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The ‘How’ of a Collapse Is Not Our Only Concern
Our recent discussion of whether deflation or hyperinflation will lay waste to the economy elicited hundreds of responses. Two of particular interest are featured below. The first, from blogger Charles Hugh Smith, explains why it may be impossible to know with any certainty which of the two forces will prevail. The second, the thoughts of a Wyoming rancher, suggests that in a crisis, we may discover that our need for protein trumps concerns over gold, silver, Treasury paper and the dollar. Here’s Charles, in an excerpt from an e-mail I received from him several days ago:
I certainly wouldn’t want to debate anyone because my arguments are those of a trader, basically, not an economist. Maybe we will get hyperinflation, I don’t claim to know. What bothers me is the widespread conviction that hyperinflation is “guaranteed.” This smells like a one-sided trade to me, even if it more of a meme than a trade.
As we’ve both said, the other issue is, how do the Elites benefit from hyperinflation? The only answer I’ve ever received is “they’ve already bought gold.” Yeah, right. As I noted, there’s $7T in gold, total, half of which is owned by central banks, and there’s $160T in financial wealth to protect in the world. Even if gold went to $10K/oz there would be no more than $35 T in gold in private hands, and by that time, the gold in Fort Knox (or in the PBoChina vaults, etc.) would be enough to establish a gold-backed currency. Meanwhile, the Financial Elites would have lost all their financial wealth. Have they really transferred all their wealth out of all financial instruments and totally into gold and land? If so, then owns the $160T in financial wealth?
This explanation — that the wealthy have already transferred their financial assets into gold and land and thus they don’t care if all money, bonds, mortgages, derivatives, insurance policies, etc. all go to zero and is wiped off the books as an asset—makes no sense because it doesn’t explain who is the bag holder to all this “fiat-based” wealth. If the wealthy don’t own all these financial assets, who does? Who did they sell it all to? Yet we know that the Financial Elites own all this financial wealth and thus it will not be in their self-interest to see it wiped out. Only debtors, i.e. Central States, want to see hyperinflation to wipe out their debt. But who considers all that sovereign debt an interest-paying asset? The Financial Elites, that’s who, along with politically powerful union pension funds, banks, etc.
Everyone seems to forget that debt is an asset to the guy on the other side of the trade. The debtor would love hyperinflation but the owner of the debt will resist hyperinflation with every fiber of his being — and that includes the Financial Elite who own the debt.
Only Political Choices
This is basically a “politics of experience” analysis, and very few are equipped to understand such an analysis, as it’s outside their econometric comfort zone. They prefer a deterministic financial analysis that there are “laws” of economics which lead to hyperinflation, etc. Meanwhile, for me, there are only political choices, a narrow band of which lead to hyperinflation and a bunch of others which do not. This kind of analysis doesn’t lend itself to refutation or confirmation by financial models of the sort being bandied about — it’s a behavioral analysis and a political one.
I have yet to see how banks and the Financial Elites would benefit from hyperinflation. Without getting too fancy, it’s obvious that holders of debt, those collecting interest on debt assets, would be wiped out by hyperinflation. Thus as a simple matter of self-interest, we can deduce they will not favor policies that lead to hyperinflation. If the owners of debt (Treasuries, mortgages, corporate debt, commercial paper, etc.) were politically powerless, then we could expect them to be steamrolled by those who would benefit from hyperinflation. But they are not politically powerless — it’s the debtors who are powerless, except for the Central State, and it’s beholden to the Financial Elites who have captured the political and regulatory classes that govern the State.
How Many Angels?
Maybe we will experience hyperinflation after all. I am a skeptic, not a true believer, but I am certainly open to it as a possibility. I think all the financial arguments are somewhat akin to biblical debates about how many angels can dance on the head of a pin. They are fundamentally deterministic and apolitical, while the actual process of setting policies that lead to hyperinflation is entirely political.
I have no econometric arguments against hyperinflation, I only have political ones. But since politics sets policy, then hyperinflation is necessarily a political choice. So a political analysis will trump an econometric one in my view.
