all been on my aching backside, lol.

    As if all the various problems associated with a small business weren’t enough, I’m guessing that the climate is getting hotter and drier. A lot of farmers will soon be out of business if this drought persists just one more year, much less two or three more years. I have several areas where I’m trying to design a water storage/delivery system so they are almost drought proof. This limits the size of the operation, but greatly increases the chances for success.

    • paper is poverty

      If you aren’t familiar with the Survival Podcast, you might find some of his episodes useful to you. The guy knows a ton about soil, gardening, strange edible plants you’ve never heard of, wildcrafting, etc. (Also guns, rain barrels, solar panels etc). Just google…

      • Jason Emery

        I’ll check it out. The main thing in life is to be teachable. Most folks aren’t,…………

  • http://www.booksbyoliver.com OhioRiver

    Yes, I retired two years ago and it’s definitely a lowering of my standard of living and I don’t like it. I don’t like seeing bureaucrats making 40% than their counterparts in the private sector or congress making $189,000 a yr. not adding their perks.

    It’s less govt. more freedom & more money for those who work. booksbyoliver.com is where Americans finally take a stand so I recommend reading it cause it’s about each of us today.

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  • Bruce C.

    Based on the comments so far, most people seem to assume the S will HTF and are preparing accordingly. In that case, here’s something to think about along those lines:

    JR writes, “The Fed is obviously aware of all this and understands that just cutting interest rates by another quarter-point or adding a bit more reserves to money center banks won’t energize small businesses. So look for something different when the next QE is announced.”

    I hope you’re right JR but it’s not obvious to me that the Fed is thinking that way. In fact, I’m still unclear on what the Fed’s (and all of the big central banks’) real agenda is. I know the official and conventional belief is that the Fed works for the benefit of the US, and that all the other central banks are exclusively concerned about their own country of domicile, but that is not necessarily true. Another perspective is that the central banks form a global cartel that is primarily interested in a global consolidation of the banking and financial system, often described as “a one world government with a single currency.” I honestly don’t know if, or the extent to which, that conspiracy theory is true, but I think we are all going to find out pretty soon. I say this because the way things have evolved so far all over the developed world is a perfect opportunity to usher in global governance, if that is their intention. Basically, what I’m saying is IF the Fed or the ECB initiates a significant level of “monetary stimulation” relatively soon then I submit that the one-world conspiracy theory is wrong. Stated differently, by holding back on additional monetary aid the resulting economic chaos will foster the level of desperation required for Westerners to accept global “solutions”. Watch what is actually done going forward, not what they say.

    Here’s another way to look at it: Assuming the central banker’s calculators are working properly, they too have realized that it is mathematically impossible to keep this train on the tracks, barring some historically unprecedented level and rate of wealth creation, starting pronto. Therefore, taking on the crappy debts of the sovereigns and the financial system at this point is probably suicidal. If it’s all going to inevitably implode, why choose to hold the worst cards in the deck? Better to keep your balance sheets intact and clean up the mess at a discount later.

    I can make the case most easily for Europe. “Everybody” is expecting the ECB to “save the euro” by simply buying sovereign bonds to cap interest rates until the PIIGS economies recover (i.e., debt monetization). If that happens – and soon – then I will conclude that “one world government” theory is wrong and that no such conspiracy exists. If, however, it does not happen soon then I think that would be the strongest evidence to date of what the power elites’ real agenda is.

    Let me explain: When the euro currency was first introduced in 1999 there were numerous critics who claimed the eurozone system could never work without a political and monetary union to control things. But they were ignored because the powers that be who wanted a unified Europe knew that no European country would agree to surrender its political and fiscal sovereignty. So it was introduced any way, knowing that it would fail, and hoping to inure political and fiscal union after having tasted the advantages of the eurozone system. That is why Germany and the ECB want to gain political and fiscal powers from whatever country it helps. After all, if the ECB purchases sovereign bonds then it will be, in fact, acting in behalf of the EU (hence euro-wide fiscal unity will be tacitly established). Similarly, if Germany manages to call the shots (e.g., Spain needing Germany’s approval for a bailout) then euro-wide political decisions will take precedence.
    Europe is at that cross road now. Greece is the poster child of what is to come. Greece is being asked to give up its political and fiscal sovereignty in exchange for funds to keep its system going, but it remains to be seen if Greece will accept that. If they do then I suspect that will quickly lead to a full unionization of the eurozone both politically and fiscally – a giant step toward one-world governance.

