₿oogaloo
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Not a Vietnam-era song, but from the Cold War instead. Hard to believe that this song is 34 years old:
In Europe and America there’s a growing feeling of hysteria
Conditioned to respond to all the threats
In the rhetorical speeches of the Soviets
Mister Khrushchev said, ‘We will bury you’
I don’t subscribe to this point of view
It’d be such an ignorant thing to do
If the Russians love their children tooHow can I save my little boy
From Oppenheimer’s deadly toy?
There is no monopoly on common sense
On either side of the political fence
We share the same biology
Regardless of ideology
Believe me when I say to you
I hope the Russians love their children tooThere is no historical precedent to put
The words in the mouth of the president
There’s no such thing as a winnable war
It’s a lie we don’t believe anymore
Mister Reagan says ‘We will protect you’
I don’t subscribe to this point of view
Believe me when I say to you
I hope the Russians love their children tooV Arnold, part of my commitment to this blog is the active contribution of others, including you. I am sorry that I am too busy with work to contribute on a daily basis, as you do. But when TSHTF and I have more time, I have every intention to be a more active participant.
I should add that my ears also perked up by zerosum’s insightful comment in this thread. I am thankful for the awareness that I am not alone. In my real life interactions with real people I do feel very much isolated and alone. For now, I can only find like minded people online. I think that means we need to support one another as long as we can.
DS, the hyperinflation has already happened. The money has been printed. Too much money for the US economy to absorb. It just hasn’t been spent into the economy because we have not yet reached the psychological tripping point, the sudden loss if confidence. It may be that the trigger is a deflationary collapse first, followed by a repeat of the 2008 playbook, but on an even larger scale. The establishment institutions remain confident in the system, at least as measured by their behavior so far. The little guy might have lost confidence, but who cares? He is a slave to the system. Where can he go? I see a huge pile of tinder but no sparks anywhere on the horizon.
“What exactly is the sin of John McCain that brought on this stoning? ”
The sin was a sin of omission. I do not really see it as a stoning, as much as a lament that he never became the man that he should have become. That’s true for us all, I suppose, to one degree or another. But McCain is not like you and me, because he craved power, and when he got it, he used it to kill, maim, and destroy without reservation, without restraint, and without boundary. He describes Putin as evil, but without decrying the plank in our own eye? He has nothing to say worth listening to, and I will not miss him.
The dollar will not be revalued against bitcoin. It will be revalued against the only non-fiat asset on central bank balance sheets — and we all know what that is.
When that happens, the only way the military industrial complex will survive without downsizing will be to use its war toys to steal the shiny rocks from countries that cannot defend themselves.
So what happens when central banks buy up all the bitcoin with their unlimited fiat so they can try to control it? What happens to the price of bitcoin then?
If you really think about it, buying Bitcoin is not so crazy if you own the printing press for ordinary fiat currency. If you can produce an endless supply of fiat and buy a finite number of bitcoins, why not? It’s trading one form of ethereal money for another. A dollar is no more real than a bitcoin, but at least the world will not see more than 22 million bitcoins.
Dr D, I think you are close, but a little off the bullseye.
If prices fall, triggering a wave of defaults and triggering a cycle that grinds lower and lower, the rich do in fact lose money. They lose money but they do not lose power. Some of them get wiped out if they were leveraged, but there are enough unleveraged players that they will never all be wiped out in the first leg down. They are losing money, they get defensive, they start making phone calls to get the government and the central bank to do something to save the system. And that’s exactly what the banks want. The last thing the banks want is a growing pile of collatral with no buyers to buy their stuff. Defaults at the margin is one thing. Massive system wide defaults are completely different. This can never be allowed to happen. Deflationists believe it is inevitable. Those who understand the underlying power structure understand that this will never be allowed to happen. They will destroy the currency before they allow it to happen, because at least nominally that keeps the system alive. And that allows the rich to point the finger at governments and central banks.
At the end of the day, the rich will still be rich. They will believe that they made great sacrifices and suffered greatly, but they will still be rich.
