284 comments on DrumBeat: June 12, 2007
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284 comments on DrumBeat: June 12, 2007
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Finance markets are global.
US can raise their interests rates, but the huge Yen-Carry-Trade may still continue and provide plenty of liquidity for some time.
And Russia is also printing money like mad (45% y2y increase in M3 2005-2006).
I'm no economist and don't play one online, but several prominent finance and economy experts have said that there seems to be a growing risk of a systemic failure in the financial markets, including the central banks (hence including economy at large).
Then again, it could just be normal economist/finance analyst scare talk.
I don't think anybody knows for sure.
The whole derivatives market is so complex nobody even remotely claims to understand all of it. And many of the hedge funds are leveraged up to their ears through cheap loan money.
It's probably a shaky construction as it is, but it may take more than just US raising interest rates, to actually topple it.
At least, that's the impression I get from all the reading.
SamuM
I agree, i have also read a lot, and the whole global financial system seems to be on mudlegs. We have the biggest ever global credit/financiel asset boom in history. It can only end badly. The timing of the crash is very difficult, it can go on longer than you can stay solvent. And the longer time it takes the bigger the crash.
Then the whole monetary system can collapse, its an experiment since 1971, when Nixon closed the gold window, and the whole world embarked on a fiat money system, where the central banks can print/create money out of thin air at will. And they are doing it at double digit rates as we speak. No fiat money system has survived. This will surely also collapse in the not so distant future.
The only way to defend your savings, i believe is to buy PM:s(gold and silver).
Why don't you just buy heroin or cocaine? They'll retain their value and you can make slaves after the crash.
sarconal alert! Level red (high)
It is illegal to buy drugs.
Not in my neighborhood! Anyway, scarcity adds value. And, if you are wishing the total collapse of society on our heads, why do you have any scruples? If you want to stash gold and guns and shoot your neighbors, entertain Conan the Barbarian on Viagra fantasies, why not just enslave them with narcotics? Saves ammunition!
They'll be easy to barter, provide analgesics as the medical system is destroyed, and they're easily stored with little deterioration. the IRS doesn't track the cash-ought to be perfect for you doomer anarchists would-be warlords.
Insted of praying for the apocalypse, you will be preying on the apocalypse. So think it through, it will be much more practical than precious metals.
As the fossil-fuel supplied inventory runs out during and post-crash, there will be a huge demand for local tobacco, coca, cannabis, and alcohol, all of which have many other uses than human ingestion.
The huge demand, however, is both opportunity and risk.
If I had something of real value, why would I part with it for gold or silver? If people don't see it has having value, then it doesn't.
In a world that's falling apart, for arguments sake, then peoples values are likely to be all over the shop. Gold, silver or dollars require the participation of all parties in agreement of its value and generally accept it as a useful medium of exchange. Keeping in mind that history doesn't repeat,but mimes.
To my mind, the medium of exchange is defined by cultural acceptance, a rather fickle or even random process. Physical gold may be close to worthless and paper claiming to be gold definitely worthless.
Looking to the future, would I be happier sitting on a farm with acres of fertile land or a stack (at today's price) of gold?
When governments accept payment of taxes in gold, then it will have a value. Otherwise, it is just another exotic investment IMO. Better to turn a failing currency into something of real worth.
Too many people seem to believe that they can outwit economic crises, climate change and energy depletion by simply turning their notional net value into some other object of notional value like gold (with the click of a mouse) and come out the other side smelling of roses. I doubt it.
Perhaps playing at speculating with bits of paper and notional investments is coming to an end and only real physical investments are allowed in the game. If you're going to speculate with the future, then speculate, you're life may depend upon it.
Triumvirate of collapse - Economy, Ecosystem, Energy
I suppose while I'm at it, I should mention my outlandish view on property and property investment.
The intrinsic value of a property IMO is due to its vicinity to wealth creation. Originally this being close to the farms, ports and markets; then close to the Lords and other seats of power; during the industrial revolution close to the factories and during the services revolution simply close to everyone else. For the poor souls during the "30 years war" in Europe, it was being close to the mercenary armies, so tents were the thing to have.
