This Is Europe, and It’s 1912…

[With debt spinning wildly out of control and the States threatening to revolt against the tyranny of Washington, we asked some frequent contributors to the Rick’s Picks forum how they thought the economy would look five years from now.  In the essay below, Tom Waldenfels asserts that it wouldn’t take as much as a “black swan” event to tip an already destabilized economic system into chaos. In the meatime. he finds it baffling that so many people evidently cannot see this disaster coming. RA]

A smoldering ruin.

What’s that you say?  Well, Rick asked me to give my outlook for how the world might look in five years from an economic standpoint.   That’s easy.  A smoldering ruin.  I mean that figuratively … I think.  The whole world?  Maybe, but I’m thinking primarily of the U.S., Europe, and Japan.

Look, the readers of these missives are very smart and well-informed, so I don’t feel the need to catalog all the problems we face. You know what they are.  The biggest are the ocean of debt we’re floating on that has gone bad or is going bad; the extreme amounts of leverage still in the system; the mountain of derivative contracts extant that can’t possible be honored when the SHTF (Think AIG); a corrupt and insane government that does precisely the wrong things; and the uberputzen at the Fed, who are hell bent on destroying the clownbuck.  The problem underlying all of this?  Phony money.  They’ve managed to maintain the fiat money scam for decades now, and what a party we’ve had.  But when the money goes bad, look out.  And it’s starting to go bad in a big way.

My view, for what it’s worth, is that we’re looking at unimaginable systemic disorder once the patches being administered by the Fed, the Feds, FASB, et al. are no longer sufficient to keep us limping forward and a breakdown occurs.  I take this as a given.  The die has been cast.  2008 was just a warm-up. Will the meltdown look more like Japan on steroids, or Argentina on steroids — or perhaps both in alternating fashion?  That’s the big question in my mind.  I dunno, but it’s likely to unfold along one of those primary lines.

When will it happen?  Oh, how I wish I knew.  Being early is so much like being wrong, and I’m often early, but the Powerz have been delaying the inevitable reckoning for a very long time.  Could they keep it up another five years?  Yeah, I suppose.  Inertia is a powerful force, but I think about the disappearance of the USSR.  Took forever to happen.  But once the system started to collapse, it was over in the blink of an eye.   I fear it’ll be sooner rather than later, but who knows.  Experience suggests otherwise.  They can drag out the endgame for a long time.  (Whatever you think of the Bernanke, he has given us the time to prepare, not to mention huge gains in gold and silver.)

Mass Delusions

What interests me more than what’s going to happen or when or why is how people can be so blind to the threat.  How is it possible for the mass of people to delude themselves into thinking the problems aren’t that serious or that the consequences won’t be that severe?

The simple reasons are that they believe the disinformation that spews forth from the MSM, economists, the government, and the Fed, plus they’re engaging in simple garden-variety denial.  But I think what’s really at work here are the normalcy bias and the recency bias.  Put simply, for most of us, life in the USA. has been good for our entire lifetimes and our recent experience suggests we can dodge whatever bullets come our way.  Very few of us have ever seen a collapse or lived through really tough times, so we can’t even really imagine that a major breakdown could occur, much less what shape it might take.  Even if it’s unspoken, the usual response to my haruspications, when I share them with others, is something like, “That couldn’t happen here.”  You wanna bet?

Time to Prepare

Call me a pessimist if you like, but I think that’s just a silly label used to discredit the analyst who comes to disturbing conclusions.  The system that allows us to live the way we do is incredibly complex, and the more complex the system, the more at risk and given to instability it is.  In other words, the more complex a system, the more robust it needs to be.  The system is not robust.  It’s a house of cards.  It won’t take much to destabilize it.  It’s time to prepare for some wild action.

You know, there’s been a lot of chatter about Black Swans and the potentially devastating effects of events you can’t anticipate.  The warning is clear.  You can get totally blindsided while thinking you actually knew the risks you were facing.  Well folks, we don’t need no stinking black swan to take us down.  There are plenty of perfectly, screamingly obvious risks that are poised to manifest themselves very shortly.

If you want an analogy, this is Europe … and it’s 1912.

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  • stan March 21, 2011, 5:56 pm

    Rick, perhaps you can blog about how one goes about preparing for this “unimaginable systemic disorder”. What exactly does one do to prepare?

  • Scraper March 21, 2011, 2:19 pm

    Dear Rick : Best regards from Czech Republic. I only beg to differ so much :
    From this side of the Atlantic it is not 1912, it is the end of pre-hyperinflation looting of Weimar Republic in global scale. Sorry to say, my crystal is already safe in a cellar. Reading history books too much.

