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Into the Grey Zone

Hindsight is 20-20 and the past often appears black and white. But for anyone living in the now, the future always appears to be a grey zone, where choices today may produce unexpected results tomorrow.

Updated: 2017-02-09T23:15:39.879-06:00


Watching Japan


Japan puts us all in an interesting situation, even if you don't live in Japan. While everyone is focused on the nuclear accident, the true global forces at work here are economic. Once the nuclear situation is stabilized, and it will be eventually though the damage in the interim may be horrific, Japan is going to have to rebuild. And depending on the extent of that rebuilding, the entire world may undergo a seismic shift in trade patterns.

The problem that everyone is ignoring is that Japan will need more yen for the rebuilding effort at home. Thus they will have to repatriate yen from overseas in order to achieve this goal. But in order to repatriate (buy) yen, they are going to have to sell something else. And given the scope of this disaster, the most likely candidate becomes US Treasuries.

Now many of us are already aware that the Federal Reserve and US Treasury are flooding the existing market with US Treasuries. In fact, the Federal Reserve is having to buy more and more US Treasuries in order to keep interest rates low. If the Fed were not buying, interest rates would already have spiked upward, forcing the US to pay even more interest on its debt.

Into this market Japan is also going to be forced to sell. You can't assume they'll sell someone else's bonds. No, they don't have enough of anyone else's bonds to raise the money they need to rebuild. That number is already estimated at over $300 billion with higher end estimates as large as $1 trillion US dollars for rebuilding costs.

The only pool they can tap large enough to fund this rebuilding is their holdings of US Treasuries. Yet with the Obama administration's record deficits coupled with Japanese selling, we will begin to see upward pressure on US interest rates. As those interest rates rise, the money available to the US government for non-interest expenses will drop even further, forcing more borrowing and even higher interest rates. Eventually interest expenses can get so high that they bring this entire house of cards down.

Thus, Japan's disaster may become a trigger event leading to the eventual collapse of the US dollar and of the US government. It won't occur immediately, and indeed, in the short term the dollar may manage to make another good stand as a "flight to safety" investment. But it cannot last so long as the twin burdens of US deficit spending and Japanese rebuilding loom in front of the US dollar.

Keep an eye on this one. We may be on the verge of taking another significant step down the staircase of catabolic collapse.

The Poison that is Public Sector Unions


"The process of collective bargaining, as usually understood, cannot be transplanted into the public service," President Franklin D. Roosevelt wrote in 1937 to the head of the National Federation of Federal Employees. In the private sector, organized employees and the employer meet across the bargaining table as (theoretical) equals. But in the public sector, said FDR, "the employer is the whole people, who speak by means of laws enacted by their representatives in Congress." Allowing public-employee unions to engage in collective bargaining would mean opening the door to the manipulation of government policy by a privileged private interest.

FDR was right. Collective bargaining has no place in the public sector. It inevitably leads to abuse. Favoritism, undue influence, lack of transparency, manipulation of government policy, the relentless mulcting of the taxpayer—this is the poisoned fruit of turning government agencies into union shops. It goes without saying that public employees ought to be as free as anyone else to join professional associations and affinity organizations. They are certainly entitled to all the protections of the civil rights laws and of a reasonable civil service system. But labor unions should have no right of exclusive representation in any government workplace and no right to negotiate wages and benefits with public officials who crave their votes and political support.

The above was written by someone other than myself but it sums up my views succinctly. There is more though.  In 1943, a New York Supreme Court judge held:
To tolerate or recognize any combination of civil service employees of the government as a labor organization or union is not only incompatible with the spirit of democracy, but inconsistent with every principle upon which our government is founded. Nothing is more dangerous to public welfare than to admit that hired servants of the State can dictate to the government the hours, the wages and conditions under which they will carry on essential services vital to the welfare, safety, and security of the citizen. To admit as true that government employees have power to halt or check the functions of government unless their demands are satisfied, is to transfer to them all legislative, executive and judicial power. Nothing would be more ridiculous.
 And look today at what has happened - an entrenched group of people, demanding your money, but who work for you threatening to shut off essential services to you and your children after deliberately conspiring with politicians whom they helped elect to avoid imposing fiscal sanity that you wanted done via your vote.

In short, the public sector unions are doing nothing more than acts of sedition and treason against their fellow citizens by their actions in Wisconsin. Further, the president of the United States is engaged in an act of sedition, which is impeachable, for his intervention in a sovereign state matter.

This is what the end of empire looks like - leeches sucking your blood and refusing to even let you remove the leech, all the while proclaiming (LIES!) that it is for the "good of the children" while their actions directly harm the very children they claim to protect. The stinking, foul, gross hypocrisy of the public sector unions and the Democrats in Wisconsin is further evidence of why this nation will go down in flames. And have no doubts whatsoever, the things the public unions are demanding in Wisconsin are mathematically impossible to support short of turning your children, your grandchildren, and their children all into perpetual slaves to debt. This is what the public sector unions really want - eternal debt slavery to anyone not in their union.

The line is drawn in the sand, folks. It's time to end public unions entirely.

It's called Catabolic Collapse


In a recent discussion at zero hedge over a post titled Is The Collapse In FX Reserves Even More Dangerous Than The Plunge In Money Supply?, I saw someone saying he expected our society to fall in a staircase fashion. That led to the following post.The term you are seeking is "catabolic collapse" (Warning: PDF!). John Michael Greer proposed this theory in 2005 building on the work of Professor Joseph Tainter, whose initial theory attempted to frame all societal collapses in terms of diminishing marginal returns against increasing complexity. Tainter's theory was arguably a first solid understanding of how societies collapse but it did not quite mesh with temporal observations. Greer's work is an effort to take Tainter's theory and further adapt it to the observed behavior of past civilizations that collapsed, in order to yield a theory with some predictive powers (basic science - observe, hypothesize, test with an objective of falsifying your own theory).There have been many attempts to explain the increase in debt and money supply over the last 40 years, but the one that comes closest to addressing this was first mentioned (to my knowledge) by Nate Hagens, and proposes that the increases in debt and money supply are an effort, using fiat money, to continue the rates of growth that occurred when human population was lower and resources were far more abundant than now.We have not yet quite reached the point of real resource constraints biting us but we are beginning to see this as it takes more and more real energy to draw on increasingly lower quality ores, petroleum, natural gas, etc. As we approach the point where energy cost of extracting resources like oil to be used as energy sources becomes 1:1, the cost implications for everything else in society rise in response. Now the last I checked, we were somewhere between 5:1 and 10:1 in terms of energy returned versus energy cost (EROEI - Energy Returned On Energy Invested) for coal, oil, and natural gas extracted. That doesn't sound too bad except when you realize that just 70 years ago the ratio was nearly 100:1. And the change is due directly to having to drill/dig deeper into harsher environments (Deep Horizon anyone?) which themselves have higher operational costs and significantly higher dangers.Eventually, any energy "source" which falls to 1:1 or below no longer is worth extracting for energy. That's basic physics and economics can blow its non-scientific ass all it wants but physics will win that argument every time. The longer term problem facing our civilization is a need to transition off fossil fuels (not right this second) and to replace those energy sources with energy sources that have EROEIs that are higher, if possible. Down that road is going to lie a mix of nuclear fission, nuclear fusion (maybe), solar, wind, tidal, etc. And those energy sources require higher levels of technical complexity than fossil fuels required.So the transition has to be upwards to a higher level of social and technical complexity or we get the alternative - collapse. And right now, the vampire squid and entities like it seem more interested in ensuring we do collapse than really addressing the problems and contributing to longer term solutions. Of course the fact that we give corporations "personhood" before the law, yet corporations are legally mandated to act in ways that would mark a living breathing human being as a sociopath probably contributes to our entire social schizophrenia.This goes back to a position I've taken for years on the internet about our future. I firmly still believe that every technical problem we currently see in front of us can be solved. The real problem is whether we will have the political and individual willpower to force change before collapse occurs. Because if we wait until after collapse occurs, we may just fall far enough down the technology tree that we can't get back to where we want to go. Sir Frederic Hoyle once remarked that technolo[...]

