Savers Bailing Out Spenders....

Note: I am not satisfied with my explanation below so let me try to drastically simplify it:

• Borrowers can get a mortgage for 3% while the CPI is also at 3% and actual inflation running at 5%. While their underlying asset - ie their home retains its original value. That is to say, they can always get their $100k investment back whenever they decide to sell their home. Plus even more, should real estate prices rise faster than inflation.


• However the poor investor - gets but 1% on their investment in the face of 5% inflation - so each and every year their investment declines in value by 4 % ( 5% minus 1 %). Over 5 years, that amounts to at least 20% (4% x 5 years) or $20k. In other words, at the end of 5 years their original $100k nest egg would have the buying power of only $80k.


• From this I hope you can see that the Investor, in reality, is subsidizing the Borrower.


• This can last only until the Investors have money left to invest - which as you can imagine, is not forever.

Galagher

BIG TIME !!

Do you ever wonder how the youth of today can afford big homes, big cars and all the toys?

If you are a Boomer - like me, it is thanks to us.

How so, you ask?

The following example should suffice:

Let's say a Young Couple (YC) buy their first home for $100k (as if, but let's just pretend).

YC go to the bank and arrange for a five year mortgage @ 3% per year so their interest payments over the next five years totals $3k per yr x 5 years or $15,000.

Now Old Couple (OC) go to the same bank with their $100k nest egg to invest and they get the princely sum of 1% interest - if they are lucky. Over five years that interest accumulates to $5k ($1k x5) so their nest egg is now at $105k.

So YC is down $15k and OC is up $5k. Right?

Not at all.

Permit me to shine some light on the real situation.

While trying hard not to bore you.

The Consumer price index (CPI) states that our annual inflation rate is roughly 3%. (Which is not true since economists believe that the real rate is twice or even three times that figure).

But let's for argument sake take the official government 3 % rate. (as an aside, the gov't understates the CPI because its annual social payment increases are based on that figure).


Let's deal with OC first.

Each year their $100k nest egg declines in value by the CPI rate so if the rate is 3% over 5 years it declines by $15k ($3 k x 5 yrs). Since they are receiving 1% from their Bank - this drop in value is mitigated by their interest earnings or by $5k ($1k per year x 5yrs).

So their net loss over five years is $10k ($15K - $5k). In other words, their nest egg is now worth only $90k in real dollars.

Now let's look at YC. They borrowed their $100k @ 3% which also reflects the gov't sanctioned CPI at 3%. So they end up neutral re their borrowing. In other words their borrowing has cost them nothing.

But as a result of inflaton, their home has increased 3% per annum for their 5 years of ownership so what was purchased at $100k is now worth $115 k in inflated money (3% x 5 yrs) or $100k in constant dollars.

Bottom-line YC at the end of 5 years has an asset valued in constant dollars of $100k while OC has a nest egg valued at $90k in constant dollars.

In a fair economic climate, the YC should be borrowing at approx. 10% - double the actual rate of inflation and the OC should be investing at approx. 7.5% - 50% above real inflation.

That would mean, on a $100k mortgage, YC should be paying interest at the rate of $10,000 per annum or $5,000 after inflation and OC should be receiving $7,500 per annum interest on their $100k investment or $2,500 after inflation.

What we have here is an inter-generational transfer of money which has gone on far too long and in the long run will benefit neither YC or OC since YC can only keep up their spending as long as OC has the money to loan them.

As I see it...

'K.D. Galagher'

Hair Cut Time...Again

And Back to Gus the Barber.



As you know from an earlier Blog, every 6 weeks or so I am off to see Gus the Barber.



Yesterday was 'Gus the Barber Day'.



Gus was in Rare Form - I mean - he was Meaner Than Ever.



I met Gus coming up the escalator - he was coming up and I was going down - down to his shop that is. Gus was off for his ubiquitous cigarette break. I asked him to please hurry since I would be waiting for his return. Gus sneered and continued on up the rolling stairs.

