Tumultuous Summer Ahead
“I’m convinced the US government will go bankrupt, but not tomorrow. Before they go bankrupt, they’ll print money, and then you’ll get very high inflation rates. Then you get a depression with high inflation. Then eventually they’ll go to war.” – Dr. Marc Faber
[He was correct on war, inflation is back and bankruptcy is on its way. – Gerold]
We are broke. It’s as simple as that.
The global economy is bankrupt. Some countries are more bankrupt than others.
Sure, there are a few pockets of prosperity such as Canada, Norway and Australia because they are resource-based and have solid banking systems. However, in the overall scheme of things they are but a fart in a windstorm. What good are resources if other nations’ economic collapse reduces the demand for these resources? Resource-based countries will fare somewhat better than over-indebted resource importers in the short term. However, no country exists in isolation. Turning a popular phrase on its head – a falling tide eventually lowers all boats.
More important, do any of these three countries have the military capacity to resist the military might of resource-starved America and China? In previous commentaries I said that most wars are fought over resources…. Norway might survive because of its small size and distance from the U.S. and China but Canada is right next to the U.S. and Australia is a sitting target for China and most of Asia.
As an addenda, I might add that the America’s current wars are being fought for both resources and to maintain (for as long as possible) the U.S. dollar as the world’s reserve currency. Some skeptics believe that Iraq and Libya were invaded for oil but that’s only partly correct. Saddam Hussein wanted to sell Iraq’s oil in Euros instead of American dollars. Gadhafi has held several conferences of African states to introduce a gold Dinar as a basis for Africans’ commodity sales. This would also bypass the dollar. They were both invaded, Saddam was killed and Gadhafi is hunted, all in order to uphold the U.S. dollar and as a lesson to others to continue supporting it. However, these are desperate acts of a dying Amerikan Empire. As I’ve said in previous commentaries, the most dangerous animal is a wounded animal and the U.S. is not going down without a fight.
Before getting to more sordid details, it’s important to get an over-view of where we are and how we got here.
In 1694 the Bank of England was created as the central bank to the English government. For most of its existence it was a privately held bank and served as a model for other central banks world-wide. The wealthy banking families that it spawned, control global banking system today as well as politicians and governments behind the scenes. They make their money by squeezing blood out of the population in the form of retail interest as well as interest paid by governments that are funded, of course, by the taxpayers. Therefore, it is in their best interests to encourage individuals and governments to go further and further into debt.
Is this a conspiracy? No, it’s not a tin-foil-hat conspiracy. As mentioned in previous commentaries, given a choice between ascribing something as either a conspiracy or incompetence, the correct answer is usually stupidity (incompetence.) The rich may be filthy rich but that doesn’t necessarily make them smart. Even the rich make mistakes. Jesse Livermore, the greatest stock trader of the 20th century, made and lost fortunes several times and eventually took his own life.
In the ‘The Republic’, the Greek philosopher Plato advocates the creation of “Philosopher Kings” to govern mankind. They would be highly educated and, being wealthy, they would presumably not be tempted by corruption. Plato may be a well-known philosopher but he had a poor understanding of human nature. Over several millennia, history has amply demonstrated that, to the wealthy, enough is never enough.
The wealthy elite gather in Davos, Switzerland to coordinate their efforts and issue soothing press releases. However, the global “financial crisis” has them on the ropes as they try to contain a financial melt-down that is spinning out of control. They are proposing that the world borrow another $100 trillion. The enormity of this amount can be seen by comparing it to the global GDP which is about $55 trillion. For 300 years, these parasites have grown enormously wealthy by controlling how much blood they syphon without killing their host. Unfortunately, their host (that’s us and our economies) are now very sick.
Just how bad is the greatest debt bubble in history? I’m glad I asked. According to Rogoff & Reinhart, who studied 8 centuries of financial folly; no country has ever survived greater than a 90% debt to GDP ratio. Japan is at 200% and has suffered a 20 year depression. Only high internal savings and a healthy world economy have prevented its collapse. Global GDP is $55 trillion so total public sector debt of $50 trillion is at 90.9% of GDP and rapidly growing. The borrowing hasn’t stopped. The boys and girls at Davos are proposing another 100 trillion in debt. The entire world is well and truly f***ed – I mean broke.
So, if it’s not a conspiracy, what is it? Very simply, it’s greed. Human nature is not a conspiracy. The only thing that separates humans from the rest of the animal kingdom is self-deception. A monkey might try to fool another monkey but a monkey won’t fool itself. Self-deception is a uniquely human attribute. And, because we are prone to self-deception, it makes it easy for others to deceive and manipulate us.
Everything you see and hear in the media is a deception of one sort or another. As a former TV-holic, it has taken me a while to recover from the media’s brainwashing and propaganda. When I tell people I no longer watch TV, they are often shocked and their reaction is predictable. It’s as if I admitted to killing and eating babies. Their rationalization (self-deception) kicks into over-drive as they try to justify their TV addiction. They tell me that they, too, don’t watch much TV – well, not as much as they used to – well, only a little – well, only the educational stuff or only the shopping channel. They’re not kidding me; they’re only kidding themselves.
The mainstream media is the one of the most powerful tools used by the wealthy elite. Alternate news sources are part of the propaganda machine. Even El Jazeera, the English version of the Arab-language news network and Julian Assange’s Wikileaks are part of “the system” (I plan a future article exposing Wikileaks.) Al Jazeera was founded by members of the BBC. Wikileaks hasn’t leaked anything that we didn’t already know or suspect. After all, if Wikileaks really was such as threat to the elite, why has its founder not suffered a fatal “accident”? The trivial charges against Assange are nothing but a media mockery to bolster his bad-boy image. Why would the elite sponsor such apparent opposition?
The answer to that can be found with another philosopher; Hegel. By controlling both sides of the argument, the elite control the whole dialogue. It’s how the Hegelian dialectic works.
