How can we mitigate the potential for a double dip recession?

[Ironwood]

ROL, and Cedarman,

Good points


Ironwood

[SwampDonkey]

Yes, when you borrow to invest in your business you can get tax credits for 1) consumptive tax to buy it, 2) annual capital cost allowance credit as it depreciates (usually 30%), 3)credit on the interest accrued annually to make the purchase.   8)

[AvT]

I also agree with the concept of borrowing for business.  I used to borrow up to half the cost of a machine for business purposes.  That way it was easy to make the payments and left some room for surprises or economic downturns and there were many surprises and downturns in the business I was in.  For me a house was a personal expense that didn't justify borrowing.  My first house was a dumpy trailer I bought for 13,000 cash that we lived in for 8 years.  It took me that long to save up 100G to build a decent house.  Of course a decent shop came first.  Maybe that is why my ex dumped me as soon as the house was done.  She was a good "housekeeper".  I didn't have enough cash after that to buy another house so I did have to borrow about 30% of the required funds for the next house and paid it off in five years.  Mom carried the mortgage.... she wanted to move to town anyway so it worked out quite well.  The house needed many major repairs but managed to get it done with cash.

[northwoods1]

" How can we mitigate the potential for a double dip recession? "

It is interesting to read all of what the members here have been saying, as always.

But my honest opinion is that we can not do anything to prevent the economic hardship that is very most likely coming. And NO, I do not consider myself to be a pessimist, or an optimist really, I  just try to be realistic. If you look at what had happened since WWII and the U.S. coming off the gold standard, it has allowed the government to just simply keep printing new currency in an attempt to stimulate the economy. This works... along with monitoring, raising and lowering interest rates so people can continue to borrow... I am afraid this is not a solution, this tactic has just allowed us to grow to the point where we are now. It can't continue forever though... look at the rest of the world... that is the standard by which we need to judge our own situation.

I laugh at the idea that we have it hard now and that economic times are tough. Hope for the best but prepare for the worst that is what I have decided to do.

We here in the United States have had a wonderful existence for quite a while now and it is primarily because we have been allowed to grow and thrive which has been mostly a result of the fact that we had a new continent to exploit and settle.

And then WWII happened... Europe was decimated... allowing us and the U.S. $$$ to take over the world. Now the dollar is weakening...

I would look at the changes that are coming as not being a "double dip recession" but it is going to be economic reality hitting us full force. No more trade deficits for the U.S. , we will have to begin building up our manufacturing base here once again.  the one that has been destroyed in the last few decades by companies like Walmart who are in it just to make a $$ for themselves but seem to not mind at all the fact that they are destroying the fabric of this country so they can benefit from it themselves. They are benefiting as is China... The Chinese are COMMUNIST. I would rather be poor... then have to follow that example... poor and FREE of that kind of governmental control.  Double dip recession? yah, uh huh, it will and HAS to happen. For the long term stability and economic independence of the country it has to happen. The kind of economic growth that this country has experienced in the last century can not continue forever. The U.S. government can not just simply keep printing new money which is what it has been doing since we came of the gold standard.
Americans will have to work harder and get by with a lower standard of living. The good thing is we are capable of that! And even better, it does not mean we can not be happier as a society and feel positive about the future. To the contrary in fact I believe. The tougher times are... the more people there are able to rise to the challenge and show the better qualities of human nature. The ability to adapt to the changing world situation is that will carry us through.

Go outside on a clear night and look up at the stars. Does it make you feel insignificant? Goood!

[Busy Beaver Lumber]

cedarman

Perhaps I should clarify my statement about not borrowing money to start or grow the business and instead finance it from earnings.

In the example you give of spending 500K on a shredder, in your situation I can certainly see why you would opt to do so. I have been to your website, read your posts, and even talked to you on the phone. You are well established in this industry with two locations, plenty of customers, and with a very well defined and developed niche market for cedar. You sell both domestic and internationally in weekly volumes that others do not achieve in an entire year.