Of course most property is now centred around the latter revolution, that of services; non productive activities in a Keynesian economy. Should services fail (or should that be simply the creation of money through credit), then the intrinsic value of properties dependant upon the service economy will also fail to hold any "intrinsic" value.
I would expect key industrial towns, ports, market towns and power centres to remain important. Although many of these centres may already have seen more development than will be required for the future.
Triumvirate of collapse - Economy, Ecosystem, Energy
I don't think anyone is suggesting that you sell everything and invest it all in gold + silver. However, a modest portion of your wealth invested in physical gold + silver (not paper), may be turn out to be very convenient. People would likely still need some medium of exchange if there were a financial collapse. Its not very convenient to sell off very small portions of land to buy food, supplies, a vehicle, whatever. People would not trust paper money after a collapse, but gold + silver would probably hold value and provide a medium of exchange. However, if things got so bad that there was a total collapse of civilization and chaos reigned, then I suppose even gold + silver might not be worth anything. At that point, even land might not be worth much if you had to contend with invading hordes. (They might not respect your property rights.)
IFeelFree...Gold, silver or prescious stones during times when the necessities of life are scarce will have value only to those that have plenty of the necessities and want to trade some of them for a more portable and longer lived store of wealth. When people are searching for their daily bread they will not be interested in trading their bread, if found, for gold. In a situation of a financial collapse I dont see much use for a store of gold until some order is restored from the resulting chaos of financial collapse. After order is restored, if it is, then gold will become very valuable. Below is a link to an article about the suspension of M3 monthly reports in March 2006 by the Federal Reserve. Note that the excuse the Fed used was 'we want to save money and the elimination of compiling M3 will accomplish that.' Pure bs. When did the current administration and Fed show so much restraint in spending money? The government clerks that compile M1 and M2 are still on the payroll so how much money did the Fed save?
http://inflationdata.com/inflation/Articles/M3_Money_supply.asp
I have linked below to an article and charts showing the increase of M3 in the form of more fiat dollar printing injected into our economy since 1959. The rise in M3 was moderate untill 1980 and then began a rapid increase. Since 2001 the rise has been breathtaking. The most bizarre feature of this upward spiral in M3 is that M1 figures remained almost flat, meaning that the 'new money' being created was electronic. Only one dollar in ten in the US is a real greenback, the other nine are electronic. Most of the real dollars are held overseas in foreign banks in the form of reserves. How difficult is it to erase an electronic dollar?
http://www.gold-eagle.com/editorials_05/tacinv112505.html
After looking at the charts and reading the accompanying article you can draw your own conclusions about why M3 reporting was dropped. Those in the US that hold a great deal of wealth are not going to hold it all in dollars when they see the money supply skyrocketing. They know that their wealth is being stolen by inflation, a hidden tax imposed by the Fed. The other 98% of us are going to live in interesting times. BTW, I am not affiliated with any financial institution, gold outlet, etc. I am a retired electrical engineer and not a trained economist but I do pay attention to what our government is doing, or not doing.
I have an interesting tid bit of information for those that want to live on a small farm and be self sufficient 'after the collapse.' During the middle ages in Europe when wars of every sort were continually sweeping the lands the farmers turned to growing potatos instead of cereal grains. The farmers found from bad experience that the armies and thieves would not take the trouble to dig the potatos and destroy them but they would set fire to a crop of cereal grain if they did not stop to harvest it and steal it outright. This allowed the peasant to escape to hiding while the danger was present and return to his plot of land to find potatos to survive on when the thugs had gone moved on. It is estimated that about 1/3 of the population of Europe died off during these wars, primarily by starvation and disease, and they did not have an oil based economy and were not confronted with climate change.
Just another day in paradise...