Ethan and Joel Coen are screen-writers and directors of such memorable movies as Fargo, The Big Lebowski, O Brother, Where Art Thou, No Country For Old Men the recent True Grit. Fans might recall one of their earlier movies; ‘The Hudsucker Proxy’. In that movie, the wealthy elite hire an incompetent CEO to run a corporation into the ground so that the elite can buy the company for pennies on the dollar, restore the company to health and thus reap enormous profits. The wealthy do not care about the employees who lose their jobs or stockholders who lose their equity or anyone else for that matter. Ironically, the company introduces the Hoola-Hoop and achieves great success.
In real life, Hoola-Hoops won’t save us but, just as in the movie, the sociopathic elite don’t care about the disappearing middle class, the people who lose their jobs, whose homes are foreclosed and whose lives are destroyed. Unfortunately, the situation has spun out of control. The rich may be filthy rich but that doesn’t necessarily make them smart. Their greed has pushed the global economy over the edge. Everything you see and hear in the media now is the elite’s desperate attempts to rescue global economies from their inevitable collapse. And, the trouble with inevitability is that it’s inevitable.
The Arab world is coming unhinged and many other countries are on the brink. Notice how the elite are trying to play catch-up. As riots rock Egypt, U.S. President Obama announces he supports Egyptian President Mubarak. As riots escalate, Mubarak announces he won’t run for re-election so Obama changes his tune and announces that the U.S. now supports freedom and democracy in Egypt. Leading from behind like this demonstrates for all to see how ineffectual the elite in general and the U.S. in particular have become. Both Tunisia and Egypt have overthrown their dictators (more on this later). Both were U.S. friendly. This is no coincidence. America is losing its influence so the rats are deserting the ship. There’ll be more to come.
NWO – New World Order
There are many intelligent commentators like The Daily Bell, Bob Chapman and others who believe that the global “problems” are deliberately caused by the hidden elite to make things so bad that we will all surrender our freedoms and accept the New World Order (NWO) and one global currency, etc. etc. Here is an excerpt from Bob Chapman’s “The Financial System Designed to Self-Destruct” from April 7:
Most economists and analysts describe the possibility of what we have discussed in economic terms. It is judged as a chain of incompetent mistakes and they have no answers, because the result and conclusions are too terrible to contemplate. They do not understand the real underlying motives and goals of who created this quagmire. It has been done deliberately to force the population of the world to accept world government. If one does not understand that this is why all this is happening there can be no solution, and the elitists can have another war to blame what they have done on. This is classic. It has been done over and over again in history.
You could write a book about this (many have) covering all sides of the argument and still not reach a consensus. Ultimately, it makes no difference whether what’s happening is a result of conspiracy or incompetence (I lean towards incompetence) because ultimately it is the results that count.
Whether they are elite conspirators or those driven by greed is irrelevant – just different words to describe the same thing. We need to understand what they are doing in order to act in such ways that we limit or mitigate the actions of the elite/greedy to avoid being led to the slaughter/impoverishment but we must be careful not to let our dialogue divert us from what’s important i.e. let’s not get hung up on semantics.
Words are not real; they are representations of reality. Reality is real (this is true by definition). Words are symbols. For instance, we use the word ‘society’ as a symbol representing a ‘bunch of individuals with similar cultural features’. However, there is no such thing as a society. Show me a society and I’ll show you a bunch of people. The people are real. The ‘society’ is a convenient term (short-hand if you will) of expressing a longer definition; “a symbol representing a bunch of individuals with similar cultural features”.
The danger lies in manipulating these (word) symbols. Symbols are approximations. One approximation added to another approximation multiplied by another approximation and pretty soon you have an unqualified mess with no relation to reality. The danger lies in our delusion that the result produced by manipulating these symbols bears any semblance to reality.
You need to learn to understand WHAT is happening and not waste time analyzing the WHY. You and your loved ones will be adversely affected by WHAT is happening unless you learn and prepare.
Age of Turmoil
The Libyan war knocked the Japanese nuclear disaster off the front page which knocked the Mideast uprisings off the front page which knocked the European sovereign currency crisis off the front page. So much turmoil indicates a tumultuous 2011.
We live in an age of turmoil. It’s not just the U.S. or Europe but the whole world is in turmoil and it is accelerating. Look at recent events … the riots and austerity measures in Greece, the revolutions in the Middle East and North Africa … These events are compounded by extreme weather conditions that cause severe flooding in some areas and droughts in others. Add to that the increase in earthquakes we have seen recently in Haiti, Chile, New Zealand and most recently in Japan where a Tsunami has devastated a large area, weakened an already weak economy and caused the meltdown of a series of nuclear reactors that will poison the air and the sea for a long time, increase cancer rates world-wide and add to the human misery already impacted by over-population and increased starvation.
The world is “re-setting”. The old, stable ways no longer work. The elites seem to have lost control. New asset bubbles are created then burst with increasing speed. Financial oligarchs that rule governments and control politicians are greedily pillaging financial systems as fast as they can before they collapse. The whole world is groping in the dark trying to accommodate and adjust to the breakdown of various systems … and it will get worse and it will go on for a long time.
2011 will be a year of turmoil. We have already seen the MENA (Middle East and North Africa) revolting and throwing out old dictators. We can expect more geopolitical dislocation in more countries as old alliances break down and new ones form.
This will likely also be the year that the U.S. Federal Reserve is exposed as a failure; that the American economy never left the Stealth Depression that began at the end of 2007 in spite of trillions of dollars in government spending. Globally it’s no better. Fathom Financial, according to the Telegraph, April 26 calculated that the Fed, ECB, Bank of Japan and Bank of England directly injected $5 trillion into the global economy during 2008-2010.
