The Telegraph reports that “economists Charles Rowley of George Mason University and Nathanael Smith of the Locke Institute, claim that the White House’s plans to pour hundreds of billions of dollars of cash into the economy will undermine it in the long run.”
His policies even have the potential to consign the US to a similar fate as Argentina, which suffered a painful and humiliating slide from first to Third World status last century, the paper says.
There are “troubling similarities” between the US President’s actions since taking office and those which in the 1930s sent the US and much of the world spiralling into the worst economic collapse in recorded history, says the new pamphlet, published by the Institute of Economic Affairs.
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A paper laying out their joint thesis argues that government was the problem, both during the Great Depression and today. The synopsis of the Rowley and Smith paper says, “expansionary fiscal and monetary policies by the Bush administration and the Greenspan Fed were implemented to deal with the recession of 2001, and are precisely what caused the current crisis.”
An Institute of Economic Affairs review says “the authors argue that there are “troubling similarities” between the approach of the current US government and the disastrous economic policies of President Roosevelt during the 1930s.”
“FDR’s interventionist policies and draconian tax increases delayed full economic recovery by several years by exacerbating a climate of pessimistic expectations that drove down private capital formation and household consumption to unprecedented lows.” …
in a damning indictment of Obama’s economic programme, the authors conclude that:
“Now is a particularly bad time to enact socialistic reforms to the market for healthcare, pursue wealth-destructive cap and trade environmental programs, or force additional federal tax dollars into state and local education markets. Such policies imply higher government spending and, eventually, either higher taxes or runaway inflation, thus depleting taxpayer and business confidence in the economy…”
This is not the place to examine the argument that government is the problem, but it is fair to say that it is around this argument current debate over the economic crisis revolves. There will be those who strong believe that more government, more deficit stimulus programs, more expenditure is the answer, while not surprisingly there will be those who hold the opposite. Whichever end of the rope one is pulling on, it seems clear that it is the same rope.
The paper’s reference to Argentina refers to the “Infamous Decade”, prior to which in 1929, Argentina had the 4th highest per capita GDP in the world. In response to the Great Depression, Argentina embarked on a policy of import substitution industrialization.
Adopted in many Latin American countries from the 1930s until the late 1980s, and in some Asian and African countries from the 1950s on, ISI was theoretically organized in the works of Raúl Prebisch, Hans Singer, Celso Furtado and other structural economic thinkers, and gained prominence with the creation of the United Nations Economic Commission for Latin America and the Caribbean (UNECLAC or CEPAL). Insofar as its suggestion of state-induced industrialization through governmental spending, it is largely influenced by Keynesian thinking, as well as the infant industry arguments adopted by some highly industrialized countries, such as the United States, until the 1940s. ISI is often associated with dependency theory, though the latter adopts a much broader sociological outlook which also addresses cultural elements sought to be linked with underdevelopment.
Argentina’s history is complex and will be cited as evidence on both sides of the ideological tug of war for their purposes. Today, Argentina is still one of the more prosperous countries in the world, somewhere between the 23rd and 30th largest economies in the world. Adam Smith observed that “there’s a lot of ruin in a nation”. That fact may console those who are bent on imposing their vision of fairness on it; the idea that however badly they hurt it the United States wouldn’t fall any further than number 25 in the world; a middling place with nothing in particular to be proud of except for the fact that it was no longer number one. That’s a virtue in the eyes of some, who will ask what is so wrong about becoming another Argentina if that is the price to pay for ridding the world of the United States? That’s another way of thinking of the rope each side is pulling on.
It’s clear that Obama’s intention is to make his country LESS exceptional, since his socialist professors have repeatedly told him that the US is the source of all evil, especially economic evil, in the world…
“A paper laying out their joint thesis argues that government was the problem, both during the Great Depression and today.
The synopsis of the Rowley and Smith paper says, “expansionary fiscal and monetary policies by the Bush administration and the Greenspan Fed were implemented to deal with the recession of 2001, and are precisely what caused the current crisis.””
—
Right.
Three decades of mounting subsidies of Real Estate capped off by 15 years of increasingly stringent requirements for lending to those who could not repay, flippers, rose colored re-assesments and refis, all finally multiplied many times over by bogus bundling and endless reselling of said debt had *nothing* to do with it.
…and Barney never ran a Brothel in his Basement.
Test, please excuse.
Globalization and international trade make ISI as ridiculous a notion as protectionist labor practices. In fact, the two concepts are related; both are artificial means (economically speaking) to prop up the local price (but not the value) of a particular commodity, in the case of ISI the price of manufactured goods and in the case of protectionist labor practices the cost per unit of labor.
In the end, both things screw the general population of any particular nation in favor of small interest groups. Nations that pursue these things suffer eventually because the rest of the world surges on, and the nation pursuing these polices ends up staring at its economic navel, losing the margin of profitability and growth that could be afforded by less expensive imports and a more realistically priced labor market.