As I have said before, precious metals are not for the day after the collapse. They are for the day after the day after the collapse, if you follow my meaning. ;)
Ghawar Is Dying
The greatest shortcoming of the human race is our inability to understand the exponential function. - Dr. Albert Bartlett
Burgundy-
You depict a situation where the economy is so completely defunct that age-old stores of value (e.g., gold) lose their intrinsic value. That’s called anarchy. In that situation, it’s survival of the fittest. Given this week’s BlogAds Survey Results, this martial arts-studying, marathon-running guy in his 20s has a leg up on most TOD readers!!
But in all seriousness, you have to concede that certain stores of value will retain their worth better than others in a failing economy. Millennia of history show that precious metals do this better than others.
While you state that one cannot out-wit the economy, I think it’s important to remember that we (those of us embracing PO as a harsh, inevitable future) are the fringe – the 1/10 of 1% minority. Let’s be serious – the average American truly believes that in 50 years we’ll be zipping around in flying cars and vacationing on the moon. Those of us who take simple and logical steps to prepare themselves for what we believe will happen, simply put, will be better prepared. Is that an example of out-witting the economy? I’d say so.
Nobody is suggesting that investing in gold and precious metals is a panacea for post-PO wealth that will allow one to drive stretched Hummer limos and vacation in the Caribbean. That’d be as silly as suggesting gold will have the value of dirt!
I don't subscribe to the "mad max" scenario of collapse. What we face will not be a sudden collapse of everything or anarchy, but a slow or multiple stage collapse where people and institutions have some time to adapt, albeit, without the wherewithal to adapt successfully. Each failed attempt to adapt leading to the next stage of collapse.
The US occupation of Iraq may well be an example of an attempt to adapt to new global realities, but without the wherewithal to do it properly. Result, advancement to the next level or stage of collapse. Turning food into fuel may well be another.
I suspect the first phase of collapse will be economic in nature, secondly the ecosystem and finally energy. Except, of course, that each phase will not be discrete and all elements will be present during each phase to some degree and influence the outcome.
As for gold and silver, it is only an assumption that they will play their historic monetary role, it is not a foregone conclusion. As they say; "assumption is the mother of all f*@k ups". I suggest that it will be cultural preference rather than historic precedence that will define what we use to facilitate trade and transactions.
For example, I've been helping out some of the neighbours with their unruly gardens. In payment, as they insist on it, I simply ask for something towards the fuel costs. If money was no longer trustworthy, I would simply ask for the fuel instead.
I believe gold and silver will have a role to play, but likely much further up the chain than at a personal or even local level. It may form the basis for a currency, but not be legal tender in itself. It may also be confiscated by the State in its attempt to adapt to new economic realities.
Triumvirate of collapse - Economy, Ecosystem, Energy
You need to watch Mad Max again. That's exactly what happened. In the first movie Max is a highway patrol man and society is basically intact. There are lawyers, judges, policeman, towns, stores, even functioning rail.
Its not until the second movie do things really break down. Even then its only in the outback. There is still civilization on the coast, which is where they bring all the gas to.
The third one, is well, what everyone thinks of as the Mad Max scenario.
I agree. You hear about other areas that suffered economic collapse, like Argentina and Sarajevo, and precious metals were of limited use. In Argentina, gold did retain value, but only very small pieces. They didn't give you any more for big, expensive pieces than for cheap wedding rings. In Sarajevo, goods like shampoo, toilet paper, and cast iron cookware was more valuable than gold.
Gold might be better than cash if there's a dollar collapse, but I'm not sure it will hold its value better than material goods. The thing is, gold is not particularly scarce now. Just about everyone has a lot of gold jewelry, even people who don't care for jewelry, like me. (Gifts from friends and family.) You see even poor kids in the inner city wearing a ton of gold chains, pendants, earrings, etc. If everyone starts selling their gold and not many are buying jewelry, I'd expect prices to drop.
I'm no expert in precious metals, but as I recall the Argentina story, local merchants couldn't test whether high-carat (24 or 22) gold pieces had been cut with lesser value metals, so they treated all pieces as if they were the lower-carat (10,12,14) gold found in ordinary jewelry.