Expect more volatility in stock markets as well as the price of commodities. The price of oil has never seen such wild swings as in the last two years. This is playing havoc with businesses like airlines and the transportation industry where much of the input costs are energy related. It also affects currencies. The Canadian dollar has swung from $1.07 down to 78 cents and back to $1.03 according to Macleans May 30 edition and this is in addition to chaos in the commodity markets.
Central banks are largely to blame although the finger points to speculators. Central banks have kept interest rates too low for too long and, as there’s no money to be made in financial markets, investors are piling into commodities. In 2004, commodity assets were a mere $14 billion. In March of 2011, they were $400 billion so it’s no wonder commodity markets are so volatile.
U.S. budget debate and delay may create another US bond crisis. Greek bond interest rates are topping 15% and that cannot continue without another bailout which will hurt the Euro and see the US dollar rallying and send commodities plunging again. We are reaching some sort of tipping point as the swings are getting wilder. The shocks and volatility we’ve seen so far this year make it very obvious that the fabric of global economies are beginning to tear apart. This cannot continue indefinitely without another crisis of some sort. Wait, this already IS a crisis. These wild swings cannot continue indefinitely without some sort of collapse.
It is important for you to understand what’s happening in the financial world so you can prepare for it, avoid the worst of it and position yourself, your investments and assets to avoid further losses and possibly even benefit from the trends that are emerging. And, that won’t be easy in an age of increasing turmoil where it’s difficult to define what the risks are. Remember, crisis is also opportunity. So, how do you prepare? The only way to do that is knowledge. Keep reading.
TV: the Boob Tube is for Boobs
The first thing you need to do is turn off your TV because everything you see on the boob tube is bullshit. Everything you see on TV is half-truths, misdirection and propaganda. If it’s important, you WON’T see it on the boob tube and what you do see is NOT important. Everything you think you might learn from TV will mislead you. Everything on TV is entertainment regardless whether it’s news or documentaries or the Discovery Channel or the History Channel or whatever. It’s all propaganda designed to brainwash you and destroy your critical thinking skills. Its rapid-fire images create a form of Attention Deficit Disorder in young and old alike. Its onslaught prevents time for thought, reflection, analysis and criticism. It’s a one-way form of communication; you just sit there like a dummy and absorb everything. And, it so easy to do after a long hard day but, you have to stop doing it if you want to develop the critical thinking skills necessary to see through the propaganda.
After I got fed up with yelling at it, I discarded my TV in 1988, got a life, began catching up on my reading and developed new interests. I now get most of my news from computers, the internet, newsletters and blogs. A while ago, while travelling on business, I turned on the so-called news and I kept waiting for the news and still I kept waiting for the news. All I got was celebrity news, Donald Trump not running for president and the Royal wedding preparation as if anyone really cares. That’s news? You’ve got to be kidding! Twenty minutes of bullshit and then the weather came on and they got that wrong too.
The next thing you need to do is develop new sources of information. 90% of the internet is bullshit but at least that leaves 10% that’s accurate and that’s better than 100% bullshit on TV. Which 10% of the internet is believable? Good question. Tough answer. That’s for you to figure out. You’ll learn with time and exposure. The more mileage you log on the internet the better you’ll get, the more selective you’ll become and the less time you’ll waste. It’s a learning process and the sooner you start the sooner you’ll get results ….
These are some of the blogs, websites and newsletters I read:
http://www.jsmineset.com/ (venerable Jim Sinclair)
http://www.blacklistednews.com/ (good source of alternate news)
http://dailyreckoning.com/ (careful: heavy marketing)
http://maxkeiser.com/ (full of himself but worth the annoyance)
http://www.globalresearch.ca (somewhat leftish)
http://www.stratfor.com (hard-hitting but questionably elitist)
The European sovereign debt crisis will drag on for a long time. The Europeans have “kicked the can down the road” just as the Americans have. They haven’t solved the problem of indebtedness; they’re playing the shell game desperately hoping a miraculous recovery comes before the music stops when they run out of money or their counterfeit con game is exposed as a Ponzi scheme. There’s no sense repeating the detail from my previous commentaries except to say this is all part of the Greater Depression. The last two depressions lasted an average of 19.6 years. This one started with the collapse of the U.S. housing market in 2006. We only have 15 more years to go and that’s assuming governments do everything right from now on. What do you think the chances of that are?
U.S. credit rating agencies downgrade European countries – whistling past their own graveyard – so U.S. Treasury bonds look more attractive than European. Do you think the timing is coincidental? Just before President O’bummer or the U.S. Treasury’s tax-cheatin’ little Timmy Geithner make a speech, one of the American credit rating agencies downgrades some foreign country. This briefly sinks that country’s currency and briefly props up the U.S. dollar. It looks like the speech had a positive effect and gives the impression to the brain-dead media that politicians can actually solve the problems they created in the first place. More manipulation, spin and bullshit!
I’ve been asked by Canadians why I spend so much time analyzing the U.S. instead of concentrating more on Canada. Good question. Several answers: First there’s a lot more happening in the U.S. because America is in much worse shape than the authorities admit and the media reports. Second, we need to learn from America’s mistakes to prepare (as individuals and families) and avoid the repercussions. Last but not least, the U.S. is still Canada’s largest trading partner and what happens to Canada’s biggest customer will affect Canadians, businesses and ultimately Canadians’ jobs and the future.
The American government’s attempts to spend their way out of this economic downturn has failed. According to David Rosenberg (Breakfast with Dave, January 4, 2011) the U.S. Federal government is spending $1.60 for every tax dollar it is taking in. It has produced 9% deficit for a mere 3% GDP growth.
