Good Article

I found this article over at The Weekly Standard. I think it does a much better job of getting at what I was trying to say for today.

http://http://www.weeklystandard.com/articles/world-crisis_524865.html?page=1

Enjoy.

Cycles, Seasons, and Trust Systems

Organizations exist. I'll define an organization as a network of defined relationships directed towards a larger purpose. Organizations form pluribus unum to be successful in some goal. Success is a habit and not an event; those organizations that habitually succeed grow and flourish. Those that do not habitually succeed wane and diminish.

The goal of an economy is the organization and growth of productivity, consumption, and wealth, along the accumulation and dispersion of these things. It is a mutually agreed upon system of trust.

What are the goals of an economy? What is a habitually succeeding economy?

An economy is a market. Items are traded. Skills are traded. Time is traded. Wealth itself is traded.

'Price stability' and 'full employment' can be considered goals of an economy, among other things. But for what I'm saying I'll state the goal of an economy the same as I would state the goal of any organization, community, family, or living thing.

The goal of an economy is to continue to exist. The goal of an economy is to continue to be the mutually agreed upon system for trade. All that is required for that to happen is that those involved trust that it is in their interest to be in the system.

To be very specific- the dollar is a unit of currency in an economy. It is paper that is trusted to be of value. It is not a precious metal. It is not a tool. It is not consumable or usable or valuable in any way except as a unit of currency that is trusted to be of value.

Average members of economies don't have much choice in the matter. You can't very well say "Screw the dollar, I'm going to use francs/deutches/whatever instead!" without geographically moving to an area that uses that currency for its economy. (You can, however, speculate, using your dollars to buy another form of currency, commodity, or precious metals, but that's another topic. You can't buy maccaroni from Wal-Mart with silver coins)

Different economies powerfully decide whether or not to trust one another. This plays a huge part in the health of economies- their faith in one another. The dollar, for example, is the world's reserve currency. It is trusted as a stable store of wealth right beside precious metals like silver and gold (which have been historic stores of wealth for centuries). That's why when two countries decide not to deal with each other in dollars anymore (as China and Russia recently decided with one another) it's a really, really big deal.

The Crash (and Postponed Crash) of 2008

I'm going to write lightly on this, because I honestly haven't read enough on the crash's origins to go in depth. There are amazing books and articles on the subject- one in paticular comes to mind that, if I find it again, I'll link back here.

The most important thing to understand about what happened in 2008 is that the problem wasn't fixed. Banks make money through speculating. The thing about banks' speculating is that the banks themselves are such HUGE ENTITIES that they are able to artificially inflate prices, manipulate the market and make big money doing it (and screwing over everybody else in the process). I wish I had some hard figures or sources to show so I didn't sound like another looney whining about evil banksters, but I'm not going to put the time into doing that right now (after all, not like anybody's actually reading this). I'm simply going to state it and leave it at that- banks manipulate markets, and it creates big problems.

Examples of this include the dot-com bubble (bank made), the housing bubble (bank made), and the $4 a gallon gas we saw the summer of 2008 (had nothing to do with peak oil or supply shortages; everything to do with a loophole in bank regulator law prohibiting exactly what the banks did).

Banks manipulate and overvalue things, and it screws with the market and screws everybody who isn't Goldman Sachs. The crash of 2008 was the economy's attempt (referring to it as a living, self-healing entity here) to 'correct' prices to their actual values. The market was not allowed to correct itself. Money was injected into the system (more than $1.5 trillion) to artificially keep prices inflated. It would have been very painful to the market if that hadn't been done. It will be even more painful now.

Change

Honestly I'm very tired and am going to wrap this up.

Because things are one way one day does not mean they will be that way tomorrow.

The dollar is valued because it's trusted to have value. There are a lot of reasons that is the way it is, and I can't begin to delve into the 'why' of that.

Loss of value of a currency is not a freak occurence. It happens. There are obvious examples like Rome and the Weimar Republic (lots of comparisons between 2011 USA and pre-Hitler 1920s Weimar Germany going around right now). A more modern example of currency collapse can be found in 2001 Argentina. Argentina was the "Paris of South America" in the early 1900s, and is now rotting into something out of the third world. A great blog (great resource, really) from a guy living in Argentina is http://ferfal.blogspot.com . If you're into learning what this stuff looks like from an on-the-street perspective (as opposed to macroeconomics) then definitely check him out.


