View Full Version : Road to Ruin: Final stretch - Eric Janszen
http://www.itulip.com/images/roadtoruin.jpg Road to Ruin: Final stretch
A bull market in chaos
by Eric Janszen (February 23, 2009)
The credit crunch may only be in its early stages and a bigger contraction in lending in coming months could have "serious implications" for the U.S. economy, Standard & Poor's Rating Services said Friday.
While politicians and others have complained that banks aren't lending, the data on credit outstanding credit in the U.S. only tenuously supports this idea, the rating agency said.
"What's behind the apparent difference between perception and reality?" Standard & Poor's credit analyst Tanya Azarchs said. "It may be that, while growth in overall credit was positive through at least third-quarter 2008, it has risen at a slower pace than at any time since 1945 -- far below the 8%-10% rate in most years."
Banks are replacing loans as they mature, but there's little net new loan growth, she noted. "That could mean that the slowdown in lending is just an opening act, and a true credit crunch may yet take the stage," Azarchs warned. - Credit crunch may only have just begun, S&P warns, MarketWatch, February 21, 2009 (http://rs6.net/tn.jsp?t=aqlbiycab.0.0.m9jgptbab.0&ts=S0370&p=http%3A%2F%2Fwww.marketwatch.com%2FNews%2FStory% 2FStory.aspx%3Fguid%3D%7B4F0DA616-A789-49A7-9EFE-A65C5A0986F9%7D)
Renowned investor George Soros said on Friday the world financial system has effectively disintegrated, adding that there is yet no prospect of a near-term resolution to the crisis.
Soros said the turbulence is actually more severe than during the Great Depression, comparing the current situation to the demise of the Soviet Union. - Soros sees no bottom for world financial collapse, Reuters, February 21, 2009 (http://rs6.net/tn.jsp?t=aqlbiycab.0.0.m9jgptbab.0&ts=S0370&p=http%3A%2F%2Fuk.reuters.com%2Farticle%2Fbusiness News%2FidUKTRE51K0AV20090221)
"One year ago, we would have said things were tough in the United States, but the rest of the world was holding up," Volcker told a conference featuring Nobel laureates, economists and investors at Columbia University in New York. "The rest of the world has not held up."
In fact, the 81-year-old former chairman of the Federal Reserve said, "I don't remember any time, maybe even the Great Depression, when things went down quite so fast."
"It's broken down in the face of almost all expectation and prediction," he noted. - Volcker sees crisis leading to global regulation, AP, February 20, 2009 (http://rs6.net/tn.jsp?t=aqlbiycab.0.0.m9jgptbab.0&ts=S0370&p=http%3A%2F%2Fwww.google.com%2Fhostednews%2Fap%2F article%2FALeqM5hm7dNzE_tRw1El5sdgxuRbnEHEowD96FJP N00)
The method to our madness -- negative on stocks since we opened in 1998 and positive on gold since 2001 -- becomes painfully apparent.
The DJIA closed Friday at 7,367, a level first seen in May 1997 in nominal terms. Adjusted for inflation, 7,367 shares of the DOW today buys only that which 5,600 shares bought in 1997; in real terms, the stock market got kicked back to1996. As dreadful as those facts are, they could be worse - and current course and speed maintained -- they will.
The Nikkei closed Friday at 7,416, off 81% from Japan's stock market bubble peak of 38,916 on December 29, 1989 -- nineteen years ago -- as Japan's credit, stock, and real estate bubbles ended and an era of debt deflation set in. Collapsing US credit, stock, and real estate bubbles confronted the US with a similar fate starting in 2007. Marking the top of the US stock market bubble at 14,165 on October 9, 2007, if the US debt deflation era goes as badly as Japan's -- is as badly managed -- we can look forward to the DOW closing at 2,700... in the year 2026.
Imagine that.
As iTulip readers who have been us from the start know, we do not believe that will happen. Instead, as we have said for ten years, the US will never pay down all the foreign debt taken on during the FIRE Economy era, from 1980 to 2006, at least not on full-value dollars. America 2008 is not Japan 1990.
Since 1992 Japanese policy makers transferred debt from private to public account via bailouts and fiscal stimulus, siphoning off cash flow from households and businesses to repay the loans carried on the books of banks as assets on the side of the creditor-debtor balance sheet where the political power lives, collateralized by buildings, houses, and land, which prices were inflated by the very credit that created in the onerous debts that became ever more so as the Japanese economy shrank.
Banks and other creditors convince government to pursue policies to deflate the debt against the incomes of households and productive businesses, reducing the debt the slow painful way, dragging the country deeper and deeper into a hole.
The Obama administration's stimulus plan does not target spending on infrastructure projects that boost long term US economic growth and competitiveness as much as we had hoped; and it fails to confront the core problem, the need to restructure both private sector and public debt left over by the FIRE Economy (http://www.fireeconomy.com/).
Debt Deflation Continuation Plan
So far, one year into debt deflation, the US is executing a Japan credit bust style Debt Deflation Continuation Plan; as if the US, with its gross external debt of 95% of GDP, and current account deficit that grew from 5% to 7% of GDP in recent years, financed by nearly $4 billion dollars per day in capital imports, is in the same trade and savings position as Japan in 1991, without external debt and running a large current account surplus as the world's largest exporter of capital. The magical thinking that underpins US policies extends the core fantasy that formed the foundation of the FIRE Economy itself: an economy can grow continuously by taking on ever more debt.
The US may be starting down the path of deflating debt against the incomes of its hard working citizens and non-financial business sectors, but the situation is temporary. After more than 30 years the US is in the final stretch on the road to ruin that stated in 1971 when the US left the international gold standard and developed into the FIRE Economy in the early 1980s.
Long before 19 years pass as they have painfully for Japan, US creditors will address the heart of the matter, that as markets deflate asset prices in the US -- housing prices have only lost half their bubble era gains -- the debts taken out against them must deflate as much as well. So far, mortgage relief programs are not aimed at reducing principal but the size of interest payments on excessive debt. If principal on debts is not reduced by negotiated debt restructuring, the markets will eventually deflate the debt against the monetary unit of the debt, the US dollar.
False Dawn
But wait, you say, back up. Is there not a silver lining in the US economic contraction? Isn't the personal savings rate finally rising, laying the foundation for the next economic expansion?
Sadly, no. Incomes fall during economic contractions generally as debt repayment rises, creating a statistical increase in saving because debt repayment is reported as saving. But in a post-bubble world it is not the kind of saving that winds up in bank accounts to be spent later in consumption. What we are seeing today that looks like saving for future consumption is in fact the debt left over from the FIRE Economy sucking the life out of the US economy.
Similar policies, combined with the demographics of an aging population, led to a continuous decline in personal savings in Japan since 1992, two years after the end of the assets bubbles ended that started in 1985. Not coincidentally, the savings rate in Japan peaked at the same time. Why? During a period of asset price inflation, households stop saving and take on debt. After the asset price inflation ends the savings rate then increases for a year or so as debt is repaid.
Asset price inflations and deflations exert a perverse effect and saving. First the pool of savings to be spent on future consumption shrinks during the period of asset inflation because households are fooled into believing that asset price inflation is wealth creation, that inflating stock and home prices are doing the saving for them. Income is spent on current consumption. After the bubble pops and the fake wealth is wiped out, briefly the savings rate rises as post bubble recession has not yet expressed itself as rising unemployment and incomes have not yet begun to decline. About a year later then the pool of savings starts to shrink again as unemployment rises, incomes decline, and a greater proportion of income is goes to paying off debts taken on during the boom.
Savings declines.
Collision Course
The duplication by the current administration of Japan's misguided policy to use public and private funds to pay down debt taken on during a credit bubble era is self limiting in the US case in a way it was not for Japan; as long as the debt repayment versus restructuring is pursued, and the banking system is left in its current state of disrepair, the US economy will continue to rapidly decline. (See: How a government that is politically independent from its financial sector swiftly ends a banking crisis (http://rs6.net/tn.jsp?t=aqlbiycab.0.0.m9jgptbab.0&ts=S0370&p=http%3A%2F%2Fwww.norges-bank.no%2Ftemplates%2Farticle____13822.aspx).)
By our estimates, due to the combined impact of the crushing weight of debt burdens created by the FIRE Economy and maintained by the current Debt Deflation Continuation Plan and absent an immediate and effective, politically independent response to the banking crisis, leading to an intensification of the credit crisis as S&P predicts, real GDP will fall 4% in 2009 and 4% again in 2010. This despite the fiscal stimulus, estimated by Adam Posen of the Peterson Institute for International Economics at $1.5 trillion when TARP and other programs are taken into account. If federal government spending continues to increase outlays at the current rate of more than 10% of 2007 GDP per year, and federal government receipts continue decline at a 7.5% annual rate in 2009 and 2010 as in 2008, the fiscal deficit as a percent of real GDP will certainly exceed 10% in 2010, and the current account deficit on a balance of payments basis rise above 10% percent, even as imports fall as previously prodigious capital exporters in the Middle East and Asia suffer current account deficits of their own.
If and when its fiscal deficit reaches third world levels, will the US -- with its massive current account deficit financed by the public sector and daily dependence on capital inflows to maintain a balance of payments - finally suffer a balance of payments crisis, rapid currency depreciation, rapidly rising cost-push inflation, and rising interest rates? What we at iTulip.com refer to as a "Poom" portion of a Ka-Poom Theory?
It could happen this year. In fact, it may be happening now.
When the Russian government found itself unable to pay the interest on its foreign debt in August 1998, nor able to borrow more money in the international financial markets, nor increase taxes on its imploding economy, nor locate private capital inside Russia willing to lend it money, it suffered a balance of payments crisis. The result was capital flight, a ruble crash, and a spike of cost-push inflation.
http://www.itulip.com/images/russiainflation1995-2000.gif
In theory, this can't happen to the US, or so we are told. If the US experiences a balance of payments crisis capital has no place to flee to from the US.
The US enjoys the world's least badly managed government.
The US issues the world's reserve currency.
The US is the model of political stability.
The dollar has persisted for over a century without having ever been recalled, unlike any other currency in existence today.
But these arguments ignore two facts.
First, historically it is the very absence of previous experience with either a severe inflation or deflation that lulls policy makers into over-stepping the bounds of market tolerances. Japan, its currency and its people's savings once wiped out by hyperinflation pursues inflation phobic policies that leave the nation vulnerable to deflation while the US, once gripped by a deflation spiral in the 1930s, pursues reckless anti-deflation policies that expose the country to a horrific hyperinflationary outcome (See Hyperinflation case revisited - Part One: On the road to hyperinflation. Will we complete the trip? (http://rs6.net/tn.jsp?t=aqlbiycab.0.0.m9jgptbab.0&ts=S0370&p=http%3A%2F%2Fwww.itulip.com%2Fforums%2Fshowthrea d.php%3Fp%3D77759%23post77759)).
Second, the dollar is not the only option for capital flight from economies doing even more poorly than the US as the collapsing FIRE Economy spreads economic hardship around the world. Money has been fleeing into hard assets the in the manner of capital flight by insiders from a third world country before a balance of payments induced currency crash (See US exchange rate and capital controls or bust? (http://rs6.net/tn.jsp?t=aqlbiycab.0.0.m9jgptbab.0&ts=S0370&p=http%3A%2F%2Fwww.itulip.com%2Fforums%2Fshowthrea d.php%3Fp%3D49722%23post49722)).
Most observers do not see the recent rise in the price of gold (and silver as well) in this context because gold has been a cult for so long that even the gold cultists don't understand what has changed. They see the current price rise as a part of a bull market that started in 2001, but we side with Soros on this, and Volcker: we are witnessing a global systemic breakup, the end of the road we got onto in 1971. We passed the last exit in 2001, the last chance to adopt a strategy to shift to a production and savings based economy through a series of steps negotiated with trade partners. Instead we increased the debt further through a property bubble financed with fraudulent structure credit products. The road ends when the US cannot finance its debts. The end of the road is near.
Bull market in chaos: Is a US balance of payments crisis imminent?
Your sensible source for apocalyptic predictions (http://rs6.net/tn.jsp?t=aqlbiycab.0.0.m9jgptbab.0&ts=S0370&p=http%3A%2F%2Fwww.metafilter.com%2F50070%2FYour-sensible-source-for-apocalyptic-predictions)
March 15, 2006 (Metafilter)
iTulip.com has returned. Back in the go-go days when Internet stocks ruled the world, iTulip was one of a very few voices warning about the NASDAQ bubble and the likely fallout. As bad as things got, the overall financial bubble never really popped, it just shifted into debt and real estate after furious slashing of interest rates and money-printing by the Fed. Financial manias are terrible; their unraveling has been compared with economic nuclear weapons. The only good solution to a bubble is not to have one in the first place.
When we re-opened in March 2006, we observed in an article on Credit Risk Pollution (http://rs6.net/tn.jsp?t=aqlbiycab.0.0.m9jgptbab.0&ts=S0370&p=http%3A%2F%2Fwww.itulip.com%2Friskpollution.htm) in 2006 that structured credit was an accident waiting to happen to the global financial system, and the Frankenstein Economy - the result of a breakdown in accountability between borrower and creditor -- was an accident waiting to happen to the US banking industry. Now the greatest accident of all that has been waiting to happen, and is coming upon us with the same grim predictability as the other crises forecast here over the years but astonishing speed: US dependence on capital inflows to maintain its balance of payments, which inflows depend outflows by US creditors, which outflows depend on now rapidly shrinking output.
Japan, for example, experienced its first ever trade deficits over the past five months as the yen-carry trade reversed, spiking the yen, and exports declined due to a collapse in US demand and a strengthening currency. China has been taking up the slack. When China can no longer cover US capital import needs, it's all over but the crying.
The mother of all accidents waiting to happen
http://www.itulip.com/images/exportcapital.gif
http://www.itulip.com/images/importcapital.gif
Source: IMF
The nearing of a US balance of payments crisis point is, in our view, why gold crossed the $1,000 mark again Friday to close at $994 while stocks closed at 12 year real lows.
We edge ever closer to our 2:1 DOW/Gold ratio target of 5,000 for the DOW and $2,500 for gold. The DOW/Gold ratio declined from 15.34 in September 2008 to 7.65 on Friday, 50% in five months. The previous 50% drop took five years.
Our positions in Treasury bonds and gold have served us well for over a decade. A buy-and-hold 85% position in 10 year Treasuries since 1998 combined with a15% gold position since 2001 has returned north of 7% a year. However, after ten years we are growing increasingly uneasy with our Treasury bond position.
Our concern about Treasury bonds is not technical. Our long-term targets remain at $2,500 for gold and 5,000 for the DOW as they have for years. Our new concern is that we are not be taking the forecast far enough, fast enough.
Think back three years to the time iTulip re-opened. We made correct calls on gold, stocks, and Treasury bonds, the collapse of structured credit and the credit-dependent financed-based economy, the decline in the Fed Funds rate to zero, the bailout Superfund (aka TARP), unemployment exceeding 10% in 2009, and later forecast infrastructure and energy related fiscal stimulus spending. But consider how much else has happened, and how much more quickly, than even our dire forecasts predicted?
Think back to March 2006 and imagine we had also forecast the following:
Fannie Mae and Freddie Mac nationalized
Lehman Brothers and other major Wall Street investment banks bankrupt
US automakers facing bankruptcy
Major US banks facing nationalization
Collapse of Iceland's and Latvia's economies and governments
Japanese output declines more than 25% in five months
If you look back over the dozens of articles and newsletters published by us years before this crisis, warning you about it, you will find that they describe events developing more slowly and less dire than the actual events that transpired with astonishing speed. In short, while we have been accused of making overly apocalyptic forecasts we were, in the event, overly optimistic. What if we still are?
Extrapolate and recalibrate: Accelerating to the end of the road
We are getting a 1930 to 1933 financial system and debt deflation collapse but in Internet time. The Internet that operated so efficiently for ultra efficient transmission of pricing information and execution of transactions is accelerating the financial and economic crisis process far more quickly than governments can respond to it. A 20th century international regulatory and trade institutional framework is no match for 21st century computer networked financial markets. No administration can correct 30 years of errors in a few months. Unfortunately, a few months is all we have because of the accelerated rate of change we are experiencing.
History teaches us that adjustments to imbalances can be sudden and brutal, and we think it imprudent to bet that the mother of all international payments imbalances -- between the US and the rest of the world -- will be the exception.
The rise of gold from $260 to $700 in six years followed by an increase from $700 to $1000 in two years may be quickly followed by a rise from $1,000 to $5,000 in just a few months.
In other words, our forecast of gold at $2,500 and the DOW at 5,000 may be as prosaic as our other seemingly dire forecasts because our perception of the rate of change and extent of the financial system, economic, and political crisis has been too optimistic.
Our primary concern at this stage is no longer our readers' portfolios but their ability to weather a US dollar crisis if one erupts. In response, we are increasing our gold allocation to 30% and moving all Treasury holdings to the very shortest maturities, to three month Treasury bills, until we see indications that conditions are stabilizing. We encourage you to engage with the community to actively discuss strategies that are appropriate for you.
(Image top: Once prosperous Gary, Indiana. Video below: Paul Volcker.)
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iTulip Select (http://www.itulip.com/forums/showthread.php?t=1032): The Investment Thesis for the Next Cycle™
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Chomsky
02-23-09, 04:55 PM
Gukp. I'm buying some whiskey tonight.
Most observers do not see the recent rise in the price of gold (and silver as well) in this context because gold as been a cult for so long that even the gold cultists don't understand what has changed.
In fairness, one of the grand-daddies of goldbugs, Jim Sinclair, has been on this theme for a long time now, calling for Gold to cross 1650 and the USD .5100 by January 2011.
Lately he too has been wondering if his time and value estimates are on the conservative side.
a warren
02-23-09, 05:58 PM
Presumably the imminent USD collapse will put the price up of goods that are traded in USD. So the USD collapse will be inflationary across all countries, not just the US.
stevenkatz
02-23-09, 06:16 PM
Any advice on what we shoold do with our TIP bonds and are ETF gold funds safe ?
dbarberic
02-23-09, 06:21 PM
Gulp... great way to start Monday.
Chris Coles
02-23-09, 06:38 PM
Personally I am convinced that the United Kingdom, (Sorry, Iceland on Thames), will lead and in so doing, will light the road ahead. Every bad move made in DC has been matched by the same tactics here. But we are in a far far worse state.
...and the current account deficit on a balance of payments basis rise above 10% percent, even as imports fall as previously prodigious capital exporters in the Middle East and Asia suffer current account deficits of their own.
the whole world can't have simultaneous current account deficits unless we are importing from mars. so which countries would have surpluses?
the world can do without chinese manufactured goods, but it can't do without energy and food. it seems to me that energy exporters, and possibly food exporters, would still have surpluses.
comment #2. [#1 immediately above] i question the hypothesized balance of payments crisis. u.s. imports from china and japan, for example, are dropping sharply. going forward, only energy imports will be maintained at a significant level. so the only imports that will need to be financed will be from e.g. the saudis, the mexicans and the canadians. suddenly this looks sustainable.
comment #3 [sorry] even if there is no balance of payments crisis, there would still be a funding crisis as the government deficit soars. this is where we meet the specter of unsterilized monetization.
idianov
02-23-09, 07:57 PM
EJ, I want to express my gratitude for sharing your views on the state of financial affairs with the iTulip community.
I experienced the collapse of the Soviet Union and government default in Ukraine first-hand. I remember how my Grandma and Grandpa lost access to all of their life savings overnight and hyperinflation burned everything in a short period of time. Your article gave me goose bumps.
You made enough warnings to prepare for what is coming. Thank you.
Kind Regards,
Igor
Any advice on what we shoold do with our TIP bonds and are ETF gold funds safe ?
I would also like anyone's view on TIPs in the environment EJ describes..
Thoughts?
rchdenton
02-23-09, 10:01 PM
Personally I am convinced that the United Kingdom, (Sorry, Iceland on Thames), will lead and in so doing, will light the road ahead. Every bad move made in DC has been matched by the same tactics here. But we are in a far far worse state.
