Tuesday, February 17, 2009

Warning: Government Will Change the Rules

Here is a bit from Karl Denninger, a You Tube expose which explains illiquid assets, it is well worth clicking on the Link I promise you.

The thing we need to understand right now is that the rules that we play financial games by are changing by the moment. Dare to short the bank stocks; they change the rules, no shorting. Right now, they can change the rules on just about any investment. Want to buy futures? Why bother they might close the stock market!

Uncertainty is the name of the game.. Gold could be illegal to own once again. Pre 1964 U.S. coinage is not in circulation. It's worth far more than the money it represented.

The other thing you have to look at right now is miss-information. The government can't spend 787 billion that they don't have. They might have a shot at borrowing an additional 100 billion more than the 400 billion they are presently borrowing this year, but come on folks we are broke. This money is coming from no where!

In the next three weeks, nations are going to start declaring bankruptcy; Spain, Portugal, Italy, Greece, and most of the Eastern block. This problem is not going to go away; it is getting worse by the minute.

Here is the next step. You give the clerk your credit card for a purchase and it does not go through. All credit cards fail to negotiate. The Banks are broke; it just doesn't seem real yet. You now have a Cash and Carry society, no CREDIT. It's a little like that last car on the freeway that causes gridlock, or that super cooled fluid that gets one fiber of dust in it and freezes solid.

The problems are real, the solutions are not. You can depend on the certainty of government to change the rules. That alone makes any investment risky. Sorry to be so pessimistic, it kind of looks like I am making sulfuric acid out of lemonade. I could be wrong and that would be a good thing.

94 comments:

Anonymous said...

Yup. They're changing and will continue to change the rules. This prevents us from having prediction: which puts us at the effect end rather than the cause end of the spectrum.

I'm not buying gold. We are at the beginning of a depression and it is going to get deep, and because of these dire circumstances the government will put all sorts of restrictions on gold and it will eventually be confiscated. FDR did it, Obama will too.

Per my contrarian view: "everyone is buying gold, so it has to go wrong. Never follow the group think of the masses".

Sell services or products that people will need no matter what the state of the economy (basics, staples, etc.). Then you can take in whatever the valid currency/money is at the time, and you can change when it changes. You can barter too. (You don't have to risk putting your money in gold now. If it is being used as an exchange currency, you'll get it by selling your service or products.)

Heard a story about 8 guys charged with tax fraud who beat the IRS in court. They were buying and selling amongst each other using gold and silver coins and only reporting the face value of their money in their transactions. Example: Guy buys a used car from other guy for 10 one ounce gold dollar coins. Rather than both of them reporting on their tax returns that it was an $8,000 transaction, they reported it as a $10 transaction. Jury found in their favor. HA!

An Inquiring Mind (AIM)

Anonymous said...

We are in debt big time. We have a choice to default or to inflate. Which do you think is easier, and dare I say, less harmful? That's right - let's print money.

Once we've finished paying off our debt, our currency would be worthless. But that's okay, at least we are debt free. We reset. We start at zero again, like an immigrant who comes here empty handed. Through hard work and some luck, in a decade or two the Eagle will soar high again.

We cannot inflate too quickly. That would cause an immediate implosion. At the same time, we cannot drag our feet as the bill is past due. The challenge is to manage this demolition so it's orderly and won't cause mass social unrest.

There's so much fear in the air right now. Everybody is scrambling for a bomb shelter because they don't know if the next "incoming" is heading their way. Once there's some clarity and stability, we can expect economic activity to pick up on its own, even before the demolition job is complete.

One thing we cannot have is an impulsive and unsteady government that changes its mind and its rules every other day. It needs to take a long term view.

Anonymous said...

Well, at least he sees that it is a manufactured crisis.

AACC

Rob in NS said...

Jim

His explanation of these illiquid assets is best I've seen so far. Something historic is going to happen in next couple of weeks.

rob

dearieme said...

Back in the Spring of 2005 I decided that the catastrophe was close. That was the easy bit. The harder thing was to decide what I could do about it. I've been proved right about the catastrophe; it's too soon to tell whether my actions were wise. But I am rather frightened, not least because all the political decisions are being made by plonkers who didn't even see the catastrophe coming.

Anonymous said...

Government can't stop this depression. Obama can only succeed at one thing, and hopefully he does.

He needs to succeed at managing the collapse by holding the hand of the American public and calming them as they go through it so as to avoid mass social unrest (tax revolts, food riots, etc.)

He'll need to be far better than FDR and his fireside chats because this depression will make the 30's look like a mild recession.

Gulp!

AIM

Anonymous said...

Hey Jim,

By the way...

This blog predicted the depression and was correct in its time frame too. Very well done, you did it. You're a bright chap.

Time for a new blog with a new premise. What's it gonna be?

AIM

Ronduck said...

Wow, I never thought I would see "political risk" here in the United States. But then I never thought I would see an illegal immigrant from Kenya as president either.

Anonymous said...

I love this...hysteria is coming to a street near you...

So..I should...

Max out all my credit cards..now..preferably on canned food, sterno, batteries and oh yeah....bullets for the guns.

Stop paying my mortgage and buy more from list above.

Cash in any and all investments and by more from list no. 1.

Late and night I will dig a hole in the yard and secretly put a gas tank large enough to hold 1000 gallons of gas and fill it up...again all in the dark.

Should I spy on my neighbors in case any of them is slightly less than - you know - completely pro-american? You know the kind...skin is brown, yellow, red...no Christmas lights...guys livin' together...gals with gals...

I'm not sure who THEY are but I know THEY are out to get me. If you're not with me, you are against me. If not now, when? If not me, then who?

It's only freekin money folks! Let's not panic. Life will go on.

Joseph Oppenheim said...

You now have a Cash and Carry society, no CREDIT.<<<<<

Heck, that's the way I have always lived my life.

One thing I wish as this thing plays out is that we remove the tax deduction for home mortgage interest. All that accomplishes is to inflate home prices.

Ladies and Gents, we are in all out DEFLATION. Obstructionists in Congress just made sure it would be deeper and longer than necessary. Money is being destroyed as we speak. Sure, asset prices aren't in M1, M2, etc, but they still are a form of money, a store of money, so to speak.

So, not only do we have a window to issue US debt - to generate and save jobs, but the obstuctionists just threw a brick though it. And, actually the term has a literal component, as more homeowners will lose their jobs, bricks will end up going through the windows of their vacated homes.

The good side to this is, yes, getting back to more of a cash and carry society, where people live within their means.

Instead of being a 70% consumer-driven society, we need to get back to being a producer-driven society. We will never get back the old jobs which were exported, but new jobs in newer products and services. Too bad the obstructionists in Congress want to layoff teachers and cut back on funding for public universities and colleges.

By the way, for people who want to degrade American students, and envy Japan's educational system, they should note that Japan is envious of our system because it produces more creative students and graduates. Yeah, layoff teachers at this time, great idea....not.

...Joseph

Anonymous said...

Hey Jim,
Heres the next government rule change. Obama just released 75B towards housing. This "money" will be used to take 5 million homeowner's mortgages and refinance their loans so that their payments equal 31% of their income. These homeowners will also receive $1,000 from Uncle Sam for every year that they remain current on their mortgage!

Wow! Contract law and agreements go right out the window. And not only are homebuyers not held accountable, they are rewarded for their irresponsibility and errors. (They are being rewarded the same way CEOs and top execs that trashed their companies are.)

This is the age of rewarding the consumer, non-producer and idiot and penalizing the producing prudent people.

What do you get when you validate and reward non-production and consumerism? A hell of a lot more of it (as well as a group of producers who become demoralized and are been driven into apathy and then join the ranks of non-producers.)

This is a formula for total destruction.

68% of all loan modifications have failed within 8 months and returned to the foreclosure process. I wonder why? Because it is just an expensive postponement of the inevitable... a homeowner is still going to walk because he is paying on a home that has gross negative equity and he knows that the value will not appreciate back up to his loan balance for the next 15-20 years (more likely never within his lifetime).

