01 September 2012
About This Blog
Hello, everyone. This blog is nothing more than just a place where I put things that I think might be of interest to others. Please take time to read and, if you feel like it, provide comments to posts. A little about myself: I am a male in my 20s and live in Melbourne, Australia. I am a Christian, so my main interest in in the Bible. However, I am interested in other things, for example, chess, politics, economics, public finance, technology, and reality TV (mainly Survivor).
05 August 2012
The Myth of Good Debt and Bad Debt
A friend once told me the following:
Another reason why this rule is crap is because it completely ignores the cost of borrowing, the cost of holding the asset, as well as whether the asset generates any income.
For example, suppose you borrow money from a loan shark at 20% in order to buy a house and assume that this house appreciates at 5% per year. You will actually be worse off than if you took out a car loan at 8% and purchased a car that depreciates at only 1% per year. In other words, if the cost of borrowing is so high, it doesn't really matter if the asset appreciates or not.
Some assets may appreciate over time but have extremely high costs. For example, suppose you purchased a run-down apartment that needs constant maintenance. As the landlord you need to fix the showers, clean the walls, replace the tiles, put more concrete on the driveway, and so forth. You may purchase an apartment that appreciates at a mere, say, 1% per year but if it costs you $1,000,000 per year to maintain this apartment, what is the point? These holding costs aren't necessarily in the form of fixing showers and tiles but may include council rates, land taxes, and other taxes or fees.
Another factor ignored when focusing only on asset price changes is the income-producing potential of the asset. If you take out a margin loan with your bank and borrow money at 8% to invest in shares of a company whose stock price depreciates at 1% per annum but it has a dividend yield of 10% then you are better off than someone who takes out a mortgage and borrows at 6% to invest in a house that appreciates at 3% per year and pays rental yield of only 3%.
In summary, if you borrow money to buy an asset, you need to look at a lot more than asset price changes. You need to look at everything that influences on costs and benefits. The idea that borrowing money to invest is a good idea simply because you expect the price of the asset to rise is thoroughly refuted in the examples above. Other things to consider include holding costs, costs of borrowing, and how much income the asset produces.
If you borrow money to buy an asset that depreciates, this is bad debt, and you should avoid it. If you borrow money to buy an asset that appreciates, this is good debt.This is crap. One reason is because it's very difficult to actually know whether an asset will appreciate or depreciate. For example, most investors who purchased subprime securities before the GFC wrongly assumed house prices only went up. As a result, borrowing money to buy an asset really only magnifies risk because, if the asset goes down, you lose more.
Another reason why this rule is crap is because it completely ignores the cost of borrowing, the cost of holding the asset, as well as whether the asset generates any income.
For example, suppose you borrow money from a loan shark at 20% in order to buy a house and assume that this house appreciates at 5% per year. You will actually be worse off than if you took out a car loan at 8% and purchased a car that depreciates at only 1% per year. In other words, if the cost of borrowing is so high, it doesn't really matter if the asset appreciates or not.
Some assets may appreciate over time but have extremely high costs. For example, suppose you purchased a run-down apartment that needs constant maintenance. As the landlord you need to fix the showers, clean the walls, replace the tiles, put more concrete on the driveway, and so forth. You may purchase an apartment that appreciates at a mere, say, 1% per year but if it costs you $1,000,000 per year to maintain this apartment, what is the point? These holding costs aren't necessarily in the form of fixing showers and tiles but may include council rates, land taxes, and other taxes or fees.
Another factor ignored when focusing only on asset price changes is the income-producing potential of the asset. If you take out a margin loan with your bank and borrow money at 8% to invest in shares of a company whose stock price depreciates at 1% per annum but it has a dividend yield of 10% then you are better off than someone who takes out a mortgage and borrows at 6% to invest in a house that appreciates at 3% per year and pays rental yield of only 3%.
In summary, if you borrow money to buy an asset, you need to look at a lot more than asset price changes. You need to look at everything that influences on costs and benefits. The idea that borrowing money to invest is a good idea simply because you expect the price of the asset to rise is thoroughly refuted in the examples above. Other things to consider include holding costs, costs of borrowing, and how much income the asset produces.
Chinese Buying Australian Farms
Read more: Sell the farm to buy a future as China's food bowl
There have been worries expressed at Chinese agricultural interests buying Australian farm land. The main issues with this seem to be the idea that the Chinese investor will use the land for Chinese interests rather than Australian interests. Many say that if a Chinese investor owns Australian land and grows food on it, it will export all its food back to China and leave nothing for Australians or it will export so much to China that food prices will rise.