But I could be wrong. As a basically poor person, I don’t have much of a stake in either outcome.
***
When Gold Wasn’t Valuable
And here, with the final word, is the rancher, who posted under the pseudonym Bed Rock:
The place I looked to see how to be prepared for a dollar collapse was in the journals of the pioneers who settled the frontiers in North America two to three hundred years ago. When moving to an unexplored region inside the frontier, and being months of hard travel away from any civilization where the necessities of life could be purchased, is basically where we all will be when commerce stops because of a dollar collapse.
Bartering works good, but money was not very valuable, even gold. The people needed a place to live that offered protection from the weather, water and food. Everything else was and is a luxury. The people who had the talents of building shelters and producing food prospered and those that came with family money either died or went home broke.
So what I took from this is, be prepared to use your hands. Surround yourself with good, honest people who have talents in the many life-saving areas needed to survive any circumstances that may be thrown at us. Raising chickens, making bread, treating sickness, making a garden, a carpenter, etc. You will know what you need for your area.
I am a rancher and produce enough beef to feed approximately 6,000 people. But having to do that without cheap fuel, fertilizer, and life-saving drugs for the cattle, I will produce much less. But protein is one of the necessities needed to survive and something the pioneers treasured. If you succeed and prosper as our great country makes its comeback, you will have moved up the ladder of social and economic ranking. Survival of the fittest, and we will be rid of all those who live off of government aid. So don’t be caught with just a lot of gold and silver when the collapse comes. Sell some and buy the tools you will need to survive so you can use the metals latter when civilization returns.
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Rick and Charles also ignore the fact that for many in the elite, particularly in the political elite, the crucial issue is not so much maintaining wealth as it is about maintaining power. And with today's sheepish population, and the chaos that would result from any monetary upheaval, any hyperinflation or currency collapse would be a perfect excuse for the sociopaths in power to assume even more power over the citizenry.
One of the largest motivators for elites is perversion. The level of perversion among dictators, rulers, tyrants, and the Washington and Wall Street elite is phenomenal. It is Rome all over again. Follow some of the Washington Post articles on male/female prostitution on Capitol Hill. I've known several capitol hill insiders who told about drug parties, perversion, slavery, bondage, etc. There is no rationality to their actions because the actions are driven not by logic but by peculiar quirks of mental sickness.
Power is more important because it guarantees eventual wealth.
+1000 and, power = control = wealth = power = control
I disagree. Did the French aristocrats or the Weimar government maintain or expand their power after their bouts of hyperinflation?
Yes, in fact in both cases they did maintain their power. Do not confuse the monetary and economic chaos resulting from the assignat and the mandat with the political upheavals of the French Revolution itself, which happened before, and led to, the repeated French disasters with fiat currency and hyperinflation.
In the Weimar case, Havenstein conveniently died of a stroke on the eve of the inauguration of the Rentenmark and the end of the hyperinflation, but I know of no leading German bankers or politicians who were ousted or otherwise lost their positions as a result of their disastrous monetary policies.
Even Gideon Gono is still the Governor of the Central Bank of Zimbabwe, despite his infamous role in leading that nation into a ruinous hyperinflation several years ago.
So much for the "fear" of the elites losing power via hyperinflation.
Protein? 'Beans, beans, the musical fruit....'
http://store.honeyvillegrain.com/beansandpeas.aspx
A few comments. Gold had the lowest value in history in the gold fields of California during the gold rush. Gold was ostensibly $20/oz and William D. Wilson, writing to the "St. Joseph Valley Register," on February 21, 1849, gives the following schedule of prices at Sutter's Fort:
Flour, per barrel .......... $30 to $40.00
Salt Pork, per barrel .......... 110 to 150.00
Salt Beef, .......... 45 to 75.00
Molasses,.......... 30 to 40.00
Salt Salmon .......... 40 to 50.00
Beans, per pound .......... .20
Potatoes, .......... .14
Coffee, .......... 20 cents to .33
Sugar, .......... 20 cents to .30
Rice, .......... 20 cents to .30
Boots, per pair .......... $20 to 25.00
Shoes,.......... 3 to 12.00
Blankets .......... 40 to 100.00
Transportation by river from San Francisco to Sacramento, he says, was $6 per one hundred pounds. From Sacramento to the mines by team at the rate of $10 for every twenty-five miles.