If the government was a student in school he be sitting in the corner with a dunce cap on, with an "F" on his report card, a detention notice, and a mandatory invitation to summer school (or maybe a juvenile delinquent home).

Geesh!

Anonymous said...

You really have to begin questioning: Is this really just pure stupidity and folly, or is this all the result of an intended plan that was earlier formulated and has been being worked on for decades? Have we been set up?

Nixon taking us off the gold standard. Deregulation. Greenspan stimulating over-consumption and praising derivatives. Banks being allowed to leverage 50:1. Is this all a collection of errors or is this the big "set them up and then pull the rug out from under them" game?

I'm not a conspiracy oriented person. But as this continues one has to really wonder.

JMS said...

You all need to watch the movie Idiocracy. That is what we are heading for. Keep rewarding the imbeciles.

Anonymous said...

So which is harder: managing the Evil Empire's collapse or managing the American Dream's collapse?

Put it another way, which is easier to mismanage? Which would result in a greater catastrophe if we mismanaged?

With the EE we could do it dispassionately. It was, after all, someone else's country. Imagine trying to contain the passion when it is your own country.

Will greater passion lead to hotter heads?

Absolutely. The hardest thing to do in a crisis is to remain calm. Try any ways. No need to get worked up before the real work is started. There's plenty to do, and we'll need everyone to pitch in.

I'm going to drink some iced water now. What are you going to do? FUME some more?

Anonymous said...
This comment has been removed by a blog administrator.
dearieme said...

A conspiracy? Organised since Nixon's time? No, it's just a slippery slope. LBJ spends on war, moon trip and welfare state, and doesn't raise taxes to pay for them. Nixon can either cut those programs, raise taxes, or accomodate the folly by cutting the link to gold. He chooses the policy most likely to get him re-elected. And so it goes. Slip, slip, slip. And eventually you've fallen in the creek.

Jim in San Marcos said...

Hi AIM

I think that diversification of assets is the key--a little of everything.

I think that the government can make this mess drag out longer, which isn't the best idea.

As for another blog, I'm not sure. Sadly the title of a blog also spells its future demise. We still have a few more months to go.

Thank you for your comments

Joseph Oppenheim said...

Contract law and agreements go right out the window.<<<<

Sorry, but laws change all the time.

Try bankruptcy law, just a few years ago, intended to help credit card companies, as if they needed help. Didn't seem to keep them from charging interest rates as high as 30% or so.

Sure, the Me generation has had the wrong values, though I would argue they had been brainwashed by corporate marketing/advertising techniques - heck just trying to stop the post office from delivering junk mail - government/corporate colusion - fascism. But, I would also argue our whole legal system has been perverted to let mega corporations run roughshod over anyone, to the tune of mega trillions of dollars - the root cause of the mess we are in now.

The worst perversion is that corporations have been given legal "personhood". People are no longer more important than corporations.

We have become a corporatist-fascist nation, thanks to corporate lobbying and politicians wanting to be bribed. I'm a capitalist, but I'm not big on fascism. I'd say the voters have at least recently signaled they, too, don't like fascism, and it's about time our laws reflected that.

...Joseph

Jim in San Marcos said...

Hi Anon 8:08

I assume you're pulling our leg other wise I'd accuse you of being 404 (page not found) half heartily.

Thank you for your humor.

Jim in San Marcos said...

Hi Anon 12:06


I agree we need rules that the government can be held to long term.

We as a country will get there eventually. Wasn't it Winston Churchill that said "You can depend on the US to do the right thing, after they have tried everything else."

Jim in San Marcos said...

Hi Rob

I agree it's so simple even a caveman. . . . . .

I think you are right, this mess is picking up speed--hold on!

Jim in San Marcos said...

Hi Dearieme,

Stick with your plan, everyone gets to be right, the trouble is, we can't all be right at the same moment in time.

Using good common sense should see us all through this mess.

We will need a little luck, keep your fingers crossed.

Jim in San Marcos said...

Hi Joseph

I agree with you.

There is one problem. The first place the budget will get cut is with services provided. Teachers, Police and Firemen. This is what happened in the 1930's. I think Missouri didn't have any schools open for almost two years.

Maybe it will be different(I hope) this time around.

Jim in San Marcos said...

Hi Anon 8:45

I agree with you.

What they are doing is crazy this home bailout is nuts.

I watched Squawk Box this morning on CNBC and all three announcers tore this apart. The main comment was I have been a responsible borrower, why do these people get a break?

The idea sounds good on paper and it appears that the government is acting, but I think it is just an illusion. You'll still be upside down with lower payments.

Like you suggested, even the street smart know the difference between a good and bad deal. Looks like it is "No Deal."

Thank you for your comments.

Anonymous said...

Jim,

I have enjoyed reading your blog posts. I am interested in buying a farm. What's the best strategy for buying it in a deflationary phase and then how would I be able to pay it off during hyperinflation? Thanks.

Joseph Oppenheim said...

What they are doing is crazy this home bailout is nuts.<<<<

Yeah, Jim, I'm not big on it. However, I think it is a wash, on balance neutral. Not that I think we need a mortgage-broker job creation spending bill, but I guess some of the laid off teachers, cops and fireman, will at least have some chance at work.

...Joseph

Jim in San Marcos said...

Hi Anon 8:19

You don't buy a farm, you buy land. If you know nothing about farming, it will probably stay that way.

You have to know what you want to grow and where you want to live. Orange groves in Idaho won't cut it.

Zoning laws dictate that you have at least 40 acres to get farm tax levied rates.

In hyperinflation, you get to pay the mortgage off with inflated dollars.

The hyperinflation that we are assuming, would be replaced by a new currency. If you paid your loan off before the new currency took effect, you might get clear title. You need to read the fine print of the loan document.

I remember crossing out a few choice phrases in my student loan note. "If the US government goes broke. . . . " and the bank defaulted my loan. Nobody reads the boiler plate, but I'll bet that on a change of currency all loans become callable and due immediately. I could be wrong on that, it is just a guess on my part.

Good luck on your farm. As a 5 year old, I tried to start my own marshmallow farm, and it failed miserably.

Jim in San Marcos said...

Hi AACC

I'm not sure what you are doing with HTML but here is a link to doing links. It is one of those aggravating things, you try to type it out as an example and it becomes code that you can't see. So I can't type it out but I can give you a link
Link

There isn't too much you can do with HTML from the comments section. Hope this is of some help.

Take care.

Tyrone said...

There seems to be a growing consensus on future events. Previous consensus on critical events has been accurate.

From the Financial Crisis Blog: (taken with a grain of salt, as always)
Some very well connected professionals in the market have told me that they expect the crash of the markets around the 23rd of April. That matches exactly with my predictions (collapse of markets in April or early May).

Tyrone said...

I'm not buying gold. We are at the beginning of a depression and it is going to get deep, and because of these dire circumstances the government will put all sorts of restrictions on gold and it will eventually be confiscated. FDR did it, Obama will too.

Per my contrarian view: "everyone is buying gold, so it has to go wrong. Never follow the group think of the masses".


It's still a tiny minority that is buying physical gold and silver. The average joe doesn't 'get it'. Many more are getting into gold and silver ETFs. If the ETFs are holding the gold, this is the first place the gov will go; one-stop shopping for an easy...
Tonnes: 1,024.09
Ounces: 32,925,479
Value US$: 31,734,811,786.52

BWAHAHAHA

Joseph Oppenheim said...

It's still a tiny minority that is buying physical gold and silver. The average joe doesn't 'get it'. Many more are getting into gold and silver ETFs.<<<

Tyrone, though I'll always keep some gold as an insurance policy on our currency, don't be fooled by ETF gold buying. That is where speculators, hedge funds and all kinds of the worst kinds of heavy hitters like to play their games. Plus, I wouldn't trust these ETF outfits that if there really was a complete washout of the dollar or whatever, that these guys actually could ever come up with the actual gold, at least not in the amounts they supposedly guarantee.