The only thing I have to say to this argument is that it is already happening. It doesn't matter if the farmer is Chinese, Australian, American, or any other nationality. Investors only care about making more money and will export their products to wherever there is highest demand. Australian farmers and especially miners (e.g. BHP) already export significant amounts of agriculture and resources to the rest of the world, especially Asia. To think that simply changing the nationality of the investor will change anything is absurd. If Australians want to limit how much food is exported overseas, it can implement this by imposing trade restrictions on farmers, but this is highly unlikely as politicians should recognise that there are many benefits to farmers exporting their food overseas.
Patriotism is a tool that rich people use to ensure poor people are loyal and obedient to them. When patriotism is not profitable, rich people are quick to drop it. Farmers would love to tell Australians to support the local industry and buy Australian made food as they benefit from the higher demand. But farmers are very happy to start exporting the bulk of their food to other countries to maximise their profits rather than keep it all in Australia to lower prices for Australian consumers.
The same story unfolded in the Australian retail sector. Australian retailers will tell Australian consumers that they need to be patriotic and support Australian products. Of course they will say this because they are making money off the Australian consumer. But the Australian retailers like Harvey Norman, Myer, and so forth have nothing against importing cheap products from overseas, quadrupling prices, and then selling it to gullible Australian consumers.
There have been worries expressed at Chinese agricultural interests buying Australian farm land. The main issues with this seem to be the idea that the Chinese investor will use the land for Chinese interests rather than Australian interests. Many say that if a Chinese investor owns Australian land and grows food on it, it will export all its food back to China and leave nothing for Australians or it will export so much to China that food prices will rise.
The only thing I have to say to this argument is that it is already happening. It doesn't matter if the farmer is Chinese, Australian, American, or any other nationality. Investors only care about making more money and will export their products to wherever there is highest demand. Australian farmers and especially miners (e.g. BHP) already export significant amounts of agriculture and resources to the rest of the world, especially Asia. To think that simply changing the nationality of the investor will change anything is absurd. If Australians want to limit how much food is exported overseas, it can implement this by imposing trade restrictions on farmers, but this is highly unlikely as politicians should recognise that there are many benefits to farmers exporting their food overseas.
Patriotism is a tool that rich people use to ensure poor people are loyal and obedient to them. When patriotism is not profitable, rich people are quick to drop it. Farmers would love to tell Australians to support the local industry and buy Australian made food as they benefit from the higher demand. But farmers are very happy to start exporting the bulk of their food to other countries to maximise their profits rather than keep it all in Australia to lower prices for Australian consumers.
The same story unfolded in the Australian retail sector. Australian retailers will tell Australian consumers that they need to be patriotic and support Australian products. Of course they will say this because they are making money off the Australian consumer. But the Australian retailers like Harvey Norman, Myer, and so forth have nothing against importing cheap products from overseas, quadrupling prices, and then selling it to gullible Australian consumers.
24 July 2012
Similarities Between Economic Development and Prostitution
Rapid economic growth in Asia e.g. China seems to have occurred after these countries have opened themselves up to foreign trade and capital. This all seems to fit in with supply-side economics. Wikipedia defines supply-side economics as follows:
This theory is remarkably similar, in my opinion, to prostitution. In the market for sex, prostitutes work hard in order to make money from customers. In order for prostitutes to improve their standard of living, they have to implement policies that appeal to customers, e.g. they have to maintain their appearance. Similarly, supply-side economics suggests that workers and government, in order to improve their standards of living, must prostitute themselves to global businesses. In other words, the Chinese government and its people must reduce its wages so low and demand that its people work so hard so that a company like Nike will be interested in coming over, exploiting the Chinese workers, and paying them for it.
Hence, in order for countries to develop their economies, they must become better prostitutes. They have to undercut their fellow prostitutes and work harder and harder at providing better services to their customer, i.e. global business. In other words, they must become better prostitutes.
Update 25 July 12
I have been thinking about this issue a little more and have the following to add.