    Now consider the Fed. Bernanke is an enigma to me. I don’t know what he really thinks, or who is doing the thinking for him. I suspect, however, that the Fed will do nothing before the election. It will have the political cover to remain neutral (don’t influence the election, it may not increase employment, things aren’t bad enough to justify it, etc.). After the election is going to be wild no matter who “wins”, and I won’t be surprised if the Fed lets things go downhill from there.

    If so, wouldn’t a “comprehensive” global solution to a global problem just make sense? Get ready for it.

    • Willy2

      The only thing a central bank can do is inflate. In a deflationary environment a central bank can do very little to nothing.

  • Agent P

    Slightly off-topic, but related: Perhaps one of the biggest bubbles of all (in my view), is the notion that everything stops at age 65. How many people do you know in retirement that are still alive, ‘visiting the grandkids’, without anything else productive going on in their lives? I don’t know too many personally, but I do know of quite a few who bit it only a year or three after retirement, visiting the grandkids, etc., but had Nothing else productive going on in their lives… Older folks are sold on Fear by the ‘retirement industry’ – i.e., the Financial Services Industry. Makes me sick… I always wondered – even as a kid, why this notion of ‘retirement’ was pushed on people so profoundly. Planning? Saving? Of course! ‘Retiring’? I have heard from way too many industrious (and wise) ‘old men’, that what keeps them going is Work. After all, in the space of a year, how many times can you visit the grandkids or go on vacation? Grandkids that I know love the fact that their granddads are busy, still thinking and still coming up with innovative ways to do things and pass those experiences along to the up & coming generations.

    Keep working, save the 1.5% or whatever $fees your ‘financial advisor’ is skimming off you, invest for yourself and stay alive and alert in the process.

  • Nick

    Basically, a hundred years ago a political coup occurred that took the economic power from the people and put it firmly in the hands of several extremely wealthy banking families. Ever since then, Americans have been slaves to these families; it just wasn’t immediately apparent because things were rolled out very slowly over many decades.

    The president, any president, is little more than a figure head. Oh, he has certain mafia-boss powers to get people whacked and such, but he is not the key decision maker. He’s a spokesperson for the wealthy banking families. Everything else is ceremonial: the elections, the speeches, the congress…

    The purpose of the Federal Reserve, i.e. several extremely wealthy banking families, is to confiscate as much money and property from the people of the United States as possible.

    The reason the Federal Reserve doesn’t let the economy fix itself is because the banking families can only confiscate all of the wealth and land from the little people if the American peoples’ backs are completely broken.

    Note: This is Orwellian America. The Federal Reserve only keeps making all the wrong moves from the perspective of the people. From the perspective of predatory bankers they are making all of the right moves.

  • Marcus Argentum

    Unfortunately, my internet marketing consulting business has pretty much completely dried up. 2007-2010 were very good despite all the craziness. During that time, there was a constant belief on behalf of my clients that the good times were just ahead and if we spend those marketing dollars we can keep our head above water and make it.

    That idea lasted until summer 2010. That’s when the wheels started coming off. Budget cuts, delayed projects, cancelled projects, etc… Then in 2011 the various companies that contracted my services stopped calling. “There’s no budget”, they’d say, or “we’re going to hold off for a bit, we’ll let you know when we’re ready”. These were clients I had worked with for years that were on the verge of going under (and some did).

    Fast forward to 2012 and I haven’t even cleared 5-figures worth of work this year and very likely won’t.

    My colleagues are in the same boat and asking the same question – “can you use any help with anything?” The answer has been and will be “I’ve got nothing'” for some time to come.

  • CrapGame

    Most people are still thinking inside the box. The most lucrative small enterprises that are occurring now or will be in the very near future are tax-free barter-, cash-, and black market-related opportunities. As big government increases taxes and regulations, and continues to institute more bans and prohibitions, and presses its hobnailed boot harder on the necks of entrepreneurs, its actions merely create more business opportunities in these sectors.

    Capitalism always finds a way. Screw playing by the rules. The system is broken and will not be fixed any time soon, so work around and outside of the system.

  • Rimvydas Mieliauskas

    A global crisis, what’s next?

    My letter is about the next stage of the current crisis. Now about my forecast accuracy – as I chose a job in Scotland in 2005, I have been thinking about this crisis; I knew, that it is unexpected and that it lasts until 2020. Nouriel Roubini predicted the twelve stages of current crisis, I predicted the first eight stages – how it will start and develop in USA and UK, but I didn’t predict that it covers the whole world and in 2005 I knew that 2020 China will be the largest economy in the world.

