Welcome to Hitler 2012

November 26th, 2009 IW
Welcome to Hitler 2012!
We’re here to explore the uncanny parallels between America today and Germany during the 1920s and 1930s, a period during which a previously unsuccessful war, a crushed economy, massive debt load, manipulation by financial institutions, inflation then hyperinflation and, ultimately, rampant unemployment, paved the way for the rise of the cruelest tyrant the world has ever seen, a holocaust and a war that cost the world nearly 80 million lives.
Our purpose is to do our damnedest to prevent this from happening again.
To get yourself started on Hitler 2012, I recommend first reading the brief site introduction.
http://www.hitler2012.com/introduction-to-hitler2012-com/
Then, prime yourself with some German Financial History. I’ve packed a lot of really interesting stuff into these articles (No! Really!) that I bet even avid history buffs might not know!
http://www.hitler2012.com/category/history/
Then move on to the more interesting articles where we tie it all together. Please note that this site is an ongoing project only launched in November 2009 so if you aren’t finding the amount of analysis and predictions you’d hoped for just yet, Don’t Worry! Much more is being created as fast as I can do the research for it!
Enjoy!

Hitler, coming to a theater near you.

When the economy dies…

Tyrants will rise.

We’re here to explore the uncanny parallels between America today and Germany during the 1920s and 1930s, the infamous Weimar Era, a period during which a previously unsuccessful war, a crushed economy, massive debt load, manipulation by financial institutions, inflation then hyperinflation and, ultimately, rampant unemployment, paved the way for the rise of the cruelest tyrant the world has ever seen, a holocaust and a war that cost the world nearly 80 million lives.

Our purpose is to do our damnedest to prevent this from happening again.

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Ron Paul and Hitler

December 18th, 2011 IW

About a year ago, on another blog, I wrote a piece about how I believed New Gingrich would be the most likely and most dangerous potential Republican Nominee for the 2012 American presidential race.  I argued that he has a proven track record of interest in becoming president as well as some very alarming megalomaniacal tendencies.  For example, he divorced his first wife because, and I quote Newt himself:  “She isn’t young enough or pretty enough to be the President’s wife.”  But I digress.  My point is not to pick apart Newt, but rather to destroy your hope (and my own) about a newly rising player on the political scene.

A few months after I wrote that article Newt declared his candidacy and now a year later he is tied for first place in the polls with Ron Paul.  Yeah, I just said that.  And this part is something I definitely did not see happenning.  Initially it’s kind of exciting that Americans are recognizing the only candidate who is honest about what he says he stands for and who has always been consistent, whether you agree with him or not.  But it’s disconcerting at the same time for two reasons.

The first reason that I find this disconcerting is that  Ron Paul is not owned or for sale.  As such the bankers or the Military Industrial cranks will kill him if he’s elected.  He’s not going to do their bidding and when he becomes an obstruction he will be disposed of.  It has happened before in American politics and it will happen again.  Mark my words.

The second reason is more general.  There are, again, some frightening parallels to what happenned in Germany in the early 1930s to what is happening right now.  In the German case the liberal and fiscally irresponsible Weimar coalition government broke the bank for Germany and in 1930 a hard hitting conservative, Heinrich Brüning, was elected chancellor.  His austerity measures dealt the deathblow to German society, doubling unemployment rates and making people very, very angry.  Desperate and enraged they turned to Hitler.

The point to take away from this is that it was a conservative who was the direct precursor to Hitler, not a liberal as most people think, although the liberals’ fiscal irresponsibility is arguably much more to blame than the conservatives’ austerity.

Will we elect a Hitler in 2012?  I don’t think so, but we might in 2016.  My worry is that the global economy is presently in a state of suspension before a collapse, a Wile E. Coyote moment.  And the powers of evil in the world might just let a very nice and honest doctor be the fall guy for what is about to happen.

Where then would American society turn its anger?  I don’t know.  But we have some very difficult decisions to make right now.  Gingrich and Romney are your classic establishment candidates, Gingrich being crazier and more militant and Romney being more fully owned by the banking institutions that have been robbing us blind, threatening Armageddon if they don’t get bailouts, for their irresponsibility, or intentional malice as might also be argued in some cases i.e the Goldman/Paulson/AIG/bailout scam.  Bachman and Santorum are hate candidates still chasing the specter of brown skinned turban wearing boogie-men… and gays, as though sex or mairrage is in some way the business of the Federal government.  And Perry is unelectable because Obama will debate circles around the stuttering, back-stepping idiot.  The media likes Romney, but Iowa will sweep him away like they did with the media’s pet Giuliani in 08.

The question we are left with is does New Gingrich get the Republican Nomination which will mean he will probably lose the election to Obama unable to rally the youth or does Ron Paul get the nomination and rally the youth, the libertarians, and everybody who is pissed off about foreign wars and high taxes to a victory?  More succinctly: The question is who is going to be the fall guy for the inevitable economic disaster in 2012 as the Euro zone falls and the now popping Chinese Real-Estate Bubble drops the Middle Kingdom to a very hard landing.

If I had to make a guess I would say that because the GOP is the savvier party, and I don’t think they want to reign over the coming economic disaster, Newt will get the nomination and lose to Obama.  Then in 2016 he’ll be back to run again and win with some seriously militant ideas.

Tragically, Ron Paul might actually be able to get the nomination and thus carry the election.  I say tragically not because I don’t want him to be president, I do (with some compunctions) because he is the only candidate who respects the rights of individuals, but rather I say it would be tragic because of the strategic result of that decision.  If Ron Paul were to become president it would set the stage for a terrifying repeat of what happened with Heinrich Brüning in the early 1930s.  What sort of Right-Wing Big-Government psychopath we might be angry and desperate enough to elect come 2016 after a term of Ron Paul’s austerity I have no idea, I fear someone worse than Newt, far worse.  I shudder to think it.

Despite that logic, I’ll probably vote for Ron Paul anyway.  At least it will show that we have the power to choose for ourselves.  If we forget we are strong, are we?

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iPhones are Evil

April 20th, 2011 IW

Evil Nazi iPhoneAre iPhones evil?

That depends on your perspective I suppose, but I offer a brief argument today that Apple and their products are promoters of tyranny and if they are not promoters of tyranny then they are at least symptoms of tyranny.

For the first point we go directly to the core of how apple functions.  Since, at least, the launch of the iMac the Apple corporation has operated using a strategy of selling technically inferior equipment at dramatically elevated prices by making them shiny and trendy and making them “easier to use”, which may actually sound like a fair trade-off.  However, saying that their products are easier to use doesn’t do the situation the due justice.  The reality is that the “usability” of the product has always come at the cost of user empowerment, and the sacrifice the user makes for usability has almost never been a necessary one.  In fact Apple often goes deliberately out of their way to provide you with less, and to reduce your power to innovate and create with their equipment.  There is a certain level of sickness to this philosophy.

Now, as a business model it has eventually proven to work very well; consumers are, after all, generally speaking, dumb and lazy and not interested in power or creativity and it does indeed make sense for greater men to profit from that.  However, doing so is not without broader reaching risks.  By sacrificing wealth and power on a daily basis to maintain convenience and the bliss of ignorance people are making themselves more and more accustomed to and comfortable with the same means by which tyranny establishes itself on a geopolitical basis.  It’s easier to quietly pay your taxes than become informed and demand changes to a budget.  It’s easier to accept half-baked stories wrapped in a flag about reasons for war than it is to question them and say no.  Apple’s strategy makes complacency the norm, a dangerous situation, even for those who profit from it.