In fact, it’s worse than that. Here’s a bombshell you’ll never see the ass media reporting. Regular readers of this blog know that the official inflation numbers as measured by the Consumer Price Index (CPI) are bullshit. We are meant to believe that inflation is under control. We are told that the reason for the Fed’s Ben Bernanke keeping interest rates near zero is concern about DEFLATION. What utter crap! The CPI excludes groceries and gas. Even without groceries and gas, the inflation rate is supposedly 2%. Factor in groceries and gas and the CPI is closer to 6% unless you’re lucky enough that you don’t need to eat or drive. So, here’s the bombshell. With inflation at 6%, a 3% growth in GDP means 3 minus 6 equals a negative 3%. The U.S. economy is shrinking by 3% a year! Is it any wonder they keep fudging the numbers? Is there any doubt that the U.S. is in a major depression? The U.S. economy has been collapsing since 2008. So has the global economy as you can see from the chart below.
Here’s another bombshell. At the end of April, The International Monetary Fund (IMF) announced that if present trends continue, China’s economy will surpass the U.S. in five years. The “Age of America” will end in 2016. It’s funny how the ass media forgot to mention this. This is monumental news and just one more reason to ditch your stupid TV.
A contrarian is a person who does or believes the opposite of prevailing ‘wisdom’ and since prevailing wisdom is created by our lords & masters propaganda for their benefit, not ours, the contrarian position is quite often correct. Goldman Sacs are the leading investment bank of our lords & masters therefore it would be wise to believe or do the opposite of what they say. Therefore, if you have any doubt we are entering the next downturn, read this from Goldman Sacs as reported by Prieur du Plessis : “Goldman’s Hatzius: The next US recession is “years away”. “The next recession in the U.S. “is years away”, the chief U.S. economist of Goldman Sachs said earlier this week. “There’s still a long way to go. The unemployment rate is still 9%, we’re nowhere close to a really tight labor market that usually predicates a recession, so I think we’re still be in a recovery for a few years.” - CNBC May 18, 2011
Gerald Celente of the Trends Research Institute has been remarkably accurate over the decades. He predicts that by 2012 America will become an undeveloped nation, that there will be a revolution marked by food riots, squatter rebellions, tax revolts and job marches, and that holidays will be more about obtaining food instead of gifts. America will be the first undeveloped country that will see revolution, food shortages, riots and marches. He says parents shouldn’t send their kids to get business degrees or psychology degrees; they should send them to community colleges to learn a real skill. The retail industry will die off completely but local markets will thrive.
U.S. Democratic Suicide & Other Forms of Insanity
John Adams said, “There is never a democracy that does not commit suicide.” Here are some examples of sovereign suicide.
– Do you remember the congressional wrangling last month to supposedly cut $38 billion from the deficit? Yet, in 8 days of wrangling, the Federal deficit increased by $250 billion. And, oh, by the way; the Washington Post reported that the Congressional Budget Office admitted that most of the budget cut was offset by increases in military spending.
– The Oligarchical rape of the American taxpayer is turning the U.S. into a Banana Republic.
– President Obama is proposing a bill that would allow the U.S. President to declare war without Congressional approval effectively making the President an Emperor. Ironically, historians like Edward Gibbon date the beginning of the fall of the Roman Empire to the creation of Emperors, the first of which was Julius Caesar. Rome didn’t collapse overnight. Or, to paraphrase another historian; Rome didn’t fall so much as it was a series of announcements like ’the messenger service does not stop here on Saturdays anymore.’
Here is Simon Black’s perspective from “This Too Shall Pass” May 18, 2011
Imagine that you’re from the future many hundreds of years from now, researching what life was like in the early 21st century. You pull up an archive of newspaper headlines from the year 2011 and read the following:
“US Congress To Vote On Declaration Of World War 3 — An Endless War With No Borders, No Clear Enemies”
“Blackwater hired by the crown prince of Abu Dhabi to put together a secret force of foreign troops”
“10 killed in US drone attacks in northern Pakistan”
“US Officials Warn Terrorism Threat Remains Post-bin Laden”
“TSA Pat Down of Suspicious Baby Is No Big Deal”
“Treasury taps federal pensions as Uncle Sam hits debt ceiling”
“Fed chief Ben Bernanke says he’s not worried about inflation”
“Global Food Prices Hit New All Time High After 8 Consecutive Months Of Gains”
“Over-50s suffer a lifestyle crash: Millions less comfortable than a year ago”
“UK And US Data Shows Stagflation Threat Deepening”
“Greek riot police, protesters clash over austerity ”
“IMF: Greece needs more austerity measures”
“IMF Chief no stranger to sexual assault allegations”
“Portugal on brink of bankruptcy”
“Contagion fears high as Italy drawn into crisis”
“Italian PM Berlusconi Faces Prostitution Trial in Italy”
In the opening paragraph of “A Tale of Two Cities” Charles Dickens said “It was the best of times, it was the worst of times; it was the age of wisdom, it was the age of foolishness; it was the epoch of belief, it was the epoch of incredulity; it was the season of Light, it was the season of Darkness; it was the spring of hope, it was the winter of despair; we had everything before us, we had nothing before us; we were all going directly to Heaven, we were all going the other way.”
Today he might add that it’s a time of great insanity.
Growth Is Necessary for Fiat Currency
We hear a lot about economic growth but there is almost no explanation why we need growth. Hint: it’s a dirty secret.
Once upon a time when gold and silver were official money, lack of growth was not a problem. In fact, America did fairly well in the 1800s with deflation (negative growth) and, in fact, America grew without growth. How is that possible? It all depends on the definition of “growth”. Keep reading.
The U.S. Federal Reserve Bank was spawned as a Central Bank in 1913. If ever there was a misnomer, this is it. In the first place, it’s not a bank. Also, it has no reserves. In fact, there’s nothing Federal about it. It’s no more owned by the government than is Federal Express (FedEx). It’s a privately owned consortium of a dozen so-called ‘banks’ throughout the U.S. Shortly after its creation, almost all countries of the world created their own Central Banks.
These banks create money. Time was when money was backed by gold. No more. Nowadays we have fiat currency. This is money that is backed by nothing except the full faith and credit of our politicians. Actually, mints print currency but Central Banks create money through loans.
