Oct 232012
 
 October 23, 2012  Posted by at 9:38 pm Finance
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Kükator Sumo wrestlers performing dohyo-iri Wikimedia Commons

Japan is not a good example of how deflation typically plays out. As Ilargi points out, they were an exporting powerhouse exporting into the biggest consumption boom the world has ever seen. They also had a very large pile of money to burn through building their four lane highways from nowhere to nowhere, since they were the world's largest creditor when their bubble burst in 1989. This is clearly not our situation.

No one will be exporting their way out of a global economic depression. In contrast, exporters are going to feel the pain big time as their markets dry up. We can expect trade wars and protectionism to abound. Take note Germany, Scandinavia, Australia, New Zealand etc etc.

We have had the inflation, only instead of a currency hyperinflation, we experienced a 30 year credit hyper-expansion. Either one amounts to an expansion of money plus credit compared to available goods and services, and is therefore inflation. Credit is equivalent to money on the way up, but not on the way down. Credit loses 'moneyness' and credit instruments are massively devalued in a great deleveraging. This is deflation by definition and it is already underway. Debt monetization is nothing in comparison with the scale of the excess claims to underlying real wealth that stand to be eliminated.

I agree that the currency of a deflating nation strengthens. This is exactly why we have been writing about the value of the US dollar increasing, which it has done. The bottom came in a long time ago, and despite the set backs that are an integral part of a fractal market, the trend is up, and will be for some time. That's not to say it will be for the long term – far from it in fact – but for now that is the case. We have made it clear that cash is a short term bet (of the order of a few years), and that the longer term strategy is to move into hard goods at the point when one can reasonably afford to do so with no debt.

Some could do so now, while others would have to wait for prices to fall, as they inevitably do in a deflation, but not immediately. Price movements follow changes in the money supply. We have been in a counter-trend reflation since 2009, and prices have risen as a result. They may continue to do so for a while after the reflation is clearly over, but then the trend will reverse.

Prices will fall, but purchasing power will fall faster, meaning that prices will rise in real terms for most people. Those who have preserved capital as liquidity will find their purchasing power enormously increased, but most others will lose purchasing power because they will have no access to credit, highly unfavourable employment circumstances, rising property taxes and very little actual money.

The fiat currency regime will eventually descend into chaos as beggar-thy-neighbour devaluations become the norm, but not everyone can devalue at will or at once. The market will decide relative values for the next while.

Money will go from where the fear is to where the fear is not. It will be leaving the European periphery, and increasingly the entire eurozone, and flooding into currencies like the USD, the Swiss franc, the Swedish krona, and temporarily the British pound. It doesn't matter if the US is downgraded. Market participants will ignore the ratings agencies and vote with their feet on a kneejerk flight to safety.

You might think that the US indicators are much closer to the hyperinflation set-up than to deflation. I would disagree of course, for reasons Ilargi has explained (plummeting velocity of money for instance). I would also point out that people extrapolate the trend of the last three years forward, but fail to anticipate trend changes. We are in one. Many markets have topped already (gold, silver, commodities, oil etc), and the rolling top of the last year or so is about to claim the American stock market as well.

The rollover in the markets will drag the real economy down with it, with a time lag, since the time constant for changes in the real economy is much longer than for the financial world where value is virtual. We are headed into the teeth of the Greatest Depression, or at least the most significant one since the fourteenth century.

Hyperinflation is simply not on the cards any time soon. The depression will proceed for many years before that becomes a serious risk, unless you live in the European periphery that is, where currency reissue is a very real risk in the relatively short term.

In those currencies, loss of faith in New Drachmas, New Pesetas or New Lira is very likely, and the periphery countries will be cut off from international debt financing, with hyperinflationary results. That is not the situation in the US at all, and won't be for quite a long time. Eventually, when international debt financing is dead and buried, then printing will be a risk and a loss of faith in the erstwhile reserve currency could be expected.

In the meantime, debts defaults are going to skyrocket, each one doing its bit to destroy the value of credit instruments, and subtract from the effective money supply. This is already underway, and the great asset grab has begun as a result. Witness the asset stripping of Greece for instance.

In Europe, endless bailouts of sovereigns and the well-connected are doing nothing to increase the money supply or the velocity of money. In contrast, the ineffectuality of governments is doing nothing more than feeding the cycle of fear by demonstrating their impotence time after time. They are trying to overcome contraction, but are fighting an irresistible headwind. It is not going to work. Europe is already in contraction, and as fear will be increasingly in the ascendancy, that will only get worse.

Government obligations will be shed right, left and centre (by governments of the right, left and centre) because they will have no choice. Yes, this will lead to anarchical unrest, and yes, this will be met with a heavy-handed repressive response. Social polarization is very much on the cards – governments vs people, haves vs have-nots, natives vs immigrants, employers vs workers, unionized vs non-unionized, Us vs Them in general terms. This will not be pretty, to say the least. Just because it is a bad thing does not mean that it cannot happen, or that government, by their actions, can make any difference to the outcome.