The Financial Crisis was NOT caused by Peak Oil


Personally, I mark the "public" moment of this financial crisis to July 2007, when two Bear Stearns hedge funds were both completely wiped out. Neither had anything to do with oil or oil trades. Both were highly leveraged funds that were simply in way over their heads. And those funds were symptomatic of the entire financial industry at that time.

The signs of the impending collapse had been building for a while. A few people had been pointing to the "Greenspan bubble" as early as 2005. I freely admit that I missed those calls in the 2004-2005 period but I won't deny that some people did make them. And that was well before oil prices spiked. So the fix was in long before.

The Greenspan bubble (or the last Greenspan bubble) came in response to the dot-com bust which was caused by the prior Greenspan bubble. See a pattern here yet? That prior Greenspan bubble happened during the era of $10 oil. Peak oil didn't burst that bubble either. The bubble popped because all such bubbles pop. And the reason it popped was nothing to do with oil prices and everything to do with herding behaviors as the herd recognized in a very short time frame that they had been sold a bill of goods.

Likewise the current bubble burst as toxic mortgages began failing causing the MBS based on those securities to fail, leading to catastrophic losses, starting with (for example) some of those hedge funds I mentioned. Again, this had nothing to do with peak oil and everything to do with herding behavior, as the holders of MBS began to realize that these securities would never pay back the capital invested in them, let alone the interest promised. None of these people cared about peak oil or were formulating positions based on peak oil. They were simply interested in recouping their capital and hopefully their promised profits, but if not, at least their capital. Instead they suffered massive losses of capital and zero profits because the financial instruments involved were created deliberately as acts of fraud by the banks that created them.

Did Peak Oil cause the Great Depression? Did Peak Oil cause the dot-com bust? Did Peak Oil cause the Tulip mania? Did Peak Oil cause the large recession after the Civil War? If it did not (and it did not, trust me) then why should I believe that "this time it's different"? The onus of proof is on those making the extraordinary claim that Peak Oil caused this recession. Yet I have never seen real proof that this is so. Sure, you can point to some correlations between oil price and financial crisis, but I can point to correlations of oil price and prior financial crisis before oil peaked in North America. Correlation is not causation. To establish causation requires a whole lot more work than just plotting a graph showing correlation and then proclaiming "See!" And that, so far, is all that anyone has done.

Peak oil will place a hard cap on the scope of recovery of the global economy, since the global economy is based on fossil fuels (primarily oil). That hard cap will limit and frustrate all political responses to the financial crisis and in the end, peak oil may be part of the cause of the fall of some governments over the next few decades. The natural limits to growth that we are approaching are going to affect us. Those limits were already impacting businesses that deal with energy and will slowly creep out to impact all of society. But peak oil did not cause human greed to run rampant. And peak oil won't stop human greed from trying to run rampant yet again someday. Remember that.

Belief Systems


One commenter over at The Automatic Earth was recently disparaging comments he read over at Zero Hedge. I began a reply but it became long enough that I felt it better placed here instead.

A general assumption made by many posters at TAE (but not by I&S as far as I can see) is that the old ways of thinking about things are inherently wrong, therefore any comment based upon that line of reasoning must be "stupid". Unfortunately, no one has demonstrated conclusively which old ways of thinking are wrong, nor has anyone demonstrated how they are wrong, which means these people are simply "assuming", and we all know what is said about assumptions, right?

I prefer personally to read the comments at ZH (or at any blog or forum) as an exploration of the lines of reasoning that result from certain ideologies. Socialism is not wholly wrong and neither is capitalism, but I can demonstrate failures of each ideology that, because these failures have never been addressed, must inevitably lead to the collapse of any culture based upon these ideologies. Indeed, if these failures were addresses, the new resulting ideology would no longer be capitalism or socialism.

One of the core problems gripping economics, and by extension politics, is that neither school adheres to the scientific method. There are all sorts of excuses made as to why this is so, but the consequence is that schools of economic thought and schools of political thought instead become belief systems, predicated on faith. For many people, their economic and political beliefs today are the replacement for the religious faith of 1000 years ago. After all, these political and economic beliefs bring home the bacon and therefore should be defended, right?

A good scientist, on the other hand, would be actively looking for ways to falsify his hypothesis. Krugman, for example, has been slapped repeatedly with data that, if he were really a scientist, would cause him to throw out his old thesis and begin formulating a new one that matches available data. Instead, he either excuses or attempts to twist the data as support for his never changing position.

The disparaging comments at TAE towards anyone who does not tow the general party line are themselves just as bad as the "Glenn Beck" comments over at ZH. These disparaging comments indicate to me that someone is not fully comfortable with their own "faith" and therefore must attack competing "faiths" with disparaging comments in order to bolster their own "faith".

This is what I find so refreshing about Stoneleigh and Ilargi - they approach the topic not from the perspective of belief systems but in the same mode as scientists trying to apply observation of human behavior to human societies. I often suspect that this is at the root of many of Ilargi's questions, trying to make someone think rather than just believe. Stoneleigh's focus on herding behavior is a refreshing perspective versus the circular logic of most modern economists.

In closing I suggest observing all sorts of groups of people, in an effort to learn where their belief systems map to real data and where their belief systems fail to map to real data. Understanding how someone's beliefs map to reality is the first step in learning to really talk to and listen to that person. And surviving the coming crisis means either killing your competitors for resources or learning to talk to them and working out a cooperative alternative. While I am armed and prepared to defend myself, I'd rather understand the fellow down the road, whether he voted for Sarah Palin or Barrack Obama, as understanding is the first step towards cooperation.

A Flaw in the Hyperinflationary Argument


People assuming hyperinflation are assuming that the cash injected into the system will be spread equally or nearly equally, resulting in competitive bidding with more dollars for the current pool of goods and services. I believe this assumption to be in error.

It is my opinion that the cash being pumped into certain hands is being pumped deliberately into those hands in order to change the ratio of wealth in the country. In other words, it's being used purely as a wealth redistribution mechanism.

Imagine for a moment if there are 10 people in a room and each has $100 and there are a fixed amount of goods in the room held by each person. Prices will balance out between people at some level. If I give each person another $100 then prices will rise to reflect the decrease in the value of the currency.

But if I give $1000 to one person, prices are unlikely to rise much at all. If I raise prices on my goods, the other 8 people (aside from myself) won't be able to afford them. And I can't legally charge higher prices to the one person. That $1000 is inflationary but far far less inflationary than a roughly equal distribution of the same amount through the general population. Yet the person with the additional cash now can purchase more than the rest of us. In effect, he has become wealthier while we have become poorer.

This is what I believe is the intent of the current financial policies of the central banks today - to further entrench the wealthiest people at the top of the pyramid. This process can never be hyperinflationary unless the excess cash escapes into the general populace. And I doubt that it ever will. Instead it will be used to manipulate and buy the stocks and major resource flows of the world, placing the elite in even more control of our society.
And of course, this leaves the door open to mistakes by the ruling elite that can lead to a deflationary collapse. Unless Helicopter Ben actually gets in a helicopter and starts dropping $100 bills around the country, there cannot be a hyperinflationary blowoff under the current credit/debt conditions.

P.S. Note also that Ben can also lose the devaluation war if Japan and Asia choose to devalue faster than he does. And Ben is bound by practicality in that if he devalues too fast, he destroys himself and those he is trying to protect due to the reserve currency status of the dollar.

How do we fix it?


