Collapse Update – April 2009

    Disclaimer: I’m not an investment advisor and this article is for commentary only. For specific advice you should consult your own investment professional.

Insanity Rules

     “The study of money, above all other fields in economics, is one in which complexity is used to disguise truth or to evade truth, not to reveal it.”   – John Kenneth Galbraith

            I was hoping to avoid a long article but, there has been too much news since the 2008 year-end wrap-up article to fit into a short report. I waited until after Easter to send this because there is so much grim news and unpleasant topics to discuss, I didn’t want to ruin your Easter Weekend. So beware: some of the following discussion will be painful. If you want fairy tales, stop reading now and watch the Disney channel.

            Hopeful fool that I am, I waited for the G-20 meeting, hoping against hope that world leaders would finally come to their senses. I should have let skepticism reign and known better. Below is a minimum of what they need to do to stop the economic collapse and begin the painful process of rebuilding:

1) eliminate central banks which have utterly failed their stated purpose of managing the money supply and smoothing out the business cycle. They’ve drastically increased the money supply (as outlined in numerous previous articles) and have increased volatility since their inception (see my 2008 Year End article.) Worse, they are largely responsible for creating the bubbles that are responsible for this economic collapse and are their only remedy is to create more, to wit: the bond bubble will be the next to collapse.

2) either allow insolvent financial institutions to go bankrupt (instead of endless bailouts) or nationalize them, clean them up and then privatize them like Sweden did in the 1990’s. Instead, they are allowing zombie banks to exist a la Japan which is now in its 18th year of recession.

3) determine the root cause of the problem. They’re still trying to solve symptoms. Unemployment, although painful is not a root cause; it is a symptom. The economic downturn, although painful, is not a root cause, it is a symptom.

4) stop fighting illiquidity by injecting more liquidity when, in fact, the problem is insolvency. 

5) realize that consumption without production and savings is one of the causes of the problem. Instead they want us to borrow more and spend more which got us into this mess in the first place. 

6) if not entirely, at least begin the process of reverting back to the gold standard.

            Alas, the G-20 did none of these. Once again they’ve proven that the “definition of insanity is doing the same thing over and over and hoping for a different result.” The G-20 meeting was an assembly of toothless and powerless political leaders that produced fancy photo opportunities to give the impression of global unity (all those suits looked like snake-oil salesmen,) political posturing and self-congratulatory speeches that were long on rhetoric and short on action. They failed to take any major steps to solve the global economic crisis. They know it’s going down. They know there’s nothing they can do except delay the inevitable and try to avoid panic.

            Wolfgang Munchau, reporting on the summit says, “The forward looking indicators do not tell us the situation is getting better. US house prices are down 30 per cent, and have further to fall. Countries with large current account deficits are cutting consumption of imported goods. One of the results will be that the combined export surpluses of Japan, China, and Germany will shrink dramatically. World trade has been collapsing faster than during the Great Depression.”

          “The monetary indicators are also absolutely awful. In Europe, both real and nominal growth of M3, a broad measure of money, is falling on a month-by-month basis – with no turnround in sight. Whether you look at this as a Keynesian or a monetarist, you come to the same conclusion: the world economy is in serious trouble.”

          “The politics of bank rescue are toxic. A former European finance minister reminded me that, from a political perspective, there is nothing in it for a rational politician… But this only makes the need for co-ordinated global policy action even stronger. If you undertake this gargantuan political act while others are not, you bear all the political costs and reap none of the benefits. The best way to do it is as part of a global effort.” (1)    Munchau is saying there is no coordinated global effort. By the time they realize it’s necessary we will be beyond the point of no return. That the G-20 leaders showed more interest in preventing future crises than the present one demonstrates their inability to deal with our current problems.

            You can always count on Peter Schiff to cut through the bullshit with his analysis, “Going from the sublime to the completely ridiculous, in a speech at the just-concluded G20 summit in London, President Obama urged Americans not to let their fears crimp their spending. It would be unwise, he argued, for Americans to let the fear of job loss, lack of savings, unpaid bills, credit card debt or student loans deter them from making major purchases. According to the president, “we must spend now as an investment for the future.” So in this land of imagination (where subprime mortgages are valued at par), instead of saving for the future, we must spend for the future.”
     “I guess Ben Franklin had it wrong too – apparently a penny spent is a penny earned.” (2)

            The only good to come out of the meeting was the pledge to top up the rapidly depleting reserves of the International Monetary Fund (IMF) so the fund can help countries teetering on the edge of insolvency and unable to make balance of trade payments. However, this does more to help creditor nations than debtors. Furthermore, this is a stop-gap measure because the IMF cannot bail out the whole world. A trillion dollars just doesn’t go as far as it used to.

            What is the root cause of our problem? The problem is GOVERNMENT!!!!!

          Obviously, it’s asking too much to ask government to solve itself. The only way to do that is to eliminate government altogether. Slim chance of that happening! Government and its lackeys, the central banks and regulatory agencies, are the cause of our problems. I’ve discussed this in previous articles so I won’t go into great detail here. Instead, here’s a brief outline.

            The problem started with the creation of central banks in the early 1900’s and then culminated in 1971 with Richard Nixon “closing the gold window” which is a quaint and seemingly harmless phrase meaning that governments were now printing fiat currency (un-backed counterfeit paper) which, over time, becomes even less useless than ass-wipe (at least toilet paper is useful.) Every other nation on earth followed suit because they could now bribe taxpayers with our own money and pillage our wages without constraint.

            The party lasted until 2007 when the first cracks appeared with the melt-down of two of Bear Sterns hedge funds. The house of cards has been collapsing ever since. We are coming off a 36 year binge. A bubble 36 years in the making does not collapse overnight. It takes a long time to deflate.

            This is what I called the “slow-motion train wreck” and I warned of a “Stealth Depression” in my first article in September, 2007. It’s stealthy because governments’ misguided efforts, rather than swallowing the painful medicine I outlined above, are slowly destroying the global economy and leaving it weak and unproductive for decades. Yes, I said decades. The Great Depression of the 1930’s lasted 17 years. The Great Depression of the 1870’s lasted 23 years. We are entering this one in worse shape than either of the previous two. Do the math, and then start preparing for the worst.

Will We Ever Learn?

             “In 1919, Hoover was the Secretary of Commerce and he wanted to institute the exact same policies that he ended up starting in 1929. Even though the crash of 1919 was sharper and deeper than 1929, Harding said NO, “the Banks got themselves into this mess and they can damn well get themselves out of it.” That Depression [of 1919] ended up lasting a little over 18 months. Along comes 1929 and Hoover is now the President and begins to institute his 1919 plans for recovery, which is expanded in 1933 by FDR into the New Deal. Exactly the same as what Obama is planning on doing today. Well instead of the Depression lasting 2 years, it lasted 17 years and even a World War could not get us completely out of it. It took the end of WWII (which usually results in Recession), dramatically reduced government spending, the GI Bill, a reduction in taxes and Free Market economics to set the stage for the 20 year boom of 1946 to 1966. It was creeping new Socialist economics policies, followed by Nixon’s price and wage controls that then set the stage for today’s looming Depression. The only other time I’d ever seen or heard of today’s levels of stupidity was in my economic history books, learning about the Great Depression. Once again I ask the question: WILL WE EVER LEARN?” (3) 

What the “Authorities” told us – then and now

“We will not have any more crashes in our time.” – John Maynard Keynes, 1927

“There will be no interruption of our permanent prosperity.” – Myron Forbes, President, Pierce Arrow Motor Car Co., January 12, 1928

“There may be a recession in stock prices, but not anything in the nature of a crash.”
– Irving Fisher, leading U.S. economist, New York Times, Sept. 5, 1929

“Stock prices have reached what looks like a permanently high plateau.
– Irving Fisher, Ph.D. in economics, Oct. 17, 1929

“This crash is not going to have much effect on business.”
– Arthur Reynolds, Chairman of Continental Illinois Bank of Chicago, October 24, 1929

“Some pretty intelligent people are now buying stocks… Unless we are to have a panic — which no one seriously believes, stocks have hit bottom.”
– R. W. McNeal, financial analyst in October 1929

“Hysteria has now disappeared from Wall Street.”
– The Times of London, November 2, 1929

“The Wall Street crash doesn’t mean that there will be any general or serious business depression… – Business Week, November 2, 1929

“… a serious depression seems improbable; [we expect] recovery of business next spring, with further improvement in the fall.”
– Harvard Economic Society, November 10, 1929

“The end of the decline of the Stock Market will probably not be long, only a few more days at most.”
– Irving Fisher, Professor of Economics at Yale University, November 14, 1929

“In most of the cities and towns of this country, this Wall Street panic will have no effect.”
– Paul Block (President of the Block newspaper chain), editorial, November 15, 1929

“Financial storm definitely passed.”
– Bernard Baruch, cablegram to Winston Churchill, November 15, 1929

“American industry has reached a point where a break in New York stock prices does not necessarily mean a national depression.” – Associated Press…December 28, 1929

“I see nothing in the present situation that is either menacing or warrants pessimism… – Andrew W. Mellon, U.S. Secretary of the Treasury December 31, 1929

“I am convinced that through these measures we have re-established confidence.”
– Herbert Hoover, December 1929

“[1930 will be] a splendid employment year.”
– U.S. Dept. of Labor, New Year’s Forecast, December 1929

“For the immediate future, at least, the outlook (stocks) is bright.”
– Irving Fisher, Ph.D. in Economics, in early 1930

“…there are indications that the severest phase of the recession is over…”
– Harvard Economic Society, Jan 18, 1930

“There is nothing in the situation to be disturbed about.”
– Secretary of the Treasury Andrew Mellon, Feb 1930

“The spring of 1930 marks the end of a period of grave concern… – Julius Barnes, head of Hoover’s National Business Survey Conference, Mar 16, 1930

“… the outlook is favorable…”
– Harvard Economic Society, Apr 19, 1930

“While the crash only took place six months ago, I am convinced we have now passed through the worst… – Herbert Hoover, President of the United States, May 1, 1930

“…by May or June the spring recovery forecast in our letters of last December and November should clearly be apparent…”
–  Harvard Economic Society, May 17, 1930

“Gentleman, you have come sixty days too late. The depression is over.”
– Herbert Hoover, responding to a delegation requesting a public works program to help speed the recovery, June 1930

“… irregular and conflicting movements of business should soon give way to a sustained recovery…”
– Harvard Economic Society June 28, 1930

“While the crash only took place six months ago, I am convinced we have now passed the worst and, with continued unity of effort, we shall rapidly recover.” – President Herbert Hoover, 29 June 1930

“President Hoover predicted today that the worst effect of the crash upon unemployment will have been passed during the next sixty days.” – 03 August 1930, Washington Dispatch

“The worst is over without a doubt.” – James J. Davis, Secretary of Labor, 29 August 1930

“… the present depression has about spent its force…”
– Harvard Economic Society, Aug 30, 1930

“The depression has ended.” – Dr.Julius Klein, Assistant Secretary of Commerce, 06 September 1931

“We are now near the end of the declining phase of the depression.”
– Harvard Economic Society, Nov 15, 1930

“Stabilization at [present] levels is clearly possible.”
– Harvard Economic Society, Oct 31, 1931

“All safe deposit boxes in banks or financial institutions have been sealed… and may only be opened in the presence of an agent of the I.R.S.”
– President F.D. Roosevelt, 1933



Now, let’s look at some quotes made over the past few years:

“Home sales are coming down from the mountain peak, but they will level out at a high plateau — a plateau that is higher than previous peaks in the housing cycle.” – David Lereah, Chief Economist, National Association of Realtors, Dec 2005

“We may see a blip up in foreclosures and delinquencies.” – Leslie Appleton-Young, Chief Economist, California Association of Realtors, Dec 15 2005

“The U.S. housing market appears to be emerging from its recent travails and the worst may well be over” Federal Reserve Chairman Alan Greenspan, Reuters release Oct 9, 2006

“The subprime mess is grave but largely contained” – Federal Reserve Chairman, Ben Bernanke May 17 2007, Speech before the Federal Reserve Bank of Chicago

“This is far and away the strongest global economy I’ve seen in my business lifetime.”– Henry Paulson, US Treasury Secretary, July 12th, 2007

“The market impact of the U.S. subprime mortgage fallout is largely contained and the global economy is as strong as it has been in decades.” – Henry Paulson, August 2007

“This is not a rescue” – Goldman Sachs Chief Financial Officer David Viniar after Goldman poured $3 billion into one of its hedge funds, Aug 13, 2007

“I hope you’re confident about our economy. I am.” President Bush at the Robinson Helicopter Co. in Torrance, Calif, Jan 30, 2008

“Losing a job is painful, and I know Americans are concerned about our economy; so am I. It’s clear our economy has slowed, but the good news is, we anticipated this and took decisive action to bolster the economy, by passing a growth package that will put money into the hands of American workers and businesses.” – President Bush on news that the economy lost 63,000 payroll jobs in February, March 7, 2008

“The worst is likely to be behind us,”- Henry Paulson, US Treasury Secretary, May 7th, 2008

“These institutions [Fannie and Freddie] are fundamentally sound and strong. There is no reason for the kind of [stock market] reaction we’re getting.” – Christopher Dodd, Chair, Senate Banking Committee, Financial Post, July 12, 2008

“My first instinct was to let the market work, until I realized, being briefed by experts… It turns out that there’s a lot of interlinks through the financial system.” – President George W. Bush on $700B Treasury Department bailout plan, Sept 2008

“We think that 2009 is likely to be better than 2008.” – Richard Bernstein, Chief investment strategist at Merrill Lynch, Dec 2008

“I definitely think the market is nearing the bottom” – financial writer Lita Epstein — also the author of “The Pocket Idiot’s Guide to Investing in Mutual Funds, 12 Feb 2009.

