Showing posts with label hyperinflation. Show all posts
Showing posts with label hyperinflation. Show all posts

Saturday, September 27, 2014

From Around The Web

Often I see stuff in blogs, on youtube or whatever that I want to highlight and potentially discuss. These can almost take over the blog as there is so much good content out there. I have decided to roll this stuff up into a 'From Around The Web' series'. This will be a semi regular series 

 Formerly Bayou Rennaisance Man on: Protecting your economic future in a time of chaos. I very much enjoyed this two (at least so far) part series on Protecting your economic future in a time of chaos (see pt 2 here). I noticed this awhile back and meant to talk about it but things got away from me.

My thoughts:
- I am uncomfortable playing fortune teller about the future. However I currently see bad things happening. Inflation is eating at my income, especially in the areas of food and fuel. Our costs are soaring AND things are supposedly just fine. Heck if you watch the news we are in a great recovery.

- I certainly do not disagree with anything Peter said about building skills and food stuff. Generally speaking I think for this scenario (and a lot of others) there are some commonalities. You need some stored food to get through an initial shock period. You also need to be gathering or producing some food. One of these does not replace the other. Obviously urban folks will have a hard time with the food production and suburban folks have challenges compared to rural folks (with some acreage) but we all need to find answers that fit our own situations.

- In terms of work and income I think trying to consciously put yourself in a position where A) your job cannot readily be absorbed by a couple co workers and/ or B) a machine or C) a person in India.

-Furthermore I think building up some sort of income separate from your 'job' is pretty important. This way you will have a little money coming in that will not vanish if your job/ business falls apart. If this side effort is in the type of area that is recession proof. In a recession people may not remodel bathrooms in fancy Italian marble but they will get the broken toilet fixed. People may not pay for a fancy home theater system but will still want a home alarm, especially if crime goes up. You get the point.

-In the second part of the series Paul looks at taking advantage of employment opportunities in boom areas. If you cannot find a job to support yourself at home it is prudent to look at moving instead of sitting and whining. If it's going to be short term maybe a parent moves and the family stays put.

A relative of mine lives in a small town in western Montana. The economy there is in the tubes. The young motivated blue collar men work in the oil fields. A bus runs from North Dakota to town Friday night and goes back Sunday afternoon.

I can certainly understand people choosing to stay in the area of their choice, especially if family is there, and accepting it may limit them economically. If that is the difference between making 60k a year and 40 it is one thing. If it's the difference between long term unemployment and surviving off charity or being able to support your family then be an adult and make the hard choice to move.

NutnFancy did an excellent review on the Yugo M70 N-PAP AK-47 rifle.
This rifle is a darn good AK and an amazing value.The lack of a chrome lined barrel is not ideal but I do not think it is a deal maker either, especially since this is a proven design. They have been letting Slav's kill other Slavs for years and to my best recollection not a single rifle that fought WWI or WWII had a chrome lined barrel.

The AK vs AR discussion is a valid one and as AR prices drop and AK prices slip upwards becomes more relevant. Additionally if your particular flavor of Apocalypse allows for small amounts of ammo/ mags/ parts to trickle out of .mil and .leo hands the AR offers a considerable advantage. That being said I would absolutely take a Yugo M70 over a bottom end no name AR (Franken parts gun or factory). If the goal was an AK pattern rifle and cost was a consideration (eliminating Rifle Dynamics, Krebs and other high end custom jobs as well as the production but uuber pricey Arsenal) I would without a doubt suggest the Zastava M70 PAP.

Would I choose one over Project AR, definitely not, but price wise that is talking apples and way, way more expensive apples.

On a tangent I was drinking beers and BSing with bro in law and building an AR came up in the discussion. I took a minute to roughly tabulate the total cost of project AR and almost shite myself. It was about $2,400 though that includes a Burris MTAC, a LA Rue mount, a Surefire light and a free floating rail. Honestly I built that rifle in a situation where I did not need a rifle but wanted to build a really good one, not totally disregarding cost but going for quality with the goal of doing it right the first time so as to not want to go back in 3-4 years and do it better. While I might drop a better trigger like a Giselle in there I am fundamentally totally thrilled with the rifle.


If I were living on a boat or in a travel trailer so was thus limited on # or weapons and wanted a quality genuine go to war rifle that I wouldn't cry if it got lost the M-70 would be the ticket. A Yugo AK with a dozen mags and a case or two of 7.62x39 ammo is enough defensive rifle for anything I'll face. Honestly if I can't fight my way out of a situation with that rifle it likely will not happen with another rifle.

FerFAL did a video worth watching not so long ago.
There are things in this video I disagree with and others I agree with. Like anyone who has been involved in an event that was very powerful our friend FerFAL may be a bit focused on the specific scenario that he lived through in Argentina in 2001. No doubt his experiences were significant and powerful that being said it is easy for a person to to stovepipe on a scenario they were involved in.

 I am not exactly focused that everyone carries a full sized Glock (or M&P/ whatever) all the time. If we focused entirely on an economic collapse scenario where things were going bad that idea has some merit. The problem is our friend, who is genuinely a good person doing good things, speaks only from the view of his experiences.

I am not against packing  full sized pistola at all. However A) Baring genuinely crazy situations most folks will not carry them and B) Depending on your scenario a lot less gun could work just fine. Down here in CENLA I am comfortable with a single stack 9 or a 5 shot j frame. Granted if I was in Houston or NOLA  all the time I would carry Glock 19 or larger with 2 spare mage and probably have a folding stock AKor AR 'pistol' in my vehicle just in case.

Where I agree strongly with FerFAL is about stuff I have talked before.  Southnarc a said the same things  which mesh heavily with Street Robberies and You. Take away's actively engage people with eye contact. Should that not be sufficient get a good firing grip on your handgun. IMO this matters a lot. First because it shows the crooks you are packing which convinces them to go elsewhere, second it drops your time to draw radically, third because if you should get into a close up fight having a good firing grip on your pistola almost guarantees nobody will shoot you with it.


Anyway that is what I saw around the web recently. Hope you found it as interesting as I did.

Thursday, July 18, 2013

82% Inflation and Precious Metals

FerFAL recently wrote about how Argentina had 82% of their purchasing power over 10 years. While it might not be as drastic I fear we have inflation coming. Honestly it could get really bad. Food and precious metals are good places to put your money.

Speaking of precious metals my recent dip order from JM Bullion showed up today. [It was not involved pwith our advertising relationship, I was just a normal customer.] I ended up on their site and the prices were awesome. They beat the other guy I was dealing with by a couple bucks per item. My gold and silver showed up nicely packaged. In fact it was packaged very well with individual coins in pouches, the pouches in bags, the bags wrapped in bubble wrap and the box covered in packing tape. Had to bust out a knife to get it open.

With silver rounds at $20 and change there really isn't an excuse not to put one away every month or two.Well unless you are buying food and seeds.

Friday, May 17, 2013

Worst Case Scenarios Army Style

The topic of worst case scenarios comes up a lot in the Survivalist community. I got to thinking about them and then unconsciously started using the type of thinking I am indoctrinated to on the problem. Not saying it is the right way parse; unlike some obvious cases such as tactical gunfighting or battle drills where that is what we do there are a lot more options here. This is just a way I am used to dealing with problems. Figured you all might be interested.

Do not plan on fully getting into intelligence preparation of the battlefield today. It is good stuff but well today is Friday so I just dowana. So I'll skip some parts, briefly touch on some parts and dig into what I feel like.

We start by defining the environment we will be operating in. Next we evaluate the threat. First we look at how the threat would fight in an unconstrained environment. For old school conventional fights against folks who have and use doctrine, like the Russians, it is pretty simple to accurately lay out how a mechanized company will act in the defense (or whatever). Now it gets interesting.

What happens now is we apply their order of battle to the terrain/ environment and come up with a situational order of battle. This is how we think the enemy would be arrayed in the current operating environment. After that we look at the enemies potential courses of action.

Right or wrong we typically look at 2 courses of action most likely and most dangerous. The most likely is just that, what we expect the enemy to do based on their tactics, the terrain, etc. Most Dangerous is if the enemy decided to go 'all in' with an aggressive high risk/ high reward plan what it is what we think they would do.

What we do after identifying the templates two plans is figure out the differences between the plans. Those differences are targeted as part of our overall intelligence collection plan to hopefully determine the enemies disposition (most likely, most deadly or something else). Along with high value targets these differences will make up the bulk of our intelligence collection efforts.

