(This post has been subsequently amended since first posted)
Today's quote:
"The budget should be balanced, the Treasury should be refilled, public debt should be reduced, the arrogance of officialdom should be tempered and controlled, and the assistance to foreign lands should be curtailed lest Rome become bankrupt." - Cicero, 55 BC
I am feeling somewhat melancholy at what little I have accomplished of my motivations for writing this Blog. This Blog was never meant as a "public service message" as I do not believe that there are macro solutions to the issues facing the West, in particular, and the world in general. I originally wrote it for my partners, clients, family, friends and colleagues to be able to access my input when they wished, rather than me clogging up their email in-boxes (which I HATE myself so I did not want to do unto others...).
During my time here, I have had the pleasure of meeting (virtually) some rather intelligent and thoughtful people, and the displeasure of having to correspond with those that I simply refer to as FOS (i.e., pro-choice vegetarians, the quintessential example of FUBAR FOS... this is the intersection of the irresponsible meeting up with people so immature they have taken Disney films seriously and instilled human personalities into the rest of G-d's creatures). I look at Europe - Europe, which is about to come apart at the seams (and with its history of devolving into EXTREME warfare and violence) - and I remember all of the absolutely moronic commentary I have had to endure about how great their system is and all the U.S. has to do is become more like Europe's socialist a$$h*les and everything will be OK... and I am astounded at how far this has gone with so many smart people not getting it... and how few of the people that I know quite well, and that are reasonably well informed, have taken NO ACTION.
Let me give you an example: Under very few circumstances do I see the Western financial system surviving this decade in any manner in which any of us would recognize (and it might not take that long... that is just the outside of the timeline for me). NONE. ZIP. BUPKIS (I once called my good friend, attorney, and Rabbi and asked him what the yiddish word for BUPKIS was... only to find out BUPKIS is the yiddish word for BUPKIS). UGATZ. NADA... yet I see most of these well informed folks far more concerned about their 401k than their personal health and physical well being. Defies logic, but then again it kinda sorta doesn't. After all, food comes from the grocery store, and is traded for with MONEY. Same with water, shelter, clothing. And there you have it.
(There have been a couple of top-shelf posts coming out of the Archdruid report of late. I recommend the most recent posts very highly...kind of funny that a Republican, secular, libertarian, capitalist like myself finds himself, on a great many points, in agreement with a guy that describes himself as a "leader in the alternative spirituality movement"... which kinda/sorta leads me to believe we have a high probability of being correct if we view an outcome from very far away and different perspectives with a high degree of similarity.)
It is interesting that the Financial Markets seem not to care that the U.S. and European banking system is insolvent - and getting worse with each passing day. The U.S. has a fractional reserve banking system, and the system extends MOST (but not all) of its private credit against collateral - primarily REAL ESTATE. The banking system (shadow and proper) is carrying Trillions of assets on their books at face value - and that is such Bull Sh*t as it would be to deny gravity. Here is an example in real life:
I am renting a house in downtown Boca Raton where the mortgage on the property is $750,000 - yet the house would not sell for over $500,000. The owner loses money each and every month because the rent I pay does not cover the mortgage, taxes, and insurance. Recently, the roof went bad and we had a serious leak in our living room. Is it good business for the owner to spend $40,000 on a new roof when they are already upside down by $250,000 on the property and losing money by continuing to make the mortgage and collect rent? NAFC. I had to sue the owner in small claims court (I go to trial tuesday) to break my lease. So the bank is owed $750,000, the house MIGHT have been worth $500,000... but that was before $50,000 in water damage occurred due to deferring maintenance that is simply not economic. Did I mention the termite problem that has not been addressed? Or the mold from the leak? That's the problem with real estate... with a stock or a bond, if paid for it in full you can only lose 100% of your money, and in real estate you can lose much more than 100% (in theory). The bank could go after the owner, but the owner owns 12 other properties - and is upside on each and every one (remember, I am in Florida - ground zero for the real estate crash) of them... giving the owner a negative net worth of a cool couple million $$ - and counting.
This sort of thing is happening all over the country in residential property and is actually much worse in commercial property. There is no hope of rewinding the tape. Given this environment how in heaven's name does the banking system expand the money supply (remember, ours is a fractional reserve system)? Did I mention that consumer credit other than mortgages has contracted every month for the past 12 months?
It is also sort of interesting that Peak Oil came about right about the same time that Peak Credit came about. Many think that this was not a coincidence - and of course it WAS a coincidence. That one aggravated the other, or that the later has lessened the impact of the former just doesn't tie them together as being necessary to the other - but it really, really, really, doesn't help that they showed up together.
And its not just Oil... the world is running up into all sorts of resource limitations... and the next time some jag-off economist tries to tell you otherwise tell him to "go fish". Literally. The oceans have been fished out (I am a fanatic water man - spearfishing, diving, surfing, fishing... I moved to Florida to indulge my passion...what I see disturbs me to no end... but what the heck are you gonna do? People gotta eat.), mankind has killed nearly every food fish longer than a yard in length and now the vast oceans, covering 70% of the earth, cannot support mankind (if that is not a marker for the end of population expansion, I don't know what is). This is happening to farm land, copper extraction, Oil production, blah blah blah. But the "smartest" guys I know, self-made millionaires all, sweat the value of the old 401k, but do not have a contingency plan to feed their family if (when) this outcome comes to pass and gunks up the system.