Bailouts are never for the little guy. The creditors hold the political power and write the rules. They will not allow debtors off the hook. Instead of repayment in money, they will take people's freedom instead, making debt slavery much more real than it is today. Debts will not be forgiven, but sold on to more aggressive debt collectors. This is already happening in the US, where debt collection is becoming increasingly unconscionable.

Debts will only be effectively forgiven when people have nothing useful to repay, not even their labour. By then the middle classes will probably be living in latter day Hoovervilles, like the Villas Miserias populated by the formerly middle class Argentines.

Savers will have all the buying power, IF they have managed to get their savings away from dependence on the solvency of middle men. Otherwise they will likely disappear in a giant black hole of credit destruction, as yet more excess claims to underlying real wealth.

 


Home Forums Japan Is Not A Good Example Of How Deflation Typically Plays Out

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October 23, 2012 at 9:38 pm #8424

Nicole Foss

Kükator Sumo wrestlers performing dohyo-iri Wikimedia Commons Japan is not a good example of how deflation typically plays out. As Ilargi points
[See the full post at: Japan Is Not A Good Example Of How Deflation Typically Plays Out]

October 24, 2012 at 3:54 am #6110

Hircus

You make some great points here…I’m glad you bumped it up from the comment section.

October 24, 2012 at 4:20 am #6111

jal

Savers will have all the buying power

I’ll try to save 2 bits for a shave and hair cut.

:whistle:

October 24, 2012 at 5:43 am #6112

Golden Oxen

Quote Stoneleigh, “Savers will have all the buying power, IF they have managed to get their savings away from dependence on the solvency of middle men. Otherwise they will likely disappear in a giant black hole of credit destruction, as yet more excess claims to underlying real wealth.”

Isn’t this what Gold is all about? Real money, the hiding place, no counter party risk, the money without a country, the anchor in a world destabilized by violent currency turbulence.
If I hide in fiat paper, cash as you call it, will they not try to steal that as well, or destroy it by deeming it worthless by edict and adopting a new one with a different color?

Where oh where does a sane man hide in a world gone mad with debt, lawlessness, devious and corrupt financial institutions, and tyrannical governments????

October 24, 2012 at 5:51 am #6113

JZ

stoneleigh said, “Bailouts are never for the little guy. The creditors hold the political power and write the rules. They will not allow debtors off the hook. Instead of repayment in money, they will take people’s freedom instead, making debt slavery much more real than it is today. Debts will not be forgiven, but sold on to more aggressive debt collectors. “

I don’t think your premise here that debts will not be forgiven is ironclad. In Europe you are probably correct, but in the US I am not so sure. Still, I agree that the safe bet is that consumer debt will not meaningfully be forgiven, BUT if it is meaningfully forgiven then what?

October 24, 2012 at 6:23 am #6114

p01

Golden Oxen post=5811 wrote:
Where oh where does a sane man hide in a world gone mad with debt, lawlessness, devious and corrupt financial institutions, and tyrannical governments????

Do you personally know the sane man, or are you asking hypothetically?

October 24, 2012 at 6:42 am #6115

jal

heheh1
I’m sane. Its everyone else thats weird.
:evil:
:lol:
Just a short observation on Mit. and the pundits.

The msm pundit keep repeating that Mit wanted to talk about the economy etc. in the debates, because its supose to be a winning strategy.

YET …

Nobody does talk about the economy. Well not quite. Obama said that Mit’s math doesn’t work.

The only one who does talk about math is Karl D.. He quite rightly says why they wont talk about the math/economy.
It cannot be fixed. Its too late to unwind 30 years of borrowing without real pain. (See Greece)

Karl should know that the pundits know that the undecided voters will vote for frivolous reasons such as his smile etc.

October 24, 2012 at 7:05 am #6116

JZ

Good god, Denninger is an unbalanced extremist crackpot. He prescribes cutting all deficit spending. I’m sorry but that is positively insane in a deflationary event like we are experiencing.

October 24, 2012 at 8:07 am #6117

jal

JZ post=5815 wrote: Good god, Denninger is an unbalanced extremist crackpot. He prescribes cutting all deficit spending. I’m sorry but that is positively insane in a deflationary event like we are experiencing.

hahahah
The fine pickle that we have been led into by our financial experts is insane.

The experts knew how to lead us into the slaughterhouse.

I repeat, its too later to avoid the hardship that is coming.

October 24, 2012 at 9:28 am #6118

Professorlocknload

Golden Oxen says, “Isn’t this what Gold is all about? Real money, the hiding place, no counter party risk, the money without a country, the anchor in a world destabilized by violent currency turbulence.”

And when the inevitable government mandated wealth transfers take place in the form of “Means Testing,” and “Excise Taxation” what can’t be found can’t be confiscated and redistributed, no?

October 24, 2012 at 10:02 am #6120

Variable81

@Anyone else who tends to bring up gold as “real money” without counterparty risk…

This might just be tired, after-midnight rambling… but isn’t any good/asset that is owned free and clear of debt a possession without counterparty risk and arguably “real money”, or at least “real wealth”?