By the way, what most don't realize is that the US has about $147B in gold at Fort Knox, plus in case of emergency could nationalize US gold mines, plus much US Federal land has gold in it which could be mined by the government very profitably especially with gold at these prices or higher. So, even though the US dollar is not formally backed by gold, it indirectly is, even not at a 100% level, but could be backed maybe by 10% or so, plus we also have mega amounts of silver which could also be used.

Plus, in effect the US already really does back the dollar with gold as the US Treasury sells US gold Eagle coins to the public in exchange for dollars. Though I understand there is a big demand for them, but remember, the government has access to plenty of it in an emergency.

ETFs are basically a setup for the unsophisticated.

Like I say, there is truly a reason to own some gold, however don't believe for a minute what the the supposed experts are saying. Gold can go up for many reasons. Heck, one possibility is that many other nations beside the US face real currency collapse scenarios, so a big reason for the recent strength in gold prices could be from a huge international demand. Remember, when oil prices spiked, it wasn't just from US demand.

Fools are always tempted by the "latest and greatest" new thing. ETFs are things to stay away from, unless one just wants to play around with small amounts of money. They are tempting, but that's just it, so are most new things hyped by hucksters. That mentality is a sucker's mentality, even if one can make money using it. Sooner or later the jig is up, so to speak.

...Joseph

Rob in NS said...

Joseph

Couldn't agree more about ETF's. The old saying is Bird in hand is worth two in the bush comes to mind. Still physically owning gold may not be of much good if goverment decides to outlaw ownership. As Jim rightly says Government will change the rules when it suits them. This is also what Karl Denninger is saying in his video. It's ironic that government thinks that reducing interest rates to zero will get credit markets working again. I doubt much private money will enter the economy via loans at these rates as the risk is too great and reward too little.

rob

JMS said...

So the question is what is a good investment in which the government cant change the rules easily and there is little manipulation.

I believe it will be land. But we need to wait a bit more to try and buy before inflation takes hold. I'm hoping we have at least 1 more year.

Any predictions as to when hyperinflation will start?

Anonymous said...

JMS:
Forget stocks and bonds. They've been ruined and there is no hope of growth or earnings there.

I agree. Land. I plan to buy a farm before inflation starts up. It will be a home and a stable business with big tax advantages (people will always need food).

When the scapegoating by the public gets real heavy and critical, when the prices of basics (food, shelter, energy) really starts the move upward, when the USD Index is falling... you know inflation has finally really hit.

That is the time to go into land and real estate... before your cash turns to trash.

Got to be very alert. Per history, hyperinflation comes up on you all of a sudden before you even know what happened (read about Weimar Republic).

Hold out in the deflation and wait for prices to reach their lowest but... have your ducks in a row and be ready to go as time will be of the essence when you need to make your move.

AIM

Anonymous said...

First, what we really have is a crisis in confidence. All arguments about monetary policy, systemic economic imbalances and possible conspiracies aside for the moment....it really comes down to confidence.

I look around and still see people shopping, buying...maybe not on WANTS, but at least on NEEDS. So they system is not broken. Goods and services are still being traded and cash is still the medium of exchange.

The problem is that people lack confidence in their economy and banks lack confidence in borrowers. Government (in)action is not helping and the transition to a new administration has exacerbated the problem.

2. You can have gold. I think there is an allure to gold that is completely unjustified. Only a few cultures still believe that gold has any intrinsic value. The rest of the world sees it for what it is...a commodity with various industrial and commercial uses. But as a medium of exchange? Please...let's not cling to ancient history. Might as well be SPICE (Dune reference).

Fairly soon, the new administration will have the ground rules in place. Hopefully they leave them alone and the market (read people) can adjust to them accordingly. Banks will clean off their balance sheets. Corporations will turn profits (albiet small ones). Confidence from all sectors will rise as we see that the "end is NOT near".

I predict 3rd Quarter 2009 for a turnaround to begin.

This is not the Great Depression. Never was, never will be. It's a deep, painful recession and it too shall pass.

Think Positively...

Joseph Oppenheim said...

JMS, just because the government can change the rules, doesn't mean it won't be for the good. Heck, in the 30s the govt prohibited owning gold, except for collectible gold, but offered a good conversion rate at the time into a sound currency. If hyperinflation occurs, the US would probably move to some form of hard currency and offer a good conversion rate for people who hold gold if they wanted to take possession of it. Also, collectible gold coins are another protection, again, diversification.

Only fools would bet on the government going down some doomsday scenario - screw everybody except for the well-connected few.

Best to be diversified in well-recognized blue chip investments and/or stores of money.

Like I say, inflation-protected Treasuries (TIPs) are a decent, if not perfect, protection for bad inflation. Again, diversification.

As for land, that is foolish, except as part of being diversified, and land you can use, either as a home or to earn money from, rent out, grow food, or whatever. The reason over-exposing oneself to land is foolish, is because it is illiquid, certainly not something one would want if things get hectic. And, above all, stay away from debt.

As for land, land in a nice place to live. Heck, in San Diego, you really don't need heating or air conditioning. Plus, no need for winter clothing, can grow food all year, cars last longer, everything is more casual, etc. Plus, many fun things to do, for free. Arguably the best weather on the planet. It has been shown that people are happier on sunny days, so I like the happy thing.

If you want to really worry, the "crazy" approach will probably work. Just act clinically nuts, and the government will provide you a free place to live, free healthcare and free food. Then, when things get better, just act normal and they'll let you leave. The reason I offer that approach, because many on this blog won't even have to "act".

Sure, doomsday will occur someday. Dinosaurs saw their days end. A Chernobyl, 9-11, Katrina, etc, etc event could occur. But to go overboard in worrying is just not healthy.

By the way, there are scientific studies which show humans have less free will than they think. You will notice, psychotic people are more likely to be those who try to be overly in control of their lives (Type A, obsessive kinds of people, control "freaks", etc), whereas type B, cautious but more fatalistic in knowing they can't control everything, are less likely to go nuts.

....Joseph

JMS said...

Well, my wife and I are both "Type A" personalities. At least I'll have somebody to go off the deep end with.

Anonymous said...

Ha ha. Anon 8:02 is living in Disneyland. Using old and existing paradigms when what is happening now is unprecedented. Boy, is he gonna be surprised (and he obviously won't be prepared so he will also suffer).

Anonymous said...

What did Obama just do?

A jobs-creation program?
An investment in our future?
A tax-relief plan?
Assistance to consumers hardest hit by the economic recession?
Legislation to jump-start the economy?
A recovery program?
A life raft for state and local governments?
A spending bill?

It's all of the above. Fiscal stimulus is all things to all people. In other words, it represents the triumph of faith over reason.

When I first learned about fiscal stimulus according to John Maynard Keynes in an introductory economics course, it made a modicum of sense. The idea was that at times when the private sector isn’t pulling its weight, the government can step in and spend instead.

It doesn’t take an inquiring mind very long to find the flaw in the argument. How exactly does the government get the money to pay for its spending? Neither borrowing (today) nor taxing (tomorrow) increases aggregate demand. All they do is transfer the ability to spend from one entity to another and the timing of that spending from the future to today.

“Empirically, nobody can point to a single Keynesian episode that worked,” says Dan Mitchell, senior fellow at the Cato Institute, a libertarian think tank in Washington.

Attempts to spend their way out of a slump by Herbert Hoover, Franklin Roosevelt, George W. Bush, Japan (in the 1990s) and Europe yielded little in the way of results, Mitchell says. “The only thing Keynesians have ever been able to point to that worked was World War II,” which isn’t something we want to repeat.

Left to its own devices, the economy’s natural tendency is to grow. That may sound like a cliche, but it’s true.