Krieger is spot on. This is the trend of the future. As things get worse and worse, more people are going to start saying “To hell with this. Nobody up there is looking out for me. Let me join with my neighbors and let us find a better way. Let us secede.” In years past after every presidential election, there has a disappointed group that declares they are ready to move to Canada. And every time the disaffection seems stronger than before, and now after the last election a few actually seriously started to talk about secession. This is natural, and I expect it to grow, and to eventually go mainstream.
Diablo, I wholeheartedly agree with you that gold is not what you want to be relying on in the midst of crisis. It can get you killed. Rather, gold should be lying still, untouched, unseen, unknown, out of sight and out of mind until the transition to the next system is complete. There is a coming revaluation. Not a bull market, but a night-and-day one time revaluation. I have no idea when it is coming, but it will come. The reserve asset that central banks have on their balance sheets is the same reserve asset you should have buried in the back yard under your chicken coop.
Nassim, term limits do not solve the problem of the revolving door between government and big business. If anything, they only strengthen the hand of big business. What are elected officials to do after a single term? That’s right: Go to work for the people they were supposed to regulate while in office.
The only cure to restore democracy is decentralization. That is the only meaningful way to restore decisionmaking to the local level. That means that secession movements are here to stay.
Diablo, with your clarification of definitions I find little to object to. As you say, people do not use the terms consistently, which adds to the confusion of people trying to figure things out, and doesn’t really matter to people who do not care. If Antifa is anti-fascist, then sign me up. But then, like Andre the Giant in the Princess Bride, I feel compelled to say to the Antifa warriors “I do not think the word means what you think it means.”
I am not a socialist, but I thought the Socialist candidate was the best candidate by far in the last US Presidential election. I am not a socialist, but i think a major redistribution of wealth is in order. But talk like that sounds socialist to a lot of people — because of conditioning.
I hear people talk about freedom and the Constitution, and that sets off my bullshit detector. My antennae come out and I start sniffing around for Koch and Mises Institute propaganda. Because a lot of these freedom and Constitution types want to use that as another form if propaganda to perpetuate the status quo.
The only way out of this is is a jubilee. But centralized power will never accept that. So for now I think the focus needs to be on rebuilding local communities. Local identity and local self-control. Secessionist movements and direct participation democracy. Break up these corrupt power structures and repudiate the debt that props them all up. At some point I would like to see an aircraft group parked off the Cayman Islands to reclaim some of what has been looted, but I am not holding my breath.
Diablo, what is socialism? I am not sure what that word means anymore. You mention the Soviets. But what about the Germans? Are they socialist? What about the Scandanavians? The Venezuelans? There are a lot of diverse systems that have been labeled socialist, some more successful than others. America is now a banana republic crony capitalist system. Is that any better? If so, for who?
I would like to keep property in private hands, but I think that tax policy should operate to prevent extreme concentrations of wealth. Rather than blowing up the Middle East and stealing Libyan and Iraqi gold I would like to see a US aircraft carrier park off tax havens like the cayman islands. Let’s instead steal all of the money illegally stashed offshore and distribute it all back to the American people. Is that a socialist idea?