    A dollar crash is inevitable, as now is going the four processes, which can not be stopped:
    1. The ever worsening economic situation in the world, because has been not eliminated a main reason for this crisis – the financial black holes – tax havens, which sucked from world economy 21-32 trillions $.
    2. The decreasing dollar market share.
    3. The protectionism, the regulation of investment, prohibition to sell the most important companies and more and all these measures have been taken to guard against the dollar…
    4. The global system of the tax havens is becoming every year bigger and stronger and more influential, it is practically imposible to reform it now, as show the tax havens history.
    A only way to reform the global financial system and central part of it – tax havens is crash, a only question is when?

    Now, about the financial system and globalization. The crisis in 2008 showed that the world has become a gigantic financial superpower in which all countries are financially bonded together, and crisis in one big country is a crisis almost everywhere in the world. Such fact has approved the current crisis in the euro area. The money in this system is something similar to water: a small country or its currency market is like a very small body of water, and if you add a lot of water and if it is isolated, the water level rises abruptly, similarly it is with the money – if a small country prints a big number money, hyperinflation occurs, an example – Zimbabwe, a big country is like a great pond and you need a lot more water to launch a level rise, as well as lot more money to rise the inflation and if there is leak – the water flows away. Something similar happened with the convertible currencies. UK 1973 and in the years Margaret Thatcher as prime minister and USA 1983 Ronald Reagan as prezident, with help of the representatives the largest business began the reforms taking away limits amount of credit issued by the banks and taking away limits for capital flow abroad and helped create a global network of tax havens, soon followed by the main other developed countries and globalization began. The world is like a large lake, which requires a lot of water in order to launch its level to a rise, similarly the finance require a lot of money to launch a rise in level, but unlike water, for every human being the income and the amount of money in his account is very different. The peculiarity of this crisis is, that in the developed countries the money have been allocated very unevenly. During 30 years of globalization for 90% of the population real incomes increased slightly or remained the same and the illusion of the better life was created by the credits and mortgages, that triggered real estate bubble. The only winners from globalization were 10% of population and a real winner was 1% of population.

    And now about what scares me, it’s not the eurozone crisis, permanent eurozone crisis is very useful for one country – Germany, a low euro rate promotes its exports, a unemployment is reduced to a record level and enables Germany to reform EU in the way they want and because of the euro collapse its interests would be seriously undermined and the crisis is easy to complete, by release the required amount of eurobonds or simply printing electronic money, as are doing the UK and the USA and not a single eurozone country’s elite, even Greece don’t want to leave euro, because new national currency will be significantly devalued and who want lose their money or receive lower wage and this crisis is creating United States of Europa, a economic system, where Spain is like California with the big problems and Greece like Montana.

    Different from Eurozone banks, UK and USA banks may use the same scheme as Barclay‘s bank – after loosing 28 billion £ they called them the bad debts, set up a bogus offshore company, gave it a credit of 28 billion £, bogus company bought the bad debts and a bank loss turned into a normal credit with base percentage 0.5%. In USA it‘s even better, a base percentage is 0.0% and it will remain so for two years and this only encourages short-term speculation and financial casino. That scheme is good for increasing bank’s actives too, so that they can meet all the requirements and increase the size of issued credit. USA has a big budget deficit, commercial banks credits, quantitative easing, economic stimulus packages, trade deficit flood with dollars the world and that triggered two processes that lead to the next phase of the crisis:
    1. Dollar is a central part of the world’s reserve currency and its market share in 1999 reached 71.0% and decreased in 2011 to 62.1%, this process was slowed down by the euro crisis, but from beginning of year 2012 this process has gained momentum; the BRIC and OPEC member countries and other countries signed the trade agreements to use local currencies between them. During the first four months of this year yuan part in China foreign trade increased from 0.0% to 7% and is projected to reach 50% soon. USA strengthen this trend with sanctions against Iran, which are pushing Iran from dollars market. All these measures have been taken to guard against the dollar.
    2. This trend is accompanied by the second process, tightening regulation of investment, prohibition not to sell the most important companies and this trend is only getting stronger because of the recent economic stimulus packages.