Please let me ask, with the greatest respect for a very smart blog host and his commenters, what, if any, steps you have personally taken to prepare for this predicted impending economic and social meltdown. I’m not asking for the kind of specifics that give too much personal info to any “watchers,” just some actions that confirm this isn’t a kind of intellectual “what if” game where we weave fantastic apocalyptic storylines because it’s kind of exciting and fun, like reading an apocalyptic novel.
Me — In the last year I’ve distributed my meager savings across a variety of mutual funds to account for wide market swings, taken courses to improve my resume, stocked up on various kinds of ammo, bought a generator and a rototiller, planted 8 fruit trees, expanded my garden, frozen my vegetables for the first time instead of giving the excess away or letting it rot, shrunk my lifestyle needs, and done plenty of other things which give my poor wife of 32 years concern.
Anyone else? Because at some point most of us start asking, “Is this really happening? Am I the type of misguided apocalyptic nutjob that’s been crying doom since 32 AD? Or am I the Richard Dreyfuss character in “Encounters of A Third Kind?”
Honestly.
Cheers,
The main problem is the inefficiencies of government and its role in over-oscillating the economy through “stimulus spending.”
First, government is very inefficient at producing any product. It takes about two to three times as much capital and labor to produce a product because of “Administration” and other “Overhead.”
The reasons for this are manifold but, the prime reason is the government “farms” out actual work to the private sector and tacks on a “management fee.” There are huge dis-economies of scale with high overhead. The government doesn’t really produce much of anything.
The only thing the Federal government can efficiently “manufacture” are very large projects such as national defense [huge weapons projects and successful deployment of military assets] and large projects such as highway projects that require circumventing State laws and expropriation of land and assets. But, critics usually pick apart that argument showing that companies actually do the underlying “manufacturing.” So, it a toss up as to whether the Government actually produces anything.
Second problem is pure monetary economics. The federal government tends to over supply the banking system with low cost credit or excessive spending. The government does so in a lag reaction to the actual economic situation. This causes inflation increase (dollar goes down and assets go up).
Because the stimulative effect is force fed declines in potency over time. Then the inflation peaks and slides into deflation.
The government worsens the monetary situation by tightening after it “sees” the effect of inflation and tightens credit – causing deflation to accelerate. Again, the government is lagging the actual economic situation (other factors include poor financial accounting, graft and race based social programs).
A recent example of this was the ‘Cash for Clunkers’ program which failed do to poor accounting and administration – and of course the Fannie Mae debacle.
In short, the government is the worst of both worlds – inflation and then deflation. This is not to say the certain people don’t benefit. The people who tend to benefit are “negative-tax payers” and well connected business people including financial speculators like George Soros.
The one place the government could be of help is to Reduce their own salaries thus injecting capital into the Real Economy. I would suggest that all public servants cut their wages by at least one-half. That would go a long way toward infusing the economy with liquidity.
Democrats wouldn’t careless if US is 25th or below Zimbabwe as long as they are the absolute power for decades. Power corrupts and rule of law doesn’t apply to them. Ask Rangel.
Salt Lick:
Buy silver.
Ledger: The federal payroll should be cut by 2/3 or more: by a combination of wage reductions, firings and attrition.
Then state governments should look at their spending.
Most public service jobs should be part time. Mandate this and watch the costs go down. Government run departments are on the tail-end of technology. Upgrades there would help with future savings.
One consequence of a US decline would be the lack of foreign aid. Second and third world economies would be forced to swim…or sink. Not to mention elimination of much graft and corruption in supply.
Salt Lick, it sounds like you made some good moves. You might consider hard assets such as gold and other commodities.
But, you will have to play the inflation curve correctly. That is, buy the hard assets low, let inflation take them up and then sell at the top. It may be necessary to diversify out of dollar denominated assets.
@ Enscout, I think you are right. My estimates of a fifty percent wage cut is too low.
Salt Lick, if political and economic liberty is lost, then preparing for what is coming, if this horror is really coming, is merely setting oneself up for theft by government. Will you be allowed to “hoard” your own produce and property? That won’t be fair. Heck, it is already not fair. When Pelosi, Reid, Rangel, Geithner, Obama & company are the ones deciding what prosperity is and who can have it, anyone not of their sort (and backing them?) is a target.
What is “fair”? Does democracy always devolve to that question? We had a great experiment in liberty, equality and justice for all, but if liberty is not the first concern, then equality makes justice a matter of what is fair and liberty is lost in the squabble.
Kate — IMHO, what we are seeing in town halls and tea parties and the stockpiling of millions of rounds of ammo is that the citizenry won’t allow the kind of theft by government you are suggesting. The first home raided for stockpiles of food, etc, will be tripwire for something much greater.
I am more concerned about an economic collapse similar to Argentina’s in 2001. Life will go on much like it does today, just with a significant reduction in everyone’s standard of living.
Thanks to Enscout and ledger for the suggestions.