  • Clay W March 21, 2011, 4:53 am

    My dad, at 92 years of age, lived through the Great Depression and it changed him forever. He has no illusions that it could not happen again. In fact, his family was doing quite well financially during the 1920’s and within a period of a couple of years they had lost everything. After the fall he remembers his dad saying that he did not think a catastrophe that large could or ever would happen. I was talking to my dad last week on the phone about about different things (he is still pretty sharp) and he made the comment “your generation better pull their heads out of the sand, they don’t know what real rough times are like and I’m afraid they are getting ready to find out.”

    For most of my life my dad had a very nice vegetable garden and my mom was always busy canning beans and peas. As a teenager I was embarrassed by this “hick” behavior but my dad used to say I’d better learn how to do this stuff because it may come in handy one day…you never know. He was a Dentist and made a comfortable living and he genuinely enjoyed gardening. But, he learned how to garden in the Depression because he had to just to eat. Yet when he was a boy working that garden he had recent memories of his family staying in nice hotels, driving nice cars and eating out often at nice restaurants. He would be glad tell you that he knows for a fact how quickly and dramatically things can change…just make sure you CYA before it’s too late.

    • Soviet of Washington March 22, 2011, 4:16 am

      And this is exactly how the Millennials (next Hero generation) and Homeland (next Silent generation) will act once they survive the coming deluge (financial collapse and following civilizational war). When I tell my kids (all millennials) this, they just shake their heads like I’m nuts and walk away. We shall see…

  • Terry S March 21, 2011, 4:06 am

    “…we don’t need no STINKING black swan…” That is good!

  • billbobmonet March 19, 2011, 8:10 pm

    Great comments, on a lighter positive note perhaps… a former race car driver builds cars that run on compressed air, $15,000 msrp, cost $ 2 to go 200 miles, 3 different models, pump it up overnight or use the on board compressor to fill it. Working with India to build them. No more oil wars ??? A game changer???http://www.flixxy.com/zero-pollution-automobile.htm

  • Frank March 19, 2011, 8:02 pm

    Unless, of course, a big power grab is designed into the endgame, then the crisis will be utilized appropriately.

  • Frank March 19, 2011, 7:54 pm

    It seems to me that all the world’s ‘uberputzen’ have in common, a small vision of their being dragged out into the street by hoards of ‘untervolken’ and strung up to a lamppost… so any sudden discontinuity of events would indicate a crimp in the plan… the frogs will continue to be boiled slowly, as long as possible.

  • John March 19, 2011, 6:41 pm

    The reason americans are not curled up in a ball under their beds is because their lifestyles have NOT changed and WILL NOT BE CHANGING!!
    just made my two week vacation plans (spared no expense) for five. most everyone I know has done the same or will be doing the same as soon as they get home from their family spring break vacations.
    everything is and will be fine. like i’ve said before the powers that be will just flip a switch. as they did the other day in the currency markets. anyone can say the sky will fall. give me a metric. when? when gold is at 10,000, dow at 100,soup lines,$100 loaf of bread, dogs and cats living together? what ? any of you? show me where its soooo bad in this country people are jumping out of windows? where? the answer is nowhere. its not happening. it didn’t happen. its not going to happen. go on with your lives. Be Happy

    I’ll tell you when I ‘ll know. when I walk into costco and I dont see anyone there. when I stop seeing people buying BIG SCREEN HDTV’S.

    Carol
    you’re right they can keep this thing going for as long as they want. and when they decide its time to end they’ll profit from it.

    • A. Rand Fan March 19, 2011, 9:24 pm

      Good for you. Some win and some lose. C’est la vie. Problem is the losing group is growing. And as a result the number of transactions in our economy shrinks. I think Costco’s great and will be fine for a time longer than most. Maybe it’s was a market loser but I think the Sam’s Club where I live that closed 2 years ago was really a casualty of the economy. Seen the report on new home starts for February? How about food costs? Yeah we go on the best we can and It’s good to have a positive attitude. But you are a fool to think a day of reckoning can be put off indefinitely. What do I know but IMO the day we no longer can service the debt will be the SHTF day and be within 3 years. Tell me the national debt (14+Trillion and growing) hanging over our collective heads doesn’t matter.

    • mario cavolo March 20, 2011, 6:31 am

      Hi John,

      I’ve always been the one pointing on this board that there is a “new” America being formed separate from the whole. That is the group of the upper middle and high income strata. I agree that they will continue to survive and thrive, no matter what economic storms come, they are richer than ever.

      However, I must point out to you that the “other” Americans, the ones who have been more severely marginalized in society than ever before, are in deep trouble. The numbers on foodstamps is approaching 50 million, 25-50 million unemployed/underemployed, with very little opportunity in front of them. For a group of over 100 million Americans, my estimate, their lives are getting worse year by year and I see no change to that coming for the next several years.