England has always had a North/South divide. I'd forgotten how strong it is until I saw Robert Peston's video of his visit to Newcastle a year after the Northern Rock story he broke.
My guess is the productive North will still have a hard time (so what's new) but the affluent South will be relatively worse hit. Northerners lose their savings but most keep their house.
So far that's been the case down here - the productive South Island (equivalent of North, ie nearer the pole) is not doing as badly as the more financially oriented North Island. In our case the exchange rate has so far worked as a counterbalance to the fall in commodity prices, softening the blow.
The difference is we all knew the NZ Dollar was massively overvalued at 80 cents US and that it will likely go to 40 cents (currently it sits at 51 cents or so) as we encounter more volatility as a normal fact of life. That's just what you get if you are a small open economy.
However, EJ's earthquake scenario of a US balance of payments crisis is very worrying and I am unable to extropolate to likely effects down here. Any clues would be much appreciated.
rchdenton
02-23-09, 10:09 PM
the whole world can't have simultaneous current account deficits unless we are importing from mars. so which countries would have surpluses?
the world can do without chinese manufactured goods, but it can't do without energy and food. it seems to me that energy exporters, and possibly food exporters, would still have surpluses.
My thought too. So far Japan has been hit hardest. Having said that I really don't think I understand the mechanics of a balance of payments crisis very well at all, let alone one on this scale. Is there a good case study somewhere?
rchdenton
02-23-09, 10:36 PM
comment #3 [sorry] even if there is no balance of payments crisis, there would still be a funding crisis as the government deficit soars. this is where we meet the specter of unsterilized monetization.
I'm still befuddled by this one, but I think EJ is saying people will sell dollars and buy gold (and other hard assets) so gold price goes up and dollar value goes down. Okay so far, I can see lots of dollars out there, but who has gold to sell in quantity?
Isn't there a mythical place called Fort Knox rumoured to be somewhere in the USA? It is said that there was a time when gold was dug up in South Africa and taken to this place where it was re-buried; but this went on for so long that people forgot why they did it.
Does it still exist? Can it be dug up and used if the price of gold justifies it? Gold at $5000 an ounce sounds like just such an incentive.
I actuallly said the word "Wow" outloud when I read The rise of gold from $260 to $700 in six years followed by an increase from $700 to $1000 in two years may be quickly followed by a rise from $1,000 to $5,000 in just a few months.
goadam1
02-23-09, 10:50 PM
I knew the world was going to end before "Lost" finished. Dammit!
Oh, and can we hold any paper like GLD or tips.
thanks.
No to GLD for reasons mentioned by ASH in the gold which way thread. I noticed CEF up well today when it should have been down 1% at least. There has been no profit taking in the NAV.
Just increased my allocation of physical after this. Damn it hurts at those prices, but it's all relative isn't it. Wish my wife understood.
goadam1
02-23-09, 11:08 PM
I figured as much with GLD. I don't own much physical. Ugh.
grapejelly
02-23-09, 11:10 PM
it makes sense to have food, water, and other preparations around. I don't believe in bonds myself.
it makes sense to have food, water, and other preparations around. I don't believe in bonds myself.
Just bought a fishing rod. You never know.
John McCabe:"All you've cost me so far is money and pain."
Money and pain, money and pain.
Hmm...maybe there's a connction. :rolleyes:
John McCabe:"All you've cost me so far is money and pain."
Money and pain, money and pain.
Hmm...maybe there's a connction. :rolleyes:
Ahhh, true words. Wonderful women but true, true.
I think perhaps it is time for us to return to the discussion of what practical measures people here are taking, in addition to asset allocation. Personally I am now a bit over 30% physical PMs, but mostly because the price has risen since my original purchases several years ago. I am starting to think why bother with cash at all, other than enough to get the essentials for a few months? Why not just have 80% PMs to ride things out?
The question I ask now is how much food we should store? For what types of events we should be prepared? I am an optimist, even had a girlfriend who always complained that I was too optimistic. So I am surprised to be thinking this way. But I do feel like I am watching the fecal matter hit the fan in slow motion here and should do far more to prepare for it.
Anyone else here taking other measures?
I think perhaps it is time for us to return to the discussion of what practical measures people here are taking, in addition to asset allocation. Personally I am now a bit over 30% physical PMs, but mostly because the price has risen since my original purchases several years ago. I am starting to think why bother with cash at all, other than enough to get the essentials for a few months? Why not just have 80% PMs to ride things out?
The question I ask now is how much food we should store? For what types of events we should be prepared? I am an optimist, even had a girlfriend who always complained that I was too optimistic. So I am surprised to be thinking this way. But I do feel like I am watching the fecal matter hit the fan in slow motion here and should do far more to prepare for it.
Anyone else here taking other measures?
Rice and dried beans last a long time. Pasta, canned soups, a good water filter, and a gun. That should start things.
EDIT: A propane stove is nice too.
babbittd
02-24-09, 12:15 AM
I think perhaps it is time for us to return to the discussion of what practical measures people here are taking, in addition to asset allocation. Personally I am now a bit over 30% physical PMs, but mostly because the price has risen since my original purchases several years ago. I am starting to think why bother with cash at all, other than enough to get the essentials for a few months? Why not just have 80% PMs to ride things out?
The question I ask now is how much food we should store? For what types of events we should be prepared? I am an optimist, even had a girlfriend who always complained that I was too optimistic. So I am surprised to be thinking this way. But I do feel like I am watching the fecal matter hit the fan in slow motion here and should do far more to prepare for it.
Anyone else here taking other measures?
Here is the basic list off the top of my head from FerFAL, Surviving Argentina:
6-12 months food, water, batteries, flashlights, first-aid, ammo, handgun, body armor, gold coins, gold rings (non-artistic wedding bands) and cash.
The Outback Oracle
02-24-09, 12:29 AM
The difference is we all knew the NZ Dollar was massively overvalued at 80 cents US and that it will likely go to 40 cents (currently it sits at 51 cents or so) as we encounter more volatility as a normal fact of life. That's just what you get if you are a small open economy.
However, EJ's earthquake scenario of a US balance of payments crisis is very worrying and I am unable to extropolate to likely effects down here. Any clues would be much appreciated.
Rch
Whatever is going to happen to the US is going to happen in teh Antipodes in spades. Further I'd have thought it might happen sooner here than the US. However, Aus anyway may postpone the crash a little by simply selling everything to the Chinese. We have already sold most of the country and its industry so why not sell the rest! The process has the support of the self-interested Mainstream economic commentators and the various architects of this mess who still hold the reins of power in one form or another.
Australia has some $800Billion in overseas debts (NET!), and it is tipped, as a result of the slowdown, our CAD will rise to A$100B annually (before these idiotic stim ulus packages were introduced!). Therefore our need to refinance is massive. In order to keep the unsustainable going this year, the Govt was forced to Guarantee Bank's Overseas Borrowings.
Now in a world that EJ describes for the next few years, what are the chances that we can continue to raise say $200 Billion annually? So for one year we could sell the Chinese BHP and RIO, but what the hell are we going to sell them next year?
So the "Sudden Stop" that EJ sometimes predicts would be a screeching rubber burning halt here! On the other hand the "inflate our way out" scenario would be a whole lot worse. If the USD tanks, the importance of International Debt and CAD's will rise to the fore as determinants of Currency value rather than interest rates. This general recognition will lead to a bigger hit on our currencies than the US...IMO.
You surmise a 20% fall in the NZD vs the USD. I'd think the fall may be closer to 35% (again that is just my impression from reading a few reports). So supposing the USD falls 50% (against whatever) and we fall 35% against the US, the inflationary effect will be enormous. Petrol alone will reach something like $3.70 per LITRE!!! Imagine the smash that will bring!
I just feel like I want to find a hole to go and get in and pull the cover over me! And i'm one who has seen this thing coming like an approaching train wreck for as many years as I can remember.
Thanks to EJ for helping to sort out the mess, that most of us think in, to some concrete idea of what the track we are on actually means.
Lukester
02-24-09, 12:56 AM
IMO, spot on Warren.
Presumably the imminent USD collapse will put the price up of goods that are traded in USD. So the USD collapse will be inflationary across all countries, not just the US.
rchdenton
02-24-09, 01:46 AM
Rch
Whatever is going to happen to the US is going to happen in teh Antipodes in spades.
You surmise a 20% fall in the NZD vs the USD. I'd think the fall may be closer to 35% (again that is just my impression from reading a few reports). So supposing the USD falls 50% (against whatever) and we fall 35% against the US, the inflationary effect will be enormous. Petrol alone will reach something like $3.70 per LITRE!!! Imagine the smash that will bring!
Yes, bit concerned about oil myself. Gold is just another commodity/currency to me, but oil is really useful stuff....
On a lighter note, did you know oil (the stuff from under the sea, not fish oil) is 5% of our exports! We found a small field but I expect it will get emptied pdq. And we had an oil rig in port a few weeks back - not seen that before.
Know any good Aussie oil companies? They all seem too incestuous to me, and involved in too many other things, but my knowledge is very limited.
Anyone else here taking other measures?
For what they are worth, here are my thoughts as regards emergency preparedness.
I use a two-tier system. I keep materials to ride out a very short term emergency on hand at my suburban home, and I am building up the foundation to deal with a long term crisis at my parents' rural acreage. I judge the stuff I keep on hand at home to be adequate to deal with a temporary banking or currency crisis, or some other sort of panic or natural disaster that temporarily disturbs civil order (a la Katrina) or the banking system. The planning associated with my parents' place is for a worst-case scenario in which the economy breaks down so badly that there would be a need to farm for a year or two.
The basics I keep on hand at home include more than the usual amount of cash (enough to cover roughly two months' expenses), a small arsenal of firearms and ammunition, a small stash of preserved food, and some dual-use camping gear that includes a water-purifying filter pump and cooking gear that I can use if there's no fresh water or electricity. Actually, the filter pump and the fact that my parents are relatively well-stocked with food account for some laziness on my part. I really should add to my stock of food here, and I should store more water, because the filter pump won't be that convenient to use. While I'm at it, I should probably also store enough gasoline to be sure I can drive the 100 miles to my parents' place in the country. The fact that I haven't done those steps yet just says that despite having given the matter some thought, I don't yet feel that disaster is imminent!
As for my plan for a long term emergency, right now it just consists of a stash of hard money. Soon it will include a much larger store of preserved food and some other critical supplies. As regards the hard money, roughly half of my non-retirement savings are in the form of physical gold and silver bullion (silver bars, silver coins, and gold coins). I don't keep it in a safe deposit box because the silver takes up too much volume, and because the inability to access banks is one feature of the economic worst case scenario that I'm trying to prepare for. Basically, if things are so bad that you actually need gold or silver coins to use as money, then the chances are things are so bad that banks won't be open, either. Of course, the problem with precious metals held personally is that they are worth a lot and are easy to steal, so I don't keep them in my house, either. Anyway, the bullion actually serves two purposes -- it is mainly a speculative investment (betting on inflation, but short of an actual economic collapse). However, because I keep it readily at hand in physical form, rather than paper shares, it can double as emergency preparation.
The way I plan to use the bullion if the shit hits the fan requires some explanation. As with my comment about banks maybe not functioning if you actually end up needing to use gold for money, it bears pointing out that by the time you need gold for money, the economy is by definition so messed up that you probably need chickens, a shotgun, and other tangible goods a lot more than you need money. My thinking is that Weimar Germany didn't happen overnight, and if it becomes clear that we are treading the path of hyperinflation, I should have time to convert some of my hard money into useful things to use on my parents' land, before things get too far out of hand. My decision threshold is if the annual rate of inflation gets up above about 20% and the government doesn't change its policies -- this is based partly on EJ's recent articles on hyperinflation. Apparently the historical data says that industrial economies can still function up to an inflation rate of about 40%, but that "financial intermediation" breaks down above about 40%. If we get halfway there without changing course, I'm out. Some items, like firearms, might be hard to come by in the early stages of an economic emergency, even in exchange for hard money. I've tried to aquire those in advance. However, if the paper money is rapidly becoming unreliable, the demand for hard money will be very high, and I think I will probably be able to buy farm implements and the less "sexy" farming gear. (A manual pump that could be used to draw water from my family's well is high on the list of critical items that I don't care to buy in advance.) This way, I can hold the bullion primarily as a speculative investment, and if things never get really bad, I won't be saddled with eight pallets of fertilizer that I don't need. FWIW, I see the silver bars and gold coins primarily as a store of wealth whereas the silver coins would be more convenient to actually spend in an emergency -- it's just a matter of granularity, since an $18 silver coin is a lot more useful denomination than a $1000 gold coin.
Aside from the hard money, the long term plan will soon include enough stored food to feed my family for a year. This would be in the form of certain staples, stored at my parents' place. The idea is that if we do have to farm, there's no way we'd be able to support ourselves immediately on the land. The stored food would give us a year to get agriculture going. I'm following audrey_girl's recommendation and using Mormon guidelines to estimate my food storage needs.
I must stress that I don't think it likely that the economy will fall apart so badly that farming will become a necessity. It's just that having a plan, and some level of preparation, for a worst case scenario is in my nature. The rough outline of a scenario I regard as more likely in the event of a currency collapse is posted here (http://www.itulip.com/forums/showthread.php?p=45993#poststop) and here (http://www.itulip.com/forums/showthread.php?p=61966#poststop): no starvation; no widespread civil disorder. But rationing, public appropriation of private property, and a generally more intrusive government.
touchring
02-24-09, 02:47 AM
Me thinks your preparation is more appropriate for a birdflu pandemic than an economic disaster? But you'll need to add Relenza to your stock list. :D
For what they are worth, here are my thoughts as regards emergency preparedness.
I use a two-tier system. I keep materials to ride out a very short term emergency on hand at my suburban home, and I am building up the foundation to deal with a long term crisis at my parents' rural acreage. I judge the stuff I keep on hand at home to be adequate to deal with a temporary banking or currency crisis, or some other sort of panic or natural disaster that temporarily disturbs civil order (a la Katrina) or the banking system. The planning associated with my parents' place is for a worst-case scenario in which the economy breaks down so badly that there would be a need to farm for a year or two.
The basics I keep on hand at home include more than the usual amount of cash (enough to cover roughly two months' expenses), a small arsenal of firearms and ammunition, a small stash of preserved food, and some dual-use camping gear that includes a water-purifying filter pump and cooking gear that I can use if there's no fresh water or electricity. Actually, the filter pump and the fact that my parents are relatively well-stocked with food account for some laziness on my part. I really should add to my stock of food here, and I should store more water, because the filter pump won't be that convenient to use. While I'm at it, I should probably also store enough gasoline to be sure I can drive the 100 miles to my parents' place in the country. The fact that I haven't done those steps yet just says that despite having given the matter some thought, I don't yet feel that disaster is imminent!
As for my plan for a long term emergency, right now it just consists of a stash of hard money. Soon it will include a much larger store of preserved food and some other critical supplies. As regards the hard money, roughly half of my non-retirement savings are in the form of physical gold and silver bullion (silver bars, silver coins, and gold coins). I don't keep it in a safe deposit box because the silver takes up too much volume, and because the inability to access banks is one feature of the economic worst case scenario that I'm trying to prepare for. Basically, if things are so bad that you actually need gold or silver coins to use as money, then the chances are things are so bad that banks won't be open, either. Of course, the problem with precious metals held personally is that they are worth a lot and are easy to steal, so I don't keep them in my house, either. Anyway, the bullion actually serves two purposes -- it is mainly a speculative investment (betting on inflation, but short of an actual economic collapse). However, because I keep it readily at hand in physical form, rather than paper shares, it can double as emergency preparation.
The way I plan to use the bullion if the shit hits the fan requires some explanation. As with my comment about banks maybe not functioning if you actually end up needing to use gold for money, it bears pointing out that by the time you need gold for money, the economy is by definition so messed up that you probably need chickens, a shotgun, and other tangible goods a lot more than you need money. My thinking is that Weimar Germany didn't happen overnight, and if it becomes clear that we are treading the path of hyperinflation, I should have time to convert some of my hard money into useful things to use on my parents' land, before things get too far out of hand. My decision threshold is if the annual rate of inflation gets up above about 20% and the government doesn't change its policies -- this is based partly on EJ's recent articles on hyperinflation. Apparently the historical data says that industrial economies can still function up to an inflation rate of about 40%, but that "financial intermediation" breaks down above about 40%. If we get halfway there without changing course, I'm out. Some items, like firearms, might be hard to come by in the early stages of an economic emergency, even in exchange for hard money. I've tried to aquire those in advance. However, if the paper money is rapidly becoming unreliable, the demand for hard money will be very high, and I think I will probably be able to buy farm implements and the less "sexy" farming gear. (A manual pump that could be used to draw water from my family's well is high on the list of critical items that I don't care to buy in advance.) This way, I can hold the bullion primarily as a speculative investment, and if things never get really bad, I won't be saddled with eight pallets of fertilizer that I don't need. FWIW, I see the silver bars and gold coins primarily as a store of wealth whereas the silver coins would be more convenient to actually spend in an emergency -- it's just a matter of granularity, since an $18 silver coin is a lot more useful denomination than a $1000 gold coin.
Aside from the hard money, the long term plan will soon include enough stored food to feed my family for a year. This would be in the form of certain staples, stored at my parents' place. The idea is that if we do have to farm, there's no way we'd be able to support ourselves immediately on the land. The stored food would give us a year to get agriculture going. I'm following audrey_girl's recommendation and using Mormon guidelines to estimate my food storage needs.
I must stress that I don't think it likely that the economy will fall apart so badly that farming will become a necessity. It's just that having a plan, and some level of preparation, for a worst case scenario is in my nature. The rough outline of a scenario I regard as more likely in the event of a currency collapse is posted here (http://www.itulip.com/forums/showthread.php?p=45993#poststop) and here (http://www.itulip.com/forums/showthread.php?p=61966#poststop): no starvation; no widespread civil disorder. But rationing, public appropriation of private property, and a generally more intrusive government.
The Outback Oracle
02-24-09, 02:56 AM
Yes, bit concerned about oil myself. Gold is just another commodity/currency to me, but oil is really useful stuff....
On a lighter note, did you know oil (the stuff from under the sea, not fish oil) is 5% of our exports! We found a small field but I expect it will get emptied pdq. And we had an oil rig in port a few weeks back - not seen that before.
Know any good Aussie oil companies? They all seem too incestuous to me, and involved in too many other things, but my knowledge is very limited.
The only Australian one I am in is Austrlaian Worldwide exploration which I bought a few years back on broker recommendation. Price has held OK and from what I can read they are a pretty well managed company. I can't give you details on reserves etc but you might like to read up on them. I think they do a bit of drilling around NZ
Will the u.s. government take over ownership of all citizens gold like they did in the 1930's? Jim Sinclair is concerned this may happen and the etf's would be an easy starting place.:confused:
I'm not sure what else to do here, I am not in a position to start taking delivery of bullion. Sinclair thinks the etf's don't actually have the gold they say they have. I am planning on getting into Deutche Bank's etn dgp partly on the theory that the us government cannot confiscate a Deutche Bank asset from a u.s. citizen.
Chris Coles
02-24-09, 07:09 AM
For those of us in Europe, with many diesel powered cars, a one thousand gallon diesel fuel tank will cost very little and can be dug into the ground in the same way we bury fuel tanks now. Covers all your own needs and fuel is as financially realisable as any precious metal.
swgprop
02-24-09, 07:53 AM
For what they are worth, here are my thoughts as regards emergency preparedness.
Nice writeup Ash, thanks for posting your thought process on this matter.
Thailandnotes
02-24-09, 08:00 AM
Are we now all James Howard Knustlers?
babbittd
02-24-09, 08:13 AM
Are we now all James Howard Knustlers?
I love the suburbs.
Will the u.s. government take over ownership of all citizens gold like they did in the 1930's? Jim Sinclair is concerned this may happen and the etf's would be an easy starting place.:confused:
I'm not sure what else to do here, I am not in a position to start taking delivery of bullion. Sinclair thinks the etf's don't actually have the gold they say they have. I am planning on getting into Deutche Bank's etn dgp partly on the theory that the us government cannot confiscate a Deutche Bank asset from a u.s. citizen.