If you believe that wealth is not created but simply exists to be summoned by a bureaucrats pen then it follows that there is no good reason that some countries are poorer then others. That leads to the position that relative poverty must be caused by some outside agent that is imposing deprivation. Leftists sincerely believe that everyone in the world could attain their rightful aspirations if the United States, sometimes the US and the UK, were not preventing them. The final conclusion of this thesis is that anything that drains resources from the Anglo-American industrial-financial war machine will increase global freedom and wealth. Therefor policies are advocated, like Cap and Trade and debt creation, to deliberately deny the armed forces future resources.
In the socialist paradise soon to come the peoples of China Iran, Palestine, Bolivia and various other progressive havens will be able to express themselves unconstrained by threats from Uncle Sam. The verbiage about Global Warming is largely just hokum for the masses given that socialists have a far more destructive view of the environment than capitalists do. The fact that there is little evidence to support these ideas, and much evidence to the contrary, is completely irrelevant. Like an animal with grey skin and a big nose the irrelevant fact that collectivism destroyed the environment and that the people under its control are not allowed to express themselves, authentically or otherwise, is completely ignored.
Salt Lick #5-
Consider handloading vs mere stockpiling of ammo. Components are easier to store, cheaper, and allow some flexibility in terms of caliber and cartridge, and you can really tune loads for your particular guns. Once you have the basics, (press, dies, and a few other doodads) it is VERY inexpensive to produce more ammo. Plus there’s something satisfying about making your own.
I’ve been putting away food by freezing/canning/drying/smoking for a lot of years now, not out of necessity, but because I enjoy it. It’s fun and you’re assured of the quality. Take the time to learn the edible plants and critters in your area and how to prepare/preserve them, too. You may never need to use that information, but you might. Get books on these subjects while you still can, or befriend someone who has expertise and do a lot of listening.
None of this is ‘apocalyptic nutjob stuff’, despite what the education and entertainment industries would have you believe. It’s merely how humans lived before the illusion of government and society that would take care of everything for you. How do you think the west was won? Not by people who ‘needed’ Gucci or Coach handbags or Bruno Magli shoes or 24/7 mass media entertainment and the latest trendy ethnic restaurants to feel fulfilled.
Speaking of fulfillment – if you’ve ever read the Foxfire books (and everyone should read at least a few of them) the old Appalachian folks interviewed said – to a person – that although life was a lot harder ‘back then’, that people nowadays, with all the entertainment and economic available, just don’t seem to have as much fun as they did. Consider that in relation to your post.
FWIW.
The argument that now is not the time for massive government intrusion into the economy represented by cap and tax, “health care reform” etc etc implies that at some time in the future it would be ok. This argument dangerously injects a sense that it is ok, so that you do not argue whether it is ok or not, but to what degree we will agree to it. In fact, it is not, ever, yet it becomes part of the narrative and dialogue, the give and take of our political discourse. And these beasts seem to take on a life of their own once they become enacted and they cannot be killed.
As you mentioned, the authors are extremely critical of Bush, Bernanke, Greenspan and the primarily Republican Congress between 2001 and 2007, blaming them for the current economic mess. The chapter with the title “George W. Keynes and Franklin Delano Obama” proves the point! The authors argue that Obama is making “Depression” AND Bush-era mistakes. People who view this paper in partisan (liberal = bad, conservative = good) terms are mistaken.
“Now is a particularly bad time to enact socialistic reforms to the market for healthcare, pursue wealth-destructive cap and trade environmental programs, or force additional federal tax dollars into state and local education markets.["]
Now is the perfect time, if your goal is to destroy the economy.
Statement in today’s Telegraph by a guy named Cheng, Chinese official. He says they are worried because the US is printing so much money and they are diversifying into other currencies and buying gold. When you’ve got the communists scared, we’re in deep youknowwhat.
Maybe ol’ Cheng should run for Congress.
I saw an article on a back page of the Milwaukee Journal Sentinel that President Obama is concerned about the effect of the recession on individual retirement saving and has proposed measures to alleviate this problem.
One proposal is to make employer savings plans (401K) more automatic, that an employee would have to “opt out” instead of “opt in.”
A second proposal is to offer a checkbox on the IRS Form 1040 that a tax payer would receive a tax refund in the form of a Savings Bond instead of as a cash payment because “the cash refund gets spent instead of saved.”
The article had some suggestion that these proposals may, in however an indirect way, be at cross purposes to the Stimulus Plan (ARRA) in that the whole idea is to get individuals to spend their money to jump start the economy.
I just can’t put my finger on it, but something tells me that these two proposals have an air of unseriousness about them, unseriousness along the lines of low tire pressure in passenger cars being at the root of high gasoline prices. Are these two proposals part of a serious policy initiative, or is this another one of those off-the-cuff remarks that Mr. Obama utters from time to time?
You all are missing the point.
Inflation creates winners and losers.
Winners: highly leveraged companies, investors, and individuals like George Soros, Warren Buffett, Rupert Murdoch, Tribune Company, Clear Channel, and News Corporation.
Losers: average people.
Inflation washes away debts, and the higher the inflation, the less debtors owe. For most of America’s history, self-sufficient or nearly so farmers and ranchers with heavy debts wanted inflation (bi-metallism, free silver, no Bank of the United States). With elite monetary and mercantile interests opposed. Now, it’s reversed.