How do we fix it? This is a question I hear over and over again. People want to know what regulatory reform to take, what laws to pass, what criminals to prosecute, all in order to "fix" the system. Another variant to this question is "How do we undo the damage done so far?" Each of these questions assumes that the system continues as-is, that is to say, broken, or that the system gets fixed. In posing the question, the biases of the questioner are exposed. I'm not suggesting malicious intent on the part of those asking these questions, but rather culturally imparted ignorance of the alternatives.Here is wisdom for those who would listen - as far as the system goes, the nation, the culture around you, do nothing! The unspoken alternative that cultural conditioning tries to eradicate from our thinking is collapse. When we say collapse too many ignorant yahoos think Mad Max. Collapse, as defined by Tainter is the unplanned move from a higher level of complexity to a lower level of complexity. Tainter does note that very rarely throughout history there have been a few voluntary moves from higher complexity to lower complexity. But the reality is that most of the time humans will not willingly choose to lower the complexity of their cultures. Thus the most common historical occurrence is collapse.What does collapse mean in practical terms? For an example of a nearly fully collapsed state, look at Somalia. You can also look at Argentina and several other nations that are partly collapsed. As Tainter notes, when there is a large polity whose vested interest is in maintaining the status quo, the other states in the polity that have not yet experienced collapse will not allow a neighboring state to collapse completely. Yet as the limits of complexity along one path of development are reached, the neighboring states find themselves unable to restore a partially collapsed neighbor to its former glory either. Thus we enter the discussion of catabolic collapse, a stair step process over some period of time where states collapse to slightly lower levels of complexity, stabilize for a period, then repeat, all the way down until they reach a truly stable condition.So we come back to the question of "How do we fix it?" The answer is that we do not fix it. It's not fixable. There are ecological and resource based reasons that collapse is occurring and will continue to occur globally. This process will press onward until industrial civilization as we know it is gone. The only hope for industrial civilization is a move to even higher levels of complexity but technology is being rude to us and not delivering the promised manna that will save us. Thus the move to a higher level of complexity is unlikely to occur. It's not impossible, of course, but right now it looks highly improbable.There is something else to take to your friends when they ask the question "How do we fix it?" That something else is to educate them on the willful blindness inherent in that question. It's a bad question. The proper question would be "What are the possible outcomes of the current situation?" When you phrase it like that it's no longer broken-business-as-usual versus fixing the broken system. Suddenly the possibilities broaden and the possibilities include an unlikely move to higher complexity preserving the existing system, continuation of the existing system as-is, and either a planned or unplanned move to lower complexity. It is important to get past the cultural blinders that our society attempts to bolt to the sides of your head. Once you do that, you can begin to think "out of the box" and assess issues in terms that relate to true survival.Note that I am not arguing that you do nothing. No, I am not arguing that at all. What I am arguing is that you do nothing to try to fix the global system. Let it fall. Your task, the one that the evo[...]

Inflation - Making You Poorer, Day by Day


Below is a chart that I lifted (with slight formatting changes) from Bill Downey's article The Day the Dollar Died - And the Day Gold was Reborn. The chart demonstrates the massive ongoing impoverishment of US taxpayers via the deliberate actions of the Federal Reserve, since it is the Federal Reserve itself that is the root of all inflation.

How Much things cost On Aug 15th,1971 Today
Dow Jones Industrial Average 890 or 25 oz gold 9000 or 10 oz gold
Average Cost of new house $25,250 or 721 oz gold 250k or 277 oz gold
Average Income per year $10,600 or 302 oz gold 70K or 77 oz gold
Average Monthly Rent $150.00 or 4.3 oz of gold $824 or 1 oz of gold
Datsun 1200 Sports Coupe $1,866 or 53 oz gold $28,400 or 31 oz gold  

Conclusion: If your money is dollars, you live in an inflationary world. If your money is denominated in gold, you live in a deflationary world. In other words if your purchasing power is dollar denominated, costs have exploded upward. But if you maintained your purchasing power in gold, costs have decreased by almost 2/3rds of their original price from 1971 !!!!!!!!!!!! Check out the table below. Using the price data from above lets construct a table measuring cost in percentage terms from 1971 to 2009.

ITEM Dollar Inflation Gold Deflation
Dow Jones 1000% increase 40% decrease
New House 1000% increase 26% decrease
Ave Income 660% increase 75% decrease
Ave Rent 475% increase 78% decrease
Dow Jones 1000% increase 40% decrease
Total gold needed 1105 oz to buy all 1971 vs 2009 oz's - 396 oz to buy all

Over time prices (denominated in a real asset, like gold) should go down due to advances in technology and productivity. And indeed, if we measure in terms of gold, the world has become a cheaper place. But we live in a world where fiat money is the backdrop, not gold, so everything costs more. What that chart screams is how much poorer we all are today than our parents and grandparents were. And it's not an accident. The Federal Reserve did this deliberately. You and your children are slowly being sold into eternal debt slavery.

Famous Economic Quotes From The First Great Depression


There are a body of quotes from the Great Depression that should be required reading for anyone before they trust the words of Ben Bernanke, Timothy Geithner, Larry Summers, or any of the talking heads at CNBC. Hopefully these quotes will both amuse you and remind you that economic "authorities" have a horrible track record. It was horrible then and it's been horrible now. I strongly suggest you read these then compare them to the comments from our economic "experts" over the last two years. If you still want to believe the Bernankes, the Geithners, the Summers, and the CNBC talking heads, go right ahead but don't you dare say you were not warned."We will not have any more crashes in our time." - John Maynard Keynes in 1927"I cannot help but raise a dissenting voice to statements that we are living in a fool's paradise, and that prosperity in this country must necessarily diminish and recede in the near future." - E. H. H. Simmons, President, New York Stock Exchange, January 12, 1928"There will be no interruption of our permanent prosperity." - Myron E. Forbes, President, Pierce Arrow Motor Car Co., January 12, 1928"No Congress of the United States ever assembled, on surveying the state of the Union, has met with a more pleasing prospect than that which appears at the present time. In the domestic field there is tranquility and contentment...and the highest record of years of prosperity. In the foreign field there is peace, the goodwill which comes from mutual understanding." - Calvin Coolidge December 4, 1928"There may be a recession in stock prices, but not anything in the nature of a crash." - Irving Fisher, leading U.S. economist , New York Times, Sept. 5, 1929"Stock prices have reached what looks like a permanently high plateau. I do not feel there will be soon if ever a 50 or 60 point break from present levels, such as (bears) have predicted. I expect to see the stock market a good deal higher within a few months." - Irving Fisher, Ph.D. in economics, Oct. 17, 1929"This crash is not going to have much effect on business." - Arthur Reynolds, Chairman of Continental Illinois Bank of Chicago, October 24, 1929"There will be no repetition of the break of yesterday... I have no fear of another comparable decline." - Arthur W. Loasby (President of the Equitable Trust Company), quoted in NYT, Friday, October 25, 1929"We feel that fundamentally Wall Street is sound, and that for people who can afford to pay for them outright, good stocks are cheap at these prices." - Goodbody and Company market-letter quoted in The New York Times, Friday, October 25, 1929"This is the time to buy stocks. This is the time to recall the words of the late J. P. Morgan... that any man who is bearish on America will go broke. Within a few days there is likely to be a bear panic rather than a bull panic. Many of the low prices as a result of this hysterical selling are not likely to be reached again in many years." - R. W. McNeel, market analyst, as quoted in the New York Herald Tribune, October 30, 1929"Buying of sound, seasoned issues now will not be regretted" - E. A. Pearce market letter quoted in the New York Herald Tribune, October 30, 1929"Some pretty intelligent people are now buying stocks... Unless we are to have a panic -- which no one seriously believes, stocks have hit bottom." - R. W. McNeal, financial analyst in October 1929"The decline is in paper values, not in tangible goods and services...America is now in the eighth year of prosperity as commercially defined. The former great periods of prosperity in America averaged eleven years. On this basis we now have three more years to go before the tailspin." - Stuart Chase (American economist and author), NY Herald Tribune, November 1, 1929"Hysteria has now disappeared from Wall Street." - The Times of London, November 2, 192[...]

Change we can believe in?