Ponder this:

First they came for the communists,
and I didn’t speak out because I wasn’t a communist.

Then they came for the trade unionists,
and I didn’t speak out because I wasn’t a trade unionist.

Then they came for the Jews,
and I didn’t speak out because I wasn’t a Jew.

Then they came for me
and there was no one left to speak out for me.

-Martin Niemöller

 

Take some time, think about the larger implications of this complacency, it’s not just a computer or music player or phone, it is part of a bigger trend.  We have the power as choosy consumers to decide whether or not capitalism will empower us or neuter us. Think about it.  It’s tough to see, I know, that subtle link between something as insignificant as a little convenience and something as horrifying as a Nazi Holocaust, but the links to the broader and uglier implications have recently become much more clear.  Today the Guardian published the following article titled:  iPhone keeps record of everywhere you go

Suddenly that subtle link becomes much more clear.  Then we read that police are now scanning information on our phones at routine traffic stops.   …  Hey, you bought that complacency phone, you brought this on yourself.

In the end I suppose we’re still left with the Chicken or the Egg question.  Which causes which?  Does consumer complacency breed tyranny or are we just acting this way because we are already crushed souls under a well disguised tyranny of another sort?

But, anyway, don’t worry about that.   Look!  You just got a new text message, wow, look at that deal on Groupon!  A discount on iPads!!!

 

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Gold is Green

March 29th, 2011 IW

Here’s a paradox for you to think about today…  Saving money burns more energy than spending it. 

(Now that’s not quite 100% true, but just go with it for a second, you’ll see where I’m leading you soon enough.) If you try to conserve energy by not buying energy intensive things you’re actually making matters worse because the money you would have spent sits in a bank and is lent out many times over to people who will buy energy intensive things with that money and businesses that will burn more energy with those borrowed dollars. 

Funny that an industry (banking), that produces no physical product, is, in effect, the biggest cause of energy depletion and pollution.  What a F@#%!’d up system we live under!  As I see it, there are only two ways you can reduce energy use. 

1. Reduce your income. 

2. Put your savings into precious metals that you physically posses and thus cannot be leveraged by a fractional reserve banking system. 

Of the two, the former works better than the latter as some energy is being spent mining additional resources, but if you want to remain wealthy, there is only one logical choice.

OK, OK, you say that there is a third way you can reduce energy use, and that is to buy things that save more energy than was spent producing them.  This, however, is a tougher strategy to pursue because of the amount of information required to make the right purchases and the incentive of people selling goods marketed as “Green”, for example fancy new LED Christmas Tree Lights, to mislead you.   Advertising will tell you these new items save energy, but do they save enough energy to warrant the energy spent producing the new set of Christmas Tree lights?  I don’t know, but I bet the answer is, in many cases, no. 

Some choices are pretty clear, a good example of a net energy saving purchase would be purchasing insulation for your home.  A bad example would be those Christmas tree lights or buying a new hybrid car instead of running an old civic or tercel.  When you add up the energy it takes to produce these items, the amount of energy they save over your old product is seriously in question.  The point is that there is a lot of gray area here and if you don’t have high levels of independent information but you want to be certain to be greener than you have been, the best thing to do is to not buy anything and keep your money out of the banking system.  …preferably in something like Gold that may offer some protection against inflation.

However, there is a rule I like to use to determine if a purchase is really a green purchase. This rule makes all the sense in the world to me and while far from being 100% accurate, certainly has a strong correlation.   The rule is if an “energy saving” purchase actually ends up saving you money, then it is probably actually a green purchase.   A new $30,000 Prius will never save me money over driving a 96 tercel that can be bought for $3000 and only saves a little on gas, definitely not $27,000 dollars of gas.  Part of the reason for that difference in price is the amount of energy that went into researching, producing, and marketing that Prius.    Likewise, spending $39 on a full set of new LED Christmas Tree lights will never save me $39 in electricity.  Those LEDs cost a lot because a lot of energy went into developing, manufacturing, distributing and marketing them.  The cheaper choice, is, more often than not the greener choice.  The reason this is generally true is that money, for all reasonable intents and purposes, is a universal unit of energy.  Money is what you trade to gain access to energy or the products of energy.  The markets, generally, price energy correctly in dollars.  Now, I know, we can come up with lots of exceptions to this rule because different forms of energy are more cost effective to access than others, but the bottom line is that most of the energy used to research, develop, produce and market whatever you’re buying comes from the same dirty coal and oil sources and so the strength of the correlation of dollars to energy is none-the-less very strong. 

Soooo….  If you don’t know better, just do the math.  Will it save you money?  Yes, then it might be green.  No, then it’s probably not green all things considered, and even so, it’s not in your financial interest to buy it.  But remember, unless you keep the money you saved outside of the banking system (e.g. in gold), it isn’t green at all!

But damn!  Now that you’ve done all that, the people you bought the product from have put the profit margin into a bank and now it is being lent out many times over, expanding the money supply and causing more energy to be spent and pollution to be generated!  You better have saved a LOT of energy with that purchase!

Maybe you should have just saved your money in gold. 

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We are not the ‘Good Guys’

March 14th, 2011 IW

This is a difficult subject to broach with most people. However, it is becoming increasingly prudent to do so as global stability becomes increasingly shaky. Rather, I should make a restatement; this is a difficult subject to broach with most Americans.

From a very early age we are indoctrinated with a sense of patriotism by relentless efforts that could be described quite accurately as propaganda. Look at a few of these things objectively if you can, for example, training in the boy scouts to treat the flag with a religious fervor requiring it to be carried and displayed this way and that with great ceremony and carefully cremated should it ever touch the ground as much as once, or daily in-school recitations of a pledge of allegiance to the flag, forced as children into promising things we are never taught to understand. That was my experience, but in recent years it has become even worse with additional controls over the education system, forcing teachers to teach a rigid government-determined curriculum. In typical Orwellian double-speak they called it “No Child Left Behind” when in reality it serves to leave them all severely uneducated at the tied hands of their teachers.

I remember from when I was a child the great reverence given the National Anthem at public events such as baseball games or other public gatherings. It seemed reasonable and the pride people showed seemed sincere, but now when we attend some sort of sporting event we’re not only subjected to the National Anthem, which seems forced in comparison to the willing reverence with which it was received twenty years ago, but it is generally also accompanied by playing of an additional song such as America the Beautiful or Bruce Springsteen’s Born in the USA.  As well, the MC feels obligated to give an extended monologue praising our soldiers and anyone else wearing a uniform. I even recently attended a rodeo where on top of the Anthem, America the Beautiful and a 15 minute soldier and uniformed services praising monologue plus group-prayer, we were also asked to recite the pledge of allegiance.

Now don’t get me wrong. I was a boy scout. I’ve served the government in uniform, albeit not as a soldier, and I was raised by flag wavers. I’ve also got friends and family in the armed services. But this was too much. It has become so over-the-top that it seems to clearly be a case of people burying some important emotion with ritual. And I personally feel that that emotion relates to the great rift between the greatness of the Society we’re told we have and the one we actually do. Why would such ceremony and propaganda be required if our government were legitimately acting in good moral decency? If our country were doing the unquestionable right thing would we need all the propaganda?

