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Wars, and Rumors of War
I got a hoax press release on Friday about Chile declaring war on Peru. But meanwhile, there are lots of real wars gong on. Fierce
fighting has broken out in Lebanon. And to top
it off, crude
oil spiked to an all-time high of $126 per barrel, in part because
of tensions between Venezuela and Columbia.
In the midst of all this war news, the ongoing global grain shortage crisis
is likely to cause additional civil wars, and possibly cross-border wars. It
is
all too
clear that we are living in very dangerous times. Let's call them fragile times.
In such circumstances
it is
prudent to be well prepared. Si vis pacem, para bellum.
If you haven't done so already, get your beans, bullets, and Band-Aids squared
away, muy
pronto.
This advice is meant for all of SurvivalBlog's
readers--all over the globe. (We
have readers in 130+ countries.) Modern commerce is now so globalized
that shortages and conflict anywhere affect us all. Pray hard.
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Louisiana Sales Tax Holiday for Hurricane Preparedness--May 24 & 25
Residents of the US state of Louisiana can purchase needed items
free of sales tax as they prepare for the 2008 hurricane season.
The inaugural 2008 Hurricane Preparedness Sales Tax Holiday takes place on
Saturday, May 24 and Sunday, May 25. The holiday is an annual, statewide event
created by the Louisiana Legislature to assist families with the important
job of protecting their lives and property in the event of a serious storm.
During the two-day holiday, tax-free purchases are allowed for the first $1,500
of the sales price on each of the following items:
•
Self-powered light sources, such as flashlights and candles;
•
Portable self-powered radios, two-way radios, and weather-band radios;
•
Tarpaulins or other flexible waterproof sheeting;
•
Ground anchor systems or tie-down kits;
•
Gas or diesel fuel tanks;
•
Batteries – AAA, AA, C, D, 6-volt, or 9-volt (automobile batteries and
boat batteries are not eligible);
•
Cellular phone batteries and chargers;
•
Non-electric food storage coolers;
•
Portable generators;
•
Storm shutter devices – Materials and products manufactured, rated, and
marketed specifically for the purposes of preventing window damage from storms
(La. R.S. 47:305.58).
The 2008 Hurricane Preparedness Sales Tax holiday begins at 12:01 a.m. on Saturday,
May 24, and ends at 11:59 p.m. on Sunday, May 25.
The sales tax holiday does not extend to hurricane-preparedness items or supplies
purchased at any airport, public lodging establishment or hotel, convenience
store, or entertainment complex.
For more information, visit the State
of Louisiana web site.
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Is Survivalism Just "Unbounded Imagination of Anxiety"?
It never fails that when the mainstream media writes about survivalists, they
try to lump us together with racists and tin foil hat whackos. Failing that
(since the whackos represent such a miniscule fraction of "survivalists"),
they will often trot out a psychologist or other "expert", to try
to convince the general
public
that
preparedness is
irrational
and that
it is
evidence
of
some deep-seated paranoid
delusion.
This was the case in the recent BBC news article titled: "Do
you need to stock up the bunker?". The article focused on Barton
Biggs,
who is a well-known and relatively mainstream hedge fund manager and economic
commentator. Biggs recently became a convert
to survivalism, and that got the liberal media all in a tizzy. "Well,
we mustn't have that!" they grumbled. So it was time for the "expert" gambit.
The
BBC rolled out this nay sayer:
Frank Furedi, the British-based author of The Culture of Fear, says people
should calm down.
For all the talk of a global bird flu pandemic, in the past five years there
have been 200 human deaths from bird flu. In the same period more than six
million people have died from diarrhoeal diseases and more than five million
in road accidents – these would seem to be more pressing, practical problems
to solve.
"What's interesting about the 'new survivalism' is that its focus is everything," says
Prof Furedi. "Unlike previous alarmist responses to a crisis which focused
on one main threat – for
example, nuclear war – today's survivalism is driven by an unbounded
imagination of anxiety."
"The new survivalism can also be seen as a highly ritualised affectation," says
Prof Furedi. "Through self-imposed restraint and expressions of concern
for the future of humanity, the individual sends out signals about his
own responsible behaviour."
"The affectation of survivalism is one of the most interesting features
of our
'culture of fear' today."
I have a self-diagnosis to report to Professor Furedi: One of the "highly
ritualised affectations"
that I have is the desire to put food in my stomach at least once per day.
This is a deep seated desire. I also have a corresponding deep seated fear of
missing too many meals. Clearly, I must be suffering from "anxiety"
and
have irrational delusions.
I suggest that Professor Furedi make
some changes at his Ivory Tower. First, he needs to stock it with some canned
goods.
« Odds 'n Sods: |Main| Note from JWR: »
Spotlight Falls on Silver's "Poor Fundamentals" by Jason Hommel
An article by Pratima Desai that was circulated by the Reuters news service,
included this:
LONDON, April 28 (Reuters) - Investment money flooding into silver has overwhelmed
poor fundamentals and helped it to outperform gold, but the tide could be turning
for precious metals and the probability of large losses is rising.
THE REAL TRUTH IS:
Silver has outstanding fundamentals, and silver's downside is minimal, and,
in fact, it probably just bottomed, as I will show.
Silver's price falls in percentage terms are likely to dwarf those seen in
gold, which some fund managers say has stronger supply/demand fundamentals.
Again, the opposite is true, silver's supply/demand fundamentals are much better
than for gold, as all the smart money knows, and as I will show.
"History shows that when you get a substantial correction in precious metals,
silver falls more than gold ... It's a more volatile market and smaller in
value terms," said Stephen Briggs, analyst at Societe Generale.
That's true, silver is more volatile, and in a bull market for silver, which
we are in, silver will clearly outperform gold, as it has outperformed gold,
as the silver to gold ratio is narrowing, from 80:1 to 50:1, and we have a
long way to go to get to the historic 15:1 ratio, or we will likely exceed
it, with silver moving even higher.
One big reason behind surging prices has been the tumbling dollar, making commodities
priced in dollars cheaper for holders of other currencies. The weak dollar
also prompts producers to raise prices to protect profit margins.
Silver producers do not have the luxury of raising prices. No commodity producer
does. All commodities in the world are either sold at the spot price, or under
long term contracts that have already been agreed upon, which, in this bull
market, are usually at lower prices than today.
Last week the dollar fell to record lows against the Euro, to beyond $1.60,
an event which has caused many to question whether further losses can be sustained
and whether it has bottomed.
While the excess creation of paper money is one of the best factors for higher
silver prices, the dollar's relation to the yen and Euro has almost nothing
to do with it's relation to silver and gold prices. All paper money, the yen,
Euro, and the dollar, are all falling against silver and gold, generally, since
2001 and that trend will continue.
"The dollar is not going to keep on depreciating forever," Briggs said.
He expects gold prices to average around $900 an ounce next year from $1,025
this year and silver to average $15.50 compared with $19.20.
Well, actually, the dollar could keep on depreciating forever, as all paper
currencies in all of human history have eventually done just that. It's silver
and gold that cannot depreciate forever. Furthermore, these spokesmen from
the large banks and brokers are always revising upwards their estimates of
silver's future prices, and it's always behind where silver ends up going;
I've seen this pattern for the last eight years now. Since when have the large
banks or brokers called silver right? When did they advise you to ever get
into this market to make several hundred percent since 2001? They never did.
And now they want you to sell? They always want you to sell.
Financial uncertainty, which has underpinned precious metals since last August
is to some extent becoming less important to investors seeking the higher returns
stocks and bonds offer.
Stocks and bonds offering higher returns? Since when? Only if you go back 30
years, but not the last 8. The Dow/Gold ratio topped out in 2001 at about 56
and has narrowed down to about 14 now that gold has hit about $900.
With a weakened case for holding precious metals, prices have started to slip.
Spot gold is now around $893 an ounce compared with a record high of $1,030.80
on March 17 and silver at $17 from a 27-year high of $21.24.
Weakened case for holding precious metals? What weakened case? They made no
case. They didn't even get the facts right. The current dip in silver is probably
the bottom, and now is probably the best time to buy!
Goldman Sachs recently said it expects to see gold prices at $835 an ounce
in 12 months and silver at around $15.50.
Here's another investment bank revising their estimates upwards again, but
making bearish calls. Hilarious. Pathetic. Bullish!
RECYCLING
From the end of last year to March 17, silver prices surged by more than 40
percent, while gold was up more than 20 percent. Silver's heftier gains were
built on investor flows.
Absolutely. Investment demand for silver surged from 5% of annual mine supply
to maybe about 8-10% of annual mine supply, we'll see soon.
Barclays iShares silver trust, the biggest silver exchange traded fund listed
in the United States, now holds more than 5,770 tonnes of silver, a rise of
about 10 percent since the end of last year.
Gold holdings by New York-listed StreetTracks Gold Shares, the world's biggest
gold Exchange Traded Fund (ETF), stand at 591 tonnes, down about 5 percent
since end-December.
I agree with those stats, but look at what they mean. With gold trading at
about 50 times the price of silver, and the gold ETF holding more than 1/10th
of the tonnes of the silver ETF, it means that about 5 times as many investment
dollars went into the gold ETF.
"Silver is probably going to fall more than gold in percentage terms," said
Wolfgang Wrzesniok-Rossbach, head of sales at German metals trading group Heraeus.
"From an industrial and jewelry point of view, there has clearly been
a decline in demand. There has been a lot of additional material coming to the
market
in the form of scrap."
This "German metals trading group Heraeus" is not said to be either
long or short. They could very well have short positions, and just inventing
things. They appear to be a silver user, at first glance here: http://en.wikipedia.org/wiki/Heraeus
More than 20,000 tonnes of silver were produced globally last year compared
with around 2,500 tonnes of gold.
