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The Financial Crisis Is Far From Over

Wednesday, May 12, 2010, 4:54 PM

I give really, really boring advice. For years it has not changed a whit, and that's just not the way to run a newsletter business.  There should be some movement, some pizazz, new things to ponder.  Instead I just keep saying the same thing over and over again.

Buy gold (and silver, too).

This is what I've been saying for the past seven years, ever since gold was in the $300's and silver was under $5, so you might be tempted to think I am simply another gold bug.  While I confess to finding a certain allure in heavy bullion coins - they sound great tossed on a counter and feel good in my hand - I am not really a gold bug.

Instead, what I am is a gigantic, unrelenting, anti-fiat-currency bug.  Well, at least I am anti-mismanaged fiat currencies, but that pretty much encompasses them all to varying degrees.

As with all investment,s I have an exit strategy in my mind that will dictate when I sell my gold and silver to place those funds in other productive investments.  Unfortunately, that day seems further away than ever.

Let me explain why.

The Euro Zone Bailout

As I pondered the many details of euro zone bailout, I came to the conclusion that it is little more than a shuffling of debt risk from one place to another, and I couldn't escape the larger conclusion that nothing had been solved at all.  Debt was merely shuffled from one location to another, from the banks to the public.

The bottom line is that Greece is merely the poster child for what happens to a country at the end of a long period of living beyond its means.  But it is by no means unique in having over-promised benefits to its citizens, and now faces a toxic brew of poor growth prospects, enforced austerity, demographic pressures, and an enormous mismatch between what has been promised and what can be delivered.

The only clear winners in the euro zone "solution" are the banks, which (again) have been relieved of the burden of paying for their own mistakes (again) by passing their horrible investment decisions back to the public (again).  I guess moral hazard is a winner in this instance, too.

Banks had loaded up on Greek debt because it paid a higher rate of interest than other sovereign debt.  It did so because it had a higher chance of default, so it was riskier.  Now that it has defaulted, the cost of that mistake has been transferred to the citizens of various countries, including as much as possibly $50 billion from US citizens.

Compare that to the long, protracted legal battle that the residents of the Gulf states will face to extract $1-2 billion from BP/Uncle Sam for the environmental and economic catastrophe unfolding down there, and you've got a pretty good start on understanding why anger is building throughout the land.

The euro zone bailout, unlike its US counterpart, does not create vast quantities of new money out of thin air (as did the MBS purchase program by the Fed), but instead seeks to 'solve' a debt problem by creating new debt.  Many people have come to the conclusion that this solves nothing, and, worse, it exposes the Ponzi-like character of the modern debt-based money system for all to see.

The dirty little secret of banking is that bankers have no interest in seeing the loans they make get paid back. All they want is for the interest payments to be made.  As long as the interest payments are being made, it doesn't really matter how large the outstanding loan balance is.  That just gets rolled over.

Loans default when a borrower misses an interest payment.  The Greek crisis was precipitated by the very real prospect that Greece was going to miss an interest payment on May 19th.  Only once this prospect was raised did the overall amount of Greek debt become a source of concern.  Without Greece potentially missing an interest payment, there was no crisis and no problem.  Which is exactly how we got into this mess.

The Ugly Truth

Even as the financial media parse over the ugly details of Greece's situation and gnash their teeth at the fact that Greece apparently has too much debt, the ugly truth is that there are many countries in similarly bad shape.

However, we persist in telling ourselves pleasant little lies to help distort the seriousness of the situation. Here's a perfect example from the New York Times today (5/12/10).

Yet in the back of your mind comes a nagging question: how different, really, is the United States?

The numbers on our federal debt are becoming frighteningly familiar, David Leonhardt writes in The New York Times. The debt is projected to equal 140 percent of gross domestic product within two decades. Add in the budget troubles of state governments, and the true shortfall grows even larger.

Greece’s debt, by comparison, equals about 115 percent of its G.D.P. today.