Follow the money. Of course Obama wants inflation. His backers need it to get out of debt.
If Obama was impeached and convicted, could the US recover? Yes. By offering a literal Gold Standard. We still have Fort Knox. As long as we have all that Gold, we can switch currencies to a gold-backed standard (or even in an emergency mint gold alloy coins) and have a robust currency. The amount of debt is different, but presumably some of it (domestic pork) could simply be repudiated. Costly, yes, but there is likely no other way.
Government-caused inflation is a hidden tax that makes the money (Stimulus Package, e.g.) has spent worth less, therefore reducing the value of the national debt without reducing the numbers for accounting purposes. Inflation, despite the unfairness of it and long-term damage, is actually a sensible response to our current government spending.
Ledger @ 6: Herb’s Law of Governmental Limitation:
Whiskey, you’re right about who benefits – and who doesn’t – from inflation in terms of debtors vs. debt holders. And I understand the part about the leveraged large companies.
But isn’t it true that large swaths of average people also have big debts, relative to, well, being average? We always read about how high the average person’s credit card debt is, for example. Don’t fairly large numbers of people have a lot to gain from inflation in terms of debt reduction?
I’m not advocating this, mind you, just pointing it out.
Like you, I can see the positives of having a strict standard like gold or some other concrete commodity as a basis for currency. But what might the negatives be? More importantly, how do we transition back to a gold standard from the floating fiat currency we have now? What mechanism do you propose?
To blame Bush era policies totally for the collapse is just plain wrong. If you look at the series of chart presented by Karl at Market Ticker over the past few days, consumer credit accelerated from its historical relationship to income starting in 1994 and mortgage credit started accelerating in 1998.
Where the Bush Administration went way wrong is that they failed to recognize the danger posed by Clinton Era policies, and in fact Bush amped them. Fannie and Freddie went out of control in 1998. Wall Street after Gramm/Leach went off the rails expanding credit at an alarming pace through the newly found derivative based shadow banking maneuvers. And then Bush allowed Henry Paulson to push through lax reserve requirements for Wall Street in 2004.
But all these mistakes pale to what Bernacke/Paulsen/Geithner have done since October. Both US government credit and consumer credit are both approaching the inflection point where carrying costs and continued funding of our enormous debt ( much of it acquired since January) exceed our ability to pay. After that point is reached, I’m afraid it’s all funny money.
The only reason we are not totally in the drink right now, is that all the major economies, with the exception of the Gulf States; China, Russia, Europe and Japan perhaps are in worse shape than we are. We are all sinking together, and up to now our interdependencies have worked to stave off a humbling collapse. Maybe that will continue, but China and Japan are starting to make impolite noises bout calling in our chips.
Time for survival mode indeed. I like enscout’s idea of buying silver. Those with the wherewithall to do so might consider moving to flyovercountry rural areas, where life is cheaper now and future selfsustainability is more realistic.
The complacency of The Great American Wimp got us into this mess. What makes you think he’s going to do anything to stop it now?
The USA is now a totally divided third world sh*t hole. What are we united as?
Honestly, what are we as a nation any more? I’m certainly not shedding my blood for this circus.
It’s over.
People know who’s responsible for the demise of the USA, but it’s not politically correct to say it. Ask yourselves which group of people YOU CAN’T CRITICIZE and then you’ll know who’s in power.
If someone could explain the importance of silver over other metals/commodities, I’d be most obliged.
#5 saltlick: I would recommend preparations that include plans or wealth destruction. In recent historical events wealth is destroyed or expropriated. Real wealth will be 1) a home/shelter away from conflict and desperate scavengers 2) warm clothes in winter 3) food and perhaps a vegetable garden. Skills, trades, and professions are priceless.
I get this list from a book by Barton Biggs called Wealth, War, and Wisdom in which he discusses the 20th century wars in Europe.
I personally would add security considerations and an emergency exit plan, but if you truly have to do battle to defend you and yours, it’s probably to late to leave.
In the last century my father’s family drew straws and half fled russia while the other half stayed to try to keep thir property. The ones who stayed died in Siberia working in Gulags. The ones who lived walked out of russia in the winter, not everyone made it, the children fared poorly. The survivors worked their way here and thrived.
I’ve been restoring an old farmhouse out of the ciy that has reasonable access to water and space inside a fenced perimeter that can be gardened. I’ve added some small livestock in the form of several hounds for security and hunting, chickens for food and waste disposal, and pygmy goats for “lawnmowers” and occasional barbecue. I’ve got a practical wife and friendly neighbors, mostly elderly. If things get really bad my wife and I will walk away from everything. My real wealth is skills and I can carry them away naked if need be.
The book i mentioned was very informative, though mostly about markets and economics, but the take home message was that wealth is destroyed periodically. What may be vauable when living is easy will be worthless in hard times and what we often take for granted may actually save our lives.