I agree with those stats. What is not said is that 160% of gold mine supply
is purchased by investors each year or about 4,000 tonnes of gold. In stark
contrast, about .07% of silver mine supply is purchased by investors each year,
about 1,555 tonnes, or about 50 million ounces.
The surplus in the physical silver market is expected by some analysts to rise
to around 2,500 tonnes from a surplus of around 900 tonnes in 2007. The physical
gold market could see a surplus this year of 600 tonnes from 500 tonnes last
year.
There is no such thing as a "surplus" of precious metal. This is
an accounting term, used to designate demand by investors.
"Fundamentals come into play when prices are coming down," said John Reade,
analyst at UBS. "Silver doesn't have gold's fundamentals."
Exactly. Silver does not have gold's fundamentals, silver's are much better.
With industry consuming more silver than is mined each year, any slight increase
in investor demand for silver will continue to drive silver's prices upwards,
and make a mockery of all of wall street and all they do and all they have
to offer. This is why they must band together, to write lying foolishness against
silver as they do. This can only be an indication of them feeling pain in the
silver market, not being able to coax out any supply from investors after having
bombed the price in the last few weeks. The silver shortage is continuing with
many coin shops still very low on silver supplies, as investor selling by the
public, which was a large part of recycling supply, has changed since gold
hit $1,000/oz., and now must be putting the squeeze on all of wall street,
who are probably carrying a collective short position in silver.
ONE SOURCE OF DEMAND
Silver is often a byproduct of other metals such as lead, zinc and copper,
where miners are trying to ramp up production with some success.
Funny theory. True, about 70% of silver production is as a by-product of the
base metals. I just read that Chile, who produces 40% of the world's copper,
is ramping down copper production due to a power crisis. And several more trusted
analysts in our industry have finally turned bullish on copper recently.
That means more silver on the market and together with scrap recycling, supplies
are set to jump this year, while overall demand, including that from ETFs is
expected to fall.
Why would they project demand from silver ETFs to fall? That would be quite
a change. It's rather hard to predict such changes; it's usually more likely
that things will stay the same, with ever increased demand from the silver
ETFs.
"Silver is very dependent on one source of demand -- ETFs.
That's not true. Silver prices will go up even without new investor demand,
due to the overwhelming fundamentals that there is so little investment demand
at all.
You can't get excited about silver in the same way as gold. Silver doesn't
really have the same cachet," Briggs said.
Now that's true. Silver has absolutely no cachet. As I wrote above: 160% of
gold mine supply is purchased by investors each year or about 4,000 tonnes
of gold. In stark contrast, about .07% of silver mine supply is purchased by
investors
each year, about 1555 tonnes, or about 50 million ounces. So, how much money
is spent on gold vs. silver each year?
Silver: 50 million oz. x $17/oz. = $850 million.
Gold: 4,000 tonnes x 32,151oz/tonne = 128.6 million oz. x $900/oz. = $115,743
million, or $115 billion.
Thus, 136 times as much money is spent on gold, than silver, by investors each
year. Silver has absolutely no cachet, true, so true. And yet, the fundamentals
are so much better, precisely due to that lower investor demand. When investors
get educated about silver, they buy hand over fist, and create shortages at
major coin shops around the world.
"Demand from the photographic sector has been falling fast ... It's no longer
an important source of demand." For gold, the picture is somewhat different.
Mine production is expected to hold steady this year, but analysts expect output
in South Africa, a major producer, to fall over coming years because the ore
that remains is deep and expensive to access.
Wow. What a totally biased statement, telling half truths that are totally
irrelevant to silver vs. gold. These guys must either know nothing, or be intentionally
trying to hammer silver prices. Silver's declining photography demand is being
offset by rising industrial demand and the tiny increase in the tiny investor
demand.
Fabrication demand -- jewelry and coins -- is expected to continue unabated
as rising incomes in emerging market countries such as China and India allow
people to choose gold over silver.
More hatchet jobs against silver are expected, while they continue to say that
silver prices will be expected to fall, while silver prices actually rise.
The reason that the establishment will not tell you to buy silver is because
they don't have any. The investment demand is so tiny, they hardly have any
silver at all, and have never been able to enter the market in any size. How
can wall street establishments, who receive bail outs by the Fed, to the tune
of $20 billion dollars at a time, buy any silver when the silver market is
swamped by less than $1 billion of investor demand annually?
Be fruitful, multiply and you will see through the lies. Buy silver.
They lie. - Jason Hommel www.silverstockreport.com
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Letter Re: Food Shortages at COSTCO and Sam's Club Stores
James,
I visited COSTCO store in
Woodinville, Washington Saturday morning, right at the store's opening time.
I had my doubts about the reality of the shortages, and needed
to
shop, anyway, so I thought I'd check it out for myself. They had eight big
warehouse guys escorting two pallets of rice out to the showroom floor just
about the time I arrived. Six of the eight then stayed with the rice, handing
it out to customers as needed. Both pallets were completely sold out by the
time I left the store about 45 minutes later.
I talked with two of the warehouse guys independent of each other, playing
dumb and asking what was going on. Both said they were receiving normal shipments,
just as they always had, but that customers were spooked and buying a lot more
than normal. Both told me they expected their next rice shipment on Tuesday.
One of them also told me (then showed me) that they were completely out of "general
purpose" flour, and only had specialized bread-making flour in stock.
Both swore up and down (and I have no reason to think they were being less
than
honest) that there were no shortages, just a run on things
that they blamed on the media. There was enough cooking oil to fill a swimming
pool, no shortages there. - Jeff F.
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Two Letters Re: Food Shortages at COSTCO and Sam's Club Stores
Sir,
Yesterday I went to COSTCO to
check out the rice situation (and grab a cheap lunch). Today, a friend said
he wanted to go, so being that he doesn't have
a [membership] card I went with him. Not only was all the rice gone except
for a few very small bags of some long grain nasty stuff, but where there had
been
pallets
of rice 24 hours earlier, now there was other items (macaroni and cheese
and something else). I overheard about a dozen people complaining about the
rice situation, and all of them just wanted "a few bags for themselves,
but everyone was hoarding thanks to the news". Still plenty of flour
and tons of oil and such, but unless you want minute rice, you were out of
luck. - Jeff S.
Mr Rawles,
I was looking thru my welcome page news reports some more before moving on
to some of the other things that I do before I log off for the day and found
this one next. Sam's
Club, Costco Limit Rice Sales.
It hit home so to speak, because I was at the local COSTCO a few days ago with
my cousin, and we picked up two 50# bags of rice for him and his family. While
we were there, I also noticed a posted limit sign on the rack, that stated
a limit of 10 per customer. I won't mention the price per bag, but it was a
$6.00 savings per 50 pound sack versus the local Sam's Club,where he
is a member. I plan on going this weekend to get a bag or two to add to my
family's
pantry
as well.
BTW do you or any of your readers know how long flour will keep in a sealed
container, and can you keep it put up like beans and rice in sealed mylar bags
with oxygen absorbers, or vacuum sealed bags ? And if so, how long of a shelf
life would it have ? Any help on this question would be greatly appreciated
- Dim Tim
JWR Replies: I describe the storage life of various foods,
and the effects of different packaging in my "Rawles
Gets You Ready" preparedness course. Here are two brief excerpts from
the narrative of our COSTCO walk-through:
Now we’re standing in front of pallet racks of bulk rice, in bags. You’ll
notice they’re packed here in three different ways. Of the three, I prefer
this style here, which is a woven plastic material. It looks like tarp material
that has a little grid mesh to it. It stores a little better in these types
of bags, but even in these the shelf life is limited.
In the paper bags or in the traditional burlap sacks, the shelf life is very
limited. The old burlap sacks look cool, but have the following problems:
a) They’re an invitation for rodents to get in to the rice, and
b) Oxygen is in constant contact with the product and as a result, the shelf
life is very short, indeed.
Q: I thought rice lasted forever?
A: No, and here are a couple of things to keep in mind. If the rice is in a
non-airtight package like the sacks we’re looking at right now in front
of us, the rice will actually draw moisture and start to lose nutritive value
within 6 to 8 months.
With things like rice, wheat and beans, I recommend storing an amount equal
to the full shelf life for each, because all the extra you have on hand, assuming
you have the storage space for it, is fantastic for barter and for charity.
So, for example, say you have rice that you’re packaging in a method
that will store it for 10 years. Go ahead and store a 10 year supply for your
family. Use it up systematically and 5 years down the road you’re probably
going to end up buying another big batch and rotating it on through.
---
In general, from a nutritional and flavor standpoint I prefer brown rice.
The bad news is that brown rice has less than a quarter of the shelf life of
white rice. If it’s in a sealed, airtight container, you can store white
rice for 10 years and have 80% of your food value. It will store in normal
store packaging for 6 to 8 months before it starts to lose some nutrient value.
Brown rice packed
in an oxygen-free environment will last 1 to 2 years. But it will only last
about 6 months stored normally.
Brown pearl rice (the short-grain type that sushi rice is milled from) is great
nutritionally.
Unfortunately, when white rice is milled, what they’re
doing is stripping off that brown shell. That brown shell is the short storage
life component of the rice. What you’re left with is white rice, which
is, at best, pretty poor nutritionally. It’s okay if you’re going
to have a good food supplement and good vitamins on hand. I prefer the taste,
texture, and nutritive value of brown rice. Unfortunately, it only stores for
a year or two, even if you pack it just right.
Q: But we can at least meet my goal of having a year’s supply, right?
A: Absolutely. Store a two year’s supply of brown rice and consume half
of it every year.