(Ref: http://www.kidport.com/reflib/usahistory/calgoldrush/lifeof49er.htm)
The lesson: gold lost a lot of value but without it you were dead!
So stuff was still cheap in the gold rush? Divide those numbers by 70 for the equivalent of gold at $20/oz and today's gold at $1,400/oz.
Expensive blanket: $1.43
Rice : 1/2 cent per whatever measure you quoted
Boots: $0.36
Salt pork: $2.14 /barrel
Er.. that's multiply.
The men in the mines knew prices were high but they also knew goods were scarce and gold was not. Many believed the flood of gold from California would drive the value of gold down around the world. They wanted to spend their gold while they could get something for it. So they knew inflation and deflation.
ever watch Survivor?? you will be able to pick from the dead anything you need for 100 years
the time he was talking about was NEW FRONTIER.. this will be a wasteland full of all kinds of discarded shit
and plenty of people in one area living fine as other areas just rot
Detriot...
+ Karptown
I keep a couple of jars of whey protein around with my other canned meats.
You might want more than a couple of jars. Just think of it as hedging inflation by buying now to save later.
Soylent Green.
There is some merit to paying attention to what "THE TURD", Soros is planning to do. Remember the April 8th posting here:
http://www.zerohedge.com/article/soros-speaks
I think there is some merit to the concept that politically most of the wealthy do not want hyperinflation. Most probably do not.
However, do all wealthy people carry the same political and economic weight? No. I don't know how realistic this is, but one way I could see this playing out is a certain group of wealthy using their economic and political influence to strip the wealth of the rest of the wealthy. Hyperinflation might be a good way to accomplish this.
Rick is right in the sense that trying to predict if/when a hyperflation will happen is like trying to predict if a violenting barking Rottweiler will bite your head off or just bark his head off.
This happened to me last week. I thought I was gonna die when a loose Rotty ran towards me. Everything about this situation told me I was a dead man... the intense look in his eye, the whites of his sharp teeth, the pitch of his bark, the saliva dripping from his mouth, his front legs bouncing up and down. I was intimidated, I was prepared to be his lunch. However, I did not run from the dog, I stood my ground. Then, a strange thing happened. He stopped about 2-3' in front of me and did not attack. Rather, he just continued his intimidating offensive onslought of signaling to me that he was going to attack, but without actually doing so. Needless to say, his owner finally got control over him, and the potentially serious situation was over just like that. After a brief exchange of words with the dogs owner, I was back to business as usual.
Point being, hyperinflation is unpredictable...it could happen tomorrow, next week, in 5 years, 15 years, 75 years, or it could not happen at all. And even if it does happen, it may not happen in a conventional or textbook method that is even plausible to us at this point. It is a risk that one must hedge against, but only one of the many risks on the horizon.
Having said that, I think the cloud of hyperinflation is almost as bad (or worse) than the hyperinflation itself in some aspects. (In other words, you're more likely to shit your pants just seeing the loose Rotty running towards you, than you would be if the dog actually bit you.) It is because of the uncertainty in the world and the declining dollar, that gold will continue to rally long-term (of course, not without short-term dips). Once there is a conclusion to this chapter in our history, and some semblance of certainty is restored, gold will not play as big of a role (unless a gold standard is the end-game...which is not a for sure thing.)
Molly and Abby ... Rotties barking at the angels now.
Rotties are nice but we have switched it up with one of the other devil dogs ... Boston Terriers!
I got one of them in my house.
thought he might help a little bit with the security arrangements.
turns out, he is TERRIFIED of my cat. I mean, PETRIFIED!
http://www.youtube.com/watch?v=5sAF8gMN9c0
so he solved two problems, if the cat left.