It's February and the market is down almost 25% since Obama was elected. The major financials have lost over 30% of their remaining value since Obama announced his non-plan to "save" the banks two weeks ago. We've got people like Rick Santelli on CNBC Thursday doing a major league rant about government subsidizing 'bad behavior' and calling for a "Chicago Tea Party". Meanwhile GM seems to have written off Saab and thrown it to the wolves/creditors. And today's market is just barely above its 2002 low of 7286. That's before adjusting for inflation. The volume of wealth that is being destroyed around us is monumental and we are not going to be able to pay for everything we think we deserve much longer. In fact, at the pace we're destroying wealth, the United States will be a very backward nation in a few more years.At the same time, Russia has bought over 90 tonnes of gold so far in the last 2 years and now gold has breached $1000 per ounce again on fears that the only way out of this mess is all of the major governments performing hyperinflation (a suggestion actually made by a Japanese parliament member).In California they finally have a budget with about $15 billion in spending cuts, $14 billion in tax increases, and $11 billion in bonds (borrowing... IF they can find anyone willing to loan them money at a rate they can afford to pay back). In practical terms for California this means 1 in 5 California Public Workers to be Fired.Meanwhile unemployment increased again, giving us 4.99 million unemployed, as the government is quick to point out. But the news media aren't buying the decimal point spin baloney - Nearly 5 million are getting unemployment benefits. But that unemployment safety net has big holes in it these days with lots of people falling through the cracks. How many are really unemployed? No one really knows but the BLS does take a stab at a guess in table A-12, line item U-6 of their monthly report. The current guess is 13.9% of the economy, almost double the "official" unemployment figure.The Big Three in Detroit are still in trouble. GM Bankruptcy Prospects Still Loom and Chrysler is begging or more government handouts while they remove every other lightbulb in their offices and cut the thermostat 4 degrees to try to save a few more pennies. I don't think that's going to save them.Finally, Texas has joined the club of states telling Washington to shove it. "WHEREAS, Today, in 2009, the states are demonstrably treated as agents of the federal government; andWHEREAS, Many federal laws are directly in violation of the Tenth Amendment to the Constitution of the United States; andWHEREAS, The Tenth Amendment assures that we, the people of the United States of America and each sovereign state in the Union of States, now have, and have always had, rights the federal government may not usurp; andWHEREAS, Section 4, Article IV, of the Constitution says, "The United States shall guarantee to every State in this Union a Republican Form of Government," and the Ninth Amendment states that "The enumeration in the Constitution, of certain rights, shall not be construed to deny or disparage others retained by the people"; andWHEREAS, The United States Supreme Court has ruled in New York v. United States, 112 S. Ct. 2408 (1992), that congress may not simply commandeer the legislative and regulatory processes of the states; andWHEREAS, A number of proposals from previous administrations and some now pending from the present administration and from congress may further violate the Constitution of the United States; now, therefore, be itRESOLVED, That the 81st Legislature of the State of Texas hereby claim sovereignty under the Tenth Amendment to the Constitution of the United States over all powers not otherwise enumerated and granted to the federal government by the Constitut[...]

What Does a Likely Collapse Scenarios Look Like?


The most likely short term collapse scenario that I can envision is similar to what was described in Lessons From Argentina's Economic Collapse (PDF). That would be a financial implosion so drastic that it basically either collapses central government or leaves central government so ineffective that it might as well not exist, at least in terms of providing services. The least likely short term collapse scenario that I can envision is global thermonuclear war. But saying it is the least likely doesn't mean you should ignore it. It simply means that an extraordinary number of conditions would have to line up in the short term for that to occur.So let's talk about that financial implosion, which may be what is rolling around us right now. What would it look like? It would look like a long term deflationary or inflationary spiral, where wealth is sucked out of the middle class, and where financial ruin causes basic services to slowly fail. Infrastructure failures would not be immediate but would become progressively worse over time. Regions closest to the seats of power would most likely be the last to experience degradation of services, simply due to those in power opting to preserve those services closest to themselves. Regions furthest would experience degradation and eventual loss of services sooner.Along the way you would see a collapse of the current economy. Part of that collapse would entail bankruptcies and foreclosures for many people, basically creating an entire new class of refugees inside the United States. What people are unwilling to face is that real unemployment levels in the United States could go beyond 20%. The real levels (recorded in Table A-12, column U-6 of the monthly employment report from the BLS) are already well into the teens. As of December 2008 the official number through the end of November was 7.2% but the real number (before "adjustments") was 13.5%. When the January numbers are announced, it will likely be even worse with no end in sight. So what you can count on in an economic collapse would be increasing numbers of the homeless. Update: The January numbers which now stand at 7.6% "adjusted" and 13.9% unadjusted.However, one thing we can guess about the majority of homeless, is that they will congregate in shantytowns near urban areas. That's a historical trend that you can see over the last 100 years very clearly. Take a look at the shantytown photos of Central Park during the Great Depression or of other cities around the United States. Or examine shanty towns in third world nations. There is tremendous drive to be in or near cities since cities offer the highest probabilities of support services for the unemployed and homeless.Another thing we can guess about a serious financial collapse scenario, based upon looking at recent financial collapses in other nations around the world, is at least a partial reversion to barter as a means of exchange. In a barter economy, money may hold less value than actual goods or services. This will be particularly true once serious inflation or hyperinflation kicks in but during a deflationary period, such as the current one, holding cash and dealing in cash (not credit) may be the best option. Another thing you will see arise is more black market activity, in order to escape heavy taxation. Barter, although it is supposed to be reported for taxation purposes, appears to rarely actually be reported. And cash transactions are also rarely reported, precisely because they are in cash and cannot easily be traced.Also, because of the disruption of trade, you would likely find the availability of various goods and services to vary widely throughout the year. Facing high prices is one thing but facing a total inability to get certain goods when you need them could be life threatening.A fin[...]

What's Wrong with "Coming Chaos? Maybe Not"


Preface: I recently decided to write about collapse scenarios in response to a really bad article over at TOD. But as I began working through how to present this problem, I realized that it was far too large for one article and might need several of its own. So watch for more articles on the general topic of collapse scenarios over the next few months. This first article addresses the flaws in the article that I recently read over at TOD.One of the problems with the recent Coming Chaos? Maybe Not article at TOD began with horrendous assumptions. Among those assumptions is the time worn cliche that "doomers" are preparing for "Mad Max" and nobody can survive "Mad Max". Here's the opening statement from that article: "A sizable subset of what some on this site call “doomers” are convinced that the demise of the petroleum economy will bring social breakdown and a violent struggle of all against all." Such a blatant strawman should never have been put in any article by anyone seriously researching the "doomer" community, yet the Coming Chaos? Maybe Not article began with that assumption then attempted to disprove it when it wasn't even valid!Instead the article tried to focus on "peace" as if peace were some natural condition of the red fanged ape known as homo sapiens. Peace is not at all a normal condition amongst humans but cooperation is, amongst subsets of humans. The average human being in industrial society today does not have a personal friends list much larger than that of his hunter gatherer ancestors. Tribes ranged in size from as low as a dozen to as high as several hundred. These tribes functioned as a unit and the evidence is very strong that there was usually "peace" within the tribe. But between tribes? Not at all! The murder rate amongst the hunter-gatherers was much higher than our current murder rate. So much for the idyllic neo-Romantic myths about primitive people!Both homo sapiens and our ancestors before that have been competitors for resources in their local environments. Homo sapiens nearly died out, dropping perhaps as low as a few thousand members about 170,000 years ago before growing again. Along the way, homo sapiens drove homo neanderthalenthis into extinction as well as assisting in the extinction of other large mammalian species. During this time, both as hunter-gatherers societies and later as agrarian civilizations, we have engaged in larger scale violence. Amongst hunter gatherers this tends to be brief and decisive because the basic day-to-day needs tend to curtail professional soldiering. But as our agrarian civilizations grew, our propensity for violence crystallized in the form of professional armies that would then wage war against other agrarian societies.So there is no basis for believing that homo sapiens is an inherently peaceful species. We cooperate when we believe it suits us and we fight when we believe it suits us. Those who think otherwise can go research the anthropology science themselves but that is the basic conclusion that they will find.And this is born out by further examination of the historical record, clear to the present day. Any claim that we are suddenly different is a raw unsupported assertion that attempts to ignore evolution. Evolutiuon would not produce that large a change in human behavior in that short of a time. And further, one needs only look at Somalia, Yugoslavia, Argentina, Cambodia, and many other nations in just the last 50 years to see that we are what we have always been - violent primates, red in tooth and claw.Thus, knowing this as a fact, one must incorporate this fact into any plans one makes to survive various collapse scenarios. If one fails to incorporate this fact into survival plans, then the plans are worthless from the moment of conce[...]