---
Elsewhere in the preparedness
course,
I describe my preferred storage method--using food grade buckets--and various
methods for insuring that larval bugs won't hatch
and destroy the grain or legumes. Here is an excerpt:
To save money you will probably want to buy rice, wheat, and beans in bulk.
This usually means 50 pound sacks. Sacks are problematic, since what you really
want is a vermin-proof, moisture proof container that is also air tight and
preferably evacuated of oxygen. Those are the keys to true long term shelf
life, and none of them are provided by a cloth, paper, or woven plastic sack.
The solution is to re-pack your bulk food in food grade plastic buckets. Here
is how:
Food grade five or six gallon bucket with o-ring seals are available through
a variety of Internet vendors. Be sure to specify food grade when you buy. Other
buckets intended for products like paint are not safe for use in food storage,
even if bought brand new. Although these usually have the same white plastic
formulation, they are typically manufactured using a different mold release agent,
which is toxic. So don't buy paint buckets!
Used food grade buckets are often available for free or perhaps a dollar apiece
if you ask around at local delicatessens and bakeries. Flour buckets are usually
best, since buckets that were used for pickles or peppers might leave you with
food that has undesired flavors!
The method that I use is as follows: Line a bucket with a large plastic bag and
pour in the wheat, rice, or beans, shaking the bucket and tapping it on the floor
several times to get the bag completely full. You don't want any air gaps. Fill
the bag so that the bucket is filled to within one inch of the top. Then toss
two oxygen-absorbing packets (available from Nitro-Pak) into the bag.
If you don't have access to O2 absorbing packets, place
a small chunk of dry ice on top of the grain, inside the liner bag. I usually
use a piece that is about as big as my thumb. As the dry ice "melts" (sublimates)
it will fill the bucket with CO2, displacing the oxygen.
Keep a watchful eye on the dry ice. Once it has sublimated to the diameter of
a nickel (and not any thicker than a coin) seal the bag with a wire twist tie.
On top of the sealed bag, place a 2 ounce bag of silica gel desiccant. (Also
available from NitroPak.) Then immediately seal the bucket, securing the lid
with firm strikes from a rubber mallet. This will seat the lid and compress the
o-ring.
WARNING: If you don't wait until the dry ice has nearly completely sublimated
before you seal the bucket, then dangerous pressure could develop. (A "dry
ice bomb.") Again, you must wait until the dry ice chunk has sublimated
to the diameter of a nickel, and not any thicker than a coin.
The end result: Very dry food in a sealed, oxygen-free environment, safe from
mice. This method will triple or quadruple the shelf like of rice and beans,
and make whole grain wheat last literally for decades.
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Letter Re: The British Perspective on Food Storage and Preparedness
Dear Sir
The two articles linked below detail issues surrounding world food shortages
(and possible solutions) from a UK perspective.
I thought that they might be
of interest
to you. Certainly there is increasing concern here about rising food and drink
prices and its increasingly becoming part of the national conversation. It
seems there are now almost daily broadsheet newspaper articles on the subject
and I can categorically state that the UK is now experiencing similar trends
to the US, as identified by your readers. Although rationing has not
made the news yet, my father - who is a restaurateur - has discovered that
our five
large local wholesalers who sell exclusively to the catering industry have
run out of rice, cooking oil and other essential foodstuffs.
Families'
annual grocery bill rises by £800
and,
Food shortages: how will we feed the world?
Also, thank you for your wonderful web site. To be honest, I had not even
thought about survivalism when I first saw SurvivalBlog - I was just looking
for outdoor survival techniques for a bushcraft weekend. The more I have
read
the more convinced I am of the need for preparedness. I cannot afford a
retreat but your site has opened my eyes to the numerous other ways I can
keep my
family safe during any periods of potential unrest. It also gives me great
pleasure
to read about these issues from a Christian point of view. Although there
are many British Christians, it is sometimes difficult for us to be open
about
our faith. Our society is extremely tolerant of any and all faiths (as
it should be of course) but unfortunately our media and politicians frequently
marginalise
the very people that make this country democratic and free. God bless you
and thank you once again, - Paolo
« Letter Re: Dramatic Increases in Food Prices |Main| Jim's Quote of the Day: »
Food Shortages in the US Underscore the Weakness of JIT Inventory Systems
The mass media is currently in a frenzy about spot shortages of rice,
flour, and cooking oil at COSTCO stores. I've fielded seven radio interviews
in the
last couple of days. The only good news is that we set an all-time record yesterday,
with 22,217
unique site visits to SurvivalBlog in one day! The rationing situation
is getting worse. Several SurvivalBlog readers sent me this: Wal-Mart's
Sam's Club limits rice purchases. Meanwhile, we read in The Washington
Times: Americans
hoard food as industry seeks regulations.
Josh Gerstein, the reporter that interviewed me for the
recent New York Sun piece, just got his two minutes of fame
on FOX News: Food
Shortage Coming? No Rice For You (It used to be called "five minutes
of fame", but apparently time is being rationed, too.)
Things can
get a lot worse, and they probably will, since
the recent shortages and jumps in food prices are global, and
were driven by increased fuel costs, the
looming Ug99 wheat rust menace,
and a pitiful wheat harvest in Australia. (Australia has had drought in
three
of the
last six
years, and this year they reported
their smallest wheat harvest in 12 years.) A tremendous amount of US wheat
and rice has been exported to east Asia in the past six months, leaving
short supplies here. It was inevitable that this would eventually show
up at the consumer level. Part of the current problem at the COSTCOs and
Sam's
Clubs is that commercial bakeries and restaurants have resorted to buying
more rice and flour at the Big
Box stores. It is not clear whether this is because of shortages at their
normal
suppliers,
or
because
the
COSTCOs weren't keeping up with price increases (making them cheaper than
buying
wholesale), some stockpiling in anticipation of future price increases,
or a combination of these factors. What is clear is that American consumers
have finally caught
on,
and are
now likely
to
stock
up. Yesterday, even the stodgy The Wall Street Journal jumped
on the preparedness bandwagon, when they printed this editorial: Load
Up the Pantry. I predict that if there is media attention that is any
more vocal than this, it could induce a buying panic like the Johnny
Carson toilet paper incident.
An underlying factor that is being under-reported by the mainstream media
is that the modern-day Just in Time (JIT) inventory control is a part of the
current problem. As
I wrote in SurvivalBlog back in February of 2007, by enthusiastically adopting
the Japanese kanban system,
America retailers have left themselves quite vulnerable to both wholesale shortages
and
consumer
demand spikes. Inventories are intentionally kept lean, for efficiency. This
is great for cutting costs in normal times, but it is dangerously fragile whenever
a disruption occurs. With JIT, every purchase is logged at the checkout counter
terminal, and once a predetermined shelf threshold is reached, an automatic
restocking order gets forwarded through the system. Typically,
these re-supply shipments take
around
24 hours.
But a big spike in sales can totally overwhelm the system, leaving empty shelves.
I'm glad that most SurvivalBlog
readers stocked up well in advance. By doing so, you are now part
of the solution in a food crisis, rather than part of the problem.
Because you stocked up many months ago, each one of you represents one
less buyer rushing
to the store at the 11th hour. And, by having extra on hand, you can dispense
charity to your less prudent neighbors.
If the current rice shortage gets any worse, you need to be prepared to dispense
charity. I assume that the average SurvivalBlog reader has about 200 pounds
of rice on hand. I recommend that you identify friends, neighbors, co-workers
and church brethren that are gluten
intolerant. For most of us, a shortage of rice, by itself, is not much
of an issue. We can simply shift to eating more wheat. But this is not an option
for folks that are gluten intolerant (also known as celiac disease, or celiac
sprue.) If any of your acquaintances are in this category and they report that
they are running out
of
rice,
then
quietly offer
to give
them some. For the sake of OPSEC,
just let them
know
that
you
have
"a little
extra" that you can share. Never hand out any of your rice stockpile in
more than five pound increments, or you might start some unfriendly rumors.
Hopefully, this will be a short term phenomenon. I anticipate that the Bush
administration will soon sharply curtail exports of rice and wheat. Once the
current shortage is alleviated, we should both thank God for his Providence,
and take this as a
reminder to
stock
up
even more, to be prepared for future shortages. Remember our motto:" Two
is one, and one is none."/p>
« Letter Re: Will Peasant Farmers Fare Better than the Rich in TEOTWAWKI? |Main| Food Shortages in the US Underscore the Weakness of JIT Inventory Systems »
Letter Re: Dramatic Increases in Food Prices
Jim:
Two months ago you could purchase Almond Nut Butter for around $7.50 per 16
ounce jar. Today the Almond butter is selling for $17.00 per jar. Today Cashew
Nut Butter sells for around $11.50 and two months ago it sold for around $6.00 per 16 ounce jar. A clerk
at Walmart commented that prices are rising fast.
Rosauers Grocery Store in Kalispell, Montana had raised its prices more than
11 percent in February and has raised them again in April, some up to 17%.
They blame rising fuel costs. What you purchase today will not cost the same next week because oil and food
commodities future prices are soaring.
A local feed store that also sells food grains had one of its largest selling
days ever Monday when the east and west coast food shortages hit the major
media. I saw one fellow purchase a 3/4 ton pick up truck full of sacked food
grains
and beans.
Money is coming out of the local mattresses to stock up before panic shopping
starts.
It is possible that those food shortage news stories set into motion a hoarding
collapse of our eight day national supply of grain before the stories were
spiked. We will know by the end of the coming week the effects of Monday's strategic nationwide shopping. The e-mail
re these news stories is still being sent around the Internet. Each time a
new food shortage occurs somewhere in the nation expect to see more strategic buying. After we reach the end of
our just in time national grain supply we will see food riots and I expect
the government will formally declare martial law and impose food rationing. The media will step in blaming hoarders
for the food shortages.