“We are confident that the measures put in place mean that this sense of free fall we’ve been living with will be arrested in the next few months; that will set a platform for expansion to come,” Larry Summers, Obama’s top economic advisor, Apr 9, 2009

            And there you have it, boys & girls. We’re going to spin, spin, spin our way out of trouble. Our leaders are pumping out platitudes like there’s no tomorrow. The ass media spin machine is in top gear. President Obama and the Fed Chairman Ben Bernanke take their dog & pony show on the road to appear on 60 Minutes and Jay Leno. Talk about desperation when our only salvation is the boob tube! This as known as Deep Shit.

The Problem of Derivatives

            Despite the soothing words of the authorities, none of the fundamentals have changed. Every problem I mentioned in the Sept. 2007 article still remains. The largest and most intractable of these problems are derivatives, structured financial instruments derived from (alleged) assets created by financial institutions, erroneously rated by rating agencies and sold to unwitting investors. These are the “toxic assets” you hear about. Today, they use the euphemism “legacy assets.” How quaint, considering they are single-handedly toppling the world’s financial systems. Vulture funds are offering 5 cents on the dollar and the average offer from other investors is about 12 cents.

            This will give you an idea of the size of the problem:

Global derivatives (toxic assets) ….$1,114,000,000,000,000   (that’s $1,114 trillion)

Global GDP …………………………….……..$55,000,000,000,000   (that’s …. $55 trillion)

U.S. GDP ……………………….……….………$14,000,000,000,000   (that’s ….$14 trillion)

U.S. “Rescue” packages so far ……………$8,000,000,000,000   (that’s ……$8 trillion)

Latest U.S. stimulus package ………………..$878,000,000,000   (that’s …$878 billion)

            To rectify this problem, you and I and everyone on earth would have to work for the next 20 years for free. In other words: donate the next 20 years of pay checks. And, oh, by the way, we’d have to continue spending just as much money as we do today without borrowing it. You have enough money saved for 20 years expenses, don’t you? That’s funny, I don’t either. In fact, I don’t know anyone who does. So, there is no way whatsoever to buy down, pay off, write-off, pretend and hide and hope the problem goes away.  

Depression Pain Uneven

             During the 1930’s, the working class hurt more than the ultra-rich. The 25% estimated rate of unemployment affected the working class, who had few resources to fall back on, to a much larger degree than the middle class who, although they were more likely to have salaries frozen or reduced, were also more likely to have kept their jobs although this varied from one area to another. The ultra-rich didn’t seem to notice at all except they had a larger pool of maids, housekeepers and gardeners to choose from.

            This is entirely anecdotal evidence but it serves to illustrate the point. A colleague of mine is a NASCAR auto racing fan. Until last year, NASCAR was the fastest growing sport in America. NASCAR fans are largely but, not entirely, blue-collar working class. He says that NASCAR attendance is fast diminishing, advertising revenue is falling, race teams are losing sponsors and they’re reducing the number of cars they run in order to cut costs. When you’ve lost your job, then NASCAR races are discretionary expenses you can no longer afford.

            Golf, on the other hand is not a blue-collar, working class sport to any degree. Golf, especially private courses, attracts the well-to-do middle class and the rich. A neighbour of mine recently attended the Masters golf tournament in Augusta, Georgia. Other than the weather being unseasonably cold, he said you’d never know there was an economic downturn. The crowd started at 90,000 and reached 115,000. Tickets were $40 U.S. and scalpers were getting $300 to $400. Souvenir buttons regularly $70 were fetching $5,000. Hats started at $30 and T-shirts started at $65. The pro shop was the size of a large retail grocery store with 25 check-outs and long lines.

            As mentioned previously, not everyone during the Depression will be standing on the street selling apples. Some will be scalping tickets to the Masters Tournament.

Increased Regulations

            There has been much talk from our inept leaders about the need for more, better and tighter regulations to prevent these economic and financial problems happening again. Don’t get lulled by the spin. In the first place, financial institutions are already tightly regulated (although derivatives have few and do need more) but the existing regulations were not enforced and inept government regulatory agencies either turned a blind eye or were asleep at the switch.

            In the second place, this was aided and abetted by government. As well, it was American Democrcats (now, once again in power with Obama) who pushed mortgage companies to lend to sub-prime home owners.

            And, finally, at this point, it’s too little, too late. Not only are they closing the barn door after the horse escaped, but, the horse ran away, starved, lay down, died, was made into dog food, eaten by Fido, shat our, dried up and blew away. As usual, our incompetent leaders are doing far too little, far too late.

            Ignore the ass media spin. Here’s just one example: Joel Prakken, chairman of St. Louis’ Macroeconomic Advisers LLC, said, “We’re going to see several more months of serious bleeding before we see lesser job losses.” Oh, really? How many months have we heard this now? And the ass media keeps spewing out this shit as if it had some semblance to reality. Job losses increase. The ass media spins it as “Job Losses Less Than Expected.” Then, adding insult to injury and hidden in the fine print, previous months’ job losses are drastically revised upwards. Beware the spin!

FASB – Looser Regulations

            Wait a minute! Our stupid lords and masters are calling for increased regulations but, at the same time they are pressuring the U.S. Financial Accounting Standards Board (FASB) to relax accounting standards so American financial institutions can pretend that their toxic assets, er, I mean legacy assets, are worth full book value.  They’re going to pretend their way back to financial health. How well do you think that’s going to work?

            I won’t go into a lot of detail on the latest U.S. government cockamamie scheme to waste another trillion dollars “rescuing” the banks by guaranteeing their toxic assets with Treasury’s Timmy (“forgot to pay my taxes”) Geithner’s Public-Private Investment Plan (PPIP.) It’s simply a complicated shell game whereby the banks “swap” each others toxic assets – I buy some of yours at full price and you buy some of mine at full price and we both pretend that’s now the real market price. Those generous U.S. taxpayers are guaranteeing more than 90% of the transaction, of course. And, you can bet the banks will unload the most toxic of their toxic assets onto those selfsame deep-pocketed citizens. More pretending in La La Land! How well do you think that’s gonna work?

Unintended Consequences

            Nicholas Vardy says, “In many ways, today’s financial markets are as uncertain as they have ever been. And government bailout efforts only complicate the picture. Any scientist will tell you that intervention in a complex system will lead inevitably to unforeseen distortions. Consider the current proposals to impose a 90% tax on bonuses given to employees who earned more than $250,000 from banks that took more than $5 billion of government rescue money from the Troubled Asset Relief Plan (TARP). The unintended consequence? The best bankers at U.S. banks like Goldman Sachs, Citigroup and JPMorgan Chase are already laying plans to flee to European and Japanese banks like Barclays, Credit Suisse, Deutsche Bank and Nomura — firms that have not received TARP funds. London also suddenly looks more attractive than New York. Expect to see dozens of stories of like this over the coming months as the economy absorbs the impact of government spending.” (4) 

            There are other unintended consequences of the endless bailouts.

1)   In times of trouble, Americans have usually been charitable. “Rates of charitable giving in the U.S., as a percentage of gross domestic product, tower over other rich countries. But the bailouts tarnish this charitable impulse by functioning like a stickup,” says Susan Lee in

    Americans are being told unless they pony up hundreds of billions of dollars, “the country will become a sort of Bangladesh with iPhones. It’s the difference between putting your own hand in your pocket and getting your pocket picked.” With endless bailouts to institutions who have failed to curb their entitlement mentality, who continue to pay outsize salaries and bonuses, it remains to be seen how long Americans will continue being played the sucker and what the backlash will be.

2)   “This crisis has exposed the political class as totally impotent, complicit or, worse, in the pocket of Wall Street.” The politicians are sputtering and making a show of righteous indignation while the banksters continue to whisk away the money.

3)   ”Justice, the judicial kind, has been a no-show.” When the government turns a blind eye to law-breakers it weakens respect for all laws. Lee says, “In fact, some of same miscreants who dumped us into this crisis will make tons of money from the cleanup.”  

4)   “There is fright, pure and simple, at the vast amount of government spending,”(5)  Endless bailouts using counterfeit money the government is printing out of thin air will result in hyper-inflation, ballooning budget deficits, increased taxes, destruction of the currency and increased future debt.

Socks & Footwear – Survival Gear

            Another important item to add to the list of Survival Gear is socks. Yes, socks. My brother helps out at a soup kitchen (yes, you’ll see more of these) and from what he has seen, he recommends stocking up on socks. The homeless wear the same socks 24/7 and when they take them off to grab a couple hours sleep at the soup kitchen, the condition of their feet is atrocious. You won’t be able to stand, let alone walk on decaying, fungal feet.

            Buy lots of socks when they’re on sale (have you ever seen them on sale? I can’t remember the last time.) When the fit hits the shan, make sure you change socks every day. Some of us with sweaty feet need to change socks twice a day. Also, consider socks as a great barter item. Cotton for summer, wool for winter. Those living in colder climes, stock up on woolies.

            Same with footwear. Footwear needs time to dry out. Never wear the same shoes two days in a row. Those of us with sweaty feet need to wait more than a day between wearings. Dry footwear lasts a long time but acidic sweat kills footwear quickly. Buy what Grandma called “sensible shoes” when they’re on sale (there’s lots of footwear sales) and have enough footwear that you can rotate them so they dry out. Take heed. You can’t walk without healthy feet.

Print Essentials

            Do not assume you’ll always be able to access important information from your computer. If the electricity goes out and your PC is down or you can’t recharge your laptop battery, all that information is useless.

            Consider printing essential information. Go ahead, kill a few trees. They’ll grow back. You won’t.

Anti- Wall Street, anti-bailout

            I had the good fortune last year while training in the U.S. and this year snowboarding many weekends at Lutsen Resorts in Minnesota, in talking with a lot of Americans. As well, looking at the political cartoons of late, there seems to be building a great distrust and outrage against Wall Street, the banking system, endless bailouts and politicians in general. I was amazed that ordinary working people had a better understanding of the severity of our economic problems than did CEO’s and so-called financial officers who, to say they were disconnected from reality, would be charitable.

            You would think that the government would highlight (and the ass media would report) the countless criminal investigations presently under way with blood-boiling indictments that will start to detonate in 2009. Why the silence? Without the appearance of justice there is no peace, hence no economic stability without which there will be no recovery. Obama is no dummy. Either he starts to pound the drum early in his administration or it becomes apparent that his new government is as clued-out, dysfunctional, lightweight and removed from the common man as Bush’s. Anyone hear much drum-pounding lately other than ineffectual sputtering and indignation? 

Obamarama Continuous Campaigning

            President Obama will go down in history as the first U.S. President who never stopped campaigning. Even his multi-trillion dollar stimulus packages are timed to achieve maximum impact in time for the 2012 election. Below, from The Washington Post is Obama’s Stimulus Package broken down by spending items over time. Notice how little is planned for this year compared to 2010 and 2011. No wonder Caterpillar recently laid of 22,000 employees. No wonder unemployment roles are growing.

            Obama has been told by his economic advisors that the downturn will bottom in the 3rd quarter and recovery will begin in the last quarter of 2009. In public he is unflustered and so supremely confident in the promise of recovery that he keeps pushing his pet programs on education, health care and the environment and ignoring economic issues.

            Guess what, Boys & Girls? No, it’s not Uncle Jay, it’s Uncle Ben Bernanke and his merry band of banksters at the Fed who a couple days ago released the minutes from the last Fed meeting. It seems things aren’t so rosy in La La Land. In fact, they admitted their original optimistic outlook for recovery later this year was, well, just a little too optimistic. Go figure! Who’d of thought? Now who’s gonna go and tell the Prez?


Obama’s stimulus packages are timed to peak in 2010 and 2011 to give them time to work their magic for the 2012 election.

 Reality Bites

            There is so much money being used to “stimulate” economies that, in the short term it is bound to provide some temporary relief. Witness the rally in the stock markets. It worked for Japan during their “lost decades” and it sort of worked during the 1930’s Great Depression. However, stimulus packages can’t continue forever without breaking the bank (or in this case, the taxpayer.) Once stimulus stops, the drop is even harder. It’s like trying to hold back rising flood waters with an earthen dam. Once the dam is breached, the rushing wall of water does more damage than a gradually rising flood.

            The following is from Michael E. Lewitt in John Mauldin’s “Thoughts from the Frontlines.”

            But the real problem is sowing the seeds of long-term, sustainable, organic economic growth. This is really the crux of the policy challenge. The United States in the midst of the worst economic downturn in 80 years as the result of a panoply of extremely poor economic policy choices. Economist Roger W. Garrison draws an important distinction between “healthy economic growth, which is saving-induced (and hence sustainable), and artificial booms, which are policy-induced (and hence unsustainable).” In other words, monetary policy that kept interest rates low for an extended period of time, tax policy that favored debt over equity, regulatory policy that allowed financial institutions to operate opaquely, and social policy that pushed home ownership regardless of affordability, all combined to create artificial economic demand that could only be financed with debt because the savings (i.e. equity) to purchase them did not exist.”

          “Following conventional economic thinking, the government believes that the solution lies in policies designed to reflate the value of these assets. The problem with this approach is that it is based on the incurrence of trillions of dollars of additional debt to create the demand needed to purchase these assets. Debt begetting more debt is a poor prescription for sustainable long-term economic growth.

            No kidding! This what I and other gloomsters have been saying for a long time. And, remember what I said about John Mauldin, other financial analysts and government spin-meisters – that they consistently underestimate and are surprised by the severity of the downturn, they are forever playing catch-up and having to revise their forecasts downwards. In other words, it’s a lot worse than they’re telling us. In fairness to John Mauldin, he is slowly coming around to the realization of the seriousness of the shit-storm that we face.

What, Me Worry??

          MAD Magazine’s Alfred E. Neuman said it best: “What, me worry?” Unfortunately there’s much to worry about and, in spite of my passionate articles, our government leaders just aren’t listening to me. You probably find that as hard to believe as I do.