He was soon back though, which had more to do with Gus' ability to inhale a cigarette faster than any man on Earth than it did him worrying about me waiting.

In the few minutes I did have, I considered sweeping up the loose hair on the floor beneath his Barber Chair but from past experience realized my finer efforts would go unappreciated and even be resented. So I refrained.

What I did do was to go to his newspaper bench and pull out one of the day's rags. I had no sooner gotten comfortable with it when Gus returned - sneer and all.

I jumped up and headed for The Chair - leaving the newspaper behind.

"That your paper"? asked Gus.

"No, it is one of yours", I replied.

"Put it back" he demands.

I went on to tell him that I had planned to do just that - when the cutting was over ....

"Someone will come in and sit on it and ruin it".

'Someone'?

I refrained from saying that over the course of the last year, I had yet to seen 'Anyone' come and go from his shop save for Yours Truly.

I replaced the endangered paper.

The cutting began.

At this point I am thinking do I just go silent - like the man himself - or do I try to provoke conversation.

Ever a sh** disturber, I go for the latter.

I notice some new pictures Gus has posted up on his wall - one being a pix of himself about age 9 when he was living in Italy. "Good looking kid" I exclaim..."whatever happened to those good looks"?

I can be a devil.

Gus Grunts.

On to another picture, in this one a Gus around age 19 is seen cutting All the hair off a client.

I asked him "why would anyone want all their hair cut off"?

Gus finally breaks silence "If he wanted his head cut-off and paid me, I would do it".

Might be frowned upon in some quarters I respond - Gus Grunts.

We go quiet again.

I try one last thing - knowing that he hates - absolutely hates politics, I ask Gus if he got to Jack Layton's Funeral?

If looks could kill...

Okay - I gave up at this point.

On leaving I always give Gus a good tip - usually as much as $8.00 and I did so yesterday.

I thought for a moment of telling Gus that the tip was for his 'Friendly Service' but thought the better of it.

One, I was not sure how he would react - physically that is and Two, for all his faults, Gus is a Proud Individual.

When I got home and told Anne about my latest Gus experience she asked the expected; "why do I not find another Barber"?

Simple - Gus is the Best.

As I see it...

'K.D. Galagher'

My Pre-Election Prediction...

For Ontario's Election this October.

You may recall that I did a similar pre-election prediction for the recent Fed'l Election at which time I called for a Tory win and said that the Libs would have trouble hanging on to official opp status over the NDP.

Just before the polls I did a final prediction - based on my assessment of the polls and called for a Tory minority and Opp Status for the NDP. It turned out I was partially wrong re the Tories - they did of course win but they won by a majority. In the case of the NDP, I called for them to win 101 seats but they actually took 103.

You be the judge on how I did.

But now to the coming Provincial Election - Here Goes.

Recent Polls have the Conservatives at between 34 and 41 %; the Liberals between 32 and 39%; and the NDP between 15 and 20 %.

So what do I see happening:

Same as with the recent Federal Election - The Tories will win, and the Liberals need to watch out for a reinvigorated NDP for second place (i.e. it is too close to call which of the two will form the opposition at this point.)

You may wonder at my prediction given the state of the polls but as many olde pols say - the only poll that counts is the one on Election Day.

And of course olde Dief used to say that Polls were only good for Dogs.

Be that as it may, you heard it here first.

My final prediction - with seat numbers, will follow just prior to the polls opening.

As I see it ...

'K.D. Galagher'

EXERCISE....

Can be bad for your health.

I have two sons-in-law who insist on riding their bicycles to work even though I have warned them both that in a collision with a car - the bike and cyclist lose out 10 times out of 10.

They both politely smile.

And then there is the rest of that earlier generation - all out jogging. And not just for a kilometer or so - Not for Them - nooo they have to run for at least 5 k or it is not worth doing.

I tell them when they reach my age - 62 - they will be on their 5th knee transplant.

They too politely smile back.