BTW, lenders are too scared to lend and will sit on their cash. People will save, sit on their cash and become frugal. Thus the printed money is not going to enter the money supply right away. We still have time to get our ducks in a row before inflation takes off.

Anonymous said...

Joseph:

"Best to be diversified in well-recognized blue chip investments and/or stores of money."

WHERE HAS THAT GOTTEN ANYONE OVER THE LAST 10 YEARS? NOWHERE. AND THEY WON'T DO ANYTHING FOR YOU OVER THE NEXT 10 YEARS EITHER.

"Like I say, inflation-protected Treasuries (TIPs) are a decent, if not perfect, protection for bad inflation. Again, diversification."

THOSE ARE JUST FOR PRESERVING CAPITAL (ALTHOUGH THEY WON'T EITHER WHEN INFLATION DOES BEGIN). MEANWHILE, YOU AREN'T GETTING ANY YIELD TO SPEAK OF AND YOUR PURCHASING POWER IS STILL GOING DOWN NO MATTER WHAT. PUT YOUR MONEY TO WORK SOMEHOW SO THAT IT RETURNS AT LEAST 10%. YOU HAVE TO DO IT ACTIVELY, CAN'T DO IT AS A PASSIVE INVESTOR.


SMALL FARMERS SURVIVED THE DEPRESSION QUITE WELL. THEY HAD FOOD TO EAT AND FOOD TO SELL. GET YOUR MONEY OUT OF STOCKS, BONDS, TIPS, ETC. AND TAKE AN ACTIVE ROLE WITH IT. INVEST IN A WORKING FARM FOR EXAMPLE... YOU'LL GET A MUCH BETTER RETURN AND BE ABLE TO WEATHER THE NEXT 20 YEARS... WHICH ARE GOING TO BE VERY VERY VERY DIFFERENT THAN THE LAST 20 YEARS.

Tyrone said...

Joseph,
You said,"don't be fooled by ETF gold buying."

Who said I was fooled. I wouldn't buy this thing. I take physical possession. I was just saying that if the government really needed to confiscate gold, here is a simple place to drive up and 'take'.

The only thing I struggle with is the portfolio percentage to allocate to physical gold and silver. And I don't consider it an investment. It's purely insurance for a sizeable amount of assets.

Anonymous said...

"Anonymous said...

Ha ha. Anon 8:02 is living in Disneyland. Using old and existing paradigms when what is happening now is unprecedented. Boy, is he gonna be surprised (and he obviously won't be prepared so he will also suffer).

Thursday, February 19, 2009 9:46:00 AM"

What is really unprecedented? Deflation? Government Spending? Asset Devaluation? A faith based monetary system? The convergence and failure of any of them?

It's all happened before. Just not to us and not in our lifetimes.

Repeat...Just not to us...as in U.S.

Most folks on this blog are out of their minds with the negativity abounding here. I can only suspect that you are aging baby boomers with no fight left in you and no will to change.

Move on over. The younger generation is ready, willing, able and NOT SO NEGATIVE. We see change and embrace it. New technologies are right around the corner that will revolutionize communication, transportation, medicine and energy creation/consumption. How's that for paradigm change.

You might want to be start being very nice to your kids...since you may soon be the object of their charity.

Jim in San Marcos said...

Hi Anon 12:25

Your right it all happened before. In the 1930's we had new technology. The airplane was starting commercial aviation, the telephone was becoming a household item. The electricity was coming to the home, Radio was the new rage. With the industrial age, 80 percent of farmers left for city work.

The only thing that's going negative around here are paychecks that I can see.

Anonymous said...

Anon 12:25

I said you're in Disneyland because you think this system will recover.

What's unprecendented?! Man, you are really lost in space. Wall St. is gone; the whole financial sector doesn't work; the whole banking industry is dying; there is an unpayable national debt; state governments are bankrupt; the USA is bankrupt and hiding it; the downward slide has just begun and will take years before it is over; we have a global recession headed for a depression; more wealth has been lost globally than in any time in history; etc. etc. etc. etc.

You assume incorrectly. I have a lot of will, and I'm positive. I applaud the downfall of this system and take great joy in watching it happen. I'm a proponent of gloom, doom and boom!

I see opportunity in this crisis.

I'm ready for a new system. And the US culture/society getting back to basics, values, integrity and production and coming up out of the degraded state it has been in for decades.

This correction will clean everyone's clocks except for those who know how to profit in down markets.

AngryTaxPayer said...

Jim, I have been with you since the beginning. There are some really in tune folks out there that see whats happening around them, and your definitely one of them. Keep up the great work, humor, and of course the sanity!

I love this blog... Everyone has an opinion they believe is absolutely correct. In our own minds, how could we ever be wrong? Our perception of the world around us is reality. If all of us are right, how could any of us be wrong?

The time to prepare for the POTUS's coming "catastrophe" was prior to the Fall of 2005. Most decisions made after this point by many were and continue to be pointless. Several saw this coming, most of the populous did not. There is nothing, I repeat NOTHING he nor the government can do to resolve our situation!

The country has gone from a Utopian mindset to the Gates-of-Hell in only the last 6 months. Once America wakes up from the wet dream, whats the next 10-15 years going to bring?

I'm not really sure, but slavery comes to mind. Unless serious action is not taken soon by stripping the government from its seemingly limitless power, I believe will become enslaved to them through higher taxes, unlimited spending, and a society where the word failure is removed from the dictionary.

Be advised, this is only my humble opinion! And you know what they say about opinions?

ATP

Anonymous said...

"In hyperinflation, you get to pay the mortgage off with inflated dollars."

Jim,

I thought in hyperinflation, the dollar gets devalued and is thus weak. Can you clarify?

Anonymous said...

When you live in a very rich country, you only need basic skills and a pulse to obtain a job with decent pay.

When you live in a poor country, you must employ all your skills and wits to earn a basic living.

Our country is going through tough times now. It's like an injured whale that needs surgery. The surgery is being performed by a team of surgeons who have never before done anything like this.

To protect ourselves as individuals there are some fairly simple things we can do: (a) trim expenses, (b) reduce debt, (c) stash away some cash, and (d) stiffen our resolve.

We would need a strong resolve to face prolonged hardships should the whale surgery went awry.

The people on this blog are fairly intelligent and responsible. You guys are ahead of the curve.

Anonymous said...

I agree that we are facing deflation and not inflation. Deflation because dollars are hard to obtain. Everyone is hoarding cash, everyone except Uncle Sam.

We will have massive inflation once the private sector opens its wallet. Or once the Federal government overwhelms the private sector, to turn this country into Sweden.

If it's not daunting enough to try to protect oneself from a frontal assault of deflation, one must also defend against a backdoor attack of inflation.

Jim in San Marcos said...

Hi Anon 6:02

Say you buy a house for 100k and are earning 30k per year. If inflation took off, you might then be earning 60K a year. You are doing the same work but you get twice the dollars because of inflation. Now it is easier to pay off the house. In hyperinflation like in Germany in the past, 100 million dollars a day in earnings, it would be very easy to pay off the note.

Jim in San Marcos said...

Hi Anon 6:56

I agree it looks like deflation because everyone is taking their money and stuffing a mattress. At the same time nothing is being produced because of the mattress stuffing.

Everyone took their zillions of dollars and is holding on to it. At the same time, some people are consuming what has been produced at a very good price. Inventories are being reduced further and more people are being layed off. At some point people will start to spend again and there will be shortages. When you have shortages, prices increase.

The deflation is fear caused, you may lose your job. The inflation will be fear caused, there isn't much left on the shelves to buy.

Jim in San Marcos said...

Hi Angry Taxpayer

I mentioned the same thing you referred to in a previous article, Perception, your view verses mine

"Our perception of the world around us is [our]reality. If all of us are right, how could any of us be wrong?"

You probably phrased it better. It is not a concept easily accepted. Hence you get statements like "What is your problem" which can really stir up some emotions.