According to this pleasant little myth, the US has a couple of decades before its debt might possibly hit 140% of GDP.  That doesn't sound too bad, now, does it?  After all, we're as far away from that moment as we are from the collapse of the Soviet Union back in 1990.  Seems like a long time. 

And Greece, a country we can now all openly deride as clearly irresponsible, is already at 115% of GDP.

The problem with this little narrative is that it conveniently excludes all the off-balance-sheet obligations that governments routinely exclude to hide the severity of the current predicament.  The red bars in the chart below are the relatively tiny amounts with which we console ourselves, like in the article snippet above.  The gray bars include all official liabilities.

So even as we tut-tut over those profligate Greeks and their unserviceable debts, we'd do well to take this opportunity to note that most of the rest of the developed world is in similar straits.

As bad as that is, the even uglier reality is that the true debt situation of a country must include ALL debts public and private.  After all, those are the ones that the productive economy must service over time.  While we might wish to secure a better view of the situation by turning down the lights and squinting slightly before looking in the mirror, we do ourselves no favors by doing so.

For the US, the 'full light of day; eyes wide open' chart looks like this.

Where Greece now faces extraordinary austerity measures intended to reduce their budget deficit from 13.6% of GDP to 3% of GDP by 2012, nobody is talking about the fact that the US is going to run a 10% of GDP deficit this year to match its 13% deficit last year.  The UK budget deficit this year is pegged at some 12% of GDP.

Pot.  Kettle.  Black.

If the US or UK were 'asked' by the IMF to reduce their budget deficits by a full 10% over the next two years, each would spiral into a deep, dark depression and be crushed by increasingly unbearable debt loads.

Conclusion

The twin pillars of Keynesianism, official deficits and monetary inflation, are being tried on both sides of the pond, but they are not working as they have in the past.  Debt saturation has sapped the ability of either policy to work and, because of this lack of traction, you can be sure that additional financial crises lurk in the shadows ready to pounce.

The odd part in this story is how few people, especially finance professionals that should know better, seem to really understand and accept the idea that the game has fundamentally changed.

Anybody with a passing interest could calculate that debts cannot grow forever and that there would come a day when debt service costs would consume 100% of the productive output of the world.  On that day, the old game ends and a new game begins.

Where the old game was predicated on perpetual debt roll-overs and rapid economic growth, we now have ample evidence that these features can no longer be counted upon.  Yet many persist in acting as if they are 100% certain to return.

Prudent investors, managers, and policy-makers ought to be seriously considering the prospect that our economic landscape has been fundamentally altered.  What happens if, just like every other time in history, debt saturation leads to prolonged economic stagnation?  Worse, what happens if during our recovery it turns out that Peak Oil is real and we cannot rely on increasing energy throughput to work its magic and stimulate the growth necessary to service increasing interest payments?

Do we have the management skills to navigate this landscape?  Will we recognize the reality of the situation, or will we continue to apply band-aids until the entire mess simply breaks down in a manner that even an incumbent politician is forced to recognize?  Will blind adherence to preserving the status quo prevent us from seeing the obvious in time?

And here's where we get to gold.

This week saw gold break out to a new all-time high (although not in inflation-adjusted terms, which the mainstream media nearly always mentions, despite never running the same calculation for stocks):

I think gold is signaling a generalized loss of faith in fiat money and debt, as well as a lack of faith in recent attempts to 'fix' the debt problem.  Most of the buying pressure seems to be coming from the European continent, where people's memories include several recent destructive bouts of inflation.

More to the point, in Europe, gold is not frowned upon as a legitimate investment vehicle, like it is in so many quarters of the US.  If you step into a Swiss bank and ask to buy gold to store in a vault, the person serving you will nod knowingly and treat you to a solemn tour of their facilities. 

So I am quite closely following the situation with gold, now that 700 million Europeans have seemingly stepped into the buying mix with renewed interest.