The point of this post (and of what I'm writing in general) is that I think the world we know is changing. Changing does not mean ending. I go to an Evangelical college, and I cannot stand hearing kids talk about how they think what they're seeing means Jesus is returning for Armageddon. It's a rather self-serving thought- when things get hard, that must mean that the end is near.

No. When things get hard, you deal with it and carry on.

Yep, I'm tired. My apologies if this turned into a rant.

Good day.

Fear Mongering - It's a Winner!

Scaring people gets things done. If nothing else it gets people to listen to you and think you can solve their problems. Glenn Beck does this. George Bush did it. Fidel Castro, John McCarthy, and of course, Hitler. All knew that the easiest and strongest way to unite people and kill division was to bring them together with the fear of something beside themselves.

(Side note: Who would want to be afraid of themselves? We're all awesome!)
Armed with this knowledge, this morning I would like to take the opportunity to engage in some light fear mongering of my own. Enjoy.

Young adults 20-24 years old continue to hold an official unemployment rate around 15%.

85% of college students plan to move back in with their parents.

5 years ago (2006) that number was 65.

Just thought I'd throw that one out- my generation's gonna get the short end of the stick. This is just one way we're seeing it happen.

The government's official numbers put unemployment at a low-recession level of 9%. That sounds kinda scary. Almost 1 in 10 people in America is defined as 'looking for a job, haven't found one yet.'

9% is the product of one conservative measure of unemployment- those seeking work but not having a job. There are other groups that can be factored in. There are the "not employed, no longer seeking," for example, which the government no longer counts (but used to prior to 1994). There are the under-employed which are not counted. There are other groups I don't know about because I'm no economist- I don't even have a bachelor's. But I read what smart people think, so bear with me while I regurgitate.

The above graph is from Shadow Government Statistics, an alternative information analysis source. The above red line is the official unemployment rate, the number you would hear on CNN or Fox News. Officially unemployment nears 10% going into 2011. The grey line represents the 'broadest' official unemployment designation from the Bureau of Labor Statistics. It includes some of the 'short-term discouraged' non-working along with some of those underemployed forced to work part-time. That number stands at 17%. The Shadow Government Statistics blue line includes the huge number of 'long-term discouraged' non-workers. Their numbers for unemployment state that nearly 1 in 4 Americans do not have work. Depending on what groups you omit, your source for numbers of unemployed Americans as of December 2011 can tell you anywhere from 1 in 10 to 1 in 4.

That's worth noting.

(Life lesson here.)

Government entities can skew numbers in their favor.

Under- and unemployment lead me to our next subject- who's buying food for these people not making money?
Well, if you're making money, you're paying for your own food plus the 1 in 10/1 in 4 who aren't making money.

I guess the idea of nearly 14% of Americans being on food stamps might not be that scary. It's just worth pointing out how many Americans depend on taxpayer dollars to get their food (a lot. And the number keeps growing). Those on food stamps receive a little under $200 a month for food. No, that's not a lot. And as I wrote yesterday, every dollar you own becomes worth less and less on a daily basis. Inflation sucks for your savings.

Again, the CPI is the government's inflation numbers (which is weighted towards housing and other big-ticket items) while the SGS alternate takes everyday items like food and gasoline much more evenly into account.

Just remember when looking at this chart: The Quantitative Easing II I wrote about yesterday was meant to combat deflation. Deflation would mean those little squiggly lines are dropping below 0% into negative territory (they're not). QE II (printing money) is an action that purposefully creates inflation (or in this case, simply aggravates it).

This is not cool if you make a fixed income or are dependent on savings. Not cool.

To run through some other bad things:

- Housing prices still falling. Home prices are another measure of people's "savings," and those savings have been literally erased out of existence as home prices have died.

-There's that peak oil thing I wrote about in my first post. The CEO of Shell recently predicted $5 a gallon gas by 2012. Meh.

-Civil rights are being eroded. The TSA wants to touch your junk. Yada yada yada.

-Bruce Willis can't really nuke Earth-bound asteroids. (WHAT?!?!?!?! THE HORROR!)

Yeah, enough of this. James Wesley Rawles of survivalblog.com put out his New Years 2011 outlook yesterday. Having given him credit, I'm simply going to share his insights now.

Insights of that survivalist guy I kinda don't agree with, but here I do:

•The Federal Reserve recently became the largest holder of U.S. Treasury debt, surpassing China and Japan. The neo-Weimar monetization that is dubbed "Quantitative Easing" is wildly inflationary.