It is worth mentioning that neither the most likely COA or most dangerous COA are exaggerations or fantasies. Both need to be grounded in the enemies capabilities and if possible historic activities.

Obviously you will not be looking for the enemies scouts to be templated at location 1 vs location 2, obstacles in a given location or battle positions to determine between 2 COA's as a survivalist. However the principle is the same.

Example time:
Lets say Bob thinks our country has real economic problems. He sees the best case as 8-15% real inflation coupled with a stagnant economy a la late 70's to early 80's stagflation. The worst case he sees is a complete economic collapse of Argentina like proportions. So obviously Bob will not be templating these COA's on acetate then looking for the differences. He will however be identifying the differences all the same.

Some differences might be:
-Continued increase in the monetary supply (most dangerous)
-Rapidly increasing inflation (most dangerous)
-Decrease/ a slowing of the increase in government spending (most likely)
- Slow increase or steady inflation (most likely)

Next we would need to drill down those differences (Priority Intelligence Requirements AKA PIR) into specific identifiable indicators. We will do this for one of our PIR:
-Rapidly increasing inflation (most dangerous)
        -Inflation above 9%
        -Inflation increasing more than 1% in a month
        -The spread between inflation as measured by .GOV and Shadow Stats increasing 25% in a month.

Anyway after a bit more consideration I will share my thoughts on Worst Case Scenarios.

Imagine a bunch of drunks driving around with a trunk full of dynamite to get revenge on a psycho murderer during a tornado. There are multiple risks in play. It should be noted this method only really works to compare similar courses of action (in this case risks). It would not work to compare an economic collapse to a pandemic or Chinese invasion. Looking at 2-3 areas that worry you could be assessed between most likely and most dangerous to determine whether the drunk guy behind the wheel will drive you off a bridge, the tornado will get you or the dynamite will blow up. Hope my iffy analogy makes sense to you.

Tuesday, March 12, 2013

Economic Crack Binge and Coming Effects

The best comparison to our countries economic situation and coming problems I can think of is Charlie Sheen. Our problems with massive deficits are like Charlies problem with crack cocaine and alcohol. Lets call derivatives the Charlie equivalent of prostitutes/ porn stars.

Now I cannot predict the specifics of Charlie Sheen's next breakdown/ meltdown/ fail. I can however confidently say 100% that there will be one. Maybe he will shoot his celebrity fiance, hold a knife to the wife's neck at Christmas dinner, manage to mess up staring in the top rated sitcom on tv, who knows. (These are all things Charlie has actually done;)

 Disturbingly our upcoming economic problem is like Charlies upcoming breakdown/ meltdown/ fail. Just maybe we will manage to kick the proverbial can a ways down the road. Maybe it will be 70's era stagflation. Could be the standard South American currency devaluation/ hyperinflation or an all out Argentina like economic collapse. The old adage that big powerful countries do not go broke, they go to war (a la Germany) could prove accurate again. Maybe a combination of crumbling infrastructure and weakened defense makes an attractive time for an old enemy to attack or just use an EMP to keep us distracted internally. Maybe one of the dreaded black swans pops up in the time we are able to handle it the least.

What can we do about this? Well the usual advice to buy bullets, silver , gold and emergency food is always sound. Things like water filters might become important as infrastructure crumbles or breaks and standards just plain drop. (Yes that is a lot of linkeage in a paragraph. Got to keep the bill payers happy.)

Being as healthy as possible is prudent. Get fit, take care of lingering issues you may have, go to the dentist, order a couple spare sets of glasses and stock extra medication.

Buy food. Yes it is getting more expensive but basic staple food, even the long term stable stuff, is still a great deal. Right now food is ridiculously cheap by historic percentage of income. Most people here can probably make some choices to put a few bucks into food and fill up the pantry.

Learn skills. Specifically learn skills that will let you do things yourself instead of paying somebody else to do them.

Get ready to protect yourself. Things aren't getting better. Have realistic and sustainable (if it's not comfortable you will not do it) plans to carry weapons while still going through your normal life.

Most of these things are not new. In fact they are generally the same stuff I talk about. Best get too them before they are more expensive and harder to do.

Tuesday, February 19, 2013

Inflation Coming and What Are You Doing About It

It has been more and more clear to me that we are in an inflationary situation. If you have been to the grocery store, gone clothes shopping or filled up the family auto you have probably seen it also. Maybe I am just really noticing it but it is here. Lots of hidden inflation in food products, smaller servings, etc but it is still apparent.

The scary thing is that our current slowly robbing you of purchasing power inflation can suddenly begin quickly robbing you of purchasing power. When the banking conglomerate market focuses on a country things can spiral out of control in a hurry. Not months but weeks if not days.

This week for whatever reason I am getting out of the problem admiration phase. Put up a close line earlier this week. Dug out the spare parts to fix Wifey's bike and will get it up and running probably tomorrow. Trying to find a deal on a bike for me.

Today I picked up some plants; herbs, yellow peppers and tomatoes. My brilliant plan is to grow them. I think the plants are going to be coming inside at night for a bit until the risk of frost is over, probably in 2-3 weeks but I have to do some more reading about it. Am going to get my stuff together, do some research, and try to grow a half dozen buckets (or pots as Wifey doesn't want our yard to look white trash fabulous) of different stuff. If I can make it work without a hassle it would be nice to do the heirloom thing and keep the seeds for next time.

With the exception of  getting the bike up and running and hopefully finding another one for cheap these are tiny steps. Growing some food would be nice, both to teach kiddo about taking care of things and have a fun activity to do with him and to save a few bucks. In fact I expect failure. I don't expect a whole ton to happen from these efforts. The reason I am doing it is to get the inevitable growing pains out of the way now when it doesn't matter. However the real point is to start building some skills. Skills we may need later. Skills that may be the difference between barely getting by on stored food and having some variety to go with it.

I also dug out FerFAL's book Surviving the Economic Collapse  and started going back through it. I briefly talked about his book years back but it turns out I never did a full review. Might have to fix that. In any case despite the relatively high cost of $25 I suggest buying and reading this book. If you are really cheap, read all his old forum posts, guest posts at Survival Blog and his blog it's probably OK to skip the book. That being said I did all that stuff, bought the book and was happy I did.

We are also putting money into food. Stuff like freeze dried emergency food and plain old canned staples like rice and beans. Depending on where your preps and finances are you might want to think about precious metals. If your financial situation is in decent shape (no credit card debt, some savings, etc), you have some gear and a few guns with ammo PM's are a good place to park a few bucks. In particular I think silver is a good buy right now with at $30ish.

I am not saying that you need to do what we are doing. Everybody has different strengths and weaknesses and working from them instead of blindly following me or anybody else makes sense. The point is that you should be doing something.

What have you been doing?


Saturday, October 13, 2012

RE: Advice on Military/ Banking/ Finances

Saw this post over at FerFal's place. After thinking on it for awhile I decided to do a post here instead of commenting over at his place. Nothing wrong with FerFal's ideas but let's just say I have probably thought about this scenario a bit more.

The basics of survivalism/ preparedness obviously apply. Have food to eat, water to drink and the means to purify more, medicine for when you are sick and arms and ammunition to protect your family. That statement is a mouthful we do not need to get bogged down as the specifics of each of those are another series of posts.

These folks have some cash in an IRA. I definitely wouldn't mess with what is already there. Maybe depending on what they are contributing in comparison to other savings they could slow IRA deposits but that is getting into the weeds. Remember folks, we do not know what is going to happen. Maybe my grand kids will be living on a hard scrabble little farm in the woods shooting small game with home made bows and defending their lives with ammo I have stored. Then again it is probably a lot more likely that things will keep on ticking and in 40 years when I'm bouncing grand kids on my knee it will be nice to have some money.

As FerFal suggested keeping a good portion of your liquid emergency fund in cash is prudent. I wouldn't keep it all at home as accidents can happen when you are away. However keeping at least 2-3 months essential cash expenses (food, fuel, medicine, etc) worth of money makes sense. You could make a good argument for keeping more beyond that up to say half of your liquid savings in cash.

The benefits of owning some precious metals were mentioned and are pretty obvious. They are a good hedge against inflation and currency failures. Don't go crazy here. Buy an ounce or two of silver when you can (or save it and make bigger orders to cut down shipping costs and take advantage of better deals) and over time it will add up.  If you have a bit more money buy some small (1/10th and 1/4 ounce ish) gold.