Yesterday COSTCO showed my wife what we purchased in
2008 on the hand held checkout wand and that we had already exceeded our
2007 purchases in the first quarter of 2008. Needless to say this tells us all of our shopping habits are being
carefully tracked. I believe that people are being profiled as resistors
or hoarders. [Some deleted, for brevity] - Rosie the Bull, in Montana
« Odds 'n Sods: |Main| Letter Re: Dramatic Increases in Food Prices »
Letter Re: Will Peasant Farmers Fare Better than the Rich in TEOTWAWKI?
Hi,
I’m finding SurvivalBlog very interesting in these troubling
times. I came across it in the bibliography of a good novel, "Last
Light", by Alex Scarrow, which took me to Peak
Oil, and then to your
blog.
I live in a small city in the most unknown part of Italy , a southern region
called Basilicata . It’s always been a region bypassed by history and
its inhabitants have known a modicum of well being only in the past 20 years.
You might have heard of a book called "Christ Stopped at Eboli"
by Carlo Levi. Well, that’s here. Though of course right now, it’s
a charming place to live, with a lively music scene, great art and new restaurants
opening
up every day, people still remember vividly a subsistence existence.
I think having been very poor could actually be a huge advantage if and when
it is The End Of The World As We Know It (TEOTWAWKI).
There’s still a
huge huge amount of knowledge in their DNA about how to make do under harsh
conditions
of extreme
scarcity.
I can’t
imagine them panicking if horrible things happen because every home has a grandmother
or grandfather or an uncle that tills a small field, that can make sausage
and is really good at canning. They have literally thousands of years of experience
in banding together in harsh conditions. My sisters in law know everything
there is about storing food, canning, etc.
In many ways, the millennial poverty (now greatly alleviated) will probably
prepare them well if things collapse. And maybe areas of the world that are
used to living in scarcity will do better than rich urban areas. They might
not collapse, just revert to a previous culture. Also, this area is very rich
in water and they’ve just discovered the largest methane fields in Europe
.
Anyway congratulations on your fascinating blog. Right now, there’s
no food scarcity because Italians don’t have a long food chain. They
are very careful to eat locally and by law food’s origins must be labelled
and Italians prefer national food to imported food, because they are snobbish
about the taste of imported
food. Also, Italy grows most of its own rice. Best,
- E.J.
JWR Replies: I wholeheartedly agree that in the event of
a societal collapse, those that live close to the land will fare better than
most others. It may go down in history as a Great Inversion--something analogous
to France,
during the Revolution, when wealthy people in desperation
traded rings set with precious stones, gold necklaces, and fancy furniture
for loaves of bread. Perhaps in the next collapse they'll be trading Jet Skis
and
big screen
plasma televisions. This sort of inversion was aptly described by Pat Frank,
in his early-1960s post-nuke novel "Alas, Babylon." The novel
is set in rural Florida. The story describes how the erstwhile poor black residents
coped much better
than
rich whites, simply because they were already accustomed to making do. When
dollars became worthless, suddenly it was practical skills that trumped all
else. Before the Schumer hit the fan, the "Po Folks" already raised gardens,
kept small livestock, and
were experienced
subsistence
fishermen.
Their white
neighbors
had a lot
of catching up
to do,
to reach
the same level
of self-sufficiency.
Could life imitate at? I think so. The most likely to prosper in a collapse
will me middle class farmers and ranchers that are well-removed from urban
areas . They can capitalize on their
food
production kills and infrastructure,
yet will be isolated from most of the peril that will grip the cities and suburbs.
A farmer with a pair of well-trained draft horses and old-fashioned (horse-drawn)
machinery will do the best of all. These farmers with new-found wealth will
of course have to quickly hire some mercenaries to protect what they have.
Speaking of Italy, the
days ahead
may get downright Machiavellian.
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Letter Re: The Food Shortages Are Real--Will There Be Panic Buying Soon?
James,
I've read the recent article in the New York Sun (Food
Rationing Confronts Breadbasket of the World) regarding the [informal]
food rationing that has now begun. Everything is starting to unfold quicker
than
expected,
but
it is not a huge surprise. I personally own a small and private operation
(cash only) which sells large amounts of bulk food storage for those who
have
their
eyes open and are awake to what's going on which is not many. We generally
move large quantities of bagged and cleaned Wheat, lentils, soup peas,
flax seed
and all other manner of legumes( beans) and oats in in large quantities.
[Some details deleted, for OPSEC.]
Anyway, the reason I'm contacting you is to let you know that we are now
seeing massive shortages and in many cases completely empty warehouses
here in western Canada. We work with the very largest suppliers in Western
Canada
right down to the the small growers. All of the large suppliers supplies
are drying up as everything is being shipped out of country and overseas.
Growers are hanging on to what little they have for the most part and are not
selling
out in most cases. Historically this has never happened
[in Canada]. We've all taken for granted the availability of our food stuffs
and now its crunch
time.
The
global famine has now begun and once the panic of empty store shelves
hits the local
supermarket. All that I can say is that you had better be ready for a nationwide
situation of hysteria and panic. Get what you can now, folks, because
it will not be available soon! -
LNL
JWR Replies: Thanks for those observations, which confirm
what I've been hearing in the United States. It is noteworthy that there are
ongoing food price and shortage protests in
33
countries--mostly in the Third World.
(Including
out-and-out
riots, in a few.) One recent bit of news: Japan's
hunger becomes a dire warning for other nations.
« Three Letters Re: Hiding Things in Plain Sight |Main| Notes from JWR: »
A Warning on Buying Full Capacity Magazines in "Kit Form"
Thankfully, the Federal ban on 11+ round firearms magazines "sunsetted" in
September of 2004. But sadly some bans are still in effect at the state
and local level.
Most
notably, these laws are still on the books:
No pistol or SMG magazines with a capacity over 10 rounds in Hawaii. (High capacity
magazines that only fit rifles are allowed. (For example, since there
are AR-15 pistols, AR-15 magazines are banned.)
No magazines with a capacity over 10 rounds in California, District of Columbia,
Massachusetts, and New York. (See State Penal Code 265.23 for details. To
the best of my knowledge, 11+ round magazines that
were made before 9/94 can be legally purchased by residents of New
York.)
No magazines with a capacity over 12 rounds in Chicago, Illinois
No magazines with a capacity over 15 rounds in New Jersey; South Bend, Indiana,
or Aurora; Illinois
No magazines with a capacity over 20 rounds in Maryland, Wichita, Kansas, or
the City & County
of Denver Colorado
In recent months, I've noticed several ads on the Internet for full capacity
(11+ round) magazines
with
the
statement
"Available
in Kit
Form
for
residents of
New York and California." One of these advertisements was for Polymer
AR-15 PMAGs, which didn't go into production for the civilian
market until late 2004! Obviously, customers risk getting
into trouble if they buy complete parts sets for magazines that
were not made before September of
1994.
Private possession of "high capacity" magazines made after September
of 1994 is a felony in New York. Similarly, in California, possession of "high
capacity" magazines
that were not owned by an individual on or before December 31, 1999
is a felony. (And, since the now-defunct Federal ban of 1994 to
2004 was in effect at the time that this law was enacted, that would also
effectively mean that Californians would own only pre-9/1994 magazines.) So
what these sellers are
offering
buyers in those states is
the
chance
to get a felony conviction which would mean losing their right to vote
and their right to own a gun for the rest of their lives. I strongly recommend
that
readers that live in states or cities with restrictions resist the temptation
to skirt the law by buying magazine parts "kits". A felony conviction
is always a life-changing event.
In such cases, the burden of proof is on the prosecuting attorney, and there
is of course a presumption of innocence. Unless there is a post-1994 sales "paper
trail",
or unless they have post-9/1994 date markings, any magazines of the
types made before 9/94
will surely be presumed to be pre-ban. But it would
be very easy for a prosecution team
to prove that PMAGs didn't start to be available on the civilian market until
late 2004.
OBTW, I should mention that similar laws are in effect in other countries.
For example:
In Canada: No semi-automatic rifle magazines (except rimfire) with a capacity over 5 rounds, and no pistol
magazines with a capacity over 10 rounds. (There are
exemptions for members of competitive shooting teams.)
In New Zealand: No centerfire magazines with a capacity over 7 rounds, and no
rimfire
magazines
with a capacity over 15 rounds.
(There
are
exemptions for some licensed "certificate" holders.)
Disclaimer: The aforementioned laws are not all-inclusive
lists. Nothing in this post or any of my other posts represent legal advice.
Research your state and local laws, and consult a qualified attorney that
lives in your jurisdiction.
One closing thought for SurvivalBlog readers that live where these idiotic
laws exist: Vote with your feet!
« Home Invasion Robberies in Argentina, by FerFAL |Main| Notes from JWR: »
Preparedness Considerations for College Students, by Sam
I am presently a sophomore at a small, private, liberal arts college, in the
northeastern United States. First, I will start with the important criteria
[for survivalists] in choosing a college (after the decision of a major and
program you want to
be in), which
I followed in High School three years ago:
1. Do not choose a school in a heavily urbanized/suburbanized area.
2. Choose a school in a small city or town, ideally with less than 50,000 people
and ample farming in the region. (places like Ithaca New York, Burlington Vermont,
Amherst Massachusetts, and other small-city sized college towns, their population
increases significantly
when school is in session and should be avoided.)
3. Look over the area around the school. If it looks bad, it probably is.
4. Look at the local crime rate, economy, etc.
5. After the admissions tour, walk around the campus on your own with whoever
you are touring with (Parent, Friend, etc.) and talk to students. The admissions
department is excellent at making a college appear better than it actually
is.