I want you to keep that question in the back of your mind as I go on to make the points for which this article was written.

Now, the focus of this Web site has been to explore the economic causes of tyranny. This article, as well, does not deviate from that purpose. The subject at hand relates to the ongoing revolutions in the Middle East and North Africa. In prior articles we have discussed how domestic economic policy can lead to the rise of tyranny, but now we’re going to take a look at how foreign economic policy and foreign policy in general interacts with the rise of tyranny.

neoliberalismIf you were to ask a lay person, just some Joe Schmoe on the street what form of government we have in the United States, his answer would likely be Democracy which would be grossly wrong, or maybe he would say Republic which would be a little more accurate. But a more specific descriptor for our Republic is a Neoliberal Republic. That is to say our politicians, whether right or left of the isle believe the primary purpose of government is to support national business interests. Both Bushes, both Clintons, and Obama are all supporters of neoliberal policies. Don’t let your notions of liberal versus conservative confuse you. Classical liberalism is more akin to what we know today as Libertarianism, which means getting the government out of the way of business. Neoliberalism not only wants government out of the way of business but aims to use all the potential forces of government, up to and including military power to advance and assist national business interests.This is an important point to remember. This is the reality of our governing officials’ stated positions. It is not a contested point or fringe opinion, it is the word that the rest of the world uses to describe our government, much in the way we use the words Communist, Socialist, Fascist, Dictatorship, etc; we are a Neoliberal Republic.

 Now, I’m not going to go into a full critique of neoliberalism, but I do want to talk a little bit about how it can cause tyranny and unrest. The first point to make is that neoliberalism works very well for a country if that country happens to be the hegemon, the biggest dog on the block so to speak. Our government has used diplomacy, economic carrots and sticks, espionage and outright military force to secure and promote our business interests all over the world, manipulating the owners of resources into providing us the raw materials we’ve needed at a discount and securing markets for our products as well. And this has worked very well for the United States for decades. However, and for a variety of reasons, the sad reality for Americans is that the United States is losing its grip on global hegemony. We’re starting to lose our grip on the resources of the globe as our military proves less effective and our businesses sneak off to operate in foreign lands where the access to the things businesses want can be more cheaply provided by foreign governments.

A standard act from the United States neoliberal government playbook has been to support and corrupt foreign authoritarian dictatorships. A single man, given lots of resources via foreign aid and lucrative investment opportunities is easy to control. His wealth and power is dependent on his financiers and wishing to maintain his wealth and power, he does what is asked of him. Egypt’s (now deposed) dictator, Hosni Mubarak, is a prime example of this.

During the recent uprising that led to the ouster of Hosni Mubarak the United States was put severely at odds with its stated goals, “Democracy, and Freedom for everyone.” And it’s neoliberal and military strategic goals. Egypt controls the Suez Canal, possibly the single most strategic point of shipping on the entire planet, and by controlling Egypt, the United States has controlled the Suez Canal keeping it open for American business interests. However, the United States has done so by backing a dictator so corrupt and repressive that even the most apathetic of people by reputation were inspired to rise up by the millions to oust. The uprising was miraculously non-violent, despite provocation by government hired thugs. It was a picture perfect example of exactly the sort of revolution the United States of America should be supporting wholeheartedly if the United States stated goals of democracy and freedom for the whole world were the honest and actual goals of the United States. Sadly, they were not. The United States, was on the dishonest side of this throughout the entire affair, never once offering even a word of encouragement to the Egyptian people who were demanding, non-violently, just a little basic human decency. This was a key moment in world history. The United States basically admitted publicly that we are not the Good Guys we say we are.

One now no longer has to result to 9/11 conspiracy theories or even question G.W. Bush’s motivations for the Iraq invasion in order to see that we are, in fact, a negative influence on global freedom and peace. It is out in the open. We back dictators who repress their people to support our own interests. This, of course is not something new. There are literally dozens of well publicized cases of this in the past. I recommend John Perkin’s book Confessions of an Economic Hitman, if you’d like to read a little bit more about how neoliberalism has put us on the wrong side of morality for decades. However, this is a recent and unmasked example. The situation sprung up rapidly and the United States was not nimble enough to come up with a way of spinning our outright immoral behavior to make it sound like we were supporting “freedom and democracy”.

This also puts us in an awkward position because it could be argued that the numerous revolutions occurring in the Middle East and North Africa right now to include, Tunisia, Egypt, Libya, Yemen and Bahrain are actually revolutions against neoliberalism, revolutions against the United States. This could be argued on two points. One, we’ve backed the dictators the people are rebelling against, including Ghaddafi, a true and original support of international terrorism, who was recently “brought on board” by G.W. Bush’s administration deals to open up access to oil. And two, as if the first were not enough, one of the primary reasons for unrest is economic hardship.

Whoa! Economic hardship? How does that relate to American neoliberalism? The answer is quite simple but comes in two parts. The first part of the answer is that the intent of Neoliberalism is the most efficient exploitation of the resources of other countries at the lowest cost that government manipulation can buy. In general that means the only parties profiting are the American business interests and the cronies of the targeted nation’s dictatorship. The trickle-down wealth scenario just doesn’t end up occurring to even a fraction of the extent to which it is preached to the people. The reality is that even most of the workers extracting the desired resources are foreigners who send the money home, so wages of the people extracting resources don’t even contribute significantly to the local economies. The result is that the dictator’s crony network becomes very wealthy and everyone else not only does not profit but they are deliberately excluded from opportunities to profit from the situation by a stranglehold on business by the dictator’s crony network monopoly.

The second part of the answer is that American monetary policy has an indirect but dramatic effect on the poor people in the countries repressed by the puppet dictators of American neoliberalism. Basically the money printing, via Quantitative Easing that the the United States Federal Reserve has been engaging in, has been injecting large amounts of cash into the financial markets. Much of that cash has been used to speculate and drive up the prices of commodities. As if the already strained demand on these commodities was not severe enough, speculation compounds the cost of these items dramatically. The result is that basic staples such as food and fuel are becoming increasingly expensive. The impact of those left out of the crony networks is severe. We are reaching a tipping point in the world where prices and unemployment are so high and wages so low that people are being driven to drastic action.

In effect, the American Neoliberal Empire, through money printing and making immoral decisions, has signed its own death warrant. The rebellions will continue and we will see more and more of them as we print more money and drive up the costs of food and fuel higher and higher. I would like to suggest that there is a way out of this impasse but frankly, I fear that there is not. However, we can still reduce the strife, the suffering and violence that will result from the death of the American Empire by starting to do the right thing now. We can start to be the good guys, even though it will hurt. If we don’t, we are likely to find the sense of vengeance against us will make the decline of the American Empire very painful for everyone. We can bow out gracefully, knowing we’ve lost and doing the right thing with what remains of our influence, or we can leave burning cities in our wake, the choice is ours.

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Investing for the Zombie Apocalypse

January 20th, 2011 IW

I’ve recently been asked to do an article on investing strategy for believers in the Zombie Apocalypse.

Of course that may not be exactly what I was asked to write, but calling a major societal collapse “The Zombie Apocalypse” whether it involves actual zombies, a super-volcano, a solar mega-flare, another false flag terrorist attack, a west coast tsunami, or simply a global financial collapse serves an important purpose.  The silliness of the Zombie Apocalypse concept reminds us that despite the incalculable mass of evidence we’ve accumulated that has led us to believe it is prudent to intensely prepare for this ending of the-world-as-we-know-it scenario, we still live in a world that is real and a society that has not yet collapsed.