#26 no mo uro: the importance of precious metals is that you don’t have to store them in a bank. you can bury them in the back yard. if you can’t hold it or hide it you can’t keep it.
It certainly does appear this is what the Democrats have in mind – destroy the private sector and make everyone dependent on government for everything.
“It is also not impossible that the US will experience the kind of economic collapse from first to Third World status experienced by Argentina under the national-socialist governance of Juan Peron.”
Real Estate values are driven by jobs — jobs good enough to support a mortgage.
CRA Policy exploded twice in the Clinton years: in 1994 the Carter scheme was revamped massively. The off-year election polls indicated that it was now or never for CRA Policy expansion.
The rhetorical under-pinning came from the Boston Fed white paper of 1992 which postulated that big banks were still stiffing the inner-city mortgage market without risk justification.
The second wave, the super-staggering surge in sub-primes, occurred when a rake was being taken over the coals: impeachment conviction was bought off by having mass commitments towards sub-prime vectored towards key states so as to ensure that the vote went down party lines.
This extra juice is what triggered breakout moves in urban real estate. In Sacramento the poor part of town pretty much disappeared in only six years.
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Lax lending standards drives default rates artificially low a the front of a bubble. This lulls wise fools into reconfiguring their risk models. An exponential breakout to the upside ensues. All too quickly the herd of greater fools gets tapped out and the trend breaks.
Will E. Coyote hangs tough, though, and pronounces that this is the new now: we can’t all be wrong — the market is efficient!
Margin Calls/ Notice of Delinquencies hit the system…
What’s a player supposed to do?
The stupendous gearing of the lenders quickly makes them insolvent/ upside down on their equity. Liquidity evaporates. A bitter climb-down back towards equilibrium ensues — fought by the government, the press and the industry.
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Any meddling by Obama & Co that destroys jobs and lowers private incomes must necessarily lower real estate — and land — values across the board.
So it can be seen that Summers has it exactly backwards: the government should be doing all that it can to encourage a high output economy with particular emphasis on export goods ( supports the currency ) and increasing competitive energy supplies within the NAFTA zone.
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Since the economic statistics from China and Russia are even more fictive than our own BLS — and that takes some doing — there is no reason to believe that the USD loses its international money status.
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On present trends expect firm and rising prices for oil, energy, food and all of the essentials you can’t stop buying.
On present trends expect soft and dropping markets for real estate, land, discretionary-anythings.
The Plunge Protection Team (PPT) is hosing the capital markets with liquidity. Hence equities and high risk bonds are bubblated right now. The P/E of the S&P is about 144 right now!
ZIRP (Zero Interest Rate Policy) is forcing liquidity investors to cash out principle so as to meet expenses. The typical liquidity investor is or represents a retiree or a commercial enterprise parking funds. ZIRP in a world of printed money/monetized Treasury bonds operates as a tax upon liquidity in non-bank hands. Supporting the banks with this wealth transfer is crushing the prudent savers/productive economy.
You name it: Summers has it backwards.
Pre-1965 American coinage silver is the most appropriate form of exchange for the ordinary expenses of life: food, fuel, clothing.
Silver is also trading, relative to gold, rather cheaply.
In the past tremendous amounts of silver were consumed by photography — no more!
There are very few silver mines: most silver comes as a byproduct of complex mineral extraction: zinc, lead or copper is the vanguard metal — silver is along for the ride.
This means that rising prices in silver do not trigger a flood of fresh production.
( The same is true for Germanium — used in semi-conductors — which is famously volatile because it’s an incidental byproduct of zinc refining along with Cadmium.)
For more, read Robert Prechter:
http://www.elliottwave.com/club/gold-silver/default.aspx?code=32541
By comparison gold is for the big stuff. It is of interest that the mint keeps running out of coinage bullion in both silver and gold. Now that’s retail demand!
“the more the state ‘plans’, the more difficult planning becomes for the individual.”
What Greenspan and Bush did not contemplate was the lack of a response by wall street to obvious attempts to set a moral bar. the lesson taken away from Ken Lay’s sentencing without reprieve or suggestion of a presidential pardon was to not get caught without an escape plan and that escape plan should be more than begging forgiveness. Taking advantage of the lack of a market brake, and the failed attempts regulate specific transactions, certain parties overheated the market looking for huge advantage.
Those parties now have the advantage, and what they are up to is an attempt to plan how the economic engine of the world economy will act. It will not work. It has no firm theoretical foundation nor empirically proven performance base. The emperor has no clothes. And no skills I might add.
late duplicate
Paul M.,
They are designed to make more of people’s wealth transparent and taxable. The Dems have been talking for quite some time about taxing 401Ks, and a savings bond is a loan to the government by another name.
The US Federal Reserve’s policy of printing money to buy Treasury debt threatens to set off a serious decline of the dollar and compel China to redesign its foreign reserve policy, according to a top member of the Communist hierarchy. Cheng Siwei, former vice-chairman of the Standing Committee and now head of China’s green energy drive, said Beijing was dismayed by the Fed’s recourse to “credit easing” “We hope there will be a change in monetary policy as soon as they have positive growth again,” he said at the Ambrosetti Workshop, a policy gathering on Lake Como.