Anything I can buy today, including gold, may experience falling prices when deflation starts picking up speed… but that is okay if I own it debt-free as, ideally, I own it because I will need it in the future. The only real value I could see with gold is that it is arguably scarce enough that its value might not collapse as bad as, say, houses and motorized vehicles. Also, gold is highly concentrated thus easy to store/transport.

However, gold’s benefits of being highly concentrated can also be its curse – having a box full of highly divisable .223 or .308 rifle rounds or a pantry full of freeze-dried food cans may allow you to barter more efficiently and/or effectively than a single 1oz gold coin. I also would worry that there are no guarantees that everyone will value 1oz of gold the same (i.e. I doubt I would trade my last piece of food for all the gold in the world).

Anyways, I’ve always considered food a better investment than gold… whether hyperinflation drives up the price of food astronomically, or deflation ravages my income so badly I can’t afford to buy food I figure stocking up on it now is a pretty smart investment for the future.

October 24, 2012 at 12:54 pm #6121

davefairtex

Overall a good case, but I have two objections I’m going to make.

…people extrapolate the trend of the last three years forward, but fail to anticipate trend changes. We are in one. Many markets have topped already (gold, silver, commodities, oil etc), and the rolling top of the last year or so is about to claim the American stock market as well.

Some really smart traders I respect with 30 years of trading experience following these markets (and who called the bubble and the crash correctly too, I might add) do not have the hubris to make such declarative statements about what “is about” to claim the American stock market, selecting which markets have topped, etc. I’m just going to throw out there that incredibly smart though you may be, if history is any guide you will likely only be correct about your call on this particular top through luck, persistent top calls (the stopped-clock phenomenon), or by ignoring timeframe.

Viscount has enumerated the number of times you have successfully called the bottom of a particular market move – but as a contrary indicator. I know its quite impossible for me to make this sort of comment “with all due respect” but – I really do have a great deal of respect for both your intellect and your point of view about the forces in play today. Its just the market predictions made with such authority that impels me to comment.

I agree that the currency of a deflating nation strengthens. This is exactly why we have been writing about the value of the US dollar increasing, which it has done. The bottom came in a long time ago, and despite the set backs that are an integral part of a fractal market, the trend is up, and will be for some time.

Dollar increasing? Over what timeframe? A supporting chart for this assertion would be helpful. Since the peak in 2005 (92) its down, since 2009 (90) its down, since 2010 (89) its down, and its definitely off the 2012 high (85) as well – over the past 7 years, I could make a pretty good case for a series of 4 clear lower highs, which is not a bullish pattern at all.

Shorter term, USD is definitely off the lows of 2010 (72.5), but again, it is likely that a real trader would suggest that the dollar needs to bounce above at least the 2010 high before suggesting an actual trend change had occurred.

Why am I peeing in Stoneleigh’s wheaties this way? Have I no respect? Don’t I value all that good work she’s done?

Duh, of course I do.

But at this site, market predictions are sometimes made that have in fact often been wrong (and sometimes spectacularly so), and that has caused an unnecessarily loss of credibility in the underlying principles and market forces in play that this site has done such a good job in explaining. I’m trying to encourage a change in approach.

Now I’m going to play the “prediction game” based on the evidence I see. And I’m actually going to supply some evidence. It doesn’t mean I’ll be right. But I’d like to encourage people to use charts to back up their assertions, especially about the market, what it has done, and what they think it will or will not do.

Over the 10 year timeframe, the trend for the buck has been down. The buck hasn’t shown itself in 2012 to be as strong as it was in 2010 – I’d have expected it to perform better during the last eurozone crisis, which does itself seem to be getting progressively worse. USDX has just crossed its 200 MA to the downside again. My current sense is (60%) the dollar goes lower. And – as with any trend, it is your friend until it has been shown to change conclusively. It would have to break above 89 for me to change my mind. Currently: 79.93.

(I’m not a dollar bear – or bull. I’m just reporting on what I see; since I own dollars, I’d probably prefer it to go up, all else being equal.)

Has the US equity market started a topping phase? Not from what I see. Looking at this (long term) chart, do you? Remember, the trend is your friend until it (conclusively) changes. I’d phrase things by saying medium term downside risks have increased in the US equity market. Currently the trend indicators still signal up (the 50 MA is above the 200 MA) but we need to await market action before we draw a definitive conclusion. We might just track sideways for a while, and if “the fiscal cliff” is avoided, that combined with the January Effect might well (60%) pull us above our current cycle high. If responsible spending wins, likely we’ll see a selloff. Of course if europe collapses the US market goes down hard, maybe even very hard – but that’s not happening at the moment, at least according to my other indicators.

Gold broke out conclusively of its 18-month downtrend off the Sep 2011 high; the 50 MA crossed the 200 MA (that intermediate term trend change indicator again) and so with monthly QE a reality, my guess is PM still will have a bid (75%) and gold will likely break 1800 before it sees 1550 again.

I would have been singing a different tune back in July. The charts looked pretty bad for gold back then.

As always, my (hopefully evidence-based) market predictions are subject change as new data comes in.