I am not familiar with DGP, but if it trades on a USA exchange [e.g. it's under SEC jurisdiction] I don't see why the US government can't do anything it chooses to do to it, anytime it wants, Deutche Bank or no Deutche Bank...
For those of us in Europe, with many diesel powered cars, a one thousand gallon diesel fuel tank will cost very little and can be dug into the ground in the same way we bury fuel tanks now. Covers all your own needs and fuel is as financially realisable as any precious metal.
Please note, however, that refined fuels have a shelf life. Unlike crude oil, they cannot be easily stored for extended periods of time. So if you decide to inventory gasoline or diesel fuel as a precaution, make sure you have a plan to turn over that inventory regularly.
Also, due to the risk of contamination of ground water, in many jurisdictions the regulations covering underground fuel tanks can be quite onerous...and not following them can leave you open to substantial future personal liabilities [not to mention crappy water, if your supply is a nearby well].
Not implying Chris' idea does not have merit, just a heads up on some implications. [of course, when talking about "The End Of The World", future legal liabilities take on a completely different complexion...:D]
Just bought a fishing rod. You never know.
Fish with a net. The yield from rods are not worth the effort expended.
grapejelly
02-24-09, 08:43 AM
Are we now all James Howard Knustlers?
naw, I don't agree with him at all. Just thinking it's prudlent, like carrying insurance, to have food, water and so forth.
I expect major interruptions of commerce are possible and if they happen, best to be prepared. If it doesn't happen, either eat the goodies or donate to a shelter or discard.
I have a collection of freeze dried long-lived food and also canned goods and rice and so forth, that will last a lesser amount of time.
I have also been buying up ammo. Hard to find today but I buy it and invest in it. I think 10,000 rounds or 20,000 rounds is a sound investment and can be bartared or sold in any event. Ammo hasn't declined in price for the longest time, and has at least kept up with inflation and is less political than guns so easier to sell if the need arises.
Will the u.s. government take over ownership of all citizens gold like they did in the 1930's? Jim Sinclair is concerned this may happen and the etf's would be an easy starting place.:confused:
I'm not sure what else to do here, I am not in a position to start taking delivery of bullion. Sinclair thinks the etf's don't actually have the gold they say they have. I am planning on getting into Deutche Bank's etn dgp partly on the theory that the us government cannot confiscate a Deutche Bank asset from a u.s. citizen.
You may consider an account with Bullionvault (http://www.bullionvault.com/from/itulip) in London, Zurich, or New York.
Any advice on what we shoold do with our TIP bonds and are ETF gold funds safe ?
Does anyone have a view with respect to TIPs?
Chris Coles
02-24-09, 09:13 AM
Please note, however, that refined fuels have a shelf life. Unlike crude oil, they cannot be easily stored for extended periods of time. So if you decide to inventory gasoline or diesel fuel as a precaution, make sure you have a plan to turn over that inventory regularly
Hey GR, I do like the barn being built above the bunker, very nice.
Please can you clarify that statement. It is my understanding that certainly here in the UK there have been fuel bunkers full of diesel for decades. My gliding club had one that was used since WW2 and was only closed because we discovered the pump was being broken into by thieves. We never had any problem with the quality even though by far the majority was a bulk unused.
You may consider an account with Bullionvault (http://www.bullionvault.com/from/itulip) in London, Zurich, or New York.
From 2007
Recasts, adds response from Morgan Stanley)
NEW YORK, June 12 (Reuters) - Morgan Stanley (MS.N (http://www.reuters.com/finance/stocks/overview?symbol=MS.N)) will pay $4.4 million to settle a class-action lawsuit with brokerage clients who bought precious metals and paid storage fees, according to a court filing.
The proposed settlement, which must be approved by the federal court in Manhattan, includes a cash component of $1.5 million and economic and remedial benefits valued at about $2.9 million, according to a court filing on Monday.
The suit, filed in August 2005, alleged that Morgan Stanley told clients it was selling them precious metals that they would own in full and that the company would store.
But Morgan Stanley either made no investment specifically on behalf of those clients, or it made entirely different investments of lesser value and security, according to the complaint.
"While we deny the allegations, we settled the case to avoid the cost and distraction of continued litigation," Morgan Stanley said in a statement.
According to the filing, Morgan Stanley argued there were no violations of law and no default or failure to perform or deliver precious metals.
The suit was filed by Selwyn Silberblatt, on behalf of himself and others who bought precious metals -- gold, silver, platinum and palladium in bullion bar or coins -- from Morgan Stanley DW Inc. and its predecessors and paid fees for their storage, according to the filing. The suit covered investors who did so between Feb. 19, 1986, and Jan. 10, 2007.
I don't think anyone is holding gold for you. They are funding their operations on your money. And basically are short.
The best is they charge storage and insurance for non existant precious metals.
Hey GR, I do like the barn being built above the bunker, very nice.
Please can you clarify that statement. It is my understanding that certainly here in the UK there have been fuel bunkers full of diesel for decades. My gliding club had one that was used since WW2 and was only closed because we discovered the pump was being broken into by thieves. We never had any problem with the quality even though by far the majority was a bulk unused.
Diesel is less volatile than gasoline and has a longer shelf life.
Gasoline [sorry, petrol] contains additive packages and significant light ends. Even in a sealed storage container the additives break down over time, and the loss of volatiles degrades the quality of the fuel. Diesel can be stored for longer periods, but the potential of gelling increases with age.
Modern engines running on petrol are much less tolerant of deviations from specification than the older carburetor equipped, low compression engines we used to have decades back. Same for modern high performance diesel engines which have elaborate engine control and emission systems, that now require consistent high quality fuels.
In both cases it is advisable to turn over the inventory regularly. In other words draw from the inventory in storage and replenish it regularly, thus maintaining always a store of relatively fresh fuel. This accomplishes your goal [having an emergency inventory], while ensuring such inventory remains usable. This is preferred to building an inventory of fuel, leaving it untouched for an extended period of time, sourcing daily fuel needs elsewhere, and then coming back a year or two later to find your long-stored fuel compromised.
Willette
02-24-09, 09:40 AM
Well! I have been expecting this for so many years, and wondering at how people could ever view US T-Debt as superior to gold. So, now maybe at last it is actually happening. Oh My!
So according to this article, the chain reaction goes something like this: when the US government deliberately crushed the prices of commodities last year, they also popped the credit bubble. As deleveraging and forced selling gathered momentum, the long-running yen carry trade began to unwind. This drove up the price of the yen. This reduced the volume of Japanese exports as their price increased in USD terms. Therefore Japan, until now far and away the largest capital exporter in the world [i.e. buyer of US T-Debt], had less to loan to the the US government. China is the only possible substitute lender. As purchases of USG debt falter, the 25 year bull market in bonds begins to roll over. The so-called Safety Trade comes to an end as bond holders crowd the exits. Will they want to hold all those dollars? At THESE intersest rates? Doubtful! So the $USD also rolls over. What will they buy?
US Government bonds have been the "New Gold" for so long, but those days are coming to and end. Back to the Old Gold, and anything else with intrinsic value. This surge in demand cannot help but restore the monetary premium to gold and silver, one of the major reasons why these are true investments capable of increasing real wealth and not just hidey holes as so many have seen them.
we_are_toast
02-24-09, 09:41 AM
You people are making me feel bad. You are talking about how to shift into survivalist mode, and you're describing my every day life!
I live in a very isolated place in the mountains because I love the area, not because I'm preparing for Armageddon. I'm miles from the nearest power line so all my electricity is produced by solar and wind power. The road we live on gets graded once a year in the summer. So we often get snowed in for weeks at a time and we need to be prepared to be snowed in for months at a time.
I keep all the tools I need to repair anything that needs repair. I also have a polaris ranger with tracks that will get me out in the winter when I really want to get out, or when I want to just get around in a winter wonderland. So I keep about about 25 gallons of gasoline on hand.
We have a well for water, and a 500 gallon propane tank for cooking and backup heat for our mostly passively solar heated home.
We have a pantry full of food that we restock every autumn. Canned foods, pasta, rice, cookies (lots of cookies), canned and powdered milk, coffee, hot chocolate, tea, cereals ... . We line them up by expiration dates.
I keep a .22 and a .357 to scare away an occasional mountain lion, or a drunk hunter. I do have a stash of silver and gold. I'm leaning toward silver rounds because I think they may be more useful for bartering small needs.
I have satellite TV and a very slow verizon wireless connection that I have connected to an external yagi antenna so I can hit a tower 35 miles away.
We're thinking about building a greenhouse because we like fresh food, and doing some special things with a garden because we live in a very harsh climate.
Rather than thinking about how to hide away in a cave, maybe It would be better just to think about how to live a very normal life without building all the dependencies on things we can actually, quite easily, provide for ourselves.
You people are making me feel bad. You are talking about how to shift into survivalist mode, and you're describing my every day life!
I live in a very isolated place in the mountains because I love the area, not because I'm preparing for Armageddon. I'm miles from the nearest power line so all my electricity is produced by solar and wind power. The road we live on gets graded once a year in the summer. So we often get snowed in for weeks at a time and we need to be prepared to be snowed in for months at a time.
I keep all the tools I need to repair anything that needs repair. I also have a polaris ranger with tracks that will get me out in the winter when I really want to get out, or when I want to just get around in a winter wonderland. So I keep about about 25 gallons of gasoline on hand.
We have a well for water, and a 500 gallon propane tank for cooking and backup heat for our mostly passively solar heated home.
We have a pantry full of food that we restock every autumn. Canned foods, pasta, rice, cookies (lots of cookies), canned and powdered milk, coffee, hot chocolate, tea, cereals ... . We line them up by expiration dates.
I keep a .22 and a .357 to scare away an occasional mountain lion, or a drunk hunter. I do have a stash of silver and gold. I'm leaning toward silver rounds because I think they may be more useful for bartering small needs.
I have satellite TV and a very slow verizon wireless connection that I have connected to an external yagi antenna so I can hit a tower 35 miles away.
We're thinking about building a greenhouse because we like fresh food, and doing some special things with a garden because we live in a very harsh climate.
Rather than thinking about how to hide away in a cave, maybe It would be better just to think about how to live a very normal life without building all the dependencies on things we can actually, quite easily, provide for ourselves.
You are in an enviable situation...and if we had adopted just 10% of the attitude that you have, instead of blowing our brains and credit cards out at WalMart and Costco every weekend, we wouldn't be in this mess in the first place. Bravo.
I am in a location that is considerably less remote, but we have our own well water, my greenhouse [which I've had for 20+ years] is going to be re-erected once construction project complete, and I plan to investigate practical means to back up the mains power supply [can santafe2 be persuaded to make a trip to the frozen north? :) ]. Being an engineer and a pilot, redundancy in systems is a bit of an obsession with me :p.
None of this was motivated by survivalist inclinations, just my wife's long term desire to be out of the city [we bought the property a decade ago, long before any of today's headlines could even be imagined, by me at least].
chris49
02-24-09, 10:48 AM
A few quick questions...many have been asked before, but I would still like some additional feedback if possible:
First...up alloacation to 30% gold. Is that 30% of total net worth or investable assets? Also...BullionVault, CEF, GTU or "in your backyard" seem to be the itulip choices.
When lookiing at BullionVault vs. CEF vs. GTU...putting aside the structure of the vehicles and execution/costs of each...Is there a major difference in the safety of the three choices? Are there additional/safer choices?
Last...in my 401k, the only fund choices I have that can possibly fit are DJ/AIG Commodity TR Index, LB US TIPS Index, and Citi US Treasury Reserves. Do I bother moving anything out of T Reserve fund?
Any feedback on any/all these is appriciated.
I would also like anyone's view on TIPs in the environment EJ describes..
Thoughts?
Here is what I did two weeks ago, Cleaned out ALL of my 401K, Ira, and treasuries, I MEAN ALL, took a taxable distrubution and BOUGHT GOLD AND SILVER BULLION, (yes even MORE).
So Now I have on an allocation basis
50% Gold bullion / %50 Silver bullion
Actualy, more like 45% gold/ 45% silver, 10% firearms and ammunition.
(If you've read ANY of my posts you know that I AM NOT KIDDING IN ANY WAY, SHAPE, or FORM).
Your milage may vary, but THIS WAS THE RIGHT THING to do for ME.
Sapiens
02-24-09, 12:38 PM
Here is what I did two weeks ago, Cleaned out ALL of my 401K, Ira, and treasuries, I MEAN ALL, took a taxable distrubution and BOUGHT GOLD AND SILVER BULLION, (yes even MORE).
So Now I have on an allocation basis
50% Gold bullion / %50 Silver bullion
Actualy, more like 45% gold/ 45% silver, 10% firearms and ammunition.
(If you've read ANY of my posts you know that I AM NOT KIDDING IN ANY WAY, SHAPE, or FORM).
Your milage may vary, but THIS WAS THE RIGHT THING to do for ME.
No cash? 10-15% Would be nice...
No cash? 10-15% Would be nice...
I have a several $K in physical cash (bills, not deposits), that's it. (2.5% max, didn't think it was significant, but yes I still have some cash.)
Thanks for letting me clarify.
Lukester
02-24-09, 01:19 PM
Go for it Jtabeb. I admire your guts and "panache". You may wind up right sooner, or you may wind up right later, but over the seven year outlook you'll wind up right. I also happen to think your advice to your Mom to buy a house in 2009 was not bad. The only part I look a little askance at are the guns'n bullets. But the case(s) of Tennessee Sour Mash and all the gold and silver stashed away for the seven year term is just dandy.
You people are making me feel bad. You are talking about how to shift into survivalist mode, and you're describing my every day life!
I live in a very isolated place in the mountains because I love the area, not because I'm preparing for Armageddon. I'm miles from the nearest power line so all my electricity is produced by solar and wind power. The road we live on gets graded once a year in the summer. So we often get snowed in for weeks at a time and we need to be prepared to be snowed in for months at a time.
I keep all the tools I need to repair anything that needs repair. I also have a polaris ranger with tracks that will get me out in the winter when I really want to get out, or when I want to just get around in a winter wonderland. So I keep about about 25 gallons of gasoline on hand.
We have a well for water, and a 500 gallon propane tank for cooking and backup heat for our mostly passively solar heated home.
We have a pantry full of food that we restock every autumn. Canned foods, pasta, rice, cookies (lots of cookies), canned and powdered milk, coffee, hot chocolate, tea, cereals ... . We line them up by expiration dates.
I keep a .22 and a .357 to scare away an occasional mountain lion, or a drunk hunter. I do have a stash of silver and gold. I'm leaning toward silver rounds because I think they may be more useful for bartering small needs.
I have satellite TV and a very slow verizon wireless connection that I have connected to an external yagi antenna so I can hit a tower 35 miles away.
We're thinking about building a greenhouse because we like fresh food, and doing some special things with a garden because we live in a very harsh climate.
Rather than thinking about how to hide away in a cave, maybe It would be better just to think about how to live a very normal life without building all the dependencies on things we can actually, quite easily, provide for ourselves.
This puts you in an excellent position to help all of us. What types of tools in particular do you advise one have on hand to fix items around the house. But most importantly, what are the best cookies to store for long periods.
I love my chosen profession, but it does not offer great mobility. I have applied for jobs in more remote areas, but to no avail. So I am planning to stick with my urban/suburban lifestyle until TSHTF, but do need to develop a more comprehensive plan for sticking it out in the event of severe disruptions. I have a get out of dodge plan that entails moving in with relatives in Vermont. They have plenty of land that backs up on a preserved forest land and we have lived together in the past.
Diesel is less volatile than gasoline and has a longer shelf life.
Gasoline [sorry, petrol] contains additive packages and significant light ends. Even in a sealed storage container the additives break down over time, and the loss of volatiles degrades the quality of the fuel. Diesel can be stored for longer periods, but the potential of gelling increases with age.
Modern engines running on petrol are much less tolerant of deviations from specification than the older carburetor equipped, low compression engines we used to have decades back. Same for modern high performance diesel engines which have elaborate engine control and emission systems, that now require consistent high quality fuels.
In both cases it is advisable to turn over the inventory regularly. In other words draw from the inventory in storage and replenish it regularly, thus maintaining always a store of relatively fresh fuel. This accomplishes your goal [having an emergency inventory], while ensuring such inventory remains usable. This is preferred to building an inventory of fuel, leaving it untouched for an extended period of time, sourcing daily fuel needs elsewhere, and then coming back a year or two later to find your long-stored fuel compromised.
What about using products like Stabil to preserve fuel? I understand it works well.
I agree about diesel.
What I've read is that as long as you keep water out of it, it will keep. If water gets in, bacteria grow in the water/diesel interface, which introduces problems. So topping off would be important. When starting to use a full big tank, empty into smaller tanks and keep them as full as possible.
Apparently, airplane fuel is very stable, compared to gasoline.
I learned this from a walk-behind tractor dealer, who says he's been using it in chain saws, lawn mowers and other equipment without getting the lacquer buildup in the carburator. You read on the internet that it's crazy to use airplane fuel in small engines, but the guy seems to be right -- it worked for me all last season.
I'm storing it without using Stabil, but wonder if I should.
Turning over inventory is probably best, but it's impossible if you're storing a lot, i.e., more than you normally use for 5 years or so . . . .
Does anyone have a view with respect to TIPs?
So far, three or four guys on this thread have asked about TIPS.
EJ does not recommend TIPS.
I asked a question about them on this thread http://itulip.com/forums/showthread.php?p=76314#post76314 but did not get a reply. Perhaps it should be posted on the Ask EJ Forum:
EJ writes in:
The first thing the Treasury will do to limit losses in an inflationary crisis is reduce the interest rate on TIPS. Look at what the Treasury did to Series I Savings Bonds between 1989 and 2008 for an example of what I mean. When you say "reduce the interest rate on TIPS", you are referring to interest rates on TIPS sold in the future, correct? Or are you suggesting that the government will mandate a decrease in the interest rates on existing TIPS "in the national interest" or for some other reason?
Quote:
<table border="0" cellpadding="6" cellspacing="0" width="100%"> <tbody><tr> <td class="alt2" style="border: 1px inset ;"> The second thing the Treasury will do to limit losses in an inflationary crisis is re-define the inflation measure used to determine the inflation adjusted portion of TIPS. I'd own TIPS if they were indexed to a basket of commodities, but am wary of them otherwise (see Future inflation fears topple TIPS (http://www.itulip.com/forums/showthread.php?p=45890#post45890)). </td> </tr> </tbody></table>
In regard to fiddling with the CPI, wouldn't the amount of fiddling have to exceed the interest rate of the particular TIPS for them to be less profitable than a straight Treasuries?
For example, if one already owns 5-year TIPS that are due to mature in a few years, and the interest rate is 2.5% + CPI, even if the government reduces the CPI by something under 2.5%, it would still seem better to hold these TIPS until maturity.
In my case, I've got 5-year TIPS at 2.38% + CPI due to mature in 2011. It would seem unwise to trade them in for 13-week Treasuries that now pay less than 1%, especially since we don't know how long the Ka phase will continue. If I'm missing something in this reasoning, please somebody let me know . . . .
idianov
02-24-09, 02:32 PM
My Grand parents were able to get through the hyperinflation in Ukraine because they had skills and knowledge to produce goods locally that could be exchanged for other goods or local currency. Any local business or individual that produces necessary goods and services will get through the tough times.
Igor
Fish with a net. The yield from rods are not worth the effort expended.
Awesome, I will. Suggestions? Should I just go for TNT? :D
For what they are worth, here are my thoughts as regards emergency preparedness.
I use a two-tier system. I keep materials to ride out a very short term emergency on hand at my suburban home, and I am building up the foundation to deal with a long term crisis at my parents' rural acreage. I judge the stuff I keep on hand at home to be adequate to deal with a temporary banking or currency crisis, or some other sort of panic or natural disaster that temporarily disturbs civil order (a la Katrina) or the banking system. The planning associated with my parents' place is for a worst-case scenario in which the economy breaks down so badly that there would be a need to farm for a year or two.