The topic of off shore accounts came up. Let's move forward assuming this money isn't best spent elsewhere and we want to keep it in some sort of currency. I wouldn't worry about off shore accounts unless you have serious money to stash. If you have a few grand I would put some in the gun safe and maybe hide the rest in a well thought out cache. The hassle wouldn't be worth it and the potential benefit's are iffy. Anywhere they will take a card cash will work, the opposite is not true. Now if you had fifty thousand dollars maybe it's worthwhile to take a trip to the Cayman Islands or someplace.

As FerFal noted the military and security folks like police are going to get paid unless things fall apart entirely and go totally Mad Max. I am going to get the exact amount of dollars and cents on the first and fifteenth. That does not however carry any guarantee that the money I receive will be able to purchase a given amount of goods and services.

Inflation is coming, heck it is here now. I fear that the best case is for it go get worse, like 10-20% real inflation for a few years. If things get crazy it might be worse than that. I don't see Zimbabwe/ 1920's Germany hyperinflation happening but 30-50% inflation would be ruinous. 

The one big thing I would add to FerFal's post is to decrease your standard of living now. Be balanced and don't do anything radical overnight. Try to pay off some debts and maybe eliminate bills by canceling various nonessential services. If you can start doing things for yourself [Guys buy a shaver and cut your hair at home. If I can do it you can. Gal's put a lot more stock in their hair so unless somebody is good at cutting it then get it done at a good but sanely priced place. That's just my .02 cents.] to eliminate bills. Buy stuff on sale and take advantage of coupons. The point here is to decrease your basic household expenses. Again be balanced with this and do it over a period of time so it is less uncomfortable.

Reallocating money you are used to spending on whatever is very hard. I know because have done it. Cutting twenty bucks from the grocery budget means you don't get Digorno pizza on Wednesday, the Mrs doesn't get the soda she likes  and you both have to drink less beer (or whatever). The point is that it sucks. Sorry, wish there was a better answer. Being smart and doing it over time helps. Also seeing the benefits of what else you can do with that money helps considerably. The savings account may grow as could cash and precious metals on hand as well as preps put away.

For military folks or anybody else with a fairly predictable salary schedule there is another option to use in conjunction with decreasing expenses. When you get a raise make some intentional choices with this money. Instead of letting it slip into your budget with a few small lifestyle increases save that money, put it into precious metals or preps or whatever else makes sense. Do that a few times and you will have a nice gap between what comes in and what you actually need.

This gap building we are has a couple benefits. First it lets you go into overtime paying down debts, putting away cash and precious metals, storing preps or whatever your goals are. Doing these things helps improve your situation even further. It is a positive feedback loop.

Second and more on topic this is your inflation protection. Living on 50-60% of what you make means there is some room to absorb inflation. Of course you would want to change your standard of living to still save, etc but you would have time to figure that out in an orderly manner. Not a fun option but I fear it is very realistic.

Think about it like this. If Fate left a message saying that your income would drop by 30% on a given date you would start doing things to get ready for it. If that date was in 6 months or a year you could pay off that credit card and ease out of $5 coffee every day, mani/pedi's or whatever, and other luxuries. Might even trade in a car for an older model, eliminating another payment. You would darn sure save some money. Now if that date was a week away all it would do is be depressing. By getting in front of this problem you have the luxury of time to make things as pleasant as they can be.

Anyway those are my thoughts on the matter.

Thursday, September 13, 2012

Putting on my Nostradamos Cap

On Economics/ Politics:

Well QE 3 is finally getting launched so we will see a fast meaningful recovery the lost decade will continue.

Unfortunately I do not think our economy is going to get better until we are really honest about our situation and take the steps to get back to an honest and stable place. This requires facing the pain of unraveling all the bad "assets" floating around and the massive empty inventory in the housing market gets unloaded at realistic prices. As this is not happening any time soon the pain will continue.

I saw an interesting article over at James Dakin's place (original Lew Rockwell article here) that basically says we will not have hyperinflation because it is not in the best interest of big banks and their whole crony network. I cannot say that I understand it fully but, not necessarily for any quantifiable reason, I agree that hyperinflation is not likely.

We do need to get onto the same page as to exactly what is considered hyperinflation. Let's pick the definition of hyperinflation as greater than 50% inflation in a month. It is as good as any. I do not see this happening. Yes we have a huge debt but we are too big and powerful with too many huge productive businesses for it to be likely IMO. (Also I think Arctic Patriot noted that huge powerful countries do not go broke, they go to war) I don't intend to argue this point, it is just my take on things.

Now I do think a period of painfully high inflation is quite possible. Maybe somebody gets some sense and cuts off the free money that has been subsidizing big businesses and poor decisions like dollar shot night at the local bar. Maybe our creditors start to get wise and demand an actual return on their money. Maybe the big banksters aim their destructive market powers at US. I don't know.

We could see 10-13% inflation which would probably leave the fed rate around 16%, prime mortgages around 20% and consumer debt in the area of 30%. This would drag down our economy like a guy trying to swim with an anvil tied to his waist. Several consecutive years of this would essentially destroy those on fixed incomes. Folks holding adjustable rate debt's would probably face default or ruin.

We may see rioting and disorder as welfare/ food aid/ etc that are chained to the ever more manipulated to give a happy story CPI get left behind. [Briefly touching on Matthew Bracken's When the Music Stops I do not see our government failing to send out welfare/ food stamps (now on cards)/ etc. I respect Matthew Bracken immensely but IMO this article misses the simple point that our government via it's cronies the Federal Reserve has a darn license to print money. It is like saying that Jack Daniels will run out of Whiskey or Tula will run out of .45 caliber bullets.

Seniors and moochers will get what they are "entitled" down to the exact penny. However that doesn't mean it will be worth the same as it is today. Somebody on food stamps or whatever will get the same dollars worth of hand out's but if a pound of rice costs $5 and a Digorno frozen pizza costs $10 it won't go very far. Not quite as sudden or whatever as envisioned in the scenario. It would more likely cause a slow upswing in problems than a sudden burst of angst. That is of course unless some sort of response was coordinated to meet a specific purpose in support of some agenda.]

I see this arguably intentionally orchestrated series of events potentially diminishing our status on the world stage with a wimper, not a bang. Think of the way Britain's role and power have changed from WWI to now. They went from being the biggest and arguably most powerful nation in the world to being publicly dissed by Argentina stealing their island (yeah they later took it back, barely).

On War:

The madness between Israel and Iran is out of control. All I hear in the media is war drum's. At this point I really would not mind if they get it over with and fight, at least that way it would get done and we could have  the news back. Except of course it would cause a lot of problems, likely embroil us in a nasty conflict, maybe cause nuclear war, blah, blah, blah.

On Gun Control:

I do not see a reinstatement of the Assault Weapons Ban or whatnot. The balance of public opinion is clearly against it. Unless the Dem's sweep the house and senate plus keep the presidency which is probably not likely I am not concerned. Even then I am not so sure for heavens sake Walmart sells AR-15's.

That being said ATF fiat and possibly executive orders might pop up with some fun new stuff. The play of the ATF arbitrarily usurping more of our rights changing some regulations which FFL's (and individuals) will then follow or face their lives being ruined and livelihoods destroyed is already in the playbook. Remember that your shotgun is a shotgun unless it is suddenly a pistol or maybe an evil assault weapon.

On Crime and Disorder:

In general I think crime is getting worse with the signs showing the trend is likely to continue. Maybe it is the economy. With everybody (well a lot of folks anyway) taking a step down the proverbial economic ladder some folks look to crime as the easy way out. Some of it is cultural/ environmental but that doesn't really matter. For reasons I am not entirely clear on criminals seem to be getting more and more violent. Home invasions seem to be becoming more and more prominent.

As discussed above there is a potential scenario (amongst others) where things could just go nuts like LA Riots times 1,000 all over the place.

Anyway that is what I think may be coming. Now to what we might be able to do about it:

Economics:

Some folks argue that having a lot of debt is fine because hyperinflation or at least inflation will let them pay it back in cheaper (or basically free) dollars. The first issue with that plan is that if you haven't figured it out yet banks are going to get taken care of at the expense of common folks, not the other way around. The second issue is that you it will be hard to pay back cheaper dollars if you lose your income/ job because the economy tanks.