Under what circumstances would I consider transitioning away from gold and silver as my preferred means of preserving my wealth?  I would want to see four things:

  1. A return of my home country, the US, to fiscal surpluses.
  2. Real interest rates that are attractive.  Right now I'd peg those at 5% on the short end and 8% on the long end, maybe higher.
  3. No more quantitative easing.  Period.  Monetary sanity is a must.
  4. Balance of trade returned to the global landscape.

As you can tell, it may be quite a while before I can finally unwind my gold trade.

Which means I am going to be giving remarkably boring advice for a long time.

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145 Comments

kikrlbs's picture
kikrlbs
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Re: The Financial Crisis is Far From Over

Great works as always Chris. Keep it up, I really, really, with a cherry on top appreciate all of it!

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Re: The Financial Crisis is Far From Over

Excellent article, Chris.  Keep them coming.  HIts the nail on the head!

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Re: The Financial Crisis is Far From Over

I was wondering where you were!  Now I know!  Just bought MORE Au and very happy I did!

Thanks!

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Re: The Financial Crisis is Far From Over

I wonder how muc longer this echo bubble will last..

From the Association of American Railroads: Rail Time Indicators. The AAR reports traffic in April 2010 was up 15.8% compared to April 2009 - although traffic was still 11.5% lower than in April 2008. So we have a bounce in rail traffic.

Im hoping at least another 18 months of this sluggish economic activity before things go nasty.

Here's what I see as a timeline and sequence of events;

Eurozone tanks, which hurts Asian exports, which hurts BRIC exports. Oil prices fall again as global demand gets tanked. That leaves the US with no true buyer of Treasury paper. Yields go up, and the funding crisis begins.

capesurvivor's picture
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Re: The Financial Crisis is Far From Over

Thanks, Chris,

I appreciate your ongoing perspectives.

SG

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Re: The Financial Crisis is Far From Over

I'm pretty conflicted about gold in the short term... if we get another bout of financial crises then that would typically mean severe deflation that is bad for all asset classes except cash ($). Of course the sovereign debt concerns that will inevitably spread west from Europe should be very good for a flight to safety/quality in gold. These two things seem like competing forces that will put opposite forces on the movement of gold prices, and that's why I'm conflicted. I am definitely not selling, but am hesitant to add right now.

Jeff Borsuk's picture
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Re: The Financial Crisis is Far From Over

...for boring advice it sure is exciting to watch gold go up like it should!

Thanks Chris!

Jeff

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Re: The Financial Crisis is Far From Over

What a great surprise to check out www.financialsense.com, and see your pictur eand this article right up top!  Congrats Chris!  Good to see you doing more public articles and reaching out to others!

-pinecarr 

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Re: The Financial Crisis is Far From Over

Super read. This thing is done/baked - stick a fork in it. Europeans seem pretty astute, physical gold and now silver is scarce over there.

Just wait until the folks holding gold certificates at the LBMA wake up one morning and decide they want allocated. 

ashvinp's picture
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Re: The Financial Crisis is Far From Over

Along the same lines of this artlcle, here is an amazing summary of all the problems coming up on our  collective horizons... http://theautomaticearth.blogspot.com/2010/05/may-12-2010-how-to-profit-...

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Re: The Financial Crisis is Far From Over

Banks had loaded up on Greek debt because it paid a higher rate of interest than other sovereign debt. It did so because it had a higher chance of default, so it was riskier. Now that it has defaulted, the cost of that mistake has been transferred to the citizens of various countries including as much as possibly $50 billion from US citizens.

It's your clear writing like this that I want to take to my representatives and say "Read this and explain what the heck we are doing".

BTW,  you say:

Loans default when a borrower misses an interest payment.

Can they also not default if they don't roll the debt over? And isn't that even a scarier scenario, since it means loss in the faith of that entire debt, not just the ability to service it?

JAG's picture
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Re: The Financial Crisis is Far From Over

cmartenson wrote:
  1. A return of my home country, the US, to fiscal surpluses.
  2. Real interest rates that are attractive. Right now I'd peg those at 5% on the short end and 8% on the long end, maybe higher.
  3. No more quantitative easing. Period. Monetary sanity is a must.
  4. Balance of trade returned to the global landscape.