In the words of the famous, and I would add notorious, economist John Maynard Keynes.

“The markets can remain irrational longer than you can remain solvent.”

 

This, my friends is outstanding wisdom coming from a man who had such terribly half-baked economic theories.  And I think it’s a rule that we need to apply to preparing for that Apocalypse.

That is to say, we have to deal with the reality of the world in front of us and budget for the risk that even though the status quo seems impossibly precarious, it may go on materially unchanged for far longer than we expect.

What if the apocalypse takes 20 years to arrive?  What if it is happening now but ends up taking 20 years to start looking like what you believe an apocalypse should look like?  What if the imminent hyperinflation the survivalists have been ranting about since Nixon took us off the gold standard in the 1970s goes another 40 years without happening?

Personally I don’t think that will be the case, but I have to be prepared to live a good life even if it doesn’t happen.  The ratio of debt to GDP in the United States is approaching 100% right now and people tell you that it is the end game, but at the same time Japan’s debt to GDP ratio is twice that and their economy is merely languishing, not devolving into a catastrophic world ending event.

Maybe the Mayans screwed the pooch and got the date wrong by a full katun?

Personally I think in just a few years it will be blatantly obvious that we are all in for a royal shit-storm at least on parity with the magnitude of World War II.  But, and as much as it pains me to say it, I might be wrong.

Here is what I propose, then, as a rational and balanced investing strategy for believers in the Zombie Apocalypse.  Mind you, I do have a background in finance but I am not a “qualified or certified investment advisor” whatever that means, so mix your own damned kool-aid OK?

After you’ve paid the bills, paid down your debts and bought your toys, if you still have any money left over I suggest you split it into thirds.

One third of that money will go to a cash emergency fund.  Another third will go to tangible survival assets and the final third will go towards hedging your bets and investing for the future.

You’ll notice that I didn’t say anything about a 401k or IRAs or any other sort of time locked retirement investing vehicle.  If you won’t be retiring in the next 10 years, I strongly, strongly believe that you never will.  I’m not saying you shouldn’t prepare for that possibility but the fact of the matter is that most of these plans are scams.  They do not give you the flexibility in investing options to effectively protect your assets over the long term and they can be difficult, time consuming and costly to tap if you end up needing them if hard times come before you’re of approved retirement age.

I call them scams because your funds are forced into a limited basket of financial instruments (stocks, bonds, mutual funds, ETFs, REITs etc.).  These financial instruments are ripe targets for the greedy and powerful.  Recent advances in financial trickery have enabled the large banks and hedge funds to manipulate your retirement investments in ways never heard of before.  In the fall of 2008 when 14 trillion dollars of people’s savings evaporated effectively overnight, this is an example of a small explosion of the risk created by that scenario.  The possibility of something along these lines but dramatically larger still exists and becomes more and more likely every day.     Embedded below is a good article on how collusion between financial institutions and members of BOTH the Bush and Obama administrations facilitated this forced reverse re-distribution of wealth (stealing from YOU to feed the unproductive rich). 

The Great American Bubble Machine

The point here is that the risks posed by investing through retirement funds presently outweigh the benefits.  Perhaps a change in the regulatory environment may stabilize things changing that conclusion, but I wouldn’t hold my breath if I were you.  It is better to manage your wealth on a taxable basis despite the tax disadvantage and lack of employer funds matching.  You need the flexibility to invest in assets other than those offered to you in that 401K account and more importantly you need to keep things relatively liquid and accessible in case society starts falling apart quicker than you expected.

 

A Cash Emergency Fund

If you’re like most people in America, or Canada for that matter, you probably have far too little money in your bank account.  You need to fix that.  If you lose your job and your unemployment benefits or you lose your health insurance and you need medical care, you’re going to need something to fall back on.  There are a thousand other unanticipated scenarios that you may be struck with that will require cash, so make sure you have it and can get to it when you need it.  Likewise you may need the cash to make a last run for perishable supplies you didn’t stock should the world rapidly start its slide into chaos. 

Cash gives you options. 

You should probably have a good chunk of physical currency as well.  A thousand dollars kept someplace in your home, maybe taped to your 12 gauge, will give you the ability to make purchases in that critical few hours after credit card machines stop working where the stores remain open.  Likewise having $200 in your wallet may save your life if you’re ever mugged.  Bad guys get pissed and beat you bloody if they think you’re holding out on them.  $200 in your wallet may buy you a bicycle or a tank of gas or just about anything you might need to get home or bug out.  So don’t neglect it.

Yes, cash is subject to the ravages of inflation, but nothing is more liquid, i.e., readily convertible to useable stuff.

I would suggest you put your emergency fund into a high yield money market account, such as those offered by HSBC or ING.  The FDIC now guarantees a much greater amount than they historically have so the risk is minimal until the slide becomes steep.  You won’t make any money there, the interest will only reduce the ravages of inflation but this is just something you’re going to have to deal with.

 

Tangible Survival Assets

This is your primary hedge against financial Armageddon.  If cash becomes worthless and people won’t accept gold in trade because they can’t eat it, you are covered by what you have stocked in you larders.  Food, reasonable amounts of ammunition, tools, trapping supplies, reasonable amounts of weapons, reference books, water purification, gardening gear, seeds, low energy cooking implements, fuel storage, etc, etc.  We’ve all been over this stuff a million times.  I won’t get into the details but I want to remind you that a bucket of rice in your house is worth quite a few deer in the woods that you may or may not succeed in shooting and packing home before someone else does.

I also would include intangible survival assets here as a sub-category.  Money spent on learning hard skills like first aid or firearms training would be valuable investments too, but you better have a way to feed yourself for a year or more before you drop several grand on tactical black gun ninja classes.  Prioritize.

 

Investing for the Future

I’m not a fan of this title “investing for the future”.  I think it should be called something more like Investing in case the Apocalypse takes a really long time to either a) show up or b) do enough damage that we don’t have to worry about money.  But that doesn’t have much of a ring to it.

We’re only putting a third of our excess money into this category because the financial world is outrageously unstable right now and seems as though it will remain that way.  But we still are putting a third of our money here because we don’t want to lose out on opportunity and we want to protect our money from inflation.  Remember the “what if’s.”  What if this house of cards remains standing until we are elderly?  What if we have to do business and pay for our existence with paper money for the rest of our lives?  It would be a shame to have missed out on the opportunity to save and grow our earnings to be better prepared financially for old age.

This, naturally, is what this article is all about.  What might be an acceptable strategy for beginners to invest in the financial markets if they are of the “We’re probably F’d” mindset?

I’m inclined to answer this question by saying.  “Don’t.”  This casino is rigged and nobody but the big dogs win.  In reality, that may end up proving the best strategy.  But we think we’re beautiful and unique snowflakes and we can do better.  So lets try, but first we need to lay some groundwork.

Investing in the financial markets is the art of predicting the future.  Nobody can do it with consistent accuracy, but we can make the best educated guesses possible by basing our thoughts about the future off of only the strongest premises we can find.