If you listen to nothing else that I say get out of any debts that have an adjustable interest rate. The only exception would be if you have the cash to pay the debt off immediately (like in the next payment) but choose to keep it at a low adjustable rate so you can stay a bit more liquid. Rates are very low right now with almost a guarantee that they will go up. As we saw with various European countries a bad auction or two can jack up rates in a hurry.

The basics still apply here. Minimize debt and live below your means. Save in various forms against an uncertain future.

Gun Control:

In this quadrennial 'OMG the evil gun haters might ban everything' period I have spent a bit of money but that was just bumping up some purchases I planned to make anyway by a bit. Sort of hedging my bets if you will. That being said I have been getting squared away in this area for awhile and while things aren't perfect (are they ever?) most of our bases are covered. If you do not own something, especially if it is likely to be targeted in a ban, that you want and can afford then consider getting it.

Crime and Disorder:

Things are getting more and more dangerous. Carry a weapon if it is legal and practical for your lifestyle. Get the training to know what you are doing. Make yourself a hard target. If you live someplace that is sucky and dangerous with a high percentage of unhappy urban folks and welfare types consider moving if you can figure out how to afford it.

Note that most of the things I have recommended are the same things I have been talking about for awhile. Preparing for every situation is not the same. You do not need a dozen assault rifles to survive an economic collapse. Having half your net worth in PM's will not be ideal if things go all mad max. That being said a whole lot of the commonalities are the same. Live below your means saving (in various forms) for emergencies and the future. Store food, fuel and other various things you will need. Have the skills and weapons to protect yourself and your stuff.

Anyway that is what I have been thinking about. Thoughts or input are of course welcome. 








Tuesday, September 6, 2011

Book Review: Reinventing Collapse: The Soviet Example and American prospects by Dimitry Orlov

This book discusses the Soviet collapse (loosely moving between the end of the USSR and their economic hyperinflationary collapse a few years later, more on this in a bit). It compares and contrasts what could be called the Soviet model with current and possible future events in America. In doing so the book looks at where we may be going. I read it on my kindle but am sure you can get it in a physical format if you so desire. Anyway let us get onto the usual format.

The Good: It was a quick, easy read. The author did a bang up job of speaking on complicated issues in clear language without jargon or scienceinese (the language scientists speak and none of the rest of us understand).  Somebody smart once said that if you can’t explain an idea to an average man on the street then you do not really understand it. By that standard Dimitry Orlov really understands the themes and ideas that make up the subject matter for this book. For a nonfiction book it reads rather casually, part because of the clear simple language used and part because it is interwoven with stories of his experiences and anecdotal tales. In the closing comments he said (more of less) that he tried to keep it light and enjoyable and I would say he did a great job. The information on the Soviet economy and collapse was outstanding. Also the way it was written hit the man on the street angle as well as the bigger picture of what was happening. This balancing act was probably hard and he did a great job of it. I learned a lot about how the Soviet economy worked, failed to work and fell apart in this book.

The Bad: It is abundantly clear to me that the author looks at the Soviet union through some rose colored glasses. I don’t know a ton about the USSR/ Russia’s history but he seemed to have an awful positive memory. Furthermore I found him willing to sweep America with a broadly critical brush that is probably not deserved. The words “if you liked it so much then why didn’t you stay there” came to mind and maybe out of my mouth a few times. If he would have been glowing or rough to both sides it would have made a lot more sense. This almost discredited an otherwise quality book for me.
The author could not seem to make up his mind between talking about the fall of the USSR and the Russian economic collapse a few years later. Of course both events were linked but the way he talked about them flipping back and forth randomly was confusing and in my mind not particularly logical. I’m not sure if he was trying to pad the book a bit, in any case it was distracting.

The Ugly: At points I found the book to be full of contradictions. He can’t seem to decide if there is going to be an economic collapse and hyperinflation or if things are going to go all Mad Max and stick with one idea. Much of his claim rests on peak oil theory which is, while not as discredited as global warming, certainly a subject that could be debated. This goes back to the point before that the events he is claiming will or are happening do not seem to logically lead to the conclusion he goes to. Maybe my reading missed something.
More so than any comparable book (Kustner, FerFAL, etc) I found this to be depressingly low on concrete ideas to prepare for the scenario the author lays out. He mentions how you might want to buy some compact tangibles such as soap and razor blades and that having a home with a bit of land to grow a garden that is paid off is a good idea. Aside from a few vagaries the book is awful long on problem and short on solution.  I’ve been told never to bring somebody a problem without an idea for a solution, apparently Dimitry Orlov hasn’t heard that one.

Now for some discussion in no particular order:
-One compelling and disturbing point was brought up. A significant reason the Russian economic collapse was so calm was that everyone’s residence was owned by the state so nobody got evicted. Sure they shared an apartment with a 12 member 3 generation family but at least they had a roof and walls that was not tied to any need for income. In America pretty much everyone’s residence is tied to a need for continued income, if just to pay the property taxes. That kept their homeless population to a real minimum which contributed a lot to stability. I do not know a lot of people in America who would still be in their home after a year or two if their savings/ investments were wiped away and their job lost. I am not sure what would happen if America had that sort of structurally high unemployment. However if our current situation is any indicator it would favor banksters and large residential property owners (who are typically quite well off) not average down on his luck Joe 6 pack. Massive homelessness would be a huge tragedy for a lot of people and cause significant instability. When people think (maybe accurately) that they have nothing to lose they are very dangerous.
- I think it is not possible to make a lot of comparison’s in an ‘apples to apples’ way because so much was going on in the USSR and Russia during that period. All of the events happening make direct cause and effect impossible in some cases, at least IMO. I would say a lot of the chaos and the rise of a massive criminal underworld was the result of communism or the wild west collapse of communism. Unless there are significant tariff’s, price controls or truly punitive taxes put into place I do not see the kind of massive underworld that appeared in Russia happening. There is no need to buy $25 soap from a sketchy dude in an alley when you can get it from the neighborhood store.  The existence of a relatively free market and its inherent ability to adapt readily negates some points the author made.
- Also for a lot of reasons I do not see the kind of massive corruption that took place in Russia happening, it just is not part of our culture, well except maybe Dem’s in Illinois. I do believe we could fall a rung down the proverbial corruption ladder but not to where Russia was/ is.
-As for the idea of a lot of laws and regulations being almost removed by the default of non enforcement I am not so sure. Unfortunately I think the answer is that laws will stay on the books and either every once in awhile somebody will get hammered for running an unlicensed business, dodging taxes, etc. This is not a huge deal as the odds of it being you are low. Another possibility is that laws will just be enforced selectively based upon various personal and political motives. Given the way the pendulum has swung recently that would be bad for most people who read this blog, especially the ones who are publicly outspoken. That the New Black Panthers can openly and brazenly intimidate white voters with weapons and face no consequences but an active conservative type will get hammered for a parking ticket or the like could be seen as a glimpse into the future.
In closing I do think this book is worth reading even though it does have some rough spots. The info and background on the Russian collapse was very interesting and though provoking. Heck I would go as far as to say it is worth paying retail price for if you can’t borrow a copy.

Wednesday, April 20, 2011

Quotes, Inflation and Hyperinflation

 
I underlined and bent the pages in The Ascent of Money for these quotes. They interested me and may interest you.
 
"Inflation is a monetary phenomenon, as Milton Friedman said. But hyperinflation is always and everywhere a political phenomenon, in a sense that it cannot occur without a fundamental malfunction of a country's political economy."
 
"Only entrepeneurs were in a position to insulate themselves by adjusting prices upwards, hoarding dollars (TOR adds they were talking about Germany post WWI so the dollar was a safe currency, comparisons could be made to the Canadian dollar or Swiss franc today), investing in real assets (such as houses and factories) and paying off debt in depreciating banknotes."
 
Inflation is on my mid term worry calender. At some point a couple to several years from now employment will start rising and we will finally have worked the glut of housing inventory out of the system. Things will start to get better and consumer confidence will rise which leads to more spending. When those dollars banks, businesses and people have been hording under the mattress in case of emergencies start moving it will eventually become noticable that there are lots of dollars chasing the same amount of goods and prices will rise. Our benevolent banking friends the Federal Reserve will raise interest rates to try and slow the inflation. I am less than confident it will work.
 
On one hand I am not that worried about inflation because our income is secure and we live well below it with no debt. Remember that while inflation makes debts cheaper in real dollars and thus easier to pay off, it also hurts the economy and leads to layoffs and failed businesses. It doesn't matter if your mortgage or bills cost 20% less if you are laid off/ business goes under and you make 100% less. In this respect we are in a good spot as we don't owe anything.
 