Where is Texas Going


Living in Texas and occasionally commenting about it, I get some Texas related responses now and then. Recently Speedy asked what I thought was in store for Texas over the next several years. I don't have a single scenario but rather look at a range of scenarios for Texas (or any other location for that matter).

My optimistic scenario says that the US will get its financial house in order, slowly but painfully, learn to live within its means, and stop acting like a global empire. Those changes would produce dramatic changes here at home, not the least of which would be a more local focus and stronger control of the US/Mexican border. Stronger control could work out well if Mexico gets its own house in order as well by allowing both nations to create a fully operational guest worker program that avoids the illegals problem while providing access to jobs in the US (and Mexico).

But my pessimistic scenario is far closer to what is currently unfolding around us. Mexico is sliding into collapse as the government loses more and more control of anything other than Mexico City, as oil revenues plunge, and as dollars from the US dry up. Meanwhile the US seems hellbent on finding the worst of all possible solutions to its own fiscal crisis. Downstream this will result in one of two options occurring. Either the US will become a fully fascist state (instead of a simply proto-fascist state) or the US will collapse entirely. A fully fascist US would be a bad thing for Mexico regardless. Either Mexico would get absorbed into a greater political entity to be controlled from Washington, or the border would be sealed and illegal immigrants rounded up and dealt with, one way or another. Neither of those are desirable outcomes but they are what might happen if things implode badly.

On the other hand, a collapse by the US might be the best thing to happen to Mexico. There is a high probability that Texas would form the nucleus of a new nation and that nation would have extensive ties to Mexico, in all probability. That nation could consist of any part of Texas, the states immediately surrounding Texas, plus possibly Alabama and Georgia.

In any event, the ongoing events thus far simply indicate that we're all going for a ride that no one in the US has ever been on before. Either we're going to find fiscal sanity, social insanity, or we're all going to part ways. None of those scenarios is "business as usual" for Mexico by dumping its social issues over the border, so Mexico ought to begin facing those problems right now. Of course, they won't do that, which will make the ensuing nightmare all the worse.

Hail to the Chief!


First off, I welcome our new president. But in addition to that, I urge everyone else to immediately start scaling back your expectations. My own expectations are not terribly high. I expect Barack Obama to try to do what he believes is right, to make some good choices and make some bad choices, and that, because of his government centric mindset, some of those choices will turn out far worse than he expects. But many, many Americans believe Obama is the second coming of Kennedy-the-myth (not Kennedy-the-man). They are expecting Camelot all over again, magic wand waving and a restoration of prosperity with no real pain. It is these people who are going to become the most disappointed and most disillusioned of all.

Barack Obama, be he saint or devil, did not create this mess but he is surely going to be blamed for a large part of it as it unfolds. This is inherently unfair but it's how things work. Carter created the recession of 1979-1982 but Reagan got blamed.

While the media swoons over the Obama presidency, in the worst case scenario, he may be about to face multiple tests in the near term. The first and most immediate domestic test will be California suspending welfare payments on February 1, if they carry through with that threat. His other tests are likely to be external and involve the Middle East. Gaza remains a problem, as does our relationship to Iran, and our slowly souring relationship with Pakistan.

In the longer term, he is probably looking at several hundred thousand jobs lost per month over the first year of his presidency. The upper bound currently looks like it may be around 6 million jobs lost for 2009 but that's the upper bound. A more reasonable estimate might be in the 2.5-4 million range. Interestingly, that's the number of jobs he claims he can "create" in one year via government edict. Sorry, Mr. President, but I don't buy that line. It smacks too much of wishful thinking to me.

Additionally, several of our European neighbors are facing bankruptcy, or the practical effects of that even if they don't formally declare it. The British pound and the Euro are both falling hard lately, with the pound leading the way amid open discussions of British defaults. There is rioting in Iceland, Ireland, and Latvia over politicians and bankers and failing economies. Those losses and the civil unrest that accompanies them are not far from the front doors of North America. And yes, I include the smug Canadians in this. The proverbial crap is close to hitting the proverbial fan.

Time is already running out for a president just sworn in, through no fault of his own but rather because of the size of the mess bearing down upon him. Over at TAE, Ilargi yesterday suggested that Obama may be The Shortest President ever. Unstated by Ilargi is the corollary that Obama may be the last US president as this nation dissolves in financial ruin.

As for me and mine, I have gates to repair, garden plots to clean up, and seeds to begin sprouting for planting in 6-8 weeks. The world is not going to stop revolving but many human institutions may stop functioning. If you're still not prepared, I strongly urge you to wander over to SurvivalBlog. Begin reading the archives and implementing as many pieces as you can while you can. All of our choices are becoming more constrained with each passing day.

Inauguration Approaches


So Obama's been elected and promptly declares the current economic crisis to be worse than he was originally led to believe. He plans the amazing-self-sizing fiscal stimulus package of roughly $800 billion dollars that, over the last 10 days, has promised to create 1.5, 2, 2.5, and now 4 million new jobs (all without the price tag changing at all). And have you noticed who is on his transition team, advising him on matters economic? Hmmm? People like Robert Rubin, disgraced chief of Citigroup who resigned over the weekend? And this is supposed to be the administration that will bring us "change". Uh, yeah, right. With friends like this, I fear the change that is coming.

For a little anecdote, the people of this country don't buy Obama's words much, from what I can read. Last week the BATF issued a notice to FFL holders allowing them to photocopy the existing form 4473, until more supplies could be made available. For those that don't know what a 4473 is, it is the form used to record the sale of a firearm from a dealer (Federal Firearms License - aka FFL holder) to a private citizen. In other words, firearms sales have been so brisk under the threat of an Obama administration that the BATF has run out of gun sale forms.

The price of oil hit a remarkable low today of $39 per barrel. This simply reinforces, to me, the scope of the economic collapse that is underway. Peak oil is real and oil supplies are definitely finite but economic collapse has been so swift and so widespread that it has reduced demand for oil below current supply levels. Thus far the data indicates that global demand has plummeted by over 3 million barrels per day in just the last few months of 2008. Given that further economic dislocation is a near certainty, we can expect further falls in global consumption. On the bright side, this leaves a bit more oil for use further in the future. I'm not going to hold my breath hoping that it's used wisely though. Homo sapiens doesn't seem to possess that trait.

Here at home I discovered something unusual. Crops in this part of the US are now growing through the nominal "winter" months. My strawberries, cauliflower, and brussel sprouts positively love the cooler temperatures compared to the heat of south Texas summers. We should have fresh cauliflower at the dinner table tonight, for example. It did get a wee bit too chilly for the pepper plants though so not everything is going to grow through December and January in south Texas.

Stoneleigh recently did a wonderful primer on The Special Relativity of Currencies. It's a must read piece and I highly recommend it. I don't have much more to say other than to answer one question I was asked, which was "Well, what does the beginning of a depression look like?" And my response was, "This is what the beginning of a depression looks like." The instant gratification generation apparently expects an instant depression. It won't work that way. The stock market crash in 1929 led to the bottom of the Great Depression in 1934 - five years later. We're only about 18 months into this mess right now and there's plenty more to come. So, as they used to say, "Don't touch that dial! There's more to come!"

So we voted for "change" and elected "hope"?


