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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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The rancher didn't discuss memes. He did discuss the fact that, "bartering works good," so I'm saying he's legit.
But anyway, most people here know that gold and silver isn't going to save your life, it's going to save your wealth. If you went hardcore on some gold and silver without buying any food or a simple water filter, well, I'll look after your gold and silver when you're dead.
I don't see where precious metals will save your wealth. You can't eat them or fuel your car with them. What needs to be kept in mind is that markets are all about beliefs and expectations. The irrational bubble in beliefs and expectations, while fed by the Fed's fiat spigot, is the ultimate source of improper valuations. But regardless of how much money Helicopter Ben is willing to print, the bottom line is that there has to be willing users of the money/credit. The whole issue here is how mass perceptions are shaped by historical developments....or more so how historical developments are shaped by mass perceptions:
http://thespiritoftruth.blogspot.com/2011/03/reversals-from-thousand-mar...
"I don't see where precious metals will save your wealth. You can't eat them or fuel your car with them."
You can't eat dollars either, but you can use them to buy things (for now.) As long as gold is perceived as valuable, the discussion of it being edible is not relevant. Gold is rare, that is why its valuable. Eggs are not rare, that's why they are not valuable. Right now, dollars are still rare (although, becoming less rare), that is why they are still valuable. Once dollars become not rare, they will become not valuable. When will gold ever become not rare? Never. It's price may fluctuate, but it's never worth zero, because it's rare.
You guys seem to think that collapse means back to the stone age. When the USSR collapsed, gold was still money.
Then I guess you have never studied any history.
For that specious and vacuous, intellectually insulting comment, yes, I did junk you.
Apart from selling main street down the river...what else do the Oligarchs have on their agenda? Emigrating to southern hemisphere to flee the Fukushima fall-out? Raising beef in Terra del Fuego? Buying the Amazon from the Indians? If WS plunges they are out of the capitalist loop. The people will then have to reinvent a new capitalism...based on real money and real value in the real world. A new paradigm where oil and travel will be conserved to maximum and local will prime over global...with a vengeance.
Protein would be a decent hedge, unless Fukushima born, long half-life isotopes caught in the jetstream and tradewinds deposit themselves in all the grasses, grains, and leafy plants in the western USA. Then certified organic will not suffice, it must be certified energetic-wave-and-particle free. And since beef on the hoof resides higher on the food chain and acts as aggregating collectors of radiation, cattle will be viewed skeptically as protein sources. Protein sources like eggs or soy or beans will be most valuable if large livestock are tainted.
Collapse is hyper-inflation. You don't think the central bankers of historical precedent that monetized a nation to its death, weren't aware of the dangers? Corrective action by taking periodic economic contractions, deferred too long, are the recipe for hyper-inflation. You think the politico-banker cabal are going to cut off entitlements, military, and borrowing?
NEVER. TOO LATE. It is death by printing and repudiation. The jawboning is just to artificially induce a little more interest in the debt and dollar. An over-the-hill street solicitor who has exhausted every artifice used to seduce and must abjectly degrade herself to even garner a glance.
This is all well and good.
But don't rule out government interfering with your life. They make the rules and the elite will use government to make rules and regulations by which the elite will exctract the sweat of the ranchers. You may have to share your wealth for the benefit of the rest who will be starving to death, you may be legislated out of existence, unless you yourself become an elite and support your local politicians and the sheriffs.
Keep a low profile, stay small, under the radar and off the grid.
" be prepared to use your hands." Now, that's good advice. Where's Timmy's little pencil-neck? I need to use my hands.
by Imminent Crucibleon Thu, 04/14/2011 - 22:02
#1171082
" be prepared to use your hands." Now, that's good advice. Where's Timmy's little pencil-neck? I need to use my hands.
+1,000,000,000,000
Don't the banks bad derivatives far outweigh the value of the debts that they hold? If so, it seems to me that hyper inflation is in thier interest.
dbl
I don't know whether there will be a hyperinflation or not, but I do know that both Ackerman and Charles Hugh Smith are thick as a brick.
"How does hyperinflation benefit the central bankers?" is the wrong question. The many historical hyperinflations occurred not because CB's benefited, but because they passed every exit on the Highway to Hell until there was nothing left but the final destination of Collapse City.
They did so because of hubris and fear: Hubris that leads a Fed chairman to think that he can pull off what no previous bankster has managed, which is to print the money to pay debts without the people noticing that the currency's purchasing power is plunging. Fear, because the banksters and politicians fear the people; they fear public riots, and losing their jobs if they don't print and borrow and print to keep the bread and circuses on tap.
The Bernankster seems to be filled with and motivated by the same hubris and fear as all those that went before him.
+1
Nobody is perfect, aside from Jesus (to many).
Last time I checked, Jesus wasn't running the Fed.
As far as I can tell, the current Fed leaders aren't consulting with Jesus either.
Too far removed from reality like many of them before.
Obviously you have not heard the news. Lord Blankfein, a self appointed angel from Godman Shafts said, I'm just a banker "doing God's work".
They may not own all the PM's, but the own the mines and the politicians. That's all you need.
Not really, you also need energy...LOTS of energy to even start to perform the mining tasks that are required to maintain any sort of production in today's mining. I know the casual idea of a hole and a guy with a pick axe still stands, but mining looks like this today.
http://ceoworld.biz/ceo/wp-content/uploads/2009/07/riotintomine.jpg
That hole is about the size of all of downtown Seattle. The truck that drives all the stuff up and down the mine looks like this in comparison to a human.
http://www.thecasualtruth.com/files/images/Mining%20Trucks.jpg
http://www.cat.com/cda/files/953684/7/MinExpo_08_1126-40.jpg
http://thesheaf.com/wp-content/uploads/2010/02/Oil-sands-truck-Flickr.jpg
To actually process all the dirt and ore another city is set up to process it all.
http://www.boreal.org/drupal/files/images/PolyMet_processing_site.jpg
The population of those camps is usually incredibly large...well depending on the product being mined. In the canuck oil sands it's a situation where every 100 barrels made is 90 barrels used in energy to provide the facilities and operational needs of the entire operation.
I haven't even discussed the amount of food needed to feed 20,000 people. Plus the planes to fly them home, etc, etc, etc...