    USA, Germany and other countries, even the UK, as show a conflict with the Jersey, are starting to shake tax havens, but it looks like shaking a hornet’s nest: money, a lot of money, which until now was lying quietly, without making a damage, begins movement. The dollar world market share is like a lake – when it decreases, and the amount of water remains the same, the level is rising, and if more water flows, its level is still rising, similarly is with dollar, a shift from the dollar to trade in their own currency, the dollar was pushed from this market share, restrictions and regulations reduce the dollar market share, smaller market share and amount of dollars remains the same, in smaller dollar market new dollars are poured more – the budget deficit, bank credits, quantitative easing, economic stimulus packages, the result will be more regulation, more protection and these processes inevitably leads to the dollar crisis. The globalization‘s only winners in developed countries is 1% of the people and the official statistics show only visible part of their property – real estate, bank accounts, companies, shares and it is an iceberg peak, while the tax havens are the hidden part.

    IMF specialists estimated that in 2010 in tax havens were 18 trillions $ and this numbers is without Switzerland, greatest tax haven in a world.The latest statistic from Tax Justice Network show that there is at least 21 trillion $, and possibly as much as 32 trillions $, but part of them are in a other currency. The tax havens, as show a their size, is a main reason for a this global crisis. In the developed countries revenue grew only for this group of people and this leads to inflation, their inflation. The houses cost 125 millions $, the yachts 125 millions $, the paintings 120 millions $ and the the stock price rose to unprecedented heights, for internet companies they pay crazy amounts of dollars, like Facebook‘s value estimated at once $ 104 billions, which last year received $ 1 billion profit, well below inflation, but since this is a very risky investment – changes in fashion, someone can find that there is a new site, which is cooler and Facebook can go after its predecessor My Space. The world’s most expensive company Apple is estimated 622 billion $ and the next Exson Mobile is estimated 405 billions $, Apple got max profit 2011, because iPad was an unique product. Apple has created at first iPod – a very small computer, then a small computer iPhone and the iPad is larger, now larger iPhone i smaller iPad, what next? These were the unique products, but now Apple only can improve existing products and profits will fall as competitors appear. The Dow Jones index reach 13 275, this is more than before the 2007 crisis and the situation is getting something like the Internet bubble in 2001, but now it covers a wider range economy’s – it is a detonator, US economy is suffering the same diseases as UK, only a milder form, financial stimulus are not working, the cuts will have the same effect, as in UK and a very large amount of money is flowing in the tax havens in USA and around USA and a result will be the second dip and it can be spark and the explosives are the hidden deposits in dollars in the tax havens – 15-20 trillions $ plus trillions $ in the commercial bank’s open accounts, it is 25-35 trillions $ in disposition of very small number of people, so we are talking about a very large deposits. The 30 years of globalization created global system of the tax havens, which become too powerful to reform, that system like a vampire is sucking money from the world economy.

    The USA economic elite with help London City, through their greed, created a gigantic financial bomb, whose explosion will have unpredictable consequences and a bomb is growing a every hour, a every day, a every month, a every year, it is sufficient that a small group of global elite would panic and began change their dollars into other currencies and the situation would become out of control, because the amount of money is too big, that could intervene in the central banks, buying up dollars to keep rates, so when the dollar starts to fall down, there is no stop.

    A dollar crash is inevitable, as now is going the four processes, which can not be stopped:
    1. The ever worsening economic situation in the world, because has been not eliminated a main reason for this crisis – the financial black holes – tax havens, which sucked from world economy 21-32 trillions $.
    2. The decreasing dollar market share.
    3. The protectionism, the regulation of investment, prohibition to sell the most important companies and more and all these measures have been taken to guard against the dollar…
    4. The global system of the tax havens is becoming every year bigger and stronger and more influential, it is practically impossible to reform it now, as show the tax havens history.
    A only way to reform the global financial system and central part of it – tax havens is crash, a only question is when?

    I wrote the words about EU even before the EU meeting on 30.06.2012. However, EU meeting decisions can make euro a real alternative to the dollar and that also increases the possibility of my scenario.