The basics I keep on hand at home include more than the usual amount of cash (enough to cover roughly two months' expenses), a small arsenal of firearms and ammunition, a small stash of preserved food, and some dual-use camping gear that includes a water-purifying filter pump and cooking gear that I can use if there's no fresh water or electricity. Actually, the filter pump and the fact that my parents are relatively well-stocked with food account for some laziness on my part. I really should add to my stock of food here, and I should store more water, because the filter pump won't be that convenient to use. While I'm at it, I should probably also store enough gasoline to be sure I can drive the 100 miles to my parents' place in the country. The fact that I haven't done those steps yet just says that despite having given the matter some thought, I don't yet feel that disaster is imminent!
As for my plan for a long term emergency, right now it just consists of a stash of hard money. Soon it will include a much larger store of preserved food and some other critical supplies. As regards the hard money, roughly half of my non-retirement savings are in the form of physical gold and silver bullion (silver bars, silver coins, and gold coins). I don't keep it in a safe deposit box because the silver takes up too much volume, and because the inability to access banks is one feature of the economic worst case scenario that I'm trying to prepare for. Basically, if things are so bad that you actually need gold or silver coins to use as money, then the chances are things are so bad that banks won't be open, either. Of course, the problem with precious metals held personally is that they are worth a lot and are easy to steal, so I don't keep them in my house, either. Anyway, the bullion actually serves two purposes -- it is mainly a speculative investment (betting on inflation, but short of an actual economic collapse). However, because I keep it readily at hand in physical form, rather than paper shares, it can double as emergency preparation.
The way I plan to use the bullion if the shit hits the fan requires some explanation. As with my comment about banks maybe not functioning if you actually end up needing to use gold for money, it bears pointing out that by the time you need gold for money, the economy is by definition so messed up that you probably need chickens, a shotgun, and other tangible goods a lot more than you need money. My thinking is that Weimar Germany didn't happen overnight, and if it becomes clear that we are treading the path of hyperinflation, I should have time to convert some of my hard money into useful things to use on my parents' land, before things get too far out of hand. My decision threshold is if the annual rate of inflation gets up above about 20% and the government doesn't change its policies -- this is based partly on EJ's recent articles on hyperinflation. Apparently the historical data says that industrial economies can still function up to an inflation rate of about 40%, but that "financial intermediation" breaks down above about 40%. If we get halfway there without changing course, I'm out. Some items, like firearms, might be hard to come by in the early stages of an economic emergency, even in exchange for hard money. I've tried to aquire those in advance. However, if the paper money is rapidly becoming unreliable, the demand for hard money will be very high, and I think I will probably be able to buy farm implements and the less "sexy" farming gear. (A manual pump that could be used to draw water from my family's well is high on the list of critical items that I don't care to buy in advance.) This way, I can hold the bullion primarily as a speculative investment, and if things never get really bad, I won't be saddled with eight pallets of fertilizer that I don't need. FWIW, I see the silver bars and gold coins primarily as a store of wealth whereas the silver coins would be more convenient to actually spend in an emergency -- it's just a matter of granularity, since an $18 silver coin is a lot more useful denomination than a $1000 gold coin.
Aside from the hard money, the long term plan will soon include enough stored food to feed my family for a year. This would be in the form of certain staples, stored at my parents' place. The idea is that if we do have to farm, there's no way we'd be able to support ourselves immediately on the land. The stored food would give us a year to get agriculture going. I'm following audrey_girl's recommendation and using Mormon guidelines to estimate my food storage needs.
I must stress that I don't think it likely that the economy will fall apart so badly that farming will become a necessity. It's just that having a plan, and some level of preparation, for a worst case scenario is in my nature. The rough outline of a scenario I regard as more likely in the event of a currency collapse is posted here (http://www.itulip.com/forums/showthread.php?p=45993#poststop) and here (http://www.itulip.com/forums/showthread.php?p=61966#poststop): no starvation; no widespread civil disorder. But rationing, public appropriation of private property, and a generally more intrusive government.
A man with a plan. Good stuff. How many acres you got, ASH? Ever worry about getting out of town in a car? If you live in a large metro area you might want some place within a half-day's bike ride. In some of those worst case scenarios (eg, dirty bomb) I don't imagine the roads out will necessarily be clear if you live in a large metro area.
The sites dealing with Peak Oil survival are very useful. Some of these folks have given plenty of thought to these issues and are making serious preparations. Here's a good blog http://survivingpeakoil.blogspot.com/, and check out the links on the side. Good overview taking shape at the following Wiki entry, too: http://drmills.wiki-site.com/index.php/Peak_Oil_Preparation.
Also very practical are some of the Mormon sites (though I'm no follower of the JCLDS), with specific food lists etc: http://lds.about.com/od/preparednessfoodstorage/p/foodstorage.htm and http://lds.about.com/od/preparednessfoodstorage/a/72hour_kit.htm
Morgasbord
02-24-09, 04:50 PM
A question for everyone here: at this point, is it pointless to think about opening a new business?
I am 30, a software engineer, virtually debt free, and have 12 months of expenses in a savings account. I've hesitated to buy gold, etc. because I've been meaning to put my savings towards opening a business this year. I happen to be an award winning brewer. I had planned to open a small microbrewery/brewpub in a college town later this year. So far, the craft beer industry has weathered this crisis ok, at least up to November, but the data for this quarter isn't in yet. I am finishing up my proforma to go shopping for loans over the next few weeks, but this article has sent me adrift.
Am I wasting my time? Are banks still giving business loans? Despite the credit disaster news headlines, the top of this article quotes someone saying loans are still available. If so, does it make more sense to get a loan now while I can?
Or, should I forget about the business, and look to preserve my savings somehow? Does it make sense to use my down payment money to at least purchase the brewery equipment and supplies while the manufacturers are still in business and POOM has not set in? These can be considered hard assets, can they not? And if it gets truly bad, at least I will have the equipment I need to produce something to barter with.
I'm not sure what else to do with my savings. I've already got my bulk food store, a healthy kitchen garden, and I've prepaid my local farm share for veggies for this year. I have several months of grass-fed beef from a local rancher in the freezer, spare propane and stove, and the water filters, tents, etc from my backpacking hobby.
What would you do if you were me?
Here is what I did two weeks ago, Cleaned out ALL of my 401K, Ira, and treasuries, I MEAN ALL, took a taxable distrubution and BOUGHT GOLD AND SILVER BULLION, (yes even MORE).
Hi jtabeb. May I ask you what in particular caused you to pull the trigger on this two weeks ago?
A question for everyone here: at this point, is it pointless to think about opening a new business?
I am 30, a software engineer, virtually debt free, and have 12 months of expenses in a savings account. I've hesitated to buy gold, etc. because I've been meaning to put my savings towards opening a business this year. I happen to be an award winning brewer. I had planned to open a small microbrewery/brewpub in a college town later this year. So far, the craft beer industry has whethered this crisis ok, at least up to november, but the data for this quarter isn't in yet. I am finishing up my proforma to go shopping for loans over the next few weeks, but this article has sent me adrift.
Am I wasting my time? Are banks still giving business loans? Despite the credit disaster news headlines, the top of this article quotes someone saying loans are still available. If so, does it make more sense to get a loan now while I can?
Or, should I forget about the business, and look to preserve my savings somehow? Does it make sense to use my down payment money to at least purchase the brewery equipment and supplies while the manufacturers are still in business and POOM has not set in? These can be considered hard assets, can they not? And if it gets truly bad, at least I will have the equipment I need to produce something to barter with.
I'm not sure what else to do with my savings. I've already got my bulk food store, a healthy kitchen garden, and I've prepaid my local farm share for veggies for this year. I have several months of grass-fed beef from a local rancher in the freezer, spare propane and stove, and the water filters, tents, etc from my backpacking hobby.
What would you do if you were me?
If I was you I would find out if banks are giving small business loans. If you get turned down keep trying. Don't get your information about banks from other sources. Find out.
Morgasbord,
I'd review your business plan really carefully.
Will people still be willing to buy your stuff? As opposed to all the other stuff?
Loans are still available, but you'll have to answer a lot of questions.
Secondly are your plan prepared for major price increases in input materials? In taxes?
The advantage of starting in a recession is that if you can survive, you'll do great once the economy recovers.
But the bad part is that your established competitors have reputation, accumulated capital, and economy of scale.
If say, the corporate owner of Sam Adams decides to clean out some competition in its craft brew division - can you hang with the promotions and pricing body blows?
Just think it through carefully.
You also note you have 1 year of savings.
1 year isn't that long a time to get a business going.
Didn't it take the Sam Adams guy longer? Another item to consider.
Hi jtabeb. May I ask you what in particular caused you to pull the trigger on this two weeks ago?
Just a feeling that I might not be able to do this in the future when I really wanted or needed to. Can't give you a specific reason other than based on what I was reading here and elsewhere that I had to take the oppertunity while the window for action was still open. NOT saying I'm right. I am saying I did what I thought was right for me.
I don't know when, if the window to do what I did will close, but to be honest, I really did not want to wait only to find out later that I waited too long.
For what it's worth.
Just a feeling that I might not be able to do this in the future when I really wanted or needed to. Can't give you a specific reason other than based on what I was reading here and elsewhere that I had to take the oppertunity while the window for action was still open. NOT saying I'm right. I am saying I did what I thought was right for me.
I don't know when, if the window to do what I did will close, but to be honest, I really did not want to wait only to find out later that I waited too long.
For what it's worth.
I admire you jtabeb. I have been considering this as well. I run around like a chicken with my head cut off trying to stay ahead with all of my other investments, but my physical gold just keeps chugging along, outperforming everything else and giving me a much greater sense of security.
I am looking to buy more quite soon, thinking now I want some more barterable quantities, such as gold sovereigns and a giant box of 1oz silver coins.
So Ash, I too may pull this trigger. What leads me to it is the desire for greater peace of mind. I am also getting gear to have the car ready to carry large quantities to other locations, buying a generator, storing more food, improving my firearms training, and focusing upon being very physically fit.
unlucky
02-24-09, 06:10 PM
A question for everyone here: at this point, is it pointless to think about opening a new business?
I am 30, a software engineer, virtually debt free, and have 12 months of expenses in a savings account. I've hesitated to buy gold, etc. because I've been meaning to put my savings towards opening a business this year. I happen to be an award winning brewer. I had planned to open a small microbrewery/brewpub in a college town later this year. So far, the craft beer industry has whethered this crisis ok, at least up to november, but the data for this quarter isn't in yet. I am finishing up my proforma to go shopping for loans over the next few weeks, but this article has sent me adrift.
Am I wasting my time? Are banks still giving business loans? Despite the credit disaster news headlines, the top of this article quotes someone saying loans are still available. If so, does it make more sense to get a loan now while I can?
Or, should I forget about the business, and look to preserve my savings somehow? Does it make sense to use my down payment money to at least purchase the brewery equipment and supplies while the manufacturers are still in business and POOM has not set in? These can be considered hard assets, can they not? And if it gets truly bad, at least I will have the equipment I need to produce something to barter with.
I'm not sure what else to do with my savings. I've already got my bulk food store, a healthy kitchen garden, and I've prepaid my local farm share for veggies for this year. I have several months of grass-fed beef from a local rancher in the freezer, spare propane and stove, and the water filters, tents, etc from my backpacking hobby.
What would you do if you were me?
There are always a million reasons for not starting a business. If you talk to your friends or family I'm sure they will be able to think of even more reasons why you should not start your business. At the end of the day, people start businesses because it's what they want to do and they are just too darned stubborn to listen.
rabot10
02-24-09, 06:18 PM
The wife and I will be going out and getting a few new TVs (48in) with blue ray over the next day or so, just better to watch the news on.
NOT saying I'm right. I am saying I did what I thought was right for me.
I don't know when, if the window to do what I did will close, but to be honest, I really did not want to wait only to find out later that I waited too long.
Thanks for the clarification, jtabeb -- and I fully acknowledge your disclaimer.
So Ash, I too may pull this trigger. What leads me to it is the desire for greater peace of mind.
The risk is clearly something that everyone needs to assess for themselves. For me, the opportunity cost of missing out on 30 years of tax-free growth (I've got a long row to hoe before retirement) is so large that I'd have to be absolutely certain that the potential gains were illusory before I pulled money out of my 401(k) or IRA.
rabot10
02-24-09, 06:19 PM
Will the u.s. government take over ownership of all citizens gold like they did in the 1930's? Jim Sinclair is concerned this may happen and the etf's would be an easy starting place.:confused:
I'm not sure what else to do here, I am not in a position to start taking delivery of bullion. Sinclair thinks the etf's don't actually have the gold they say they have. I am planning on getting into Deutche Bank's etn dgp partly on the theory that the us government cannot confiscate a Deutche Bank asset from a u.s. citizen.
GoldMoney or BV - maybe Perth Mint. I like GM
The risk is clearly something that everyone needs to assess for themselves. For me, the opportunity cost of missing out on 30 years of tax-free growth (I've got a long row to hoe before retirement) is so large that I'd have to be absolutely certain that the potential gains were illusory before I pulled money out of my 401(k) or IRA.
You talk about "opportunity cost" but don't mention risk of catastrophic loss.
Doesn't do you much good to have tax advantaged investments if they are worthless, one would think.
Any two cents, hopefully they have some value.
BadJuju
02-24-09, 06:45 PM
You people are making me feel bad. You are talking about how to shift into survivalist mode, and you're describing my every day life!
Let me move in with you, and I will console you. :p
But seriously, I wish I could live like you; however, no money to get the land, build the home, and so forth. :( I am stuck next to a chemical plant in a small city.
You talk about "opportunity cost" but don't mention risk of catastrophic loss.
Doesn't do you much good to have tax advantaged investments if they are worthless, one would think.
That was the "illusory" part. I think you have the problem framed correctly -- the only difference is our respective assessments of the probability of catastrophic loss (and possibly the value of what is at risk versus what might be gained).
I have 30 years to retirement, so losing the entirety of my retirement portfolio would be much less of a problem than if I had 10 years until retirement. That is actually why I'm not diversified right now -- I am willing to accept the risk of catastrophic loss at this stage because the downside is limited, whereas the upside could be substantial if my speculation is correct. The same can be said of the risk that the government will confiscate my retirement savings, or the institutions where those savings are held and the markets in which they are traded will collapse, or the laws will change in such a way as to prevent me from sidestepping a currency devaluation with inflation hedges, etc. etc. Yes, I acknowledge those risks, but as of yet I don't assess them as being immediate enough to warrant pulling money out of my retirement accounts.
Anyway, you know me -- I'm always a couple of steps behind you on this particular path. Perhaps my assessment of the risk will catch up in the next few months. At any rate, when EJ posted this thread, it did prompt me to do the back-of-the-envelope calculation to see what sort of haircut I'd take if I pulled money out of my retirement accounts. Even if I'm not where you are yet, the fact that I looked into the possibility says something.
Southernguy
02-24-09, 07:10 PM
With due respect I think some people in this very interesting forum are a bit mad.
I lived in one of the two Rio de la Plata Republics (Uruguay and Argentina) trough last crisis. In 2002 unemployment reached 20%. GDP between 1999 and 2002 falled by about 20%. Poverty in Argentina reached 50%, in Uruguay it was at more than 30% (and when you say poverty, you mean POVERTY), people were roaming in the streets begging, lots, thousands of people, looking into the garbage for something to eat or sell, etc.
There were some riots in Argentina, particularly in Buenos Aires after killing some 20 people by the police president De la Rua had to abandon Casa Rosada in a hellicopter, but your´e talking of a more than 10 million people city in a 35 million country.
In Uruguay things were more peaceful, no big disorders, nor street killings.
There was a rise in crime, particularly in Buenos Aires, kidnappings of more or less rich people.
Many peoples´savings got wiped (that fired some riots in B.A.), but at no time we needed to hoard food or ammunition, or fuel.
You could buy anything you needed as usual, with money.
Inflation spiked, currencies devalued, then revalued (Argentina´s less than Uruguay´s). But you never needed to hold guns or things of the like.
Just keep rational security measures, mainly be alert and don´t visit intrinsicaly dangerous places.
Be calm, things never turn to be so harsh as to need nuclear proofed bunkers or large food or fuel deposits.
Of course, I keep enougn cash for at least one year of basic needs and taxes.
And gold as an investment.
The rest seems to me a bit absurd.
Of course, as crisis developed I withrew money from local banks, and was able to buy land at incridibly low prices. I sold most of it by now, with an obscene profit.....
And I´m waiting for a new (shall never be so good again) oportunity.
Best regards to all, I appreciate very much your postings...but be calm
(and possibly the value of what is at risk versus what might be gained).
I am willing to accept the risk of catastrophic loss at this stage because the downside is limited, whereas the upside could be substantial if my speculation is correct.
I would agree (potentially) with you in nominal terms, it's the result in real terms that I'm worried about.
metalman
02-24-09, 08:07 PM
With due respect I think some people in this very interesting forum are a bit mad.
I lived in one of the two Rio de la Plata Republics (Uruguay and Argentina) trough last crisis. In 2002 unemployment reached 20%. GDP between 1999 and 2002 falled by about 20%. Poverty in Argentina reached 50%, in Uruguay it was at more than 30% (and when you say poverty, you mean POVERTY), people were roaming in the streets begging, lots, thousands of people, looking into the garbage for something to eat or sell, etc.
There were some riots in Argentina, particularly in Buenos Aires after killing some 20 people by the police president De la Rua had to abandon Casa Rosada in a hellicopter, but your´e talking of a more than 10 million people city in a 35 million country.
In Uruguay things were more peaceful, no big disorders, nor street killings.
There was a rise in crime, particularly in Buenos Aires, kidnappings of more or less rich people.
Many peoples´savings got wiped (that fired some riots in B.A.), but at no time we needed to hoard food or ammunition, or fuel.
You could buy anything you needed as usual, with money.
Inflation spiked, currencies devalued, then revalued (Argentina´s less than Uruguay´s). But you never needed to hold guns or things of the like.
Just keep rational security measures, mainly be alert and don´t visit intrinsicaly dangerous places.
Be calm, things never turn to be so harsh as to need nuclear proofed bunkers or large food or fuel deposits.
Of course, I keep enougn cash for at least one year of basic needs and taxes.
And gold as an investment.
The rest seems to me a bit absurd.
Of course, as crisis developed I withrew money from local banks, and was able to buy land at incridibly low prices. I sold most of it by now, with an obscene profit.....
And I´m waiting for a new (shall never be so good again) oportunity.
Best regards to all, I appreciate very much your postings...but be calm
my hero :D
we get carried away here.
saving cash to buy land... smart.
guns suck. but remember... here in the states there are millions of them!
'keep enough cash for at least one year of basic needs and taxes.'
most north americans have enough cash for a few days. so... the size of 'intrinsically dangerous places' grows big here in a bad economy.... there isn't family and community here to hold things together like there is there.
good perspective,though.
With due respect I think some people in this very interesting forum are a bit mad.
I lived in one of the two Rio de la Plata Republics (Uruguay and Argentina) trough last crisis. In 2002 unemployment reached 20%. GDP between 1999 and 2002 falled by about 20%. Poverty in Argentina reached 50%, in Uruguay it was at more than 30% (and when you say poverty, you mean POVERTY), people were roaming in the streets begging, lots, thousands of people, looking into the garbage for something to eat or sell, etc.
There were some riots in Argentina, particularly in Buenos Aires after killing some 20 people by the police president De la Rua had to abandon Casa Rosada in a hellicopter, but your´e talking of a more than 10 million people city in a 35 million country.
In Uruguay things were more peaceful, no big disorders, nor street killings.
There was a rise in crime, particularly in Buenos Aires, kidnappings of more or less rich people.
Many peoples´savings got wiped (that fired some riots in B.A.), but at no time we needed to hoard food or ammunition, or fuel.
You could buy anything you needed as usual, with money.
Inflation spiked, currencies devalued, then revalued (Argentina´s less than Uruguay´s). But you never needed to hold guns or things of the like.
Just keep rational security measures, mainly be alert and don´t visit intrinsicaly dangerous places.