Glad you like the blog and thank you for the atta boy.

Take care.

Anonymous said...

Jim,
As you wrote earlier, the title of your site will soon make it obsolete. Your prognostication has been validated. Time to move on (unless you are going to wait until the "D" word appears in mainstream news or comes out of the mouth of one of our heads of state.

9/11 was the tipping point that started us into the crisis cycle that comes about every 100 or so years (American Revolution; Civil War; Great Depression/WWII; ___.)

In keeping with the cycle of humanity, I have a suggestion for your next blog site title:

WW III

Jim in San Marcos said...

Hi Anon 8:05

I think that we have to get out of this mess before my blogg title becomes redundant. I might just have another 10 years.

WW III seems to be an improbability, it would end life as we know it now.

Thank you for your comments.

Anonymous said...

Jim:

Right. The rules will continue to change. That, and the global crisis will make it very hard to predict lay out any intermediate or long term plans. I think one will have to stay nimble and keep changing/perfecting/updating their plan in order to successfully navigate through this mess.

The key issue is personal survival. The key question is: "How do I preserve the wealth I have, continue to earn well and survive these coming years?"

My plan for this current time period: keep all the cash that I have and all that I can earn and save safely preserved; monitor all the key indicators for inflation; when the indicators tell me that we've hit bottom and the inevitable hyperinflation has begun... I will swiftly put all my cash into assets (most likely rental properties) before it becomes worthless.

As long as I have some rental properties that are free and clear and offer below market rent, I should be able to survive no matter what happens with the economy and our fiat currency. Land with housing on it will always be something I can get income from.

AngryTaxPayer said...

Jim,

Your "Perception..." post dates all the way back to July of 2006... yes I remember it. Not much traffic then. There was only one anonymous response and your reply. Your soon gonna have to look both ways before you cross the street Jim!

Your last statement in the reply read... "We all go to Vegas to win, but its the "non winners" as a group, that built that city."

A very profound statement as I believe it also falls perfectly inline with our most recent election and the state of our nation. But if you don't mind, I'm going to change up your PC "non-winners" and just call them what they are... Losers.

The government is creating a few winners in Obama's new world Jim, but unfortunately will break the backs of the majority who are becoming Big-Time-Losers from this whole mess.

ATP

Joseph Oppenheim said...

Your last statement in the reply read... "We all go to Vegas to win, but its the "non winners" as a group, that built that city."

A very profound statement as I believe it also falls perfectly inline with our most recent election and the state of our nation. But if you don't mind, I'm going to change up your PC "non-winners" and just call them what they are... Losers.<<<<<<

Profound?

Sure is! But, not in describing what you guys intended. It describes perfectly the attitudes of obstructionists, especially in Congress, but also elsewhere as represented by Rick Santelli's rant on CNBC.

That is because it harkens back to the mentality of the South which wanted to preserve slavery. Yes, the Blacks were the losers, but obstructionists, then, wanted to keep it that way. Oh yeah, the center of current obstructionism is in the New South. Not only pathetic, but sick.

It's called greed! By those essentially saying "I'm doing OK, screw those who aren't!" Really pathetic! When times get tough, it is best look out for "losers", if you insist on calling them that.

Sure, "God Bless America" what these guys always want to say, but God, asssuming there is one, will probably puke if America goes done this road now.

....Joseph

Anonymous said...

I still can't believe the "throw the baby out with the bathwater" contingent that is on this site.

Advocating the demise and collapse of our economic system? In favor of what??? Show me one working example of your "dream economy". You can't. It doesn't exist. This is the problem with all the Wing Nut Republicans too. They all want a small government, low tax, low regulation, lazze faire environment. Show me one example...please. Really.

The national debt was run up under Reagan and then again by the W(orst) president ever. Clinton reversed it. Even had a budget surplus. These are just the facts.

And now the obstreperous Wing Nuts that are left (right) in Congress have suddenly "found Jesus"? Where were they when W created this mess?

Please quit advocating the demise of the economy and our monetary system. Or if you are going to keep advocating it, show me some scholarly support for your argument. Not just some youtube whackjobs and leftover Ron Paul campaign talking points.

Anonymous said...

Hey Anon 7:36

There are no working examples. What we are talking about is evolution, innovation, the next phase or step.
Just as we moved out of the feudal system and monarchy. The birth of America reached the highest ideal to date. It has since been diluted and inhibited by corruption and false data.

We're talking about learning from our mistakes and history and evolving from where we are now to a better society supported by a better economic and financial system. There has to be death for there to be birth.

Despite all our problems and collapse, there is no argument that our system is the best. But there is no ceiling. We need to become more civilized and sophisticated. Don't get stuck in old formulas. You need to grow and look at this for what it is... crisis = opportunity, death = rebirth.

AIM

Anonymous said...

Hey Jim (and anyone else who might understand such matters),

My wife and I have our business and personal operating money in BofA (our 5 checking accounts equal out to about a 10k monthly balance average, and whenever it rises above that we sweep the overage into a safe FDIC money market account).

Citi, BofA and Chase are all in serious trouble and insolvent, and it has been being kept hidden. Shortly it is going to come out and we will have some mergers or a temporary nationalization of these banks (or some such solution by the government).

With a nationalization or receivership... would our deposits with BofA be tied up or frozen for a long time... or would there just be a quick reorganization step and then our money, and our ability to utilize it through our checking accounts, would then resume within a few days or weeks?

Thanks in advance.

Anonymous said...

Hey Jim in San Marcos.

Change the name of your site to, "The Great Depression of 2009".

Joseph Oppenheim said...

With a nationalization or receivership... would our deposits with BofA be tied up or frozen for a long time... or would there just be a quick reorganization step and then our money, and our ability to utilize it through our checking accounts, would then resume within a few days or weeks?<<<<<<<

No, they won't be tied up. That would be the whole purpose of nationialization, to keep money flowing, with the government either printing money or issuing debt to provide money for the banks. The only customers who need to worry are those who want to borrow money. The government would want to control who borrows.

As for your comment about the banks insolvency being kept secret, that is not true for banks and other financial companies which have had their stock prices down 90% or so. By the way, insurance company stocks are also following that trend, certainly not evidence of some secret about possible insolvency there. Or, GE, which has been exposed as a sham company, a financial company with $600B in debt masquerading as an industrial company. It was all about using its legitimate businesses cash flow into the financial-overleveraged bubble.

....Joseph

Anonymous said...

They will also change the words. They are now calling nationalization pre-privatization:

http://www.capitalismgonewild.com/2009/02/bank-nationalization-for-citigroup-and_20.html

Jim in San Marcos said...

Hi Anon 7:36

You kind of sound like you got thrown out with the bath water.

I'm not advocating any sort of solution. We are just pointing out the mess and the possible consequences.

The last president to have a balanced budget probably would have been Eisenhower. I don't consider spending the SS funds as balancing the budget.

As for Clinton as President, have you ever had to explain to your 12 year old son what a "Blow Job" in the oval office is? That guy is trailer trash!

This blog is non political. If you think either one of these political parties can solve our problems or is responsible for them, then you are part of the problem.

I am totally confused with your comments, I would claim you haven't even read what I wrote.

My only guess is that you're not spending enough for your drugs. Times are tough.

Jim in San Marcos said...

Hi Anon 9:02

Normally there should be no problem as Joseph suggests.

Back in the 1930"s when the banks reopened, there were limits on the amount that you could withdraw.

If you are running a business and putting the float in an FDIC account, you might just want to put it as cash in a safety deposit box. That way you are sure to meet your payroll. Plus the interest you are getting is peanuts.

I do think that you are right in you assumption that the government is covering up the seriousness of this mess, Citi and B of A are bankrupt. The statement, "They are just to big to fail," is pure hogwash.

Hope this helps you out, take care.

Anonymous said...