      Cheers, Mario

  • Terry S March 19, 2011, 2:42 am

    “Fait accompli” …long before Wisconsin.

  • Jeff March 18, 2011, 10:35 pm

    Terry S Too bad. Shows you why we will never get our fiscal house in order…

  • Terry S March 18, 2011, 9:11 pm

    ONE hour ago… Judge blocks Wisconsin law

    “Smoke on your pipe and put THAT in!” – West Side Story

  • Mercurious March 18, 2011, 8:09 pm

    @Carol: If I may, I’ll share something again that I wrote here just the other day, It may help to sort out what level of planning is appropriate at any time.

    Try to have a plan for every reasonable–meaning within the realm of possible, not probable–contingency. But don’t forget the last and most important one; a contingency plan to meet the situation of not needing any contingency plan. At that point, you are as strategically placed as any human can be.

  • fallingman March 18, 2011, 7:17 pm

    Yeah, those goat entrails are VERY hard to read. Takes a lot of training and where is the master Haruspex to learn from these days?

    Actually, if I might comment somewhat seriously…because I prefer humor to being serious…I take Carol’s point above. As I said in the essay, the Powerz can keep this game running a long time…and quite possible a lot longer than we imagine they can. That would be nice, indeed, from an easy livin’ perspective. Maybe not so nice from a “justice” or long term health perspective.

    I’d be pleased to be wrong on the imminent nature of the threat, but the bottom line is that actions have consequences. Just because you haven’t seen big trouble yet doesn’t mean it isn’t coming and the meltdown may be closer than you think. My GUESS is that it is. Chaos deferred is not chaos averted. It’s only a matter of time. And the wonderment in this community and others in the know that the collapse hasn’t happened yet (I think it did in 2008 and the consequences simply masked since then) should INCREASE your confidence that the game can’t continue much longer rather than weaken it.

    My experience is that often, just when you think an investment will never do what you thought it would, bam, just like that, it fulfills its promise. I’ve held dozens of juniors that paid off big, and it took what seemed like way too long almost every time. We chafe at the bit when it doesn’t happen on our timetable. I think waiting for the breakdown is no different from waiting for a short on a crippled company to pay off.

    I remember all too well how I held off on shorting Countrywide and never did because the damn thing kept going up and up and up. I second guessed myself. I assumed I was missing something. Yeah, I was missing something…the unbelievable extent of teh fraud.

    Many would have said predictions of their demise was unwarranted at the time. Hardly.

    Two other points…

    1) Lord have mercy, are we not seeing MAJOR cracks in the foundation that are visible to everyone?

    We have deficit spending careening completely out of control and that’s with the 10 year in the 3% range. What if rates rise? What if they rise sharply? That won’t be any Black Swan. That’s a highly probable and predictable event. And yet, the two parties are arguing over just exactly how little they can get away with doing about the budget shortfalls.

    The various iterations of QE are arguably the only thing holding the markets together.

    The clownbuck should have rallied on technicals alone and the trouble in the world. Nada. The Fed CAN’T raise rates above zero! Collapse is inevitable. Tick tock.

    Bill Gross won’t touch Treasuries! The Chinese are puling back on longer term treasury purchases. Prices are rising fast. Metals crawl high steadily, despite massive, determined, and increasingly desperate intervention.

    40 states are essentially “bankrupt.”

    The housing market has been crushed. Propaganda aside, the financials are like Bernie from Weekend at Bernie’s … dead but still enjoying themselves.

    The relentless math of the entitlement programs is bearing down on us. Afghanistan and Pakistan have ensnared us and money just pours down the drain.

    I will boldy say, no matter how wrong I might be, that we approach game over within the next five years. But I’m pretty sanguine about the longer term future of we can effect a major cleansing of the financial system and hit system reset on the fiscal and monetary fronts.

    2) So, what good does it do to “think like this?” You mean defensively or “pessimistically?” I reject the latter as meaningless. And as to the former, hey, getting out of paper and into real stuff was a fantastic move. How could we have possibly done better, unless you had correctly picked great stocks, such as Apple or VMWare? And my “thinking” hasn’t precluded me from owning both of those at various times.

    The Bernanke and the uberputzen (glad I coined the moniker) are very powerful…and also have zero integrity. They’re running a con. I give them an enormous amount of credit for pulling off the crimes they’ve managed to pull off. I also don’t underestimate their ability to keep the con up for quite a while longer. But debt is debt and paper is paper and crime is crime and sooner or later somebody’s gonna pay. I just don’t want it to me or you.

    Thanks for all the comments guys.