Part of this dirty secret is ‘fractional reserve banking’. This means that banks have to keep only a fraction of their assets (roughly 10%) on reserve. The other 90% can be loaned at interest. Under a fiat currency regime, money comes into existence as a loan. When you borrow, you’ve created a debt. But to the bank, your debt is its asset and 90% of that asset is now available for more loans. Historically, interest rates are about 6%.
This is how Gordon T. Long explains it in “Debt Saturation & Money Illusion” using round numbers for ease of explanation. Globally, financial assets are about $200 trillion, three quarters of which are debt based or $150 trillion. At 6% interest rates, the interest owed is about $9 trillion annually. The global economy (GDP) is roughly $60 trillion so $9 trillion in interest works out to 15% of GDP. This means that we worker bees need to increase productivity 15% a year just to pay the interest. That’s why we need growth. We need to keep expanding the global economy to pay the interest on fiat currency.
This is what is meant by ‘growth’. This is why America grew without economic growth in the 1800s because they had real money: gold and silver. They had money that was not someone else’s liability. They did not have artificial fiat currency.
Politician will never tell you that, schools will never teach that and, don’t hold your breath waiting for the mainstream media to report it. You’re not supposed to know. You’re supposed to be a happy little mushroom; kept in the dark, fed shit and wondering when you’re going to get canned.
Until recently, we’ve had sufficient growth to offset interest payments to the banksters. However, the financial crisis of 2007 and 2008 revealed the ugly truth; we have hit the debt saturation wall. We now have so much debt globally that we can no longer increase productivity (growth) to meet the interest owed to the banksters.
Added to this is another dirty secret. Much of our GDP is government spending. In the case of the U.S. economy (GDP roughly $15 trillion) between 20% and 25% is now government spending. This adds another 3% to our required growth just to break even. In other words we need to increase productivity 18% a year. Given that global economies are shrinking, this is impossible.
The chart below displays U.S. GDP divided by U.S. debt. It illustrates how much the economy will grow (or shrink) for every dollar of increased debt. As you can see from the chart, increased debt is steadily losing its ability for economic growth and since the financial crisis, it has actually turned negative.
Mr. Long states, “Increased debt is now counterproductive to the growth of the economy because the economy simply does not have sufficient productive investments to absorb it. We may have plenty of investments but they are mal-investments. They are investments that simply cannot pay the debt financing utilized.”
On top of all this are other headwinds. Most companies and businesses are highly leveraged. That’s a euphemistic way of saying not only are governments and citizens deep in debt but most banks and financial institutions world-wide are awash in a sea of non-performing loans.
Chronic unemployment is also working against any recovery. The effective unemployment and under-employment rate in most countries is at depression era levels. Ignore official unemployment statistics; they’re bullshit. If consumers are out of work, they aren’t spending much and, in most of the West, the consumer is the backbone of the economy. In the U.S. the consumer is 70% of GDP. A century ago, Henry Ford paid his auto workers double the prevailing wage. He understood that, in order to sell his cars, people needed money to buy them. Today, purchasing power is shrinking and the Middle Class is being decimated.
Economic Death Spiral
Gordon T. Long also produced an unparalleled explanation of our current economic situation in his “The Economic Death Spiral Has Been Triggered”. He explains how we got here and why it’s no longer working.
For several decades, two Global Strategies worked together to give us phenomenal wealth. One of these strategies he calls the Asian Mercantile Strategy. It was first developed by Japan, then adopted by the other ‘Asian Tigers’ and finally by China.
The other strategy he calls the U.S. Dollar Reserve Currency Strategy. The two strategies worked together and reinforced each other to create a virtuous spiral of increasing wealth.
For the past several decades we have been able to consume an historically unprecedented amount of goods and services unlike anything the world has ever seen. We’ve gotten so used to this that we don’t question how we can buy stuff so cheap. I bought an electric can opener the other day for $4.95. Twenty years ago it would have been $19.95 and with inflation it should have been $30 or $40 dollars today.
Cheap Asian labor targeted its production on the U.S. consumer. To keep Asian currencies and its products cheap, Asian countries first intervened in the currency markets. Then, they reinvested their growing foreign reserves by buying American Treasury Bonds and other U.S. financial instruments. This kept U.S. interest rates low and enabled American consumers to finance more and more consumption. This self-reinforcing cycle transferred 46,000 American factories from the U.S. to Asia and made China the world’s industrial powerhouse.
Increasing U.S. unemployment and public funding problems were masked by massive increases in debt spending. Furthermore, low interest rates drove an ever larger American housing bubble which fueled a further increase in debt through Home Equity Loans. The loss of manufacturing jobs was offset by increased employment in real estate, construction and finance. In other words, everything looked rosy.
Because the U.S. dollar is the world’s reserve currency, most commodities are priced and sold in U.S. dollars which allows the U.S. to print unlimited amounts of money and export it’s inflation to other countries. As well, in 1971 Nixon took the dollar off the gold standard which removed all limits to currency creation. The inflation imported by other countries was tamed because it could be ‘sterilized’ by buying U.S. Treasury Bonds. This kept their exchange rates low and allowed the American consumer to buy cheap products. Thus this cycle worked in symbiotic harmony and allowed the U.S. to live far beyond its means with trade imbalances, fiscal deficits and current account imbalances. In other words, the U.S. became the world’s largest debtor. Nevertheless, everything still looked rosy.
And, then the world hit the ‘debt saturation’ wall. Debt costs increased beyond the global economy’s ability to carry the increasing debt load. The two strategies worked until they didn’t work anymore. The global economy can no longer add debt sufficient to sustain growth rates higher than inflation rates. Central banks are trying to increase liquidity but commercial banks are unable to lend to tapped-out consumers. U.S disposable income has decreased since the 2008 financial crisis and consumption has fallen off. This decreased consumption impacts Asia’s revenues and their own consumers are not yet wealthy enough to take up the slack.