However I do have some worried because we couldn't raise my wages/ prices 20% tomorrow like a small business or whatever could. Since I am pretty happy with my job this is not going to change any time soon. That leaves us managing it. We don't have any debt, let alone variable interest rate debt or a frickin ARM mortgage but if we did I would be trying to get those accounts settled in a hurry.
 
We own some precious metals which would hold their value and be very useful if inflation became truly ruinous. We also store some food which would help us get through issues with JIT inventories. In this sort of situation (high but not hyper inflation) most likely our biggest savior would be that our normal lifestyle is well below our means. It would mean saving less and our travel budget (destined to drop 50% or more anyway when we return stateside anyway) would drop significantly but our day to day existance would be the same.
 
Obviously that sort of plan would not work well in hyperinflation. For that sort of scenario I have less of a warm and fuzzy but since it is so unlikely my underoos aren't all twisted up about it. As soon as practical we are going to start growing some of our own food which will help. Of course stored food and pm's would help in emergencies or as a short term stop gap measure.
What are your preparations for inflation? What are your preparations for hyperinflation?

Saturday, June 5, 2010

Where We Are Going

I have been thinking about this in various forms for awhile. Maybe the world will go all Mad Max and we will be killing each other over cans of dog food but almost surely not. Maybe there will be a massive long term global economic implosion brought on first by the total collapse of the Euro Zone then hyperinflation in America and the total collapse of the US Dollar. I hesitate to try and quantify this one. It is more likely than a Mad Max scenario but less likely than say higher taxes, increased crime, inflation of significant but not hyper levels and a generally bad economy for some time to come.

I have been thinking about positive things an individual can do to improve their situation. Also real world quantifiable stuff that is likely to affect us. Of course common sense stuff like having food, water, arms and savings applies but I talk enough about those.

I am seriously concerned about the long term prospects of those in the 40-60 age range. My Grandparents (more or less the "greatest generation" did pretty well for retirement. Most of them spent a long time at one job and got a defined benefits retirement which coupled with social security and various personal savings left them comfortable. They generally bought, stayed in and paid off modest homes and were pretty good savers. I fear that my parents generation (the Baby Boomers) are in a far worse spot.

They generally do not stay for their whole working life with one company. Few companies offer a lot in the way of retirement anyway these days. The only folks offering defined benefits plans (great for the worker, bad for the company) are a few huge corporations, union jobs and government at various levels. Unfortunately this generation seem to have saved like they had a defined benefits style retirement coming when in reality they sometimes had a 401k match. Thanks to modern health care they are going to live for a long time.

Where my grandparents generally bought one house, paid it off and stayed in it they move a few times, often up sizing and or using their equity like a Visa card. Instead of a paid off home at retirement age Boomers often have a relatively expensive not paid off house. I watch the financial adviser shows and laugh my head off when somebody wants to retire and still has a mortgage or two. How the heck do they think that will work.

Even if they want to just continue working that might not be an option. Workers in their mid to late 50's are in a rough spot. They are generally expensive to employ as they have a lot of experience at something. Also as their experience is pretty specific they can have a hard time finding a new job. Plus their health care costs are higher and they are sick more often. The old back up plan of just working a couple more years to help the retirement numbers is not something that should be counted on. Many organizations have a strong incentive to replace them with younger less expensive workers.

So I fear many in my parents generation may economically need to work past when they would want to retire but be unable to do so. That means a lot of folks are going to be hosed. If I was a 50 something I would be doing the math to see where I was for retirement without social security. Without some X factor the best I can see (from the retiree perspective) is them getting paid in increasingly less valuable dollars based on progressively more and more cooked CPI numbers.

One interesting thing is that people did not used to really "retire" but they also lived far shorter lives and were part of a 3 generation household with a fairly large degree of self sufficiency and low taxation. People were usually pretty healthy, got sick and then died. Thanks to modern medicine people live far longer than a hundred years ago. However we haven't really been able to extend the plateau of "good years" much. 

As a young person I see a lot of families becoming 3 generation households. I will likely be one of them but not for economic reasons. Young people might want to have an informal talk with their parents about this. If just to see if they should look at tacking on another bedroom to their house.

For us younger folks I think it is going to be a crazy decade or two. The only good thing for us is that we are young and have the ability to ride something out and recover afterwords. I see the scenario for low skill "blue collar" workers as particularly bleak. These folks are either going to need to either change paths or reside themselves to a life which is below the "middle class".

As for my generation. I think that for us the differences in outcomes based on choices of jobs and money management will be the starkest since the Great Depression. Those who get marketable skills will be in a decent place. Cash talks in a bad economy. However people who decide to have 2 expensive cars with loans to match and a credit card bill that costs a buck and a half to ship then buy a house with a payment that is 40% of their pre tax income will fail miserably. Wages will not necessarily grow at old rates. Relying on home equity growing fast and forever to bail them out won't work either. As people change jobs at least a few times in a working life those with payments to the hilt will have issues.

Those who stay out of debt and live within their means will do OK. They always have and always will if just relative to the situation. It is probably going to be a wild ride but those with  available resources will be able to best position themselves for it. Folks with payments up to their eyeballs don't have many available resources. Good choices beget more good things and bad choices beget more bad things.

If nothing else those spare resources can be put toward building a bedroom for the parents.

Tuesday, May 18, 2010

Golden Thoughts

It is about precious metals buying time at the TOR house. Gold isn't cheap and shipping costs add up so we seem to purchase PM's about quarterly.  We dollar cost average more or less buying roughly the same amount of metals at consistent intervals. Prices just seem to keep going up. I am not smart enough to say why they are going up or where they will go.People talk about putting your money where your mouth is and I am still buying. If worst case in a few years or a decade or two the price has dropped I will be content to laugh about it.

I was thinking about exactly what kind of precious metals to buy. It is hard to compare prices, especially when you start looking at various fractional stuff that doesn't compare readily. It is really interesting to compare what the cost of an ounce of gold or silver costs in a certain coin. Seriously, go to wherever you buy PM's and use a calculator to figure out the real price some time. It is pretty interesting.

I can not help but have this be a reminder that the types of coins and bullion many "experts" push so hard are the most expensive options. If I was a cynical person I would say their advice is driven by motivation for profit not your well being.

Some other people suggest the same kinds of coins and bullion without any financial stake in it. I don't know if they are right or wrong but at least their advice seems genuine.

Personally I lean towards fractional government minted gold coins because they are the cheapest way to buy gold in smaller quantities. The price differences can be quite significant. An ounce worth of roughly 1/4 ounce fractional gold coins can cost almost a hundred dollars less than an ounce of 1/4 ounce Eagles.  Unless I can find a dealer who sells 90% at sane prices I buy one ounce rounds. Considering these are coins of non numismatic value essentially we are just buying the gold or silver in them. Since with these coins the purity and such are consistent (if in different in some coins but you know what it is) why would you want to pay more that necessary for a given amount?

I can see the benefit of getting relatively common coins (gold or silver) and ones in smaller sizes which would be useful for those little everyday transactions. When it comes to convenient to figure fractions I am less sure. To rephrase that I am not sure how much of a premium I would be willing to pay for a round number. It is interesting to me that the people who suggest buying only American Gold Eagles and Canadian Maples because of their convenient fractions also suggest pre '64 90% silver coins which are decisively not in convenient to figure with fractions. Not going to say somebody is wrong for thinking either of those are desirable but they are among the most expensive ways to buy gold and silver respectively.

Well I need to go to bed now.

Later

Thursday, May 6, 2010

Diversification

One repeating comment that drives me nuts is when I talk about savings or cash on hand and somebody says "but when hyperinflation happens those savings will become worthless.... and that is why I only buy X instead". The reason this repeat comment has slowly started to drive me nuts is that the person centers their plans on ONE SCENARIO and ONE SCENARIO ONLY.

They are worried about hyperinflation or a full on One Second After collapse or whatever. It is not so significant to me that they are worried about a given scenario but that they are seemingly worried only about that scenario. I do not know what is going to happen.

Essentially the entire basis for my paranoia is that I do not know what is going to happen. If I knew exactly and with total confidence what was going to happen preparedness would be easy. The point is that we do not know what is going to happen.