It seems to me, that number 1 on that list, triggers a currency crisis all by itself. If the US were to try to instill some fiscal responsibility, via raising taxes and/or spending discipline, GDP would crash and our Debt/GDP ratio would soar, causing a crisis of confidence in the US bond market. Funny how that works? The real crisis doesn't unfold until the government acknowledges and addresses the problem.

We are damned if we do, and damned if we don't. 

Care to elaborate on #4 Doc? I'm not sure what you mean by "Balance of trade returned to the global landscape"

Thanks...Jeff

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Re: The Financial Crisis is Far From Over

Chris,

You are not boring.

You simply state the brutal truth....

Keep telling it the way you see it!

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Re: The Financial Crisis is Far From Over

ashvinp wrote:

I'm pretty conflicted about gold in the short term... if we get another bout of financial crises then that would typically mean severe deflation that is bad for all asset classes except cash ($). Of course the sovereign debt concerns that will inevitably spread west from Europe should be very good for a flight to safety/quality in gold. These two things seem like competing forces that will put opposite forces on the movement of gold prices, and that's why I'm conflicted. I am definitely not selling, but am hesitant to add right now.

IMO, we have to consider that in the minds of a lot of people, gold is now cash, a mini gold standard if you will... Gold has surely started to act strangely as a commodity, but as a currency... so unexpectedly it might well benefit from the next crash.

Samuel

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Yeah, but what's the end game?

Chris,

Great read as always. And you know I'll always be a huge fan.

But honestly, I think it's time to move beyond this analysis and start to consider the potential conclusions to this mess. Everything you say here is spot on. But it's also (as you acknowledge yourself in the first paragraph) old news to everyone who's been following your writing for a while.

So we know the U.S. will hit a fiscal crisis, possible "sudden stop", and probably a monetary crisis/collapse. That's been covered in great detail in your many previous writings. But what happens then?

It seems to me that the key should be to look at history and see what has happened in the past when a nation that has unquestioned military supremacy spends itself into bankruptcy. One argument is that as soon as things get bad enough and quality of life is diminished to the point that people are desperate enough to lose their morals, a Hitler like character emerges and that nation goes on a quest to simply take the wealth it needs from others and kill everyone in the way.

A counter-argument could be that the Soviet Union was the only other nuclear super-power in the history of the world, and when it spent itself into bankruptcy it just collapsed and went out of business. So by that logic one could project a sovereign breakup (even today IMHO California and Texas have very little to gain by staying in the U.S.) But on the other hand, when the Soviet Union went broke, it still faced an even better-armed adversary (the U.S.). When the U.S. goes broke and foreigners stop lending money to continue the charade, the U.S. will have the option to say "Keep buying U.S. treasuries or we're gonna nuke you out of existence". The only thing preventing that right now (in my opinion) is the morality of the citizens. That will change if economic circumstances become dire enough.

I know that this particular piece is appearing in the public blog and on FinancialSense, so I think it is perfectly written for its intended audience of relative newcomers to your work. But I hope that over in the subscriber area you'll write about potential outcomes after the financial collapse. Those of us who have followed your work for a long time are already bought in to the idea that the U.S. is headed for economic collapse unless things change that are unlikely to change. It's what happens after the collapse that worries me the most.

Best,

Erik

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Re: The Financial Crisis is Far From Over

bearmarkettrader wrote:

I wonder how muc longer this echo bubble will last..

From the Association of American Railroads: Rail Time Indicators. The AAR reports traffic in April 2010 was up 15.8% compared to April 2009 - although traffic was still 11.5% lower than in April 2008. So we have a bounce in rail traffic.

Im hoping at least another 18 months of this sluggish economic activity before things go nasty.

Here's what I see as a timeline and sequence of events;

Eurozone tanks, which hurts Asian exports, which hurts BRIC exports. Oil prices fall again as global demand gets tanked. That leaves the US with no true buyer of Treasury paper. Yields go up, and the funding crisis begins.

