Market and societal fragility

It's time for the end of week wrap up of news and commentary, good and bad, unfortunately there is little good to mention.

This article by Llewellny Rockwell of the Ludwig von Mises Institute is a decent look at the issue of rising inflation.

Also Paul Volker the last capable Fed Chairman that reigned in the inflation of the 1980s has been speaking out on today's issues. Volker has recently been vocal on America's need to curb consumption to a level that meets their production and his disagreement with the Fed's involvement in the Bear Stearns bail out. His critique of today's financial engineering perhaps says it all.

a demonstrably fragile financial system that has produced unimaginable wealth for some, while repeatedly risking a cascading breakdown of the system as a whole.

The wagons are certainly forming a circle as other learned people are poping out of the woodwork to blame Greenspan and Bernanke for today's mess.

Now I have no doubt that U.S. monetary policy is certainly a key to the current dilemma, but there is also enough guilt around to blame Government overspending, reckless banks, hedge funds, and the absolutely moronic people who believed they deserved a caviar house on pop tart budget.


There are more and more analysts admitting that as distaste full as the Bear Stearns deal was, failure to intervene could have brought a system wide crash. The question is how many Bear Stearns are there waiting to go off? Will someone get to them and intervene before their contagion brings it all down?

These fears and the obvious inflationary means being used to cushion the U.S. economy is oh so bullish for metals that I implore you to ignore claims that Silver and Gold have peaked and the bull is over.

The biggest story for the last two weeks has to be rice, with major exporting nations adding taxes or outright bans on exports in order to enlarge local supplies and keep prices down. Inflation and shortages have driven prices to the breaking point for many people in poorer countries, all you have to do is google food riots and you'll see how wide spread this issue is, this has the potential to bring down governments.

One of last weeks comments mentioned the withdraw of trucking services as a trigger that could cause shortages and riots even here in the affluent west. It only took a little looking to find facebook, myspace and news articles referencing a grass roots call for a truckers strike over fuel prices.

Many truckers have signed to haulage contracts that do not account for today's high fuel prices. This leaves them making runs with no profit, attempting to break or renegotiate legal contracts. This can't go on indefinitely and truckers will go out of business if they can't pass the fuel prices along. With today's just in time delivery system and the small volume of warehousing done today, cities only have a couple of days of food on the store shelves at at time. A prolonged strike could cause unrest.

This protest is targeted around May 3rd at this point and may or may not succeed but eventually enough truckers will hear the call and out of pure self preservation take action.

This also links into a couple of articles I read in the New Scientist this month dealing with the fragility of civilization. The premise is that a combination of factors like just in time delivery, interdependancy of systems and high numbers or irreplaceable specialists allows smaller disturbances to shake society more than would have been possible in a simpler age.

Example, during the SARS outbreaks lack of warehousing and just in time delivery cleared out surgical mask manufactures and stretched supplies of oxygen for ventilators. This was a minor event in the big scheme of things a big event would have made hospitals ineffective.

A medical scare like that of 1918 flu would still allow society to keep supplying the basics by curbing less important activities if it only caused absenteeism up to 25%, Models show however that real absenteeism might be as high as 50%. So how does society "keep it together" if essential workers suffer high rates of infection or simply withdraw their services out of fear.

What if refineries shut down, or public transit, ambulance crews don't show up? What if some specially through a statistical fluke gets virtually wiped out in a pandemic, who does whatever they used to do? Who can train their replacements. The inter connectivity of modern life actually transmits these shocks rather than isolating them. The image of cutting off the limb to save the body is no longer possible, if one area suffers or collapses we could all suffer or collapse, much like the financial contagion we are all fearfully watching.

If the theory of peak oil leading to peak food is correct there will be both die offs and a return of labour to the land so people's labour can offset the work done by hydrocarbons. As this happens our current level of job specialization will change, some specialties may be left to wither and our technical level will fall. Certainly an interesting yet depressing discussion.

If you can't rationalize more silver at this time, buy seeds, water purification products, stockpile a little extra food, convince gullible friends to join you in buying a vacant hobby farm so you can all "Camp and Party". The time for frivolous plasma screens and $50k cars is over, get a head start and start preparing for the future.

Fed Looks for Hyperinflation tools

Man I hate when I post to the wrong blog, this was up elsewhere yesterday in a much more timely manner

The Federal Reserve, having used up most of it's own reserves comprised of Treasuries in making recent loans to the banking industry is looking for new creative ways of loaning or injecting more money than it has, as explained in this Wall street Journal article

As the articles explains the FED could just create money but since that would drive down short term interest rates to the mat, something they are not quite desperate enough yet to try.