Be calm, things never turn to be so harsh as to need nuclear proofed bunkers or large food or fuel deposits.
Of course, I keep enougn cash for at least one year of basic needs and taxes.
And gold as an investment.
The rest seems to me a bit absurd.
Of course, as crisis developed I withrew money from local banks, and was able to buy land at incridibly low prices. I sold most of it by now, with an obscene profit.....
And I´m waiting for a new (shall never be so good again) oportunity.
Best regards to all, I appreciate very much your postings...but be calm
Thanks for that.
Lukester
02-24-09, 08:20 PM
Great post Southernguy.
BadJuju
02-24-09, 08:32 PM
Stupid Southernguy! I was fully kitted-out in my tactical gear when he posted that. :mad: Now, I have to go back to being a civilian.
But really, thanks for the optimistic post! :D
What about using products like Stabil to preserve fuel? I understand it works well.
I agree about diesel.
What I've read is that as long as you keep water out of it, it will keep. If water gets in, bacteria grow in the water/diesel interface, which introduces problems. So topping off would be important. When starting to use a full big tank, empty into smaller tanks and keep them as full as possible.
Apparently, airplane fuel is very stable, compared to gasoline.
I learned this from a walk-behind tractor dealer, who says he's been using it in chain saws, lawn mowers and other equipment without getting the lacquer buildup in the carburator. You read on the internet that it's crazy to use airplane fuel in small engines, but the guy seems to be right -- it worked for me all last season.
I'm storing it without using Stabil, but wonder if I should.
Turning over inventory is probably best, but it's impossible if you're storing a lot, i.e., more than you normally use for 5 years or so . . . .
I am not familiar with Stabil specifically, but anything that extends shelf-life should certainly help.
The most common grade of piston engine aviation fuel is 100 LL [low lead]. Aviation gasolines contain higher levels of antioxidation agents than motor gasolines to prevent residue build up and gums & varnish from forming, because it is common for non-commercial airplanes to stand for extended periods between usage compared to automobiles [the typical private airplane operates less than 100 hours per annum...no doubt now even less given the world is coming to an end]. This is probably the reason you are not seeing the lacquer build up. It's a lot more expensive than motor gasoline however because its made in much smaller quantity, and to a very tight specification.
Andreuccio
02-24-09, 08:52 PM
At any rate, when EJ posted this thread, it did prompt me to do the back-of-the-envelope calculation to see what sort of haircut I'd take if I pulled money out of my retirement accounts. Even if I'm not where you are yet, the fact that I looked into the possibility says something.
Just out of curiosity ;), how much of a haircut does one take pulling money out of retirement accounts?
Rch
Whatever is going to happen to the US is going to happen in teh Antipodes in spades.
Darn, you guys are ruining my dreams of moving to NZ as a haven from the US's problems. Guess there's always asia :rolleyes:
(and yes, I even looked up what "in spades" meant to figure out what you were saying)
LargoWinch
02-24-09, 09:16 PM
Thanks for another great piece Ed. Everytime a new analysis comes out, it is like Christmas all over again!
Regarding the article, I would like to share my humble comments:
a) Now - given gold at $US 1,000/oz - it seems an odd time to be adding to anyone's gold position. This is within the context of a 25:1 gold to crude oil ratio. (1000/40). Has Crude Oil been considered? Should Crude not provide a diversification benefit?
b) My understanding was that iTulip portfolio having a 15% gold position back in 2001 has now a 30% (or is it 33%) gold in its portfolio due to gains. Hence, why the need to add or change the allocation? Was the allocation not 33% gold and 67% cash to begin with?
c) Why is this article not part of iTulip's Select?
ecortes
02-24-09, 09:17 PM
Is EJ saying that it is time to short the US long bond? I think this would be a good investment theme.
Furthermore, would it not make sense to also invest in energy and food as these are two areas that will be aquired by those foreigners that have US$ that they need to diversify?
I guess what is being described is a situation where the re-investment out of money is going to happen at a global level and we might just end up with global hyperinflation.
It is just to bad that I discovered this site about five months ago.
Just out of curiosity ;), how much of a haircut does one take pulling money out of retirement accounts?
The early withdrawal penalty is 10% of the portion that is taxable, on top of the regular income tax. (This assumes a traditional IRA or 401(k); you should be able to avoid paying income tax on withdrawals from a Roth vehicle, assuming you do it right.) So, if you take it all out in one fell swoop -- and you've got a fair amount socked away -- you could easily wind up paying the top federal marginal tax rate of 35% on most of it. Of course, a lot depends upon your base level of income, and how much you withdraw. But figure in the 10% penalty and your state income tax rate (which is a flat 9% in my case), and you could be taking home a bit less than half.
Great article but could you edit it please? There are so many errors that it's difficult to read.
metalman
02-24-09, 09:28 PM
Great article but could you edit it please? There are so many errors that it's difficult to read.
er... such as?
Andreuccio
02-24-09, 09:31 PM
The early withdrawal penalty is 10% of the portion that is taxable, on top of the regular income tax. (This assumes a traditional IRA or 401(k); you should be able to avoid paying income tax on withdrawals from a Roth vehicle, assuming you do it right.) So, if you take it all out in one fell swoop -- and you've got a fair amount socked away -- you could easily wind up paying the top federal marginal tax rate of 35% on most of it. Of course, a lot depends upon your base level of income, and how much you withdraw. But figure in the 10% penalty and your state income tax rate (which is a flat 9% in my case), and you could be taking home a bit less than half.
Ouch! :( On the plus side, I stopped contributing about a year ago when I figured out what the game was.
Ouch! :( On the plus side, I stopped contributing about a year ago when I figured out what the game was.
I only had about $33K left to pull out, had gotten the rest out already, so my tax liability was $3300 and I don't bump up in tax brackets (no capital gains thanks to treasuries paying ZERO).
It pays to have a good tax shelter! (A rental property can shield up $25K of your traditional income, so if you have a cheap one like I do, you can save quite a bit in income taxes).
In case you are wondering why I didn't list it as an asset well that's because It's a liability! (that's why I get to deduct money on my taxes, remember).
Ouch! :( On the plus side, I stopped contributing about a year ago when I figured out what the game was.
Well, I'm not myself convinced that retirement accounts are a bad deal, even in this environment. If one actually waited until they were at least 59 1/2 years old to tap into their money, and assuming they were actually retired (so that their base income level was low), and assuming they didn't pull it all out at once -- in other words, if the retirement accounts were used as intended -- then the tax burden would be a lot lower. It's really just the penalty and the progressive tax structure which make a big lump-sum withdrawal painful.
In the scenario which I think most likely, I'm expecting high taxes on capital gains and other sorts of transactions -- but I don't expect the government to confiscate my retirement accounts or tax my investments directly. I also expect to be able to protect the purchasing power of my retirement savings through investment in inflation hedges. So, under current law, it seems to me like retirement accounts might continue to be one way that I can continue to trade and realize capital gains, while avoiding higher taxes on such gains. I'd only cash out if it became apparent that these expectations are wrong, and the rules of the game are going to change dramatically.
Quincy K
02-24-09, 09:50 PM
So far, three or four guys on this thread have asked about TIPS.
EJ does not recommend TIPS.
I asked a question about them on this thread http://itulip.com/forums/showthread.php?p=76314#post76314 but did not get a reply. Perhaps it should be posted on the Ask EJ Forum:
When you say "reduce the interest rate on TIPS", you are referring to interest rates on TIPS sold in the future, correct? Or are you suggesting that the government will mandate a decrease in the interest rates on existing TIPS "in the national interest" or for some other reason?
Quote:
<TABLE cellSpacing=0 cellPadding=6 width="100%" border=0><TBODY><TR><TD class=alt2 style="BORDER-RIGHT: 1px inset; BORDER-TOP: 1px inset; BORDER-LEFT: 1px inset; BORDER-BOTTOM: 1px inset">The second thing the Treasury will do to limit losses in an inflationary crisis is re-define the inflation measure used to determine the inflation adjusted portion of TIPS. I'd own TIPS if they were indexed to a basket of commodities, but am wary of them otherwise (see Future inflation fears topple TIPS (http://www.itulip.com/forums/showthread.php?p=45890#post45890)). </TD></TR></TBODY></TABLE>
In regard to fiddling with the CPI, wouldn't the amount of fiddling have to exceed the interest rate of the particular TIPS for them to be less profitable than a straight Treasuries?
For example, if one already owns 5-year TIPS that are due to mature in a few years, and the interest rate is 2.5% + CPI, even if the government reduces the CPI by something under 2.5%, it would still seem better to hold these TIPS until maturity.
In my case, I've got 5-year TIPS at 2.38% + CPI due to mature in 2011. It would seem unwise to trade them in for 13-week Treasuries that now pay less than 1%, especially since we don't know how long the Ka phase will continue. If I'm missing something in this reasoning, please somebody let me know . . . .
what i reason is that the poom stage can happen right here, right now; something that EJ has always refuted to as a possibility. if that were to happen, you would not want to be holding paper of any kind.
the incremental amount between what bank CD's are offering for twelve months as opposed to 1 percent liquid MMA's is just not worth the risk(access to capital) at this juncture. you have to be ready to move very quickly. a doubling of your PM exposure speaks volumes but less so than going from all bonds to the shortest term bills.
it appears that the chance of a complete systemic collapse(revaluation/hyperinflation) of the global banking system has greatly increased.
and no one(Soros,Volker) really wants to come out and say it as it is politically incorrect.
goadam1
02-24-09, 09:52 PM
I know i will get blasted for this but, please reassure me that this isn't a pitch for bullionvault.
metalman
02-24-09, 09:54 PM
I know i will get blasted for this but, please reassure me that this isn't a pitch for bullionvault.
fair point... where does it mention bv?
Master Shake
02-24-09, 10:17 PM
With due respect I think some people in this very interesting forum are a bit mad.
I lived in one of the two Rio de la Plata Republics (Uruguay and Argentina) trough last crisis. In 2002 unemployment reached 20%. GDP between 1999 and 2002 falled by about 20%. Poverty in Argentina reached 50%, in Uruguay it was at more than 30% (and when you say poverty, you mean POVERTY), people were roaming in the streets begging, lots, thousands of people, looking into the garbage for something to eat or sell, etc.
There were some riots in Argentina, particularly in Buenos Aires after killing some 20 people by the police president De la Rua had to abandon Casa Rosada in a hellicopter, but your´e talking of a more than 10 million people city in a 35 million country.
In Uruguay things were more peaceful, no big disorders, nor street killings.
There was a rise in crime, particularly in Buenos Aires, kidnappings of more or less rich people.
Many peoples´savings got wiped (that fired some riots in B.A.), but at no time we needed to hoard food or ammunition, or fuel.
You could buy anything you needed as usual, with money.
Inflation spiked, currencies devalued, then revalued (Argentina´s less than Uruguay´s). But you never needed to hold guns or things of the like.
Just keep rational security measures, mainly be alert and don´t visit intrinsicaly dangerous places.
Be calm, things never turn to be so harsh as to need nuclear proofed bunkers or large food or fuel deposits.
Of course, I keep enougn cash for at least one year of basic needs and taxes.
And gold as an investment.
The rest seems to me a bit absurd.
Of course, as crisis developed I withrew money from local banks, and was able to buy land at incridibly low prices. I sold most of it by now, with an obscene profit.....
And I´m waiting for a new (shall never be so good again) oportunity.
Best regards to all, I appreciate very much your postings...but be calm
Thanks for the burst of sanity. My wife is Argentine, and the rest of her family live there (Bariloche and BA). They managed to get by during all the bad times since we married (1982) and without the luxury of having the world's reserve currency.
EJ, Quite an ominous title! I see some people asking how to play this and I think the VERY Best advise was in this post from you and Fred;
http://www.itulip.com/forums/showthread.php?p=50417#post50417
where you recommended this plan;
What to do?
As usual, we don't offer investment advice here, but here is what we are either doing or plan to do soon.
First we create four money buckets: 1) money we need short term to pay daily expenses (Short Term Liquid Funds), 2) money we need access to on a monthly basis to pay the household bills (Monthly Liquid Funds), 3) money we may not need access to for one to five years but cannot afford to lose the principle value (Short Term Investment Funds), and 4) money we have in for long term investment that we hold at risk for higher returns and do not need to access for five years or more (Long Term Investment Funds).
Short Term Liquid Funds
1. We keep a hard cash supply to fund all basic household payment needs for three to six months. In the unlikely event that all three of our five star banks wind up in a FDIC bailout cue, we will have cash on hand to fund short term expenses.
Monthly Liquid Funds
2. We do not keep more than $100,000 in one bank as the FDIC only insures deposits up to $100,000. If we have more than $100,000 in one bank, we open several bank accounts and transfer funds to them.
3. Even if we had less that $100,000 we do not concentrate all of our savings in one bank in case that bank winds up in an FDIC processing cue.
4. We put our monthly liquid funds in three or more smaller local banks as these tended to have not participated in the kind of risky lending that got the larger national banks in trouble.
Bankrate.com has a useful bank rating tool (http://www.bankrate.com/brm/safesound/showbanks.asp) to use to identify safe banks. We recommend it to search out 5 star banks in your area. This is no guarantee that we will not experience problems, but risk is always relative so we try to reduce ours as much as we can by maintaining accounts in the highest rated banks. I have written for bankrate.com (http://www.bankrate.com/brm/news/investing/20000321l.asp) over the years and experience them as solid appraisers of financial risk.
For example, the bankrate analysis tool lists the following 5 star banks in MA:
BOSTON TRUST & INVESTMENT MANAGEMENT COMPANY,
CAPE ANN SAVINGS BANK
FAMILY CAPITAL TRUST COMPANY, NATIONAL ASSOCIATION
FIDELITY MANAGEMENT TRUST COMPANY
FOXBORO FEDERAL SAVINGS
NORTH BROOKFIELD SAVINGS BANK
STATE STREET BANK AND TRUST COMPANY
WALPOLE CO-OPERATIVE BANK
WELLINGTON TRUST COMPANY NATIONAL ASSOCIATION
Short Term Investment Funds
5. As we have recommended to readers since 1999, we have a no-fee Treasury Direct (http://www.savingsbonds.gov/indiv/indiv.htm) account. We connect to one of our bank accounts to the US Treasury with no middle man to buy US treasury bills and bonds directly from the government.
We hold 10 year bonds and 30 year Series I Bonds we purchased using Treasury Direct in 1999, 2000, and 2001 when long term yields were much higher than today, as we were betting on disinflation followed by inflation. Now that the inflection point between disinflation and inflation appears to be upon us, we are buying short duration 4-week and 13-week T-bills and setting the account to automatically re-invest them as they mature, up to ten times.
Here you can see yields approaching zero. <graph removed="" by="" me="">
There is no precedent for this in the US, however previous episodes have always ended with rising inflation and bond yields.
In our opinion yields have only one way to go: up. By purchasing short duration bills and rolling them over we plan to take advantage of the eventuality of rising yields as the government prints money to monetize debt, its last resort to keep the system functioning, and as foreign private and official holders reduce demand. If we buy longer duration bonds we may miss the rise, which may be quite rapid, but which can be largely captured by the 4 and 13 week maturity durations.
Long Term Investment Funds
6. For long term investments we are developing strategies from our US exchange rate and capital controls or bust? (http://itulip.com/forums/showthread.php?p=49722#post49722) analysis.
7. We retain our 15% precious metals position taken in 2001, now at 27% of holdings.
It is interesting to note you were already at almost 30% for gold back in September 08.</graph>
metalman
02-24-09, 10:54 PM
It is interesting to note you were already at almost 30% for gold back in September 08.
he, he. but now 'allocated' on purpose. :D
metalman,
Fred made this suggestion earlier on this thread:
http://www.itulip.com/forums/showthread.php?p=78748#post78748
As a note to goadam1 and others I believe Bullionvault is a Gold Sponsor of iTulip website so the recommendation should be no surprise (and hopefully Fred won't have to post 1/2 page disclaimers) ;-)
Well, I'm not myself convinced that retirement accounts are a bad deal, even in this environment. If one actually waited until they were at least 59 1/2 years old to tap into their money, and assuming they were actually retired (so that their base income level was low), and assuming they didn't pull it all out at once -- in other words, if the retirement accounts were used as intended -- then the tax burden would be a lot lower. It's really just the penalty and the progressive tax structure which make a big lump-sum withdrawal painful.
In the scenario which I think most likely, I'm expecting high taxes on capital gains and other sorts of transactions -- but I don't expect the government to confiscate my retirement accounts or tax my investments directly. I also expect to be able to protect the purchasing power of my retirement savings through investment in inflation hedges. So, under current law, it seems to me like retirement accounts might continue to be one way that I can continue to trade and realize capital gains, while avoiding higher taxes on such gains. I'd only cash out if it became apparent that these expectations are wrong, and the rules of the game are going to change dramatically.
Umm, not to pick nits, but you did read the piece at the root of this thread, right?
babbittd
02-25-09, 01:12 AM
With due respect I think some people in this very interesting forum are a bit mad.
I lived in one of the two Rio de la Plata Republics (Uruguay and Argentina) trough last crisis. In 2002 unemployment reached 20%. GDP between 1999 and 2002 falled by about 20%. Poverty in Argentina reached 50%, in Uruguay it was at more than 30% (and when you say poverty, you mean POVERTY), people were roaming in the streets begging, lots, thousands of people, looking into the garbage for something to eat or sell, etc.
There were some riots in Argentina, particularly in Buenos Aires after killing some 20 people by the police president De la Rua had to abandon Casa Rosada in a hellicopter, but your´e talking of a more than 10 million people city in a 35 million country.
In Uruguay things were more peaceful, no big disorders, nor street killings.
There was a rise in crime, particularly in Buenos Aires, kidnappings of more or less rich people.
Many peoples´savings got wiped (that fired some riots in B.A.), but at no time we needed to hoard food or ammunition, or fuel.
You could buy anything you needed as usual, with money.
Inflation spiked, currencies devalued, then revalued (Argentina´s less than Uruguay´s). But you never needed to hold guns or things of the like.
Just keep rational security measures, mainly be alert and don´t visit intrinsicaly dangerous places.
Be calm, things never turn to be so harsh as to need nuclear proofed bunkers or large food or fuel deposits.
Of course, I keep enougn cash for at least one year of basic needs and taxes.
And gold as an investment.
The rest seems to me a bit absurd.
Of course, as crisis developed I withrew money from local banks, and was able to buy land at incridibly low prices. I sold most of it by now, with an obscene profit.....
And I´m waiting for a new (shall never be so good again) oportunity.
Best regards to all, I appreciate very much your postings...but be calm
If prices shoot up with inflation, doesn't having stores of food and other goods that will be subject to said soaring prices serve to lower one's expenses during the volatile period?
tojaktoty
02-25-09, 02:53 AM
What about using products like Stabil to preserve fuel? I understand it works well.
I agree about diesel.
What I've read is that as long as you keep water out of it, it will keep. If water gets in, bacteria grow in the water/diesel interface, which introduces problems. So topping off would be important. When starting to use a full big tank, empty into smaller tanks and keep them as full as possible.
Apparently, airplane fuel is very stable, compared to gasoline.
I learned this from a walk-behind tractor dealer, who says he's been using it in chain saws, lawn mowers and other equipment without getting the lacquer buildup in the carburator. You read on the internet that it's crazy to use airplane fuel in small engines, but the guy seems to be right -- it worked for me all last season.
I'm storing it without using Stabil, but wonder if I should.
Turning over inventory is probably best, but it's impossible if you're storing a lot, i.e., more than you normally use for 5 years or so . . . .
As a fuel preservative I've been using PRI-G (gas) and PRI-D (diesel) based on 3rd party internet suggestions and also recommend it. Beyond the large amount of support it garners it also is more cost effective based on Stabil versus PRI's claims of treatability per gallon.
If one has a shed or shaded area from the elements, sun and precipitation, I recommend purchasing used 55gallon drums on the cheap locally on ebay or craigslist. Depending on one's climatic region winter and/or summer fuel blends ought to both be stored decreasing future engine startup issues in varying atmospheric conditions.