6. Drive around the city/town where the college is located and see how it feels.
7. If you are in a state like Utah, see what the school's policy is on weapons,
do this by reviewing the handbook. Even if there is a weapons ban on campus,
there are ways around this.
8. The school handbook, should also have information about crimes committed
on campus. This is legally required under the Crime Awareness and Campus Security
Act of 1990. If the information is not found, it can be located online.
9. If the school is a public school, you probably have the same rights about
searches by police and school officials as a regular citizen. [JWR
Adds: Check
the local and state laws,as well as the school's policies.] At many private
schools your
room can be fully searched at any time for any reason. In fact, I signed an
agreement of full understanding and giving the
school greater rights to search because I live on an "alcohol and tobacco
free"
floor.
Once one is at school, there are some things that can be done for the sake
of preparedness. Sterilite or Rubbermaid plastic storage containers that are
opaque and have lockable handles (such
as these) can be used to store food, bug-out gear, etc. They
blend in perfectly with college settings and do not stand out, I have one large
container with
my BOB,
winter weight sleeping bag, hunting gear, food, and weather specific clothing.
If I had to, I could carry it down seven fights of stairs to my SUV and
be out of the city with 10 minutes warning. There are a few places that it
can
be
stored.
I keep the main storage bin in open sight, two other bins are on top of it
and I use them as a table for my shower stuff. If I didn't have my bed bunked,
I would have my bed up on cinder blocks and store them under the bed. No one
will second guess storage containers in a college setting.
Weapons are banned from almost every college campus. A weapon is generally
defined as anything that can be dangerous to another person or look dangerous.
My school has banned: airsoft guns, BB guns, air rifles, paintball guns, all
knives of any type, bows, crossbows, machetes, swords, guns, disassembled guns,
guns that are incapable of firing ammunition, all replicas of any weapons.
One way around this is fairly simple if you've got a car, just park your car
on public property, such as street curbside. I have had friends that hunt leave
their hunting rifles/shotguns, bows, etc. in their truck/car. In some states
this
is illegal, and even if not illegal, is very risky because a car cannot be
secured. Disclaimer: This is extremely risky. Even if the gun
is a locked in a bolted-down container, since the entire vehicle could be stolen.
It might
also
be illegal
in some states or localities. It
would
be better
to
live in an apartment off campus to circumvent any laws or policy restrictions
about guns on campus entirely. However, some schools require that all students
live on
campus.
Living
on campus for a certain time period (freshman year) is required on many campuses.
One important thing is that one must have a plan to get home or to a more permanent
location. College campuses will be less-self sufficient than even someone living
in a condo in New York City. Dormitory dining halls bring in
workers
from the surrounding area to make the food for the college. If the Schumer Hits
the Fan, these people will not come to work, and if they do it will be most
likely to
take
food for themselves. Forget about growing food on the grounds of campus. It
is naive to think that some else wouldn't steal it. It is prudent to
live within half a tank of gas driving distance to home
or a retreat location
and have alternative routes. I live several hundred miles from home and must
cross the Hudson River, Connecticut River, and many other choke points that
will be filled with the Golden
Horde and/or are in urban areas because of the
interstate highway system. I have planned accordingly, and have extended family
members who own a farm that live within 50 miles. I can walk there if I
must, but there are numerous alternate routes that I have scouted.
Having a car at college is very important if one's finances allow for it. I
am fortunate enough to have a father who provides a car and fully maintains
it. I'm not going to go into much depth about a car, because that is a subject
in itself for another article. Basically, an SUV
is preferable because it allows for being comfortable when driving places with
friends, carrying more stuff for moving into and out of school every year,
and it is generally a good BOV compared
to passenger cars. They also blend in with other vehicles in most parts of
the country. If you've got control
over the type (all this is from my experience), try to avoid any luxury brand
SUV, it rubs people the wrong way to see a late teen/early 20something driving
a car that was clearly expensive, agitates the population around the school,
gives people the wrong judgment of you as a person, stands out to people that
you want to ignore you, and will stand out like a sore thumb when moving to
the retreat location.
Socially at college, avoid drinking alcohol. Many drink in their freshman year,
but over time those who continue drinking will prove them to be morally bankrupt
individuals, and just because "everyone does it", it does not make it right.
It is a colossal waste of money, and time. It is not Christian (if that is
how you are inclined), and can lead to leaks of information. Alcohol just leads
to terrible decisions, such as compromising OPSEC,
and should be avoided. I no longer drink at all, mainly for religious reasons,
but also common sense reasons.
It is unhealthy and a waste of time.
Keeping religion in the picture at college is also important. I go to a secular
school, but continue to maintain Christian lifestyle, more so now than any
time before in my life, being exposed to social liberalism and people who lack
morals tends to make one realize how lucky they are and to offer prayer for
those who have not come to Christ. Religiously affiliated colleges in the northeast
tend to be just as socially liberal as secular schools. In my experience,
being at school has made me more religious.
Additionally, in regards to friends at college, it is important, at least in
my experience, to be living in a [dormitory] building that has a reputation
of being academic in nature. I made most of my friends this way, getting along
with
your roommate
is very important. Going to school at a small campus is very cliquish, so one
may find it to be easier to find quieter/like minded students on a small campus.
One mention about cliques is that drama will probably develop. Ignore it. I
am the middleman in half a dozen instances of drama between my various groups
of friends.
It
is petty. Just try to make people understand that there are more important
things in life.
If your school offers Army ROTC courses,
enroll in the courses for the minimum of two years that do not require a commitment.
Sophomores are now being taught
the combat life saver course and given other types of training. A career in
the military is a viable alternative, they will pay for tuition, and give out
monthly stipends, and issue participants gear on loan. I was enrolled in ROTC
for one year, and highly recommend it. am planning on joining
Army or Air Force ROTC
wherever
I go to graduate school and serving in the reserves. [JWR Adds: In
my experience, the ROTC Basic Camp, which is available without any
contractual obligation, is much more valuable for learning "hands-on" survival
skills than the ROTC classroom instruction, which emphasizes theory and military
history.]
Try to spend as little money off of your meal card as possible. At the end
of every semester spend the surplus down on items the school sells at the store.
I have been able to buy about a week's worth of food this way each semester.
It just keeps piling up at home, obviously, buy food that is energy dense and
that has a long shelf life.
Work hard, academically. I slacked during my freshman year and could have really
boosted my grade point average. The early classes are always easier than the
upper
level classes and now I am finding myself working twice as hard to make up
for the mistake.
For
the
record, I am writing this while I am on break, otherwise I would not have had
enough time.
Choosing a major [course of study] is important depending on one's planned
[scenario for] survival. I'm more of a slow-decline Peak
Oil, dollar collapse
(leading
to
a further
collapse)
and general preparedness believer, so I decided on a major accordingly. It
is possible to have a major that will give one a career, post-TEOTWAWKI.
To name a new professions that will still be around (depending on the severity
of the crash) are doctors, writers, dentists, some engineers, merchants,
and store owners. Being a petroleum geologist could be very lucrative in a
slow-decline
peak oil situation. The more specialized a major is, the less career opportunities
will be available. Don't major in anything requiring a computer or electricity,
such as electrical engineering, Management Information Systems (MIS), [or fields
such as] biology,
foreign relations, marketing, history, English, et cetera.
JWR Adds: I guess that things have changed since I was in
college in the early 1980s. There was a "no guns on campus" policy, but it
was largely
ignored. My dorm
room often resembled a
Peshawar workshop. It was where my shooting buddies
would congregate for gun cleaning and for gun assembly. I lost count of the
number of M1911s
and AR-15s
that we parted together in that room. We even had a miniature Unimat lathe
in the dorm room for one semester. (It was a Unimat DB200, if I remember correctly.)
« Letter Re: The Survivor Mindset |Main| The Precepts of My Survivalist Philosophy »
Letter Re: Food Riots in Haiti
Mr. Rawles,
The BBC and several other news outlets are reporting Food Riots in Haiti, where
food scarcity and price increases have resulted in violence. Reports say mobs
are looting shops, burning cars, blocking roads, and shooting at UN Peacekeepers.
It is also reported one man was shot to death by UN Peacekeepers. The rioters
are responding to food prices increasing some 50% over the past year. Apparently
the United States and France will be sending more money to assist in subsidizing
food prices. There's plenty of information about this showing online. Here
are a couple of links, one
from the British Broadcasting Corporation, and one
from the Australian Broadcasting Corporation. - KMA
« Odds 'n Sods: |Main| Letter Re: Don't Delay Dental Work and Elective Surgery! »
Letter Re: Implications of High Grain Prices for Livestock Owners -- Stock Up!
Dear JWR,
The prices for wheat and soy and orchard grass crop seed have risen 40% in
our region this spring. And that is the farm supply co-op pricing. The N
and Phos. fertilizer is pretty well matching this increase. Lime is only
20% higher than last fall. Most of the larger crop farmers (200 acres or
more)
in our eastern central area (which 5 years ago used to be primarily tobacco
fields) are now counting on a moderate to large profit in return because
these edible cash crops are being currently negotiated and purchased in bulk
to be shipped to China (soy) and Egypt (wheat). The corn crops grown locally are being sold for US bio-fuel production.
Heads up! If you have large farm animals and poultry, put up a one year reserve
of feed grains and feed hay or fodder now, if you can find it for a reasonable
bulk purchase price and get busy breaking ground on that fallow pasture land
and start planting your own rotational plots of grasses for hay, forage and
feed grains! I am perplexed to how many people are selling off completely or
drastically reducing the numbers of their large farm animals now at a time that they should
bare caution in their reflexive reactions. Consider that this may not be the
best resolution as a result of the price increases of the grains.