October 24, 2012 at 5:12 pm #6122

p01

Can somebody explain to us lesser beings the stopped clock phenomenon and its relationship to the (ignored or not) timeframe?
Thanks.

October 24, 2012 at 5:48 pm #6123

davefairtex

p01 -

The stopped clock phenomenon: “Even a stopped clock is right – twice per day.”

This refers to someone repeatedly making the same prediction, just like a stopped clock always says it’s 3pm. Wait long enough, and 3pm will in fact recur, and the clock will be correct. In the case of a market crash, if you predict one often enough, for long enough, you will be right because given enough time, the market will indeed crash.

October 24, 2012 at 6:03 pm #6124

pipefit

Stoneleigh-I have a bit of a disagreement with a few of your statements.

“We have been in a counter-trend reflation since 2009,…”
The great reflation started before the S&P 500 double bottomed in late 2002/early 2003. The housing bubble is part of the great reflation. So the great reflation is at least 10 years old. These guys are going to continue to reflate until we get hyper inflation.

“The rollover in the markets will drag the real economy down with it….”
Agreed. And this is inflationary, because it will lead to an INCREASE in our federal deficit, already at 30% of GDP on a GAAP basis.

You’re thinking that IF we had a hard money system, a big drop in federal revenue would be deflationary, and it would, since there are hard constraints on deficit size in such a system. Obviously, at 30% of GDP and poised to go to 40% in short order, there are currently no constraints.

“… they [Japan] were an exporting powerhouse exporting into the biggest consumption boom the world has ever seen…”
Exactly. And we are an importer. But we aren’t paying cash for our imports. Our trade deficit dollars are recycled by our suppliers, to pay for our fiscal deficits. But our fiscal deficit has grown too big, compared to the available trade deficit dollars available for recycling, so outright debt monetization has already started.

So, if Stoneleigh’s theory plays out, beginning stages, what happens? The fiscal deficit gets even bigger, and the trade deficit pool shrinks, meaning the debt monetization process goes into an even higher gear. Obviously, a declining pool of consumer spending weakens the dollar’s role in world reserve currency matters as well, further increasing the odds of hyper inflation.

October 24, 2012 at 7:33 pm #6125

John Day

Balance sheet recessions last longer, and we are in a counter trend, but the second leg down is about to be upon us.
Here is an article about that.
http://www.resilience.org/stories/2012-10-24/how-different-is-the-recovery-from-the-financial-crisis
Economics is a fractal process, not so linear, and timing is not possible unless you have a hand on some secret lever.
None of us do.
Stoneleigh is still right, I believe, as she was in 2009. All the stops have been pulled out in the global Ponzi finance scheme to keep it rolling, and this is what we have to show for it.
The hands on those levers are not our own, but the connections from the levers to the financial system are getting soggier and weaker with every use. There are some glaring weak points, too, like the potential for cyber attack or EMP to overturn the entire table and crash the game onto the floor in disarray.
We shall see.
We are not the ones who should be making tight bets on the timing of trends, but rather building some kind of stable support for a rocky tumble ahead.

October 24, 2012 at 8:46 pm #6126

rupy

Hi Nicole, Thanks for posting. I think I talk for everyone when I say that we need your presence on a more regular interval. I also think that we can all feel that you are right. The global economy is shrinking, no matter how much money is created.

3 questions:

- Would keeping the “cash” in a Swedish riksg’a’lden account (the governments bureau of debt) be safe enough to protect your money during the deflationary credit implosion?

- Do you think there necessarily has to be a shift from extreme deflationary pressure to fiat collapse and hyperinflation?

- I don’t know if there will ever be a “window” of opportunity to buy stuff cheaply. Aren’t you afraid you are fooling readers to wait for a sale that might never really happen because the currencies collapse first?

October 24, 2012 at 9:29 pm #6127

E.L. Beck

“In Europe, endless bailouts of sovereigns and the well-connected are doing nothing to increase the money supply or the velocity of money.”

So true, and Bernanke’s quantitative-easing methodologies are accomplishing the same ends in the U.S. His monetary loosening is fueling equity and commodity market surges, but very little of this is making its way to small businesses and mid-income households.

However, by allowing prices on food and energy to rise in a weak economic environment, this is effectively siphoning off what little money remains in circulation in the middle. Perhaps unwittingly, Bernanke is simply hastening the economy’s slide towards cliff’s edge.

October 24, 2012 at 10:01 pm #6128

davefairtex

John –

We are not the ones who should be making tight bets on the timing of trends, but rather building some kind of stable support for a rocky tumble ahead.

A fine attitude, and I’m completely supportive of that mind set.

If that’s the case, however, then we should also not AT THE SAME TIME be making unsupported claims that the market is currently in a topping process and undergoing a trend change, because that is getting into the business of making explicit market predictions.

Let’s say the market (given its tricky “fractal” nature) decides to rally after year end – after the fiscal cliff “can” gets kicked once again. What will people think of the statement “the market is undergoing a topping process” at that point? If the market makes a higher high, that’s not a topping process, that’s a breakout to new highs.