•The number of dollars in circulation is galloping, and that can only result in inflation.

•The government's annual outlay just to pay the interest on the National Debt is nearly half a trillion dollars. The charts show a decline since 2008, but that is illusory. The decrease in interest payment obligations is only because interest rates have been kept artificially low, and because the Federal Reserve is monetizing the debt. (With Quantitative Easing, the government is effectively buying its own debt, with magically created dollars.

•The Treasury Department conservatively estimates that the U.S. debt will be $19.6 trillion within four years. (Many private estimates are substantially higher.)

•The total long term government obligations including Social Security and pensions are variously estimated at from $48 trillion to $65.5 trillion. That would exceed the gross domestic product of all of the nations on Earth.

•Federal government indebtedness is approaching 100% of GDP. The only time that it was ever higher was in the 1940s and 1950s because of the huge debts piled up in fighting World War II, and in funding post-war rebuilding of Europe under the Marshall Plan.

•The Federal Reserve banking cartel finally admitted that they lavished $3.3 trillion in new liquidity and in excess of $9 trillion in short term loans. But in doing so, they downplayed the fact that a good portion of those trillions was used bailing out soured or failed mortgage-backed securities (MBS) derivatives contracts.

In essence, the gig is up. Starting in 2011 or 2012, I expect foreign creditors to demand substantially higher yields to justify their continuing to buy U.S. Treasury paper. Once that happens, prevailing interest rates will jump, and that will stifle economic growth, resulting in stagflation. Interest rates jumping to double digits could result in interest payments on the National Debt becoming the largest single annual outlay for the government-- even bigger than even that for the Department of Defense. Meanwhile, the U.S. Dollar will see a sharp degradation as its status as the world's reserve currency. A death spiral for the U.S. Dollar would then ensue.

And so on and so forth. Thank you Mr. Rawles.

There- For now, that's as close as I'm going to bother with laying out an "Economically, we're screwed" blog. Everything I just wrote simply provides a template to ask the bigger question:

What to do, what to do, what to do.

Seeing a larger act coming, what smaller part do we choose to play?

Mr. Rawles likes to believe in buying a mountain retreat 'bugging out' of society in the event of problems (actually, now that I think of it I believe he lives there anyway. He's got one). Many other people agree with him, and dream of para-military 1800s-esque isolationist existence while the 'sheeple' who looked down on it starve, rot, and are otherwise enslaved by the mutant zombie bikers who will rule the desert wastelands of America (because America will be a desert wasteland ruled by mutant zombie bikers).

Now, I know it's a long leap of logic from the economics I've laid out to a desert wasteland America ruled by mutant zombie bikers. I think it is something of a leap even from a collapse of the dollar (system of finance) to a collapse of society (system of people) because I believe that community (system of people) is not built on the dollar alone. A lot of people (like Mr. Rawles) find it very easy to make that leap. I don't.

The end of the dollar is an improbable event. Improbable does not mean impossible. It is a black swan historical event; history is made by black swan historical events. But even black swan events are not necessarily apocalyptic events.

Societies survive currency collapse. Markets survive currency collapse. They change. Everything changes. Nothing is ever set. Those things that are set do break, but things that can change and bend do not break near so easily. And the only reason I'm writing this is because I am trying to see how things are changing.

Tomorrow will be a new year. I'll give the economics a break and write about cultural/societal change.

Hey. Hey you. Reading this. There's a comment box. Right under this. You should, you know, write in it. Share your thoughts. Say what ya think. Say what ya don't think. Ya know?

Yeah.

Gold, Silver, and the Writing on the Wall

I bought $500 worth of silver recently. $500 is next to nothing in terms of investments, but it's what I've got and it means a lot to me. I've also been kicking myself for it.

The chart to the left is meant to illustrate one point: Silver's high now, and seems to be consolidating around $30 an ounce. Three years ago silver went for $9 an ounce. Three years ago Many have thought that silver was due for a price increase, and this seems to be exactly tha$500 would have bought 50 ounces of silver. Now for that same price you can get 15 ounces. Would seem I'm 3 years too late for this madness.

Furthermore, now's a really sucky time to buy. After all, the way you make money is to buy low and sell high. Buying high (like I am doing now) isn't the winning-est strategy for making money. In fact it's how a lot of money is lost. Stock/commodoties/bonds/what have you seem to be shooting to the sky, and people pile on in hopes of joining the bandwagon.