Disblo and Diogenes,
I think you both approach the subject with too much commitment to an ideological position. I think this is a mistake. I think the focus should be on what actually works. I have lived in the US, Austria and Korea. The US system is a complete disaster in my opinion, and the sooner the whole system implodes, the better. Then we can finally start with a new foundation. The Austrian system is a hybrid system. There is univeral health care, but there is also an overlapping private system that gives you more choices. And if you don’t want to wait in the doctor’s office for more than an hour, with private insurance you can cut to the front of the line. Everyone gets basic care, but it’s not a purely socialist system. The Korean system relies on price controls. If you are on the government plan, it only costs $3 for a doctor office visit. Some procedures like an ultrasound will cost closer to $50. An MRI will be about $400. A two week stay in the hospital will be about $2000 in a shared room. If you are a visiting foreigner not on the government plan, the prices are higher but still reasonable. Care is good quality and affordable. There is also private insurance, but most people just rely on the government plan. Almost everyone likes the system except the hospitals and the doctors. But there are still plenty of qualified people eager to become doctors. Both systems work 1000x better that the US system and give good care without pushing middle class people into bankruptcy. Kunstler is spot on that the US system is one big racket. Single payer raises obvious ideological issues, but it would work much better for most people. I can understand why hospital, insurance and pharmaceutical executives want to keep yhe system just as it is.I used to think like Diablo, but rising inequality has forced me to rethink my views. Now I hear “the right to be left alone” as code words of the Kochs. The system is rigged. As Kunstler constantly emphasizes, many of our institutions like health care and higher education have become criminal rackets to extract every last dime from the people. The billionaires promoting the austerity propaganda don’t really believe in balancing the budget for the common welfare. Rather, they have every intention of using the government’s improved balance sheet for their own ends. In an ideal world everyone should pay their own way for healthcare, housing, and education. But what about when the system is rigged?
Will F, Private property is a good thing, but it needs to be accompanied by tax policy to prevent overconcentration of wealth. Tax policy makes it extremely difficult to accumulate $1 Million because it taxes the hell our of wages, but makes it a lot easier to accumulate the second million, and then the third, and so forth. That’s because once you get over the hump you can live on the labor of others. That’s what needs to change.
V. Arnold,
Korea suits me, but it certainly isn’t for everyone. Speaking the language helps a lot, but no matter how well I learn to speak the language, I will always be regarded as an outsider. I am fine with that.
V. Arnold
Korea, with no plans to ever live in my home country again. I have thought about retiring in Vietnam or Malaysia if circumstances change for the worse here. Thailand is also a good choice, but I have not been there for many years.
I meant to chime in when the question arose whether there are any younger readers of this blog. I do not really count as young — I am in my mid-40s. But I have been reading this blog for a long time. I even remember when Ashvin was writing for TAE, and that was quite a long time ago.
I think there are a few people in every generation who grasp the problem. But what to do about it? I got out of the financial system in 2008. I paid off all my debts including my mortgage. I keep my savings in physical cash and physical gold. I try to avoid the banks as much as possible. I lost some weight and started exercising to maintain and improve my health. We have a car, but my wife drives it. I ride the bus to work (which would be impossible in America but is very clean, convenient, safe and reliable where I live). We ditched the television when my daughter came along. I have a good job and live in the city. If things go south I will move out to the countryside where my wife’s extended family still farms, and where I could dramatically reduce my expenses practically overnight. What else can I do? Maybe buy some land and a place in the country? I am still thinking about that one. I think prices will come down and my purchasing power will go up if I wait.
Having done all of these things, I don’t have much to say. This is why I do not post very often. To think about these things regularly, for me, is like watching the teakettle to see when it will boil. I tend to be right in the long term, but all wrong about timing. I knew Countryside would eventually collapse, and I bought puts on it. Well, it kept going up and I lost my money on that bet. Then a couple years later everything finally unraveled and it collapsed. I was right, but all wrong about timing. I feel that the entire economy is one big Countryside at the moment. But I have no idea when we will reach the tipping point. I may be wrong about all this, in which case that’s just fine.
This is all quite simple, so simple that my seven year old can explain it in a single sentence.
I was explaining to her why I hate buying stuff that comes with a lot of packaging: because of all the trash. I was explaining why it is virtuous to try to live simply and not try to consume as much as possible. I asked her “Where do you think all that trash goes?” She immediately grasped the lesson but then asked: “Yeah, but what about all the other people–how can you stop them from making trash?”
And that, dear friends, sums up our predicament. That is why we will never solve these problems. That’s why we as a species will kill the planet.