Diesel should store longer than gasoline but as you mentioned requires greater attention in preventing moisture/water buildup.
I am uncertain which fuel grade blend, winter or summer, for either gas/diesel when treated would maintain longest when stored sealed. Anyone with some insight on this please chime in. I've stored both blends in separate drums and will see how it will fare in the future.
I am not familiar with the interoperability of airplane fuel in smaller four stroke engines and its storage life. It is something I will read into.
Beyond the fact that I store fuel not for agricultural purposes: I maintain a cashflow from leasing residential and commercial real estate but have moved most other liquid assets into physical possession of bullion, beans, and bullets as well as gold, grains, and guns. I'm most heavily apportioned in physical Ag and Au which are almost split equally on a frn basis.
My current situation is not as self sustaining as I would prefer meanwhile I'm slowly making progress. So far most of my insurance policies are merely stop-gap measures if the environment maintains a worsening trajectory.
Semi-fortunately I reside on 2 acres in what is considered a suburb. Unfortunately I reside 30 minutes from one of the largest metros in the midwest.
I discovered the site around the same time - just after buying a house and moving IRA money into an energy mutual fund.
Since then, I've moved from mostly mutual funds to something like:
45% cash
25% equity (70% energy, 30% S&P)
16% TIPS/bonds
14% gold
...plus a house at a 5% fixed 30 year loan, with ~18% down. Not really counting that as an asset as its going to be a money loser long term. Bought too early. At least it is small/cheap to heat, within walking distance of everything I need on a daily basis.
Not exactly in line with the itulip view, but better than where I was. In all, I'm not in horrible shape but I'm no where near as prepared as others here.
It's been a tough few months to get educated.
unlucky
02-25-09, 05:17 AM
With due respect I think some people in this very interesting forum are a bit mad ...
you never needed to hold guns or things of the like.
You may be right, but just think of all the fun we can have with loads of guns, ammo, whiskey, and diesel stockpiles. :)
Charles Mackay
02-25-09, 05:17 AM
Thanks for the burst of sanity. My wife is Argentine, and the rest of her family live there (Bariloche and BA). They managed to get by during all the bad times since we married (1982) and without the luxury of having the world's reserve currency.
With due respect I think some people in this very interesting forum are a bit mad.
I lived in one of the two Rio de la Plata Republics (Uruguay and Argentina) trough last crisis. In 2002 unemployment reached 20%. GDP between 1999 and 2002 falled by about 20%. Poverty in Argentina reached 50%, in Uruguay it was at more than 30% (and when you say poverty, you mean POVERTY), people were roaming in the streets begging, lots, thousands of people, looking into the garbage for something to eat or sell, etc.
There were some riots in Argentina, particularly in Buenos Aires after killing some 20 people by the police president De la Rua had to abandon Casa Rosada in a hellicopter, but your´e talking of a more than 10 million people city in a 35 million country.
In Uruguay things were more peaceful, no big disorders, nor street killings.
There was a rise in crime, particularly in Buenos Aires, kidnappings of more or less rich people.
Many peoples´savings got wiped (that fired some riots in B.A.), but at no time we needed to hoard food or ammunition, or fuel.
You could buy anything you needed as usual, with money.
Inflation spiked, currencies devalued, then revalued (Argentina´s less than Uruguay´s). But you never needed to hold guns or things of the like.
Just keep rational security measures, mainly be alert and don´t visit intrinsicaly dangerous places.
Be calm, things never turn to be so harsh as to need nuclear proofed bunkers or large food or fuel deposits.
Of course, I keep enougn cash for at least one year of basic needs and taxes.
And gold as an investment.
The rest seems to me a bit absurd.
Of course, as crisis developed I withrew money from local banks, and was able to buy land at incridibly low prices. I sold most of it by now, with an obscene profit.....
And I´m waiting for a new (shall never be so good again) oportunity.
Best regards to all, I appreciate very much your postings...but be calm
Did you both have the advantage of having dollars outside Argentina during this time? And be able to convert them to pesos as needed to live? You may not have that luxury in this current global systemic crisis.
I heard that most Argentines with money kept bank accounts in the US or Europe. The poor were poor before the crisis and poor after the crisis.
I think we have a much more serious situation here in the U.S.. The poor will lose their government subsidies and become dirt poor. The pensioner's will be wiped out, and the middle class will be destroyed. So we're dealing with a much more serious social catastrophe here aren't we?
mercerbear
02-25-09, 06:43 AM
Great article but could you edit it please? There are so many errors that it's difficult to read.
er... such as?
I noticed an unusual number of overlooked errors while I read this piece the first time so I proofed it on my second read. Great content as always!
Fred, feel free to delete this post if you like. I in no way want anyone to think that I'm criticizing! EJ's an amazingly talented writer and the editing here is almost always perfect!
While politicians and others have complained that banks aren't lending, the data on credit outstanding credit in the U.S. only tenuously supports this idea, the rating agency said.
the stock market got kicked back to1996.
As iTulip readers who have been us from the start know
Since 1992 Japanese policy makers transferred debt from private to public account via bailouts and fiscal stimulus, siphoning off cash flow from households and businesses to repay the loans carried on the books of banks as assets on the side of the creditor-debtor balance sheet where the political power lives, collateralized by buildings, houses, and land, which prices were inflated by the very credit that created in the onerous debts that became ever more so as the Japanese economy shrank.
Isn't the personal savings rate is finally rising,
two years after the end of the assets bubbles ended that started in 1985.
Asset price inflations and deflations exert a perverse effect and saving.
and a greater proportion of income is goes to paying off debts taken on during the boom.
and federal government receipts continue decline at a 7.5% annual rate
Treasuries since 1998 combined with a15% gold position
Master Shake
02-25-09, 06:54 AM
Did you both have the advantage of having dollars outside Argentina during this time? And be able to convert them to pesos as needed to live? You may not have that luxury in this current global systemic crisis.
I heard that most Argentines with money kept bank accounts in the US or Europe. The poor were poor before the crisis and poor after the crisis.
I think we have a much more serious situation here in the U.S.. The poor will lose their government subsidies and become dirt poor. The pensioner's will be wiped out, and the middle class will be destroyed. So we're dealing with a much more serious social catastrophe here aren't we?
My wife's family did not have any foreign bank accounts. She comes from a middle class family; not rich. What they and everybody else did was trade their pesos for dollars, usually on the black market. No one in her family kept anything but a minimal amount of money in the bank; it was pretty much a cash (USD) economy.
I guess the question is: what do we convert our dollars into? It looks like the USD could end up being the proverbial one-eyed king in the land of the blind, as all fiat currencies go to hell in a handbasket. So I guess that leaves gold and other hard assets, but I have a hard time seeing a reversion to a global economy based on gold and barter.
Who knows? The point is, we've suffered depressions and financial panics in the past without going Mad Max.
Thanks for the clarification, jtabeb -- and I fully acknowledge your disclaimer.
The risk is clearly something that everyone needs to assess for themselves. For me, the opportunity cost of missing out on 30 years of tax-free growth (I've got a long row to hoe before retirement) is so large that I'd have to be absolutely certain that the potential gains were illusory before I pulled money out of my 401(k) or IRA.
My apologies Ash. I should have read the thread a bit more closely. I was referring to putting the majority of my assets in gold and silver, not to withdrawing money from retirement accounts. I am keeping my money in my 401k, though I did find a way to get much of my 401k contributions for this year into a Roth IRA. I have been building up a Roth IRA with maximum contributions for six years now and have no intention of stopping that, already made the contributions for 09. But I can hold PMs as part of that account.
Did you both have the advantage of having dollars outside Argentina during this time? And be able to convert them to pesos as needed to live? You may not have that luxury in this current global systemic crisis.
I heard that most Argentines with money kept bank accounts in the US or Europe. The poor were poor before the crisis and poor after the crisis.
I think we have a much more serious situation here in the U.S.. The poor will lose their government subsidies and become dirt poor. The pensioner's will be wiped out, and the middle class will be destroyed. So we're dealing with a much more serious social catastrophe here aren't we?
I would agree that the situation here has the potential to be much worse. I lived and traveled in the Middle East for several years, have been to Thailand and much of Latin America as well. I am amazed by how much better people in other countries are able to handle poverty than are Americans.
I would also agree with Southernguy that I may be a bit mad here. I should clarify that I never want to need to use a gun so long as I live. But I do feel that the possibility of needing one is increasing.
I would like to think things would go down as smoothly in the US as they have elsewhere, but if TSHTF in a big way, I do not see that happening.
Andreuccio
02-25-09, 09:00 AM
Well, I'm not myself convinced that retirement accounts are a bad deal, even in this environment. If one actually waited until they were at least 59 1/2 years old to tap into their money, and assuming they were actually retired (so that their base income level was low), and assuming they didn't pull it all out at once -- in other words, if the retirement accounts were used as intended -- then the tax burden would be a lot lower. It's really just the penalty and the progressive tax structure which make a big lump-sum withdrawal painful.
Ash and Jtabeb, thanks for the replies.
By "the game" I didn't mean the tax burden on early withdrawals. I meant the confiscation of wealth from within the account. Direct confiscation by the government is only one possibility. The fact that I'm limited in investment choices is another.
Ash and Jtabeb, thanks for the replies.
The fact that I'm limited in investment choices is another.
That was my major problem with my structructured 401K plan. (where is the uranium ETF, or GLD or SLV or Alt-E, or Miners, or Agri, or ...)
I COULD get Financials (whoopee!) or S&P, or DJIA, or Treasuries. WTF?!? I'm supposed to be able to make a GAIN in this shit? C'mon!
tastymannatees
02-25-09, 11:32 AM
I think perhaps it is time for us to return to the discussion of what practical measures people here are taking, in addition to asset allocation. Personally I am now a bit over 30% physical PMs, but mostly because the price has risen since my original purchases several years ago. I am starting to think why bother with cash at all, other than enough to get the essentials for a few months? Why not just have 80% PMs to ride things out?
I am 80% PM's right now, I could not handle the stress of trying to second guess overnight devaluations, bank holiday's, sudden stops etc. I am averaged in at $830 and may buy some more at this level. If the DOW goes to 1500-5000 and gold is $600 I will be happy, and if the dollar gets gets whacked at the knees I will be happy. The market is surprisingly weak, yesterday's "retard's rally" after trotting out the big guns Bernake and Obama was only good for a one day bounce. I think Itulip's warning at this point is very timely.
The question I ask now is how much food we should store? For what types of events we should be prepared? I am an optimist, even had a girlfriend who always complained that I was too optimistic. So I am surprised to be thinking this way. But I do feel like I am watching the fecal matter hit the fan in slow motion here and should do far more to prepare for it.
Anyone else here taking other measures?I am an optimist also - I like to insure that optimism by backing it up and being prepared.
I bought a couple of guns last week as insurance. If things work out I will just sell them after the crisis passes. I am neutral on guns but if there is even a 10% chance my family will be threatened I will be prepared.
I have the usual rice, bean, MRE, freeze dried assortment good for 3 months. If it blows over I will donate to the local food bank.
I am on well water so bought a generator, also some LED camping lamps
I have 3,000 cash per person in house.
Also have a couple of pallets of Toilet paper.
Security cameras
An acre of land , some seeds, some miracle grow and some mulch.
Swimming pool - If things get really bad I will turn it into a fish farm:)
Working out a method to trap the turkeys that show up in my yard every morning.
All in all maybe 5-6k investment in insurance - preparing for worst case although the optimist in me says it will be somewhere in between at least I will be ready if things go completely south.
Ash and Jtabeb, thanks for the replies.
By "the game" I didn't mean the tax burden on early withdrawals. I meant the confiscation of wealth from within the account. Direct confiscation by the government is only one possibility. The fact that I'm limited in investment choices is another.
Yeah -- I admit I'm gambling that the government doesn't turn to confiscating wealth directly, but does so surreptitiously through monetization and taxation of transactions instead.
That was my major problem with my structructured 401K plan. (where is the uranium ETF, or GLD or SLV or Alt-E, or Miners, or Agri, or ...)
I COULD get Financials (whoopee!) or S&P, or DJIA, or Treasuries. WTF?!? I'm supposed to be able to make a GAIN in this shit? C'mon!
If I didn't have a self-directed brokerage 401(k) and IRA, I readily admit that I'd be right where you are now -- cashed out. My retirement savings are mainly in CEF.
Who knows? The point is, we've suffered depressions and financial panics in the past without going Mad Max.
I agree with you and SouthernGuy. Weimar Germany is another example: off-the-charts hyperinflation, and the middle class was "wiped out", but I've never heard any stories where people in ammo-loaded bunkers won out.
And lest you think I don't "get it": I _do_ have some freeze-dried food, and ammo, etc. But it's for the pandemic scenario, mainly (or nuclear war, which I think is much less likely). If everyone's afraid of exposure to a lethal virus, that could collapse a society for a while. But no financial collapse is going to shut down food supplies in today's developed countries. What does it take today, maybe 2% of the population to keep food and shelter activities running? While the 1 in 1000 survivalists are hunkering down, the other 999 will be pitching in where needed to insure that basic necessities are available for all. If it even comes to that.
I would also like anyone's view on TIPs in the environment EJ describes..
Thoughts?
"In 1779 when the dollar was toast, the Treasury paid soldiers with bonds indexed to a basket of commodities. Today they don't even want to pay up with bonds indexed to a dubious inflation index of the government's own making. Is this any way for a government to behave that's banking on deflation?"
See: Future inflation fears topple TIPS (http://www.itulip.com/forums/showthread.php?p=45890#post45890)
WildspitzE
02-25-09, 02:39 PM
If principal on debts is not reduced by negotiated debt restructuring, the markets will eventually deflate the debt against the monetary unit of the debt, the US dollar.
BAM! :cool:
BlackVoid
02-25-09, 03:09 PM
Read more about Argentina here:
http://ferfal.blogspot.com
Ferfal is saying you better have food, guns and gold.
metalman
02-25-09, 03:16 PM
BAM! :cool:
tic tock. tic tock.
http://nexus404.com/Blog/wp-content/uploads2/2007/09/jumbo-twin-bell-alarm-clock.jpg
babbittd
02-25-09, 03:51 PM
I agree with you and SouthernGuy. Weimar Germany is another example: off-the-charts hyperinflation, and the middle class was "wiped out", but I've never heard any stories where people in ammo-loaded bunkers won out.
And lest you think I don't "get it": I _do_ have some freeze-dried food, and ammo, etc. But it's for the pandemic scenario, mainly (or nuclear war, which I think is much less likely). If everyone's afraid of exposure to a lethal virus, that could collapse a society for a while. But no financial collapse is going to shut down food supplies in today's developed countries. What does it take today, maybe 2% of the population to keep food and shelter activities running? While the 1 in 1000 survivalists are hunkering down, the other 999 will be pitching in where needed to insure that basic necessities are available for all. If it even comes to that.
Natural disasters. Terrorist attack. Power outage. Don't want to be depending on the government for help, especially when they're broke. I suppose pandemic and nuclear scenarios can be added to the list but I'm far less worried about those.
powersown
02-25-09, 05:20 PM
The risk is clearly something that everyone needs to assess for themselves. For me, the opportunity cost of missing out on 30 years of tax-free growth (I've got a long row to hoe before retirement) is so large that I'd have to be absolutely certain that the potential gains were illusory before I pulled money out of my 401(k) or IRA.
Hi Ash,
I am definitely not a tax expert, so this is being passed on with the caveat to check it out on your own.
Alex Stanczyk, editor of Rapid Trends and affiliate of Anglo Far East Bullion, had this to say about Gold and Silver Bullion in Your IRA in his December 3, 2008 e-letter:
"A "Self Directed IRA" allows you to do a direct rollover of your assets with no tax liability and enable you to invest in precious metals with the proceeds.
Individual Retirement Accounts (IRAs) can be funded with physical gold and silver, yet very few investors are aware of this fact. They are exempt from all capital gains taxes, so if your investments perform well over a long period of time, it can result in huge savings."
He then went on to refer readers to http://www.iraaa.org/learnmore/viewarticle.aspx?aid=34 (http://www.iraaa.org/learnmore/viewarticle.aspx?aid=34) to find out about the legality of Self Directed IRA’s.
Not liking governmental legalese, nor needing the info myself, I have not read the article.
The guy, who admittedly IS in the bullion business, wraps up with: "If you would like to know more about how Self Directed IRA's work, and how you can use it to salvage your future, please contact us at (US) +1 206 905 9961 for additional information."
It is either a good/real thing or not. Figure you can determine that.
If you find out, you might report back here.
Good luck.
Chris Coles
02-25-09, 05:22 PM
Natural disasters. Terrorist attack. Power outage. Don't want to be depending on the government for help, especially when they're broke. I suppose pandemic and nuclear scenarios can be added to the list but I'm far less worried about those.
If you look closely at this report from NASA you will see a reference to something like 340 large electricity transformers that might fail in a super solar storm. So what? It might take at least two years to build a single new transformer and the existing capacity to build the one will require large quantities of, you've guessed it, electricity.... and..... you perhaps might be able to boost your construction capacity to, say, ten a year after the first two years.... http://science.nasa.gov/headlines/y2009/21jan_severespaceweather.htm
Now how much are your stores of supplies worth?
babbittd
02-25-09, 05:32 PM
If you look closely at this report from NASA you will see a reference to something like 340 large electricity transformers that might fail in a super solar storm. So what? It might take at least two years to build a single new transformer and the existing capacity to build the one will require large quantities of, you've guessed it, electricity.... and..... you perhaps might be able to boost your construction capacity to, say, ten a year after the first two years.... http://science.nasa.gov/headlines/y2009/21jan_severespaceweather.htm
Now how much are your stores of supplies worth?
Sounds like a trick question. What's your point?
Chris Coles
02-25-09, 05:53 PM
Sounds like a trick question. What's your point?
Sorry about that, you are correct. The point is the scenario of not having ANY electricity for several years. None!
And I do mean NONE; no electricity, in the worst case over the whole of the contiguous United States. No refrigeration, no air-con, no street lights, no Metro, not oil pumping through the long distant pipelines. No working petrol stations, sorry gas stations, no large food stores, nothing that needs electricity working for several years..... Does that help?
It is either a good/real thing or not. Figure you can determine that.
If you find out, you might report back here.
Hi powersown. Actually, both my IRA and 401(k) are self-directed, and that does allow me to be in PM-backed securities like CEF, etc., rather than the usual handful of "standard menu" mutual fund choices. Since I have those options, the issue isn't "what happens to a restricted menu of stock and bond mutual funds if there's a dollar crash?" but rather "what happens to shares in a closed-end bullion holding fund based in Canada if there's a dollar crash?". It's a different category of risk -- it's not the risk that the assets of CEF will themselves drop in real value, but rather the risk that the rules of the game will change in a way such that I lose those assets. If I didn't have the option of holding PM in some form in my retirement accounts and I thought POOM was right around the corner, I probably would cash everything out and convert to physical PM. (Actually, as you point out, I might just roll over into a self-directed account... but I already did that in 2006 when I started positioning for inflation, which is why I'm where I'm at now.) Obviously, no security -- however well structured -- provides the same level of insurance against systemic risks that physical PM offers. However, I'm accepting the elevated risk for this portion of my net wealth because the potential reward of tax-free growth is, in my mind, commensurate. (And when the Feds confiscate my retirement accounts to fund international trade in vital commodities, jtabeb can tell me "I told you so" and I'll agree... but I'll still have my physical PM.)
And I do mean NONE; no electricity, in the worst case over the whole of the contiguous United States. No refrigeration, no air-con, no street lights, no Metro, not oil pumping through the long distant pipelines. No working petrol stations, sorry gas stations, no large food stores, nothing that needs electricity working for several years..... Does that help?
