Dire

I missed posting the past few days due to excessive pessimism. Let's just say that the whole "Oh my God, do we have enough soap?" and "Damn, I never bought those lentils!" mentality is back again, with a vengeance. Another thing I have not yet done is buy, say, the next 3 years worth of clothing for my kids. That's a shopping trip that cannot be put off too much longer. Far more important than that are the generator and the hand pump for the well. Suddenly, I need more time!!

There has been what I'd call a "coincidence of rumors" surrounding the end of the third quarter (Sept 30) and the month of October. Jim Sinclair is being very specific and is counting down the days until the world loses faith in the dollar (120 days to go, he says). There are rumors of bank holidays in September. There is the "embassies" rumor, reported by popular newsletter writers Harry Schultz and Bob Chapman, who say that the State Department has instructed US embassies overseas to accumulate enough local currency to last them a year (presumably because the dollar may crash at any time). Meanwhile, China has begun selling goods not in the international reserve currency, the dollar, but rather in its own currency, the yuan (who needs the dollar?). Middle Eastern nations say that their previous plans for a common currency have changed; this new currency will not be pegged to the dollar, as previously intended.

Meanwhile, the technical analyst on this week's Financial Sense Online radio broadcast said that the charts look so bad, it appears to him that the target values (meaning the bottom or minimum values) for the major stock markets of the world (Dow Jones, S&P, Tokyo Nikkei, London FTSE, etc) would be... well, essentially zero. Apparently we are approaching a catastrophic fall in stocks. So if you own a 401k, I guess you are better off in short-term Treasuries even though they're going to tank, also.

I mean really, the only thing a person can do is buy gold and silver. There really is nothing else, at least not until after the next cataclysmic drop in stock markets.

What was that? Your retirement plan doesn't allow you to buy gold and silver? Heh... exactly. There are few scams more successful than 401k plans for stealing the wealth of the middle class and sending it right on over to Wall Street.

Meanwhile California is in such a mess, they ran out of cash and they're now issuing what amounts to their own currency. Which, by the way, starts to verge on secession. I know, I know, the legislature there is faced with some awful choices -- like wanting to spend $92 billion, but being short by $26 billion (or perhaps $34 billion if the California Teachers Association takes the state to court and wins). But I read the stories about this negotiation and that negotiation, and the Speaker walking out, and the governator threatening vetoes, and I think-- Have these people forgotten what a riot looks like? Have they heard of mobs and torches?

Meanwhile, the number of people receiving unemployment benefits hit a new record, with 9.4 million people now receiving benefits. And we're just now learning that back in April, the number of people receiving food stamps hit an all-time high of almost 34 million.

The pressing question is: Where are new jobs going to come from? I really can't see any substantial job growth until the currency situation is so bad that we cannot afford Chinese shoes, Mexican food, or Guatamalan pants. Which means things are going to have to get so bad that we will have trouble feeding people. Unfortunately, I think it'll have to get that bad before our domestic production would be truly rejuvenated.

Meanwhile I've been reading about Weimar Germany.



What everyone needs to understand about currency collapse is that, counter-intuitively, even though the government will be printing money like nobody's business, there will actually be a lack of money because any given dollar will be nigh worthless. It's a lack of money in real terms, in terms of how much gold it would buy you. Without sufficient money, farmers will not deliver grains. Merchants will not sell their inventories. Truckers will not deliver goods. They know they cannot be paid what their goods are worth, and that all anyone will have to offer is swiftly depreciating paper, and not nearly enough of it to make it worth their while.

Imagine you go to the grocery store and it's empty. You have a toddler who needs shoes but there are no shoes. Your electricity keeps going out, the natural gas for your furnace is on and off, people are being fired because businesses have great difficulty in paying them given the rapidly plunging value of the currency.

I mean really, what could be worse, for a nation the size of the United States?

Argentina's tale is no better. For whatever reason it seems that their crime rate went through the roof when their currency failed (and then failed again).

If you have any extra money at all, even $5 a week, use it to buy something you know will keep, and that you will need in the future. An extra bar of soap and a bottle of cheap shampoo, if nothing else. There is no reason at all to feel silly about "stockpiling" such items, because the fact is, your money isn't going to make any interest or any profit at the bank. The best things to buy are the things you will need. Canned food in the basement keeps much longer than the expiration date implies, so that's also a good investment. Other than real goods, the only option is to buy gold and silver.

And by the way, it's no mystery how you buy silver. Google coin shops in your area, go in, and tell them you have X dollars to spend and that you're interested in junk silver or government-issued 1-ounce coins. Junk silver is not junk; it's slang that means pre-1965 US quarters, dimes, half dollars, and silver dollars. Government bullion coins are things like US silver eagles and Canadian silver maple leafs. Keep the receipt, because you'll need to pay taxes on the increase in value after you sell it, so you'll need to show the price you bought it at.

From the above Weimar link:

By mid-1923 workers were being paid as often as three times a day. Their wives would meet them, take the money and rush to the shops to exchange it for goods. However, by this time, more and more often, shops were empty. Storekeepers could not obtain goods or could not do business fast enough to protect their cash receipts. Farmers refused to bring produce into the city in return for worthless paper. Food riots broke out. Parties of workers marched into the countryside to dig up vegetables and to loot the farms. Businesses started to close down and unemployment suddenly soared. The economy was collapsing.

Meanwhile, middle-class people who depended on any sort of fixed income found themselves destitute. They sold furniture, clothing, jewelry and works of art to buy food. Little shops became crowded with such merchandise. Hospitals, literary and art societies, charitable and religious institutions closed down as their funds disappeared.

The question is: Do you think the current US government is smarter than the German government of 1920? Why would they be, given the coddling and bonuses they've always known at Goldman Sachs?

Many months ago a friend asked me if I thought this would be as bad as the 1930's. I said yes, at least that bad, but almost certainly worse. Take the Great Depression and the Weimar currency collapse and put them together, and you're starting to get close, but you're still not there. Our manufacturing base has been gutted, and cheap oil is coming very swiftly to an end. I try to tell myself that it's not the collapse of the Roman Empire... it's just the 1340's, is all.