“If they keep printing money to buy bonds it will lead to inflation, and after a year or two the dollar will fall hard. Most of our foreign reserves are in US bonds and this is very difficult to change, so we will diversify incremental reserves into euros, yen, and other currencies,” he said. China’s reserves are more than – $2 trillion, the world’s largest. “Gold is definitely an alternative, but when we buy, the price goes up. We have to do it carefully so as not to stimulate the markets,” he added. The comments suggest that China has become the driving force in the gold market and can be counted on to buy whenever there is a price dip, putting a floor under any correction.
Mr Cheng said the Fed’s loose monetary policy was stoking an unstable asset boom in China. “If we raise interest rates, we will be flooded with hot money. We have to wait for them. If they raise, we raise. “Credit in China is too loose. We have a bubble in the housing market and in stocks so we have to be very careful, because this could fall down.” Mr Cheng said China had learned from the West that it is a mistake for central banks to target retail price inflation and take their eye off assets. “This is where Greenspan went wrong from 2000 to 2004,” he said. “He thought everything was alright because inflation was low, but assets absorbed the liquidity.”
Ambrose Evans-Pritchard the Telegraph, UK
This is why China is no longer selling gold into the market.
Regarding gold and silver, I offer some observations and personal experience.
As I’m sure everyone knows, gold has been a store of value for thousands of years. But possessing gold has certain disadvantages as well as advantages. Gold bullion comes in many forms from big and small bars to bullion coins of different sizes. And there are collectable numismatic gold coins as well. Each has its plus and minus.
The big plus is that you get a lot of value concentrated into a small size. A one ounce gold bullion coin, such as American Eagle or Buffalo, Canadian Maple Leaf, Chinese Panda, or South African Krugerand, can be held in the palm of your hand and is currently worth around $1000. You can get smaller denomination gold bullion coins, such as the British Sovereign, the Mexican Peso, and various smaller American Eagle coins down to 1/10 oz.
The main problem with gold bullion coins is that it would be hard to make “change” for them in a crisis. For example, if you gave someone a 1 oz American Eagle for something that was worth $250 then what would they give you back for change?
That is where silver coins are most useful. Of course you can get silver bullion coins, such as produced by the US Mint with the old “Walking Liberty” design. They are 1 oz. in weight. But the easiest way is to accumulate US coins minted in 1964 and earlier. They are 90% silver and have about the amount of silver in ounces as their denomination states. Thus a silver dollar has 1 oz (actually 90% of 1 oz), a quarter has ¼ oz, and a dime 1/10 oz. They go for approximately the spot price of silver, with the convenience of a minted coin making up for the missing 10% of silver content. Thus when the price of silver is around $14 – 15, a US circulated silver dollar will run around $15 and a dime will fetch you about $1.50. In a crisis where ordinary currency is worthless or unavailable one can use silver coins for ordinary transactions.
As to numismatic coins, these too have advantages and disadvantages. On the one hand these were exempted from FDR’s confiscation orders. On the other hand, their value depends on market conditions, the popularity of the particular coin, its mintage, the number of surviving coins, and most importantly, the condition. Here is where the mischief enters.
Coin grading is very tricky. Although there are presently two reputable coin grading services (PCGS and NGC) and several other fairly respectable ones (ANACS, for example) there is an intrinsic problem within the coin industry. Grading standards can change. When the market is low the grading tends to be lax. When the market is high the grading tends to be strict. And the grading criteria have changed many times over the past four decades.
I once bought a Standing Liberty Quarter from a very well known company that was graded MS-63 (with 70 as the maximum). But when I tried to sell it back to them a few years later when the market had risen, I went to the owner of that same company at a famous coin show. He told me the coin was only MS-55, a very much lower grade. He was shocked when I showed him the paperwork indicating that his own company had graded it MS-63 several years earlier. He told me, “Well, grading standards have gotten more strict since then.” We compromised on MS-60 and I got paid accordingly, but never trusted that company again.
I love collecting numismatic coins, but one must be careful and not necessarily expect that the values on sale will be the values on purchase.
One word about platinum. While gold is primarily a metal for jewelry and to store value, and silver used to be an industrial metal but is less so today, platinum is mostly industrial. It rises and falls according to scarcity but also in terms of the state of the industrial world. Catalytic converters rely on platinum so the automobile industry affects the price of platinum. In the past two years platinum has risen to double the price of gold and has fallen to lower than the price of gold.
You can get platinum bullion coins in the form of American Eagle coins in denominations from 1 oz to 1/10 oz.
The ratio of the metals to each other fluctuates as well. Traditionally gold was valued at 16 times silver, then 20 times silver, then 35 times silver. Now gold is about $1000/oz and silver is around $14-15/oz. Platinum is now around $1200 +/- per oz.
So buy bullion gold coins, a few numismatic gold coins, plenty of silver dollars and silver dimes, a few platinum coins, and keep some cash too. The uses of each depend on the depth of the crisis.