Maybe (it seems to be getting more likely) we will face serious or even hyperinflation. In that scenario having put almost every dime you have into silver and gold would make sense. Then again maybe we won't. Maybe things will go all One Second After. In that case having a basement full of 5 years worth of food and hundreds of gallons of fuel would be real nice. Then again maybe they won't. Maybe foreign mercenaries will invade to put America under the Bildenberg/ Trilateral Commission/ Illuminati rule once and for all. In that scenario having several military pattern rifles and cases upon cases of ammo would be nice. Then again maybe they won't invade.

When it comes to dividing up our limited resources looking at the financial principle of diversification makes sense. I can not see any financial adviser worth their business cards suggesting a person put all of their money into one single stock or instrument. The reason that mutual funds are so popular is that they let people manage risk in a fairly easy way. Instead of having 5 grand (or 50 or 500 or whatever) in one stock (or bond or whatever) you have a hundred bucks worth of that one and two hundred bucks of another and fifty of a third, etc. While all of these stocks can take a downturn at once (a la 2007-2008); it is quite unlikely that they will all completely fail simultaneously. This way you will of course still have risk the odds of being totally wiped out are greatly decreased.

I sort of take that principle and expand it into my preparedness efforts. I have money set away for an emergency and invested so if the world doesn't end (odds are it won't) I can hopefully retire with dignity. In case things go pretty crazy I put some of my resources into silver and gold. I store and rotate food in case of prolonged interruptions of normal commerce. Heck I also have guns which could fight off the evil Bildenberg/ Trilateral Commission/ Illuminati thugs.

It does make sense to put more time/ energy/ resources into what seem to be more likely scenarios. I put more into saving than I do into ammunition (though I am in a fairly ok place there too). This is because the odds are far higher that I will find myself needing quick access to several thousand dollars than the equivalent in ammo. Just don't get too carried away with this because the world changes very rapidly and we don't know what is going to happen. 

If a certain scenario happens will I wish that I had put more time/ energy/ resources into preparing for it, yes. However I hope that whatever happens I will not be caught entirely unprepared. Since I do not know what is going to happen this seems like the best plan to me. I am truly putting my money (and time and energy) where my mouth is on this one.

Thoughts?

Monday, April 12, 2010

Reader Question: Hyperinflation and Currency Devaluation

I love the photos and captions - esp. the one about the fighter plane. Keep 'em coming. Since my eldest got out of the Army a few years ago, we've been a little short of military humor.
Now a question - I dont really expect you to know this answer, but no one else I've asked has had one for me. Maybe you know someone you could ask.
Anyway - the scenario:
The Govt decides to devalue the dollar. We wake up one morning and we are told that we have to turn in all our Federal Reserve notes and we will be issued new currency at a, say, 2:1 ratio. That is, we turn in two dollars and get one dollar in new currency back, or a 50 percent reduction in buying power. (This is pretty much what happened to the people in North Korea recently and it didn't turn out well.)
What happens to all the coins we've stashed? (I heard that when this happens, the govt pretty much ignores coins because few people have more than a small stash on their dresser or  in their pockets or something.)
What happens to govt pensions? Say Im a retired fed getting $2K a month. Do I now get $1K or do I get $2K in new money? Since it is directly deposited, it's all ones and zeros anyway until I cash it out.
What about Medicare or Social Security recipients? Are their payments cut in half or just converted to new money in cash? How would this affect their debit card system?
What happens to fixed mortgages? Do they stay the same amount and you just have to pay them in new money? Or, since you had to turn in your old money, did that magically cut your mortgage in half, too? Remember, you have a contract with the bank on the mortgage.
I know how it affected other countries (like Argentina - ferFal wrote about it a lot), but that isn't quite the same, because the conversion was based on the money's relationship to the dollar. I.e., the peso went from 1 peso to one dollar, to 3 pesos to one dollar. That just resulted in basic, ordinary. crappy inflation.
What do you do when it's dollar to dollar?
Do you think the Fed will just use inflation as it's Tool of the Month, rather than actually devalue and reissue the currency? There has been a lot of discussion on the doomer blogs about the govt already having different colored money stashed for such an emergency....In fact, one of the storage facilities is supposed to be a big building down the road from where I live. We know what it REALLY is (nyahaha).
Thanks for your thoughts.
SaddleTramp
TOR here: I think Saddle Tramp wins the award for the hardest question. Usually reader questions are hitting from a T easy but this one is a real fast ball. Anyway first I think it is important to say that nobody knows what could actually happen. We are talking about a very complicated scenario. The best we can do is to look at what has happened and our knowledge of America to make some informed guesses.

First of all I think we need to look at how currency devaluations work. I would say that currency devaluations are more of a desperate last stand than an intentional plan. Basically due to government overspending usually on a large military or various welfare programs (sound a bit familiar?) the government can't bring in as much as it is spending so they borrow and print. Inflation starts getting really bad and the currency becomes close to worthless or entirely worthless. The government then comes out and says that they made some mistakes  blah blah blah and in order to address this crisis they are going to re issue the currency. It would be more likely that a New Dollar/ Blue Buck/ Amero/ Whatever would be issued and we could change in our old and close to worthless dollars at a fixed exchange rate. Governments do not do this unless things are really out of control. I imagine an exchange rate more like 10 or even 100 to 1 would be likely.  
For various South American nations (they pretty much all did it at some point) this devaluation usually meant changing how their currency was pegged to the dollar. I am sure if this happened in America some theoretical "we are adjusting the value to get more in line with current world blah blah blah" stuff would be said. However that doesn't matter. What matters is that overnight you lose a zero or two off your cash savings. Governments say that in theory the new currency is worth more (and at the official exchange rate it is) but it never seems to quite work that way. In reality the new currency isn't worth much more than the old one and you have a lot less of it. Either the free market values the currency where it should be (lower than the government values it) or we all of a sudden have price controls.  People have their life savings destroyed overnight.
As for coins. If I recall in Zimbabwe they did not re issue new coins so people were searching to find old Zimbabwean piggy banks and coffee cups (or whatever the cultural equivalent is) full of them.  Either coins would be re issued or they would not, really it is anybodies guess.

When it comes to pensions. It is worth noting that hyperinflation and currency devaluation are wild and crazy times. Some people get totally screwed and other groups manage to get an OK deal with little rhyme or reason except their influence with those in charge. Congress and a couple of other influential groups might be able to wrangle a discrete but comfortable deal but most folks would likely get whatever the official rate is or lose their pensions entirely.
To be honest this is really the only scenario where middle age and retired (but not yet feeble) people are in a worse spot than the young. In general assuming they have made good choices middle aged and retired folks have had decades to build skills, store deep stores of supplies, maybe set up a nice retreat and become financially stable. However these folks are far more vulnerable to a hyper inflationary/ currency devaluation scenario because they do not have time to recover. As a 20 something a currency devaluation would suck for me for a few years as I would lose savings but I have 30+ working years to get into a good spot. However for my Father it would hurt a lot. He would seriously need to re reevaluate in what sort of lifestyle, when and even if he could retire at all. For my Grandmother the picture is even worse. She would be OK but she has significant savings in addition to her pension and some real estate but that is not where most people retire. For a person who relies on that check in the mail every month having it be worth far less is a serious problem.

I would say the people who fare the worst are those on a fixed income (well except those who get killed in the protests/ riots and increased crime rates but in the big picture that group is usually fairly small). Remember the pictures of old Russian women sitting in the street begging? They were doing this because the check they got every month was at the official exchange rate which doesn't reflect reality (unless there are price controls but that is a whole different mess) and probably couldn't feed them for a week, let alone the whole month. I can not express what an ugly situation this is for people on a fixed income. Their savings are gone and the check they get every month (assuming they even still get it) buys far less than it used to.
In terms of America I imagine Social Security would stay around as it is called the 3rd rail of politics with a very good reason. However the checks old folks get wouldn't buy much of anything because after being converted to the new currency and adjusted for the official exchange rate they would be a small fraction of what they are now. 
Likely Medicare would just become underfunded and really dysfunctional. People would get health care coverage but good luck finding a Doctor or getting an appointment. Far more scrutiny would be put on all but the most basic procedures and don't even think about seeing a specialist. 