I don't think so.Within 24 hours of being named president-elect we have Obama... simply continuing Bush policies. He says he's going to continue the Iraq policies largely unchanged. He's prepping to nominate an "experienced money man" as Secretary of the Treasury. He's already asked the 13 former Goldman directors to stay on at Treasury. He's apparently considering keeping Gates as Secretary of Defense. He plans more banker bailouts and letting even more "experienced money men" lead the way. Hey Barrack, are these the same money men who gave you $500 million dollars that you swore you'd never take in the first place, just to get elected?Hope? Change? What change? What hope?And... the news stays exactly the same as it was before: Jobless claims higher than expected Wal-Mart's October Sales Rise as Consumers Cut Back (Update1) Macy's, Target Monthly Sales Fall Stocks head for lower open as economic woes mountIMF now sees global recession in 2009US Productivity Growth Slowed in Third Quarter (Update2)Workers' hours slashed to keep productivity risingObama's top economic contendersRate Cut Fails to Lift Futures HigherStocks slide on recession fearsThe market is now down 700 points since Obama was elected. It's not that this is his fault but rather that he cannot and will not do anything to rock the economic boat. Read who Obama's top economic contenders are - the very people who helped create this mess and who already got Bush to give away over a trillion dollars of your money. Change? What change? This is why I don't expect anything different regardless of all the campaign rhetoric. Obama has a $500 million dollar collar around his neck. He let the bankers put it there when he went back on his own word not to accept those kinds of campaign donations. Now they own him, just like they owned GW Bush. There's no difference here.Ralph Nader said something very telling recently, asking publicly whether Obama was going to be Uncle Sam for the rest of us or Uncle Tom for the big corporations. I'll bet money it's Uncle Tom for the big corporations. In fact, if I had that money, I'd bet $499 million dollars on it.Hope? Change? How about all the lies all the time. Those of you who expect miracles from Obama are about to be sorely disappointed. I strongly suggest you continue to prepare just as though Bush was still in office, because, trust me, for all practical purposes the people who pulled Bush's strings will continue to pull Obama's strings.P.S. Let's see what happens over the weekend of November 15th and going into the second half of this month. I am expecting a "surprise" for the US of A.[...]

Staring at the Abyss


Russia has suspended trading until next Tuesday after seeing another 10% loss in value. Russian default risk tops Iceland as crisis deepens. Hungary, Ukraine and Belarus have sought emergency loans from the IMF. Chrysler is laying off 25% of its salaried workforce and a day earlier, Chrysler announced 825 job cuts at its Toledo plant and another 1,000 relating to the closure of the Newark plant. GM Suspends Matching Contributions to 401(k) Plans. AIG taps $90 billion government credit line, after having exhausted nearly $120 billion in bailout money in under one month! Japan Stocks Drop to Brink of 26-Year Low while a recession panic hits the Nikkei.Meanwhile the Hang Seng (Chinese stock market) crashes 8.3 percent to a four year low. Mike Shedlock notes that Job Losses Mount as Recession Deepens. There aren't any remaining consumers out there who can take on more debt or purchase more junk. As Mish also is fond of saying, the Shopping Center Economic Model Is History.Is the picture above getting clear enough for you yet? For the last few weeks, after the last big decline, we've been in another trading range from about 8300 to 9500. We're still in that range although near the bottom. And the global financial problems may cause the market to panic out of that range towards a new low. That new low, for the next round, will likely be around 7000 but that's not the bottom yet either. The bottom is yet to come and will be somewhere south of 5000, with a reasonable chance of being south of 4000. The next downleg on the S&P will be in the 650 range, when it finally comes. There's no sunshine in this market yet. None at all.This weekend my adult children will be meeting with myself and my wife to discuss what the possible scenarios are and how we can all prepare for those scenarios. I've been busy the last few years learning to garden, compost, learning a bit about vermiculture and building rich soils. We've set aside food and other consumables to see us through an extended emergency and now we're going to try to ensure that our children and grandchildren are cared for as well. We may or may not succeed but we don't have lots of time to spend worrying about strangers who have not prepared at all.MSNBC recently ran Hard times have some flirting with survivalism--Economic angst has Americans stockpiling 'beans, bullets and Band-Aids’., run by James Rawles, is a treasure trove of practical information about surviving catastrophes, ranging from Cat-5 hurricanes to Cat-5 financial storms. I advise bookmarking it and reading it regularly.Most readers of this blog (the few that bother to read it) won't have the resources to really prepare. For people in that category, I suggest that you learn to pray. You're going to need it. Some small number though still have a chance to purchase rural land, even land without a house on it is better than no land at all. And I mean purchase it, not via a mortgage. Take that cash and get your hands on some productive land. In a pinch you can build a cabin, or even get fancy and go underground, as outlined in The $50 and Up Underground House Book. If things get as bad as I fear, we're all going to have plenty of time to work on things at home, so it's best to really own a home for that purpose. Additionally, being rural will get you out of the most immediately dangerous problem if society does go pear shaped - civil unrest, aka rioting and looting. Most won't be able to do this but if you can, your chances to actually take this step are drawing to a close.The chickens are coming home to roost on decades of fiscal irresponsibility and we're all [...]

That Flushing Sound is the Global Economy


The press is reporting that the Royal Bank of Scotland and the Holding Bank of Scotland PLC (HBOS PLC) are both being seized and nationalized by the British government tonight. As Mish notes in his Royal Bank of Scotland, HBOS Nationalized, these actions do nothing to correct the underlying problems - insolvent financial institutions. As I write this, Asian markets for Monday October 14th, are showing some gains. But US institutions are closed tomorrow and Europe may involuntarily close their markets in an effort to calm the situation. I'm not sure what they expect that to do because that also doesn't address the underlying problem. However, reviewing the October 1929 crash, there was a multi-phase collapse. The biggest part occurred on October 29, 1929 but there were serious precursor drops and rallies along the way as well.

Because of this and because of various other observations, many people are expecting a short term rally in the market at this point. People really do want to believe that governments globally can solve this, whether they really can solve it or not. That belief will help fuel some form of rally, perhaps into the 10,000 range. Trying to outguess the crowds when we don't have any sort of reasonably accurate model is a difficult thing to do but my best guess is that this rally will last somewhere between a few days to a few months, ending not later than sometime in January of 2009.

A key point to take home from all these "rescue" attempts is to ask whether the action in question actually helps resolve the underlying problem of insolvency for a particular financial institution. If the answer is no, then it cannot succeed longer term. Given that zero actions thus far have addressed underlying insolvency issues, that means that somewhere ahead of us is a further fall downwards, perhaps below 5000 and perhaps even much lower. If we get very far below 5000 though, I fully expect the wheels to come off industrial society in Europe and the United States. Whether you do anything about preparing for that eventuality is your choice. But if you choose to not prepare, please don't knock on my door because I did choose to prepare.

It just keeps getting worse, doesn't it?


It's hard to believe that our government could have done as many boneheaded things as it has done since I wrote my last entry. Yet the infamy of September 7, 2008 may now be lost amid the early days of what could become the Greater Depression.Yes, you read that right. I want anyone reading this to realize that right now credit lines are being closed for major corporations. Given that most major corporations and most small ones operate from their credit, the closure of credit lines is starting to suffocate the economy. GMAC shut down the credit line of Bill Heard Chevrolet dealerships, the largest Chevrolet dealer in the United States with annual sales over $2 billion and dealership locations across the US south. This credit line was shut down in August. In September, the Heard family shut their doors on every dealership they have. That's about 3000 people out of work right there. That's $2 billion in annual sales lost to GM via one of their oldest dealers. Bill Heard was founded in 1919, lasted through the Great Depression but was done in by this oncoming Greater Depression.Other corporations either have been confirmed to have lost their credit lines, such as McDonald's, or rumored to have lost their credit lines, such as HEB grocers.Those of you who think that the 451 page boondoggle that the Senate passed last night will change anything significant are believing in unicorns. I won't argue with someone who is that economically illiterate but the Senate bill does nothing other than allow Paulson to make his friends whole again at US taxpayer expense, right before the entire global economy goes to hell.There are lots of issues at stake here and other people, ranging from Mike Shedlock's Global Economic Analysis blog to The Automatic Earth cover these issues better than I do. But I want to ask you something very direct, personal, and not abstract at all. What are you going to do if HEB, Kroger, and other major grocery chains shut down due to lack of credit? Oh yeah, the government will send in the National Guard and distribute emergency foods. Do you like that stuff that FEMA hands out? Have you ever tried most of it? It's... not that good and I am being generous here.If you do not have at least 60-90 days of canned and dried goods on hand, then you are probably in trouble. And all that 60-90 days will get you is through the initial turmoil to where you become a ward of the government, possibly for years to come. But hey, that's the choice that you made. Of course not having 60-90 days of food supplies may mean you lose some pounds in the 1-4 weeks before government relief shows up in your area. Maybe you lose lots of pounds. Maybe you starve?Likewise, are you going to have a job if credit shuts down? Will you even get paid? Will your bank allow you access to your funds or not? You are still going to owe money to people and have bills to pay. Wouldn't it suck to have money in the bank that you cannot reach while you are foreclosed and thrown out of your home? Think it can't happen? It already did in the 1980s in Texas and the US south during the S&L crisis and this is thousands of times bigger than the S&L crisis.In short, your preparation options right now, today, are very narrow but you still do have the choice of doing something as opposed to nothing. So, are you going to do something or are you going to see how long you can fast? Better make your mind up soon. Credit lines continue to lockup worse and worse for the fourth straight day. At this rate, in another week it will be shut down altogether.[...]