One strong premise is that the world’s population is increasing.  These people will need to both eat food and drink water.  Therefore it would be a fair bet to purchase assets that benefit in the market from our predicted scenario where over the long run, both food and purified drinking water will become increasingly costly as demand increases.

Unfortunately, even solid bets like that don’t always pay off.  Pull up a chart of water utility giant Veolia’s stock to see what I mean.  Why did they get hammered and stay down even when the broader indexes were rising?  Does it matter?  No, it just matters that even a super sound bet ended up being wrong.

This is why we diversify.  That is to say, we make many bets based off of many different strong premises in case one of them falls through.

So if you had a second strong premise that said, “Oil is increasingly scarce.” And you made an oil related investment, at the same time you invested in Veolia, you would likely have offset your losses because the price of oil increased over that time period.

That’s diversification and it is critical.  You can’t put all your eggs in one basket.

Before we move on though, I want to make one more point about premises.  You have to break them down to be as simple as possible.   The reason we do this is because a premise is an assumption.  The more assumptions you rely on, the more potential points of failure you add to your argument when it comes time to make a decision on whether to buy or sell.  Break them down so that you’re certain you understand all the points where you might be wrong.

Here’s a strong (though not bullet-proof) premise for owning gold.  “Gold never has been worthless.”  This premise alone doesn’t make an argument for owning Gold though.  You have to add other premises like:  “Gold goes up in value during times of inflation”.  If correct, this of course might make an effective argument to own Gold, but if you want an argument that says that gold is a good investment you need to make sure you’ve broken out your other assumptions. So ask the right questions.  Will there really be inflation?  Is now a good time to buy gold given its price?  Has the price of gold deviated grossly from what you would expect given the level of inflation or deflation?

After asking these questions you may find that the argument is not as strong as you thought when you read the sales pitch.

We’re presently in a period of deflation.  Yes, even though your food prices are going up this is deflation, because the money supply is contracting.  Yes, prices can go up during deflation too and you can still have deflation when the Fed Chairman is burning up the printing presses.  It’s not as simple as you might think.  Here’s another article I’ve previously written called Deflation for Dummies that will help fill you in.   Gold has been going up in price for other reasons, possibly as a safe haven because of the European Sovereign bond crisis.  Maybe for some other reason.  Who knows?  The point is your first set of premises didn’t account for the assumption of inflation vs deflation and you may find that whatever is driving the price of gold up reverses and breaks your nest egg into bits.

It’s easy to make a mistake so you have to be careful and spend time researching the market and the asset both to make sure all your ducks are in a row before you pull the trigger.  Investing really isn’t something you should just jump into.  People lose their shirts this way every day.

Just like you can’t buy a gun and instantly make long range zombie headshots you can’t just jump into the stock market and make money.  It takes some training and establishing discipline.

But anyway.  I wanted to get back to gold for a moment because it, along with silver, is something that is pitched by people with something to sell (usually gold) as the ultimate survivalist investment.

Gold is not an investment; it is a hedge.  

It is a store of wealth.

On the long term it will hold value but at any given moment and can and will be overpriced or underpriced.  Gold is something you own a little bit of to make sure you don’t lose EVERYTHING in a sudden catastrophic market collapse or runaway hyperinflation.  The amount of gold you should own should be proportional to the level of instability you see in the system.  In better years 5-10% was a good level to have.  That is 5-10% of this 1/3 of your savings.  Right now I would argue for 20% on up to maybe as much as 30%.  But not more.  Gold doesn’t produce anything for you, it just holds value.  Over time, as things become more unstable you should ratchet up the amount of gold (and maybe silver too) that you own.  But whatever you do, DO NOT go out and buy all your gold at once.  You might get lucky and buy a dip in price but you’re more than likely to buy it during a mini-bubble and pay too much.  The key concept here is dollar cost averaging.

Buy a little bit at a time over and over again, maybe once a month.  Transaction costs will be higher but you will get much closer to paying the average trending price of the metal and you won’t get screwed by going all in at the wrong time.  Dollar cost averaging is a good habit to get into when it comes to gold, and can work for other assets too.  Do it.

Some Simple Recommendations

This article is for beginners so I think that is enough to chew on for now in terms of base understanding.  So let’s get down to my basic recommendations, which you should either pick up when the price has dipped significantly then started resuming an up-trend or instead dollar cost average into your position.

Food

Water

Oil

Weapons Manufacturers - Business to fight over the above is booming.

Renewable Energy

Gold Miners – Miners are productive whereas gold itself is not.

Silver Miners

 

In both a pre-apocalyptic world and the uncomfortably precarious reality that we’re stuck in there will often be strong arguments to invest in companies and funds (ETFs and Mutual Funds) in these sectors.  I won’t go into any more detail as to why, I’m already boring you to death.  But I think you will find that these are good places to start looking for those strong premises for good investments.  Do your own research!  Look for news about what you want to buy.  Look at their balance sheet to see if they’re making money.  Look at their history and see how well they weathered the 2008 crash and other events.  For mining companies go to http://kitco.com and look up the analyst ratings for the stocks.  If nothing looks really really good don’t be afraid to sit on the sidelines and let other people take the risks.

A Critical Tactic – The Stop Loss Order

Unless you sit all day everyday watching your portfolio on your computer with your finger on the trigger ready to sell if something breaks down you need to place what is called a Stop Loss Order on each of the assets you own.  A stop loss order is an order to sell an asset that triggers automatically when the price drops below a certain level.  This protects you from getting destroyed while you’re away.  The cost is minimal and it will save your egg.  Do NOT let losses run.  Remember the lessons of Kenny Roger’s Gambler.  Eight percent is a good stop level for most investments.  You should only use a bigger stop percent on highly volatile items like junior mining company stocks.

One Slightly Advanced Tool for Timing

Trying to guess tops and bottoms in the markets is a fool’s errand.  There are a million tools and tricks that people try to employ to accomplish this.  They seldom work and are often obscenely complicated.  But I thought I would offer one simple diagnostic that will help you tell if now is roughly a good time to be a buyer or roughly a bad time to be one by letting you know if the current trend is going to continue.

Go to a website that does stock charts like Google, yahoo, stockcharts.com or marketwatch and pull up a chart.  Tell the site to draw the 20 day moving average (DMA).  It will draw a line across the chart.  When the stock crosses above the line your odds are good that it is a good time to buy.  When the stock crosses back below the line it is time to sell.  The crossing points are the key.  It’s simple and it works more often than not, and that is more than you can say about a lot of strategies.

It’s just one trick, and you’ll eventually want many, but it is a good place to start.

A Word About Hyperinflation 

Hyperinflation is without a doubt the greatest economic fear of survivalists with money in the bank.  And it is for good reason.  But it doesn’t work the way most people think it does.  Hyperinflation is a loss of faith.  It is not something that grows out of regular inflation.  It generally comes out of a deflationary period.  Keep this in mind when you’re plotting your investment course and weighing the risks.  You can read more about it in my article Deflation for Dummies, which I mentioned previously.

Conclusion

Because I am now risking turning this article from painfully long to disastrously long I’m going to end it here.  I wrote this for beginners so I don’t want to hear about it if you are an advanced trader and think I’ve committed a cardinal sin for not discussing covered options calls, LEAPs and warrants.  This is for the little guy who has a gut feeling he can’t ignore that something just ain’t right in the world of money and civilization.  The guy who has busted his ass to make a little extra money and is terrified of losing it all as Leviathan thrashes about in its death throes for an indeterminably long period of time.  If you’re loaded, you’ll naturally want to ignore the rule of thirds and apportion your assets appropriately, but then again, if you’re loaded you’re probably not reading this article.