My main point is, why risk credibility on making an unsupported prediction on something that’s not core to your case anyway?

October 24, 2012 at 10:24 pm #6129

Professorlocknload

@ Variable,

“However, gold’s benefits of being highly concentrated can also be its curse – having a box full of highly divisable .223 or .308 rifle rounds or a pantry full of freeze-dried food cans may allow you to barter more efficiently and/or effectively than a single 1oz gold coin.”

Last I checked, a one oz gold maple goes for $1.7k. 1k rounds of 223 around $335. 5k rounds of that is h-e-a-v-y. And knowing it will never be scarce as long as it’s the chosen round of authority, well, I’ll let them carry it around ’till I might need it.

Try loading all that in a back pack on a moments notice and getting out of dodge, through a checkpoint or across a border.

Any Combat Infantryman will tell you there are times when strategy calls for retreat.

Or, one could just stand his ground and defend his perimeter against the local sheriff or the National Guard, like Randy Weaver.

On divisibility, gold can be divided into much smaller quantities than a 308 round, and still be bartered. And I firmly believe a long gun with a night vision scope draws a whole lot more attention at a checkpoint, than a gold necklace, fillings, buttons or a bracelet, or?

On standing one’s ground, again, of the 19 ways of avoiding trouble, the best is to leave. Hamburger Hill comes to mind.

And here in these woods, every goat roper, and his chocolate lab, in the county already knows where all the Citydude “compounds” are, and many could recite the inventory therein, like the septic tank man, the solar installer, the code enforcement officer, the fire control officer and even the kids, back from their squirrel hunt.

What can I say, check this out…https://www.youtube.com/watch?v=s3LdNxV0yPM And ask, what good would a full auto m-4 do here, if the Army allowed one to keep it? Looks to me like, if one wanted to stand pat, he might invest in a truckload of gold pans and scales, maybe?

October 24, 2012 at 11:28 pm #6130

Professorlocknload

John says,

“We are not the ones who should be making tight bets on the timing of trends, but rather building some kind of stable support for a rocky tumble ahead.”

A most astute statement, to which,

Fair Dave responds,

“A fine attitude, and I’m completely supportive of that mind set.”

Followed by my nickle-ninety-eight’s worth of punditry, on the rationality of “markets” under the best of circumstances,

The stock market is manic depressive. I’m not a psychologist, therefor I’m not qualified to figure out just where in that mood range it presently finds itself. I don’t know how we could fit it on a couch anyway. That said, I don’t know of too many psychologists sailing yachts around on trading profits, either.

I’ve dabbled in equity, bond, real estate, commodity, used car, Texas hold’em, antique, and flea markets for many years. Even dice at the watering hole, where I can book the best odds. And at this juncture, all I can relay from the last 4 decades of experience is…that is, the only sure thing I’m willing to bet on is, the markets WILL fluctuate.

They’ll take 90% of the dinero and redistribute it to the 10% whose birth signs are in phase. And that means not even the haves are immune from the constant reshuffle.

The only thing that I ever really broke even on has been the coffee can of pre 65 coins I filtered out of the laundry mat change machines back in the late 60′s.

Considering my qualifier above, “under the best of circumstances,” I would be damned quick on the draw if I had the panache to be exposed to the present casino atmosphere that is “markets” today.

If it is not in your hand, under a rock in the deep woods, or in a local branch of a local bank, (who’s manager shares time with you at the local coffee), under FDIC “protection” (ha!, but beats a sharp stick in the eye) than you don’t own it.

Back to John.

October 24, 2012 at 11:45 pm #6131

Variable81

@Professorlocknload,

You’re right that $1.7k of .223 rounds is much heavier than $1.7k of gold from a weight basis – though I think I did point out that one of gold’s strengths is that it is highly concentrated wealth and thus easily transportable.

I still think .223 rounds are more ‘divisable’ as I’ve never broken down a 1oz gold coin into hundreds of little pieces – I’m sure it could be done and thus I suppose I could learn how to do it, but it doesn’t seem as plausible to me as trading a handful of .223 rounds for a few loaves of bread.

Also, I believe I might have also been unfairly painted as a ‘gun nut’ or anarchist simply because I referenced rifle rounds. I wasn’t trying to suggest I would use them to “shoot up the law” or anything that extreme – but .223 & .308 rounds are certainly valuable for hunting and varmint/pest control.

Can’t view the video you embedded – browser doesn’t seem to like it? Sorry.

And I don’t know what I would do with a full-auto M4 either, aside from getting tossed into a Canadian jail for illegal possession of a prohibited firearm! :)

October 24, 2012 at 11:58 pm #6132

pipefit

“The only thing that I ever really broke even on has been the coffee can of pre 65 coins I filtered out of the laundry mat change machines back in the late 60′s.”

Uh, you would mean ‘silver’, lol.

Put your savings, from your hard work, in cash? As in the dollars? Why? Those dollars are being systematically inflated into a state of worthlessness
by the Department of Inflation, oops, I mean the Federal Reserve Bank. And the Dept. of Inflation just announced they are going to speed up the inflation process by an order of magnitude.