Another Day of Infamy


December 7, 1941 has gone down in history as a "day of infamy" due to the attack on Pearl Harbor by Japan. I believe that September 7,2008 will go down in history as another "day of infamy", due to the clear abandonment of any pretense of free markets in the United States.Anyone who still thought there was anything approaching a true "free market" in the United States certainly ought to be re-evaluating that position in light of the latest government bailout of certain corporate sweethearts (in this case Fannie Mae and Freddie Mac). While this may surprise some folks, this is about what you would expect in a truly totalitarian globe-spanning empire and now you've got it. All pretenses are off - the US government is trying to convince the world that it and it alone is capable of saving the entire global financial system.September 7 will be the day that marks the beginning of that process. This last week has seen the process accelerate drastically. Remember those alerts from this summer about a possible stock market crash for this autumn?RBS Offers global stock and credit crash alert.Morgan Stanley warns of a 'catastrophic event'.In a recent quarterly report, the Bank for International Settlements (BIS) warns that the credit crisis could lead world economies into a crash on a scale not seen since the 1930s.Paulson & Co. Says Writedowns May Reach $1.3 TrillionAll of the above articles were prominently displayed by sources like Bloomberg, Yahoo, etc., earlier this summer. These warnings were issued by major players, not by me.Look at what has happened this week:Russian Markets Halted as Emergency Funding Fails to Halt RoutThe US market is down almost 800 points in 3 days.Lehman declares bankruptcy.The US government steps in and nationalizes AIG to the tune of $85 BILLION dollars.There is panic in the streets (Wall Street). So far we are down nearly 1000 points from recent highs and almost 4000 points from 10 months ago. Think about that."Lehman Brothers Holdings has gone bankrupt. Here is a firm that was founded in 1850. It survived the Civil War and the Great Depression. It did not survive the current breakdown. Anyone who thinks this crisis is some minor affair is not paying attention." - Dr. Gary NorthNow please attend to me what is happening.1. Lehman has declared bankruptcy. Lehman therefore must be liquidated by the courts. Lehman's "assets" (CDOs, derivatives, etc.) have a nominal value of about $640 BILLION dollars. To be liquidated, these assets MUST BE SOLD. But who is going to pay full price for these $640 billion worth of fake assets? Nobody! Ergo, the assets will be sold at firesale prices. Expectations are that the court will get 5-40 cents on each dollar. In other words the court will find that the assets have lost between 60-95% of their claimed value!2. Because of #1, the assets of every other financial institution will finally have to be marked to market. When this happens, every other financial institution will find itself officially under-capitalized and selling more assets to get capital.3. But no one is buying! No one is buying these assets! Ergo the price will fall even further.No human being can say with complete assurance that this is the end of the line but right now, today, global civilization stands at the precipice looking down towards its own death.Now why does this matter to you? Because your job is with a business that has a 99+% certainty of being with a company that operates on debt alone. Imagine this scenario - banks cannot lend so they don't lend money to the oil companies w[...]

Riding the Roller Coaster


We've been falling in stages since last November. Chart it and look at it. We take a fall, then regain half to two thirds of the fall. This establishes a new trading range where things sit for some period of time ranging from days to a few months. The trading range is the new recovered high down to the low in the current fall.

Then we take another fall, regain half to two thirds of that and establish another trading range. This has happened about 5 times from what I can see. The current trading range appears to be about 10,900 to 11,800 or maybe as high as 12,000 since we've not really tested it yet.

My advice to people is to ignore the trading range. Every rally inside that range is just "noise" and every fall inside that range is more "noise". What would mark a significant departure? Either 5 straight days above the cap of the trading range that also involves increasing values each day (almost impossible at this point) or 2 straight days of falling values below the current floor.

The falls are the most likely things, nearly 100% certain at this point. The problem is trying to guess the timing of them.

Over at TAE, poster "Snuffy" asked, "How do the rest of you see the next few months...say till Christmas will play out? Will some event shake the public to full awareness of our true state? Or will we stumble along,sleepwalking into chaos?"

My reply to Snuffy is that you are asking a very hard question. So far as is publicly known, there is nothing like the fictional Hari Seldon's "psychohistory" science that could predict mass reactions to events so we're just left to guessing.

At some point we're going to be left with the awareness that it's over and there's no going back but countering that is natural human optimism. We are, by evolution, largely selected to be optimistic about the short term (probably because we could not function well if we were too pessimistic). Even doomers tend to be optimists, at least about their own short term future even if they think most of everyone else is screwed.

So given that desire to hope for a better tomorrow, we cling to illusions like fractional reserve lending and "off book" accounting because we really really really want to believe in get rich quick schemes, unicorns, and fairies. So when will the moment of mass awareness arrive? Who knows? But when it does, you are likely to see a stampede for the exits.

The bulk of the modern populace is so poorly educated about modern finance that they will be willing to believe fairy tales from Uncle Sam rather than face reality, if believing in such fairy tales allows them to go on for even one more day without facing the awfulness of reality. Thus I fear that there are a few more steps on this ladder going down before reality sets in. Uncle Sam knows this too, and will try every trick in his book to get the majority of us to keep on believing. At some point this will all fail but trying to predict it is a fool's game, because our species is a fool's species.

Mid-Summer Odds and Ends


I've been doing some reading and I don't think that I'm going to lick the corn dwarfism problem that I am seeing in my garden. It appears that the culprit is a virus that also lives in Johnsongrass, an invasive species from Europe that has spread world-wide now. Given that there is lots of Johnsongrass near where I live and that I cannot possibly eradicate it alone, I'm going to investigate other grains next year.Given that this is the southern US, I am preparing a second planting of many things. The cucumbers did ok this year but have largely died off early. I am not sure if it was the heat or soil issues yet. The squash did its usual thing - bloom hard and hardy for several weeks then die off regardless of what I did. I may try to plant a second squash crop too. The strawberries are doing well enough, with the exception that my family hasn't seen any. The birds and squirrels keep snapping them up before they are really ripe enough. Of course if the squirrels keep that up, they may be what's for dinner instead.I notice that the financial wizards continue to rig the markets ever more blantantly in favor of their own core group. The latest round of protections for Fannie Mae and Freddie Mac includes select financial institutions. You can consider that these are the "bad guys" of the world scene since they made billions shorting other companies but now have begged the SEC to place them beyond such responses. That list includes:BNP Paribas Securities CorpBank of America CorpBarclays PLCCitigroup IncCredit Suisse GroupDaiwa Securities Group IncDeutsche Bank Group AGAllianz SEGoldman Sachs Group IncRoyal Bank ADSHSBC Holdings Plc ADSJPMorgan Chase & CoLehman Brothers Holdings IncMerrill Lynch & Co IncMizuho Financial Group IncMorgan StanleyUBS AGFreddie MacFannie MaeAs Mike Shedlock notes, it's also interesting who is not on this list. Since this list was supposed to protect financial companies from shorts, why not protect those financial companies getting shorted the hardest, like this list:Washington MutualWachoviaCorus BankBank UnitedNational City CorporationThose guys are getting clobbered by shorts but they are not protected! Wonder why? Because they are not part of the global elite. These companies are being sacrificed while the elite get to keep their ill-gotten gains and continue raping the planet for more ill-gotten gains, all at the expense of the rest of us. Lovely game, isn't it? The only winning move for you is not to play, to paraphrase WOPPER, the War Games computer.I also note that, despite constant claims of imminent collapse, that the global economy is still hanging on. Now, I will be the first to say that given the numbers I have seen that fast economic collapse actually makes the most sense to me. But it's not occurring despite what I and many others think. I saw this before, in the 1979-1982 recession. People kept expecting financial armageddon and it never really arrived, at least in the form of a singular event. I also suspect that many of us equate 1929 with the Great Depression but the Depression actually took several years to get into full swing (just like this one appears to be trying to do). So one thing I would warn of is to be prepared for a longer, more extended fall than you might have expected. And it's probably going to be slower too.Now having said that, I think the markets have settled into another trading range. This range looks to be approximately 10,800 to 12,000 on the DOW. It may last from several days to several m[...]