What they all lack is my wealth of experience but not from personal experience since I have tried to avoid useless exercise all my life.

To me, exercise should be gained from splitting wood or heaving bales - it simply escapes me why anyone would want to exercise just for the fun of it.

And my philosophy in that regard had held me in good stead- no knee replacements for me.

Now my wife Anne is another story entirely.

Several years ago she went on one of her own 'exercise' kicks. We had taken skiing lessons but had not been all that active on the snow hill front. One day she said enough - we were off to the highest peak around and were headed for the Diamond Run.

We all headed down - Anne - myself and our three children made five - but only 4 got to the bottom.

Anne had blown out her knee about a third of the way down the Diamond.

Next thing I knew I was following Anne, Ambulance bound for the Truro Hospital.

Surgery followed and a knee replacement to this day has not been ruled out.

The only good that came from this was that Anne has spoken less (much less) about the need for exercise.

I was in a neighbourhood store the the other day when the wife of a good friend of mine stop me and suggested, if possible, that I make some time to visit her husband. Apparently he was laid up from a sports injury and was not at all mobile - so some company would be most welcome.

That afternoon - off I went. The dear soul was confined to a cast from ankle to groin. Talk about immobile.

What happened, I enquired. Playing volley ball - the ligament that controls the motion of my leg snapped, he said. In other words, he had no ability to either lift or lower his leg below the knee. He'd been confined in this contraption for approximately three months.

Did it hurt, I asked?

Well yes, but not as much as when I injured my other knee. I then looked at his cast free leg and at the knee which was a mass of scars from previous surgical interventions.

What happened to it, I enquired?

Soccer, he responded.

Well I hope your days of exercise are over I intoned, you can't take much more. He nodded without smiling.

And then just this weekend, I was in a hotel elevator with a chap on his way to a golf tournament.

Quite an extrovert him. Without prompting, he told me that a few years back he had torn his rotator cuff and that this was his first time back at golfing. He allowed that he was not sure if he could even still swing a club but off he went to try.

I thought the guy a masochist.

So exercise - great for dogs but for their owners...

As I see it...

'K.D. Galagher'

It May Be Legal....

But It Certainly Is Not Ethical - nor is it Democratic.

I am speaking about the 'Friends of Lansdowne' and their ongoing efforts to frustrate the Will of our Elected Representatives on Ottawa City Council.

A little background:

Two consecutive City Councils have approved plans for the revamp of Lansdowne Park - the one, until this year, hosted the annual Ottawa Exhibition.

These 'Friends' are for the most part Glebites - those privileged few who live in lands adjacent to the Park. They want to retain the Park in its current dilapidated form as a place to walk their spoiled pets amongst the weeds.

Annually, the City pays over $3 million to maintain (?) this large, crumbling vacant lot.

With development, the City would be in the plus as a result of tax revenues from a restored site.

It is a no-brainer.

But it is also a travesty to see such a small biased number be able to frustrate the will of the people via court challenges.

'Friends' to date have gone through the Ontario Municipal Board and First Judicial Level to no avail. Costs to the City (aka taxpayer) total well over $1 million.

And now, these dear 'Friends' are appealing their negative decision to Ontario's Superior Court.

What if all decisions of Council were challenged in a similar fashion - there would be gridlock.

But sadly it is Legal.

But that's not all that may be Legal but is neither Ethical nor Democratic.

CUPE - Ottawa City's largest union is funding 'Friends of Lansdowne' to the tune of $15 k.

Of course, CUPE is not there to protect the right of a few to walk their dogs - they are not so civic minded. Rather, one suspects (i.e. knows) it is to preserve its members jobs which would be lost in the privatization of the Park.

From my perspective, both as a student of Political Science and as a former Bureaucrat, Civil Servants are to remain non-partisan. It follows for me, that their Reps - in this case CUPE - should be similarly apolitical. Civil Servants and Unions have ample processes available within their Collective Bargaining System to advance their positions. They do not need to appeal to the Judiciary to thwart democracy.