  • david March 18, 2011, 6:08 pm

    An addendum–our political problems stem from one basic source, as I see it: high elected office is a fabulous gig. Being a senator or congressman is almost as good as professional athlete or movie actor. Once elected to Washington, they NEVER want to give up the life. It wasn’t meant to be this way. The problem is, we can’t change the rules, because THEY make the rules. It would take so much political will on the part of the electorate to get this to change that mass revolt would happen first. I mean non-constructive, mindless, crazy rebellion. The electorate is like a wishy-washy, non-confrontive patsy who can be pushed around by a bully for a tremendously long time, because the bully knows exactly how far he can push without pushing his victim over the line. When the bully finally gets careless and overconfident, he provokes a mindless, raging overreaction which is way beyond the bounds of rational response because of the pent-up nature of things. This is what I’m afraid will happen.

    Non-elected office is almost as good. Witness the situation in Wisconsin. Do those teachers, etc. want to go to a market situation for their labor? I’ve worked in state government myself, and take my word for it, it’s a gravy train. Best job I ever had, without any doubt. What a skate! And the perks were fabulous. Trouble was, I was so young at the time I thought all of life was that way, I had nothing to compare it with. Now how many of those people are there, as a percentage of our population? 20%? 30%? A huge number. We can’t afford them, but they’re not going away. Remember, this is their livelihood. They’re in this full-time, and you’re just an amateur. They’ve got us beat unless we get really, really informed and determined, and I don’t see that happening unless the above crazy scenario comes to pass. Just my two cents’ worth.

  • david March 18, 2011, 5:36 pm

    Haruspications–I love it! 🙂 Seriously, I agree wholeheartedly with Tom. I myself have been feeling like a sitting duck for several years now, with my wife and I caring for her aging and incompetent parents. Thankfully, we’re about 45 minutes from a major city, but I wish it were 10 times that far. I do know that when it does hit the fan, I don’t want to be anywhere near a major population center. I’ve been mentally preparing to boogie on very short notice for quite a while now–just get the in-laws packed up despite their protestations and get that car pointed outta Dodge before the crush of traffic engulfs us. Thankfully, I’m a smalltown hick, and am very much at home in a rural area. Also thankfully, my wife and I have lived overseas at a level not unlike that which we’ll be experiencing when things collapse (you know, often no heat or electricity, having to collect water in barrels and boil it, dealing with corruption as an ordinary thing, using the LEFT hand for sanitary functions, etc.) But still, it’s going to be tough, if for no other reason than that the average North American has no clue, and we’ll be surrounded by these clueless crazies. So the fewer the better (think small-town).

  • Carol March 18, 2011, 5:32 pm

    The problem with this kind of thinking is that one may structure their life and their finances based on such beliefs (as I and many here have) and then nothing happens!

    I got out of the paper markets in 1999 and into hard assets because I knew “it” was unsustainable. But somehow they have susbtained “it” for 12 more years.

    How many more years can they keep this ponzi/fiat scheme going- 10, 20, 30 – 50 years? Probably till long after I am gone. So really why bother worrying and trying to “prepare” for something that never happens?

    I know some people who have been expecting this facade to collapse since the 70s! They have been waiting for many more years than I have (hey I am a little slow sometimes I guess). And still – it keeps going and going and going kinda like the energizer bunny.

    Maybe we don’t give “them” (the uberputzen) enough credit; through luck and “momentum” their system continues.

    • Rick Ackerman March 18, 2011, 8:18 pm

      Far from keeping the Ponzi scheme going, the jig is up — has been up for years. By now, most Americans are painfully aware of the ongoing collapse in our standard of living. Homes, health care and college tuition are no longer affordable for the middle class, and the Baby Boomers’ retirement dreams have gone up in smoke. For now, only a stock market in a fearsome death rattle is all that is sustaining the illusion of recovery.

    • John Jay March 18, 2011, 9:07 pm

      Carol,
      We have never added debt trillions at a time before in such a short period of time.
      The Fed has never had so many Treasury securities on their balance sheet as right now.
      Our nation has never before lacked productive resources like we do right now.
      Congress has never so completely sold the average person out to big corporations as now.
      Fallout from the housing bubble is going to be dumped on the public.
      And so on.
      I don’t think we have too much longer to wait.

  • Jeff March 18, 2011, 5:32 pm

    Robert Baker…..If you notice, the dollar already is acting sick with pathetic bounces that used to be strong moves to safety….5 yrs till Dday ? Dream on…

  • ben March 18, 2011, 4:55 pm

    Uberputzen…LOL!

  • laurent March 18, 2011, 4:45 pm

    Jacques, I’m sure the list could be extended but you’ve got a good skeleton to start building a body. Most importantly is your thought pattern. Our existence here on this cosmic ball can not be Heaven, but it wasn’t meant for US to make hell either.
    Cheers to all regulars and newbies on here. Rick your contributions to the cause of providing an alarm clock is invaluable, truly enhanced also by the associates your attract to this blog.