When more of the commodity has been bought than there was really demand for, a 'bubble' is formed (heard plenty about those these past few years, eh?). The bubble inevitably pops. The price of the commodity falls. People who bought high in the rally and didn't sell lose money. Happens all the time.

So... have I bought high in a bubble? After all, silver is three times the price it was three years ago! Isn't it due for a 'correction' back to, say, $15? Maybe even just $20?

I don't think so. I think that those who would buy silver now have missed the monumental opportunity of $9 an ounce. But... Rememer: even buying then would've seemed like a huge risk. After all, silver was 'dead' at $9! The national recovery was in full steam! Everyone was piling into the recovery in the stock market! And yet it wasn't enough.

For those who don't know, the Federal Reserve under Ben Bernanke is currently in the process of printing $600 billion in new money for purchasing bonds under 'Quanitative Easing II'. $300 billion is also being reivested from the original Quantitative Easing during the crash of 2008. This is the 'monetizing of debt' that Bernanke had said would never happen, and yet has come to be inevitable. The international community has not been remotely happy about these actions. In fact, they've been downright hostile. ECONOMICS 101: Printing more money for nothing makes existing money less valuable. The money in your savings is worth less when more money is created than it was before. Likewise for your debts: The money you owe in debts will also be worth less than when you took it out. (This is a happy point for my fellow debt-ridden college students!) Money printing effectively rewards debtors and punishes savers. And that is exactly what the United States is doing. We are printing money to cover the national trillion-dollar-debt and in doing so are devaluing the future dollars of every country in the world who has loaned as money, effectively punishing them. No wonder nobody likes us.

(And there are already rumors of Quantitative Easing III... who said they'd actually stop at $900 billion? Or $2.6 trillion when including both QE and QEII? There is no remote guarentee of a ceasing of money printing.)

Anywho, that's one reason silver is going to continue to go up. The continued devaluing of dollar makes silver more expensive in relation to those dollars. It really isn't a valuing of silver so much as a devaluing of the dollars we use to buy silver.

I've been talking a lot about silver, haven't I? Isn't gold in the title of this post, too? Let's talk a little about gold.

The chart I showed you of silver was over a 5 year time period. This chart of gold prices is over a 10 year period. Over 10 years, the gold price has gone up more than 500%. The big question: is gold in a bubble? Is $1,400 the top for gold prices?

For the reasons already mentioned, this is not the top for gold prices. The fed's actions will continue to devalue the dollar, which will continue to make gold more expensive. Again, this isn't remotely because itself is inherently more valuable. It is because the value of the dollars used to buy it is going down. The price of the dollar is dropping.

So, we've mentioned money printing. That's one reason the price of precious metals will continue to rise.

There's also the coming default and/or bailout of insolvent municipalities/cities/states. California and Illionois are on the brink of insolvency. Various cities through the United States are in the same position. It's no secret. Heck, it was on 60 Minutes the other night.

The situation isn't a secret or question. The question is whether or not these troubled entities will receive their own 'bailout' from the federal government. If they do, faith in the dollar is further eroded, and we continue to paper over the fundamental problems within the system just like was done in 2008. If that is done, we will inevitably suffer for it.

If the federal government does not bail out these entities, they default and the market tumbles. The market tumbles in the midst of a double-dip recession. "Not cool" does not begin to cover it.

Anywho, that's happening, and will happen. There is no question that a bullet is coming. The only question is whether it comes now or later. The later it comes, the more it will hurt.

That's another reason the dollar is going to be devalued and the price of the $30 silver I've bought is going to go up.

Let's see here... if I just want to talk about investing sense, there are reasons that silver is a far better buy than gold. There's the price manipulation that is finally coming to light, for one thing. There is more 'paper silver' floating around then the actual physical silver that's supposed to be backing it up. As physical silver continues to be demanded, at some point physical deliveries are going to be impossible to make. What happens when you have a piece of paper you paid good money for telling you that you own silver, and then the silver you supposedly own isn't there? You now own a worthless piece of paper and can sue the person who sold it to you. If you own physical silver, you're going to watch its price skyrocket as its actual value is realized. Good day for your silver. Probably a pretty sucky day for everybody else.

I could go into why silver's a better buy than gold, but it's beside the point of why I'm writing. Man, I've gone off on a tangent. Forgive me.