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Re: The Financial Crisis is Far From Over

Here's what I see as a timeline and sequence of events;

Eurozone tanks, which hurts Asian exports, which hurts BRIC exports. Oil prices fall again as global demand gets tanked. That leaves the US with no true buyer of Treasury paper. Yields go up, and the funding crisis begins.

[/quote

The question is did you mean to use the "tanks" as a verb or a noun?  ;-)

Subprime JD's picture
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Re: The Financial Crisis is Far From Over

Tanks as in verb, economic troubles. Im not that pessimistic, at least not yet.

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Re: The Financial Crisis is Far From Over

cmartenson wrote:

As you can tell, it may be quite a while before I can finally unwind my gold trade.

Which means I am going to be giving remarkably boring advice for a long time.

I will be honest and say that "boring" is perfect for me. I never had any confidence in investing money anywhere, but did not understand why. Now I do. If we can call buying gold an "investment", well, it's the first time I feel that such a move feels correct. (Besides, it sends a strong message to our leaders. We'll see if they listen.) Furthermore, I am glad to hear from you and other people that at least make any sense to me (I was seriously having doubts about my sanity until recently), that it's probably the best thing to do at this point in time. Leaves my mind free to think about other things, no boredom... :)

Samuel

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Re: The Financial Crisis is Far From Over

Respected bullion dealer Kronwitter in Germany has actually closed it's website for a few days. All there is posted now, is a message that, due to "the enormous amount of orders" they won't take any new orders at all. Another well known German dealer, Proaurum, literally doesn't have a single gold or silver item available. They are completely sold out. I've never seen this before. Gold and silver at getting scarce over here.

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Re: The Financial Crisis is Far From Over

Erik wrote:
  Those of us who have followed your work for a long time are already bought in to the idea that the U.S. is headed for economic collapse unless things change that are unlikely to change. It's what happens after the collapse that worries me the most.

Best,

Erik

Agreed.  And trying to anticipate the various "likely" (?!) scenarios, and plan accordingly, is daunting.  Especially with the knowledge that the potential outcome scenarios vary widely, and a satisfactory approach to preparing for one (e.g., "simple" economic hardship => plant gardens, raise chickens and goats, etc.) may be totally inadequate in preparing for another (hard crash, social chaos and anarchy => ???).  I think building community is an excellent idea, and the most positive solution to strive for.  But I personally feel reality may not be so civilized in the scenario it dishes out...

This all while balancing a "normal" life in the meantime!

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Re: The Financial Crisis is Far From Over

Thank you, Dr. M., for the article.  I appreciate the "boring" advice because at times I start to lose my nerve and am tempted to sink back into the blissful haze of ignorance for which I pine at times.  

Why does it look like you will be holding onto your PMs for a long time if the system is ready to blow?  Some people are saying that a crash could happen in an instant and the whole ponzi paper money game would be gone.  Print, print, print, and then POOF!  Do you think the DTDT (Donkeys That Decide Things) have a plan now or are working on one in case that happens and that they would get another money system up and running in a few months?  How long could we barter and freak out and hoard things without some "official arrangement" materializing?

To me, it seems like we already have a one world currency since all the countries are forced to bail out Greece and that we just have different names for it.  They are all pretty close in value give or take a few cents up or down and they are all getting hacked up into little pieces.  It's not like 1 buck is worth 50 euros or something like that.  So, they will set up another system and it will take a while for confidence to develop but then we will trade in our PMs for it.  It might not take that long.  (I know this is very simplistic and I hope all the financial people on here don't totally hammer me!)

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Re: The Financial Crisis is Far From Over

There are several examples of powerful military nations spending themselves into bankruptcy.    Rome (debasement) and Spain (multiple defaults) come to mind.

I see many (potential) parallels to Rome with currency debasement and a reluctance of (decent) people to enter politics, but we don't have barbarians at the gate (or maybe we do with Islamic Fascists!).    I find Spain fascinating because it too had an innate belief it was a "chosen" nation, favored by God, worldwide military empire, exported all its internal industry to other countries (like England -- that rising mercantile power).