This is the time to ride the grain increase out until they can become self
sufficient in their own home grown supply and to stock up on seed. The prices
will only get much higher in a year. If they can just hold out until their
own grains come on line, the inflationary prices to come will make the value
of those animals worth triple or quadruple their price in the short coming
years. Trying to buy new livestock is not going to get cheaper either. Now
is not the time to be selling off your extra edible or working farm animals.
This is a time to hold and make yourselves busy as self sufficient
farmers. We're now in this for the long haul! Think for the long term future,
not just for today. - KAF
« Odds 'n Sods: |Main| More About Front Sight's New "Get a Gun" Training and Gear Offer »
Letter Re: Sign of the Times--An Ambulance Service Shuts Down
Howdy;
My name is Ed and I am a paramedic in central Mississippi.
Last month a private ambulance service shut down with only eight hours notice
that they would stop operations, leaving 26 counties without 911 Emergency
Medical Service (EMS). Other
local providers and services were able to help provide coverage. But this
is difficult with increasing fuel cost, the ongoing War on Terror and overseas
deployments, shortages
of personnel and lack
of payments from medicare and medicaid and people without any coverage. These
are all are driving the remaining ambulance providers out of business. Be safe
out
there! - Ed
« Weekly Survival Real Estate Market Update |Main| Note from JWR: »
Economic Climate Change: The Long Winter May Begin This Summer
I've had several consulting clients contact me in recent weeks, all with notes
of fear in their voices. They realize that something is horribly wrong with
the economy, but they cannot properly isolate and articulate the problem. I
haven't been able to calm them, however, because to an extent I share their
anxiety.
In
my estimation,
the "something wrong" that we sense is nothing short of a monumental
shift in the
economic
climate.
America is clearly headed for a recession. Most economic recessions are simply
a product of the business cycle. These recessions are relatively mild and they
often last
just
12
to 24 months.
The
economic
engine just readjusts and everything soon gets back to normal. But this
nascent recession in 2008 is something radically different, and it won't be
short-lived.
The current slow down was triggered
by a collapse in the global credit market. For decades, the global credit market
grew and grew, in an enormous debt spiral. Our neighbors to the south saw
trouble coming decades ago, because their economies were at the time more debt-dependent
than our own. As far back as the mid-1980s, their newspapers featured political
cartoons that portrayed an enormous, insatiable monster that was invariably
captioned "La Dueda"--"The Debt". Our
cousins in Latin America saw it coming first, but the dark side of the debt
nemesis will soon
be clear to everyone.
Because modern banking in the western world
is based on interest charges that create continuously
compounding debt, credit cannot continue
to
grow
indefinitely. At some point the excesses of malinvestment become so great
that the entire system collapses. This is what we are now witnessing: a banking
panic that is spreading uncontrollably as wave after wave of ugly
debt gets
destroyed
by margin calls and subsequent business failures.
Some economists are fixated on reading charted histories--and unrealistically
expect that by doing so that the can reliably predict future market moves.
(They can't do that any more than I could predict the
bends in the road ahead by keeping a chart of the preceding left and right
turns
of
my
car's steering wheel. My apologies for any offense to my friend The
Chartist Gnome, but you
are fooling yourself.) Although they are working from a flawed premise at
the micro level, the chartists do
have
some
things
right
on the macro
level:
There are major
economic "seasons" and even climate changes. The most vocal chartists
like Robert
Prechter hold to what is called the
Elliot
Wave Theory.
And
the big
bad
nasty
in this school of thought is a Kondratieff
Winter. This "K-Winter" is an economic depression phase that
the world has not fully experienced since the 1930s. An economic winter does
not end
until
after the
foundations
of industry
and consumer demand are rebuilt. This can be a painful process, often culminating
with war on a grand scale. (It was no coincidence that the Second World
of the early 1940s was an outgrowth of the Great Depression of the 1930s.)
The US Federal Reserve and the other central banks are furiously pumping liquidity
to the best of their ability, but in the long run they will not be successful.
At best, dumping billions in cash on the economy will delay a depression by
perhaps a year or two. But inevitably, a K-Winter depression will come.
And the longer that it is delayed,
then the worse the depression will be. Further inflating the debt bubble will
only make matters worse. I think that veteran market analyst Jim
Rogers had it right, in a recent interview.
Take a few minutes to watch that video. Jim Rogers sees the big picture. I
wouldn't be surprised to hear that he has gone off somewhere to hunker in a
bunker.
"Big Picture" Implications
As I've mentioned before, hedge funds are
presently most at risk in the unfolding liquidity crisis, because
they use lots of leverage in lending funds that they themselves have borrowed.
They borrow short and lend
lon, effectively use debt
compounded upon debt. Many,
many hedge
funds
will
be bankrupted
before
the end of 2008.
Even more alarming is the scale of global derivatives
trading, particularly for credit default swaps (CDS). Derivatives
are a relatively new phenomenon, so derivatives contract holders have
not yet experienced a major recession
or
a depression.
Thus,
it
is difficult
to predict
what will
happen
in a genuine K-Winter phase. In a perfect world, derivatives
are a nicely balanced mechanism, where there are parties and counterparties,
and
every
derivatives
contract equation balances out to have a neat "zero" at its
conclusion. But we don't live in a perfect world: Companies go bankrupt.
Contracts
get breached.
Counterparties disappear and disappoint. We have not ever experienced
a derivatives full scale "blow up", but I predict that when
it happens, it will be spectacular.
The scale
of
derivatives trading is monumental, and the vast majority of the population
is blissfully
ignorant
of both its scale and the implications of a derivatives crisis. There
are presently about $500 trillion of derivatives contracts in play. That
is many times the size of the gross product of the global economy,
but the average man on
he street
has no idea what is going on. It won't be until after the giant
derivatives casino implodes that the Generally Dumb Public (GDP) awakens
and asks, "What
the heck happened?" Since the credit market began to collapse last
summer, the number of new derivatives
contracts has dropped precipitously. But whether the aggregate derivative
market is $400 trillion versus $500 trillion, when a crisis occurs
there will
undoubtedly
be some very
deep drama.
The next decade will likely be characterized by successive waves of inflation
and deflation, and perhaps some
of both simultaneously, at different levels. Countless corporations, and
perhaps a few currencies or even whole governments will go under as this tumult
plays out. The current low interest rates will soon be replaced by double-digit
rates, much like we saw in the late1970s. The dollar will lose value in foreign
exchange, and may collapse completely. The Mother of All Bailouts (MOAB)
will result in mass
inflation.
The bull markets in silver and gold will surge ahead, propelled by economic
and currency instability.
(Investors
will
be
desperate
to find
a safe
haven,
when
currencies and equities are falling apart.)
Risk Mitigation
Be ready to "winter over" the coming K Winter depression. That will require:
1.) Prayer.
2.) Friends that you can count on (a "retreat group"). 3.) A deep
larder, and 4.) An effective
means of self defense with proper
training. (For each of those four factors, see the
hundreds of archived articles and letters at SurvivalBlog.com for details.)
Since large-scale layoffs
seem
likely, it would also be wise to have a
second income from
a recession-proof
home-based
business.
In the event of a "worst case" (grid
down) economic collapse,
it would be prudent to have a
self-sufficient retreat in a rural area that is well-removed from major
population centers. Get the majority of your funds out of
anything that is dollar-denominated, and into tangibles, as soon as possible.
The very
best tangible that you can buy is a
stout house on a piece
of productive farm land. It will not only preserve your wealth, but
living there may very well save your life.
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The Hedges Get Trimmed
Just as I warned the readers of SurvivalBlog many months ago, hedge funds
are vulnerable to
rapid swings
in
interest
rates.
(My first warning was even before
the pair of Bear Stearns hedge funds collapsed in the summer of 2007.) As
the global liquidity crisis has expanded, other hedge funds
have started to collapse en masse.
Here is an article is from England that is
indicative of what is happening globally. (This is a global collapse, because
again,
as I warned, the current liquidity crisis is global in scale.) Hedge
fund legends hit by financial crisis.
And here is an article from the American perspective: Debt Reckoning: U.S.
Receives a Margin Call
With leverage ratios that average 26-to-1, hedge funds are very vulnerable to
margin calls.
Check out this
video clip on the hit to the finance houses, and this
one on the plight of
the hedge
funds.
The
Insider told me he expects that the majority of
publicly-traded US hedge funds may be
out
of
business
by
the end of 2008. Seventy down, 6,850 to go.
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Letter Re: Sword Ban Begins on April 6th in the United Kingdom
James:
In the past you have recommended that SurvivalBlog readers in the UK
to get a samurai sword. Well, they
are banning them now.
As of the 6th April 2008 it will become illegal to manufacture, import or sell
(but not own) all swords with a curved, single edged blade over 50 cm in the
U.K.
Although they can still supply such weapons for "permitted activities".
These activities include; Historical re-enactments and Sporting Activities.
The legislation does not mention samurai swords. It only mentions single-edged
curved swords with a blade length of 50cm or over. As per the document, it
appears that all swords with those characteristics will be banned. Including
Chinese
Dao, American & European Sabres, Filipino Swords etc.
They have not had a vote with the members of parliament on this. They are
just banning them [by decree].
If you want one before that, I would say the best makers seem to be Cold Steel
(but they cost a lot more and I don't think you will find one in time), or
Hanwai / Paul Chan. (For he latter, contact the
UK dealer--you may
be just in time.) It looks like I got my samurai [sword] just in time.
You can always get a non-curved blade like a Shinodi (Ninja sword), a broad
sword or a Side sword (I want the Hanwei one) these last two are also double-edge.
Cold Steel makes a [straight] double-edge samurai sword so that for now will
be okay for now
but I bet soon they will ban anything double-edge or with a blade over 50cm.