I hope this helps.
no mo uro — Oh yes, I’m familiar with Foxfire books. And I know from experience that those mountain folk are right about it being “hard” to support yourself by growing your own food, etc. Better to have a skill, a job, assets, some gold and silver (thanks to others for the suggestions) and some ready cash.
aaron — FWIW, this Argentinian fellow — “ferfal” — who is highly thought of in survivalist circles, thinks isolated retreats are terribly vulnerable to bandits and marauders. He writes of many instances he knows where thugs attacked isolated farmsteads in Argentina and tortured and killed the occupants before making off with their wealth. Might want to think about that unless you’ve got your own armed and connected community out there.
Thanks, all for the silver explanation. I know the general reason for metals (burying in the yard) but I needed clarification on why silver specifically.
Salt Lick #38
Agree on it better to have a skill – provided others are willing to pay!
39 no mo uro: I’ve enjoyed reading ferfal’s writings. I indeed have an armed and connected community in my neigborhood. We just aren’t in a town or city and are in a rural agrarian neighborhood where people have cows and horses in there front yard. (I actually live on the west bank of the rio grande south of Albuquerque.)
I think ferfal makes a good point about being isolated. On Rawles survivalblog I’ve also read about peoples places being pillaged in their absence. I know one family who lived along the I-25 corridor near Truth or Consequeces who where captured, robbed, and held hostage by criminals who finally fled the scene due to a shootout with nosy neighbors. They were fortunate to live! The ultra-violence of Juarez is only a two hour drive from me.
Fortunately I’m funny looking and my neighors know me. They’re funny looking too so we recognize each other. So strangers stand out here abouts. When the hounds raise a ruckus I look outside and other people look this way.
Community is good! City’s don’t have it…
oops, i as replying to #38 salt lick
“FerFAL” had a series of postings on the net about what happened and what did and did not work in Argentina after the big default. He’s got a blog now and has compiled everything into a book also.
http://ferfal.blogspot.com/2009/02/not-mine-but-you-might-want-to-take.html
For instance gold rings worked out better than gold or silver bullion coins as a store of value since the rings were easier to trade and sell. You could work a deal with local jewelers easier with rings than the bullion coins.
I don’t think things will go the all the way it did Argentina because we would see either violent kick back sooner or knives in the night.
Priority one is shelter. If you have an acre or better two acres and a house and barn you are set in that dept. The backyard homestead book is very good for this.
Priority two is long term storage of food and water. No electricity from whatever reason means you have to do without refrigeration. See the Mormon community. You can buy LTFoodstuffs from their stores. See the Frugal squirrel website.
Priority three is barter items not PM. TOOLS, Steels to make tools and repair machinery, Consumables for machinery. These will get you food and water.
Priority four is defensive armament. If you don’t know what or how you might as well get use to being used and abused by those that do and have no morals.
Priority five is know your neighbors and surrounding community. Be involved with them. Know who is good and who aint. Have a system of communication. Doesn’t need to be fancy but needs to work.
Priority six is PM for trade. I have very little. And what I do have is known as junk jewelry. Rope chain of 10kt quality. The traders will have no good way of assaying so you will only get 10kt price exchange. Silver is good for small transactions.
But like I said the guy who can produce is the guy who will not suffer from lack of food, water, and consumables. He may or may not have to deal with miscreants. Depending on his community and how well they stick together and work in unison.
In Honduras at this time they are having to deal with shortages and rationing. The Obama administration is making it all the more harder through sanctions and shutting off aid. But I told a friend down there that if they shut off aid then Honduras should just trade with Columbia and whomever else will trade with them. I suspect they could sell in Israel.
[Hier stehe Ich, Ich kann nicht Anders, Gott helfe mir, Amen.]
Thanks for the quote, Subotai. From Martin Luther, yes?
On the occasion of the 47 theses?
My advice to anyone in any part of the country is based on preparedness for natural disasters such as hurricane, tornado, earthquake, fire, flood, famine, pestilence, etc.
Civil disorder can be assumed to be a detectable component of any of those.
You might gain insight from looking at some historical accounts of the aftermath of things such as the San Francisco Earthquake, Hurricane Andrew, Chicago Fire, The Great Northeastern Power Outage of 1965, etc.
[Parenthetically...] Can anyone in this forum point to an authoritative description of the circumstances in New Orleans in which Law Enforcement officers or National Guard Units confiscated firearms from residents there? My recollection is that this was following reports later proven to be completely fabricated that some looters had fired weapons at police. This would suggest that someone with an anti-gun agenda planted that whopper among the avalanche of other lies and rumors the Media broadcast without any serious attempt at verification. That seems to warrant some special attention.
To respond further to Salt Lick:
Get some solid first aid training – I recommend a course in Wilderness Emergency Response because it assumes the rescuer and the patient are isolated and remote from professional facilities and personnel. Figure on one night per week for about 12 weeks.