V. Arnold is right.
A random aside: I am in Japan at the moment. Don’t believe all the anti-Japanese propaganda you hear in the US financial press. This country is doing just fine. Two decades of crippling deflation? No signs here that macroeconomics have turned the citizens into growth zombies. The infrastructure is great, everything is clean, and people preserve a sense of balanced aesthetics even in parts of the city that are not wealthy. A demographic time bomb? The Japanese will get by just fine. There is still a sense in this country of making things by hand, as opposed to the center of the Empire where everything is mass-produced crap manufactured somewhere else. If deflation is the future, the Japan model is one to embrace.
daisychain asks “What I don’t understand is why we can’t just ‘reset’ the economy.” Indeed we can, and indeed we will. What is a dollar? Nothing but an idea in your head, backed up by a few electrons. We can reset the entire world financial system, and we will. But the trigger will likely be involuntary. A reset is a short term catastrophe to people up to their eyeballs in debt because they will lose their jobs and risk losing just about everything they have. A reset is both a short term and long term catastrophe for the 1% because they are heavily invested in the system and the owners of all that debt, as well as asset prices that are inflated because of the existence of all that debt. The 1% will try to scare the hell out of the debt slaves and trick them into saving the system.
The only people who want to reset the system are those who are less dependent on it: people out of debt, people who have pulled their savings out of the system. This is actually a very tiny minority and will certainly remain so until calamity strikes.
Has TAE commented on the final MH17 report? I have been very busy recently, but definitely want to tune in to read Raul’s reaction.
Variable81, these are all good points, all factors that one should consider when making decisions. However, I get the sense you approach this as an “all or nothing” proposition when you present it as a choice of either/or. In fact we are not presented with one path to follow, but multitude of decisions we need to make individually and as part of our communities. I agree with you that many who are “stacking” take a view that is narrow and naive. But I think it is also narrow and naive to not buy any gold at all. I think this is just as foolish as living in a small flat in a big city with no more than 3 days of food on hand. Isn’t there a middle path, a path of moderation, a path with the common theme of “get out of the financial system and into the physical world”?
When the financial system collapses, the real world, the physical world, will still be with us. And when that happens, everything in the world will be revalued against things in the physical world. Ownership may change, but there will still be an owner for everything capable of ownership.
You seem to take a view that it will be a long slog, one that will last decades. That may be true, but then again it might not be. There may be a sudden collapse, followed by just a few months of chaos, followed by a whole new steady state financial system, where everything is suddenly revalued against the one physical asset that has been used for centuries for that purpose. Or there may be war, to accelerate our journey to wherever we are going. One way or another, there will be another side for some of us who live long enough to see it.
I for one do not think that things will get so bad, and stay bad for so long, that the only people who survive are the people on the TAE commune. Rather, I think it will get very bad, and be resolved fairly quickly, but with a new steady state system characterized by a massive rich-poor gap (one that makes the current gap look like a crack in the sidewalk). And there may be some people kicking themselves saying “What was I thinking, thinking that I could go back to farming — when I don’t know anything about farming? Why didn’t I sell that crap in the garage and at least buy a few double eagles?”
Who knows? It is impossible to be prepared for everything . . .
The end of my last message was rushed because my wife was yelling at me that it was time to go.
I wanted to add a point that Nicole touches on in the article, and that sculptor also touches on by referring to “whatever emerges on the other side”, and that stands in sharp contrast to Greenpa’s concern (in jest?) about getting change at the gas station. My point is this: Nobody should buy gold with the idea that they will sell or barter it away to get through the crisis that is coming. The whole point of saving gold is to have something once you get through on the other side. As for getting through the crisis, that is where the perspective of TAE is so helpful. We all need to be prepared so that we can get through this crisis without the need to buy anything. That means getting out of debt and eliminating dependence on cash flow is the top priority. If you can do that first, then it makes sense about how to save up some wealth that you hope survives to the other side. If you need to sell your savings during the crisis, before the final death throes of the system that is on its last gasps, you might need to sell at prices still set in the futures market, which may have a long way to drop before the rubber bank finally snaps and we find real price discovery in an un-leveraged all physical market.