Your investment in a piece of equipment like that shredder, even if you had to finance it, would appear to be a wise one given the volume of mulch you sell and a well established customer base, plus the fact that people prefer cedar mulch above all the other alternatives. Couple that with the fact that you know the cedar business and market better than anyone else and have a good track record of strong income, and it would appear to be a very logical move on your part.

My comment is more aimed at the part time or newby sawyers, or for that matter anyone that is contemplating starting a new business or attempting to make a small one grow in these uncertain economic times. I do not believe it is wise to mortgage your house to start a business. If the business fails you loose it and your house. I am always worried when I see people do this and unfortunately know quite a few people that wound up in bankruptcy doing just that when the business of their dreams failed and became their worst nightmare instead.

Reading the posts on this forum, I read a lot of them where people lost a job or were down on their luck and thought they would get into sawing because they thought they would make a fortune in it. Most of them have very little, if any sort of a viable business plan in mind. They don't know where to get logs or who to sell the lumber to and have even less of a clue about what expenses come along with running a business. As many can tell them, this business is just not that easy to make a profit in, never mind one large enough to replace a full time job unless you really know what you are doing and have thought it through. And the margins can be slim. There are people that post on here that they did over $370,000 in business one year and then they can not afford to buy enough logs to keep them going the next year.

I would say to anyone thinking about getting into this business, think of the sawmill business like going to the casino and never gamble with money you cant afford to lose just in case things don't go the way you thought they would. If on the other hand you do well, you will feel like you hit a jackpot on a slot machine and walk away happy.

[red oaks lumber]

heres the other take on borrowing money. if you take your cash and start a business(sawing) buying a new mill and some other stuff($40,000)  maybe a year later things aren't really panning out, ok your losing your mule.  with the poor economy equipment isn't selling for nearly what you have invested maybe you sell it all for $25,000 youv'e lost $15,000 of your own cash. had you borrowed the money you would stillhave cash reaserves to float the business along till better times and worst case  let the stuff go back to the bank and you still have your cash.

[LOGDOG]

Are any of you paying attention to the Debt Ceiling for the USA right now? Take a look at the links below. Steer clear of bonds for a while.

http://www.usdebtclock.org

http://money.cnn.com/2011/04/04/news/economy/debt_ceiling_deadline/index.htm

http://money.cnn.com/2011/03/31/news/economy/debt_ceiling_debate/index.htm?iid=EL

...and although it's dire, you need to take an hour or so and listen to this video:

www.endofamerica14.com

....if it wasn't full of so many facts I would discount it entirely but we can't ignore what we're actually seeing.

[Lucas P]

Hello,
I work for a company that manufactures forestry equipment and we are trying to better understand our customers. One question that arose while I was reading this forum was "how long does it take to get paid by the mill after you deliver the wood?" If you guys/girls could answer that I would really appreciate.
I personally believe in savings is prosperity. Spending money to generate jobs is nothing but waste. If we save money instead of spend, we could once again be creditors of the world instead of debtors.
Thanks,
Lucas P

[Cedarman]

We pay on Friday for all wood brought in through Thursday.

[LOGDOG]

Ironically "increased savings" is a bearish indicator and a signal to most economists of an economic slowdown. It indicates fear. People stop spending because they're worried about tomorrow. When they stop spending that means that businesses see a decline in overall sales which means fewer good and services are being sold which means the companies behind them won't have the same amount of profits they would have if people were spending. Stocks are profit driven. So are dividends. So in the absence of profits in publicly traded companies there's nothing to attract investors to invest in those stocks. Where there's no demand for a stock the price falls. If you have a retirement plan and stock prices are falling that's not good.

I know what you're saying. One would think that saving and being fiscally responsible would be good. Ironically, if we all saved more than we spent, the United States stock market would tank. It's built on a weak dollar. If you have any doubt about this fact, chart the dollar swings against market inclines and declines. It speaks for itself. Increased savings and a reduced amount of debt would most certainly strengthen the dollar. Unfortunately, that would be bittersweet. One other negative effect of a strong dollar is that it negatively impacts our ability to export goods. When our dollar is strong, it usually means that the other countries currency has weakened. This means they can't buy as much of our goods as they could before when the dollar was weak.