As the range of economic and other outcomes becomes more dire, it is interesting how The End Of The World As We Know It (TEOTWAKI) thinking surfaces again. There is almost always a fallacy at the bottom of TEOTWAKI scenarios. In this case I think it is probably that somehow one hundred thirty million people would be allowed to be without power for an indeterminate period while the rest of the US and indeed, the world, economy would just continue unperturbed. In fact, Quebec would be hit harder than the areas listed, as would most of the rest of Canada, and with proper timing the UK and northern Europe (or Russia and China, take your pick) would be totally hosed. So we can add in "few" million more people who, in the winter, would be in a heap of hurt. While manufacturing lead times for transformers are measured in years, in point of fact, a Manhattan project to turn out a few hundred transformers would produce results better than that.
Nationalization of the mines, rails, trucks, fuel suppliers, custom steel manufacturers, copper producers, engineering firms, and project managers would probably not be required to make transformers in a few months but could be done if really needed. IMHO, throwing two to twenty times the price of the transformers at the existing suppliers and providing logistics support (military flights, convoys, etc) would produce amazing results in expediting the manufacture and distribution. Sophisticated multinational supply chains would coalesce in weeks or months to facilitate the production. The worldwide problem would merit a worldwide response and be wiped out quickly.
In Y2K people worried that the world would end. It might have, but people actually responded in a rational way to the problem. As a result, (examples from my personal consulting experience) locks on jail doors did not fail open at midnight, water pumps did not shut down, manufacturing tooling did not fail to wake up the next morning, and the few problems that were missed were resolved in hours without as much as a hiccup. I am not saying that everything is like Y2K, and without the preparations, Y2K would have been nasty indeed, but ... TEOTWAWKI is only likely if people don't respond to it. In fact, when people prepare themselves for the end of the world they tend to isolate and disconnect themselves from he others who might help them or might need help.
Right now, we are facing a problem in the economy that resists agreed upon definition (I, personally like EJ's answer) and most certainly an agreed upon solution. I, and seemingly quite a few iTulipers are not optimistic that a solution is likely to happen.
We should not confuse that sort of insoluble problem with the easy problem that a few hundred or few thousand transformers met their maker on an aurora illuminated night. In fact, the coordination might help the economy because there would be no time whatsoever to negotiate the CDOs, and other debt derivatives to finance such a venture and somebody would simply have promise to pay the bills. What a concept.
Master Shake
02-25-09, 09:29 PM
If you look closely at this report from NASA you will see a reference to something like 340 large electricity transformers that might fail in a super solar storm. So what? It might take at least two years to build a single new transformer and the existing capacity to build the one will require large quantities of, you've guessed it, electricity.... and..... you perhaps might be able to boost your construction capacity to, say, ten a year after the first two years.... http://science.nasa.gov/headlines/y2009/21jan_severespaceweather.htm
Now how much are your stores of supplies worth?
Great, one more thing to worry about.
According to the report, power grids may be more vulnerable than ever. The problem is interconnectedness. In recent years, utilities have joined grids together to allow long-distance transmission of low-cost power to areas of sudden demand. On a hot summer day in California, for instance, people in Los Angeles might be running their air conditioners on power routed from Oregon. It makes economic sense—but not necessarily geomagnetic sense. Interconnectedness makes the system susceptible to wide-ranging "cascade failures."
Gee, kinda sounds like the global financial system. Economies of scale due to inter-connectedness, diseconomies of systemic risk due to same. Wonderful.
There is a great thread that supports EJ's comments and the gravity of the situation we are in. It is a discussion on an article by Paul Craig Roberts; How the Economy Was Lost. Mr Roberts was an assistant secretary of the treasury under Reagan. Some quotes;
If incompetence in Washington, the type of incompetence that produced the current economic crisis, destroys the dollar as reserve currency, the “unipower” will overnight become a third world country, unable to pay for its imports or to sustain its standard of living.
We are able to import $800 billion annually more than we produce, because the foreign countries from whom we import are willing to accept paper for their goods and services. The thread is; http://www.itulip.com/forums/showthread.php?t=8261
Mn_Mark
02-25-09, 11:31 PM
Back in 1980 when the financial environment was in some ways similar to what we have now, various financial pundits were predicting hyperinflation would hit the U.S. at that point. One of them was John A. Pugsley, who wrote a book back then called "The Alpha Strategy: The Ultimate Plan of Financial Self Defense." I got a copy of it from Half.com after reading a number of people recommending it. (I think it's long out of print.)
His strategy for protecting one's wealth had four levels.
Level one was to invest in your ability to be productive: to get education in useful skills that can be used to generate income (and to work hard on keeping your skills current so you are competitive), to learn a second trade as a backup for your main job (something that one could barter with on a local level), and to buy the tools and supplies needed for your trade(s). Money spent on tools and supplies and education would be well-spent regardless of how bad inflation got.
Level two was to save ("hoard") consumables. When you buy something you know you will need to use later, and big inflation hits, you are automatically getting a rate of return on that investment equal to the rate of inflation. If you know inflation is coming, then it makes sense to buy the consumables you know you will need ahead of time. He goes into detail on the various classes of consumables and which are appropriate for hoarding and which are not.
Level three is to save "real money", i.e. commodities. Gold and silver are to form a large part of your savings, to be sure, but he recommended investing in industrial and strategic metals as well. At the time he wrote his book, the only realistic way of doing that was buying futures contracts for things like copper, lead, and so on.
The fourth level was tacked on at the end - basically it was a plea for us to revert to a more traditional, libertarian, "Theft-Free" form of government so that we wouldn't need to have to go to these extraordinary measures to protect ourselves from government manipulation and confiscation.
One thing I don't see discussed much on this board is the idea of investing in commodities like the industrial metals (or oil, which IS discussed here some) as a way to invest large amounts of money without having to take delivery of precious metals or worry about whether the managers of GLD are actually buying the gold they say they are. Yes there was a huge rise and then fall in commodities last year. My personal plan is to keep an eye on things and possibly move some significant amount of my money into commodities - either as futures contracts or perhaps in the various new commodities ETFs - when it seems that demand has dropped most of the way it's going to drop. (Hard to know when that is, of course.) His idea was that even if you don't buy at the bottom, when the economy picks back up there will be tremendous demand for commodities, especially since many of the producers of commodities will have closed up shop or cut back on investment in their equipment and so on. Meanwhile, commodities are never going to go zero like the stock of a company could or the value of a bond could.
Plus commodities might be a good way to get your dollars transformed into something more easily held in retirement accounts and exchanged for large sums of money than land and ammunition. The fact that so many people feel burned from last year's big drop in commodity prices suggests it may possibly be a contrarian's time to buy now.
I recall reading somewhere that at the height of the hyperinflation in Weimar Germany you could have bought an entire block of downtown Berlin for one one-ounce gold coin. (Of course you would have had to be able to pay the property taxes on it.) The book value of the entire Mercedes-Benz car company dropped so far that it was only worth the price of several of its cars.
Doug Casey recently wrote that before this is done you're going to be able to buy a house for the back taxes on it. I guess we're practically there already in some places.
metalman
02-25-09, 11:45 PM
they misunderstood the situation.
when volcker stepped up to play mr hard ass fix it man...
there was little debt... the inflation wiped it out.
interest rates were at 19% not zero.
the economy was growing not in a death spiral.
volcker... now shows up playing the confused geezer, scratching his bald head, wondering aloud... how could this have happened?
seriously... what the fuck are these guys going to do?
Great, one more thing to worry about.
Then the answer is simple, gentlemen: WE MUST DESTROY THE SUN!
:D
Sorry --couldn't resist.
babbittd
02-26-09, 12:17 AM
Sorry about that, you are correct. The point is the scenario of not having ANY electricity for several years. None!
And I do mean NONE; no electricity, in the worst case over the whole of the contiguous United States. No refrigeration, no air-con, no street lights, no Metro, not oil pumping through the long distant pipelines. No working petrol stations, sorry gas stations, no large food stores, nothing that needs electricity working for several years..... Does that help?
Yeah that's what I thought.
Well Chris, you're right, in fact, why don't you take my winter hat and gloves and these great boots too. I might as well forget about preparing for anything other than paradise on Earth.
Great, one more thing to worry about.
According to the report, power grids may be more vulnerable than ever. The problem is interconnectedness. In recent years, utilities have joined grids together to allow long-distance transmission of low-cost power to areas of sudden demand. On a hot summer day in California, for instance, people in Los Angeles might be running their air conditioners on power routed from Oregon. It makes economic sense—but not necessarily geomagnetic sense. Interconnectedness makes the system susceptible to wide-ranging "cascade failures."
Gee, kinda sounds like the global financial system. Economies of scale due to inter-connectedness, diseconomies of systemic risk due to same. Wonderful.
Lots of info about the US power grids (there's not really one big national grid, although they are connected):
http://www.eere.energy.gov/de/us_power_grids.html
And yes, much of Oregon's hydropower electricity goes to southern California, particularly in the summer. Sometimes we buy electricity back in the winter. For our own consumption, hydro provides about 40% and coal about 40%.
Chris Coles
02-26-09, 04:08 AM
Lots of info about the US power grids (there's not really one big national grid, although they are connected):
http://www.eere.energy.gov/de/us_power_grids.html
And yes, much of Oregon's hydropower electricity goes to southern California, particularly in the summer. Sometimes we buy electricity back in the winter. For our own consumption, hydro provides about 40% and coal about 40%.
This is not some sort of end of the world thing, it is a report involving a House Committee and NASA:
On October 30, 2003, the House Committee on Science, Subcommittee on Environment, Technology, and Standards held a hearing on space weather and on the roles and responsibilities of the various agencies involved in the collection, dissemination, and use of space weather data. Testimony was given by representatives from NOAA, NASA, and the USAF as well as by representatives from different industries. Questions included, What is the proper level of funding for agencies involved in space environmental predictions? and, What is the importance of such predictions to industry and commerce? Coincidentally, and rather remarkably, at that very time the Sun exhibited some of its strongest eruptive activity in the last three decades. Enormous outbursts of energy from the Sun during late October and early November 2003 produced intense solar energetic particle events and triggered severe geomagnetic storms, the wide ranging effects of which were described as follows:
The Sydkraft utility group in Sweden reported that strong geomagnetically induced currents (GIC) over Northern Europe caused transformer problems and even a system failure and subsequent blackout. Radiation storm levels were high enough to prompt NASA officials to issue a flight directive to the ISS astronauts to take precautionary shelter. Airlines took unprecedented actions in their high latitude routes to avoid the high radiation levels and communication blackout areas. Rerouted flights cost airlines $10,000 to $100,000 per flight. Numerous anomalies were reported by deep space missions and by satellites at all orbits. GSFC Space Science Mission Operations Team indicated that approximately 59% of the Earth and Space science missions were impacted. The storms are suspected to have caused the loss of the $640 million ADEOS-2 spacecraft. On board the ADEOS-2 was the $150 million NASA SeaWinds instrument. Due to the variety and intensity of this solar activity outbreak, most industries vulnerable to space weather experienced some degree of impact to their operations.1
These events reminded scientists and policy makers alike how significantly the space environment can affect human society and its various space- and ground-based technologies. Motivated by the October-November 2003 events (popularly known as the Halloween storms of 2003), the Committee on Solar and Space Physics (CSSP) of the National Research Council (NRC) began to consider the need to assess systematically the societal and economic impacts of what is now known widely as "space weather."
It is possible to download the full report as a free PDF file or buy the full report from here: http://www.nap.edu/catalog.php?record_id=12507
globaleconomicollaps
02-26-09, 05:03 AM
this sounds about right to me:
a) Now - given gold at $US 1,000/oz - it seems an odd time to be adding to anyone's gold position. This is within the context of a 25:1 gold to crude oil ratio. (1000/40). Has Crude Oil been considered? Should Crude not provide a diversification benefit?
is there a company like CEF whose only asset is oil/gas? I want to "buy" gasoline for future use when it is cheap ( like now). You can buy a big tank, but the expense and danger is high. This seems like a more reliable store of value than gold and silver.
This is not some sort of end of the world thing, it is a report involving a House Committee and NASA:Indeed it is a considerable and serious problem. It is just not the means by which our society collapses without hope for many years. That is because:
1. Coronal Mass Ejections (the bad actors in this story) travel slowly around a million miles an hour take one to several days to arrive after we see them explode on the sun. That gives us time to batten down the hatches (which is now becoming routine) in preparation. Satellites monitoring the sun are in place between us and the sun and are providing data that will improve our timing estimates as we gain experience. In fact, beautiful stereo images of the sun are produced constantly so we can better understand what is going on.
2. With preparation the power grid can be disconnected and run at reduced capacity/shut down for a while so the impact of the storm will be much less. In fact, there is time and data to respond to the storms now that they are being monitored appropriately.
3. Very impressive worst cases are possible when estimates of business as usual are extrapolated to show how recovery would be impossible or extremely painful. The barriers to recovery are almost always political and seldom technical. In fact, the political drones love to cite lead times and supply problems as cover for their lack of desire to respond. One would hope that the aftermath of Katrina and the still ongoing recovery would show the nation that the business as usual option does not work. Indeed, a Katrina style response to the solar storm would doubtless leave us without power forever. I was simply presenting the option that it need not be that way, that people still have the power to organize into functioning teams and get things done.
I strongly recommend James Kunstler's book, A World Made by Hand (http://www.worldmadebyhand.com/) as an excellent example of a moderate disaster prediction. A Youtube summary is here (http://www.youtube.com/watch?v=-zi_u0Q1RwY). The almost idyllic life that follows peak oil has horse drawn wagons, neighbors helping each other, and organic gardening. I won't spoil it, but all is not idyllic. Mostly, there is enough to get the reader asking "Why are people putting up with this?" There is mostly a lack of motivation and skill and the people simply settle into the collapse without resisting. A few who do respond to the crash live isolated on a hill and keep to themselves with their electric light and other conveniences but the rest live in 1880s conditions. After I read this book it became clear why many predictions of collapse are just plain wrong and why the worst case is just plain unlikely. I guess, in short, you have to give up totally on the human spirit and ingenuity to believe that society would collapse that way. I am not ready to give up on the human spirit yet in spite of the tarnish that recent events have left on it.
Then the answer is simple, gentlemen: WE MUST DESTROY THE SUN!
Yours Truly,
George W. Bush
flintlock
02-26-09, 11:45 AM
I agree with you and SouthernGuy. Weimar Germany is another example: off-the-charts hyperinflation, and the middle class was "wiped out", but I've never heard any stories where people in ammo-loaded bunkers won out.
And lest you think I don't "get it": I _do_ have some freeze-dried food, and ammo, etc. But it's for the pandemic scenario, mainly (or nuclear war, which I think is much less likely). If everyone's afraid of exposure to a lethal virus, that could collapse a society for a while. But no financial collapse is going to shut down food supplies in today's developed countries. What does it take today, maybe 2% of the population to keep food and shelter activities running? While the 1 in 1000 survivalists are hunkering down, the other 999 will be pitching in where needed to insure that basic necessities are available for all. If it even comes to that.
While I generally agree with you that life went on in Germany, some forget that Weimar Germany saw street fighting by armed and uniformed men, coups were attempted, and key industrial areas were occupied by the French. The political system broke down and political parties fought their battles not in the legislature, but in the street with guns and knives. The chaos that might have ocured didn't because of the arrival on the scene of a strong leader who brought things back under control.
http://en.wikipedia.org/wiki/Freikorps
I think we have a much more serious situation here in the U.S.. The poor will lose their government subsidies and become dirt poor. The pensioner's will be wiped out, and the middle class will be destroyed. So we're dealing with a much more serious social catastrophe here aren't we?
Yes.
That's the probable outcome, IMO.
I would add that the pensioners and the self-retired will also be dirt poor. There's going to be a lot of crowded living spaces, as people take in relatives who can't make ends meet . . . plus a lot of empty rental properties and homes.
That's why I'm saying it's going to be much worse than EJ's "really slow" . . . .
I am 80% PM's right now, I could not handle the stress of trying to second guess overnight devaluations, bank holiday's, sudden stops etc. I am averaged in at $830 and may buy some more at this level. If the DOW goes to 1500-5000 and gold is $600 I will be happy, and if the dollar gets gets whacked at the knees I will be happy.
I've got gold . . . but I'm not very happy about it.
It's one of the best among bad choices . . . but there are lots of concerns.
One concern is that we have hyperinflation. I hold on to my gold until the dust settles, then sell it. But when the dust has settled, will anyone want gold anymore? Perhaps the price will go really low because there is no more fear factor?
Another scenario is that the gold price goes up in multiples, and I sell near the top. Then, hyperinflation happens. Whatever profit I've made evaporates, plus the principal. Or, in another case, the tax on the profits is so high because the gov't has to raise money any way it can, and the advantage of gold as an inflation hedge is severely reduced.
Then, there's the possibility of confiscation should the US want to go on the gold standard in some fashion . . . .
No, I'm not happy about gold, but what other choice is there??? :eek:
LargoWinch
02-26-09, 12:46 PM
seriously... what the fuck are these guys going to do?
MM, I think they will just bail out to the Caymans with the gold from Fort Knox.
My SHTF plan?
valid current visas, a funded bank account, a place to live, and friends in 2 different foreign countries. Oh and I live near an international airport.
labasta
02-26-09, 06:13 PM
EJ, when you mentioned yet again a few days ago that there is a reason that central banks have 30% of their wealth in gold, I thought "why not us?"
It's difficult though to know in what form. I suppose the safest form is to get a floor safe and have the lot in gold coins. I really don't trust anything paper or electronic... anything. I have had a couple of shocks myself on that front recently.
I'm in Ireland, so I suppose the safest form would be British half-sovereigns.
Depends on a person's situation of course.
Own business first, own property second, gold third, cash fourth, would sum up my priorities.
zilbo79
02-27-09, 05:23 PM
EJ, thanks. You make a compelling case for physical gold. You said you owned some short-term Treasuries. I would be leery of Treasuries, CDSes[1], bonds and anything that is traded within the DTCC (Depository Trust and Clearing Corp.). There is too much evidence that certain players are gaming the system and pumping phantom versions of these financial instruments into the system. Here's an excerpt from a Euromoney article[2] about the DTCC and "Failed to Deliver" treasuries:
Fails to deliver in the treasury markets are not a new phenomenon. There is data for fails for treasuries, agencies and mortgage-backed securities as far back as 1990, says Susanne Trimbath, an economist, and former employee of the Depository Trust Co, a subsidiary of Depository Trust and Clearing Corp.
Back then, though, there would be $50 billion of fails in a whole year, she says. That figure has grown enormously. Failures in US treasuries were 8.6% of all treasuries outstanding in the first five months of this year, compared with 1.2% in the first five months of 2007. That has ballooned further over the past three months, hitting more than $2 trillion for almost the entire month of October – more than 20% of the daily treasuries trading volume. [emphasis added]If you've never heard of the DTCC, it is the clearinghouse for stocks, bonds, and treasuries. It's processes about $1.5 quadrillion[3] in stock trades every year. It is a "self-regulated" entity meaning it is not regulated at all.
I have been out of anything "electronic" since finding out about all the shenanigans that the SEC, Treasury, Fed, and DTCC have been committing to cover up all these phantom instruments. Given all the recent revelations, its not even an exaggeration to say that our FIRE Economy has lead us to a "Road to Ruin."
[1] http://www.youtube.com/watch?v=x_xYvV2YeT8
[2] http://www.euromoney.com/Article/2054070/The-US-treasury-market-reaches-breaking-point.html
[3] http://www.deepcapture.com/the-story-of-deep-capture-part-2/
Charles Mackay
02-27-09, 07:50 PM
My SHTF plan?
valid current visas, a funded bank account, a place to live, and friends in 2 different foreign countries. Oh and I live near an international airport.
I like your Plan c1ue! Getting out is defintely the best escape plan. But there are some who can't leave for a whole variety of reasons so the other precautions then come into play.
Charles Mackay
02-27-09, 07:54 PM
EJ, thanks. You make a compelling case for physical gold. You said you owned some short-term Treasuries. I would be leery of Treasuries, CDSes[1], bonds and anything that is traded within the DTCC (Depository Trust and Clearing Corp.). There is too much evidence that certain players are gaming the system and pumping phantom versions of these financial instruments into the system. Here's an excerpt from a Euromoney article[2] about the DTCC and "Failed to Deliver" treasuries:
If you've never heard of the DTCC, it is the clearinghouse for stocks, bonds, and treasuries. It's processes about $1.5 quadrillion[3] in stock trades every year. It is a "self-regulated" entity meaning it is not regulated at all.