As for fixed rate debt such as mortgages. The conventional wisdom is that your mortgage would just become really cheap which would be cool. Under this theory a mortgage for 150,000 dollars would go to 15,000 Blue Bucks. However as I mentioned above this sort of climate is a wild and crazy time. All contracts would have to be changed to reflect the new currency. Groups with influence can get a paragraph put into one of the numerous pieces of legislation which would be flying through our legislatures to protect their interests. Bankers as an industry have a huge amount of influence and they sure fared pretty well through our most recent troubles. Some sort of exception which made mortgages or other debt be converted at a preferential rate or converted fixed rate debt to have an inflation index is possible.

Our money supply has grown a lot recently but we are a huge economy and a very powerful nation.  When the economy starts to recover and all this newly created money starts moving through the system we will have inflation. I think it is worth noting that hyperinflation is ruinously high inflation. There is no precise numerical definition to hyperinflation but 50% a month is a number lots of folks seems to use. It is just a question of when we shift away from the current trend of massive deficits. When the economy starts moving again interest rates could be raised to shrink the monetary supply and get inflation under control. 

As for what I think is going to happen. The situation I see as most realistic is that  the economy starts moving again at some point at least a year from now, probably 2-5 years off. We start to see inflation rear its head and sooner or later our government will decide to deal with it. They will want to do something gradual in order to not totally slow the recovery and it will take awhile for it to get to the point where it will work. Likely that critical mass will be a couple percentage points higher than anybody would like. I see double digit inflation as very probable and late 70's/ early 80's era inflation around 20% as realistic. However if we continue running at massive deficits which grow the money supply the situation could well be worse than that.

Hopefully this at least gives you an idea of my thoughts on this rather complicated question and a bit of food for thought.

Tuesday, March 30, 2010

Risk Assessment

Discussion on my post a couple days ago made me feel like expounding on something. At work we do risk assessments. [To be honest they are almost always a bunch of BS. For example lots of people die in vehicle accidents, mostly because they are tired and have been driving for too long. Instead we create "controls" like radio checks and assistant drivers instead of actually making sure the drivers get a good nights sleep and have them switch out or split real long non mission essential (say 3rd ID's march to Baghdad) drives into more realistic and manageable sections. Anyway tangent finished.] Anyway what is important is to consider not just how severe the impact of a certain scenario would be, but HOW LIKELY IT IS. The chart below is a good visual for this.

The values for likelihood are pretty easy to conceptualize. You could define the values for severity/ impact in pretty much any logical way. In terms of physical injuries I would say minimal would be something that could be fully treated by a normal person with a modest first aid kit. Minor might be something requiring medical attention, say a few stitches or a sprained ankle. Major could be needing hospitalization. Serious might be limb or eyesight and catastrophic would be death. Follow where I am going.

So lets get back to that hurricane. If you live in the coastal south east a hurricane is a highly likely scenario. If you live in Colorado a hurricane is extremely improbable.

A flat tire is probably a minimal impact (unless you are ill equipped and on a lonely road during a blizzard) but it is a near certainty. I imagine over the course of most peoples lives they will have at least a few flat tires. Thus to that guy living in Colorado it makes sense to prepare more for a flat tire than a hurricane even though the impact of a hurricane would be major (of course it would vary by hurricane and how those individuals fare in it but just go with me) and the impact of the flat tire would be minimal.

Getting struck by lightning would really suck. Unless you make a habit of standing on top of really tall stuff or waving around metal poles in open fields during lightning storms the likelihood of getting struck by lightning is extremely improbable. Thus there isn't much reason to worry about getting struck by lightning.

To me it makes sense to look at how likely a situation is and how severe the impact would be when figuring out what scenarios to allocate our time and resources towards preparing for. This is why I see something like say, a financial emergency or a robbery/ home invasion as more pressing than Zimbabwe style hyperinflation or those Russian troops the UN has secretly been sneaking into the US coming to your neighborhood to enforce the edicts of the UN/ Trilateral Commission/ Illuminati/ Bildenberg's.

Thoughts?

Monday, March 29, 2010

quote of the day

"By a continuing process of inflation, government can confiscate, secretly and unobserved, an important part of the wealth of their citizens. "
John Maynard Keynes

Sunday, March 21, 2010

Thoughts On The 20th Century

The 20th century was a heck of a time. It probably saw more change for the living conditions of normal people than any other period. Around 1900 most peoples lives were pretty darn close to how they had been since the beginning of the Industrial Revolution.  Most peoples lives revolved around working on a small family farm or in some sort of a shop. In big cities people worked in the labor intensive factories and such. By the end of the 20th century the lives of people were radically different. In the US something like 2% of people feed the rest. Instead of a typical farm being a guy with a couple hundred acres and a mule or two it is tens of thousands of acres worked by a man with tractors and combines. Even now massive agricultural businesses are making farming not viable for the typical family farm. Communication and massive technological innovations have radically changed the lives of all but the poorest people (I mean like Zimbabwe poor, not American poor) into something unimaginable back in 1900.

One of the biggest single misconceptions in the opening part of the 20th century was that history was set. It is really tempting to think that somehow the era you are in is the ultimate creation of all of history, but it is entirely inaccurate.  War came about early as in part because the recently unified Germany sought to gain power and territory. The beginning of the century saw the massacre of almost an entire generation in the fields of Western Europe. The fall of the massive and decayed Ottoman Empire happened immediately after the war ended. Also WWI brought America onto the forefront of the world stage for the first time.

It is easy for us to look back with perfect hindsight about how foolish it was for people and nations to think history was set back then but we far too often laugh at those folks but think the same thing ourselves about today. Nations are going to gain and lose territory and power through natural coming of age (India, maybe China) and decay but also the old fashioned way, by taking it from someone else. Also I think it would be a dangerous assumption to think that even Europe is done with war. They may well come out of the shell shock of WWI and WWII and revisit old ambitions, rivalries and feuds. Just as the 20th century saw all of these events the 21st will also.

Economies will collapse. Some will just sputter out because of new developments making areas undesirable and products unnecessary and others will fall apart in spectacular hyper inflationary crashes. When this happens a few rich, smart people will be able to see it coming and prepare. As almost always is the situation it is normal average people who get the worst end of these collapses.

Lots of folks talk about how a hyper inflationary collapse is coming for America. Some say that it is coming next week and that gold will hit $9,734 an ounce. They also often say that a certain type of gold coin is best and happen to be selling them. I do not know if this will happen. Maybe we will just have a period like the late 70's and early 80's with fairly high unemployment and only 15-20% inflation. I know America is a huge, powerful and amazing nation. If anybody could figure a way out of the box it seems we are painting ourselves into it would be this great nation, however I am not so naive to think it could not happen here. If nothing else minimizing debt, particularly adjustable interest rate debt is always sound advice. If you have a few bucks that do not go strait to putting a roof over your head and food in the kitchen buying some silver and gold is a good idea.

"If the 20th century taught us anything it is that life is pretty cheap"- Jim Rawles on Coast to Coast Radio

Lots of people died in the 20th century. World War One darn near killed an entire generation of young European men. World War Two did a pretty good job on the next generation.  Russia has been unsuccessful in proving that a country can kill off its entire population through revolution, war, government produced famine leading to starvation starvation and just plain purges. They do however get an A for effort.

Speaking of famine food has been used as a weapon multiple times in history. Most notably the Holodorm comes to mind.  Seriously I think Russia has a running bet with somebody that they can kill off more of their population than anyone else. Though Pol Pot might have won that one. Anyway things can get bad and people go hungry, not missed a meal, like those starving African kids in the aid commercials hungry.

Sometimes war or economic craziness or nutty national policies mess up the normal flow of food that begins with production (farms, ranches, etc) and ultimately ends up in our kitchens. What can we do as individuals to mitigate this? Storing food obviously comes to mind. Having multiple ways to procure food is probably prudent. Debit cards are good but having cash as a backup is very prudent. If you are worried about a situation where a single currency/ country collapses then having some other currency on hand might be prudent. For a long time this was the dollar, nowadays Euro's, Swiss Franks or Canadian dollars might be good. A single ATM transaction worth of a foreign currency might be a big deal for your family some day. If nothing else it is cool to reference your foreign currency reserves. Again as with the hyper inflationary situation having some precious metals is a good idea if you can afford it. Assuming food is available you can get some of it if you have precious metals, as noted in Zimbabwe. Depending on your situation and how concerned you are about this particular possibility (or saving money, healthy eating, etc) producing some of your own food can be a good move. In my opinion if it is possible with your lifestyle producing some food is a good idea. However it is not a cure all. If a 40 armed men with a tank show up they will take what you have, sorry but it is true. Storing some food off site in a cache might not be a horrible idea depending on your level of concern and overall scenario. Again in a perfect world having multiple ways to get food, multiple ways to grow/ harvest your own food and multiple ways to trade/ barter/ buy food would be nice.