Many people argue that prohibition, whether it is prohibition of alcohol, sex, or gambling, doesn't work. When the US prohibited alcohol, what it found was that drinking alcohol went underground. Organised crime supplied the liquor and made enormous profits. By legalising alcohol, the US government was able to essentially destroy the criminal element in the liquor industry. In the Australian state of Victoria, liquor, gambling, and prostitution are legal but highly regulation. Premises that sell liquor must have a liquor license that it purchases from the state government. The same applies to prostitution. Under the Sex Worker Act in Victoria, there are laws about use of condoms and the frequency by which prostitutes must be tested for STDs. The main argument for tax and regulate versus prohibition is that demand for sex, alcohol, or gambling will never go away. It is better therefore for the government to regulate these industries to allow consenting adults to participate freely but to protect minors and other vulnerable members of the community. Tax and regulate also allows government to earn revenue by selling licences as opposed to all the proceeds of crime being siphoned off by mobsters.
In my opinion, the prostitution theory of economic development works the same way. In the same way that there is a large group of men who, due to their innate sexual desires, will always demand sex, so too there will also be a large group of wealthy people who, due to their innate greed, will always want to grow their wealth. The best way for wealthy people to grow their wealth is to invest.
Instead of prohibiting prostitution, it is better for government to harness the innate sexual desire of men for the benefit of society. By taxing and regulating prostitution, government can collect extra revenue and can allow prostitutes to earn a living and thereby improve levels of employment. In the same way, government, instead of prohibiting the greed of wealth men (i.e. turn to communism) the government can allow wealth men to indulge their greed and invest, start businesses, and employ workers. This allows the government to collect more revenue through various taxes, e.g. company tax, land tax, transaction taxes, etc. It also allows government to harness the greed of these wealthy people (or capitalists) to increase levels of employment. In the same way that men exploit prostitutes, capitalists exploit workers. The benefit of exploitation is that jobs are created. As one economist famously said, the misery of being exploited by a capitalist is nothing compared to the misery of not being exploited by a capitalist. In other words, we are all prostitutes. We sell our talents for money, but that is what puts food on the table and that is what drives global GDP and improves standards of living.
In the same way that government cannot control men's desire for sex, gambling, or liquor, so too government are nothing compared to the power of the international capitalist class. As a result of natural greed, corruption, and so forth, there will always be an elite group of people who control nearly all the wealth. Government do put up a fight, but the existence of tax havens and loopholes make this fight quite futile. The ruling capitalist class will always exist just as men will always desire sex. It is better then for government to accept this and do what it can to sell its people to the capitalists. In other words, if capitalists are like men who are willing to pay for sex, governments are pimps, and workers are prostitutes.
Prostitutes can go it alone and try to get business but there is danger in this. There can be beaten up by customers. If the prostitute has a pimp, the pimp will protect the prostitute but the prostitute must give a certain percentage of her earnings to the pimp. Government is no different. Workers are prostitutes but governments build roads, build utilities, and ports. They build these things to make country to more attractive to capitalists. In the same way, pimps or brothel owners will build buildings, provide condoms, and so forth. These are the essential infrastructure necessary to attract customers and facilitate trade. In the same way that prostitutes pay a proportion of their earnings to the pimp or brothel owner, so too the worker pays a proportion of his or her earning to the government in the form of taxation. In the same way that some pimps treat their prostitutes better than other pimps so too different government treat their citizens in different ways, from the cruel dictatorships to the benevolent dictatorships to the democracies and republics.
What is the take-home message from all this? Communism is prohibition and capitalism is prostitution. If we want higher standards or living economic progress, we must prostitute ourselves and allow ourselves to be exploited.
Supply-side economics is a school of macroeconomic thought that argues that economic growth can be most effectively created by lowering barriers for people to produce (supply) goods and services, such as lowering income tax and capital gains tax rates, and by allowing greater flexibility by reducing regulation. According to supply-side economics, consumers will then benefit from a greater supply of goods and services at lower prices. Typical policy recommendations of supply-side economists are lower marginal tax rates and less regulation.In other words, in order to foster economic growth, it is important that policies are implemented that meet the demands of businesses because ultimately, all wealth is created by business.
This theory is remarkably similar, in my opinion, to prostitution. In the market for sex, prostitutes work hard in order to make money from customers. In order for prostitutes to improve their standard of living, they have to implement policies that appeal to customers, e.g. they have to maintain their appearance. Similarly, supply-side economics suggests that workers and government, in order to improve their standards of living, must prostitute themselves to global businesses. In other words, the Chinese government and its people must reduce its wages so low and demand that its people work so hard so that a company like Nike will be interested in coming over, exploiting the Chinese workers, and paying them for it.