  • Rick J March 18, 2011, 3:58 pm

    It is so true; you can even get used to living next to a nuclear reactor. If you presented todays` financial facts to someone in the 1970s they would recoil in horror and head for the hills. The idea that Pimco would hold no US bonds/Treasuries would be unimaginable. We are frogs in a slowly(?) warming pot.

  • Jacques Redou March 18, 2011, 3:54 pm

    Obama’s chief of staff Rahm Emanuel said a crisis should not be wasted. But this Crisis IS
    being wasted. Fed.gov is spinning it’s wheels
    trying to keep things the way they were rather than adjust to the way things are Going To Be.

    -when they bailed out GM Fed.gov
    should have required them to design and start building 100 MPG cars selling at 12 to 14 thousand dollars that can carry 4 people and meet crash tests. This is Easily done with off the shelf technology. Because America is so spread out, we are going to need these cars in the Near Future. (when gas hits $5 in the next 2 to 3 years and 7 and 8 dollars in the next 10 years) But I still see 40,000 dollar bloatmobiles at the dealership. Bad decision.
    Or is it bad indecision?

    – any new buildings should have massive insulation. Existing buildings can be upgraded
    to a higher R value with Tax Credits. Private business and private people will pay for this. This should be law now. America has had cheap energy for 100 years. That is over now. It is time to adjust
    to the new reality.

    – University courses, except ones requiring labs or other hands-on coursework should be freely available on the Internet. So far, the online “universities” are just moneymakers ripping off
    the taxpayers for student loan money. Get the best teachers from MIT or Cal Tech, Etc… – pay them well and let any American that wants to
    sit in their Online Class – then come in to take a test for academic credit. All these tree lined campuses are pretty – Pretty Unnecessary. Of course, that is going to piss off the Unnecessary Staff there but we can’t afford them anymore. Besides that, it is Immoral to deny higher education to poor kids since the invention of the Internet – a means of delivering higher education to them free of charge.

    -stop the Ethanol Scam. Agribusiness won’t like it. Oh well.

    – Start trained neighborhood patrols. People will do this willingly and for free in their own neighborhoods. This can best be done by the states and municipalities.

    -Prisons should all be factories, doing some of the work we now pay illegal immigrants for. Why does the middle class have to work and pay 30,000 or so dollars a year so healthy young prisoners can sit on their ass? A prison can easily Make Money – Rather than Cost Money. If honest people don’t work, they don’t eat. Why should criminals get a free ride?

    -the lawyers Must be curbed. We cannot afford them anymore. Most developed nations have a very rational , and Fair law. If a lawyer and plaintiff lose a lawsuit – they pay the legal bills of the person they sued. This will cut out a lot
    of useless lawsuits.

    -Get out of the Middle East. These ‘Wars’ are financed with borrowed money. When Americans can’t feed their kids and are living on Food Stamps – we cannot afford more Viet Nams in the Middle East. We are going to leave eventually anyway. What is going to be accomplished by staying any longer?

    -Give Ten Years Tax Free to any Manufacturer that will employ Americans on American Soil and will pay
    a living wage. How do you keep businessmen from gaming this effort? Write the rules wisely. Meaning
    keep politics out of the rule writing. Get retired businessmen to write the rules – not politicians.

    -Can you think of Other ways to make this Country a more FAIR and sustainable place to live?

    • constmane March 18, 2011, 5:16 pm

      What’s a living wage? What’s a fair place to live?

    • Larry D March 19, 2011, 4:59 pm

      ” -when they bailed out GM Fed.gov
      should have required them to design and start building 100 MPG cars selling at 12 to 14 thousand dollars that can carry 4 people and meet crash tests. This is Easily done with off the shelf technology.”

      …um, then why aren’t the Germans with E 2.00/ liter gasoline or the Japanese easily making 100 mpg cars?

      BECAUSE IT CAN’T BE DONE.

      If you want a 100 mpg vehicle, you buy one of those disposable Chinese scooters and take your chances in traffic.

    • ZW March 19, 2011, 8:15 pm

      Love it! Here’s the catch, you need to acquire the pull needed to implement them. Knowing what the answers are is only 1/2 the battle.

  • Marc March 18, 2011, 3:32 pm

    As a longtime reader of Rick’s Picks who has never before posted a reply, I have to say that I think the following two quotes perfectly encapsulate the current state of affairs:

    “Will the meltdown look more like Japan on steroids, or Argentina on steroids — or perhaps both in alternating fashion? That’s the big question in my mind. I dunno, but it’s likely to unfold along one of those primary lines.”

    “I think what’s really at work here are the normalcy bias and the recency bias. Put simply, for most of us, life in the USA. has been good for our entire lifetimes and our recent experience suggests we can dodge whatever bullets come our way.”

    Very well said, Tom.