Oh if the rancher's nostalgia were even close to today's reality. "and being months of hard travel away from any civilization where the necessities of life could be purchased, is basically where we all will be when commerce stops because of a dollar collapse." Sorry dude (pardon the pun), that was then this is now. Where ever your ranch is in the U.S. you can't be more than a day's march from a population centre of at least hundreds if not thousands of hungry, deperate raiders. They will descend upon your piece of heavan like locusts. If your going to defend your land and your family, I hope you have lots of bullets.
Either you have never been out West, or you have never had to march a day, even on a full stomach. From your comments, I would guess both.
I would have to agree. Even the most hardened hiker understands every foot step empties the human gas tank. Being over 100 kms from my closest city is enough to give breathing room. Cities rely on the country side for their food. If supply chains break down, people in cities will just die off. All it would take is gasoline to not be delivered for a week and that would spell it out for anyone in a city.
Meanwhile most people in the city will just wonder why nothing is working and there is no food. They'll blame the government and each other. Much like Egypt is learning. Doesn't matter who is in charge, without food, no one is really in charge are they?
i've been out west, in fact rode a bicycle across the entire US, and yes, lots of wide open spaces, but...
there was no place i didn't get passed by at least a couple of cars an hour.
in anyone in any population center within 500 miles knows of this rancher's spread, and only if 1/10 fo 1% can get there, his cattle and his plan will be gone long, unless he can support a small army.
Ranchers have a strong sense of community, and his advice was to: "Surround yourself with good, honest people who have talents in the many life-saving areas needed to survive any circumstances that may be thrown at us."
So, being a long-time member of a community you help your neighbors and you don't expect to be paid for your help because they are going to help you when you need them. So, I figure they do have a small army of sorts. Probably lots of these folks have weapons and/or military experience and/or kids that do. May work out OK or it may not...time will tell.
and if they want to live beyond subsistence, they will either specialize and save and exchange and grow abilities with mutual advantage, or die one by one as they get picked off in attrition.
if their community is not large enough to justify an abstract unit of exchange, they will likely be overtaken by mobile well armed parasites.
there is a distince strategic disadvantage in having your value concentrated and locked in one location.
that's why even large well defended castle towns worst enemy was a siege.
villagesmithy's got it right.
+10
The Central Banks have most of the gold and silver already, along with collateral guarantees from nation's stockpiles. (including ours)
Hyperinflation guarantees the "owners" of our central banks even more power and wealth once they have destroyed our paper, then collect the debt from the nation's they have bankrupted.
Actually, that is not true --- world central banks hold less than 25% of the world's existing stockpile of gold, and even that figure assumes that they hold all of what they claim to hold (US government and Fort Knox, I am looking at you).
The primary assumption Charles and Rick make is that the elites are still in control. No doubt they have reaped massive wealth, but the monetary system has many qualities of a dynamic system. Dynamic systems have a way of spiralling out of control when extremes are pushed. I personally think they are way, way out of control and are observers with limited ability to affect a change of course at this point. imho...
Edit: Furthermore, it's not so much about hyperinflation vs. deflation as it is about the death of old paper and the birth of something 'different'...
Nature abhors a vacumm, I am making it my intension to fill that gap left by the inbred blood bloods and not by democratic means either.
Once the three-card monte has stolen all observers' cash, wristwatches, cigarettes, etc. they must spare themselves from cumulative wrath. Similarly, the elite will attempt to introduce a new currency. They will have succeeded in destroying the backbone of US sovereignty - enabling another attempt at One World Gov't. Most US citizens are already willing slaves - excessive and compulsive consumption in every conceivable appetite. A House of Ruin.
All that wealth Ackerman speaks of is on paper. None of the elite can tangibly control all of their physical assets at one time - ownership is on paper, well, microchips. Destroy the records and "possession is 9/10ths". The question is whether or not the elites will maintain control - collapse of the dollar is inevitable.
Agreed, USD collapse is inevitable The elites trying to maintain control is also inevitable. The wildcard is whether an armed and highly determined minority will step up. To this I offer my sword.
Along with the collapse of the US dollar will come the collapse of a few other things.