Hence, in order for countries to develop their economies, they must become better prostitutes. They have to undercut their fellow prostitutes and work harder and harder at providing better services to their customer, i.e. global business. In other words, they must become better prostitutes.
Update 25 July 12
I have been thinking about this issue a little more and have the following to add.
Many people argue that prohibition, whether it is prohibition of alcohol, sex, or gambling, doesn't work. When the US prohibited alcohol, what it found was that drinking alcohol went underground. Organised crime supplied the liquor and made enormous profits. By legalising alcohol, the US government was able to essentially destroy the criminal element in the liquor industry. In the Australian state of Victoria, liquor, gambling, and prostitution are legal but highly regulation. Premises that sell liquor must have a liquor license that it purchases from the state government. The same applies to prostitution. Under the Sex Worker Act in Victoria, there are laws about use of condoms and the frequency by which prostitutes must be tested for STDs. The main argument for tax and regulate versus prohibition is that demand for sex, alcohol, or gambling will never go away. It is better therefore for the government to regulate these industries to allow consenting adults to participate freely but to protect minors and other vulnerable members of the community. Tax and regulate also allows government to earn revenue by selling licences as opposed to all the proceeds of crime being siphoned off by mobsters.
In my opinion, the prostitution theory of economic development works the same way. In the same way that there is a large group of men who, due to their innate sexual desires, will always demand sex, so too there will also be a large group of wealthy people who, due to their innate greed, will always want to grow their wealth. The best way for wealthy people to grow their wealth is to invest.
Instead of prohibiting prostitution, it is better for government to harness the innate sexual desire of men for the benefit of society. By taxing and regulating prostitution, government can collect extra revenue and can allow prostitutes to earn a living and thereby improve levels of employment. In the same way, government, instead of prohibiting the greed of wealth men (i.e. turn to communism) the government can allow wealth men to indulge their greed and invest, start businesses, and employ workers. This allows the government to collect more revenue through various taxes, e.g. company tax, land tax, transaction taxes, etc. It also allows government to harness the greed of these wealthy people (or capitalists) to increase levels of employment. In the same way that men exploit prostitutes, capitalists exploit workers. The benefit of exploitation is that jobs are created. As one economist famously said, the misery of being exploited by a capitalist is nothing compared to the misery of not being exploited by a capitalist. In other words, we are all prostitutes. We sell our talents for money, but that is what puts food on the table and that is what drives global GDP and improves standards of living.
In the same way that government cannot control men's desire for sex, gambling, or liquor, so too government are nothing compared to the power of the international capitalist class. As a result of natural greed, corruption, and so forth, there will always be an elite group of people who control nearly all the wealth. Government do put up a fight, but the existence of tax havens and loopholes make this fight quite futile. The ruling capitalist class will always exist just as men will always desire sex. It is better then for government to accept this and do what it can to sell its people to the capitalists. In other words, if capitalists are like men who are willing to pay for sex, governments are pimps, and workers are prostitutes.
Prostitutes can go it alone and try to get business but there is danger in this. There can be beaten up by customers. If the prostitute has a pimp, the pimp will protect the prostitute but the prostitute must give a certain percentage of her earnings to the pimp. Government is no different. Workers are prostitutes but governments build roads, build utilities, and ports. They build these things to make country to more attractive to capitalists. In the same way, pimps or brothel owners will build buildings, provide condoms, and so forth. These are the essential infrastructure necessary to attract customers and facilitate trade. In the same way that prostitutes pay a proportion of their earnings to the pimp or brothel owner, so too the worker pays a proportion of his or her earning to the government in the form of taxation. In the same way that some pimps treat their prostitutes better than other pimps so too different government treat their citizens in different ways, from the cruel dictatorships to the benevolent dictatorships to the democracies and republics.
What is the take-home message from all this? Communism is prohibition and capitalism is prostitution. If we want higher standards or living economic progress, we must prostitute ourselves and allow ourselves to be exploited.
Holidaying Cheaper than Staying at Home?
I have started taking two weeks off from work. In a bid to save money, I have decided not to go on holidays. Rather, I will just stay at home. However, I am quickly finding that staying in Australia can be quite expensive and that perhaps a trip to Asia might have been cheaper.