It's a tangled web. On an individual basis, I can't blame anyone for saying "to heck with all that I'm saving my money". But the above are some of the factors to consider regarding increased savings.

Lucas ... you may want to start a dedicated thread asking about when and how people are paid in the Sawmill topics or the General topics or even the Business Management thread. It might get more exposure. Welcome to the Forum.

[Brucer]

... One question that arose while I was reading this forum was "how long does it take to get paid by the mill after you deliver the wood?" ...

I put the cheque in the mail the morning after I receive the invoice.

[Kansas]

If its a logger I trust, they can get paid when they deliver, or in some cases, after they have it logged out and ready to pick up. The reason I say loggers I trust is that I'm terrible about getting logs measured up. The loggers tend to  measure a few less board foot than I would have. (I'm not saying I haven't occasionally spot checked their measuring). Someone else delivering I measure and pay right there, unless its walnut. I have a walnut buyer come through once every week or two to do that.

[Handy Andy]

   IMHO, think you guys should be careful about borrowing, as this low interest policy can not last.  The govment borrowing all the money available in the world, plus all they can print can not last.  If the fed was honest, rates would be 30%. So things will change, and banks have a nasty habit of upping your rates.  Happened in the 80's, and hurt a lot of guys when rates hit 19%, and this time it could be worse.  Yesterday I heard the feds are going to spend the federal employees retirement fund.  They've already spent about everything else.  What happens next?

[SwampDonkey]

If that's the case, how long will it take to use the politicians pensions?  :

[LOGDOG]

I think Tim Geithner said he can run things until August 2nd by dipping into the pension fund. But by then they need to have the debt ceiling raised otherwise the defaults will start. What's borrowed from the pension fund has to be made whole again ....with borrowed money of course.  :

As to borrowing now .... well, it's a good time, and has been a good time to re-finance debt at substantially lower rates than a person may have had coming into this period. If you have to borrow, just make sure the rate is fixed and not variable because Andy is right, rates have one way to go and that's up.... although I don't see it happening to any large degree anytime in the next 2 years. Especially with the election coming. That would mean death to the economy at this point still.

[red oaks lumber]

if i made enough money to save for 150-$200,000 equipment purchases. i would work till i had saved 1/2 mil then i would sell every thing and retire. seems to be a better plan than continuing to work. :D

[SwampDonkey]

Better head to Peru or Costa Rica, because the half Mill won't last you long. It costs you every day to live unless your up in the mountains heating with wood you cut by buck saw to eat deer meat you got by arrow and wild roots you dug by hand and use whale oil in the lamp. ;)

[LOGDOG]

Yep. I used to think that $500K was a lot of money. Then I became a Financial Planner. When a person starts looking at how much income $500K spins off at guaranteed fixed rates, it's not much. 3% = $15,000.00/yr. 4% = $20,000.00 etc. This is why a low interest rate environment like we're in actually hurts a lot of retirees. They see a substantial drop in income because a lot of them invest in cd's. Fixed annuities are slightly higher. Granted, many of them may have one or two SSI checks coming each month and perhaps a pension "maybe". But when all that doesn't cover it and you start to go into the principal of your nest egg, that means next year your nest egg doesn't have the same earning potential because now maybe you only have $490K instead of $500K.

At our age though, it's true ... we can take $500K and invest it in logs, or land, or rental property, etc. and perhaps do better than the fixed rates mentioned above. The luxury we have is time. If we mess up and lose it all, we have time to go back to work and build up our stash again. Once you hit retirement age though, you start steering clear of risk because you just don't have the same amount of time to recover from a downturn.

[red oaks lumber]

your standard of living must be real high if 1/2 mil won't go very far! if your stuff is paid for your cost of living should be fairly low
far as my earlier statment about 1/2 mil to retire it was for conversation purposes only.
your example of investing your 1/2 mil and living on the interset only my question is why only live on the interst? isn't the whole idea of having a retirement is to live on that money not just the interest?   

[Sprucegum]

If you are going to live on that money you better predict pretty acurately how long you are going to live.

[LOGDOG]

I understand it was for conversational purposes only r.o.l. ....