Yeah, it is possible we have a fascist coup, and they confiscate everybody’s wealth and lock everyone up in a gulag. Dollars won’t do you any good in that situation either.

I think you need to start with a premise that allows you to live a decent, if not spectacular, life, and proceed on that basis. Democracy will not survive a deflation more severe than we had in 2009, neither here nor in Canada. Anyone that is that sure about it should not be here. Maybe Yukon or Alaska? South America, near the Amazon? Not sure about that.

Far more likely, they run the dollar into the tarmac, then roll out the new 1-world currency, appointing themselves and their associates a huge bankroll of the new stuff, and giving us 99% ers and tiny bankroll to get started, or perhaps nothing but the clothes on our backs, as long as they don’t have any fancy designer labels on them, lol.

October 25, 2012 at 12:38 am #6134

Professorlocknload

Pipefit says,

“You’re thinking that IF we had a hard money system, a big drop in federal revenue would be deflationary, and it would, since there are hard constraints on deficit size in such a system. Obviously, at 30% of GDP and poised to go to 40% in short order, there are currently no constraints.”

If I may take that another fathom, not only are there no constraints, all finance is based on data entry now, and a small amount of green paper, barring a credible audit of Ft. Knox, by which anything found would be claimed by the FRB/government.

In Stoneleigh’s terms “moneyness” is gone from all these illusions. That would be all the pensions, stocks, bonds, money market accounts, Real Estate book values, Medicare, SS and FRN notes.

We can bite the deflationary bullet now, and begin the healing, or we can multiply the monster 10 fold, all the way down, and bite the really big shew later. And no, I do not believe handing governments and their central banks more consent is a panacea. It was our consent that created this fiasco.

It’s presently all held together by confidence, an emotion. An Emotion! AN EMOTION!!!

As in “fire” in crowded theaters, and fire crackers in feed lots?

And these human emotions are expressed by both the rulers and the ruled. Sheeesh, why do I scare myself like this? Oh, Halloween!

October 25, 2012 at 1:01 am #6135

Professorlocknload

Pipefit,

“Far more likely, they run the dollar into the tarmac,”

Well, based on 1913 bucks, they only have a few cents left to chew up, so, if past performance is any indication of future expectations…

And on making it through all this, one can drop out most anywhere, even in Minot or Islamabad. I’ll take my chances here in these mild climed Norwest woods. Too backwards ’round here for city dogs anyhow. Gotta wait a week for new i-chit, and no 4 g or whatever that phone thing is called.

But then, was it Bertrand Russell said, on being asked why he lived in New York City responded, para “It’s the only place I can be alone.”

October 25, 2012 at 1:43 am #6136

Professorlocknload

Variable,

Not confusing you with a gun nut like me, (see my user name!) but those 223 cal/9mm rounds will be on every black market card table outside every military outpost on the globe. They are already barter material by troops needing a drink too close to payday in most every war theater.

And with news Social Security Admin, TSA, yada are purchasing billions of rounds, won’t be long a chunk of that cache’ leaks out onto the streets. Just the nature of the beast. Day could come, that maple leaf could buy out the whole row of tables there at the swap meet. Oh, and The Bureau of Alcohol, Tobacco and Firearms doesn’t take kindly to trafficking in arms and ammo, unless by their own agents!

The video was shot live in Zimbabwe recording people panning for and using small gold particles to trade for bread. .01 grams per loaf at the time. It will most certainly awaken one to the grass roots actions of humans in adversity. Google it’s title in youtube. Well worth it!!!

One could cut up an ounce with a pair of wire cutters in around a minute, tendering the pieces, using whatever other pre-weighed small bits the merchant keeps on hand for change.

Worked out here in gold country years before there were widely circulated coins. (Still does, under the table, I would imagine ;). I mean, I didn’t see the baker in the video withholding sales tax, but maybe?

Remember Gunsmoke when the ‘ol prospectors walked into the Long Branch and pulled out a Bull Durham sack of gold dust for a shot? Bet Sam the bartender had a scale there behind the bar?

October 25, 2012 at 2:14 am #6137

backwardsevolution

“European Central Bank President Mario Draghi defended his plan to buy government bonds in the German parliament today with a warning about deflation risks. The ECB’s so-called Outright Monetary Transactions “will not lead to inflation…”

Draghi is seeking to win support in Europe’s largest economy for his plan to purchase government bonds to stem the debt crisis and safeguard the euro. Some German policy makers including Bundesbank President Jens Weidmann have said the proposal is tantamount to printing money to finance governments, which is prohibited by the ECB’s statutes.

“OMTs will not lead to disguised financing of governments,” Draghi said. “All this is fully consistent with the Treaty’s prohibition on monetary financing. Moreover, they will focus on shorter maturities and leave room for market discipline.”

http://www.bloomberg.com/news/2012-10-24/draghi-says-bond-purchases-won-t-fuel-inflation-hit-taxpayer.html

Mish said:

“That is a direct lie as is his opening gambit of claiming that breaking the treaty is within mandate. Yes, the ECB sterilizes the bonds it buys. However, the ECB will also accept those bonds right back as collateral for cash, thereby pumping up base money supply. The ECB has no intention of absorbing liquidity in actual practice.”