  • Robert Baker March 18, 2011, 1:55 pm

    One thing all the Doomsayers have yet to answer is why does the entire world rally to buy US Treasuries bumping the Dollar whenever FEAR enters the market and the VIX spikes. One word. Safety.

    You will know when the Armagedon is occuring when the US Treasuries SELLOFF after a VIX spike or the next “disaster”.

    • Rick Ackerman March 18, 2011, 8:04 pm

      I seriously doubt that those who are pouring money into Treasurys view them as safe for the long haul. They are safe for the moment, is what all the hot money is counting on. One day these, though, all of these guys are going to get caught on the wrong side of the trade. Anyone who can’t see a Government default coming is blind to reality. It is preposterous to think the U.S. economy will somehow grow itself out of debt.

    • roger erickson March 19, 2011, 7:00 am

      Glad someone at least asked an intelligent question.

      ALL (& I do mean all) of the following occurs “By law”:
      Congress appropriates currency to match what the USA decides to do – regardless (that’s what “fiat” means);
      the FED credits the Treasury’s account at the FED with the specified amount;
      the Treasury issues bonds to match any amount in excess of what’s recovered from last year’s issuance (taxes);
      Primary Dealers buy ALL of those bonds from the FED (yes, to the penny, by law)
      then the PD’s may or may not sell those bonds to any marks, er … (I mean, anyone willing to hold minimal return securities; why? don’t ask)

      What this should drive home is that an issuer of a Sovereign, Fiat, non-convertible, floating-FX currency manages a real-goods (or more accurately, “real-intent”) budget, and issues it’s currency ONLY as fiat, internal bookkeeping numerals.

      Currency USERS, on the other hand, use their nation’s fiat currency as an accurate proxy for local real goods budgets.

      For the last time, quit confusing the semantics of “budget” across currency-issuers and currency-users. Those are two completely different contexts, and the meaning of the word is completely different in the two contexts.

      some references:

      http://www.netrootsmass.net/fiscal-sustainability-teach-in-and-counter-conference/stephanie-kelton-are-there-spending-constraints-on-governments-sovereign-in-their-currency/

      http://www.u-s-history.com/pages/h256.html

      A few of the questions any astute electorate should be asking:

      What would happen if no one wanted to buy US Treasuries from the Primary Dealers? (Answer: “Nothing.”)

      What would happen if the Treasury even stopped selling Treasury bonds? (Answer: “Nothing.”)

      T-bond sales are simply a habit left over from Gold-Std days. They’ve been obsolete since 1933. You can quote Beardsley Ruml on that: http://tinyurl.com/y3dkda3

      For those worried that the fiat “math” doesn’t add up. That’s because you keep trying to “add up” nominal currency “TACTICS” when the missing perspective involves fiat currency “STRATEGY” combined into coherent “OPERATIONS”. Try reading up on basic monetary operations before wasting too much time on nominal fiat math.

      The issuer of a fiat currency cannot default, by definition. It can only choose to do so as a political decision. The whole definition of “fiat” means that currency production is limited ONLY by the will of the issuing nation. If there are things a nation wants to accomplish, and it’s people agree, it can issue enough of it’s currency to denominate all distributed transactions it’s populations needs & wants to execute.

      This is not difficult. We decided on this in 1933, and finalized the last vestige in 1973.

    • Hugh Jorgan March 19, 2011, 10:38 pm

      Robert , apparently you have not been paying very close attention to the markets lately , because recently when FEAR has entered the market , the dollar hasn’t budged (even goes lower on some of those FEAR days) . Actually the Swiss Franc has been the go-to currency recently , and also the precious metals are beginning to be seen as more of a ‘safe haven currency’ than a ‘commodity’, and rightfully so in my opinion.

    • Zabrina April 10, 2011, 4:39 pm

      WitJUV YATB says you r the best

  • MR. CHAD March 18, 2011, 1:29 pm

    UNFORTUNATELY,,,,,WHEN YO RUN OUT OF MONEY, YOU RUN OUT OF OPTIONS. ALL DEBT HAS TO BE SERVICED WITH THE DOLLAR, YOU RUN OUT OF $$$$ YOU START LIQUIDATING ASSETS TO RAISE DOLLARS TO SERVICE THOSE DEBT ITEMS. THIS WILL DESTROY THE MIDDLE CLASS.

  • Buster March 18, 2011, 1:07 pm

    It can feel frustrsting that the sheeple don’t seem to be waking up fast enough. But don’t worry.
    Staying asleep and oblivious to the truth of things is not a luxury any of our generation will enjoy!
    The alarm bells are just going to get too loud to ignore.

    On another note, despite the attemps to keep it quiet, the documentary ‘Inside Job’ is now available.
    It’s a real hoot for anyone who puts their faith in our respectable and authoritive sounding leaders…..