The point I'm trying to make is this: Precious metals and commodities (I didn't even write about coffee and cotton) are rocketing in price because the world we know is changing. The dollar is being devalued. It is possible that it is being devalued in a way not unlike a rock rolling downhill and picking up speed and mass. It is possible that this is the beginning of a major devaluation. The piece I wrote isn't meant as an advertisement for precious metals investing (I would gain nothing from that aside from stroking my ego). The piece I've written is to illustrate one thing:

The writing is on the wall.

The writing is on the wall. The average person's finances and material life is being affected by things beyond his or her control.

How does the average man and woman keep control of their lives?
A better question:
How does the average man and woman not just survive, not just make ends meet, but actually flourish in hard times?

That's the question I want to see answered.

TEOTWAWKI/SHTF/The Survivalist Retreat/Other fantasies that miss the point

"May you live in interesting times."
-An old Chineese curse

When I was in high school, I remember having a closet full of plastic Gatorade bottles I'd filled with water. This was my 'store' for in case the water to my Missouri suburb was shut off. I told my friends about the impending demise of Western civillization. At the time, I was just getting big into Hubbert's theory of Peak Oil. After all, "All the world runs on oil, and it's running out!"
Hubbert was some guy from the '50s who predicted that since oil was a finite resource, and since man was taking it out of the Earth at ever-increasing rates, the time would come in history when man wouldn't be able to get as much oil out of the ground as he had the last year. This would be the 'plateau' of global oil production, and it would result in ever-increasing demand for a not-increasing (and then downright decreasing) supply of crude oil products (gasoline and diesel, for example).
That's the theory, and the theory is valid. Hubbert was right. In fact, it seems that the global 'peak' actually did occur in 2006. It happened five years ago! The chief economist of the International Energy Agency stated just last month (November) that "The Era of Peak Oil is Over."
Therefore, there should be mass rioting and chaos in the streets! Store shelves have been emptied! Martial law has been imposed! And woe to all of us who have not established our survivalist retreats to hide out from the slaughter!
Forgive my sarcasm. Obviously the world has not fallen into complete anarchy (atleast as a whole- certain parts are certainly closer to it than others). Zombie nazi biker gangs don't rule the land. Life goes on, just as it has through all of history.
So... does that mean we all get off scot-free? No, that's not right either. Please, let me clarify myself.
There's an old Chineese curse. I believe it says something to the effect of "May you live in interesting times." That is exactly the curse my generation (I write this as a twenty-something American midwestern collge student) is facing. Peak oil has happened. As the years go by, oil is going to become more and more expensive, and I will probably witness an international paradign shift at some point on what a 'daily commute' actually entails. Maybe someday soon.
And that's just the example I was using to make a point. In this day and age we have cyberwarfare, bio-terrorism, the omnipresent threat of economic collapse, and EMPs that can permanently shut down a nation without warning (just to name a few fantasies that could become reality in an instant).

What is a man to do?

I've played with the idea of writing this little blog for some time now. I grew up reading Rawles' survivalblog (as you very well might have too if you're reading this). As time goes on, the bug-out Rawles ranch survivalist retreat thing seems more and more like... escapism. Running away. Leaving society (and humanity) behind. I guess that's fine if you think civillization is worth nothing and is something we mere mortals have no power over (or responsibility for). But I have to believe I have some power to affect (and responsibility toward) my fellow man. I have to believe that even if the SHTF, I have a place helping to navigate the change in the world.
After all, SHTF rarely means alien commie invaders from outter Gurkastan. It looks a lot more like what we're already seeing. Unemployment happens. Poverty happens.
Losing your job in a time of 10-30% unemployment? That's a pretty freaky TEOTWAWKI right there.

I'm writing this blog because I think what's needed among the prepraredness community is less talk about beating the 'golden horde' and more thinking about how to see our little slice of humanity through a hard time. I would like to see ideas on self-employment, entrepreneurship, and on giving people reason to live a decent life. I want to know about moving away from a failed consumption-based society and towards one that produces. I want to see how we're going to take our little slice of history, our 'interesting time,' and run with it because it's what we're given.

Make no mistake- I'm not attempting to guss over reality. I advocate firearms and concealed carry. I do believe in food storage. Solar energy is a great way to get off the grid and be insulated from shocks in 'the system.' And storing water is a great idea. But if all the conversation consists of is how to 'isolate' yourself from a troubled world, then I have to believe the point has been missed.

The point?
All of history is simply a record of change and how men dealt with change. All of humanity is made of cities, towns, communities. We live in frightening times, and many of us, our neighbors, and our friends will go through harsh times.
How are we going to deal with it?