October 25, 2012 at 2:19 am #6138

Professorlocknload

Variable,

My mind works all bass akwards sometimes, but,

” .223 & .308 rounds are certainly valuable for hunting and varmint/pest control.”

A guy came through town here sometime back on a 28 foot sloop, headed for the South Sea islands. He was stocking up on as many bricks of 22 longs as he could fit on there. Said they were the best affordable goods he could use in trade down there. He looked like the “other” kind of sailor. (Half are big shot Canadians on million dollar yachts, with speed boat tenders, the “other” half are broke loggers and laid off comm’l fishermen from Oregon and Washington on 40 year old boats and have to flag down a ride to shore.) Whatever it’s worth. 22′s are sure more economical for firing up rodents. Can put a big ‘ol bunch of ‘em in a pocket, too.

October 25, 2012 at 2:23 am #6139

backwardsevolution

Stoneleigh: On the last thread you said this:

“Savers will have all the buying power, IF they have managed to get their savings away from dependence on the solvency of middle men.”

Would you please tell me who you are referring to when you say “middle men”? Mutual funds, or do you mean banks?

October 25, 2012 at 2:39 am #6140

Professorlocknload

Pipefit,

“giving us 99% ers and tiny bankroll to get started, or perhaps nothing but the clothes on our backs, as long as they don’t have any fancy designer labels on them, lol.”

Ya mean they are gonna take away my bike! How will I get down to Mickey D’s to work?

http://gizmodo.com/5885919/14000-gucci-bike-is-an-urban-commuter-for-one-percenters

October 25, 2012 at 12:48 pm #6145

davefairtex

backwards -

Savings middle men: anyone standing between you, and your savings. Another way to look at it is, anyone who could potentially say “no” to your demand to get your stored value. NO you can’t withdraw that much cash today. NO you can’t withdraw your savings for the next 60 days. NO our institution is closed today. Or this week. Or until further notice. NO, we’re going through bankruptcy and we’ll let you know in 2 years what share you receive as a general creditor. NO, we don’t actually have your allocated gold bars, even though we’ve been charging you storage fees for the past 10 years. NO, we’ve suspended withdrawls from your money market account due to our holdings in Lehman repos.

All actual cases. 1) normal bank policy on cash withdrawls. 2) standard savings account agreement. 3) bank holiday, 1933. 4) MF Global BK. 5) Morgan Stanley, 2007. 6) The Reserve, 2008.

If a major crisis happens in the financial system, your savings better not be stored by middle men – by anyone who could say NO to you.

TAE envisions that such a crisis is inevitable and must follow the credit bubble bust just like night follows day. Kind of like a law of financial physics.

October 25, 2012 at 1:27 pm #6146

backwardsevolution

davefairtex – thanks very much for your great explanation. That’s what I thought she meant, but in the back of my mind was hoping wasn’t true.

I will not sleep well tonight, but this information is very helpful. Thanks again.

October 25, 2012 at 3:40 pm #6147

p01

davefairtex post=5822 wrote: p01 -

The stopped clock phenomenon: “Even a stopped clock is right – twice per day.”

This refers to someone repeatedly making the same prediction, just like a stopped clock always says it’s 3pm. Wait long enough, and 3pm will in fact recur, and the clock will be correct. In the case of a market crash, if you predict one often enough, for long enough, you will be right because given enough time, the market will indeed crash.

So the timeline here, for the stopped clock phenomenon is … 12 hours (half the duration of the day), which is pretty long, wouldn’t you say? It’s not exactly rocket science to see that 3 years is invisible on this type of timeline (half the duration of the market’s life?). I’m just trying to integrate the ignored timeline here, and to see why a green-slime, non-respectable-trading lesser being would care about that in the timeline that we’re talking about.

October 25, 2012 at 5:32 pm #6149

pipefit

Prof Lock-”We can bite the deflationary bullet now, and begin the healing, or we can multiply the monster 10 fold, all the way down, and bite the really big shew later.”

I think the last chance of going the ‘deflation’ route was around 2000, when Shrub took office. We had an accounting surplus, so they could have began the process of converting social security to private accounts.

Obviously W. thought it made more sense to give the $2 trillion (2003 constant dollars) to Iraq.

Regarding the comments on the a stock market selloff, to the untrained eye, the S&P 500 appears to be right back near the 2000 market top. But that would be ignoring 12.5 years of CPI and monetary inflation. Adjusted for inflation, the stock market is less than half of the all time high. And measured against real money, gold and silver, it is off 80% to 90%.

This is why central bankers and their bosses, whoever they are, love inflation so much. They can steal a massive chunk of everyone’s money, over and and above taxes, and most people have hardly a clue as to what is happening.

October 25, 2012 at 6:27 pm #6150

davefairtex

backwards -

I went through a phase where I had trouble sleeping too. The trick I finally learned is, the number of scenarios where it all goes bad overnight from a largely stable position (i.e. a “bolt from the blue”) are few. Likely, we’ll have some warning first.