    BURYING THE TRUTH IN A TIME OF LIES

    In August, theaters in the US began showing the trailer of Inside Job, a movie that promised to explore the truths behind the economic collapse that has leveled much of the world’s economies and banks since 2008.
    A $20 million effort written, produced and directed by MIT grad Charles Ferguson was scheduled for theatrical release in early October 2010 by Sony Classics; and a great number, including myself, anticipated its release-a release, however, that was to be far different than expected.
    Two weeks ago, I wondered what had happened. The movie had not opened here as scheduled and the trailer was no longer being shown in theaters. I then discovered Inside Job was playing at a local independent theater with virtually no publicity.
    The film is as riveting as its trailer promised, see http://www.sonyclassics.com/insidejob/. Ferguson’s pointed questioning of bankers, government officials and business school professors exposes his subjects for what they are, i.e. educated, overly-confident, smarmy, self-excusing promoters of Wall Street’s greed who had sold themselves to mammon in order to further their own ambitions.
    Inside Job narrated by Matt Daemon delivers its message so effectively that those who control what America sees-and does not see-have made sure that most Americans will never see it, a movie that clearly indicts those responsible for America’s ills, i.e. themselves.
    To understand how Inside Job was silenced (yes, it was “an inside job”), a comparison can made to other movies released in 2010
    Leap Year budget: $19 million opening screens: 2,511
    Legion budget: $26 million opening screens: 2,476
    The Tooth Hurts budget: $48 million opening screens: 3,344
    Edge of Darkness budget: $60 million opening screens: 3,066
    Inside Job budget: $20 million opening screens: 2
    Of Inside Job, Richard and Mary Corliss of Time Magazine wrote: If you’re not enraged by the end of the movie, you weren’t paying attention.
    If you don’t see the movie you won’t be enraged-and that’s exactly what they’re counting on.
    Go see Inside Job. You owe it to yourself. You owe it to America.

    http://www.lovefilm.com/film/Inside-Job/152822/

  • mario cavolo March 18, 2011, 11:17 am

    …and a nice write up Tom.

    Cheers, Mario

  • mario cavolo March 18, 2011, 11:01 am

    You heard the man Gents!

    Damn the torpedoes!

    Rick’s back baby.

    Cheers, Mario

  • Richard March 18, 2011, 6:18 am

    I understood that a black swan event is supposed to be unpredictable so to guess which one is coming is entertaining but not very useful.

    It truly amazes me that the American people are not rioting in the streets over what seems to be a certainty of some kind of bad outcome for the average person. I had a very good American “name trader” ask me why I keep no USD anymore wanting me to sign up for his managed account. When I said that I was afraid of a serious and surprising drop in value, and couldn’t hedge his product, I respectfully declined his offer. He came back with a guess of a 30% drop in 5 years. Clearly one of us doesn’t understand the size of the issue.

    I think the real problem (like here in Canada), is that all our choices for politicians suck. We elect the least worse and everything is a sound bite with parties switching sides with lightening speed. That is how lawyers act – never mind the truth, let’s argue the technical points endlessly. Our language is great but the country is falling apart!

    Perhaps, we need a different profession in the government. One that is based on action and not talk?

    • Benjamin March 18, 2011, 10:52 am

      “Perhaps, we need a different profession in the government. One that is based on action and not talk?”

      I know what you mean about the lawyer problem, but I don’t see the dominant, lawyer profession in Washington as the root. Rather a corrupt sense of Law. These variety of lawyers twist and torture everything. Many lawyers in the past, to my understanding, were honorable and disciplined to their practice.

    • Robert March 18, 2011, 2:20 pm

      Richard as a fellow Canadian I share your views on govt. Truth be known I think a coalition govt here with the Libs+NDP+Bloc would be hard pressed to organize a garage sale. But then I am not to impressed with voter decisions either.

    • Richard March 18, 2011, 6:38 pm

      Yes a good point Benjamin. It is true that many professions are now just-in-time affairs and the craftspeople are missing. I always tried to do the right thing even when it led to trouble for me or my career. That didn’t work much for the work world, but it sure works well as a trader! Different skill set I guess.