            Seriously, though, here are examples where governments’ efforts are off the rails. This is from an article by John Slivia, Chief Economist of Wachovia (and yes, he’s one of the banksters.)

            “Policy makers emphasize the traditional “Keynesian response” to a sudden drop in aggregate demand. There is an emphasis to getting us back to where we were. However, it is where we were that was out of step with long-run sustainable growth.” In other words, we have too many retail stores, too many malls, too many financial services and too much manufactured stuff bought on credit. A lot of this stuff has disappeared. A lot more of this stuff is going to disappear, never to return.

            “Policymakers talk of stimulus. Many current policy proposals are anti-stimulus to the extent that they suggest policy actions that are disincentives to growth. Higher taxes, more regulation and greater trade protectionism are not pro-growth policies, and, if enacted, would offset much of the macro stimulus proposals.” In other words, ideologically the left hand doesn’t know what the other left hand is doing and both are working at cross-purposes and probably cancelling one another. Sounds just like government, doesn’t it? Do you get the impression I have a hatred of government? Not true! I just hate stupidity and the unnecessary pain and suffering that it causes.

            “Credit policy appears aimed at sustaining institutions rather than addressing the fundamental problem of transparency and the quality of information.” Don’t feel bad, Mr. Silvia. I’ve been ranting a long time about the need to identify the root cause of a problem in order to solve it instead of addressing symptoms and no one has listened to me either.

            “Federal Reserve has developed a plethora of specialized programs to address individual markets. Yet, the Fed appears like a policeman who stands on one corner to prevent crime, while crime persists wherever the policeman isn’t.”(6)  Again, addressing individual markets is trying to solve symptoms rather than identifying the root cause. If I were conspiratorially-oriented, I might think the government is deliberately NOT solving problems in order to justify its existence. However, as I’ve said before, given a choice between conspiracy and incompetence, especially in the government’s case, always choose stupidity.

            And there you have if folks. We have major problems, The problems are getting worse. The government is making the problems much, much worse. I wish there was something funny I could say about that. Maybe, old Alfred had it right: “What, me worry?” Actually, I’m not worried because I’m getting ready for the “fit to hit the shan.” What are you doing to prepare?


            Much has been in the financial media of late on Special Drawing Rights (SDR’s.) This was tried in 1969; it didn’t work then; it won’t work now. It is a new fiat currency (counterfeit money) based on a basket of other fiat currencies. If you don’t smell a rat by now, you never will.

            The other point of interest is that SDR’s represent another nail in the coffin of the U.S. dollar as a global reserve currency. Once it loses its reserve status the U.S. downward spiral will accelerate as it will become even more difficult to get foreigners to buy U.S. debt. A number of countries; China, the Arabs, Russia and Venezuela are calling for an end to the U.S. dollar as a reserve currency. So much has the power of the U.S. fallen that Sadam Hussein’s Iraq was invaded (in part) because he was threatening to go off the U.S. dollar as a reserve currency but today there are so many countries calling for it that even U.S. Treasury Secretary Geithner admitted it might be worth considering (until he got his knuckles rapped.)

            Canada and other resource rich countries will bear the brunt of the declining U.S. dollar as it loses the value of its reserve currency status. This is another insidious way to devalue the U.S. dollar and get around global regulations against protectionism. Many currencies are starting to deliberately devalue in their relentless race to the bottom. Even Switzerland, yes, the venerable Swiss franc, is being devalued as Switzerland buys, or is it sells, or doing something to its own bonds. I can’t remember which. The news is so relentless nowadays that it’s hard to keep track of the latest brand of idiocy.

GM – Whatever is Happening to You?

            The U.S. government (aka Government Motors) is encouraging General Motors to hook up with Segway to develop a two-wheeled vehicle for urban travel. This is not a joke. Below is a picture of their lovechild.

Pentagon Financial War Games

            The Pentagon hosted it first-of-a-kind Financial War Game based, not on military tactics, but on “how hostile nations might seek to cripple the U.S. economy, a scenario made all the more real by the global financial crisis.”

          “Why would the military care about global capital flows at all?” asked another person who was there. “Because as the global financial crisis plays out, there could be real world consequences, including failed states. We’ve already seen riots in the United Kingdom and the Balkans.” Failed states become home to terrorists and a den of thieves. Look at the piracy originating in failed state, Somalia. Expect many more in future.

          “The savviest economic warrior proved to be China, a growing economic power that strengthened its position the most over the course of the war-game. The United States remained the world’s largest economy but significantly degraded its standing in a series of financial skirmishes with Russia,” said participants.

            “China recently shook the value of the dollar in global currency markets merely by questioning whether the recession put China’s $1 trillion in U.S. government bond holdings at risk.” Caught off guard, this forced President Barack Obama to issue a hasty defense of the dollar and is another crack in the edifice of the U.S. dollar as a world reserve currency.

            The scenarios ended up questioning the “…prevailing assumption about economic warfare, that the Chinese would never dump dollars on the global market to attack the US economy because it would harm their own holdings at the same time. …the Chinese have a middle option between dumping and holding US dollars – they could sell dollars in increments, ratcheting up economic uncertainty in the United States without wiping out their own savings. (7) 

The Chinese are no fools and they are renowned for their long term strategies. Without a doubt, this has already been happening without any fanfare. Not that the ass media would know.

            Do you get the impression that I hate the ass media? Not true! I just hate stupidity and the unnecessary pain and suffering… well, we’ve heard this rant before. One expects stupidity from government because it’s the nature of the beast. But, stupidity from the ass media is worse because a democracy relies on investigation and free dissemination of ideas and a skeptical media to balance the insidious effects of a government out of control. And, when the crass media have been co-opted by the politicos and simply reprint government press releases without question, not only does that border on treason, it further jeopardizes a democracy already at risk from governments turning more Fascist. Think that’s overblown? Read on.

NAZI = National Socialism   

            Many people today don’t realize that Adolf Hitler’s political party was socialist. NAZI was short for National Socialism. Emerging from the ashes of the First World War and the devastating Weimar Republic’s hyper-inflation, the NAZIS nationalized industries under the absolute, dictatorial powers of Hitler who quashed all democratic opposition using military force and propaganda to sustain his one-party state.

            Today, American companies and institutions are being unofficially nationalized through government purchase and guarantees of their assets and debt. When Obama fires GM’s Wagonner, capitalism may not be dead but it’s on the ropes. Homeland security (military force) has suspended hard won civil liberties (quashing democratic opposition) with nary an outcry from the public brainwashed by endless, fictional terrorist threats (propaganda.)

            Notice the similarities. The only difference between the two is one of degree. And if you think there’s no concentration camps, think again. Google “American concentration camps YouTube” and see what you get. Below are a couple examples. I’ve dropped the leading letter “h”  to get through corporate firewalls, so copy and paste onto your browser and add the letter “h” in front for some eye-opening footage.

FEMA Camp Footage (Concentrations Camps in USA)


Alex Jones – 500,000 Plastic Coffins


Divorce and the Stealth Depression

            As the Depression unfolds, it will be painful to see the effect on families, marriage and divorce. We are already seeing Wall Street banksters losing their trophy wives as the “newly redundant” can no longer provide the lifestyles to which their wives have become accustomed. The courts agree and are awarding settlements as though hubby were still raking in the cash. I doubt there are few people on Main Street with much sympathy for the banksters.

            The Germans have a word, “Schadenfreude” which, as Germans are known to do, combine two opposites to create a new concept. “Freude” is joy or delight. “Schaden” is suffering or tragedy. We mustn’t take too much delight in the suffering of the Wall Street banksters as it could come back to bite us. 

            During the Great Depression of the 1930’s the effect was mixed albeit painful. “The Depression changed the family in dramatic ways. Many couples delayed marriage – the divorce rate dropped sharply (it was too expensive to pay the legal fees and support two households); and birth rates dropped below the replacement level…”

“Many [men] stopped looking for work, paralyzed by their bleak chances and lack of self-respect. Some became so frustrated that they just walked out on their families completely. In the United states, “A 1940 survey revealed that 1.5 million married women had been abandoned by their husbands.” (8) 

            Utah was the first U.S. State to feel the effects of the Great Depression. Marriage and birth rates also dropped. However, “the divorce rate rose. More and more women joined the work force, even though the feeling was widespread that when jobs were scarce, women ought not to compete with men for them.” (9)   Supposedly “we’ve come a long way, baby.” Nowadays, social attitudes and the courts in both Canada and the U.S. treat men much more as second class citizens than they did in the 1930’s. Husbands are relegated to the role of “wallet and sperm bank.” Nobody wants to admit it but, in modern times, the greatest danger to a man’s economic well-being is marriage and children.

            The ease of divorce and the generosity of the courts in applying alimony and child support may come back to haunt us as a society. Money problems play a large part in marital breakdown. Reduced income during the Stealth Depression may encourage more divorce in the belief that alimony and child support offer an alternative. However, you can’t wring blood out of a stone and, as layoffs and salary freezes and cut-backs continue, the ability of men to honor these court settlements will be compromised. The result will be more men abandoning their family support, more single parent families and the attendant increase in social breakdown.

Dire Warnings

            The following are copied directly from sources with references shown:

        PhD Swiss Economist, Dr. Marc Faber writes: “Economic conditions may turn out to be far worse than in previous recessions, including the Great Depression at the beginning of the 1930s. Everybody seems to think that, thanks to the government’s monetary and fiscal interventions, this recession will come nowhere near the 1930s slump. However, I think it might be far worse – and precisely because of the interventions.” Jan 12, 2009 Gorge Washington’s Blog

        Former Fed Chairman Paul Volcker has said what many others in the know are saying: this crisis could be even worse than the Great Depression. Volcker noted that industrial production around the world was declining even more rapidly than in the United States, which is itself under severe strain.

“I don’t remember any time, maybe even in the Great Depression, when things went down quite so fast, quite so uniformly around the world,” Volcker told a luncheon of economists and investors at Columbia University. CNBC Feb 21, 2009

          Nouriel Roubini, one of the few economists who foretold much of the current financial turmoil, on Friday said the United States is nowhere near the end of the banking and credit crisis.

          We are still in the third and fourth innings,” Roubini told Reuters in an interview, using a baseball analogy to drive home his view that the current cycle is only nearing its midpoint.   Reuters Feb 20, 2009

          Economics scholar and former Federal Reserve Governor Frederic Mishkin says the shock that continues to rip through the nation’s economy is actually worse than what was felt during the Great Depression. CNBC By: Andrew Fisher 23 Sep 2008

          Britain is facing its worst financial crisis for more than a century, surpassing even the Great Depression of the 1930s, one of Gordon Brown’s most senior ministers and confidants has admitted.

          In an extraordinary admission about the severity of the economic downturn, Ed Balls even predicted that its effects would still be felt 15 years from now. By Nigel Morris, Deputy Political Editor, and Sean O’Grady, Economics Editor Tuesday, 10 February 2009

          More prominent economists have declared that the U.S. is facing a depression that may be even worse than that of the 1930s.

          Noting that current efforts to rescue the mortgage industry are less successful than those used during the 30s, Edward J. Pinto, former chief credit officer at Fannie Mae has warned that the current crisis could be worse.

          Mr. Pinto said that, while the subprime crisis was often compared to the Depression, there were differences that made the current problem more acute. The Depression-era collapse in housing prices did not generally put homeowners at risk of owing the bank more than their house was worth. That is not the case today.

          In addition, hedge fund manager and billionaire philanthropist George Soros has warned that the current crisis outstrips that of the 30s:

          The bursting housing bubble “acted like a detonator that exploded a much larger bubble,” he said.“The economies of the world are falling off a cliff. This is a situation that is comparable to the 1930s. And once you recognize it, you have to recognize the size of the problem is much bigger,” he said.

          Pinto and Soros join the IMF’s top economist, Olivier Blanchard, and Professor Peter Morici, a former chief economist at the U.S. International Trade Commission, who have both concluded that a depression is looming.

          These summations dovetail with the analysis of renowned financial publication The Economist, which reported earlier this month that, based on the characteristics of the current financial crisis, the U.S. is in a depression, not a recession.

          More and more prominent analysts are now saying what people like Alex Jones and Peter Schiff were being called doomsayers for predicting over a year ago, that the U.S. faces a crisis on the scale of the great depression, if not worse.  Steve Watson Thursday, Jan 29th, 2009

          Renowned investor George Soros said … the world financial system has effectively disintegrated, adding that there is yet no prospect of a near-term resolution to the crisis.

          Soros said the turbulence is actually more severe than during the Great Depression, comparing the current situation to the demise of the Soviet Union. 

          “We witnessed the collapse of the financial system,” Soros said at a Columbia University dinner. “It was placed on life support, and it’s still on life support. There’s no sign that we are anywhere near a bottom.”  Sat Feb 21, 2009 NEW YORK (Reuters)

            The financial crisis will be harder to end than the Great Depression and may force banks to be nationalized, “Black Swan” author Nassim Nicholas Taleb said.

          A more complex financial system makes the current problems, which cut global stock market value by 55 percent to $28 trillion since October 2007, worse than the contraction in the 1930s, Taleb said in a Bloomberg Television interview today. Bonuses paid on Wall Street encouraged risk taking with no regard for losses, he added.    By Pimm Fox and Jeff Kearns Feb. 23 (Bloomberg)

          Morgan Stanley’s UK equity strategist Graham Secker painted a bleak economic picture for the United Kingdom. In his morning forecast, Mr. Secker warned that UK profits could fall by 60% in the current downturn – a worse performance than the great depression of the 1930s.  Friday, March 6, 2009

          In regards to government’s Quantitative Easing (printing more money) “where is the logical argument that explains how creating new money out of nothing (a.k.a. counterfeiting) helps support the economy? If it really does help then let’s take some of the load off the over-worked public servants at the central bank by giving money-printing machines to everyone.”  – Steve Saville, Speculative Investor March 15, 2009

            And that’s the real risk in today’s crisis particularly when framed against the possibility of a Greater Depression. When you study the last one carefully, what made it so terrible was not the banking crisis or the stock market collapse, but rather the breakdown in global trade following both events. Whether or not protectionist sentiment caused it via the Smoot-Hawley or not, protectionism was a least a contributing factor to both the length and depth of our malaise.