On a tangent I greatly enjoyed the little Reece's peanut butter eggs I ate while researching/ writing about famine. I also like having ice cream while watching Survivor and Lost.

I do not think the 21st century is going to be as bloody as the 20th. If nothing else the combination of Nuclear Weapons creating a MAD scenario between some larger nations and the faster, more technological nature of warfare the body count will almost certainly be lower. However it could still be pretty darn bad under a variety of situations. Also it doesn't matter if the total number of people killed is far lower then the last century if you and your family end up being part of the death toll.

Even aside from fully state vs state conflicts groups of people will kill each other. Sometimes states kill certain minority groups that are present within their society. Also sometimes states sponsor or allow to act without fear of intervention a group that is actively killing another group. Our world started the 20th century with a few genocides and mass killings in Turkey and Russia then finished up with a couple of bangs in Rwanda and the former Yugoslavia. The time in the middle wasn't exactly calm either.

I would be quite surprised if the  21st century doesn't have a few times when certain groups of citizens are targeted by state or quasi state actors. What can be done to minimize ones risk to this sort of cultural/ ethnic/ racial violence? Well if a place seems like a cultural/ ethnic/ racial powder keg now then it might not be a great place to live, especially if you belong to the wrong cultural/ ethnic/ racial group for that area. It probably isn't politically or socially correct to say that but IMO it is something to consider. Matthew Bracken's books depict some events in the South West and California which one might want to think about.

I guess in conclusion I will reiterate a few key points. History isn't set and nations will rise and fall. It is prudent to take some common sense steps to mitigate your exposure to economic collapses, famine and cultural/ ethnic/ racial violence. This century is going to be a lot like the last one just with computers and Ipods. There are certainly new risks (terrorism, EMP's, etc) but the old ones haven't gone away.

Thursday, November 12, 2009

Hyper Inflation, Inflation and Random Thoughts Theiron.

First of all I want to thank Michael N again for his guest post. Secondly I think it would be good for us to get a common definition for hyperinflation, maybe one that is a bit more quantifiable than "very, very bad". A 100% increase in prices over the course of a year is probably as good a definition as any other. To put that into perspective US annual inflation in 1980 was 13.5 percent and in Yugoslavia in 1993 prices increased 20% a day.

Of course hyperinflation makes us think of the Weimar Republic and Zimbabwe and pictures of little kids playing with giant stacks of money.

I have some thoughts on Michaels post:

The big problem with inflation is that it doesn't happen evenly in all areas. Lets say for example that all monetary transactions added 3 more zeroes tomorrow as did all wages, savings and investments.  Yeah a quarter pounder with cheese meal will cost like 5,000 bucks but minimum wage will be like 8,000 bucks an hour and your savings will have grown proportionately also.

As noted above prices would not all change at once or necessarily change evenly at least for awhile. Some stuff would not change in price and peoples debts would be relatively speaking far smaller. Some contracts would live their lives but I think many would be broken, more on that later. Housing would probably be pretty safe (at least till leases ran out) but lots of other stuff would change. 

Lets look at the given example but take it a step further. Say we have someone who owns a reasonable home with a fixed rate mortgage, a solidly reliable job with a set salary and some other various fixed rate debts. The amount of your take home pay that is consumed by house payments and whatever other debt would not change but if everything else increased significantly (say even a relatively mild 30%) just about anyone would be in some trouble! Specifically food and fuel are areas which would adjust rapidly and you can only insulate yourself from these areas so much.

Some contracts would certainly be honored for awhile. Businesses are around to make money and provide a product or service. In the long run (for most small businesses it would be pretty short) businesses will not continue to sell goods or provide services at a loss. They will either renege on fixed price contracts or go out of business. I am not sure how that sort of thing has played out in the past and will have to try and remember to send FerFal an email about it. I could certainly see a lot of companies thinking it is better to have a long drawn out law suit and be in business then have no law suit and go under. Also potentially I could see a lot of jury nullification coming into play with that sort of law suits. You wouldn't sell goods for the equivalent of pennies so why should you expect someone else to.

Make no mistake prices would change and some of them would change rapidly. Food, fuel and energy would likely be first followed by commodities (and stuff made from/ of them) and imports. It would certainly take time for adjustments to make it all the way through some long complicated supply chains but it would happen in a prolonged inflationary scenario.


Anyway I do not think America will suffer hyperinflation. Not saying it COULDN'T happen but just that I don't think it WILL happen. That being said I think inflation will surely rise in the coming years. I agree with Michael that our economy is probably too big and too inter connected with other countries for hyperinflation to be a realistic scenario. However lets say inflation is 25% or 50%. While hyperinflation causes a spiral which almost surely leads to an economic collapse just high inflation would definitely bring it to a grinding halt. Interest rates would rise as the powers that be tried to shrink the monetary supply; also the various private parties which loan money would started being concerned not just about risk but about the dollars they get paid back being worth less.

I don't think we will go all Weimar Republic but what is coming might well make the late 70's and early 80's look like a nice stable time.

quote of the day

"Very, very bad." 

The first sentence in the definition of hyperinflation on the Economists website

Wednesday, November 11, 2009

Hyper Inflation, NOT

Hyper-Inflation and other things you shouldn't worry about.

I believe that inflation Weimar Republic or Zimbabwe style just isn’t
possible in the US without a complete collapse of the Federal and
State governments.  It would literally take a TEOTWAWKI event to
trigger that kind of inflation here, and honestly, in that case, the
value of the dollar will be the least of your concerns. The incredibly
complicated and interwoven economy we have, that is the cause of this
current recession/depression/recovery (depending on who you ask) is
also the saving grace.

Yes, large inflation is possible and likely, but not supermassive
inflation. Why? Because everyone and everything is so locked into
contracts and pricing agreements. Inertia and interlocking complexity
will prevent it.

I will use my fairly average life as a general example for the
consumer end. My girlfriend and I are locked into a 13 month lease
(you could also use a fixed rate mortgage here) and the amount we
spend on housing cannot go up until the lease gets renewed, no matter
what the value of the dollar. We both are salaried full-time employees
who will not see a raise more than once a year, no matter how fast
inflation went up. If there were 5000% inflation, the amount we owe
would drop by 5000%, but then so would our earnings, meaning that our
spending power in that regard stays unchanged. Most Americans are
locked the same way, and rent/mortgages make up a large part of the
spending most households do. 50+ years ago (and in third world
countries) this wasn’t  (isn’t) the case. Contracts naming prices are
fixed until they expire. Every dollar locked into one of these
contracts is protected, meaning that while the value of the dollar can
fluctuate, the buying power stays the same. Also, while we aren’t the
industrial giant we used to be, we are a productive country, unlike
third world countries, a certain German republic, and our own nation
in the thirties hammered by economic collapse and the dust bowl. Our
dollar is not backed by gold, it’s backed by the productive capacity
of the nation. As long as that capacity exists, the dollar cannot
completely crash, especially since every employee and company has so
many future prices/payments locked into contracts. Sure, the prices of
commodities can go up, and probably will, but you won’t see them
doubling each day. Everyone has seen the piles of Zimbabwe billion
dollar notes needed to buy one egg. However your eggs are safer. The
vast majority of our nation does not buy eggs from some guy down the
street. Some guy or vendor can decide to charge twice what they did
the day before, supermarkets cannot. The laws of our country prevent
that.

 Sure we all know that Price Fixing defies the laws of supply and
demand and will always End Badly. The exception is when the laws of
supply and demand have already been violated. This current crisis was
Not Caused By Lack of Supply. We still have more than enough food and
materials to go around. We still have our productive capacity.
Price-gouging and profiteering are mostly prevented. This means that
Inflation may be continuous, and it may be large, but it won’t run
away like crazy unless our society falls apart first. Sure, there will
be pain, there will be loss. The economy will be stunted. Our buying
power will be cut. But saving non-precious-metal coins because you
think their face-value will be worth a billion% more after the
government slashes 6 zeros off the currency (a la Zimbabwe) is silly.

Sure, invest in tangibles that you need and use. Sure, plan for
inflation. But the sky is not falling, it’s just a nasty storm, buy an
umbrella.

-Michael



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