This is a balanced approach and I feel a prudent one.  It’s a good way for us paranoid fools to make sound decisions.  It is a guideline that will work for Joe Six-Pack and Tactical Tommy under the widest spread of scenarios including confirmation that he is either horrifically catastrophically right or horrifically catastrophically wrong in his prognostication of the end of days.

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Irish Hitler

November 22nd, 2010 IW

Today is a sad day for Ireland.  After first rejecting the IMF’s (read German and UK bankers’) “bailout plan” for their overindebted government, the Irish quickly capitulated.  Basically the narative is this.

Bankers to Irish Government:  “You guys better take a crippling debt load from the IMF that amounts to roughly $24,000 for every man woman and child in your rainy little country so that you can pay back the German and UK banks that you owe or THE WORLD IS GOING TO COME TO A FIERY END!!!” 

Irish People to Bankers:  FUCK YOU!

Bankers retort:  No, really, we swear, THE WORLD IS GOING TO COME TO A FIERY END!!!” 

Irish Government:  Oh really?  OK Then.

Of course when the bankers are giving this “dire warning” they are neglecting to mention that the world only comes to an end for the German and UK banks from which the Irish have previously borrowed.  They also neglected to mention that hence to forth for generation upon generation the Irish will have crushing debt expenses payable to the IMF, which is, by the way, owned by the international banking system, and as a result the Irish economy may never recover and thus will exist eternally in a state of debt slavery.

Shortly after the acceptance of the “rescue package” the Sinn Fein releases the following statement (photo)

 

And one can hardly blame them for their sentiment.  However it is decidedly of note that Sinn Fein, the political wing of the Irish Republican Army, which has been called both an organization of freedom fighters and one of terrorists (depending on how connected you are with the British Empire), is not known for soft tactics.

This aid package acceptance is to Ireland what the Dawes and Young plans were to Weimar Germany.  That is to say, a plan to rescue the country from indebtedness that does not accomplish this goal but only serves to continue its depression whilst enriching the international bankers by drawing out the time period through which the people must pay interest to the international banks.

It stands to reason that the result of this crushing indebtedness placed upon the Irish people will have a similar ultimate outcome as the Young plan did to Weimar Germany.  Anger management is not the historical forte of the Irish people and if they have not yet become too deeply trapped in the virtual world of iPhones and tablet PCs it is highly likely that we will see some serious political upheaval in Ireland in the not too distant future.

In short, this could get very, very ugly, and depending on how violent it becomes, a worst case scenario is the emergence of an Irish Hitler preying upon the anger and centuries old desire of the Irish to have the whole of their own island free from British rule which is not just territorial occupation but now brutal financial slavery.

If you are religious I would advise prayers for our Irish brothers, that they may choose to stand strong and cast off these shackles of debt slavery, but not fall victim to their own anger in so doing.

A final note is that I highly recommend the book “Confessions of an Economic Hitman” by John Perkins.  The writing is mediocre but the book does a very good job at bringing to light the mechanisms by which a country is intentionally brought under Anglo-American control through IMF and World Bank debt traps.  Read it.

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Kindle 451 – The Threat Posed by eReaders

August 30th, 2010 IW

I’ve been meaning to write this article since this last winter when I read Ray Bradbury’s classic, but very short dystopian novel, Fahrenheit 451.  The name of the book is meant to coincide with “the temperature at which paper burns” and is about a world where a strong militaristic central government keeps the population pacified by preventing any distractions from their electronic distractions.  The main character is a “fireman” who is responsible for burning books, because thinking and debate and whatnot are considered distractions to the electronic bliss, and thus the control of the government.  First off, if you read this in high school a long, long time ago, I highly recommend revisiting it.  Did I mention it’s really short?  It’s worth re-reading just to note all the similarities to our world that have popped up just in recent years describing plasma screen TVs and iPods to a tea, despite being written 60 years ago.  Really remarkable.  Anyhow, getting to the point, reading this made me think, wow, that’s some crazy stuff, but the burning of all books would be something exceedingly unlikely to happen in a world where we still consider literature somewhat sacred even if we don’t read it.  However, there is one thing that might accomplish essentially the same and that is a natural migration to eReaders like Amazon’s Kindle. 

If convenience, function, coolness or environmentalism push the vast majority of us into migrating to eReaders, the existing books sitting around printed on slowly self destroying acid paper actually could disapear in roughly a lifetime.  Now, of course, ALL books won’t be gone, there will always be some of the dedicated preserving things in the old way. Maybe you’re one of them?, like I am one of the people who are keeping the old ways of logging before a chainsaw alive, ironical, yes, I know, but I like to chop up trees with axes.  =)  But here is the threat, and that threat is that access to these actual tangible printed paper books would be very limited.  And furthermore, in the event of a society crushing disaster that brought down electronic infrastructure, whether military in nature or natural, there would be massive segments of the population completely cut off from books, and the ability to create new ones.  Even newspapers are virtually dead these days, give it a few more years to develop and even these local mechanisms for disseminating news will be gone and then we’re back to the days of getting news soley through tavern gossip.  As such, it would be exceedingly easy for an emerging or re-emerging power to gain nearly complete control of the dissemination of information.  Sure, sure, it’s practically that way today with the big money controlling the big media that obliterates the credibility of most alternative sources by casually slapping them with a label like ”radical, extremist, conspiracy theorist or fringe”, or just ignoring them, as was done to the two most sensical presidential candidates during the 2008 election (Paul on the right and Kucinich on the left).  But at least today a thinking person, the few out there, can get his hands on the information he seeks and disseminate it to other thinking persons.  Keep in mind though, that it’s not just news and politics that would be thwarted, but we wouldn’t even be able to learn new skills, we’d be fully reliant upon central sources for technical knowledge for everything we didn’t have living in the brain of someone we knew, from how to pasteurize milk or fix a generator to how to perform dentistry.  We’d be the proverbial bitches of whomever had access to those few books and data that survived.  And I don’t think you need me to go into detail on how loss of universal access to information can quickly become a cascading effect bolstering the emergence of fascist powers.  We all know this, and it is for this very reason that the freedom of press and speech was the very first amendment to the US Constitution.

OK, stepping back for a second,  so this seems far fetched to you right?  I mean we’re basing all of this off of something bringing down the entire electronic infrastructure right? Well, I have two things to say about that.

1. Mmmmm, wild, but frighteningly enough, it’s not so far fetched, and given our current state of unpreparedness, it is just a matter of time before an EMP event takes down the grid and fries most unprotected electronic devices, like your kindle, your computer, your XBox, your iPod, iPad, and iBrator.  An EMP that could bring down the whole country could be accomplished with a single nuke delivered to the high atmosphere (above Kansas) on the missiles that dozens of states, including North Korea already have.  As well, EMP, via coronal mass ejections from the sun occur naturally and regularly, and if we were to experience one like what happened in 1859, it would bring us back to the dark ages again.

William Forstchen wrote a novel, called One Second After about what is likely to happen after an EMP, for those of you looking for a sobering read.  If I ever get the time I’ll do a book review on this.