The cycle has reversed and become a vicious downward death spiral. What worked well in one direction becomes deadly in the other direction. Other countries, especially China are refusing to buy U.S. government bonds forcing the U.S. Federal Reserve into buying its own paper. This is like the bar owner drinking his own booze – on credit. How long can that work? Not only that, it exposes U.S. Treasury Bonds for what they are; cheap counterfeit which discourages more foreign countries from buying them which, in turn, forces the Fed to buy even more of its own paper.
In addition, governments’ stimulus spending has become counterproductive. Not only is the U.S. government spending $1.60 for every dollar it receives in taxes, the impact of government spending is decreasing.
U.S. GDP was recently reported as growing only 1.8% annually. This is less than the ‘official’ inflation rate and much less than the real inflation rate. The American economy is collapsing in spite of government spending that is now 20 to 25% of GDP. The real economy is in a downward spiral. Britain reported only 0.5% growth and is collapsing even faster.
QE2 (Quantitative Easing or printing counterfeit money) is ending in June and both congress and the taxpayers refuse a continuation of QE. Don’t kid yourself. They CAN’T stop the money presses or the collapse will accelerate. They’ll call it something other than QE. Jim Sinclair famously says, “It’ll be QE forever.” But, that will only work so long until the dollar collapses entirely.
Globally, Central Banks are trying to buy time hoping for a miracle. However time is working against them. I’ve been watching this slow-motion train wreck since 2007. The financial crisis showed that all currencies are doomed to collapse. It’s not a question of ‘if’ or ‘maybe’. It’s only a question of ‘when’.
Various financial writers that I read predict a currency collapse between 2012 and 2016. That’s 1 to 5 years from now. In the final analysis, we won’t know until it happens.
Propaganda and the Normalcy Bias
So, why aren’t more people preparing for disaster? There are several reasons for this.
In the first place, the government’s propaganda machine – the media – are lulling us into a false sense of security. We’re told that everything is ok and we are recovering. Why are they lying? Because the authorities are clearly insane. Insanity is doing the same thing over and over and expecting a different result. For example, governments are hopelessly in debt. So, what do they do? They go deeper in debt. That’s insane.
In the second place, “hard money” commentators are a small minority. If you aren’t a Keynesian economics professor, don’t expect to get tenure at a university. It’s an “old boys” club and they promote only their own ilk. So the economists that the universities churn out are all Keynesian idiots.
And then there’s stupidity. Ok, let’s be nice and call it the Normalcy Bias. According to Wikipedia, “The normalcy bias refers to a mental state people enter when facing a disaster. It causes people to underestimate both the possibility of a disaster occurring and its possible effects. This often results in situations where people fail to adequately prepare for a disaster … The assumption that is made in the case of the normalcy bias is that since a disaster never has occurred then it never will occur. It also results in the inability of people to cope with a disaster once it occurs. People with a normalcy bias have difficulties reacting to something they have not experienced before.”
So that’s another reason to stop watching the boob tube. It lulls you into complacency and prevents you from seeing what to me is obvious. We are entering an age of severe dislocation and if you don’t see it you won’t prepare for it.
“The nasty things that you think are coming always take longer to arrive than you think they will, but once they get here, they make up for their tardiness by being worse than you thought they’d be.” -Richard Maybury
There is much talk in the blogosphere of a possible U.S. default.
It ain’t gonna happen. The U.S. won’t default; it will devalue instead i.e. currency cheapens. This is a beggar-thy-neighbor policy which will affect the globe i.e. “new trade war” because commodities are priced in $US so commodity prices will continue going up. Plus we can expect increased inflation in the U.S. but apparently that’s ok because gas & groceries not included in Consumer Price Index.
The problem is that the authorities are drinking their own Kool-Aid; they believe their own bullshit. Don’t forget how unprepared they were for the downturn and kept underestimating and being blind-sided by its severity. The same clowns are desperately enacting a dollar devaluation policy that no longer works. This tactic might have worked in the past when the US had significant manufacturing but today it’s only 8% of GDP.
Conclusion: inflation will kill the US middle class and dollar devaluation will impoverish the rest of the world.
American Hordes Pouring into Canada?
Several newsletters I subscribe to are U.S. based and occasionally talk about Americans fleeing the U.S. ahead of increasing turmoil. Casey Research lists numerous countries as safe havens including Argentina and Bolivia. Doug Casey has visited dozens of countries including Canada but he doesn’t include Canada as a safe haven. This is strange because he often remarks on the cleanliness of the country and the politeness of Canadians and their hospitality when he attends conferences in Canada. Chris Laird of the Prudent Squirrel frowns on American expatriates saying they would not be welcome abroad and he displays a profound Xenophobia (fear of foreigners).
I don’t think Canadians need to fear hordes of Americans surging across the border into Canada although a few of the smarter ones might especially those who have experience in Canada. There are several factors protecting Canada from an American onslaught. First, Americans have an enormous amount of patriotism compared to Canadians and they would feel like traitors giving up the “Good Ole U.S.A.”
Second, American propaganda and their poor quality of education sees Canada as the land of ‘ice and snow’. Presumably, the glaciers start just north of the border. Hollywood and the American media reinforce this stereotype.
Third, the currency exchange rate will dissuade most Americans from leaving and going abroad because the falling value of the greenback would make living outside the U.S. too expensive unless they can find gainful employment and be paid in the local currency.
Fourth, the recent Obama healthcare debate in the U.S. has the majority of Americans convinced that Canadians are dropping like flies because of long medical wait times.