I imagine, few electric utilities are going to continue to operate without payment.
They probably are not set up very well to barter, either, and accept chickens, beans,
or even silver coins. Pretty much, the cell phone companies are in the same boat.
As are the internet providers.
Take away the electric grid, and you just lost all the gas stations, because all their pumps
are electric. You also lose all the repair people because no one can call them
or email them about problems and because they can't locate or order parts.
Then, too, there are precious few americans who have enough skills or ingenuity to do
everything that it takes to survive, without any electricity.
clocks? electric lights? thermostats? fans? heat in the winter time?
cook, light the stove, keep meat fresh without refrigeration?
pump water without electricity? remove sewage without electricity?
I believe we have a bigger mess coming down at us,
and I mean ALL of us, from the ultra rich to the foodstamp addicts,
than anybody has yet to rationally consider ....
and you get the award for the doomiest porn in the thread yet. think i'll go watch 'the road'.
wealth is nothing if you can't possess it.
it's like war - the plans will work until they don't. if they can't command troops to 'take' their 'rightful' 'wealth' from us, they have no plan, and neither do 'we'.
In my teens (I left home very young) I lived without electricity for 2 years. Outhouses, woodstoves, always bought in bulk and grew most of our food--it's not that tough unless you are a city dweller. We had no running water except a river too--and a mighty clean one at that.
Get out of town and you can get off the grid fairly easily.
IMO, in a collapse scenario, the dense urban populations would quickly find themselves in desperate straits. It's very well described here: http://www.ki4u.com/nuclearsurvival/survival/books/doomsday/index.htm .
They would swarm to the suburbs and steal everything there. They would then proceed to the countryside, where they would be met by a hail of lead. I have always been instinctively afraid of densely populated areas. Their survivability in extreme circumstances is nil. And you can't rely on your car to get you out, because hysterical people will jam up the roads with wrecks. I know, I'm a paranoid basket case and a control freak. But I have a saying: Optimists die young.
you can find places right here in chicago and I imagine other cities where local rules apply, they are armed and its their version of 'orderly'. Any hint of widespread break-down will develop quickly, that is not pessimistic, that is just real.
you can find places right here in chicago and I imagine other cities where local rules apply, they are armed and its their version of 'orderly'. Any hint of widespread break-down will develop quickly, that is not pessimistic, that is just real.
Everything will return to normal after we get past this dollar-collapse thingy. We have had whirled peas since the 40's - what would change that now?
Eating hard red wheat, and most whole grains, provides more than enough protein.
http://beprepared.com/category.asp_Q_c_E_79_A_name_E_Superpails
How does something like that get published when there are plenty of thoughtful people to consult about such matters?
Of course, both are right to some extent. Any portfolio that wishes to maintain or grow its level of value during these times will consist of more than just PM's. Productive, arable land might be one such asset.
Wrong. These people already have been there and they used gold to get what they needed to survive:
Gold for Bread
http://www.youtube.com/watch?v=PRci4BNO0pQ
Since, according to Ackerman, the elites would never benefit from hyperinflation, and therefore would never allow it, why then have we had periodic episodes of hyperinflation thoughout history? I do agree that after one secures gold and silver, one ought to protect oneself with life serving assets such as water, food, tools, guns, skills...and so on.
I come from the opposite view. One ought to secure the lifer serving assets FIRST, then buy silver and gold.
What if the plan of the elites isn't to maintain power but to drop the world population by 90%? If we change the initial assumption to this one, then what would be the best way to accomplish this? How about taking a world population that is mostly dependent upon division of labor and cheap fuel, starving it of fuel and wiping out the purchasing power of the currency in a rapid manner so that bartering can't get off the ground effectively? Would that do it?
What would the "elites" have to have done prior to this event to ensure their survival?
Control large tracts of land and command loyalty from the people working their land? Have bunkers and supplies stockpiled? Is this that great of a feat for an extremely wealthy man?
Aren't there rumors of these actions being taken by our gov't officials? Underground cities and bunkers?
Has this happened to any great extent? I'm asking as this would be a large "tell", IMO.