Right now, believe it or not, things are more or less stable. Unsustainable, but stable.

In the meantime, just steadily work to increase your basic level of preparedness. Lower debt, have cash on hand, increase food & water reserves, basic physical fitness, that kind of thing.

I’m actually working on a sort of early warning system – just for my own peace of mind. The bits and pieces I’ve developed so far do help me to relax.

October 25, 2012 at 9:21 pm #6151

Variable81

@Professorlocknload,

You’re right that the world is probably awash in .223/9mm, but it is still a ‘consumable’ and those rounds will get used up eventually.

If we are heading into a Great-er Depression, I suspect many of the enterprises that manufacture .223/9mm/ammo may go bankrupt and any supply that is manufactured will be primarily for military and law enforcement. They may wind up being sold on every black market around the world, but I don’t like my chances of getting them at an affordable price in the future…

Re:.22′s – yes, absolutely one of the most affordable rounds out there and perfectly able to handle any small rodent problems, though when you get up to coyotes I start to wonder if a .22 is the most humane round to use. The .22 is also a great “trainer” for helping people learn to shoot without breaking the bank. Definitely a versatile round/rifle.

Re: small gold particles. Very interesting! Though ripping up a 1oz gold coin with tweezers doesn’t strike me as an exact science.

Thankfully I’m not burdened with enough wealth to have to worry about owning more than an oz or two of gold :D

October 25, 2012 at 10:55 pm #6152

Professorlocknload

On sleeping at night,

If any investment decision ever keeps me awake, I get up in the morning, have a cup of joe, get on the phone and SELL IT! My sleep is worth more to me than some bet.

Read somewhere in a DIY shrink book, one of the causes of anxiety is a feeling of loss of control. We could take that as a given anytime we hand over the fruits of our labor to another. Like, for instance, a stock broker, banker, insurance salesman, mutual fund manager, escrow officer, Treasury Direct, sports book clerk, keno runner… ad as fits. And, that restless night is generally trying to speak to us, maybe?

Where to? The Patriciate might respond, Gold, Real Estate and Collectibles, and hang on a couple centuries and your heirs will thank you. Humm, all could be closely held, I guess. And over a very long haul, all have maintained value.

For me, down on this side of the skids, it’s get out of any debt first. Then, accumulate at least enough cash to run off to somewhere like Datil, NM and air out for a year, if necessary. Don’t fret, one can live damned cheaply out there. And sleep well! 7-10k should do it, along with a fishing rod, couple pounds of salt pork and a cheap bolt action 22, as grub stake. And wow, with no phone and no net, reflection comes easily. (Best Pie in the West, right up the road there, in Pie Town. Really! http://www.pie-o-neer.com/) And they have a phone!

Mind you, it’s not over the edge, just 3/4 day from Phoenix, by fast Greyhound.

Then, with that in the mason jar, buried in the woods, it’s prudent to collect enough hand tools to fix a flat, swap out a water heater, wire a plug, patch a roof, mend a fence, dig a hole, wash a window, knock down weeds, peel apples at pie-o-neer etc. If you have a business, invest in it, if you trust the owner. If you don’t have one, start some little side gig. Beats sending your money off to some jake on wall street to throw onto the fire at Solyndra. Other words, there are 48,500 ways to make a buck in America. Just pick one.

From that point, don’t look back and don’t look forward anymore than a couple steps, to keep from falling over.

Then, knowing where you can get your fill of pie, keep aside 10% or so of earnings with which to invest, if for no other reason than to pay as you learn. Tuition is expensive, so the lesson sinks in better.

https://www.youtube.com/watch?v=DDSNJ_Ky-r4

October 26, 2012 at 1:50 am #6153

Nassim

< < Re: small gold particles. Very interesting! Though ripping up a 1oz gold coin with tweezers doesn't strike me as an exact science. >>

Best way is to beat the gold into a thin sheet – very easy for anyone with the right tools and skills – and then cut it with scissors. Accurate weighing-scales are readily available.

Try beating tungsten flat, just to see the difference. :)

October 26, 2012 at 8:36 am #6155

Professorlocknload

Nassim, yes, scales are available, and cheap! Along with Au test kits, as well.

http://www.amazon.com/American-Weigh-Gram-Jewelry-Scale/dp/B000O37TDO

October 26, 2012 at 2:32 pm #6156

p01

Professorlocknload post=5853 wrote:
For me, down on this side of the skids, it’s get out of any debt first. Then, accumulate at least enough cash to run off to somewhere like Datil, NM and air out for a year, if necessary. Don’t fret, one can live damned cheaply out there. And sleep well! 7-10k should do it, along with a fishing rod, couple pounds of salt pork and a cheap bolt action 22, as grub stake. And wow, with no phone and no net, reflection comes easily. (Best Pie in the West, right up the road there, in Pie Town. Really! http://www.pie-o-neer.com/) And they have a phone!

Now that`s more like it, Professor! I like the way you think! Hold the pie for an even better sleep.

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