Jim. Here's a question:

Eventually inflation will hit us. It could also turn into hyper-inflation. When it hit us, the USD will really begin to devaluate and lose purchasing power. The devaluation can be a slow process or a very rapid process. The conventional advice is that one needs to exchange their currency for hard assets before this happens in order to maintain all or some portion of their wealth (gold, land, etc.) The velocity of money will really pick up because it will be continually losing value. (People will want to get rid of it as soon as they get it because cash will be considered trash, and assets, goods, and other things of value will be the thing to have.

I'm trying to figure out how to not get clobbered by inflation.

Question: If inflation really hit and you took your cash and jumped into an income property or two, or bought a viable business... would that really be a solution? If you had some rental properties, you'd be paid with the depreciating currency which couldn't really buy much (and you'd probably have to be raising the rent every quarter or month due to inflation). Same thing with a business... you'd be paid with worthless currency.

So... would your "solution" have backfired on you? Or would your rental or business just continue to command higher and higher amounts of dollars to keep them viable and giving you an income that will support you?

Jim in San Marcos said...

Hi Joseph

You are out of line and off topic.

I almost deleted your 7:14 post.

Your put down of "Rick Santelli's rant on CNBC" on CNBC irritated me. Why should I have to pay for some jackass that tried to get rich the easy way.

The rest of your post is a rambling about slavery and blacks. It made no sense.

Yet your next post at 12:19 seemed rational.

Like I advised Anon 7:36 consider spending more money for your drugs, and don't blog when your smoking them. Make sense? Of course not!

Anonymous said...

Citi, BofA and the Fed are in a helluva tough spot. Over the past year, the failing banks and financials have been small enough that there was always a bigger fish to gobble them up (including my bank WaMu).

Well, now the only thing left are the biggest fish! The Fed has said all along that Citi and BofA are too big to fail. However, they'are also too big to bail; the Fed would have to come up with trillions for just those two banks alone. Nobody has the capital to gobble them up.

I think most people have accepted that nationalization is the only solution left, regardless of how foolish it might be. The statement out of the administration today about "no nationalization" is either a stalling tactic or a prelude to catastrophe.

I just hope my Citibank credit cards continue to work!

John in Texas

PS. Citi reduced my credit limit on my credit card last week; that was the first time that's ever happened. Apparently, since I pay it off every month, I'm just not profitable.

Jim in San Marcos said...

Hi John in Texas

I think that both will be nationalized, it is only a matter of time.

You touched on the real problem, credit cards. I think that these instruments could literally disappear or stop functioning as a method of payment. Let's face it, the consumer will use the card until the bank says no. And we know that is going to happen. We are just not sure when.

Jim in San Marcos said...

Hi Anon 7:51

If inflation went wild, your rental assets would increase in value as would the rents that you charge.

There does come a point to where in hyperinflation the currency becomes worthless, but title to property is not affected. At that point, you retain your assets and the new currency dictates the rent you would charge to a Tennant.

The government could mess you over with rent controls, but single family homes, they still can't touch.

I hope this answers your question, take care.

Jim in San Marcos said...

Hi Anon 9:50

There is no reason to change the blog name.

If you really study the history of the Great Depression of 1929, you'll find out that it was not accepted that we were in a depression until 1932. Figure that 2009 equals 1932 and you are right where you should be, bewildered and befuddled, hoping the government can save you.

AngryTaxPayer said...

"It's called greed! By those essentially saying "I'm doing OK, screw those who aren't!" Really pathetic! When times get tough, it is best look out for "losers", if you insist on calling them that."

Dear Joseph,

I believe in helping ONLY those who can not do so for themselves (primarily those with disabilities and in natural disasters), but only through private non-profit foundations and organizations. Not through the government and definitely not with tax dollars.

How much do you give to these types of organizations annually? How many hours a week do you volunteer your time in the community? If the answer is a lot, then your with me. If your answer is none and you expect the government to be the one to do it for you then we disagree. Why can't we keep what we earn and distribute it to the ones who can use it the most wisely?

Instead of the government stepping in, why don't they just set up an organization that would collect voluntary donations from concerned citizens, like yourself? Simple... not one dime would be donated, well except for yours I'm sure. Joseph, how much OPM are you willing to throw at this before YOU decide its too much?

The "losers" I'm referring to are the ones who will continue for many years to pick up the tab in the form of inflation and heavy taxation. We are all the losers in this situation.

BTW, glad to see I have finally struck a string with you Joseph. Are you getting angry yet? If not, I'll keep trying. If so, good... Welcome to my world!

On behalf of the losers,
ATP

Jim in San Marcos said...

Hi Angry Taxpayer

Let me just step in and say that this guy Joseph makes sense and then at other times he doesn't. I can't quite figure it out. I'm beginning to think that getting agitated over anything he says, is not worth the effort. Bear this in mind when reading his missives. He quotes comments, attacks and goes off on a tangent. I am not sure what to make of it.

I'll let him have his say, but he could be pushing his luck. I have the delete key(thats a Republican joke, Democrats don't have a delete key--they want everything)

thank you for your comments, and take care.

Anonymous said...

Many advisors say "go to gold as the hard asset" and your cash net worth will be safe from inflation.

Ok, so you buy gold. It has no return or yield at all. It just sits there and gleams. It doesn't give you an income stream or anything to aid your survival. It doesn't grow or appreciate. You can't eat it, wear it or live in it.

It's a store of wealth? What good is wealth if you can't use it?

I think this gold idea is outmoded. It may have worked earlier in time but it won't now in this digital, electronic money age.

I think you'd be better off putting your money into tools, tires, canned food, survival gear, copper pipe, ammunition, etc. etc. At least you could sell or trade this stuff for the things that you need.

AngryTaxPayer said...

Jim,

I learn from 98% of the comments brought up on your blog. That's what keeps me coming back.

As for the other 2%, I try to ignore it... but a non-response to such outrageous attacks is an implied agreement with insanity. And in JO's case, I had to say my peace.

ATP

AngryTaxPayer said...

Anon 7:36,

Laissez-faire or “pure” capitalism has never really existed (perhaps because it’s a French word), because it implies total elimination of state interference. The government must be involved to provide protection against such things as monopolies, health and safety issues, minimum wages, etc. There will always be government involvement in a capitalist economy.

Freedom from government control as an entrepreneur or a customer is what makes our capitalist economy the greatest in world. What if the government restricted what you could build or purchase? What would be the purpose of creating a business if it was not profitable because the government set or controlled the prices? Free markets insure that products in demand are produced with the highest quality and purchased at the lowest possible price.

In my opinion, the government was NOT established to reduce risk, pick up the pieces when demand falls off a cliff, provide relief to companies/consumers who over extended themselves, or to provide insurance for failure. Its silly, but what’s next… is the government going to be saving every little kids lemonade stand because they failed to make a profit?

As the author points out, why build, purchase, or invest in anything right now if the government is consistently stepping in and changing the rules?

ATP

Anonymous said...

The credit card situation is a dilemma. You want to encourage spending to help the economy, but at the same time, more spending will mean higher default.

The default rate is heading towards 10%. That's $100B a year in bank losses.

Unless the government backstops the losses, banks will have no choice but to tighten credit.

The backstopping is well under way, otherwise everyone's credit line would have been cut to $1000.

Jim in San Marcos said...

Hi Anon 9:38

Gold is what I call emergency money. It can be converted to any currency quite easily. Gold is indestructible, it doesn't burn up or get eaten by rats plus the government can't print it (they would if they could).

The real question right now has gold increased in real value to $1,000 per ounce today? Or does the dollar purchase less now than it did before?

Gold when I got out of High School in 1964 was $32 per ounce. We still had silver coinage. So a real silver dollar today is now worth $14 or is it?? It will still buy 5 gallons of gas just like it did in 1964.

I agree gold pays no interest. I would never consider gold and silver as investments, just a security blanket.

Anonymous said...