A thought provoking essay, but I have a few objections. First, gold has not held constant purchasing power over time. An ounce of gold had far far far more purchasing power during the Roman Empire than it holds today: https://ancientcoinsforeducation.org/content/view/79/98/
There are many historical merchant records from the Venetians that also confirm gold purchased a lot more throughout the middle ages than it does today. Why is that so? On the runup to peak debt in our modern world, virtual “financial wealth” competes against gold and other material world items as a store of value. I think that Nicole is right that the whole world of financial wealth is going to come crashing down. When that happens I think gold we be de facto revalued much higher relative to the current purchasing power.Nicole is right that in a financialized world supply and demand do not set the price. And for that very reason I think Nicole may be wrong that the purchasing power of gold will be falling because people are forced to sell.
Variable81, in addition to credit money and physical currency, there is another category, which is base money. Base money is not created by credit expansion and does not disappear in a credit contraction. Although it does not yet exist in physical form, the government has an obligation to print it in physical form on demand. In that sense physical cash is what backs the system today (instead of gold, for example). The reason for all the new zeros on the currency during a hyperinflation is because the government has already “printed” as base money. When there is not enough physical cash out there to handle a run on physical cash, the government simply adds more zeros. Although we think of hyperinflations as too much worthless paper money, the reality while its happening is that there is always a shortage of cash, hence the additional zeros.
Variable81, I think you should not be so dismissive. A few things to consider:
1. Many hyperinflationists believe that the deflationary death plunge is likely, if not necessary, before the collapse of confidence. Deflation is the theme of Act 5 of our five act play, but hyperinflation is the final scene of Act 5. In other words, deflation and hyperinflation are often presented as either-or, when in fact it can be both, in rapid succession.
2. As any student of monetary history knows, the actual hyperinflation, the printing, takes place long before the loss of confidence. We often think of hyperinflation as “will they print in the future” when in fact they already have. Base money has increased dramatically. It is sitting in bank reserves. It is dangerous, which is why the Fed does not want any more QE if it can avoid it.
3. Even though the printing has already happened, look at the chart in the article and ask yourself this question: When the deflationary spiral comes upon us, what will the response of the authorities be? Will they sit back and say “We have tried everything, and nothing worked, so we now give up”???? Do you think this is a politically viable solution? The public will be demanding that the government “do something” and the banks holding all the bad debt will be using their political connections to pressure the Fed to pay them 100 cents on the dollar . . . just like in 2008. All to save “the system”. So there is damn good chance, I’d say a near 100% chance, that the chart in the article is a prelude of what’s to come. So, more dry tinder.
4. The chart that is missing from the article is overall bank assets. To understand the danger, you need to consider that base money as a percentage of overall bank assets. That percentage rose dramatically after 2008.
5. TAE rightfully emphasizes the importance of velocity, or lack thereof. As long as nobody is spending all that base money, it does not flow into the economy and so the deflationary spiral continues as we keep throwing more dry tinder on the pile. Here is the quadrillion dollar question: How fast do you think velocity can change? If you think of velocity as the Titanic, you probably think that this can only gradually change direction. But that is because you think of the economy as a huge, stable, machine. But if you think of the economy as human and psychological and prone to emotion, even mass hysteria, then you must at least acknowledge the possibility that velocity can stop on a dime and change direction faster than you can have time to react, faster than the Fed and other Central Banks have time to react. You might consider this to be a low risk event, but I think it is a feature of most, if not all, historical hyperinflations. And I submit that the massive imbalances that have built up have left the entire global and monetary system unstable. One of Nicole’s theme’s has been that the trip down the slope on the other side will not be gradual and stable. It will be characterized by sudden shifts. I think that is right on. What seems inconceivable now, including the possibility of hyperinflation, may seem more obvious decades down the road with the benefit of hindsight.