Which means that to the extent that we repeat that experience with cries to buy EU, save America or keep trade home, we’re doomed to fall even further into Dante’s hell.  – Keith Fitz-Gerald, Money Morning 3-21-09

Need a financial chuckle?

Below, Gary North explains the latest meeting of the U.S. Federal Reserve Bank’s “Federal Open Market Committee” (FOMC) and helps us cut through the jargon and bureaucratese. Don’t forget what I said in earlier articles about our leaders being completely insane.

The Committee’s minutes are in italic Times New Roman 

March 19, 2009

The financial media is a-buzz over the Federal Open Market Committees decision yesterday to buy over a trillion dollars in assets.

Let me parse the text of the FOMC’s press release.

Information received since the Federal Open Market Committee met in January indicates that the economy continues to contract. Job losses, declining equity and housing wealth, and tight credit conditions have weighed on consumer sentiment and spending. Weaker sales prospects and difficulties in obtaining credit have led businesses to cut back on inventories and fixed investment. U.S. exports have slumped as a number of major trading partners have also fallen into recession. Although the near-term economic outlook is weak, the Committee anticipates that policy actions to stabilize financial markets and institutions, together with fiscal and monetary stimulus, will contribute to a gradual resumption of sustainable economic growth.

The facts point to a continuing decline in the economy. On the other hand, the Committee anticipates that the decisions of the Committee will slowly restore the economy. This is reassuring. Think of what the Committee would have had to say if the Committee believed that it was the decisions of the Committee, 2000 to 2007, that got us into this mess in the first place.

In light of increasing economic slack here and abroad, the Committee expects that inflation will remain subdued.

Subdued. I like that. It conveys an image of a guy in a straight-jacket who is on Valium.

Moreover, the Committee sees some risk that inflation could persist for a time below rates that best foster economic growth and price stability in the longer term.

Here it is, folks: inflation fosters economic growth. We just don’t have enough inflation. The Committee will remedy that!  

In these circumstances, the Federal Reserve will employ all available tools to promote economic recovery and to preserve price stability.

Got that? We need more inflation in order to promote price stability. You read it here first!

The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and anticipates that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period.

The Committee will maintain a rate that says that capital is a zero-price resource. Scarcity has been repealed “for an extended period of time.”

To provide greater support to mortgage lending and housing markets, the Committee decided today to increase the size of the Federal Reserve’s balance sheet further by purchasing up to an additional $750 billion of agency mortgage-backed securities, bringing its total purchases of these securities to up to $1.25 trillion this year, and to increase its purchases of agency debt this year by up to $100 billion to a total of up to $200 billion.

There will be an additional $750 billion in the monetary base, meaning high powered money. This will support the housing market. We wouldn’t want affordable housing. The job of the Federal Reserve System is to keep housing prices higher than the free market would maintain. This policy is consistent with the present policy of increasing inflation in order to attain price stability.  

Moreover, to help improve conditions in private credit markets, the Committee decided to purchase up to $300 billion of longer-term Treasury securities over the next six months.

The Interest rate on 10-year T-bonds was 2.5% yesterday. This is the longest maturity in the plan. This rate is above 0%, the rate for federal funds — overnight loans, bank to bank. The Treasury would prefer T-bond rates closer to 0%. So, the FOMC will add an additional $300 billion in high-powered money to achieve this.

The Federal Reserve has launched the Term Asset-Backed Securities Loan Facility to facilitate the extension of credit to households and small businesses and anticipates that the range of eligible collateral for this facility is likely to be expanded to include other financial assets.

The FOMC will extend credit — more high-powered money — with collateral based on “other financial assets.” What might these be? And how much money will be involved? Silence.

The Committee will continue to carefully monitor the size and composition of the Federal Reserve’s balance sheet in light of evolving financial and economic developments.

The Committee will monitor what the Committee is buying. This is good. What if the Committee did not monitor what the Committee is buying?

Developments are evolving. Developments have a tendency to do this.

Do you still think our leaders are sane?

Next: Main Street Panic

            When Main Street panics, you won’t see a bunch of people running around screaming. In fact, you won’t see much of anything and that’s the problem. There’ll be fewer people shopping, fewer people buying, half empty parking lots at the mall, people will start saving (if they can) and credit card defaults will double. When Main Street panics it will be a complete paradigm shift.

            In case you haven’t noticed, most governments efforts over the past two years have been targeted at the financial system i.e. banks, investment banks, mortgage and insurance companies, etc. Fat lot of good that’s done so far!

            The U.S. has had a “shadow bank run” instigated by the banksters themselves. The banksters have taken the money created by the Fed through expansion of the monetary base and stashed the excess reserves with the Fed instead of lending it out. In effect, the banksters have pulled the plug on the fractional reserve system which is the basis of a modern banking system. If the banksters don’t have any confidence in their banks, what does that portend for the future and what does that say for the governments’ throwing trillions of taxpayers dollars down the black hole of the financial system?

            On April 1st (no joke!) Moody’s, one of the major credit rating agencies that downgraded U.S. corporate debt by $1.76 trillion, according to Gary North.

“Moody’s said this was the largest single downgrade ever. This signals the worst level of defaults since World War II. Moody’s chief economist, John Lenski, put it this way: “Business sales and profits fell off the table in general in the final quarter of last year and have continued to deteriorate in the first quarter in 2009.”

“There are those in the financial forecasting industry who say that the recession will end late this year. None of these people forecast the recession that began in December 2007, nor did they predict the collapse of stocks. They say there is light at the end of the tunnel.” (Emphasis mine – Gerold)

            News Flash: April 8 – The Federal Reserve downgraded its economic outlook at its last meeting three weeks ago, the minutes of which were released on Wednesday, challenging their previously optimistic outlook.

“The staff’s projections for real GDP in the second half of 2009 and 2010 were revised down,” the minutes say. Fed staff no longer expected growth would recover this year, and instead forecast that output would “flatten out gradually” in the second half and then “expand slowly next year”. 

            Meanwhile, the economic system aka Main Street has been left to flounder. However, unemployment is on the rise, house prices are still falling, household net worth is falling, pensions are evaporating and the commercial real estate sector is just beginning to implode. All the while, the authorities have lurched from one expensive financial bailout to another. The public is beginning to see these bailouts are for the banks, not the voters. The public is beginning to lose faith.

            Confidence is what makes the world go around. Ok, money makes the world go around but you have to have confidence in money for money to make the world go around. Confidence, once lost is difficult and time consuming to rebuild. Not only is the public losing confidence but the banksters and elected officials themselves are losing confidence. At some point this will become self-reinforcing and add to the downward spiral and there doesn’t seem to be anything to stop it.

World Trade Falling Off a Cliff

“World trade is falling much faster now than in 1929-30,” two economists, Barry Eichengreen of the University of California and Kevin H. O’Rourke of Trinity College in Ireland, wrote in a paper released this week titled, “A Tale of Two Depressions.”

“That is highly alarming,” they added, “given the prominence attached in the historical literature to trade destruction as a factor compounding the Great Depression.”

Definition of Depression

            What’s in a word? Apparently not much! Ask a hundred different economists to define Depression and you’ll get a hundred different answers. Google the word Depression and you’ll get pages and pages about mental illness. So, things could be worse (how’s that for positive?)

            One definition is a prolonged drop in GDP of more than 10%. Few major countries have experienced that yet.

            Another definition is two quarters of declining GDP in which case the U.S. is in a Depression. Canada about 9 months behind (I hope that doesn’t mean what I think.)

            Another definition is 5 quarters of recession. The U.S. recession officially started December, 2007 so technically the U.S. began a Depression at the beginning of this month.

            During the Great Depression of the 1930’s no one called it the Great Depression. They called it “Hard Times.”

            More severe than the 1930’s Great Depression where people pinched pennies was the one from 1870 to 1893 where people starved and it lasted 23 years. It was called the Panic of 1873.

            The point is what we call it isn’t important so much as how we perceive it, what we make of it and how we let it affect us. What is important is our attitude toward it. As conditions deteriorate, it is important that we as parents or elder maintain a positive attitude, not only for our own well-being but for those who look up to us. We are all role models, every one of us.

            Today, the media (notice I’m trying to not always describe them as certain body parts) call it a “Global Economic Crisis.” Goodness, I feel better already.

Monthly Mortgage Rate Resets

            If you thought the fallout from sub-prime mortgages in the U.S. was bad, stay tuned. The chart below shows the increase in the re-setting of Option Adjustable Rate mortgages, Alt-A mortgages and Prime Mortgages. will be picking up where sub-prime is leaving off.

Option Adjustable Rate and Alt-A will reset to higher rates and defaults are expected to increase dramatically. Even Prime mortgages are at risk and defaults are expected to increase because many mortgage holders have lost their jobs. Looking at the chart you’ll see resets increasing this year and increasing every year through 2010 and 2011. Foreclosures will add to the inventory of unsold homes which is expected to further reduce real estate prices. It is generally agreed there can be no recovery until house prices bottom out.

            Another recent report indicated that banks are keeping foreclosed homes off the market i.e. not listing them because to do so would increase the glut of homes thereby driving prices lower. They are also encouraging defaulted homeowners to stay in their homes to prevent them from being vandalized even though owners are not making payments. In both cases, they are skewing the statistics because the number of available homes is under-reported. In other words, the problem is worse than advertised. 

Just Like Japan?

            As mentioned in previous articles, there are two recent precedents for handling insolvent banks. The Swedes in the 1990’s nationalized them, cleaned them up, re-privatized them and their economy quickly recovered. On the other hand, Japan, in 1990, allowed their zombie banks to continue and the result has been 18 years of recession. Will the West do the same as Japan?

            We’ll be lucky to get off so easy. There are several reasons why the American economy is in worse shape than the Japanese were in 1990 and why the outcome will be more disastrous.

1)  When Japan’s real estate bubble burst, they had a high personal savings rate. The US economy entered this contraction with a negative personal savings rate so there’s no cushion to soften the blow.

2)  After Japan’s private-sector credit bubble burst, much of the world was growing rapidly and helping to prop up the Japanese economy. Today, the downturn is global and the shrinking world economy is incapable of either propping up or supplementing the massive U.S. economy.

3)  The American government is expanding its power and going into debt at a much faster rate than the Japanese did during the 1990s.

4)  The US Government and the Fed are flooding the US economy with massive amounts of new money in the misguided belief that it will make up for the lack of savings and increase production to meet the needs of consumers. However, the problem is not lack of production but too much consumer debt. Japan did not put their money printing presses on steroids like the Americans are doing.

            As explained in previous articles, creating money out of nothing (counterfeiting) diverts resources away from productive endeavors to non-productive civil serpents and other social parasites. This creates more imbalances; what the Austrian School calls “mal-investments,” delays recovery, weakens the economy over the long-term and inhibits a robust economy for many generations. Yes, I said “many generations.”

            If you’ve learned anything from the finance and economic articles I’ve been sending since September, 2007 it’s that governments have been consistently underestimating the severity of the global downturn. To this day, they are utterly incapable of grasping the consequences and the speed of the collapse. Everything they do is either “too little, too late” or they do the wrong things entirely: trying to solve symptoms rather than problems; trying to solve effects rather than the root cause.

            To put it in simple terms; we are well and truly f—-d.

No Credit Crisis

            Good news: there’s no credit crisis. That’s because you’ve been lied to; it’s really a debt crisis. However the government doesn’t want you to worry and since credit sounds so much better than debt, they’re calling it a credit crisis.

            Credit and debt are flip sides of the same coin. You need money; I lend it to you. Now you have debt and I have credit. No wait a minute, I don’t have any more money because I loaned it to you. Well, one of us has debt and the other has credit. Anyway, it’s really quite complicated. That’s why the government doesn’t teach us these things in school because then we might know something useful.

            In any case, it’s really a debt crisis. There’s too much debt; public, private, corporate, institutional and governmental debt. Debt is one of the six bubbles that I mentioned are bursting. The debt bubble is bursting which means financial institutions aren’t lending and that’s why we have a credit crisis. There’s too much debt and until it gets paid down, the debt deflationary spiral will continue and there’s nothing governments can do to stop it except make it worse like FDR did in the 1930’s. And, that exactly what governments are doing; making it worse with stimulus packages, intervention, market manipulation, turning insolvent banks into zombies, counterfeiting – I mean printing money, etc. etc. etc. Once the debt is paid down and the deflationary spiral stops then hyper-inflation kicks in as a result of the massive amounts of money that governments have printed.

            But, don’t worry. The government has a plan. At just the right time, they are going to rein in all that extra money. How they’re going to do that and what the right time is they haven’t said. But you can always trust the government to do the right thing at the right time.

            There! Feel better now?

Japan & China Falling Off a Cliff

            Speaking of the Japanese, they recently reported that in addition to declining GDP, their export sales have fallen 54%. Not to be outdone, the Chinese are reporting similar numbers. Exports are plunging world-wide as the world’s largest consumer economy, the U.S. has stopped buying anything but essentials. Given the growing “tent cities” in the U.S. it looks like some aren’t even buying essentials anymore. Dumpster diving is becoming the new national pastime.

Mexico Disintegrating

            The murder rate in Mexico is now off the charts as the only effective government remaining is the narco-trafficers whose bribes are keeping the police and Mexican officials well fed. Mexico is well onto its way to becoming another failed state. The Mexican drug trade is nothing new. However, the level of violence is reaching unprecedented levels and the inter-gang warfare threatens to spill over the border to U.S. states bordering Mexico.