Last, America is not very civilized and, as much as I like most of the Americans I’ve met, most Americans neither understand nor appreciate civilized behavior. In 1835, French political analyst Alexis de Tocqueville, toured the U.S. and declared that although America may become great someday, it will never be civilized. After 176 years, he is still correct. Potty humor is the most popular form of American comedy, blood-sports are the national pastime, the boob-tube is the major source of news and civilized attributes such as politeness, tolerance and multiculturalism are for left-wing faggots. Americans see Canada as quaint and boring. By the time they realize that quaint and boring is safe, it’ll be too late; gas will be too expensive or unavailable and the walk to the border too long and dangerous.
This is fortunate for Canadians because both of Canada’s Army tanks will be stretched thin trying to defend Canada’s border crossings
What Can You Do to Prepare?
What can you do? Same as I’ve been saying since I started these commentaries. Pay off debt, stay out of debt, have cash available for bargains, plant a garden and add to your gardening tools & skills, buy canning/preserving equipment on sale or at yard sales while they’re still available. Find out what your mutual funds are invested in and what mutual funds you have in your pension and avoid anything American.
Other actions to consider? If you’re American, buy foreign bonds and stocks to profit from the dollar plunge that’s resulting from lousy policymaking in D.C. Avoid long-term U.S. Treasuries like the plague. And invest in the shares of companies whose balance sheets are in much better shape than the American government’s
For years I have advocated building an emergency stockpile of food and necessities. There is something I should add. Be very quiet about your stockpile. Not only for security reasons (teach the kids too) but, when the SHTF and hyper-inflation hits us the government will point the finger at “hoarders”.
What’s the difference between stockpiling and hoarding? Stockpiling takes place over a long period of time and allows distribution channels time to adjust to the slight increase in demand by replenishing their inventory. Hoarders rush out and buy everything in sight all at once, thus depriving their fellow man of groceries. DO NOT hoard.
However, if a lot of people know you have a stockpile, they may rat you out so keep it a secret.
The price of things that you need like groceries and gas are going up and they’re going up faster and faster. That’s known as accelerating inflation. However, the price of things really isn’t going up. Instead, the value of money – paper money – fiat currency – is going down. Money is becoming more like toilet paper than a store of value. The purchasing power of money is going down so it takes more toilet-paper-money to buy the same stuff. That’s inflation. The government won’t tell you that. The ass media won’t tell you that. However, your grocery receipt will confirm it. You’ll know every time you fill your vehicle with gas. You think the price of gas is going up? It’s not. Don’t price gas in devaluing dollars. Price gas in gold. Gold retains its value throughout the ages. Price gas in how much gold it takes to buy gas and you’ll see the price of gas is actually going DOWN. An ounce of gold today will buy more gas than it did in years past
According to The Daily Reckoning, “Don’t trust the government’s inflation figures. An honest measure of the “inflation rate” is available thanks to a pair of professors at MIT. Their “Billion Prices Project” (BPP) doesn’t pussyfoot around. It trolls the Internet, records prices and reveals the most accurate measure of inflation ever. This new index shows the rate of consumer price increases for the last 12 months at 3.2%. This is more than half again as much as the Labor Department’s own tally – 2.1%.
And, over the last six months, according to BPP, prices have been rising nearly twice as fast – at a 6.1% annualized rate. – “Spend It Like You Stole It” April 29, 2011
So what can you do? Short answer: not much! Long answer: Buy stuff now while it’s cheap because it’s going to take more depreciating dollars to buy it in future. That’s inflation. Learn to get along with less because that’s the future. The sooner you learn to get along with less the sooner you’ll have more “discretionary” income (I hate that phrase – who the hell has “extra” income?) but the sooner you stop wasting money on stuff you don’t need the sooner you can buy stuff you will need in future.
9 Ways to Prepare for Food Inflation
This is such a well written article that I’ve shamelessly copied it in its entirety – Gerold
article from frugaldad.com March 28, 2011 1:11
If you’ve been to the grocery store lately, you’ve no doubt discovered that the price of most foods has increased significantly. There’s plenty of blame to go around: increased commodity prices due to increased demand, increased oil prices, devaluation of our dollar, and on and on.
Whatever the reason, increased food prices are putting a major dent in our household budget. Since we can’t do much about the prices, we have to look for other ways to reduce (or at least keep even) our overall food expense.
Food is a unique budget category in that normally when you are struggling with less income and/or increased costs, the natural inclination is to turn to cheaper alternatives. Unfortunately, as many people are discovering, when it comes to food this means an unhealthy diet.
Think of the cheapest foods at your local grocer – they are likely cheap pastas and boxed processed foods (Ramen noodles, mac and cheese, packages of potato flakes sold as “instant mashed potatoes,” etc). While these foods will do in a pinch, they aren’t exactly healthy staples to build the basis of a clean diet.
Nine Ways to Reduce Your Grocery Budget
1. Plan to shop every two weeks. Make room in your pantry (and your budget) to shop for enough food to last two weeks. The more often you see the inside of a store, the more likely you will give into temptation and deviate from your list.
2. Buy in-season produce. The simple laws of supply and demand tell us that things that are plentiful should be a little cheaper. Of course, the opposite is true if a particular produce item is not plentiful in your area, because it has to be shipped in from another part of the country (or world), and those increased costs to transport are passed along to you, the consumer.
3. Eat less. This one seems obvious, but to someone like me raised on three squares (big squares) a day, the idea of skipping a meal or two seems foreign. However, here lately I’ve been trying to eat only when hungry, not when the clock says 8:00, 12:00 and 6:00.
4. Grow your own vegetables. The last couple years we’ve experimented with square foot gardening. This year, we plan to expand on the idea and grow a variety of vegetables in garden boxes in our backyard. We also planted fruit trees last fall that will hopefully yield fresh fruits in the years to come.
5. Compare unit costs, not product packaging and creative pricing. Remember bigger isn’t always cheaper, and neither are the 10/$10 deals. I recently stocked up on a few items included in a 10/$10 sale and the next week the store returned the item to their normal price…$0.88.