    • John March 19, 2011, 6:26 pm

      Dickie

      the reason americans are not curled up in a ball under their beds is because their lifestyles have NOT changed and WILL NOT BE CHANGING!!
      just made my two week vacation plans (spared no expense) for five. most everyone I know has done the same or will be doing the same as soon as they get home from their family spring break vacations.
      everything is and will be fine. like i’ve said before the powers that be will just flip a switch. as they did the other day in the currency markets. anyone can say the sky will fall. give me a metric. when? when gold is at 10,000, dow at 100,soup lines,$100 loaf of bread, dogs and cats living together? what ? any of you? show me where its soooo bad in this country people are jumping out of windows? where? the answer is nowhere. its not happening. it didn’t happen. its not going to happen. go on with your lives. Be Happy

    • jameywilliams March 21, 2011, 3:15 pm

      John,
      I can’t tell you when, but I can tell you how. Let’s look at the world as it is right now. Crude recently jumped two dollars to roughly $115 a barrel. Gas has been escalating rather swiftly with the GENERATIONAL (let me emphasize that) revolution that has been occurring all over the world, primarily in the middle east which, shockingly enough, contains an incredibly large sum of the earth’s obtainable oil. Unlike what some people say, the world is NOT running out of oil, but what is changing is the availability of it. America, and most of the modern world, is built around the idea of continuous change and growth. The problem? Finite resources and availability. What’s going to happen is, the economy is going to continue to struggle and gas is going to spike. Forget all those people saying it’s going to hit $200 a barrel when Egypt or Libya or Yemen or (maybe, Saudi Arabia?) revolt. $200 dollars is a lost cause completely, let’s just look at $150 dollars a barrel, that’s the breaking point. People’s lives change when gasoline is $5, $6, $7 a gallon. People’s lives change when major chain grocery stores stop stocking the shelves because they can’t afford to transport their goods (bread won’t be $100 because there won’t be BREAD) Gold won’t matter because you can’t eat it. Soup lines? Hahah. Cats and dogs will be quality hunting. People’s vacation plans change when “sparing no expense” means saving up enough money to drive where you want to go, not to mention pay for anything while you’re there. The black swan is oil. We are an oil driven economy. Everything, and I mean EVERYTHING is in some way a result of oil and when America can’t afford it, America shuts down. The biggest issue, the world is falling apart right where the oil is most prominent. Nothing can take it’s place, nothing is similar, nothing will work like oil. So enjoy that two week vaca John, but don’t plan on being able to drive back.

  • Benjamin March 18, 2011, 5:14 am

    When I think of the deluded, I think of the time when Moe hit Curly in the head with a sledgehammer; the hammer was ruined. It makes me want to shake my head, laugh and say “solid bone!”.

    And a funny thing happened on the way to forum (heh). I was watching the History channel, and the show happened to be about… The fall of Rome and the Dark Ages. The difference between then and now is the bubonic plagues. The emergence of them was kind of a random/unforeseeable disaster, which as it turned out was what really put THE hurt of hurts on Europe.

    I vaguely recall a story of Yosemite having to be closed, due to high plague counts found in the area. This was back in 80s or 90s. Maybe earlier, but it was modern times. Then there was that Oregon case in 2010. And Peru, I think it was, in the same year…

    Oh, but listen to silly ol’ me, going on like this were even the remotest of possibilities! No, it’s the wrong century (plagues are notoriously limited by time) and this is America; it simply can’t happen here, except in the silly minds of negative people who can’t stand a little recession that has been _over!_ for how many months now?

  • redwilldanaher March 18, 2011, 4:27 am

    Nice job Tom. Good read.

  • Other Paul March 18, 2011, 4:13 am

    Tom,
    Nice analysis of the “common man’s” thinking or lack thereof.

    Until the welfare/foodstamp/SS/extended unemployment checks stop, most will not take actions to prepare. On second thought, if the checks stopped, most don’t have any savings to prepare anyway.

    P.S. Rick, hope you’d feeling better.

    • Benjamin March 18, 2011, 8:43 am

      “P.S. Rick, hope you’re feeling better.”

      This just occurred to me now. All these guest commentaries… I thought this was because Rick was going to NYC, for the hula, though. But over the past couple days, I’ve noticed the odd well-wishing message. Is he sick, or something?

      &&&&&

      Feeling fine, thanks. A minor surgery earlier this week took me out of commission for a couple of days and also postponed the hula. RA

    • Benjamin March 18, 2011, 10:47 am

      Okay, Rick. Best to ya!

  • John Jay March 18, 2011, 3:02 am

    If Tom’s prediction of smoking ruins is correct, then it may be time to leave the Austrian school of Economics behind us and move over to the Tasmanian school of Economics. Tasmanian as in Errol Flynn, who is reported to have said, “If you die leaving more than a couple of hundred dollars behind as your legacy, you’ve been a failure.”

    • Harleydog March 18, 2011, 5:27 pm

      JJ,

      Right you are, reminds me of an ol’ timer I was listening to early in my career who said “the last cheque you write should be to the undertaker and it should bounce!”

      HD

  • Scott Lindsay March 18, 2011, 3:01 am

    I know when this event will take place and it will be a day of hell and that is because the Pacific ring of fire is about to show it’s ugly face on the west coast of North America and if it hits California or Alaska that will be your Black Swan.