            Paradoxically, the recent Mexican crackdown aided by the U.S. has made the drug trade more appealing as a profession because recent drug busts have reduced supply and driven up the price of drugs. With a deteriorating Mexican economy, “this is certain to prove a self-perpetuating system that will continue to lure ambitious or desperate young men into the drug trade.”(10) 

            Hillary Clinton, U.S. Secretary of State announced increased military support to aid Mexico. Follow the money. The support is going to the border area in a desperate attempt to keep the problem from spilling further into Southern U.S. states. Good luck with that.  

Wild Cards  & Black Swans

            As the U.S. economy and military power fades, we can expect more turmoil world-wide. The mid-east and Pakistan are two of the most obvious hot spots. Mexico is a concern as it devolves into a failed state. Iran’s nukes and Israel is another concern as Obama backs away from military intervention in favor of jaw-boning. Obama is about to learn that he’s a babe-in-the-woods compared to those wily Persians in Iran. Israel may take matters into their own hands.

            Good news: North Korea and its flakey “Dear Leader”, is a joke. After countless tries, they still can’t make a missile fly. You couldn’t make up stuff like that. 

            Other “Black Swans” will crop up unexpectedly. Iceland and Ireland are teetering on the edge of economic melt-down, as is Eastern Europe, as are the PIGS: Portugal, Italy, Greece and Spain. And, Russia never misses an opportunity to over-play its hand. Putin, in the background but still in charge, will become more desperate as Russia’s oil revenues decline and increasing unrest makes it more likely that some scapegoat will need to be found and punished to re-direct the mob’s anger.

            At the best of times, none of this would be a major concern (unless of course you happen to live in any of those countries.) However, the world economy today is like a powder keg and any of the above countries (or an unexpected Black Swan) could become the detonator. That’s why it’s hard to make predictions with specific time lines.

Canada Not Safe

            Mark Carney, the current Bank of Canada Governor admitted that the recession will last longer than he thought. When a government official says that, you know the reality is far worse. He said that weaker global demand, the selling of inventories rather than new production, worsening labor markets and spare factory capacity will cause Canada’s economy to contract into the second half of this year. “The contraction is the first quarter (2009) now looks likely to be the worst on record since 1961.”(11)   Incidentally, Canada only began collecting quarterly data in 1961 so it’s anyone’s guess how far back this record extends.  So much for those expecting the turnaround in the last half of 2009.

            For a more accurate analysis, it’s best to rely on those who do NOT have an agenda. Former Bank of Canada Governor, David Dodge says it will be 2011, 2012 or 2013 “before we see the level of output and the rates of growth return to something approaching capacity.” Current government actions will take time to work “even if everything is done right.” (12)  When’s the last time that happened? The key to fixing the global economy is to eliminate the huge trade imbalances between exporters and mega-consumers like the United States. This will take time and more political will than is presently evident.  

            Ian Gordon, Vancouver-based investment advisor, market historian and President of Long Wave Analytics, “has been consistently accurate in his forecasts in recent years. And if he is right now, much worse is yet to come,” according to Globe and Mail’s Brian Miller.

            Gordon says, “We’re only really at the beginning of this massive collapse of the debt structure. Much as the central banks are trying to feed money into the system, the collapse basically takes money out faster than they can put it in.”

          “My own feeling is it could be the end of paper money… The central banks and the treasuries response to all this is to just continue to increase the debt. They’re trying to get the credit lines open again, but I ask myself: Who’s there who can actually take up the loans?”

          “I don’t think that those measures are going to work. The consumer is absolutely tapped out, and that’s who you have to depend on for your economy.”

          Ian Gordon was on BNN’s Bear Attack, April 7. He said Deflationary Depressions are part of the long term business cycle like the 1930 where debt has to be washed out of the system and he has been calling this one since early 2000. Gold did well in the 1930’s because it was the only thing people trusted when the whole monetary system collapsed (BTW – that’s one of the next shoes to drop.). Gold mining stocks were the only stocks that did well (I mentioned before that they are susceptible to sell-offs during market crashes but they come back so they offer good buying opportunities during sell-offs.)

            His stock market predictions are really scary. In 1921 to ’29, the U.S. was a creditor nation with a massive and growing manufacturing economy whereas today the U.S. is the world’s largest debtor nation with declining manufacturing. In the 1930’s the stock market lost 90% of its value from the peak in 1929. Today the Dow would be the equivalent of 1,200 to 1,400 (it’s presently over 7,000.) So, because of the economic situation and the recent stock bull market was much bigger than 1929, he’s calling for a 1,000 Dow.

            BTW – he’s also calling for $4,000 gold.

            A growing minority of economists are stating to believe we are going into an L-shaped recession i.e. we’ll flat-line once we bottom out. John Ibbitson reports, “We are witnessing a global economic contraction resulting from years of artificial growth fueled by personal, corporate and governmental debt. When we reach bottom, they say, we will stay there. Globalism will collapse and depression will stalk the land. 

          “A ‘lost decade’ for the world economy is quite possible…There will be some episodes of  incipient recovery, as there were in Japan during the 1990’s but this will prove very hard to sustain.”

            Canadians must face, “the very real possibility that not only could the systemic global credit crisis and the spreading U.S. balance sheet recession lead to a lost decade or worse for the global economy,” predicted veteran analyst William MacDonald … “It could also lead to the breakdown of the globalization project itself.” This will have a severe detrimental effect on resource exporting nations like Canada.

The perfect storm for a mortgage crisis is brewing in Canada

            Garth Turner, in his article “Canadian Roulette” warns that a mortgage crisis is brewing in Canada.

“Unlike in the US, where resetting mortgages are an oddity, in Canada they’re routine. In the States, most homeowners have a 30-year home loan with a fixed rate for the entire time. In Canada, we play interest rate roulette. The normal fixed-rate mortgage term here is five years, and increasingly borrowers have opted for shorter periods of time, gambling that interest rates will be lower when the loan comes due.’

“But, no more.”

“The Bank of Canada rate is now at the lowest point in history – one half of one per cent. Bank prime rates are sitting at just 2.5%, and mortgages are being loaned out at a paltry 3%. It might be possible for rates to decline by another quarter point over the next few months, but already we’ve created the same situation here that existed for Americans taking subprime loans.”

“Rates can only move in one direction. Up. Over the course of the next five years, possibly way up. In fact, I’d say it’s a certainty.”

“Central banks around the world have been printing a flood of money to try and stall deflation and revive economic growth. Public debt has exploded, governments have plunged headlong into deficit spending, countries are buying back their own bonds with tax money and banks have been nationalized while the money supply increases. In this are sown the seeds of inflation, once economic expansion continues.”

“And what will these central banks do to dampen down inflation before it creates its own monster? You got it. Raise interest rates.”

“So, if 3% mortgages in 2009 becomes 11% mortgages in 2014 (that is the historic norm over the last few decades), just imagine the consequences for someone buying a house today. After all, a $400,000 mortgage at 3% costs less than $1,900 a month to carry and requires an income of $69,000. But the same loan at 11% has double the payments – $3,850 a month – and takes an income of $139,000 to carry.”

“So anyone buying a piece of property with a mortgage today had better plan on doubling their income over the next five years to avoid a mortgage bombshell at renewal time. Or hope the value of your property explodes higher, building new equity and allowing you to tap into it to keep your finances afloat.”

“The odds of either of those things happening, I’d say, are nil.” (13) 

So Whadya Expect During the Decline of Western Civilization?

            That used to be one of my punch lines. It’s not so funny anymore.

            After writing his multi-volume “History of the Decline and Fall of the Roman Empire,” Edward Gibbon said he wished he’d begun it at an earlier time in Roman history so readers would see the rise and the plateau and not just the decline and fall. According to Gibbon, Rome’s decline began when Julius Caesar had himself crowned as Emperor in the first century B.C.E.

            Although Rome had been sacked a few times, it finally fell to the Barbarians in the 5th Century A.D. which was a decline of about five centuries. During the decline, a hundred generations of people fell in love, got married, had children, were born and died. New roads and buildings were built but, the rate of construction and maintenance did not keep pace with the deterioration. Rome did not fall, so much as it was a series of announcements like “the messenger service does not stop here on Saturdays anymore.” (Somebody else said that but I couldn’t find the attribution.)

            Centuries from now, future historians (probably speaking Mandarin Chinese) will likely point to the Victorian Era of the 19th Century as the peak of Western Civilization. Granted, they didn’t have radio or TV or computers or video games or iPods but they did have electricity and what are all our modern gadgets but refined forms of electricity. And that’s technology, not civilization. Besides, that will be for future historians to decide.

            The brutal 20th Century with its two major World Wars, endless other wars and the massacre of hundreds of millions of people by Hitler, Stalin, Mao Zedong, Pol Pot, Idi Amin, etc. etc. will undoubtedly be seen as the decline. In fact, the progressive disintegration began with the government sabotage of the gold standard and replacement with fiat currency early in the 20th Century to finance the first of many wars (paper is cheaper than gold.) In fact, Robert Daryl Schoon conjectures that, “The Wizard of Oz” published in 1900 reflects the debate about the coinage of gold and silver (see NOTES.) The final step, as mentioned previously, was Nixon ending the convertibility of paper money to gold.

            Now, under Obama’s multi-trillion dollar stimulus packages, monetary debasement has entered previously unimaginable levels that will soon destroy both the currency and the economic system that has allowed the government and banksters to prey on the people. Filling the vacuum will be Asia where financial centers are springing up to replace disintegrating Western finance. And life will go on and generations of people will continue to fall in love, get married, have children, be born and die. New roads and buildings will still be built in the West but the rate of construction and maintenance won’t keep pace with disintegration and Postal Service will have stopped on Saturdays.

The 5 stages of collapse

          Taken from Dimitry Orlov’s articles, based on his observations during the collapse of the Soviet Union and living in America, the stages of collapse are:

1) Financial

2) Economic

3) Political

4) Social & cultural

5) Chaos

            These are overlapping stages and not necessarily sequential steps. In other words we can and will be in more than one stage at a time. We do NOT have to go through all five stages and end in chaos. However, given the refusal of the G-20 (above) to recognize the fundamental problems and the abject economic ignorance of President Obama and his team of lightweights dragging the world down with them, there is no doubt we are now heading to stage 4. The stages are described in greater detail below.

1) Financial: this is already ancient history. Most of the world’s financial systems are dead, insolvent and broken beyond repair. The only two exceptions so far are Canada and Australia. So far. And, that could change as the rest of the globe goes down the toilet. Governments world-wide have thrown trillions of dollars the last two years at the dead carcass of their financial systems to no avail. Credit is still frozen. Banks still aren’t lending to the degree necessary to prevent further economic collapse. Fewer buyers of government debt means that Governments must monetize their debts. In March, the U.S. Fed announced it would buy $300 billion Treasury Bonds. Think about it: the government is buying its own bonds because it can’t find enough buyers. We are well beyond this stage of collapse.

2) Economic: modern credit-based economic systems depend of the financial system to function. Finance is the “life-blood” of our economies. Unemployment is increasing every month. Companies are slashing workers. More job losses = less spending = less business = more job losses in a never-ending downward spiral.    

            Black markets spring up as a result of price controls. Nobody sells at the official price because it’s below cost. A black market has already developed in gold. Governments try to suppress the price of gold because gold measures the health of a currency. Try buying gold at the “official” price. You’ll get excuses rather than delivery. Offer 35% over the “official” price and suddenly it’s available. That’s the definition of a black market and a sign of economic and political collapse.

            Government spin-meisters, trying to avoid panic, keep telling us that the bottom is just around the corner. They’re like the Queen in Lewis Carroll’s “Through the Looking Glass.” She tells Alice “The rule is, jam to-morrow and jam yesterday – but never jam to-day.” In other words, it’s not going to happen.

            We are well into this stage and we will continue to see economies collapse world-wide.

3) Political: we’ve already seen several governments overthrown. Latvia tossed out its government as did Iceland. There will be more. We are just beginning this stage of collapse.

            Last October, the U.S. began training its army in crowd control; a function previously handled by local police and the National Guard. 45 U.S. states are verging on insolvency with California the most severe. Tent cities are springing up. We’re seeing more rioting world-wide and summer hasn’t even started yet.

            The American Federal government is losing control. More than a dozen states are threatening to secede from the union because of the heavy-handed Federal government’s response to the economic crisis. In the US, there is a gradual surrender of sovereignty, as sovereign wealth funds buy up more and more US assets. There was a time this stirred people up, generated editorials, letters to the editor and talking head debates, but these are desperate times, and the sovereign wealth funds are allowed to do so with little comment.

4) Social & cultural: civilization can survive without finance, without a modern credit-based economy and even without a national government. However, once our society and culture breaks down then civilization is finished.

            Culture means many things to different people but in this context it means how people deal with each other face-to-face. Colin Turnbull In his book “The Mountain People,” cites virtues at risk such as faith in the goodness of humanity, kindness, generosity, consideration, affection, honesty, hospitality, compassion and charity. These are the basic marks of civilized behavior. Advanced civilized behavior includes luxuries such as politeness, liberalism (small L) and tolerance. When times get tough, these are the first to disappear.    

            Our thin veneer of civility is more fragile than many people like to admit. Our modern society lacks the discipline and strength of character that people had during the 1930’s Great Depression; people willing to stand in line at soup kitchens, selling cherished family heirlooms on the street or ride the rails like the hobos. It was still nasty during the 1930’s as witnessed by the nicknames given to pro baseball players: “Fats” (he was slightly overweight,) “Suitcase” (he traded teams a lot,) and “Ke Ke” Cuyler (he stuttered.) However, they didn’t have the senseless riots and looting like Watts in the 60’s, the Rodney King riots of 1992 and recently the Katrina hurricane aftermath in New Orleans. Such behavior is a harbinger of things to come on a much wider basis. 

            The “extended family” during the Great Depression of the 1930’s was much more socially reinforcing and provided a greater safety net than today’s “nuclear families.” The complexity and impersonal nature of modern finance, economics and the consumer society has atrophied our social responsibility and interpersonal skills; bringing us that much closer to societal disintegration.