C.E.R.T. – Community Emergency Response Team training, normally 8 – 10 weekly sessions of about 4 hours each, with instruction in triage (multiple casualty) basic life support, CPR; building search and marking; cribbing and stabilizing of structures; fire suppression; identification and location of gas, water, and electrical connections; understanding how to turn off services where needed; how to avoid becoming a casualty.
Learn self-sufficiency skills – This can be low tech or medium tech. Knowing how to use an acetylene welding rig OR arc welding, how to do copper & tin-smithing, blacksmithing, working with hand tools not dependent on electrical power. Learn how to build or use foot-treadle powered woodworking lathe or saw, basic electrical wiring, Morse code, rocket stoves. Learn how to do a tune-up on a 1970′s vehicle. Paper-making; block printing; silkscreen printing;
Read up on alternate building techniques: cob, timber framing, log, rammed earth, straw-bale & stucco, etc. Especially figure out techniques appropriate to your region, climate, and physical skills. Having the knowledge is by itself a valuable thing, which can be carried in your head.
Composting, earthworm colonies & wormjuice, preparing soil for a garden, square-foot gardening, non-hybrid seeds, read up on planting and cultivating orchards, small-holdings, crofting, small-scale animal husbandry (recommend primitive breeds or mixed breeds for hybrid vigor) Sheep, goats, Dexter Cows, ducks, geese, dogs & Llamas (singletons) for flock protection; learn how to set fences, build gates, operate a Bobcat, power augur, level, surveying equipment, etc.
Military Manuals are a great source of information for general survival skills, and learning to make the most of your environment.
The problem with any of this is that preparing your self and your family is just a small part of the problem. The rest is the question of how other people have prepared or failed to prepare. Given time to learn and practice, most people have the basic intelligence and will to learn the crafts and HABITS needed to live in reasonable comfort in wilderness. The great challenge will be how to deal with other people who are totally unprepared, panicking, and disinclined to submit to any authority.
The ability to protect one’s family, property, food, and shelter is fundamental to all the rest. There are other places where information and advice would be available. I am not competent to counsel in these areas.
An Obama lefty, musing on the desired destruction of the United States, is in the end struck by reality.
What if we’re then the Argentine
That’s something with which we’d be fine
If that’s the price to pay for getting rid
Of US evil, US force
Of knocking Yankee off his horse
And turning over all to good El Cid
What has the Yankee done for us
Add up the minus and the plus
And you will find it’s negative at best
We have our vision brave and bold
To turn the USA of old
Into something rather like the rest
We’ve got our man in DC town
A president of great renown
A man to give the world a brilliant show
Just take a look how he’s begun
To knock us down from number one
It’s always money first the thing to go
Then tax and spend the middle class
To grubbing roots and eating grass
‘Til we’ve gone past the Argies far below
The world will be a better place
When we the world no longer face
The rabid, fearsome menace that we know
Without them now to keep the peace
We need but produce more police
Without them buying products that we make
It will be tough to get along
No doubt but we are surely strong
Enough to live on bread instead of cake
In time we’ll see that as they fall
That so as they then so as all
And while destroying them was so much fun
We all went down as they declined
And now we’re simply stunned to find
That after falling they’re still number one
Mad Fiddler,
It is what Luther said at the conclusion of his trial for heresy before the Emperor and the Bishops and the Imperial Court. That statement and his safe departure under the protection of sympathetic nobles was the real start of the Wars of Religion and an independent Protestant community. I linked to two videos about it on my blog, click my name and go back to August 27th.
The “The Great New Orleans Gun Grab” is the definitive book on the subject. But the synopsis is that Nagin and his Police superintendent cooked it up on their own. As of today over 90% of those lawfully owned guns have not been returned to their rightful owners. And those that have been were damaged some beyond repair due to rusting.
Knocking America off its pedestal will only make the whole world poorer — literally. The conceit that China, India, or a resurgent EU could fully takes its place is a fantasy.
The concept of “exceptionalism” is poorly understood. Exceptionalism is a societal and political survival mechanism that the world has used time and again to get around self-imposed barriers when those barriers butted up against reality. Medieval Europe had the Jews for its exceptional people so that money-lending was possible in an increasingly sophisticated economy. Cities provide safety valves for vice by creating red light districts, another aspect of “exceptionalism.” The world is full of “exceptional” places like Switzerland, Hong Kong, Monaco, Singapore, offshore banks, maritime flag countries like Liberia, and — the biggest, baddest exceptional place of all: the United States. Exceptionalism is a manifestation of the underlying algorythm of life that favors diversity.
The world needs “exceptional” places, societies, and people to provide rationality, economic and sociopolitical safety valves, and as a hedge against total economic and political catastrophe.
What has been completely forgotten by naive globalists and transnationalists is that the world economy is a food chain, with America at the top. Western Europe has been able to sustain democratic socialism for two reasons: the American market for its goods, and the fact that its economies were built up by Christian Democrat parties and principles first, before Europeans could think to indulge themselves in welfare states. If the U.S. becomes just another social democracy, the food chain is broken, and everyone loses.