The other options include having the treasury create excess treasuries and depositing them at the fed creating extra reserves they can use to plug the dikes, changing laws to encourage larger deposits to the Fed by banks, allowing the FED to directly hold Mortgage Backed Securities, or letting the FED directly issue it's own debt.

Should the Fed ever get the power to create it's own debt without the assistance of the Treasury the U.S. government will for all intensive purposes be neutered and powerless to control their own destiny. Control of the currency is the ultimate power and obligation of any state, but the U.S. Gov through the creation of the FED, recent calls for more FED powers and possibility that they will soon be able to create their own debt are working towards the total corproatization the Nation and a loss of sovereignty to a consortium of bankers.

Each one of these options is variation of the "Print ourselves out of trouble" model which will further fan inflation. If you are having second thoughts about metal investing this alone should show you the desperate state the U.S. economy and the dollar find itself.
With M3 already in the mid teens we should be looking 25% by election time if the FED gets it way. So what is the established number for hyperinflation I've seen a couple of definitions?

Why Silver and Gold are better than fiat money, a cautionary tale

While I feel bad for the fellow in this story, I still laughed when I found out that termites had eaten all his fiat money and investment papers. This is an extreme example of why Silver and Gold are much better stores of wealth than mere paper which can be destroyed in fire, flood, and apparently by infestation.

This is also an warning to know your bank, know the limit of safety deposit box liabilities and perhaps that tightly wrapping your documents in tin foil is a better use than wrapping your head.


P.S.
In a fire your metals may melt, may trickle away but they still have a hell of a lot better chance of surviving than paper.

Canadian Silver Bug - April Musings

Today will just be some general stream of consciousness blather on things that have caught my eye this week as somewhat interesting.

First of all I think we are at bottom for the prices of Silver and Gold. Try as puppet television does to convince us good times are coming back soon, nothing has changed. U.S. debt continues to rise, Oil continues to deplete, food stocks shrink in the face of new Asian demand and bio fuel waste, mortgages are still defaulting, and U.S. factory orders are down 2x the estimates, face if folks it’s still plenty shitty out there and nothing is being said that justifies U.S. dollar strength or the recent bounce in financials so this rally like the last couple mini rallies will be weak and fleeting.

Don't panic and run, hold or accumulate


The scariest thing this week is the talk of giving the U.S. Fed more power, What the hell are they thinking? The U.S. Federal reserve is a private company owned largely by foreign banking interests and is the main force that has consistently devalued the U.S. dollar, destroying 93% of its value since its inception. Why on earth would you give them more power? Not only that but Bernanke is a complete idiot, who only now is finally admitting the U.S. may see a recession, Duh! Like who in their right mind does not think the U.S. is in and has been in a recession for some time. How do these lying fools live with themselves?

I loved the Reuter article this week stating that some houses were worth less than their copper pipes.

This gutting of vacant houses is ruining some houses, scuttling valid sales offers and is perfectly predictable as I said early last year. During the Great Depression savvy lenders allowed defaulted people or other to rent houses for next to nothing knowing that having someone in the house to heat, maintain and protect your property allowed you to maintain its value until the market improved. Foolish lenders did not want to be landlords and left properties to be empty only to find them gutted, squatted in, ruined by lack of heat and maintenance.

My belief is the banks should communally or through the Gov should set up a housing authority to act as a massive property management company. Once established put people in these homes with agreements to maintain them, assess rents fixed to income giving holders of bad debt at least some sort of return on bad paper, and build in options for tenants to rent to own.

While this will not recover the total cost of abandoned homes for banks, CDO holders etc, it will however keep people off the streets and in viable communities bettering families and protecting children, it would lower incidence of panicked arson by those soon to be evicted, and it would allow properties to maintain some value until the economy improves.

With the tens of thousands of houses being abandoned why not renovate some of them to be accessible and give them to Iraq veterans who after being crippled will probably never work again.

I still think that with the water shortages and insane prices in the U.S. southwest there would be great opportunity in buying property in the old northern steel belt cities. While the days of big industry might be dead in these regions, eventually the population is once again going to move to where the water is. The idea of buying whole streets or blocks in places like Detroit, Cleveland and many other depressed areas and taking it all down to the ground and rebuilding the right way, will one day be a huge profit maker. With wind off the lakes for power, neighbourhood wide Geothermal heating for homes and newly designed walking communities designed to promote transit and thwart cars these cities could become templates of how N.A. cities need to be rebuilt for the peak oil age. Where else but such depressed areas could you even attempt such a large, bold and potentially profitable citywide urban renewal?