            Recently, we are beginning to see more mass murders, massacres and shootouts. The authorities will never admit it but, it’s obvious from their preparations that they are expecting civil disobedience to turn into riots and social breakdown.

5) Final Stage – Chaos: in his book, Turnbull describes the Ik tribe of Africa who were driven from their land and suffered a complete social breakdown as a result of food scarcity. A book reviewer describes the following:  

    “What remained was little but a mass of supremely selfish individuals to whom most of the principles that we naively imagine to be universally human, e.g. the notion that parents should look after their children, or that people should help their close friends and relatives, seemed simply absurd. “

    “A transformation like this is, of course, somewhat shocking; one would hardly expect that a whole tribe, a formerly quite viable society, could go down the drain like this.”

    “…there simply was not room, in the life of these people, for such luxuries as family and sentiment and love. [. . .] The children were as useless as the aged, or nearly so; as long as you keep the breeding group alive you can always get more children. So let the old go first, then the children.”

    “It seems that, far from being basic human qualities, they are superficial luxuries we can afford in times of plenty…” (14)  

            We are already at the beginning of stage 3) Political breakdown. Social and cultural breakdown need not be inevitable as long as we can stop the economic meltdown. However, Turnbull’s point is that essential personal virtues are already weakened in Western society, but that for the time being their absence is being masked by the impersonal institutions of finance, commerce, and government. If those institutions collapse then chaos is inevitable.

            We joke that two things are certain: death and taxes. There’s a third inevitability no one talks about: empires and civilizations collapse. No exceptions. There have been between 12 to 15 civilizations (depending on how you classify them) in the last 7,000 years. None lasted forever. It’s not a matter of “if” but “when” they collapse. However, life goes on.

            No one knows the future. We’ve come out of depressions before but, we are going into this one in far worse shape than any previous depression and our leaders are incapable of stopping it. How bad it gets is anyone’s guess so you’d be wise to prepare for the worst.

The Future?

            Specific predictions are difficult to make but the events of the last two years, the recent actions of governments and what we know of history allows us to see probabilities. Commonwealth nations like Canada and Australia with their civilized cultures, conservative economic policies and social safety nets will fare better than most. As outlined above, there will be hard times and they will last a long time but the chances of survival are good. Some regions will fare better than others.

            The UK, despite its civilized culture, will not fare as well. Britain’s financial system is insolvent. Its housing bubble is worse than the U.S. and has a lot further to fall. Its un-integrated immigrants will be disruptive and its failing economy will cause a great deal of social disruption.

            The stronger nations of the European Union should fare reasonably well. Germany’s Angela Merkel refused to drink the Obama Kool-Aid so Germany won’t bankrupt itself with futile stimulus packages. France is France is France and the delusional French will always see themselves as a world super-power and their disenfranchised immigrants will continue to stimulate French auto manufacturing by letting off steam rioting and burning tens of thousands of autos that will need to be replaced to the detriment of their insurance industry.

            The rest of Europe will be a basket case. Southern Europe is a bubble that’s going to burst. The PIGS of Europe; Portugal, Italy, Greece and Spain are economically weak, have lost a great deal of competitiveness under the EU, are suffering high rates of inflation that will turn to stagflation and social turmoil and probably dictatorships.

            Eastern Europe and the Balkans are economically and politically weak. They never had a chance to build a solid foundation after the fall of the Soviet Union. They will continue to disintegrate into squabbling territories and many will also turn back into dictatorships.

             Russia will take advantage of a weakening America and non-interventionist Europe to regain some of its “near abroad;” that’s the countries bordering Russia to alleviate its paranoia of being surrounded by enemies. Russia’s efforts to reclaim Alaska and acquire portions of the Arctic presently claimed by Canada will be disruptive but weakened by its own internal strife and diminishing revenues from falling energy prices. Only a strong dictatorship will keep Russia from breaking up.

            China faces increased rioting and the threat of revolution. If it can avoid revolution, its economy is now strong enough that it could be self-sustaining. The Chinese have a long term outlook and will avoid weakening themselves by quarreling with other countries (something the Russians have never learned.) China depends on importing much of their raw material. However, there are more Chinese workers in Siberia than there are Russians. Siberia is a resource rich area still largely undeveloped by the drunken Russian Bolsheviks so if Russia continues to weaken itself, China may acquire Siberia without firing a shot.

            India is a wild card. On the one hand it is the world’s largest democracy and its former British influence gives it social strength but it is still an impoverished country with a rapidly expanding population. If it can avoid a nuclear war with the hotheads in Pakistan then India will suffer from the global depression but it will survive. Future food shortages, however could spell disaster.

The Future of America

            Lastly, and most important is the United States. With the world’s largest economy and the world’s most powerful military, it has the farthest to fall. In many respects it is a “failed economy” having put most of its eggs in the financial services basket and having lost much of its manufacturing overseas. It is now in freefall, running on empty, losing its massive momentum, robbing Peter to pay Paul, trying to borrow its way out of bankruptcy and relying on the U.S. dollar as a world reserve currency that it is in imminent danger of losing.

            Politically, America is losing its cohesion with more than a dozen states threatening secession. It is further weakening itself by selling its assets to foreigners. It will start abandoning some of its more than 1,000 overseas military bases and bringing its troops home. This will have dire consequences for foreign countries that use the U.S. military umbrella for their protection. Overseas bases that remain will be those directly related to the protection of its energy interests.

            As I’ve said before, the most dangerous animal is a wounded animal because it is unpredictable. The U.S. will survive but it will look a lot different than it does today and it will go through hell to get there.  

            I have long admired the financial analysis of Meredith Whitney, formerly of Oppenheimer and now with her own firm. She was among the first to sound the alarm on Citigroup and stuck to her guns against fierce opposition. She has been proven correct time and again. Lately she has been pulling her punches so I suspect Big Brother has had a chat with her. However, it’s still possible to read between the lines and the message she delivers is devastating.

            On April 7th’s BNN’s “Bear Attack,” she said America needs to get back to something different than exporting leverage. One simple sentence! One powerful message! America’s great experiment in exporting its manufacturing overseas and replacing it with a financial services industry has utterly failed. She said, “To get to a bottom, we’ve got to get back to what was, as soon as possible. We’ll get back to local banks serving local customers.” She said, “We can do it, it’s just going to take a very long time.” So much of the U.S. economy, local economies, municipal economies, etc. became dependent on mortgages. “That has to change. It’ll take a powerful uprooting for the entire U.S. economy – it’ll just take a while.” She also said, “There’ll be good stocks to buy; they just don’t exist yet.” Re-read that last line and think about it. What does it say about current U.S. stocks? What does it say about the drastic changes that are necessary before stocks are worth buying again? “Devastating” is too mild a word to describe the changes that the U.S. will have to go through. Meredith is saying that they will have to tear down and rebuild much of the U.S. economy.

            And that is what we are seeing now. Every quarter, U.S. corporations will release unrelentingly bad results because every quarter they will add to their special reserves to offset the losses on their assets. It’s not just the banks that will be zombies. America is going to have a zombie economy for the foreseeable future. Recovery won’t happen until all the debt is wrung out of the system. That will take decades! Go back to page 8 and 9, “The Problem of Derivatives” and consider that Americans own 60% of those outstanding toxic derivatives and you will see the size of the problem and how long it will take to wring all that bad debt out of the system. And, that’s just derivatives. There’s residential mortgage debt, commercial mortgage debt, credit card debt, auto loans and student loans that are all imploding and much of which will have to be written off.

            Americans are a resilient and generous people but they are not known for patience. They will not respond well to the economic turmoil, the sacrifice and impoverishment that they are facing. There will be rioting, there will be social unrest, there will be mass movements of people fleeing devastated areas, there will be martial law, civil breakdown, disruption of energy transmission and a breakdown of logistical distribution systems that provide food and other essentials.

            As I said above, Canada will fare well. However, 90% of Canada’s population lives within 100 miles of the U.S. border. Give that some thought. It’s not the mobs pouring across the border that Canadians will have to worry about; it’s the masses of refugees that will be crowding our cities that will need to be fed, clothed and housed that will overwhelm us and disrupt our own fragile infrastructure and networks. America has ten times Canada’s population. Even a small percentage of Americans can overwhelm us. This will be the biggest danger Canadians will face in the future. Our only saving grace may be the perception most Americans have of Canada being an unwelcome land of ice and snow.   

Guns ‘n Ammo

            Guns are an unpleasant subject for discussion for most people. Many people are afraid of guns. We fear that which we do not understand. However, when you stop and think about it, does this not attest to guns effectiveness? Does this not tell you how well they work, often without even firing a shot? Guns are like insurance; not something you want but something you’re glad you have when you need it.

            BTW – a lot of experts dislike using the word ”gun” because there are so many different types: rifles, carbines, shotguns, pistols, handguns, automatics, machine guns, staple guns, nail guns, water pistols, etc. I’m going to keep it simple and use the word “gun.”

            A little background: I grew up in Northern Manitoba in the 1960’s. Every second household had guns. Many had “gun rooms” with rifles and shotguns in glass cabinets or hanging on the walls. I got a BB-gun at age 10, learned to shoot a rifle at age 13 and I was shooting competitively at the Provincials at 15. I am comfortable around guns. Put me in a gun room and I’m like a kid in a candy store, examining, caressing and hefting every gun in sight. However, put just one other person in the room with me and my stress level goes sky high.

            Why? It’s very simple. You’ve heard this before but I’ll say it again. It’s been ridiculed but I’ll say it anyway because it’s true. Guns don’t kill. People kill. I have never, ever heard of a gun load itself, cock itself, remove its safety, aim itself and pull its own trigger. Guns don’t kill. Guns are inanimate objects. People kill. People kill with guns or knives or baseball bats or cars or poison or a myriad other ways. We aren’t afraid of knives, baseball bats or cars. Yet, many people are afraid of guns.

            The threat of guns is part of their effectiveness (see NOTES for a more detailed discussion of threat.) Threat is a much overlooked tactic that few people understand. The threat of a firearm can scare away a burglar, looter or rapist without ever firing a shot. Second best is a warning shot. You can guess what third is. Let’s hope you never have to do third best. By the way, unofficially, the police will recommend that if you are in a life-threatening situation and forced to defend your life or the lives of loved ones and you have to shoot someone, then shoot to kill; otherwise it’s your word against his, you’ll get your ass sued, he’ll end up in the hospital and you’ll end up in jail. And then, there’s all that paperwork for the police.

            Nobody knows if the future will require guns to ensure survival. I hope not. However, hope is not a plan. Nobody knows what the future holds. Nobody knows how deep this Depression will go or how long it will last. Nobody knows what we’ll look like when we do come out of it or what we have to go through in order to come out of it. Nobody know what we’ll need to do in order to survive but your chances of survival are a lot better if you’re prepared.

            However, some things we do know. We have never been in such dire straits. We have never had so many bubbles bursting (6) and so many crises (3) occurring at one time. The two previous Great Depressions, the 1930’s and 1870’s, had no more than two bubbles burst. We have never been so globally interconnected and dependent on other nations for our own commerce and welfare, and many of these nations are not particularly friendly. We have never gone into such a deep downturn, at such speed, in such a weakened condition and with so few savings. We are governed by leaders who are clearly insane, incompetent, ignorant and delusional and whose erroneous “solutions” threaten to completely wreck a rapidly deteriorating economy. Let me ask you a very blunt question;

Do you want to put your life and the lives of your loved ones in the hands of the government?

            Given the preceding conditions, your chances of needing a gun are many times greater than your chances of not needing one. If you don’t already have firearms, there are two things you can do.

1) Get guns now

2) Start training and hope you can acquire guns later but know that you’ll pay a very high price

Firearms training

            The second option is more viable than you might think because the important part is the training. Training takes time. It takes thousand of rounds (shots) to become a proficient shooter. You don’t need a firearm to train. You can do it with an air gun (aka pellet gun) either an air rifle or an air pistol, or both. I recommend air operated pellet guns instead of CO2 because, when the shit hits the fan, CO2 cartridges may be difficult to get. There’s always air available. The price of air guns is cheaper than firearms. Air guns can be bought for $150 to $250 and a lot less if used. I see a hardware chain ad for $126.99 for a Beeman air rifle, regularly priced at $169.99.

            Also, when the shit does hit the fan and worse comes to worst and the only meat available is what you can hunt, then you can still use the air gun to hunt small game. Once you’ve become a marksman, small animals and birds can be brought down with head shots thus saving on precious gunpowder ammunition. Also, an air gun is quieter, doesn’t require as much maintenance and is less apt to draw unnecessary attention.

            I recommend an air rifle because that gives better training for later using a gunpowder rifle. A rifle has greater survival value than a handgun. Although handguns can be used for hunting they are a lot more limited and better used for personal protection. Air guns are available in either .177 or .22 caliber. Avoid BB guns as they have neither the power nor accuracy of an air gun. Buy lots of pellets while you still can. Buy tens of thousand of them (not all at once or you’ll draw attention.)

            The nice thing about air guns is you can practice at home. Set up a range down a long hallway or in the basement. Make very sure no one, including pets, can accidentally walk into the range while firing. If necessary, post a guard.

            Find someone proficient who can train you and show you the proper methods. Things to learn: safety, position and stance, sighting, proper breathing and trigger release. Notice that the first item is safety. Never point a gun at anyone unless you intend to shoot them. Always assume the gun is loaded until you’ve checked. Start from a prone position and progress to kneeling then standing. If you can’t find someone to train you, there’s a ton of info on the internet.  

             A recent article in Macleans magazine, described how it takes 10,000 hours of practice to achieve world class proficiency. The bad news is you don’t have 10,000 hours. The good news is you don’t need 10,000 hours to become a marksman, to become comfortable with a gun and become proficient in the care and safe handling of a firearm.