2.  Even without a massive grid destroying disaster the Kindle and the centralization of books in electronic form poses other threats, namely those threats posed by corporations controlling what we read and what we have access to read.  I’m not talking evil conspiracy here, just basic fact given what has happened and what might happen in the future.  Think about Google bowing to censorship pressures in China.  It wouldn’t take a big shift in government philosophy from these days of warrantless wiretapping to move into selective censorship for “national security”, or worse, profiling people by what they have chosen to read, records of which will be strewn across the internet.  If Amazon becomes the primary source for our books and news, or if any other company does for that matter it becomes a single point of failure, a single company for the government to lean on when they want something unethical done.  I already have my concerns about our reliance upon Google for search, mail, etc…  These are things we need to watch out for, and rather than embracing the newest shinniest slimmest most portable technologies, we should probably hold off a bit and look for options, decentralized options.

Learn to value things that operate on decentralized infrastructure, things that are more survivable, variable and rhizomatic or we’re setting ourselves up for a hard, hard fall one of these days.

In the meantime, when you catch yourself coveting that Kindle, try to visualize books burning… Sure your paper books kill a couple of trees and the paper factories pollute a fair bit, but think about how much a fascist state pollutes and you’ll be able to make the right choice.

and P.S. Yes, I know it seems a little nuts to criticise a device that gets people to read more…  But we have to look it this from all angles.

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Collapse Movie Available on DVD

June 21st, 2010 IW

Just a quick update to let you know that Michael C. Ruppert’s “Collapse” movie, which I reviewed earlier this year.  Is now out on DVD.

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Patriotic Austerity

April 29th, 2010 IW

Every day I look upon our present and evolving situation with increasing negativity.  We’re marching to mass murder and we don’t even know it yet.  However, I do, occasionally, have an idea or two that might reduce the probability of hearing the drums of war.

Today’s idea is Patriotic Austerity.

The problem with Socialism isn’t that it is inherently flawed as a system in and of itself, but rather that we the people are too flawed to make Socialism, particularly on a large scale, function.  The system will take from some people who have and give to others that need, which initially sounds like it might be helpful to even the field, but what ends up happening is that negative, non-productive, and even parasitic behavior is reinforced.  Why pay your own way in the world when someone else can be forced to pay for your existence?  So it becomes a slippery slope, a vicious downward spiral of more people taking the lazy option, which places a higher burden on those still interested in being productive, which ultimately reduces the incentive to be productive.  Eventually the whole equation goes negative and the system collapses.  This, among many other reasons, is why I am adamantly opposed to taking Socialist measures, particularly because the loss of the benefits of the system makes people very, very angry.

The problem we face right now is that we are going to be faced with losing the benefits of our pseudo-capitalistic system shortly anyhow, on account of resource depletion and economic decline.  Moving to Socialism would likely only hasten that fall from privilege, and thus give us less time to get used to the idea of living with less.  It seems only rational, therefore, that if we desire a peaceful outcome, we should slow the pace of decline as much as possible, even though on a personal level there are some days I’m so fed up with the world I’d really love to know where the reset button was!

Presently, the best way to slow and control our decline is to immediately accept austerity measures.  That is to say, learn to get by with less and live within our means.  As we enter the age of increasing energy scarcity, it is a painful fact that the economy will never be more fruitful in the future.  We’re simply setting ourselves up for a steeper fall by pushing the cost of our present privilege into the future by financing it with debt.  The assumption that we’ll someday have a surplus to pay for this debt is absurd.

One analogy I might offer is that we collectively have a rope and a cliff.  And the rope is burning from the end.  The right thing to do would be to use the rope to lower ourselves down the cliff right now while have enough rope to make it safely to the bottom.  If we wait a little while before we start lowering ourselves down we’ll have to deal with a rather long and unpleasant drop at the end, but if we wait a really long time to go down this cliff, we’ll have burnt up much of our rope and there is a good chance of a big SPLAT on the scree below.

For the daft I offer the following key:

Resource Depletion / Inevitable Economic Decline = The Cliff

Stimulus / Debt = Letting the rope burn

Accepting Austerity = Lowering ourselves down

Anyhow, the problem here is that nobody likes austerity.  We all like our privilege and aren’t about to give it up.  We’re so hesitant in fact, to give up our privilege that we are prone to believing in magic, magic politicians, magical financial instruments, magical alternative sources of energy, anything that might magically allow us to keep on keepin’ on this posh way.  Yep, it’s a problem.  But there are ways around it.  In fact we’ve all done it before. 

During World War II austerity was considered our patriotic duty.  We had “victory gardens”, major recycling efforts, fashion movements that used less cloth, even “victory bicycles” and a resurgence of horses and buggies.  It was a massive, nationwide effort to live more simply and responsibly on an individual basis for the purpose of helping a national effort.

This could work for us now.  The idea that accepting austerity is our patriotic duty, in order to prevent a hard national or global collapse could work very well for us.  Of course it’s going to be much more difficult now that people are so iHypnotized by their iPods, iPhones and iPads.  It’s going to be tough to convince people that these things are not really necessities in life.  But it CAN be done.  I think we’re probably more flexible than we realize and the evidence that I see for this was the sharp jump in personal savings rate and sharp decline in consumer spending at the beginning of 2009.  We’re all hypnotized by the shiny screens more often than not, but we aren’t all stupid, and many of us still have some capacity to stop the shopping and get by with less.

Personally I suggest starting small.  If you go big and declare that everyone should immediately stop what they’re doing and form permaculture style eco-communities you’re going to violate people’s political sensibilities.  They’re going to dismiss it as more preaching from a fringe group regardless of whether they see us as dope-smoking hippies, bunker dwelling, gun clenching survivalists, or even just “no sense of reality” intellectuals.  They’ll see it as something to be resisted.  Subtlety, at least at first, will be key. 

An example of what I have in mind here is this:  You overhear some co-workers talking about getting their garden planted.  You come in supportive but not overbearing and maybe drop in the idea of “yeah, now that healthcare is a tax payer affair it’s pretty much our responsibility to eat more fresh veggies and stay healthy, eh?”  Likewise when politics comes up, if you can refrain from jumping in with radical ideas that alienate people, even if you’re right! you can still toss in some ideas about living up to our responsibilities now, because there is no guarantee that we’ll ever be able to pay for the stimulus and debt in the future.  You don’t have to sound grim when you talk about the economy either, you can paint it up as a lesson, “Maybe this crisis is just a little reminder that we should be living more within our means, putting some money aside, you know, saving till it hurts for those rainy days our grandparents used to talk about.  Yep, maybe this was just a reminder that the responsibility for our country’s future falls on each and every one of our backs”

I could give you a million other similar ideas, but the point is to get people talking just a little bit differently, to get people talking about owning up to their debts and getting to be a little bit healthier and more self sufficient.  Eventually these ideas can grow and a new zeal for doing the right thing for our country can sprout.  Patriotism can again be a sweet coating for that bitter pill of austerity that we MUST swallow if we’re going to get out of our situation in one piece.

Looking back at the German case, they tried to swallow the austerity pill all at once, and far too late.  Heinrich Brüning forced that pill down the German throats in 1930, and by 1932 the German people choked and threw up Hitler.  The world will never know what would have happened if the Germans had chosen to accept austerity over American banker financed stimulus loans early in the intra-war years, but I suspect millions of lives would have been spared.