Moreover, to financially support private groups like 'Friends' is a conflict of interest and if not illegal, should soon be made so.

After all, there is only one Taxpayer and with 'Friends' like 'Friends' and 'CUPE' frustrating the will of the people and costing millions in the process...

We do not need Enemies.

Where Does This Leave The NDP?

Note: in the following, I mistakening refer to Paul Dewar as being unilingual English - apparently this is not so. But recent reports state he does speak French. That said, I am not certain how proficient he is in French - but even if very proficient, he will be seen as Anglo and will need a Quebec Lt. - especially with a Quebec centred caucus. And that is where dear Nycole comes in. Also note, just because I think such a team makes sense for the NDP please do not assume that I would in any sense endorse it; I wouldn't, if for no other reason than Turmel's separatist leanings. G.



Before I get into this topic let me reiterate my sentiments from yesterday's Blog, namely:

Jack Layton was a nice man but a dangerous politician given his left leaning and Separatist friendly bent.

Now though the question turns to the NDP and its future without Jack.

Had Mr. Layton lived to lead his Party in another Election, I believe he would not have enjoyed the success he realized this year. His Caucus' Quebec Separatist focus would have, over the next four years, been his undoing. With his passing though, we'll now never know.

So what is in store for the NDP without Jack Layton at its Head?

From my perspective, the Party is most likely to self destruct. I say this since Layton was the only one who could have had some success in holding this mis-be-gotten group together. (The Liberals, under interim leader Rae are most likely salivating at the thought).

And, this is surely to happen should Nycole Turmel run for its Leadership. If she wins - she will alienate the ROC / NDP and if she loses, gone are the Quebecers.

There is though a possible winning solution and that involves a successful Leadership bid by Ottawa Centre MP - Paul Dewar.

Dewar is a well respected, contained individual who would bring needed gravitas to the job.

As a non-Francophone and unilingual Anglo, he would need a Lieutenant and this is where Turmel could come in.

But it would of course take a few things to accomplish: 1. Dewar would need to run for the office; 2. Turmel would need to see the writing on the wall and throw her support behind Dewar before the Leadership race even begins; and 3. the Dewar / Turmel Team would need to get sufficient support from the NDP Delegates.

I would say this scenario has less than a 20% chance of occurring - but if it does not happen, I would say the NDP has a 100% chance of flagging come next Election.

Once again, you heard it here first...

As I see it...

'K.D. Galagher'

Jack Layton...

R.I.P.

With Jack Layton's battle with Cancer ending earlier today, along with it went his constant optimism and continued cheerfulness.

Until the end, Mr. Layton showed amazing courage in the face of one of nature's greatest scourges.

On a human level, we will all miss the man though not necessarily the politician.

I, for one, will not be a hypocrite and say the political scene will poorer as a result absence.

Mr. Layton was unapologetic in his support for big, invasive governments like the ones that are now teetering on the brink.

As NDP Leader he certainly sympathized with Separatist Quebec. He wanted to further Quebec's road to Nation State and was quite content to see separatism come about by a simple majority vote (i.e. 50% plus one vote). His appointment of Nycole Turmel was to me further evidence of his soft spot for separation and in all of this, Jack Layton was a dangerous politician.

Even more dangerous than Bloc Leader Gilles Duceppe in that Duceppe is open about his wish for Quebec's separation. For Mr. Layton it was more subtle.

In my earlier Blogs I was first to point out that Jack Layton would not be returning to Parliament in September 2011 nor ever and I was first to point out that his appointment of Turmel would come back to haunt him - at a time, you will remember that others - the Media and Pundits alike were saying the opposite.

Today I continue in that vain - the same Media and Pundits are allowing how much of a loss Mr. Layton's death is for our Politics in general - while I am saying the opposite. The truth will win out - as it has in the past.

So rest in peace Mr. Layton, you were a valiant warrior albeit a misguided one.

As I see it....

'K.D. Galagher'