I think TAE has seen the future. Those of us claiming that hyperinflation is the end of the line does not reject TAE’s argument. Rather, we think it’s what comes after all TAE has predicted comes to pass. It will be the end result after factoring in the human element, the political element, the crony capitalist element.
bluebird,
The banks will get bailed out. It might not be from fiscal spending authorized by legislative bodies, but instead from central banks through the back door. Banks will offload their bad assets for cash from the central bank. You suggest that there may be bail-ins. So it is true, some depositors may also take a haircut. But bail-out or bail-in, the purpose is still the same: to save a failed institution, to save the system. In the end the politicians and power brokers will save the system — in nominal terms. Base money will replace credit money and the deflationary spiral deepens and the central banks save the TBTF banks, and then one day there will be a spark that ignites all that base money and the whole forest will burn down.Dear Ms. Foss, thank you for your reply. I think we are 99% on the same page. The only point where we disagree is about the political response at the very end of the process. I think that TPTB, though they cannot prevent the collapse, can and will “do something” after it happens — they will destroy the currency by buying all the bad debt with new base money. The precedent was already set in 2008. TPTB prefer bailouts, and they have the political power to make sure they get bailouts. Even if there is political opposition to bailouts, the central banks can and will execute the bailouts through the back door of monetary policy. The central banks will purchase the bad debt. Base money as a percentage of bank assets will continue to rise until it first reaches 100%, then exceeds 100%, then the whole system will go up in a short lived hyperinflationary conflagration. The central bankers and politicians will have political cover because they are doing whatever it takes to save the system. As you say, many assets will be destroyed. Many who hold vast sums of financial wealth will see it go up in smoke. But on a relative basis, the people who are now rich will still come out ahead on the other side (though with major casualties, and psychologically they will not see it as coming out relatively unimpaired), and those who are in debt now will be massacred even with a hyperinflationary reset.
We both agree on the play up until the final act . . . .
TheTrivium4TW,
I’m afraid I have to agree with PLnL. Once the deflationary spiral begins, there will be enormous political pressure to “do something”, and that will translate into the central banks saving the system (nominally) at all costs by buying up all the bad debt. This will not be out of concern for the serfs, but out of concern for the holders of all that debt (serfs don’t own it). The lenders want to be paid 100 cents on the dollar, and sooner rather than later. They do not want massive defaults, where they have to foreclose on collateral they do not know how to manage or maintain. Hyperinflation will not help the serfs. The serfs will be the last in line to touch the new money will all the new zeros, and they will be wiped out by the blowout costs of necessities. Hyperinflation will help the political class because they are the ones closest to the printing press. When the dust settles they will be miles ahead of the serfs and they will still own everything. Hyperinflation will help everyone who cares about nominal performance — like pension fund managers who cannot survive with interest rates at zero. Think about it: Deflationary collapse is bad for social stability and can easily lead to revolution. Hyperinflation is no picnic, but usually had more social stability and is usually short lived. If you are one of the elites, which outcome do you favor when looking at it from that perspective?I would like to believe that Tspiras has a Plan B. If Varoufakis can now say that Germany wanted to push Greece out all along, then there is no excuse for the failure to make emergency plans. However, the word from all sources, MSM or otherwise, sympathetic to Syriza or otherwise, is that there is no Plan B. If that’s true, Tspiras is no hero. He’s incompetent. I hope I am wrong. I hope there is a secret plan. But I am not holding my breath.
Raul,
I am surprised that you would consider the US Supreme Court’s decision to be a positive development. My initial reaction was “This is par for the course. Another nail in democracy’s coffin.” Regardless of whether one believes in gay marriage or not, the conservative Justices are right that this should be decided by the legislative branches. This is one issue over the last 20 years that led to a lot of political engagement. The effect of this decision is to signal to the masses that it does not matter what you think or how you vote. You have no direct input on policy. Your masters will decide for you. In that sense this decision is no different from the narrative about the unstoppable NSA, about the FED, about the TPP, about an unregulated Wall Street, about fracking up our groundwater, about anti-Russia NATO propaganda, about the sale of the political process after Citizens United, about the destruction of the planet to suit the agenda of big oil, about all the related narratives where the underlying theme in the centralization of power. The lesson of this case is this: Just when you get people interested in politics, we will take the decision out of the hands of the voters. How can that be something to celebrate?