6. Consider swapping beans or eggs for meats when looking for a protein source. Like any good carnivore, I like to build a meal around a good meat. Unfortunately, this can get expensive. Here lately, we’ve been enjoying eating “breakfast” for dinner – with scrambled eggs as the main course. Beans also provide a nice source of protein and can augment a smaller amount of meat in dishes like tacos and chili to bulk up the recipe with out increasing the cost per meal.
7. Avoid the “junk food” aisle. Nothing good comes from this aisle. Soft drinks, chips, snack cakes, and cookies are simply empty calories. And they are expensive when you consider you can’t plan a meal around them. Your waistline won’t miss this aisle, either. Now, this is an area where I need to take my own advice!
8. Eat leftovers. One of the most effective ways to lower your cost per meal is to simply stretch your prepared foods across more meals. In fact, I have found that meals like spaghetti, soups, and meatloaf actually taste better the next night.
9. Freeze the extras. If you are short on freezer space, consider a second freezer to stock up on meats and vegetables when on sale, or to freeze leftovers of your favorite meals. My wife makes a huge batch of soup and freezes the portions we don’t eat the first two days for later consumption. Weeks later, on a particularly hectic day, we’ll toss the frozen soup in a crock pot to thoroughly reheat and enjoy an easy meal.
These tips probably make sense in any environment, but are particularly important in the face of rising food costs, high unemployment and a time of high economic uncertainty. I highly recommend taking the time now to streamline your food budget and use some of the savings to build a pantry of stockpiled food.
Best case scenario, your pantry will provide cheaper food than is currently available in the store. Worst case scenario, your pantry will provide food if there isn’t any in the store. It’s my hope that we never face the latter scenario, but I’d rather be prepared just in case.
All this doom and gloom can be rather depressing. It needn’t be. And, you shouldn’t let it get you down. If you’re reading this, you’re learning. Like the tagline on this blog says. “The truth shall set you free but first it will make you miserable.”
My thankless job is to make you miserable by showing you what is about to happen and help you prepare for it. It’s critically important to maintain a positive attitude. In the first place, your attitude affects others. Attitude spreads. In the second place, and most important, your survival will depend on your attitude. Over the years I’ve had three different types of survival training; two were wilderness survival and one was winter survival. The three most important components to survival are:
All the gear and all the training and all the skills in the world will do you no good if you have the wrong attitude. Yes, we’re going to go through a shit storm. But, yes, we’re going to survive it.
My next project will be a compilation of ideas and suggestions to help you survive the age of turmoil. I’ll ransack some of the articles I’ve already written as well as some new hints and tips.
Update: June 2, 2011
OOPS, I spoke too soon!
Goodness! No sooner did I post my latest Collapse Update on May 30 than we were hit with a barrage of dire economic data two days later. Hey, not my fault. I don’t create it; I just report it.
This was the news on June 1st
Case –Shiller reported “U.S. home prices in double-dip recession after 0.8% March drop”. Home prices declined in 18 of the 20 metropolitan areas tracked by Case-Shiller in March compared with February. They’re now down another 3.6% for the year.
Market Watch reported “Australia’s economy contracts 1.2% in first quarter”. What? Australia? The resource power-house?
One reader, freestock, commented that “The important markets of China (the world’s 2nd largest economy), Japan (the world’s 3rd largest economy), Hong Kong, India, Brazil, and Russia are already down an average of 12% from their recent peaks, and have broken down through key support levels, including their long-term 200-day moving averages. Other important markets, including Mexico, Canada, Britain, France, and South Korea have already broken down through key intermediate-term support levels, including their 20-week moving averages.”
Not to be left out, The Financial Times of England reported, “UK consumer recovery set to be slowest in 180 years”.
“Of 18 major recessions since 1830, data from the Bank of England show that the UK is set to experience its slowest pick-up as inflation, tax rises and weak wage growth hit consumer spending.”
The Financial Times also reported, “Chinese manufacturing growth falters “
“Key gauge of Chinese manufacturing growth edges lower in May but remains stronger than many in the market had expected to suggest that the world’s second-largest economy is gliding towards a soft landing.”
And, then Greg Robb of Market Watch headlined, “U.S. private-sector payrolls expand by 38,000 in May” which sounds positive until you read the fine print. Analysts were expecting a gain of 175,000 so that was way off expectations. And, remember a normal U.S. economy needs about 150,000 jobs a month just to keep pace with population increase. More fine print: manufacturing lost 10,000 jobs which means the service industry gained 48,000 jobs. More fine print: that includes the 62,000 that McDonalds hired last month so without Mickey D, even the service industry would have lost jobs.
And, just when I thought I’d seen the worst of it, Market Watch reported. “ISM’s gauge of U.S. manufacturing activity drops in May.”
“The Institute for Supply Management on Wednesday said its gauge of U.S. manufacturing activity fell to 53.5% last month from 60.4 in April.”
Not to be outdone in the gloom & doom department, CNBC, usually the cheeriest of cheerleaders, reported, “pending home sales have collapsed and existing home sales disappointed, the trend of improving jobless claims has arrested, first quarter GDP wasn’t revised upwards by the 0.4 percent forecast, durables goods orders shrank, manufacturing surveys from Philadelphia Fed, Richmond Fed and Chicago Fed were all very disappointing.”
So what do we have to look forward to? You guessed it: more stormy weather (no pun intended.) Discovery headlined, “Hurricane Season Begins Stormy Year Ahead”
Forecasts predict this season will surpass the average number of 11 tropical storms … NOAA predicts between three and six major hurricanes of Category 3 intensity or higher
So, is there any good news? Yeah, Winnipeg got their NHL hockey team. Other than that, not much.
Disclaimer: I’m not an investment advisor and these articles are for commentary only. For specific financial advice you should consult your own investment professional.
Your comments are WELCOME! Lengthy comments may time-out before you’re finished so consider doing them in a word doc first then copy and paste to “Leave a Reply” below.