Anon @ 09:38
"I think this gold idea is outmoded. It may have worked earlier in time but it won't now in this digital, electronic money age."

Hmmm.

Jan 2 2004 -$415.20 /oZ
Jan 4 2005 -$426.80 /oZ
Jan 3 2006 -$520.75 /oZ
Jan 2 2007 -$640.75 /oZ
Jan 2 2008 -$840.75 /oZ
Jan 2 2009 -$869.75 /oZ

Now imagine Gold by the ounce is worth no more today than it was on the second of January 2004.

Anonymous said...

What an amazing people we are here in the USA:

1.
Our members of Congress actually sign powerful, far-reaching laws into action without ever reading or studying them beforehand (Patriot Act, TARP, Obama Stimulus Package).
2.
They continue to have a budget deficit EVERY year. They consider it NORMAL to be 400B or 600B over budget, when it should actually be treated as a dire EMERGENCY that needs to be prevented from happening again. They are happy that it only went up 100B from the year before. They do nothing to cut spending and streamline the operation so as to stay within budget.
3.
They receive a majority consensus from their constituencies on how to vote on an issue, yet they vote the opposite.
4.
They spend more time bickering and playing egotistical games across the aisle with all their partisan nonsense than they do being concerned with our interests and the good of the country.
5.
Many of them have terrible attendance records and don't even show up to vote on sensitive issues.

Yet we continue to re-elect them?! What is wrong with this picture?

What would you do if you were a business owner and you had a manager of one of your stores who acted in this fashion?

Anonymous said...

Anon 12:53

Ok, so it is 2013, inflation has been ramping up, and gold is now worth $2,800 per ounce. So, you sell one of your krugerrands in exchange for 2,800 USD, which is the current price of the suit that you need to buy.

If you had a rental property you'd be able to buy that suit as well, from the $2,800 you accumulated in rental income. Plus you received tax breaks (depreciation) on your rental, which is more income. And you've earned more money in the form of equity from your rental property appreciating.

The amount of inflating dollars that equals an ounce of gold will also be in ratio to what the rent will be that you receive from your tenant.

I still say to heck with gold.

Anonymous said...

Joseph, the following statement is FALSE:

Heck, in the 30s the govt prohibited owning gold, except for collectible gold, but offered a good conversion rate at the time into a sound currency.

Authorities raised the "official" price per ounce immediately AFTER confiscating the peoples' wealth (gold), effectively DEVALUING the dollar.

Gold has retained it's purchasing power ever since; the dollar has not.

Thank Congress and the Fed.

Read the Creature from Jekyl Island by Griffin.

Jim in San Marcos said...

Hi Anon 12:53

That spread sheet of yours will work with steak, chicken, eggs and Peanut Butter. 50% food inflation in 5 years.

As for Anon 9:38's choice of real estate rentals over gold it works good, it's not for everybody, you earn your money.

The thing to think about with real estate, is that it is visible and taxable. If the economy gets worse, the government could implement rent freezes while the counties raise property taxes.

If they can stop me from shorting Citi Bank, they can stop the landlord from raising the rent. There are places in LA and NYC where they've been doing it for 20 years already. Somebody once said that rent control was just as effective as a nuclear bomb going off--you get the same results, it just not as quick.

With the government changing the rules, foreigners are cashing in and leaving the game. I would suggest thinking twice about any assumptions about future investment plans.

Anonymous said...

News for all of you conspiracy theorists: There actually IS a conspiracy. Yet, it is NOT the IMF, CFR, the Bilderbergers, the Trilateral Commission, etc.

The enemy is not a secretive group. They are right in front of our faces. They are blatant in their presence and flagrant in their actions. The incredibleness of it all is why they are "invisible" to us.

Call them the International Bankers, The Creditors, The Financial Power Elite or whatever you want.

They are the ones that control and influence governments via the financial sector. They are the ones who own and control major national and international banks (they aren't out front, yet they may be on the board of directors of these banks). A few of them are connected to The Bank of England.

They influence government through many channels: loan them money; donate to campaign funds; lobby; bribe and give gifts to government officials; blackmail government officials; act as advisors to heads of state; get their people elected into government positions or set it up so that they are unwittingly doing their bidding for them (Rubin, Greenspan, Geithner, Bernanke, etc.)

They've influenced such circumstances as the US going off the gold standard in 1971... putting teachers into academia to disseminate the Keynesian Economic Theory... deregulation, such as Clinton repealing the Glass Steagal Act (allowing banks to move into investment, real estate, insurance, etc... getting interest rates dropped to "stimulate" the economy... using Wall St. and financial engineers to create the concept of "securitization of debt" (bundling and selling mortgages, auto and credit card debt to institutions)thus giving us derivatives, CDOs, etc... TARP I... Tarp II... Aggregator Banks... and on and on.

In this country they made a fortune over this last 7-8 year boom. Collapsed the economy as a result. Got lots of money out via golden parachutes, bonuses and exhorbitant salaries. Made themselves whole by taking in all this government bail out money, etc. etc. They win when the win and they win when they "lose".

They are now holding the US government hostage... "We need another 50 billion or we are going to go under and this will destroy the US economy". The govmt gives the lion's share of its bailout money to the banksters and just throws the public a bone.

Now they've destroyed asset values and are able to pick up banks and other companies for pennies on the dollar, enriching themselves further.

The reason the government is doing the wrong thing (spending and borrowing and attempting to stimulate consumption; instead of cutting costs, spending and borrowing and facilitating production) is because the banksters have them convinced that this is the way out. Their hidden agenda is to create yet another Bubble Economy by having the government inflate so that they can ride the wave again and get even richer. They make a fortune deflating and inflating assets and the economy. They've got most countries by the balls.(Remember what A. Rothschild said. "Give me control of a country's currency and I care not who makes the laws.")

We are a frog in a pot of water sitting on their stove and, because the temperature is gradiently moving towards the boiling point, we aren't even aware that we will soon be cooked... that means dead.

Until we get these International Banksters out of our government and financial system there is no hope of ever having a sane and prosperous society.

AIM

Jim in San Marcos said...

Hi Anon 11:52

My rough calculations figure that defaults only have to hit 8% before credit cards lock up. There is two trillion of Credit card debt loans on the books. It is probably short term money. This money if called away could be a problem to replace, unless it had a very good interest rate.

It might be time for another Congressional bailout

Anonymous said...

Anon on Saturday,21 @ 3:02:00 PM

"Ok, so it is 2013, inflation has been ramping up, and gold is now worth $2,800 per ounce."

And in five years time there will be plenty of very good bargain properties on the market, so I sell 50 eagles at your quoted price [ you can save your self the wait and buy them off me now at that price .. :-) ] and buy myself a property at $140,000 which today (five years previously) was priced at $2,000,000. That seems like a deal to me.

Yes, gold doesn't pay a coupon. But where else today do you get a coupon?

If you had invested with Madoff or Stanford, you have been exposed to counterparty risk. With Gold the counterparty risk is much attenuated. I like an S&W insurance policy too.

Under some circumstances gold does appreciate - at least in fiat money terms. So I am seeing a significant fiat money appreciation in my investment. That will do instead of a coupon.

Three, Yes, I am prepared to sell my holding - the trick is figuring out when to do so. Then buy something else in the economy that might work hard for me.

I'll hold gold for the last five years sell it in three years and buy a property just as it has depreciated in value.

I have no particular attachment to Gold, it is doing the job I bought it for. I am very happy with its performance so far.

There will be a time to sell gold. I don't think that time is any time soon though.

Jim in San Marcos: "That spread sheet of yours will work with steak, chicken, eggs and Peanut Butter. 50% food inflation in 5 years.2

Sure it will, but my gold hord will let me buy some steak, chicken, eggs and Peanut Butter in five years too.

Hopefully, because I have horded gold mow, I'll be able to buy a cheap extra house - leading to a better rental return on investment, and some food too, in the future.