Here's the thing, during retirement, people's savings becomes their "business" if you will. They're dependent on whatever their savings will earn to complement their Social Security Income, Pensions, etc. ....Now actually living off the money is something that we refer to as annuitizing the money. That's where you use both principal and interest each year, and each year you erode the overall pool of money until at some point you have none left. This would be fine, if you knew "when" you were going to die as Sprucegum points out. Most of us don't know when that'll be.

As far as standard of living goes ... you have to remember that for most people their needs change as they enter their retirement years. They may have to pay for a Medicare Supplement policy, maybe Long Term Care Insurance in the event that they need nursing home,assisted living, or home health care for an extended period of time. They may have life insurance premiums to pay. They still have property taxes to pay. They still probably pay something in the way of income taxes. They still have insurance premiums to pay on their home and belongings. Food, clothing, maintenance on home. Etc, etc... Just because you retire, it doesn't mean the world stops and now you don't have these expenses. Actually, you probably have near the same expenses, short of debt that you may have had when you were younger, but everything else continues and then some usually (plus add inflation), but now you don't get up and go to work everyday to get a paycheck each week. You're dependent on what you've saved and whatever streams of retirement income you've accumulated along the way. Throw this in the mix ... husband and wife are 65, one needs to go into the nursing home unexpectedly for an extended period of 5 or 6 years at $4000.00/month to say $6000.00/month and they don't have insurance for it. Now that money, in addition to everything else is coming out of the couples nest egg. That's an additional $48,000.00 to $72,000.00 a year. That would eat away at $500,000.00 super quick. The other part of the equation is that often times, when one spouse dies, the other doesn't get to keep collecting both retirement checks. Social Security is that way. Most women end up dropping their check when their husband dies and taking over their husbands, "usually" because it's higher than theirs. If you're the husband in this case, then you lose your wife's SSI check. Also some pensions don't have Survivor payout options or if they do, many people don't elect them because they stand to get a higher payout while they're alive vs. a smaller payout while alive with say 50% of the smaller payout continuing on to their spouse when they die.

It's good to think about these things when you're our age and then plan for them. We've got our Life Insurance bought already and our Long Term Care insurance bought already because we don't have children. This hopefully will prevent some of the unforeseen occurrences from eating into our nest egg. If only we had a crystal ball right?

[SwampDonkey]

if your stuff is paid for your cost of living should be fairly low

Stuff's never paid for, cars wear out, you need to heat the house, repairs to the house, fix this fix that, taxes, insurances, most folks have to buy food, even if it's home raised it all costs, service fees for this or that. I figured it out once for here, I'd need a minimum of $1200 to live if you make a car payment and own your land and buildings outright. And if you want something extra or have an emergency where cash is needed for a repair, add that onto the $1200. And you will never gain ground on the $1200, most likely go behind over the long haul.

You won't even get 4% with a 5 year term GIC (Guaranteed Income Certificate) at any bank here.

Paid for? :D

[Handy Andy]

  Seems to me you have to rent your property from the govment and the insurance company.  Expenses are high.  Half a million is chicken feed. If you own it.  If you owe it, it's huge.

[pigman]

$1200 to live if you make a car payment

Car payment! I have never made more than one vehicle payment. If I don't have the cash I don't buy. I am so poor that no way could I pay banks to lend me money for personal things. I have borrowed to increase production, but never for personal things. I have always had such a low income that I couldn't afford to give my money away. It is supprising how cheap a family can live if they have not already spent their money on things they don't need by financing everything they want.

[SwampDonkey]

Interest rates for vehicle financing are low. Most will finance a vehicle even if they have lots of money. Financed or not it still costs money at some point: purchase, license, insurance, fixing, gas, tires............. never ends. ;D Of course you could buy a clinker for $1500 or less and spend $$ to keep it going until it finally calves and do it all over again with the next one. Just the basic insurance on an older car is at least $600/yr, not full coverage. And if your under 30, and male, about $1800 even with no bad record. : If you want to go to work, usually you need a vehicle, therefore it's not a want. That being said, if I were a city dweller I would never buy a car. ;) Use the transit system. Otherwise it becomes a want to own a car in the city because you "want" freedom of mobility. You don't really need it. ;D