- Simon in England
JWR Replies: The UK government is clearly doing its best
to put its citizenry at the mercy of criminals. Soon enough, your ever-tightening
Country Code will have your self defense options reduced to just butter knives, ASBOs,
cricket bats, and harsh language. It is now abundantly clear that violent crime
is already at unacceptable levels in urban areas
of the UK. In the event of an economic collapse, things could resemble the
recently-released
Doomsday movie. Under those circumstances the majority will fall
prey to a minority that is younger, stronger, and uninhibited by moral compunctions.
I must reassert that it is clearly time
to take
the gap. The US and New Zealand still have immigration programs that
are advantageous. Get out of England soon, while these programs are still
available.
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News from Wall Street and Capitol Hill--The Mother Of All Bailouts Begins to Grow
Last week, the mainstream media described the latest expansion
of the Mother of All Bailouts (MOAB),
but they politely refrained from calling this what it
is: socialism, plain and simple. The grand plan, as it stands now, is
to bail out not just consumer banks, but also investment banks, with taxpayer
dollars.
They are effectively making our life savings and our future earnings surety for
a
bunch of idiotic contrapreneurs'
loans on everything from flat top duplexes
to McMansions.
These
were
houses
that the contrapreneurs
bought,
that they could never
really afford unless the market continued to rise at an artificial rate.
They bought these houses with the intention of "flipping" them,
but then the
market topped out, and the "easy money" party ended.
At
least
those hated fascist dictators like Mussolini
had
the
common
sense
to
nationalize
viable,
productive
companies.
But now Ben Bernanke
is
busy
nationalizing a
slew of corporations with negative net worth. This is absolute lunacy!
Here
are
four
examples
of
the
mainstream's
view:
From The Washington Post: Fed
Leaders Ponder an Expanded Mission.
From The New York Times: Treasury
Dept. Seeks New U.S. Power to Keep Markets Stable
From Reuters: Treasury
regulatory overhaul plan "timely": Fed
And finally (with an ever-so-slightly more conservative view), this from Fox
News: Bush
Administration Proposes Sweeping Overhaul of Financial Regulation.
All of these calls for regulation, new government agencies, and greater scrutiny
might outwardly sound well-reasoned, but they ignore some inescapable underlying
problems: We have
a fiat currency
that is based
on debt, we have a banking system with fictional fractional reserves,
we have a derivatives
market that is a $500 trillion casino, and
we have a national treasury that is backed by wishful thinking--certainly not
by anything tangible.
The other key point that seems to have escaped the mainstream media is that
this new regulatory power is being handed to the Federal Reserve, which is
a private
banking cartel,
not a government agency. They are no more "Federal" than
the Federal Express parcel courier company. So this isn't just socialism.
This is nothing short of corporate-controlled
socialism--where a handful of banking corporations are given access to the
Federal tax coffers
to bail
out
other
institutions
and
then, even further, they are given sweeping regulatory powers. This
power grab is deemed "necessary" by circumstances that the Federal Reserve itself created!
Somewhere, somehow,
somebody stands to make a lot of money in this process. Cui bono?
I'll wager that it won't be the American taxpayers that benefit.
As economist
Mish Shedlock observes, this is like putting the
Fox in Charge of the Henhouse. Mish summed up the current mess succinctly:
"The biggest, most reckless credit experiment in history has started to implode.
It's far too late to stop a complete systemic collapse now. Granting new powers
to the agency most responsible for the mess simply does not make any sense."
Secrecy is another concern. In a recent e-mail, SurvivalBlog reader
KAF commented: "We should be greatly concerned about the fact that the
Federal Reserve has provided public release anonymity to the institutions who are taking
'30 day' never ending loans. We'll now never know if the institutions we
deal with are truly solvent and credible, This new"confidentiality" allows
the Fed. to manipulate reserves on a routine basis. We'll never know if this
country's Federal Reserve is or is not heading for bankruptcy
unless we use the tests of consumer spending and commodity pricing as indicators." She
hit the nail on the head. At the same time that the press is howling for "greater
transparency" in banking, and writing exposes of "predatory lending
practices",
the Powers That Be are drawing the veil of secrecy over lending institutions.
They'd rather treat us like mushrooms--keeping us in the dark and feeding us
barn waste--than risk a panic by letting the public know the real depth of the
liquidity
crisis and its collateral effects.
Instead of government platitudes, do you want some figures to chew
on? Look at this
Federal Reserve web page. The negative numbers at the bottom of the "Non-loaned
Reserves" column speak volumes. Without the newly-created Federal Reserve "emergency
lending
mechanisms",
many
banks would be absolutely bankrupt. As you can see, the bankers are swimming
in red ink. There is now a huge risk of bank runs, but this threat is being
ignored by the mainstream media. Mark my words: There are bank runs
coming.
The fact is that the global lending system is essentially broken. Artificially
lowering interest rates won't fix it, when bankers are afraid to lend.
As I've previously noted, the bankers are afraid to lend because so much re-packaging
and reshuffling
of
debt has gone on in the past seven years that nobody knows who owes
what to whom,
and precisely what assets are underlying these exotic debt "packages." Meanwhile,
the bankers have learned that the big insurance firms like Fitch, Moody's
and
S&P were in on the swindle. We now know that they colluded with their mortgage
firm buddies to inflate assets and
deflate
risks in
a
masterpiece
of legerdemain that would make Enron's accountants proud.
The bottom line is the the entire world economy is is in deep, deep trouble.
Without financing, the Big Machine is grinding to a halt. The
next few years will probably see the economy plunge into a deep recession,
if not a full blown
depression. The current headlines are just a foreshadowing of the
real crisis to come. The MOAB will grow and grow, eventually bailing out far
more than just
banks. There will be brokerage houses, insurance firms, S&Ls,
credit unions,
Fannie
Mae, and Freddie
Mac, and possibly even muni bonds
and pension funds are all lined up, ready to reach into our wallets.
Once the government starts down the slippery slope of bailout-socialism schemes,
they will perforce spread to more and more institutions. And, as I've
previously noted, the public
coffers will be insufficient to
cover
the
inestimable
costs of the MOAB. So this mean that Uncle Sam will monetize the difference.
They'll just create the needed "dollars" out of thin air. This will
be outrageously inflationary, at all levels.
All of this is not going unnoticed by European and Asian bankers. They can
see that the dollar is set for mass inflation, so they are dumping dollars
as fast as they can. It is no wonder that the US
Dollar Index has plummeted.
When I last checked, it took $1.58 to buy one Euro! The foreign bankers aren't
stupid. Upcoming auctions of US Treasury paper will languish with very few
takers. I predict that in less than a year, the Treasury yields will have to
be pumped
up substantially to attract enough bidders to get the needed financing to cover the budget deficit.
We could see double digit rates--a
la the
late 1970s--in the not too distant future.
All of these macro-level implications might seem fairly abstract, so let me
put them in real world terms and take the risk of extrapolating on some trends
that I've observed: There will be
a recession, and it will be deep, and long-lasting. A recession will mean
that there will be some big corporate layoffs. Be
ready. There
will be bank runs and banking "holidays". Be ready. There
will be huge flows of "bailout" funds that will effectively nationalize
many industries. Be ready. There will probably be
a stock market collapse. Be
ready. There will be a further collapse in residential real estate
that will make the recent declines seem small, by comparison. Be
ready. Credit delinquencies and foreclosures (on car loans, home loans,
credit card bills, etc.) will dramatically increase. Be ready. There
will be a collapse of the commercial real estate market.
Be ready. Even though the credit available for IPOs and
private mergers and acquisitions has dried
up, there
will
be news
of
some
large and
seemingly
inexplicable acquisitions in the near future, all sanctioned by and
in some cases, underwritten by, and even funded by,
the Federal government. Be
ready. There will be shortages of key
commodities including fuel and food. Be
ready. Strapped for cash, America's highway, rail, water, sewer, telecommunications,
and power infrastructures will degenerate. Be ready. There
will be mass inflation of the US Dollar that will devalue any dollar denominated investments. Be
ready.
And now, to further extrapolate, (with a lower level of confidence): All of
the aforementioned economic dislocation and surging inflation might trigger
mass protests, riots, looting, and arson in the cities. Be ready. There
may then be massive out-migration from the cities. Be ready. Wars
have been known to follow close on the heels of depressions and financial
crises, so there may be
a war, possibly big enough to require another draft. Be ready.
As I've written many times before, the real lynchpin to worry about is the
power grid. If the grid goes down, then all bets are off. Be vigilant,
be well-stocked with a deep larder, and be self-sufficient. Store
extra for charity. If you can afford to, establish a survival
retreat in a lightly-populated
region, and if possible, live there year-round.
« Odds 'n Sods: |Main| Note from JWR: »
The Nationalization of Wall Street, by John Ing
Federal Reserve Chairman Ben Bernanke once said: “By increasing the number
of U.S. dollars in circulation, or even by credibly threatening to do so, the
U.S. government can also reduce the value of a dollar in terms of goods and
services, which is equivalent to raising the prices in dollars of those goods
and services. We conclude that, under a paper money system, a determined government
can always generate higher spending and hence positive inflation.”
The Fed slashed short-term interest rates six times in six months to 2.25 per
cent from 5.25 per cent despite the U.S. Department of Labor reporting that
consumer prices had jumped 4.3 per cent at an annual rate in January -- the
biggest rise in two years. As a result, the Fed's benchmark overnight lending
rate is about half the rate of inflation and real interest rates are now negative.
The last time interest rates were negative, housing exploded; the housing bubble
grew larger stoked by Wall Street's alchemy of mortgage backed securities that
are at the heart of the unfolding crisis.