    When I was writing this, I find Nouriel Roubini interview.

    http://www.telegraph.co.uk/finance/financialcrisis/9408062/Nouriel-Roubini-sticks-to-perfect-storm-in-2013-prediction.html

    A best proof, that I am right, I got from Roubini Global Economics Project, I send this letter as comment to RGE Analyst Blog, it was divided in four parts, because number words was too big and every comment must be approved. A first part was approved very fast, but with second part it was a long stop, you can see a result:

    http://www.economonitor.com/analysts/2012/08/31/live-blogging-the-financial-meltdown-nouriels-26-early-warnings-and-predictions/#IDComment434274593

  • hjb

    my wife thinks business is coming back…it is nt …still its the only way we can still generate cash…..things will never in my short projected lifetime ( i am 72) get a lot better ..recently i bought 2 very-expensive-when-new display cases for $30 cash is king …another small business crashing in fact he offered me the whole business for $2k and his 3 year old camry for $5k he had 7 employees in 2007 he said he was going back to Canada where he kept his citizenship …where his son has a hardware store ….he is laughing as he skips across the border … i am too old to emigrate but we should before the govt closes the borders and cuts off all the escape routes …i am optimistic that when all the chiefs(banks ,govt) realize that there are no indians left who still pay taxes they may come to their senses it will probably be too late though the prime example is peoples love of the automobile i had 3 cars 4 years ago now i have one -9 year old camry …… all of these posts tell me i am not far from facts …the new agenda _cash is king_ ….

  • REALITY CHECK

    You can sell now and get what you can get and buy gold to hold the value of the dollars or you can wait for the crash and end up with nothing.Think the good old days are coming back? Ha,Ha.The wise man foresees the danger coming and hides Himself. The fool rushes on to destruction.

  • Rat

    When will any politican, economist, or newsletter writer become enlightened to the truth about a sound money system. It is truly amazing! No one even approaches the idea! A sound money system is one that has a government that spends money into existance (at little to no interest), instead of one that borrows money (from a private banking system – the Fed) at interest. It is so simple. The government spends money into existance for the legitimate needs of the people, then through a process of taxation removes any excess money to protect the value of our money. The problem we have today, is a country in search of money to pay debts. We try to accumulate more money out of the system than was ever created to begin with. Interest due is never created! Wake up America!

  • Roddy Pfeiffer

    Being self-employed has always been a losing proposition, on average. 4 out 5 businesses fail in 5 years. Of those that survive, 4 out of 5 fail in the next 5 years. Of the few that remain, many owners are just getting by and working many, many hours a week, buying their own health insurance. That few that do well are like the winners at a casino. We all see the winners…the losers fade away into the shadows.
    Self-employment is necessary to the health of the economy, but it is not healthy to the average person who tries it.

    • http://www.remyblackcoffee.com BlackCoffeeDrinker

      As the teacher of a class called “Why should I Start a Business”, being Self-Employed is about being self reliant. When all that works come to a screeching halt, what do you do? This is what you do! You start being creative! People will look for someone doing “something” and gravitate towards that “something”. With the entrepreneur, there is always going to be that “something”. That is when those with the same mindset(The First Follower)will join in and assist the entrepreneur. This alone builds value, and relationships. Now what you have is something to do. It can become a task(which is a job) or it can become a career (which is a lifestyle). Unfortunately most small business owners look at their business as jobs. Creativity has a cost and true entrepreneurs will always be willing to pay the cost. Dollar or no dollar, depression, recession, what ever you call it, a job will not sustain you. Careers built on creativity will and can pay for itself, it just takes patience and those willing to create.

  • Roddy Pfeiffer

    Still, 9 out of 10 will fail, no matter how noble their intentions. Meanwhile, their marriages fail, their children go without, and their houses get foreclosed.

    • Praetorean

      Now is the time to be your own boss, of course it will be tough and you may fail but you must try and try again and keep trying till you make it . As I’ve told my eldest son (26), forget college and getting a four year degree, you’ll be in debt and no dam job, take class in (how to fix it), told him this at (20), go out mow lawns, paint houses, do roof work, learn to use tools, hammer/saw/wrenches you name it, learn how to use real tools. Fix things because everything is going to be broken in the future and we’ll need people to fix everything.
      In my work, I’m 57 and have a degree (mechanical engineering) got my degree in the 70’s when it was chipper and the world was different not better just different also have a small business on the side. In my J.O.B. I have to work with people (I say people but I mean males) my sons age who have no mechanical inclinations of any kind, can’t use a screwdriver, their afraid of busted knuckles, they do know computers but can’t apply that to the real world and always complaining about their debts, I have know idea how they got the jobs, know someone i guess, sad really but this is why I told my son to learn to really fix things because thats what the world and America will need fixers/builders people who can manage their lives in the real world not the fantasy of this computer age. This machine I’m on now is a tool not a toy at my work its a great tool but these kids viewing it like a toy stupid really their lost. Go out and do the hard thing, thats who’s going to make it.

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