 Austerity has to be implemented gradually and and as soon as possible to give people time to get used to living with less.  A sharp involuntary drop in standard of living is going to piss people off, so it’s best that we use that rope to lower ourselves down voluntarily rather than using debt to finance the status quo whilst waiting for the hard crash sometime in the future.

Don’t let the banking cartels fool us twice!

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Deflation For Dummies

April 20th, 2010 IW

Ah, the hyperinflation doom stories.  I’ve heard them all.  “We have no way out of our debt but to hyperinflate the currency”,  “The Fed will print money ’till the cows come home to prop up housing prices.  They can’t let them fall!”  Yep, it sounds good doesn’t it?  Sounds reasonable, logical, and sounds like we aught to do something about it.  But it also seems like people peddling that theory usually have something to sell you, whether it’s gold bullion, survival seed packets, or a political candidate.  Mmmm Hmmmm…  Well, I’m offering a closer look today, an alternative hypothesis.  I think our hyperinflation may not be coming any time soon at all and I have three very good reasons for it.  In fact, I think we’re actually looking at deflation as the bigger risk for the near to mid term.

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Reason #1:   The Federal Reserve Won’t Willingly Destory Itself
The United States does not control it’s own monetary policy, The monetary policy of the United States is controlled by a semi-independent semi-private corporation called the Federal Reserve.

When the United State’s soveirgn debt expenses reach a level that cannot be paid back through tax revenue or through tax revenue plus the hidden tax of regular inflation, one of two scenarios will follow 1. hyperfinflation or 2. default and following that a potential military conflict instigated by creditor nations, a war that would go rather badly for the debtor country unable to raise funds.

However, despite a hyperinflation being in the interest of the US in that scenario, it is not in the interest of the Federal Reserve because it would be game over for them, and they would no longer have any power.  Congress would be forced to eliminate the Fed as a result of the public wrath over a hyperinflation that the Fed caused / allowed.   Additionally a hyperinflation would destroy the Fed’s own wealth.  Therefore, the Federal Reserve will do everything in their power to prevent or postpone that situation, as any company would act to prevent going out of business.

Mayer Amschel Rothschild – “Give me control of a nation’s money supply and I care not who makes the laws.”

Besides, what good does it do to jack up home prices if people are out of work and can’t pay the mortgage?

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Reason #2:  Case Study – Japan

Contrary to the Gold Bug and Survivalist myth, Deflation can and does exist in a fiat currency economy.  Case in point – Japan.

Economist Paul Kasriel stated the pertinence of the Japan scenario nicely back in 2006:

“Most people are not aware of actions the Fed took during the Great Depression. Bernanke claims that the Fed did not act strong enough during the Great Depression. This is simply not true. The Fed slashed interest rates and injected huge sums of base money but it did no good. More recently, Japan did the same thing. It also did no good. If default rates get high enough, banks will simply be unwilling to lend which will severely limit money and credit creation.”

Japan had an overall contraction in credit for close to 5 consecutive years.  Property values fell for 18 consecutive years.  The stock market dropped from around 40,000 to near 7,000.  If you’re just looking at consumer prices you’re missing the boat…  Even if consumer prices are the component that seems most likely to matter to us peons, it doesn’t do you much good when you’ve lost your job and your pension fund has imploded.

The piece of the knowledge pie that people are missing here is that most people misdefine inflation and deflation.  Inflation is a net increase in money supply and credit. Deflation is the opposite, a net decrease in money supply and credit. Prices on consumer goods don’t represent the whole picture, and focusing on them alone can skew our understanding of the situation as they may remain relatively stable or even move counter to the overall scenario.  That said, there is a critical difference between asset prices and consumer good prices which we’ll get into a bit more with the next point.

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Reason #3:  The Fed Doesn’t Matter
Asset prices (think real estate) have gone down while the debt used to buy those assets remains.  This is creating a spiraling deflationary effect.  Because so much of the money used to buy these assets was borrowed, and the recession has reduced income, people are forced to deleverage, that is to sell their assets, often at reduced prices, to pay down their debts.  When you have so many so motivated to sell, prices fall.

At the same time, defaults are up, that means people aren’t paying back their loans.  With default rates so high the Fed can throw easy monetary policy all over the place but they still can’t force the banks to take the risk of loaning it out at low rates.  And frankly, a lot of the defaults are happenning because prices have dropped so far that people can’t get out of their debt even if they sell off their assets, thus adding to the spiral.

The decline in asset prices is more than offsetting the money created by loose monetary policy.

In reality, recovery cannot occur until non-recoverable debts are written off.  The selling off of assets at ever lower prices has to be halted.  This is why the Fed’s effectively zero interest rates have done nothing to spur real recovery, other than blowing a temporary bubble into the stock market.  And that bubble too, will make matters worse when it pops, sucking more money out of the system.

An odd parallel to this is that a stock market decline, such as the one the Japanese experienced, will actually benefit the United States’ ability to fund its debts by forcing money out of stocks and into treasuries (the government bonds that are sold to finance our Federal spending that is greater than the amount collected in taxes).  If the Government can quietly “help along” or even just “allow” a global stock market decline, they could potentially keep this dog and pony show prancing along for a very long time, or at least through a couple more elections.  This deflation could last for years and years, even decades.  Our current Debt to GDP ratio is currently around 90%, a painfully high number, yet Japan has managed to hold together up to a 200% ratio. So yes, this can definitely go on for a long, long time.

Bringing it Together: The point I want you to carry away from all of this is that while we are building a house of credit cards that will one day come crashing down, a crash that may well include a hyperinflation, that event is still a ways off, potentially a long ways off, and until the last trick has been played we’re most likely looking at a deflationary scenario.  The great question here is not what happens over the near term, but how we finally exit from our global financial predicament.  Do we default and go to war?  Do we destroy the Fed and hyperinflate the currency?  Would hyperinflation even get us out of debt?

Looking Forward: So why do we care?  This Website isn’t about wealth preservation or survivalism, although on a person to person basis I recommend a little bit of both.  This Website is about the prevention of tyranny.  And this is where I see the real risk, because tyrants often rise after a deflation.  Looking at the Hitler case, we of course had the Weimar Hyperinflation as a major cause, but ultimately it took the deflation of the Great Depression to put enough people out of work and thus make them desperate enough to vote radically, recklessly and in anger.  Hitler’s case required both a hyperinflation and then a deflationary depression, but as I have previously argued, we might not need the hyperinflation at all here in America.  The deflationary depression alone may be enough to tip us into a collective radical rage.

Unfortunately, there isn’t much we can do about it, but we CAN try to stop it from getting worse by ceasing the postponement of the effects of our financial problems, by accepting austerity measures now and not taking on more debt.  The sooner the banks write off the un-recoverable debts, and the sooner the government stops the stimulus, the better off we will be in the long run. Extend and Pretend only makes matters worse.  Mark to Market accounting needs to be phased back in, and banks need to suffer the consequences of their actions now, rather than years from now when the problem has grown magnificently and been placed as a burden on the backs of taxpayers rather than speculating banksters, and despite the ferocity of the blow we’ll all take, we better take it now.

I don’t see this happening, of course, but to be proactive about it, that is what it would take.  The contingency plan is that we need to increase our level of self and community self sufficiency, and learn to moderate our rage against what is happenning on a macro scale, learn to look at it as opportunity.  Being reactive, especially wrathfully reactive may end up enslaving us all…

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