Perhaps when I make big on silver I’ll reconsider such an investment.

Another important factor is the total levels of loans defaults taking place
Total delinquent loans up to 2.65%
Bank credit cards overdue 4.38%
Auto loans 1.9%
Mobile homes 2.92%

200,000 bank jobs are expected to be eliminated. I don't think you'll be seeing many of these people get equivalent jobs right quick!


All this and some fool on CNBC this morning was claiming discretionary expenditures would strengthen and lead the recovery, Ha!
With the rate people are losing their houses the only area I can see discretionary expenditures growing is camping gear, used RVs and Camper trailers as more Homerville’s start popping up.
When can we start calling them Bernankeburgs?

28 Million Americans are expected to be on food stamps by year end but don't expect them to increase monthly value of handouts to match food inflation.


Think this bad now? wait till grain and Hop shortages drive the price of your favourite beer up by 30%+ this year or worse yet, your favourite micro brewery just gets squeezed out, that’s right folks PEAK BEER.


Without beer we may as well just cut our wrists and go for a walk in the forest, it's the end of civilization.

MP wants to kill the Penny

Canadian MP to bring forth private members bill to kill the penny. Monday » March 31 » 2008



Private member's bill targets penny

Mia Rabson
Winnipeg Free Press
Monday, March 31, 2008

The Canadian penny

OTTAWA - NDP MP Pat Martin doesn't want a penny for your thoughts. In fact, he doesn't want a penny at all

The Winnipeg Centre MP will introduce a private members' bill when Parliament returns from its Easter break today that would eliminate the penny from circulation in Canada.

"It's a completely vacuous thing to hold on to," Martin said.

The Royal Canadian Mint contends it costs less than a cent to make a penny, but Martin said Library of Parliament research suggests it is as much as four cents per penny.

He said take that, together with the fact that on its own an individual penny is useless, means the penny has outlived any reason for being in Canada.

Most pennies end up in jars or under couch cushions because people don't want to use them and carrying them around is a nuisance, Martin added.

"I don't know who (the Mint is) trying to please by hanging on to it," Martin said.

The Mint has engaged repeated public opinion studies on the subject of getting rid of the penny. The most recent, released last fall, suggests 63 per cent of small retailers and 42 per cent of consumers are in favour of getting rid of it.

Nineteen per cent of small retailers and 33 per cent of consumers are against it, while the remainder are indifferent.

Charities are in favour of removing the penny because it would help avoid the costs associated with collecting donations of pennies, but large retailers are against the idea over fears it would limit how they could price their products.

One third of consumers who were against the idea feared it would result in prices going up as retailers would round up prices to the closest five cent mark.

Martin's legislation would require retailers on cash transactions to round final totals up or down to the nearest five or 10-cent mark. One and two cents would be rounded down to the closest 10 cent, while three and four cents would go up to the next five cents. Six or seven cents would go down to the five-cent mark and eight or nine cents would go up to the 10.

Debit and credit card transactions would not be rounded. And the legislation doesn't prevent any store from setting whatever price it wants for a product, Martin added.

"You can still price something at $9.97 if you want," he said.
The rounding would be applied only on a customer's total bill, not on individual items.

New Zealand and Australia have both eliminated the penny.

Martin said the best evidence of the low value of pennies is the fact that many retailers keep a small dish of them at the till in case a customer needs one to make exact change.

"You don't see a dish of free loonies," Martin joked""



This has been a long time coming for anyone who believes that unbridled monetary inflation is destroying our purchasing power.

Decades and decades of dishonest governments and central bankers which have allowed irrational and unsustainable monetary inflation to eat away at our money's value. Each time they create a billion dollars that cannot be justified by real growth in the economy your existing dollars and cents become worth less.

This is why in 1997 the penny became a zinc slug coated with a thin layer of copper. Years of inflation had made the lowly penny worth less than the metal it contained, much like the idiocy that drove the value of 1960s coins to be worth less than the silver they contained as the balance between coinage and real value had been broken. When Nixon closed the Gold window the final link between currency and value was severed leaving us with an annual inflation(aka currency debasement) of over 8% despite what CPI says.

This bill may not pass but it is a sign of things to come, the penny has less buying power now than the 1/2 penny had when it was removed from circulation. The only thing holding back government is the imagery associated with killing the penny and the fear of acknowledging to the public what they have done to our money.

They do not see that money should represent something more than an empty promise to pay. Money should represent something of real immutable value like Silver and Gold. Buys yours now before they decide it should only go to industry.