Donal, The jewelers of India are very efficient at testing the gold content of any piece of jewelry by using a touch-stone. I have seen this done in documentaries of India and found the technique fascinating. A jeweler uses a black touch-stone and rubs the piece of jewelry on the stone to get a 'color.' From the color is determined the purity of the gold. When I asked my local jeweler (upscale and in business at the same location for over 30 years) he stated that he had never heard of a touch-stone and that he had no easy way to determine the gold content of jewelry.
The older cultures found long ago that paper currencies are just paper and tend to wear their excess wealth in gold. A collapse in paper currency in older cultures would have less effect than in America.
I have seen this done...the gold is rubbed onto a stone (and I cannot remember what kind)to leave 'smear' of gold..a chemical I think a form of acid is dripped onto the smear in increasing concentrations, the point at which the gold is disolved by the increasing concentration of acid determines the purity...the higher the potency of the acid to remove the gold the higher the purity..
something along those lines anyway.
I have never said, that i believe, that the whole world falls apart. I am not a doomer.
I only, like not so few economists believe, that this Ponzi like worldwide credit/speculation bubble is unsustainable, and will at som point(helped by PO) bust.
I only suggest, that when you have what you need in shelter and so on, and still have some paper savings left, then it could pe prudent to shift theese (or part of it) to PM:s.
Or maybe a good stash would be aluminum foil. The energy inputs required to produce it are enormous, so it should eventually become as rare and expensive as PM, but a lot more useful.
If civilization collapses, there will be hoards of people mining landfills for metals/plastics/etc., and will be putting these materials into the market for decades. I doubt that they will find much gold and silver however.
Now toilet paper would be a good investment, since you won't find that in your nearby landfill.
I take it we are looking for sensible suggestions for long term barter savings.
I have thought about this a bit. It needs firstly a long life, then it must be hideable [survive burying or damp, still air etc].
Cheap chinese running shoes - start with your size
Tea lights [small candles]
Toilet paper [bulky, fire risk etc]
Hooch
Drugs may have a shelf life. I have always wanted to know which euthenasia drugs can be obtained and last forever without refrigeration [because I'm 40 years away from thinking about it]. Heroin seems a bit complicated to obtain outside afghanistan. Any easy painless suggestions? These would be very tradeable one day.
Many effective over the counter meds (such as aspirin) will keep ‘forever’ (dry, cool place) - the ‘shelf’ dates are made up so that ppl. throw them out.
Don't get tea lights, they're crap. You need a thin candle with a strong wick, so you get a good flame and little shadow from the lip.
For euthanasia, a good supply of whisky and a kindly soul with a mallet should do the trick. Or see the 'smother party' from the foreword of Burrough's Naked Lunch. If you want to use a chemical substance, there's plenty of herbs that will do the trick, but I don't know which are sedative as well as lethal. The opium poppy grows wild in the UK, anyway.
Also try cosmetics, soaps, lipstick. The Yanks used Nylons with my grandparents generation to good effect. Chicks love that stuff.
I think you're right... though aluminum is fairly easy to recycle and there should be some around for a good while. Still, at the dirt cheap price it's available now, it'd be a killer trade good. There are many other things which would fit this description as well.
However, it may be a bit problematic in terms of holding onto a fair amount of trade goods. Will the society of the future be so fair-minded that they'll grow food for you for the rest of your life so you can dole out aluminum foil and stuff they weren't bright enough to store away, or will someone with a bad attitude relieve you of it all?
That's one thing about gold, and to a lesser extent silver - you can hide it.
However, other things would be more cost-effective, and that brings up, to me, the concept of hiding your stuff like a squirrel hides nuts. You'd have to be a bit Machiavellian about it, since if it were known that you 'had stuff' you could be tortured for it. I'm not taking my dystopia overboard, there are many places even now where you could be tortured by folks if they thought they could get wealth thereby.
So... how does one stockpile trade goods and trade them safely? I suppose you could specialize in ammunition, but even that might attract the wrong kind of attention. In doing my own sneaky thinking on it, it might be an interesting niche to be known as an itinerant trader who facilitates trading between different communities. In such a position you could insert your own transactions into commerce without being obviously rich.
You still might end up tortured, but what the heck.