The Ugly Truth About Inflation



So here is the ugly truth about inflation. This is not some 5 year aberration. This is not some minor statistical blip. This is a 41 year picture of the lie of generalized investment as a means to retirement comfort. (Click to see enlarged version.)

The chart to the left here shows two plots. The blue-green plot is the unadjusted DJIA from January 1967 to April 2008. The orange-red line is the inflation adjusted DJIA over the same period.

The scale on the left Y axis covers the actual values obtained by the DJIA. The scale on the right Y axis is the inflation adjusted value. There are lots of interesting observations in this chart.

First, note that $1000 invested in January 1967 would have taken until sometime in mid-1995 to even recover its base value after adjusting for inflation. Second, note that the unadjusted chart implies that new highs have been reached in the last few years, yet after adjustment we see that we have not yet regained the high point of January 2000. The third thing to note is that the only real growth in the DJIA over 41+ years was the five year period from 1995 to 2000.

This chart exposes the lie of generalized investing. The promise is that you invest and it will all even out. Yeah, really, sure. The truth is that real opportunities to get ahead come around once in a lifetime and then are gone until the next generation gets a shot at some random point in the future. A 41 year time chart does not lie. This chart covers someone who graduated high school to today and who has trusted the market all along. There are 36 years of losses or no gains in that market versus 5 years of real gains.

People who are going to invest and who trust "financial advisors" are being taken to the cleaners by liars and shills. Only by really understanding your target market and working it like a real job can you have any hope of getting ahead by investing. This is why the common man and woman was long better served by simple saving rather than complex investment schemes. However, the banks were not content to let all those savings sit at rest and have created fractional reserve lending and participated directly in a sustained multi-generational program of deceit via inflation to rob the common man and woman of their savings.

And they have succeeded. They have succeeded because you (and you and you and you) have allowed them to do so. Only one man has dared to stand up and run for president while at the same time declaring the true solution to our financial woes - Ron Paul. If you support anyone other than Ron Paul you are voting for a liar, a shill, and someone who is complicit in this multi-generational program to rob you blind. If you vote for anyone other than Ron Paul, you deserve whatever fate befalls you.

Is a Deflationary Collapse Guaranteed?


Over at The Automatic Earth, I was having a conversation with some folks about the price of oil in the April 27th Debt Rattle thread. My concern is that we are not facing a traditional recession/depression at all but rather are facing the leading edge of oncoming waves of scarcity driven by serious overpopulation. Because of that, I felt compelled to expand upon that dialog and it got large enough that I decided to do it here rather than as a reply there. Before I proceed further, if you don't understand the difference between prices rising due to scarcity and prices rising due to monetary inflation then please do not read further. I'm not going to answer basic questions about such things that you can get from multiple other sources on the net.Now, to continue that conversation from TAE, let's take a look at what is really happening around the globe. At te current time, grain prices are through the roof. Some of this is due to speculation, some to trade barriers being erected (due to food security concerns), but a large fraction of this is due to shortage. We know that UG-99 is causing havoc with wheat in Africa and now the Middle East and it is expected to move into Asia proper this year. The planet has consumed more grains than it has produced for 7 of the last 8 years, reducing the 2000 grain surplus of 110 days global food supply to under 57 days global food supply. Regardless of deflationary pressures, this is going to produce upward pressure on prices (NOT inflation!!) due to shortages until shortages are alleviated.Likewise, consider the price of gold, which has fallen by roughly 10% (slightly more) into the $890-$900 range. Gold is money and since the global monetary situation is deflationary, gold is sliding somewhat with it. This however will vary over time as people move from fiat currencies back into gold and silver. Which way will these two precious metals go? Beats me! The combined problems of deflation coupled with flight from fiat currency (upward pressure on gold prices) look completely unpredictable to me at this time thus I have zero interest in playing the gold market in any speculative manner.However, look at oil. Oil remains on an upward trajectory. So long as any global technological civilization exists AND that civilization does not go to war with itself (regions against regions) then energy must continue to flow at some rate. Unless and until rationing sets in, so long as any open market in oil exists AND the global production continues to fall below growing demand we will see rising prices, even in a deflationary scenario.To alter this we either need increased supply (which is not going to occur) or decreased demand. And despite the observations of the deflation watchers like Mish and others, there has as of yet been no deflationary crash. In other words, so long as the markets continue to ignore the crackup in the financial sector, oil cannot do anything but continue its general upward trend.Now I agree that in the event of a 1929 style deflationary collapse we would see massive decrease in demand. But are we going to get that? Or are we going to muddle along for the next several years in some financial no-man's land?Here's a point for people to ponder. The 2001 tech stock crackup was supposed to be "the big one" but the powers that be managed to hide that with a convenient "war on terror" and yet another bubble. Everyone betting on a deflationary collapse now is making the sam[...]

As we continue to sink...


It's been a busy spring for me, both in watching the news and in my own preparations. I've added extensively to my raised bed gardens this year, to the point that we should have major harvests of several vegetables for the remainder of this year. We may be looking at canning as a result. Part of this is prompted by the huge run up in commodities prices, particularly grains, coupled with the many stories of grain producing nations beginning to cut exports and in some cases to halt exports entirely. The problem is spreading even to the US as the NY Sun reports Food Rationing Confronts Breadbasket of the World. One cheap thing you can do is begin buying extra bags of rice, beans, etc., and storing them inside a larger plastic bag and then that inside a sealable container. There are numerous articles on the net about such processes, along with advice about using dry ice or other methods to drive oxygen out of your containers before sealing it. Be sure to mark and date such containers and either use them or donate them to a food bank before the expiration date. Consider also tossing some hard-to-get items in that container as well, such as toilet paper, matches, sugar, coffee, tea, etc. If you build an inventory of such containers at a rate of 1 or 2 per month, in 6 months time you will have a respectable store of staples.I am not going to go further into the many details of such activities but as I said previously, there are numerous sites on the web documenting such self-storage processes. You might also consider the Latter Day Saints church as a source, since they have advocated such levels of preparedness for members for decades. And no, I am not a member of the LDS, just noting that they represent one source for such things already vacuum packaged if you wish to go that way. You can also go the freeze-dried route with Mountain House, Nitro-Pak, and other such vendors.The global oil situation continues in its roughly flat plateau of the last 4 years. A technical new C&C high was reached in February of this year, barely eclipsing the May 2005 high, but keen observers noted that this new high includes tar sands, which are in no way, shape, or form to be considered "crude" oil. So technically the old 2005 high still stands but even with this addition the difference is a mere 137,000 barrels per day. And given the error rate of these reports, a subsequent report may revise that back down anyway. Regardless, the oil plateau continues despite oil moving from $38 per barrel at the start of the plateau to $117 per barrel now. You would think a full trebling of price might get some demand response? But no, no demand response here! So much for abstract economics. Hello economics? Meet reality.Another alarming trend is that of A Storehouse of Greenhouse Gases Is Opening in Siberia. Read that carefully. If you have not Googled hydrates then I suggest you do that. In the meanwhile let me describe oceanic hydrates as containing more estimated hydrocarbons than maybe 10 times the total conventional oil and natural gas deposits. And further, almost all of it is methane, a greenhouse gas (GHG) that is 20 times more potent at trapping heat than CO2. There have been events recorded in geologic history that strongly suggest prior mass extinctions are tied to massive releases of hydrates, which then basically toast the planet rapidly. Hydrate releases are not in the "predicted" warming scenarios[...]