I have been out of anything "electronic" since finding out about all the shenanigans that the SEC, Treasury, Fed, and DTCC have been committing to cover up all these phantom instruments. Given all the recent revelations, its not even an exaggeration to say that our FIRE Economy has lead us to a "Road to Ruin."
[1] http://www.youtube.com/watch?v=x_xYvV2YeT8
[2] http://www.euromoney.com/Article/2054070/The-US-treasury-market-reaches-breaking-point.html
[3] http://www.deepcapture.com/the-story-of-deep-capture-part-2/
I have some resource stocks in certificate from and some in direct registration in my name. Now DTCC won't issue certs.. for obvious reasons. They say it's too much papework :rolleyes: ...just like the Fed can't publish M3 because of the cost! Yeah, Right! :eek:
LargoWinch
03-02-09, 02:48 PM
Own business first, own property second, gold third, cash fourth, would sum up my priorities.
Seems to me like an odd choice given the current modern depression.
1- the business is lucky just to stay alive and very illiquid
2- property...are they not the source of this crisis and perhaps overvalued
3- agreed
4- agreed
idianov
03-11-09, 04:58 PM
Tax receipts are tracking along further Road to Ruin...
Budget deficit widens as receipts fall to 14-year low (http://www.marketwatch.com/news/story/budget-deficit-widens-receipts-fall/story.aspx?guid={252ACD90-577B-443D-8A16-DD97657938B2}&dist=google)
Individual tax payments plunge to lowest level since 1985
By Rex Nutting, MarketWatch
Last update: 2:20 p.m. EDT March 11, 2009
WASHINGTON (MarketWatch) - The U.S. federal government budget widened to $192.8 billion in February as tax receipts plunged to the lowest level in 14 years, the Treasury Department reported Wednesday.
It's the second largest monthly deficit on record, exceeded only by $237.2 billion gap in October when the Treasury funneled hundreds of billions of dollars to the troubled banking sector.
For the first five months of the fiscal year, the deficit has increased by a half trillion dollars to a record $764.5 billion. For the whole year, the White House estimates the deficit will total a record $1.75 trillion.
Compared with last February, the deficit grew by nearly 10% from $175.6 billion. February typically has the highest monthly deficit in any given year. Read the full report.
Outlays were flat compared with a year earlier at $280.1 billion, while receipts dropped 17% to $87.3 billion, the lowest since February 1995.
February is typically the month with the lowest receipts, as the government pays out refunds to those who overpaid their taxes the year before. In addition, no quarterly taxes are due in February.
he first five months of the fiscal year, receipts are down 11% to $860.9 billion compared with $967.2 billion this time a year ago.
Outlays are up 32% to $1.62 trillion so far, largely because of the hundreds of billions of dollars invested in or loaned to banks and auto companies.
The Treasury Department has spent $290.5 billion on the banks and the auto companies through the Troubled Asset Relief Program. Those investments are being booked at their full cost now, but should yield some revenue when they are eventually sold. The Treasury has also spent about $14 billion on other programs to stabilize the housing market.
The collapse in receipts this year is largely due to lower individual and corporate income taxes as the recession takes its toll on profits, capital gains, bonuses and salaries.
In February, individual income taxes fell 64% compared with a year earlier to just $8.7 billion. That's the lowest monthly total for individual income taxes since May 1985. The figures are not adjusted for inflation.
Individual income taxes are down 13% to $388.5 billion through the first five months of the fiscal year.
Corporate income taxes were a negative $2 billion in February, the first time refunds exceeded payments in six years. For the first five months, corporate income taxes are down 46% to $52.8 billion
Payroll taxes, on the other hand, were up 0.4% in February and were up 0.9% for the fiscal year at $344.8 billion.
ThePythonicCow
03-16-09, 03:56 AM
This Road to Ruin article of EJ was just quoted in a subscription article from Jim Willie CB of “the Golden Jackass”: http://www.goldenjackass.com/members/march2009_cc.html
Digidiver
03-16-09, 04:53 AM
So what are your login credentials?
Would like to see at least a part of the post in the other forum..
Since we can't access the article, could you please quote the relevant segment for us?
Down Under
03-16-09, 08:07 AM
Since we can't access the article, could you please quote the relevant segment for us?
This appears to be the relevant section:
"Eric Janszen of ITulip warns of a road to ruin, and a heightened risk of a balance of payment crisis. That means the <?XML:NAMESPACE PREFIX = ST1 /><ST1:COUNTRY-REGION w:st="on"><ST1:PLACE w:st="on">United States</ST1:PLACE></ST1:COUNTRY-REGION> might soon have trouble paying its foreign bills. This is a major signpost on the long drawn-out path to the <ST1:PLACE w:st="on">Third World</ST1:PLACE>. As long as the debt repayment is pursued without debt restructuring, while the banking system is left in its current state of disrepair, the USEconomy will continue to rapidly decline. The crushing weight of oversized debt burdens created by the FIRE Economy (Finance Insurance & Real Estate) has led directly to massive debt destruction on a major scale, with rising risk of collapse. Remedy to the bank crisis is not remotely being seen, as more debt comes, more bailouts come, and heavy losses mount that threaten catastrophic levels. A chronic USGovt deficit as a percent of real GDP seems certain to exceed the 10% level for the next couple years. Federal revenue receipts are set to decline at least by a 7.5% annual rate in 2009 and 2010, the realized rate in 2008. The Current Account deficit on a balance of payments basis could easily rise above 10% percent, as the trade gap narrows but USTBond exports push the C/A deficit dangerously high. Meanwhile, the previously prodigious capital exporters in the Middle East and <ST1:PLACE w:st="on">Asia</ST1:PLACE> are on track to suffer current account deficits of their own, and thus will be hard pressed to purchase USTreasury bonds in volume.
Jantzen wrote, “If and when fiscal deficit reaches Third World levels, will the US, with its massive current account deficit financed by the public sector and daily dependence on capital inflows to maintain a balance of payments, [U]finally suffer a balance of payments crisis, rapid currency depreciation, rapidly rising cost-push inflation, and rising interest rates? … It could happen this year. In fact, it may be happening now. When the Russian government found itself unable to pay the interest on its foreign debt in August 1998, nor able to borrow more money in the international financial markets, nor increase taxes on its imploding economy, nor locate private capital inside Russia willing to lend it money, it suffered a balance of payments crisis. The result was capital flight, a ruble crash, and a spike of cost-push inflation.” As Jantzen mentions, the balance of payment crisis might be happening now already!
"
ThePythonicCow
03-16-09, 10:58 AM
Since we can't access the article, could you please quote the relevant segment for us?
I was reluctant to quote subscription only material from another source; it seemed like a minor case of copyright violation. But I see that "Down Under" has done the dirty deed for me ;). Good.
Chris Coles
03-16-09, 11:56 AM
I was reluctant to quote subscription only material from another source; it seemed like a minor case of copyright violation. But I see that "Down Under" has done the dirty deed for me ;). Good.
As I understand it you can take a clip form the main article and as long as you properly attribute it to the origin, no one has any problem. Indeed, by so doing, you also advertise the site to the rest of the readers.
As I understand it you can take a clip form the main article and as long as you properly attribute it to the origin, no one has any problem. Indeed, by so doing, you also advertise the site to the rest of the readers.
That is correct. Snippets are okay with a link back.
billstew
03-29-09, 05:36 AM
Diesel is less volatile than gasoline and has a longer shelf life.
Gasoline [sorry, petrol] contains additive packages and significant light ends. Even in a sealed storage container the additives break down over time, and the loss of volatiles degrades the quality of the fuel. Diesel can be stored for longer periods, but the potential of gelling increases with age.
Modern engines running on petrol are much less tolerant of deviations from specification than the older carburetor equipped, low compression engines we used to have decades back. Same for modern high performance diesel engines which have elaborate engine control and emission systems, that now require consistent high quality fuels.
In both cases it is advisable to turn over the inventory regularly. In other words draw from the inventory in storage and replenish it regularly, thus maintaining always a store of relatively fresh fuel. This accomplishes your goal [having an emergency inventory], while ensuring such inventory remains usable. This is preferred to building an inventory of fuel, leaving it untouched for an extended period of time, sourcing daily fuel needs elsewhere, and then coming back a year or two later to find your long-stored fuel compromised.
Modern Desil and Petrol can be stored for 2 years without any problems whatsoever. I had a relitive park a modern car and not use it for about 2 years -- and it ran fine. The tank was nearly full, and it was a sealed system. These not being true, it would have run very badly.
Petrol will only degrade slightly in a 2 year window of time, Desil not so much. It is possible to store Desil for 5 years with no ill effect in most non-Tropical climates.
However, I am speaking of a position of living in the "Roaring 40s" -- and that as you approach the Tropics this is less true.
Kerosene and Jet Fuel:
They must be used within 6 months, but some blends may tolerate 9 months.
High grade avation fuel:
Use within a year if not in the Tropics.
billstew
03-29-09, 05:53 AM
Whatever is going to happen to the US is going to happen in the Antipodes in spades. Further I'd have thought it might happen sooner here than the US. However, Aus anyway may postpone the crash a little by simply selling everything to the Chinese.
We have already sold most of the country and its industry so why not sell the rest! The process has the support of the self-interested Mainstream economic commentators and the various architects of this mess who still hold the reins of power in one form or another.
Australia has some $800 Billion in overseas debts (NET!), and it is tipped, as a result of the slowdown, our CAD will rise to A$100B annually (before these idiotic stimulus packages were introduced!).
Therefore our need to refinance is massive. In order to keep the unsustainable going this year, the Govt was forced to Guarantee Bank's Overseas Borrowings.
Now in a world that EJ describes for the next few years, what are the chances that we can continue to raise say $200 Billion annually? So for one year we could sell the Chinese BHP and RIO, but what the hell are we going to sell them next year?
So the "Sudden Stop" that EJ sometimes predicts would be a screeching rubber burning halt here! On the other hand the "inflate our way out" scenario would be a whole lot worse.
If the USD tanks, the importance of International Debt and CAD's will rise to the fore as determinants of Currency value rather than interest rates. This general recognition will lead to a bigger hit on our currencies than the US...IMO.
You surmise a 20% fall in the NZD vs the USD. I'd think the fall may be closer to 35% (again that is just my impression from reading a few reports).
So supposing the USD falls 50% (against whatever) and we fall 35% against the US, the inflationary effect will be enormous. Petrol alone will reach something like $3.70 per LITRE!!! Imagine the smash that will bring!
I would love to see more information on this 800 Billion AUD you speak of.
Does anyone here know if Canada is in any way in a similar pickle?
Frankly, I don't believe at all that the AUD (or NZD) is that closely tied to the USD or the UKP or the EUR. The CAD not so much so.
The AUD and NZD have had effective decoupling from the UKP since the 1960s -- but that does not mean that there is an explicit link to the USD.
Both the AUD and NZD have been floating as Fiat Currencies since the mid-1970s. The Asia-Pacific posistion of Australia and NZ inherently allows for a greater decoupleing from US econominc self distructive processes than Canada has. This is why you have had a long delayed impact of the US recession-depression...
I don't know how being decoupled from the US finance system will help Australasia in this recession -- but it may only lessen the impact.
The USD is toast as a world currency. So as long as the region adapts to this vs fighting it -- the 3.70 AUD / L of Petrol will come but it will go also...
Modern Desil and Petrol can be stored for 2 years without any problems whatsoever. I had a relitive park a modern car and not use it for about 2 years -- and it ran fine. The tank was nearly full, and it was a sealed system. These not being true, it would have run very badly.
Petrol will only degrade slightly in a 2 year window of time, Desil not so much. It is possible to store Desil for 5 years with no ill effect in most non-Tropical climates.
However, I am speaking of a position of living in the "Roaring 40s" -- and that as you approach the Tropics this is less true.
Kerosene and Jet Fuel:
They must be used within 6 months, but some blends may tolerate 9 months.
High grade avation fuel:
Use within a year if not in the Tropics.
What's your source of info on the aviation fuel?
The guy that sold me a walk-behind tractor says that aviation fuel does not degrade significantly. He uses it in all his machines, and doesn't add Staybil or other preservative over the winter -- never has problems.
"If federal government spending continues to increase outlays at the current rate of more than 10% of 2007 GDP per year, and federal government receipts continue decline at a 7.5% annual rate in 2009 and 2010 as in 2008, the fiscal deficit as a percent of real GDP will certainly exceed 10% in 2010, and the current account deficit on a balance of payments basis rise above 10% percent.." It's official. The fiscal deficit will exceed 10%:
White House: Budget deficit to top $1.8 trillion (http://finance.yahoo.com/news/White-House-Budget-deficit-to-apf-15200090.html?sec=topStories&pos=3&asset=&ccode=)
White House: Budget deficit to top $1.8 trillion, 4 times 2008's record
WASHINGTON (AP) -- With the economy performing worse than hoped, revised White House figures point to deepening budget deficits, with the government borrowing almost 50 cents for every dollar it spends this year.
The deficit for the current budget year will rise by $89 billion to above $1.8 trillion -- about four times the record set just last year. The unprecedented red ink flows from the deep recession, the Wall Street bailout, the cost of President Barack Obama's economic stimulus bill, as well as a structural imbalance between what the government spends and what it takes in. more... (http://finance.yahoo.com/news/White-House-Budget-deficit-to-apf-15200090.html?sec=topStories&pos=3&asset=&ccode=)
We estimate the fiscal deficit for 2009 will come in between 13% and 14% of GDP.
vinoveri
05-11-09, 01:45 PM
It's official. The fiscal deficit will exceed 10%:
We estimate the fiscal deficit for 2009 will come in between 13% and 14% of GDP.
is this inflationary or deflationary?:D:D
Seriously, does this alter views on timing of a currency event or the beginning of a sustained period of high inflation?
We estimate the fiscal deficit for 2009 will come in between 13% and 14% of GDP.
And the fiscal deficit and the real deficit are far from the same thing due to "off budget" expenditures.
http://www.nowandfutures.com/images/debt_budget_deficit_inconsistencies.png
And the fiscal deficit and the real deficit are far from the same thing due to "off budget" expenditures.
http://www.nowandfutures.com/images/debt_budget_deficit_inconsistencies.png
Very true. To make matters worse, the vast majority in the U.S. believe that U.S. 2008 GDP was $14.2 trillion.
http://research.stlouisfed.org/fred2/graph/fredgraph.png?&chart_type=line&graph_id=0&category_id=&recession_bars=On&width=630&height=378&bgcolor=%23B3CDE7&graph_bgcolor=%23FFFFFF&txtcolor=%23000000&preserve_ratio=true&&s_1=1&s%5B1%5D%5Bid%5D=GDP&s%5B1%5D%5Btransformation%5D=lin&s%5B1%5D%5Bscale%5D=Left&s%5B1%5D%5Brange%5D=Max&s%5B1%5D%5Bcosd%5D=1947-01-01&s%5B1%5D%5Bcoed%5D=2009-01-01&s%5B1%5D%5Bline_color%5D=%230000FF&&s%5B1%5D%5Bmark_type%5D=NONE&s%5B1%5D%5Bline_style%5D=Solid&s%5B1%5D%5Bvintage_date%5D=2009-05-11&s%5B1%5D%5Brevision_date%5D=2009-05-11&s_2=1&s%5B2%5D%5Bid%5D=GDPCA&s%5B2%5D%5Btransformation%5D=lin&s%5B2%5D%5Bscale%5D=Left&s%5B2%5D%5Brange%5D=Custom&s%5B2%5D%5Bcosd%5D=1947-01-01&s%5B2%5D%5Bcoed%5D=2008-01-01&s%5B2%5D%5Bline_color%5D=%23FF0000&&s%5B2%5D%5Bmark_type%5D=NONE&s%5B2%5D%5Bline_style%5D=Solid&s%5B2%5D%5Bvintage_date%5D=2009-05-11&s%5B2%5D%5Brevision_date%5D=2009-05-11
The Fed shows real GDP at $11.8 trillion, so even if you use the Congressional Budget Office's definition of "deficit" in real GDP terms the ratio is well into 16% of GDP. :eek:
Very true. To make matters worse, the vast majority in the U.S. believe that U.S. 2008 GDP was $14.2 trillion.
http://research.stlouisfed.org/fred2/graph/fredgraph.png?&chart_type=line&graph_id=0&category_id=&recession_bars=On&width=630&height=378&bgcolor=%23B3CDE7&graph_bgcolor=%23FFFFFF&txtcolor=%23000000&preserve_ratio=true&&s_1=1&s%5B1%5D%5Bid%5D=GDP&s%5B1%5D%5Btransformation%5D=lin&s%5B1%5D%5Bscale%5D=Left&s%5B1%5D%5Brange%5D=Max&s%5B1%5D%5Bcosd%5D=1947-01-01&s%5B1%5D%5Bcoed%5D=2009-01-01&s%5B1%5D%5Bline_color%5D=%230000FF&&s%5B1%5D%5Bmark_type%5D=NONE&s%5B1%5D%5Bline_style%5D=Solid&s%5B1%5D%5Bvintage_date%5D=2009-05-11&s%5B1%5D%5Brevision_date%5D=2009-05-11&s_2=1&s%5B2%5D%5Bid%5D=GDPCA&s%5B2%5D%5Btransformation%5D=lin&s%5B2%5D%5Bscale%5D=Left&s%5B2%5D%5Brange%5D=Custom&s%5B2%5D%5Bcosd%5D=1947-01-01&s%5B2%5D%5Bcoed%5D=2008-01-01&s%5B2%5D%5Bline_color%5D=%23FF0000&&s%5B2%5D%5Bmark_type%5D=NONE&s%5B2%5D%5Bline_style%5D=Solid&s%5B2%5D%5Bvintage_date%5D=2009-05-11&s%5B2%5D%5Brevision_date%5D=2009-05-11
The Fed shows real GDP at $11.8 trillion, so even if you use the Congressional Budget Office's definition of "deficit" in real GDP terms the ratio is well into 16% of GDP. :eek:
Soothsayer... ;)
I know the iTulip position does not agree with the full John Williams "CPI w/o lies" corrections but to the best of my knowledge does believe that CPI is understated... so here's nominal GDP and a "CPI w/o lies" corrected version.
The truth is very likely somewhere between the two.
http://www.nowandfutures.com/images/real_gdp_williams.png
The Outback Oracle
05-11-09, 05:58 PM
Fred you seem to be trying to measure 'inflated' dollars in terms of the dficit against a GDP measured in 'real' (deflated for CPI) dollars?
I don't think it alters the critical conclusions much but does exaggerate the situation unnecessarily.
metalman
06-16-09, 01:14 AM
comment #3 [sorry] even if there is no balance of payments crisis, there would still be a funding crisis as the government deficit soars. this is where we meet the specter of unsterilized monetization.
three great points. thx.
Dropped from 75% to 43%
Is this because of Fed monetizing the debt? Anyone?
http://topforeignstocks.com/wp/wp-content/uploads/2009/06/2-capital-importers-2008.JPG (http://topforeignstocks.com/wp/wp-content/uploads/2009/06/2-capital-importers-2008.JPG)
Data Source and Notes: IMF, World Economic Outlook database as of April 16, 2009.
1 - As measured by countries’ current account surplus (assuming errors and omissions are part of the
capital and financial accounts).
2 - Other countries include all countries with shares of total surplus less than 2.1 percent.
3 - As measured by countries’ current account deficit (assuming errors and omissions are part of the
capital and financial accounts).
4 - Other countries include all countries with shares of total deficit less than 2.7 percent.
USA was the largest net importer of capital receiving 43% of all capital exported since it is the most favored destination for primarily China and Japan. Despite the collapse in the real estate sector, Spain came second followed by Italy. UK attracted just 2.9% of total capital in spite of London being one of the important financial center in the world.
Source: Global Financial Stability Report, Responding to the Financial Crisis and Measuring Systemic Risk, April 2009, IMF
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