I have only just started my two-week holiday, but already I have been invited by other people to eat out and watch movies. Watching a movie in Australia sets you back about $20. Eating out can vary between $15 to $30. I remember during one day I ate out during lunch and dinner and then watched a movie afterwards. I spent $70 that day.
Return tickets for flights from Australia to a country like Thailand or Cambodia can be purchased for around $500 to $800. The cost of living e.g. in Cambodia is significantly lower. Meals are only around $5 and you can sleep at a guest house for $10 a night. Of course, it all depends on what you do. I am starting to think that if I go to Asia, rent a cheap hotel, and then do what I normally do during a holiday (i.e. surf the Internet) then it might be cheaper to go to Asia.
Another benefit of going to Asia is that I can detach myself from my family and friends at home. When you take a holiday, you are looking not only for a change in scenery but also to get away from your annoying friends and family for a few weeks. I really ought to consider this next time.
I have only just started my two-week holiday, but already I have been invited by other people to eat out and watch movies. Watching a movie in Australia sets you back about $20. Eating out can vary between $15 to $30. I remember during one day I ate out during lunch and dinner and then watched a movie afterwards. I spent $70 that day.
Return tickets for flights from Australia to a country like Thailand or Cambodia can be purchased for around $500 to $800. The cost of living e.g. in Cambodia is significantly lower. Meals are only around $5 and you can sleep at a guest house for $10 a night. Of course, it all depends on what you do. I am starting to think that if I go to Asia, rent a cheap hotel, and then do what I normally do during a holiday (i.e. surf the Internet) then it might be cheaper to go to Asia.
Another benefit of going to Asia is that I can detach myself from my family and friends at home. When you take a holiday, you are looking not only for a change in scenery but also to get away from your annoying friends and family for a few weeks. I really ought to consider this next time.
21 July 2012
Recreation conformism
When you take a break from work (e.g. if you take a few weeks of annual leave or do something over the weekend) there is usually a set formula for what you should do. Young people are supposed to do something with their girlfriends or boyfriends. Older people should do something with their spouses, preferably go on a holiday to an exotic destination.
I don't do any of that. I am in my late twenties and I spent my free time doing things that are quite different to what most people do. For example, during my free time I like to read novels, write, or even do my tax return or spend time with family. Some people think there is something wrong with me, that I should be out with my girlfriend, but I don't have a girlfriend and automatically people think there is something wrong with me and that I should get one.
For a long time I have gone along with it, trying to please others by attempting to do normal things, but all of a sudden I have realized that I don't have to. I don't have to conform and no one can make me. I have to learn how to stand up for myself and tell other people that they cannot tell me what to do.
I don't do any of that. I am in my late twenties and I spent my free time doing things that are quite different to what most people do. For example, during my free time I like to read novels, write, or even do my tax return or spend time with family. Some people think there is something wrong with me, that I should be out with my girlfriend, but I don't have a girlfriend and automatically people think there is something wrong with me and that I should get one.
For a long time I have gone along with it, trying to please others by attempting to do normal things, but all of a sudden I have realized that I don't have to. I don't have to conform and no one can make me. I have to learn how to stand up for myself and tell other people that they cannot tell me what to do.
14 July 2012
Greenmax Yam and Mixed Cereal
It's great having breakfast, lunch, and dinner, but in between these meals there is always the need for something quick to tame hunger. Something quick that can fill me up include the following: coffee, tea, instant noodles, and Milo. The problem with coffee and tea is that they have caffeine, which is not good when you want to be able to fall asleep at night. Instant noodles have too much salt, which can lead to high blood pressure. Milo is essentially 60% sugar, so stay away if you want to avoid obesity, tooth decay, and diabetes.
I have recently discovered Greenmax Yam and Mixed Cereal. It can be prepared simply by mixing the powder in the satchel with hot water, and you have a very warm soupy beverage. It tastes very nice and fills you up. According to the nutrition information, it is high in fibre and low in salt and sugar. It is an excellent beverage if you are feeling hungry but aren't willing to spend a long time cooking a full meal. It is healthy, tasty, filling, and convenient.
I have recently discovered Greenmax Yam and Mixed Cereal. It can be prepared simply by mixing the powder in the satchel with hot water, and you have a very warm soupy beverage. It tastes very nice and fills you up. According to the nutrition information, it is high in fibre and low in salt and sugar. It is an excellent beverage if you are feeling hungry but aren't willing to spend a long time cooking a full meal. It is healthy, tasty, filling, and convenient.
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