I fancy those anti gold folk who laugh at us folk who see a place for gold, are equally blindsided by the emotional dislike of a pretty good investment opportunity. These guys will probably be the guys I sell my gold to at $2500 /oZ

Anonymous said...

Anon 3:44, re: hoarding gold

Sorry. I'm still not convinced.

I'm sure that there are multiple and diverse strategies that people have devised and are now implementing in an attempt to move through this crisis unscathed, or with the least amount of loss as possible. Some will be successful, some won't.

I don't wish anyone ill, and I would prefer that it didn't happen. But the government is going to confiscate your gold down the road when our country has devolved further into its economic collapse.
History will repeat itself, or at least rhyme.

I'll stick with accumulating and saving as much USD as possible. And then, in the next 6 months or so, I'll go into INFLATION WATCH MODE. It could start in 6 months, 1 year, 2 years, 3 years or more. But when it does start, that is when I'll use my soon to be trash cash to acquire small stable businesses and income properties that will enable me to weather the incipient inflation cycle.

I'm hoping for a big window of time before the inflation begins so that I have time to amass more cash, build a few small businesses (cheaper than having to buy them), and further prepare myself in general for the new world we will be living in.

AIM

Anonymous said...

What's most astounding about the market decline is this: It's happening despite the greatest outpouring of government money in history. Indeed, just in his first month in office, President Obama has quickly earned the distinction of becoming the single biggest spender in history.First, he got Congress to pass a $787 billion stimulus package. Next, Treasury Secretary Timothy Geithner unveiled the administration's bank bailout plan, which could cost up to $3 trillion. And last week, Mr. Obama rolled out his $275 billion anti-foreclosure plan. Add it all up, and it comes to more than $4 trillion, an amount nearly ten times larger than the budget deficit for all of 2008. All in just 32, short days! Four trillion is such an immense number that few people can grasp how massive the implications really are — both in terms of the great magnitude of disease and the massive unintended consequences of any cure. Look at it this way: If you were a very rich man living at the time of Christ ... and you could have started saving $1 billion per year every year thereafter, you'd still be only half way there! You'd need still another 2000 years to finance what Obama has committed to spending in just the one month since he began his presidency.If you could borrow $4 trillion at 6% interest, your interest payments alone would be $240 billion per year, $548 million per day, $761,000 per second. Without a doubt, the $4 trillion makes Obama the single most profligate spender in history — bar none. But the truly sad side of this story is that, even this unprecedented Mt. Everest of money isn't doing much for the stock market. Last year, for example, each time the Bush Administration announced relatively smaller stimulus plans and bailouts, the stock market would at least stage a temporary rally. But this year, the market has developed a very serious case of stimulus fatigue: Instead of rallies, each new announcement triggers further sell-offs. Why? Because investors are smarter than Washington. They know full well that this crisis is far too large to be ended by any one government or even all the governments in the world. Investors realize that all the king's horses and all the king's men cannot put our economy together again. That's why, despite $4 trillion in new spending schemes and guarantees, the Dow has plunged to new, 6-year lows. It's why every stock index in Asia and Europe has also cratered in unison. It's why gold — the world's crisis hedge of last resort — has once again shot for the moon; hitting $1,000 per ounce on Friday.
And it's also why even the perennially optimistic Ben Bernanke has discarded his rose-colored glasses, admitting in the latest release of the FOMC minutes that there will be no recovery in 2009.

Can you say the words "greater depression"? I knew you could.

What are you doing to prepare for it?

Anonymous said...

Anon on Sunday 22, @ 8:07:00 AM

"Sorry. I'm still not convinced."

Fine. Don't be sorry.

"I'm sure that there are multiple and diverse strategies that people have devised"

Yes, and when I was replying to you I was thinking just the same thing.

"Some will be successful, some won't."

No doubt.

"I don't wish anyone ill, .."

Didn't think you did.

"But the government is going to confiscate your gold down the road "

As my little 'chart' illustrated in terms of gold and as Jim observed similar applies to the things you need, eg. food too, the government are already confiscating your $, they are just doing it in a stealthy manner.

"I'll stick with accumulating and saving as much USD as possible."

An excellent plan. I just think that my little chart shows that even if you had doubled your savings over five years, the government has managed to steal 50% without you even noticing!

Granted there may be a fair bit of price inflation just because gold is thought of as a 'safe haven', I'll take advantage of that too.

And if that wasn't enough they have stopped you getting any interest on you hoard of $ either.

From my perspective that makes Gold far superior to plain US$ - for the moment.

Good luck!

Thanks to Jim by the way, this type of Blog didn't exist in the '30s and as a result we can exchange information and get just a tiny head start on the rapacious state. Our grandparents weren't so lucky.

(Although they had their own tenacity and sheer determination which I think is lacking in many in the modern west.)

Jim in San Marcos said...

Hi Anon 3;44

I'm not even suggesting that anyone even go out and buy gold at these prices. It's too late. It wasn't a bad deal at $300. Usually silver keeps up with gold at a 15 to 1 ratio. That seems to be way out of whack right now. For it to keep up, silver would have to be at $66 an ounce.

I use the price of gold as a measuring device to gauge what our cash is worth. The present rise in the value of gold means that a lot of people have a dislike for paper currency.

As times get tougher, people will be redeeming their gold to survive. So gold prices could drop quite a bit.

To profit in this mess, you have to be willing to buy what everyone else is selling.

Rental real estate could be a real mess for a lot of folks who can't even get it straight buying one home.

Too much of anything leaves you vulnerable.

Anonymous said...

Ok Jim, but...

If you own your rental properties free and clear, or with a very small loan, you'll have enough rental income to cover operating expenses and to service the small debt. You can't go wrong with that arrangement, right?

But ok, you say rents could drop or be controlled and prop taxes could go up and your rentals could be sabotaged.

Then it looks like the highest dependability vehicle you could rely on as a support system is a viable business that YOU own that can earn decent income during a recession/depression, right?

The only thing above that would be a decent salary job that you love that has total job security and will never lay you off, right?

Anonymous said...

JISM: "I use the price of gold as a measuring device to gauge what our cash is worth."

Yes, handy it is too.

JISM: "The present rise in the value of gold means that a lot of people have a dislike for paper currency."

They dislike it because the distrust it.

JISM: "As times get tougher, people will be redeeming their gold to survive."

Sure they will, and a blessing it will be to have some to sell to survive.

JISM: "So gold prices could drop quite a bit."

I expect it will.

BUT .. given the early stage we are at in this economic downturn, and given the horrible economic signals I read about all the time. I'll hold some for a while yet, if it drops back to $35 /oZ in six years and the economy starts to boom - you know? I'll just chalk it up to experience and leave it to my kids, they can laugh at their old Dad and talk about his infatuation with that barbaric relic gold.

Looking back on my life so far, I've wasted quite a lot of money on an awful lot of much less enduring trash.

Jim in San Marcos said...

Hi Anon 12:47

Our savings are geared to our future retirement, where we might not be physically able to work. Our main goal is to have enough real money saved up to make retirement enjoyable. Your plan will work

Right now a lot of retired people now have to rethink those golden years.

Thank you for your comments

Jim in San Marcos said...

Hi Anon 12:52

I got laughed at a lot for buying gold at $300 an ounce and laughed at even more when it dropped to $250. So I know the feeling.

Gold at $300, I would definitely be a buyer. One ounce of gold in the past has been the equivalent of one weeks wages. I would expect a reasonable price for it to be around $500. Take that with a grain of salt, I sat on my gold for 20 years before it moved.

You have to buy it when no one wants it.

Anonymous said...

The 2 Definition of Gold:

A.
A successful business that you own which is a system and run by a loyal and competent employee. It is not a job for you personally, other than 1) oversight; 2) business strategies; and 3) creation of marketing, expansion or correction programs to be implemented by your employees.

B.
Income properties that you own free and clear that give great cash flow, tax advantages, and appreciation and have excellent property management.