            I strongly recommend you take a hunter safety course. Better yet take a firearms course although in many urban areas the waiting list has become very long. Firearms safety is tantamount. It would be foolish and tragic if you acquired a firearm for protection and then someone got accidentally shot. If you have children, consider air gun training those who are interested. I’d suggest a minimum age 10. An air gun makes a lot less noise and has a lot less recoil than a firearm so it’s not as frightening. Once they’ve achieved proficiency with an air gun, it is but a small step up to a firearm.    

            If it seems I’m going on too long on the subject, it’s only because of its importance to your future. When you need a firearm and you don’t have one or the proper training, then you’re defenseless. When the shit hits the fan, police dispatchers will be triaging their calls. Incidents requiring police several blocks away will get the first priority rather than the boondocks.

            Suppose it gets really bad? After all, nobody knows where this will all end. What will you do when you call 9-1-1 and get a recording? If the worst comes to pass, do you think you’ll be able to rely on the police? Either they’ll be at home defending their own families or they’ll have gone renegade and breaking down your door to raid your stash. If you think that’s impossible then you don’t know history.

            One more thing needs to be said on the subject. The more you learn about firearms and their handling, the more you’ll be able to confront someone else who’s armed. Remember Marc lepine and the 14 women he massacred at the Montreal Ecole Polytechnique ten years? He ordered the men from the room and they sheepishly left. If any of those young men had had any hunting or firearms training (not likely in urban Montreal,) they would have recognized from Lepine’s bearing and lack of weapon handling skills that he was a commando wanna-be; an amateur video cowboy. They might have realized that a handful of them could have rushed and overcome Lepine with minimal risk to themselves in spite of his dangerous weapon.

            Lepine was using a Ruger Mini-14 hyper-velocity, semi-automatic carbine with full metal jacketed rounds capable of instantly stopping vital organs from hydro-static shock radiating more than 6 inches around the impact even without a direct organ hit. Given the great number of rounds he fired versus the kill rate with such a deadly weapon, Lepine couldn’t hit the broad side of a barn door. Yet, the threat of that weapon turned inexperienced young men into cowards, ultimately leading to the death of 14 innocent women.

            Compare that to the old Sergeant-at-Arms, a former member of the 22nd Regiment (Van Doos) who, unarmed, confronted Denis Lortie, a disgruntled Canadian Army Corporal in the Quebec National Assembly intent on gunning down some politicians after he had already shot some underlings. The old guard, despite being shot at, got the assassin to stop, talked to him for four hours and persuaded him to give up. Granted, not everyone can be such a hero but training is what separates the men from the boys. Knowledge and experience is power. Lack of knowledge and experience makes you a sheep. Sheep get slaughtered. The choice is yours.

Recession Fatigue

            It’s a funny thing about human beans (as Chief Dan George called us.) We resist sudden change yet we are quite malleable to slow change. We’ve heard so much doom and gloom that we run the risk of becoming blasé about it. I’m not suggesting you panic. That would be counter-productive. But, you must resist the tendency to letting it become commonplace. Don’t allow the downturn to become “normal.” Otherwise, it will bite you in the ass. This is a Stealth Depression; a slow motion train wreck; death by a thousand cuts, what Meredith Whitney calls the “Agony of Incrementalism or bad math on a slow basis, over and over again…” (15)   At some point, it will pick up speed. And then it will crash.

            Driving along Highway 61 in Northern Minnesota early one winter morning, we counted 52 dead deer along the side of the road in the space of as many miles. Strange as it seems, deer standing by the side of the road at night will often jump toward a passing vehicle. There is an unusual explanation for this sad and strange behavior. Nature has equipped deer with a survival instinct to flee from sudden movement because it’s usually a predator charging at them. As a vehicle approaches them at night, the vehicle’s headlights gradually form a shadow beside the deer. Because the shadow forms slowly, the deer are not startled by it. However, as the vehicle gets closer to the deer and begins to pass, their shadow suddenly swings behind them and the startled deer jump away from their shadow toward the vehicle that will kill them. 

            Don’t be a deer! Recognize the shadows that are forming. Don’t be fooled by this gradual downturn the way a deer fails to see its darkening shadow. Prepare for the worst, hope for the best and whatever happens, you’re ready for it. At the end of this article I’ve reprinted the preparation plans from previous articles. If you don’t prepare, then by the time it picks up speed and it all comes crashing down, it will be too late. If you don’t prepare, you will be roadkill just like the deer startled by its own shadow.

Atlas Shrugged

Here’s an interesting line from Ayn Rand’s “Atlas Shrugged” that speaks for today, “

“When you see that trading is done, not by consent, but by compulsion – when you see that in order to produce, you need to obtain permission from men who produce nothing – when you see money flowing to those who deal, not in goods, but in favors – when you see that men get richer by graft and pull than by work, and your laws don’t protect you against them, but protect them against you – when you see corruption being rewarded and honesty becoming a self-sacrifice – you may know that your society is doomed.” – Ayn Rand, Atlas Shrugged (1957)

            End note: don’t shoot the messenger. I didn’t create these problems. I merely report them.

              If you want fairy tales, watch the Disney channel.



          From “Crash 2007” – You can do all the things your mother told you and that you’ve neglected to do: reduce or eliminate your credit card debt, reduce or pay off your mortgage, pay off loans, spend less and use the savings to help reduce your debts. Quit smoking, lose weight and exercise more to improve your health in order to better weather the stress that’s coming. If it looks like we have inflation in the future you can lock in your mortgage for as long a period as you can. It will take many years of high interest rates to wring inflation out of the system so you don’t want to have to renew your mortgage when interest rates are high. In the early 1980’s mortgage rates topped out above 18%.

          Knowledge is power and just knowing all this will reduce stress and anxiety. In a deflationary recession, cash is king. In an inflationary recession cash is worth less but the less debt you owe, the better because interest rates on debt will rise. But cash is worth nothing if you can’t get your hands on it. Get your money out of Mutual Funds (many are tied into sub-prime mortgages and are ticking time bombs) and especially get out of Money Market Funds and put it into savings accounts or GIC’s. Just because a fund is with a bank or credit union does not mean it’s insured like a savings account. Some are but many aren’t and some are insured for only a fractional amount. Savings and GIC’s pay less interest but they’re a lot safer. Keep some cash at home too.

          If Funds are delaying redemptions then banks might also slow down or limit withdrawals in future. It already started in England with a “run” on Northern Rock Bank with investors lined up around the block to withdraw funds. It stopped only when the Bank of England stepped in to guarantee deposits. Sure, your bank deposit is guaranteed by the Canadian Government but how long are you going to have to deal with government bureaucrats and red tape before you get your cash? Debit cards won’t work and you’ll still need to buy groceries, gas and beer. Start by withdrawing a couple hundred dollars then take a $100 a month to build up a small cash reserve to be used in emergencies. Eventually, the confidence crisis will spread to the U.S. especially (starting October) when banks start releasing their dismal 3rd quarter financial results and then it will spread to Canada. Banks operate on a “fractional reserve” structure: that is they are required to keep only a small fraction of their deposits in cash. Governments don’t have enough money to guarantee ALL deposits.

         If you have spare cash (yeah, right!) buy gold coins. Gold has nowhere to go but up in an inflation. Less cash will buy silver coins (poor man’s gold.) Silver is presently undervalued compared to gold so it’s at bargain prices. Silver also has the benefit of lower value. It will be difficult to make change from a one ounce Gold coin selling at $2,400. This is not so far-fetched. In 1981 gold sold for more than $850. Adjusted for inflation, that would be $2,400 today. Proportionately, an ounce of silver would sell for less than $150 (today it’s around $13.)

          If you haven’t started a food storage program, why not? It’s not just for economic turmoil. The government even recommends it. Having several weeks or months of food stored will see you through power-outages, storms, ice-storms, earthquakes and epidemics (we’re long overdue for another Spanish Flu epidemic, we barely escaped SARS and bird flu is just around the corner.) Buy face masks (disposable particulate respirators) now while they are available (they’ll be sold out in a crisis.) Grocery stores keep only about 3 days of food in inventory. A panic situation will empty store shelves in hours. You don’t need an expensive food storage program. Dried beans, peas and other lentils last indefinitely as does salt and sugar. Buy canned goods when they’re on sale. Note the best-before date (canned lasts 2 – 3 years) and rotate them to keep them fresh. There’s lots of info available on the internet.

          From Dec 2008 Update – We’re long overdue for another Spanish Flu epidemic, we barely escaped SARS and bird flu is just around the corner. It’s not coincidence that the 1918 Spanish flu epidemic that killed millions of people world-wide occurred at the end of World War One when food supplies were low and people were undernourished and susceptible to disease.

          Get ready for the inevitable epidemic by buying face masks (disposable particulate respirators) now while they are available (they’ll be sold out in a crisis.) Plan on using them for 3 months until the health authorities give the “all clear.” Kept dry, one can last several days. Stay out of public as much as possible.

         Grocery stores keep only about 3 days of food in inventory. A panic situation will empty store shelves in hours. You don’t need one of the expensive food storage program sold by survivalist stores. Dried beans, peas and other lentils last indefinitely as does salt and sugar. Pasta lasts a lot longer than its “best-before” date. Buy canned goods when they’re on sale. Note the best-before date (canned lasts 2 – 3 years) and rotate them to keep them fresh. There’s lots of info available on the internet.

            I spent 11 years in logistics management. Most people have no clue how fragile our transportation and distribution networks are, how easy it is for them to be disrupted and how vulnerable they are to weather, infrastructure breakdown, terrorists and epidemics (who’s going to drive the trucks when everyone is ordered to stay home during a major outbreak?) Remember, there are only 3 days of groceries on store shelves for NORMAL times. In a panic, stores will be emptied in hours.

            Few people have a lot of extra cash but, we have a window of opportunity coming up for reasonable prices to buy long term storage and survival items. Deflation over the next year or so will provide many bargains. Buy when items are on sale. There’ll also be yard sales, bankruptcy sales and bargain prices on eBay. Even if you don’t need them for survival reasons consider the money you’ll save buying items you will use in future. For example, if you use tin foil and it goes on sale, don’t buy one; buy 3 or 4 or more. They last indefinitely and you’ll use them eventually. The “opportunity cost” (putting the money in a savings account instead) is low because interest rates are near zero. The biggest problem is storage. By buying multiples of items on sale that you’ll use in future you’ll avoid inflated prices in future. And, if the situation gets really bad they’ll make good items for barter.

            However, do NOT buy something just because it’s on sale. Buy ONLY what you know you’ll need. Buy only things that you will use. This is a time to reduce debt, not increase it. Learn restraint or circumstances will teach you the hard way.

            Don’t think you have all the time in the world, either. Too many unexpected events could derail this timeline. There are many ticking time-bombs from civil unrest to Pakistan blowing up to China imploding and “black swan” events (Google it) that we haven’t even considered.

            Below is a list (emailed before) of everyday items that are ideal for stockpiling. Most are durable and will last a long time. Some big ticket items may be too expensive (generators and portable toilets.) Most of the remaining items are everyday essentials that you need anyway. Get them when they’re on sale. If you wait too long, you won’t get them at all.

100’s of Items to Disappear First & Fast

1. Generators (Good ones cost dearly. Gas storage, risky. Noisy…target of thieves; maintenance etc.)
2. Water Filters/Purifiers (Katadyne is the best but expensive at + $300. But, how long can you live without clean water?)
3. Portable Toilets
4. Seasoned Firewood. Wood takes about 6 – 12 months to become dried, for home uses.
5. Lamp Oil, Wicks, Lamps, (first choice: buy CLEAR oil. If scarce, stockpile ANY!)
6. Coleman Fuel. Impossible to stockpile too much.
7. Guns, Ammunition, Pepper Spray, Knives, Clubs, Bats & Slingshots.
8. Hand-can openers, & hand egg beaters, whisks.
9. Honey (lasts forever & is antiseptic)/Syrups/white, brown sugar
10. Brown rice, multi-grain & whole-wheat pasta, dried beans, peas, lentils – wheat
11. Vegetable Oil (for cooking) Without it food burns/must be boiled etc.,)
12. Charcoal, Lighter Fluid (Will become scarce suddenly)
13. Water Containers (Urgent Item to obtain.) Any size. Small, food-grade if for drinking.
16. Propane Cylinders (Urgent: Definite shortages will occur.)
17. Survival Guide Books.
18. Mantles: Aladdin, Coleman, etc. (Without this item, longer-term lighting is difficult.)
19. Baby Supplies: Diapers/formula. ointments/aspirin, etc.
20. Washboards, Mop Bucket w/wringer (for Laundry)
21. Cookstoves (Propane, Coleman & Kerosene)
22. Vitamins (watch best-before dates)
23. Propane Cylinder Handle-Holder (Urgent: Small canister use is dangerous without this item)
24. Feminine Hygiene/Haircare/Shampoo/ Men’s Hygiene, razor blades, nail clippers, etc.
25. Thermal underwear (Tops & Bottoms) wool socks
26. Bow saws, axes and hatchets, Wedges (also, honing oil)
27. Aluminum Foil regular & Heavy Duty (great cooking/barter item, lasts forever)
28. Gasoline Containers (Plastic & Metal)
29. Garbage Bags (impossible to have too many).
30. Toilet Paper, Kleenex, Paper Towels (Toilet paper is a MUST.)
31. Milk – Powdered (keep in freezer to extend life) & Condensed (shake liquid every 3 to 4 months)
32. Garden Seeds (Non-Hybrid) (A MUST)
33. Clothes pins/line/hangers (A MUST)
34. Coleman’s Pump Repair Kit
35. Canned sardines, herring, tuna fish  
36. Fire Extinguishers (or..large box of Baking Soda in every room)
37. First Aid kits, First Aid books
38. Batteries (all sizes…buy furthest-out for expiration dates & store in fridge to extend life)
39. Garlic, spices, vinegar, soy sauce, bay leaves, baking supplies, pepper-corns (last a long time) & grinder, bullion