The Peak Oil "Doomers" have been disappointed that the world did not come to an end as yet. They should have "faith", if you want to call it that. Those folks will probably get their wish, though not on the time line they envision, nor in the manner they had presumed (and many of them will have done nothing about it besides read "doomer porn"). When the financial system was unwinding 18 months ago, my partner the Mad Scientist and I were caught flat footed... we thought the US$ would sh*t-the-bed against commodities (inflation) when in fact the opposite was occurring. In our moment of panic as we reversed course and took some big hits, the Mad Scientist quietly said to me: "Well, we thought the world would end by Fire... and it turns out to be Ice". It was a transcending moment, to say the least. I tucked my tail between my legs and joined the deflationist camp (as I always say, "when I am wrong, I am gone"). Not that I will remain in this camp forever... but here I sit at the moment, and probably for a while longer - but as I said... not forever. One day (soon), the Debt-Time-Bomb will GO KA-BOOM!! And what that means for a society that believes its food comes from the grocery store and is traded for with paper MONEY... cannot be expressed in words. For a society where more than half of the Nitrogen atoms in the our bodies comes from the Haber-Bosch method of crop fertilization... Cannot be expressed using a Haiti documentary... For a society that thinks HEAT comes from the thermostat on the wall...
You see, we have this Baby Boomer Tidal Wave that is about to come ashore, at just the moment that all of the Oil will CEASE coming ashore and the banks have ceased to lend and the money supply shrivels like Michael Jackson's nose. Who is going to buy the stocks, bonds, and McMansions that all of the baby boomers will want to sell to fund their retirement? And just who is going to be working and paying into the Social Security and Medicare Trust Funds (ROFL!!!) to fund those insolvent programs? How is the U.S. going to feed, house, fund, and medic the 60 million or so retired and aging boomers that are likely to be alive and drawing (out of 79 million born) in less than 10 years (not to mention 50 million food stamp recipients, 10 million disability goldbricks, etc...? It ain't gonna happen. So what becomes of these people? You know what's going to happen. I know what's going to happen. The president knows what is going to happen. The Chinese knows what is going to happen. The Blogsphere knows what is going to happen...
Nature is going to happen. And not just to the Old Folks. Nature happens to all of us.
As John Michael Greer mentions ever so succinctly in his "Archdruid Report":
Exactly how things will play out in the months and years to come is anybody’s guess. One of the consequences of America’s descent into Third World status, though, is that a great many of us may have scant leisure to contemplate global and national issues amid the struggle to keep food on the table and a roof over our heads.
While you have the luxury of time and resources, this would be a good time to put that to use.
Inflation vs deflation
ALL CURRENCIES ARE GOING TO ZERO!! ZERO!! This is going to happen, and there is no power on earth that can stop it. From here on in, its all about TRADING. Buy and hold of currency (savers) will absolutely bring you to ruin. RUIN. The multi-millionaire living and working in New York City working in the banking industry is going to be poverty stricken at some point in the not too distant future. The multi-millionaire cattleman farmer in Missouri with 1,000 acres of un-mortgaged pasture land with 400 cow/calf pairs has a good shot to be KING. Precious metals can get cheaper from here. IF, and its a big IF, I am going to add significantly to my holdings. I am going to purchase farm land within close proximity of small eastern cities where it rains. I am going to liquidate my Treasuries over the next year and reallocate to hard assets. Deflation NEEDS to run its course, and it could take a year or 2. Somewhere in there one needs to make a stand.
My sense is that the Western world will NOT end by "Fire"... it is going to slowly freeze by "Ice". Notice I say "West"? Tribes in Papua New Guinea won't notice a thing... but the average citizen living in the West? Oh, boy... There is no difference between Greece and the U.S. The Keynesian Morons on the Left have convinced everybody that their constituents can have the FREE LUNCH you've heard tell about. Now, the rubber is about to meet the road, and the Socialist West's silly programs, including the U.S., are about to go Chernobyl. In my life I have paid a FORTUNE into the SS and Medicare system, and I will receive back .1 X said FORTUNE in real value... multiply this by the millions that have been ripped off in this Leftist Ponzi scheme... that's a lot if unhappy people... who knows what the consequences of that are?
When deflation runs its coarse and the US$ goes off to that big Mushroom Cloud in the sky... what will the price Oil, food, et al be in real terms? Ouch... but BIG opportunities here.
Finally, through my last 814 posts I have tried to quantify the "rate of change", because I believed that to be the most important dynamic in this 4 dimensional equation. I have gone back and forth over that to the point where I have decided that I simply cannot add value in analyzing that issue any longer. I no longer think the "rate of change" matters much. We are going to wind up in the same spot irrespective of the ROC, IMHO, and it will be soon enough that it really won't matter. The very few that through luck or skill are able to pinpoint inflection points AND act on them will likely be the first masters of the new era. Of course, being the capitalist pig that I am, I am going to give it a go... but I am not going to rely on that. This is no time to be "working without a net".
libertariananimal (at) gmail