Bernanke, a student of the Great Depression, believes that policymakers and
politicians then were too slow in countering the downturn, letting the resulting
panic sink the economy. Bernanke is right about the foot-dragging almost eight
decades ago. But by slashing interest rates and lending hundreds of billions
to Wall Street today, he risks creating yet another bubble. Already, Bernanke
has orchestrated the biggest bailout since the Great Depression in the wake
of the collapse of the mortgage industry. Even oil, gold and other commodities
retreated rapidly from record highs as traders flattened positions in a desperate
deleveraging process. The greatest fear is the fear of the unknown. The current
financial crisis is due to the lack of confidence and trust because of uncertainty
about the extent and breadth of the potential financial losses.
Counterparty Defaults
The credit market simply lacks credit. The subprime woes have spilled over
into dislocations in the overall credit markets – from municipal debt,
to corporate debt, to derivatives. Fears of a default by a counterparty is
threatening the global financial system and is believed to be one of the reasons
behind JP Morgan Chase’s bid for Bear Stearns. Banks are hoarding and
have stopped lending since their thin capital base (and solvency) is at risk
while their customers such as hedge funds, private equity and Corporate America
are forced to deleverage and dump the assets – like those owned by Bear
Stearns – in a no bid market. Lower rates will not unblock this logjam.
Unfortunately, lower interest rates are not the answer in warding off this
financial market crisis. The source of America’s problems is not interest
rates. The problem is simply too much debt and too much leverage. A great unwinding
is the answer.
Despite the dramatic drop in rates, there are still no signs of a pick-up in
the credit markets. Trust has evaporated. Banks are desperately trying to dump
billions of leveraged securities in an illiquid market. To date Wall Street
has taken only $200 billion of writedowns but has only raised about $100 billion,
leaving a shortfall. The Fed has extended loans to the investment banks, taking
on some of their illiquid paper as collateral. After failing to offload these
to a naive public, the game of "slicing and dicing" risk and dispersing
this risk is over. Now, that risk has come back to haunt them. And any sale
becomes a new benchmark for these dubious assets, leading to more price cuts
and, of course, further fire sales and bigger losses. The markets have yet
to reprice risk.
The Tip of the Iceberg
In the credit binge, the risk-rating agencies became more like principals rather
than advisors and helped spread the poor quality of debt by rating risk highly.
Today, AAA ratings mean nothing. With the closing of America's capital market,
the big Wall Street icons such as Citicorp, Merrill Lynch and Morgan Stanley
were forced to rebuild their balance sheets with the help of foreign buyers
such as foreign sovereign wealth funds from Singapore to Kuwait. America's
growing reliance on foreigners for funding its deficits has become its Achilles
heel. Already there is a controversy over the growth of sovereign wealth funds
(SWF), which manage between $2.5 trillion and $3 trillion, and to date more
than $100 billion has bailed out Wall Street's biggest investment banks. But
the United States can't accept this money without conditions. In the past,
the Asian or Middle Eastern buyers bought trophy buildings, recycling their
excess dollars back into the United States. As of last summer, foreigners owned
$ 6 trillion or 66 per cent of the entire $9 trillion U.S. federal debt load.
In order to keep their currencies competitive, the Asian central banks and
the petro powers of the Middle East ploughed their reserves into U.S. treasuries.
This is great while it lasts, but as Asia booms and Wall Street declines, the
big buyers of treasuries are growing disenchanted with some of their earlier
purchases. No one likes to lose money and the Fed must somehow maintain the
trust of foreigners. China's near-Bear experience and the promise of more taxpayer-assisted
bailouts will certainly cause foreigners to think twice about investing in
the United States. Wall Street's problems seem to be chronic and the Chinese
are looking at huge losses in their foray into Wall Street. It will get worse.
We believe there will be less Asian money available to finance America’s
trade deficits, which requires over $2 billion a day of outside funds.
Wall Street's Margin Call
The party is over on Wall Street. Carlyle Capital Corp., the publicly traded
investment fund affiliated with the powerful Carlyle Group, defaulted on $22
billion of mortgage securities on a flimsy capital base of less than $1 billion.
That is 22 times leverage, exceeding the leverage of bankrupt Long Term Capital
Management LLC. And venerable Bear Stearns was sold for about one third per
cent of its value the previous week. With almost $100 billion of liabilities
against book value of less than $12 billion, the investment bank was forced
to close its doors at liquidation value. Bear Stearns was the key prime financer/broker
for America's biggest hedge funds and its demise threatens a domino-like counterparty
chain reaction that could spread throughout Wall Street.
Bear’s key role in the web of financial players and counterparty risk
emerged as a major reason for the Fed’s bailout. Ironically, it was last
summer’s collapse of two Bear hedge funds that sparked the upheaval in
the markets. Bear simply was hoist upon its own petard. Most troubling is that
all investment banks are similarly highly leveraged. Bear Stearns borrowed
$30 for every $1 of capital. Yet Morgan Stanley has leverage of 32 to 1, Merrill
Lynch 28:1, Lehman Bros. 32:1 and Goldman Sachs 26:1. Worse still, not even
the Sheriff of Wall Street is around to witness the unraveling.
That Wall Street cannot fund itself has forced its major players to borrow
massive amounts of money from the Federal Reserve. The Fed has even taken to
accepting dubious assets as collateral to alleviate the financial stress in
the markets, which in essence makes the Fed "the garbage collector of
last resort." The Fed created a growing $200 billion lifeline available
to lend treasuries in exchange for unmarketable triple-A mortgage-backed securities.
Bear Stearns was the first recipient of this largesse and already the Fed is
on the hook for more than $30 billion of Bear's obligations that JP Morgan
does not want. This is not a crisis in liquidity but one of solvency.
In our view, the Fed’s solution is simply the beginning of the de
facto nationalization of Wall Street. What’s particularly worrisome is that
the Fed has started on the slippery slope of taking on the credit risk and
liabilities of Wall Street, similar to the Bank of England’s bailout
of Northern Rock, which ended in the nationalization of that sorry institution.
The Bank of England’s nationalization of Britain’s largest mortgage
company cost taxpayers more than $200 billion. The sobering message, however,
is that it’s far from over. Inevitably, politicians and regulators are
pressured to prevent more problems, but there is no point in closing the barn
door after the horse has left.
With the shadow of the Thirties looming, the Fed's orchestration of events
since August, from the decision to give Wall Street access to the discount
window, to the acceptance of Wall Street's inventory as collateral, to the
cronyism of the Plunge Protection Team (PPT)
to the $30 billion backstop of unwanted securities to the Bear Stearns' rescue,
to the relaxation of rules
governing quasi-government bodies such as money losing Fannie Mae and Freddie
Mac, all points to a role beyond that of a lender of last resort. In absorbing
the liabilities of Wall Street, the Fed is simply piling on debt on more debt.
No nation, even the United States, can borrow forever without facing up to
economic consequences. And no one is too big to fail.
Just Who Will Bail Out The Fed?
The U.S. dollar is among the sickest currencies in the world, giving up 50
per cent of its value since 2002 because the United States is deep in the financial
hole. The gap between spending and revenue grows ever wider. Today, foreigners
are not so eager to help. The problem is that America is a debtor country and
dependent on foreigners to finance its chronic deficits requiring an inflow
of $800 billion from foreign investors each year to finance the country's deficits.
Not surprisingly, America's creditors are losing confidence in the country's
solvency. Americans spend too much and save too little. America's trade deficit
is at seven percent of GDP and the budgetary deficit - excluding supplement
spending for the war - is estimated at $400 billion. The Congressional Budget
Office (CBO) estimated the costs of the wars in Iraq and Afghanistan so far
at $600 billion and Congress is to approve another $275 billion. The CBO estimates
the war might eventually cost between $1 trillion and $2 trillion by 2017.
Meantime, consumer spending accounts for more than 70 per cent of the U.S.
economy, but household debt is now at 140 per cent of consumers of after-tax
income. Debt on debt is not good.
There is no question that the bursting of the housing bubble and the cost of
the inevitable breakdown of the financial system has created huge dangers for
the global financial system. The vortex already has dragged down institutions
in the United Kingdom, Switzerland and New York. The United States is on a
path similar to Japan’s deflation in 1990s. While the savings and loan
bailout cost U.S. taxpayers “only” $200 billion, this time the
potential cost of the biggest bailout in history is estimated at more than
$1.2 trillion or enough to wipe out half of the global banking sector’s
capital. We believe that fears that U.S. taxpayers face even bigger bailouts
to save Wall Street will further undermine confidence in the dollar, boosting
gold’s allure. Gold is a good thing to have as a barometer of investor
anxiety.
Previous crises such as the stock market meltdown in October 1987, the S&L crisis in the early the 90s and the Asian contagion in 1997 or the bursting
of the tech bubble in 2000 had a common denominator – too much money
chasing too few markets. Warren Buffett warned that derivatives today are the
new ticking time bomb. Derivatives exploded to a whopping $516 trillion by
2007, according to the Bank of International Settlements. Yet it is not the
size of the market that concerns us. It is the growing risk of counterparty
failure since the capital position of the global banking system supporting
the $500 trillion plus of derivatives is estimated at only $2 trillion, insufficient
to handle even one per cent of potential losses.
Stagflation Now?
In January, U.S. farm prices had an annualized 7.4 percent increase, the biggest
yearly gain in more than 26 years. Beset by credit woes, the U.S. economy appears
to be entering a period of low growth and high inflation, just like the stagflation
of the 1970s. Rising food and energy prices are sopping up what is left of
consumers' discretionary income. The bad news is that central banks appear
to be providing the very fuel that will stoke inflation even further. The Fed's
dramatic lowering of interest rates has not helped domestic demand. Instead,
it has simply sped up the flood of capital away from the United States. There
is tight productive capacity from potash to steel to coal while the only surplus
seems to be in cars and condos. Of concern is tha