40. Big Dogs (and plenty of dog food)
41. Flour, both all-propose white & whole-wheat (turn every 3 months), yeast & salt
42. Matches. (“Strike Anywhere” preferred.) Boxed, wooden matches will go first
43. Writing paper/pads/pencils, solar calculators
44. Insulated ice chests (good for keeping items from freezing or keep frozen in Wintertime.)
45. Workboots, belts, jeans & durable shirts & hats
46. Flashlights/LIGHTSTICKS & torches, “No. 76 Dietz” Lanterns
47. Journals, Diaries & Scrapbooks (jot down ideas, feelings, experience; Historic Times)
48. Garbage cans, plastic (great for storage, water, transporting – if with wheels)
49. Hand lotion, lip balm, Vaseline petroleum jelly (great for skin in dry cold winters)

50. Cast iron cookware (sturdy, efficient)
51. Fishing supplies/tools
52. Mosquito coils/repellent, sprays/creams
53. Duct tape, aluminum tape
54. Tarps/stakes/twine/nails/rope/spikes/copper & braided wire
55. Candles & holders
56. Bath soap, dish soap, laundry detergent, cleansers
57. Backpacks, Duffel Bags (both good for “bug-out bag” for travelling with small essentials)
58. Garden tools & supplies
59. Scissors, fabrics & sewing supplies
60. Canned Fruits, Veggies, Soups, stews, etc. (watch best-before dates)
61. Bleach (plain, NOT scented: 4 to 6% sodium hypochlorite)
62. Canning supplies, (Jars/lids/wax)
63. Knives & Sharpening tools: files, stones, steel
64. Bicycles…Tires/tubes/pumps/chains, etc
65. Sleeping Bags & blankets/pillows/mats
66. Carbon Monoxide Alarm (battery powered)
67. Board Games, Cards, Dice for when the power goes off
68. Rat poison, MOUSE PRUFE II, Roach Killer
69. Mousetraps, Ant traps & cockroach magnets
70. Paper plates/cups/utensils (stock up, they last forever)
71. Baby wipes, oils, waterless & antibacterial soap (saves a lot of water)
72. Rain gear, rubber boots, etc.
73. Shaving supplies (razors & creams, talc, after shave)
74. Hand pumps & siphons (for water and for fuels)
75. Reading material, books, novels, manuals
76. Reading glasses
77. Chocolate/Cocoa/Tang/Punch (water enhancers)
78. Vehicle tow rope, jumper cables, flares, 12 V trouble light (at least while gas for vehicles is available)
79. Woolen clothing, scarves/toques/mitts
80. Boy Scout Handbook, / also Leaders Catalog
81. Roll-on Window Insulation Kit 
82. Graham crackers, saltines, pretzels, Trail mix, Jerky
83. Popcorn, Peanut Butter, Nuts
84. Socks, Underwear, T-shirts, etc. (extras)
85. Lumber (all types)
86. Wagons & carts in summer, toboggans in winter (for transport)
87. Cots & Inflatable mattress’s
88. Gloves: Work/warming/gardening, etc.
89. Lantern Hangers
90. Screen Patches, glue, nails, screws,, nuts & bolts, twist-ties, tie wraps
91. Zip-Lock bags, various sizes (you can never have enough)
92. Coffee, Tea
93. Cigarettes (great for barter & bribes)
94. Wine/Liquors (for bribes, medicinal, etc,)
95. Paraffin wax
96. Glue, nails, nuts, bolts, screws, etc.
97. Chewing gum/hard candy
98. Atomizers (for cooling/bathing)
99. Hats & cotton neckerchiefs

100. Pellet (air) pistol/rifle & lots of pellets–teach yourself & kids marksmanship, also good for small game

101. Particle/surgical masks

102. Antiseptics, iodine, hydrogen peroxide, rubbing alcohol

103. Toothpaste, tooth brushes, floss, mouthwash, dental supplies

104. Onion flakes, cheese powder, bay leaves

105. Allergy medicine, asthma inhalers

106. Light bulbs, fluorescent bulbs, extension cords (while electricity lasts)

107. Deodorants, antiperspirants (no need to smell uncivilized)

108. hand-cranked lanterns, lights, radio

109. Ketchup, HP sauce, mustard

110. Tomato sauce (jars or cans) worth its weight in gold to spice up pasta & bland food

111. Sunscreen

112. Granola bars

113. Dried soup mix, gravy mix

114. Dirt shovels, snow shovels (pile snow on side of house for insulation)

115. Solar panel, accessories & battery charger

116. Learn how to use a gun safely and effectively. With luck this is a skill you may never have to use.

117. Don’t tell anyone about your stock pile. Neighbours can become enemies & governments prosecute “hoarders.”

118. Learn how to secure your home, motion detector lights, identify and bar windows hidden from sight

119. Don’t antagonize friends, relatives, neighbours. Your life may depend on them & you may have to live with them.

117. Attitude, attitude & attitude (the 3 most important survival traits)
118. Goats/chickens (funny) 
From a Sarajevo War Survivor:
Experiencing horrible things that can happen in a war – death of parents and friends, hunger and malnutrition, endless freezing cold, fear, sniper attacks.

1. Stockpiling helps. but you never no how long trouble will last, so locate near renewable food sources.

2. Living near a well with a manual pump is like being in Eden.

3. After awhile, even gold can lose its luster. But there is no luxury in war quite like toilet paper. Its surplus value is greater than gold’s.

4. If you had to go without one utility, lose electricity – it’s the easiest to do without (if you’re in a very nice climate with no need for heat.)

5. Canned foods are awesome, especially if their contents are tasty without heating. One of the best things to stockpile is canned gravy – it makes a lot of the dry unappetizing things you find to eat in war somewhat edible. Only needs enough heat to “warm”, not to cook. It’s cheap too, especially if you buy it in bulk.

6. Bring some books – escapist ones like romance or mysteries become more valuable as the war continues. Sure, it’s great to have a lot of survival guides, but you’ll figure most of that out on your own anyway – trust me, you’ll have a lot of time on your hands.

7. The feeling that you’re human can fade pretty fast. I can’t tell you how many people I knew who would have traded a much needed meal for just a little bit of toothpaste, rouge, soap or cologne. Not much point in fighting if you have to lose your humanity. These things are morale-builders like nothing else.

8. Slow burning candles and matches, matches, matches

Threat – is vastly under-rated and greatly misunderstood. Dictionary definitions of “threat” don’t do justice to the psychological effectiveness of threat. Look at history. Prior to the First World War, Germany built up its navy. When the war broke out, the British, whose navy had ruled the seven seas, were paralyzed with the threat posed by the new German navy. The British Admiralty determined there were three possibilities:

1)  The German navy was better than the British

2)  The German navy was as good as the British

3)  The German navy was not as good as the British

            Because Britain was an island that imported much of its material and needed its navy to protect vital shipping lanes and its colonies, the British knew they had little to gain from a victory and everything to lose from defeat. The Germans knew their navy was only half the size of the British navy and so could not risk a full scale battle with the entire British fleet. For two years, threat paralyzed the British navy and kept the German navy locked in the Baltic Sea. It took the Battle of Jutland (the outcome of which is still being debated,) to restore the British navy’s confidence to continue ruling the seven seas. The threat of the German navy was more powerful than its guns. The threat of the British navy was its size. Until the threat was replaced by knowledge, both navies were paralyzed.

            Here’s another example of the power of threat. There’s an old German story about a son’s mother who meets with his teacher and asks a favor.

            She said, “If my son is ever bad, don’t punish him. Instead, punish the boy next to him.”

            The teacher objected, “I can’t do that. It wouldn’t be fair to the boy next to him.”

            The mother replied, “Life is not fair; that’s a lesson he’ll learn.”

            The teacher continued to object.

            The mother explained, “My son is very sensitive. If he sees someone punished, his imagination will make the threat of punishment far worse than it really is and he’ll never be bad again. However, if you punish him, he’ll know that punishment is not as bad as he imagines it is.”

            The mother kept insisting until the teacher finally agreed to the mother’s request.

            One day the mother’s son was bad and the teacher, remembering her promise, punished the boy next to him.

            The mother’s son was never bad again.

            A more recent example is the world’s most incredible collectible card game, “Magic: the Gathering,” (more description below) invented in 1993 by Richard Garfield, a mathematics professor with a PHD in combinatorial mathematics. Briefly, it is a duel to the death between sorcerers using special cards as spells and creatures that are summoned to attack and defend. Cards have a power and strength rating, between zero and 12, typically from 1 to 5.

            One of the early “Magic: the Gathering” expansion card sets, “Fallen Empires,” was under-rated when first published because of the weakness of many of its cards. Few cards had power and strength greater than 1 and, after inflicting its miniscule 1 point of damage, a card was then removed from play. However, smart players began to discover the power of threat. These cards could be put into play and left unused. Thus, an opposing player, when calculating his opponent’s possible tactics had to include the additional threat of his opponent’s unused cards. The more of these “weak” unused threat cards were in play, the more difficult and confusing it became for a player to plan his strategy because the possible combinations became astronomical. Thus, even a small threat could create a fear and confusion far greater than its actual power.

            Threat is a powerful force. Threat is negated by knowledge. Once you have eaten of the fruit of the tree of knowledge, threat loses its power.

Magic: the Gathering – I highly recommend this collectible card game. It’s a card game, not a role playing game and it’s a more advanced than Pokemon and others. When the electricity goes out and takes with it the TV, video games and the internet, you can still play card games by candle or lantern light.


For adults, MTG is the most incredible game ever invented. You create your own deck of cards by selecting from thousands of different cards. You never play the same game twice because

            a) the decks are shuffled before each game so cards never enter play in the same sequence

            b) you put cards in play at different times depending on your opponent’s cards & tactics

            c) the combination of cards results in a synergistic effect (possible combinations and permutations are astronomical. After all, the game was designed by a professor with a PHD in combinatorial mathematics.)

            For kids it is a great educational tool (don’t tell them that, though) in addition to great entertainment, the game:

            a) teaches patience

            b) teaches sacrifice

            c) instills discipline

            d) increases confidence (the kid can kick Dad’s butt)

            e) teaches the art of bluff (useful in the real world)

            f ) teaches math – addition, subtraction multiplication and division (calculating the power & strength of various card combinations and battle tactics.)

            g) promotes reading and comprehension (card-text describes how the card is played.)

            h) encourages critical thinking, creativity and strategy

            BEWARE: the game is highly addictive!!! Monitor what your children do with their time and make sure it is appropriate.

            Ignore warnings of “demonism” by bible-thumpers. Early editions had some cards with demonic names that caused some controversy so the publishers wisely discontinued them. They’ve retained elves, goblins, orcs and giants. If those bother you, better you don’t watch the Disney Channel because you have issues bigger than surviving the Depression.

The Wonderful Wizard of Oz

From Wikipedia: Political interpretations of The Wonderful Wizard of Oz

…Dorothy is swept away to a colorful land of unlimited resources that nevertheless has serious political problems. This utopia is ruled in part by wicked witches. Dorothy and her house are swept up by the tornado and upon landing in Oz, the house falls on the Wicked Witch of the East, destroying the tyrant and freeing the ordinary people–little people or Munchkins. The Witch had previously controlled the all-powerful silver slippers (which were changed to ruby in the 1939 film). The slippers will in the end liberate Dorothy but first she must walk in them down the golden yellow brick road, i.e. she must take silver down the path of gold, the path of free coinage. Following the road of gold leads eventually only to the Emerald City, which may symbolize the fraudulent world of greenback paper money that only pretends to have value, or may symbolize the greenback value that is placed on gold (and for silver, possibly).

April 29, 2009

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.


(1)  ”The London Summit has Not Fixed the Crisis”  Wolfgang Münchau, Apr 5, 2009

(2)   Peter Schiff, Euro Pacific “Let’s pretend” Apr 3, 2009

(3)    Warning: Danger Ahead,  Aubie Baltin, Dec 32, 2008

(4)  Nicholas Vardy’s The Global Guru 3-24-09

(5)    Susan Lee “We Have a Right to Rant” Forbes ,com Apr 10, 2009

(6)    John Slivia, Chief Economist of Wachovia “What Keeps Me Up at Night” posted on Postcards from Cape Town, Apr 8, 2009

(7)   “Pentagon preps for economic warfare” Eamon Javers – Politico, Apr 9, 2009

(8)   “America in the 1930’s”

(9)  “The Great Depression” John S. McCormick Utah History Encyclopedia

(10) Signs emerge of global crime wave” By Michael T Klare – Asia Times Apr 7, 2009

(11)  Globe and Mail, Apr 2, 2009  

(12)  Globe and Mail, Mar 25

(13)   Canadian Roulette – Canada’s facing a mortgage tsunami – Garth Turner March 20, 2009

(14)    Ill-Advised Where Dulnes Doses on a  Couch of Lead

(15)  BNN “Bear Attack” April 7, 2007

About gerold

I have a bit of financial experience having invested in stocks in the 1960s & 70s, commodities in the 80s & commercial real estate in the 90s (I sold in 2005.) I'm back in stocks. I am appalled at our rapidly deteriorating global condition so I've written articles for family, friends & colleagues since 2007; warning them and doing my best to explain what's happening, what we can expect in the future and what you can do to prepare and mitigate the worst of the economic, social, political and nuclear fallout. As a public service in 2010 I decided to create a blog accessible to a larger number of people because I believe that knowledge not shared is wasted.
This entry was posted in Collapse 2009, Economic Collapse and tagged , , , , , , , , . Bookmark the permalink.

2 Responses to Collapse Update – April 2009

  1. Gday! It seems as though we both have a interest for the same thing. Your blog, “Collapse Update – April 2009 | Gerold's Blog” and mine are very similar. Have you ever considered authoring a guest write-up for a similar website? It will certainly help gain publicity to your website (my site recieves a lot of visitors). If you’re interested, contact me at: Appreciate it

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.