Sound familiar?

In the long-term, I'm hopeful for the US.    I don't see a breakup.    Land-attack by other countries is not a threat.   Sea attack is virtually impossible.   It's possible, even likely there will be spots of internal conflict at the height, but I see them more as local riots than revolution. 

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Re: Yeah, but what's the end game?

Erik,

I think you already know the two options, neither of which is under control of the hoi polloi. First, the U.S. decides to take what we need..oil, food, etc., and/or remove the  WMD threat from Iran, diverting our citizens to war number three for a while.

The second option is Argentina a la Ferfal...we crunch along with saw-tooth graph structural problems...we lose the grid occasionally and electric rates go up, there is food at much higher prices, gas and oil are available for $$$, crime is up and daily life becomes stressful and exciting, sophisticated medical care gets dicey, infrastructure continues to degrade, public services become spotty, and life generally degrades for the non-wealthy into coping with uncertainty and diminished resources. Greece is showing us the future, similar to Argentina. I suspect that such real-life examples of complex modern developed countries failing are better models for collapse than ancient empires.

How uncivil do people get with 300 milion firearms.? No one knows.

SG

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Re: The Financial Crisis is Far From Over

I think ultimately it'll boil down to who goes off the cliff first. If Mr. Thurston Howell, III is wrong, and China implodes I think the ratio of masses:leaders will avert a nuclear Holocaust. If the Third is right I think it could be a mess because of the oil demand they will impose.

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Re: The Financial Crisis is Far From Over

Thanks Chris for another "nail biter"!  The word "consistent" comes to mind much more so than "boring"!!  I'll leave the boring category for the "status quo" viewpoint ........ and that really is boring.

I will be able to use some of your comments tonight during our Groveland Crash Course discussion period as we begin a new CC series of "The World through the Chris Martenson lens". 

Coop

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Re: The Financial Crisis is Far From Over

Erik

I agree with capesurvivor (post 24), the best picture we are likely to get is from the book Surviving The Ecomonic Collapse by Fernando "Ferfal" Aguirre.  He lived through the currency collapse of Argentian that started in 2001 and the effects continue to this day.  Pardon me if this is widely known at this site, but I'm new here and can't read all the old post.s

http://www.amazon.com/Modern-Survival-Manual-Surviving-Economic/dp/98705...

He also has a web site.   http://cluborlov.blogspot.com/2009/02/social-collapse-best-practices.html

You should also check out Dmitry Orlov who lived through the collapse of the Soviet Union and has detailed the results.  He is widely cited on Google, but here is a good start.

http://www.energybulletin.net/node/47157

http://cluborlov.blogspot.com/2009/02/social-collapse-best-practices.html

I too would like to know Chris' thoughts about how this plays out longer term, but I find his current comments invaluable in guiding us through events as they occur.  It is challenging on a site like this to balance the needs of old and new members.  However, I agree that more thoughts about what comes later would be helpful

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Re: The Financial Crisis is Far From Over

Hi Travlin,

Yes, I'm familiar with both Orlov and Aguirre, and I also have some reasonably well developed opinions of my own on the subject. However, I find that Chris has a superhuman ability to connect the dots and distill a message in a way that really makes sense.

I agree completely that the primary focus should remain on exactly the level that this post was written - to appeal to those not yet acquainted with Chris' work. But for those of us who have been following it for years (I'm just coming up on 2 years myself), I think there's a lot of interest on Chris' take on those subjects we've already read Orlov and Aguirre's views on.

In particular, Orlov has written primarily about what the Soviet collapse was like, and Aguirre has similarly written about Argentina. But frankly, the U.S. is a whole different enchilada. The dynamics are completely different and a different outcome should be expected because although the U.S. has fiscal problems just as big as those countries had, it also has a fully capable military whose power is unmatched. To me that spells a very different outcome and I'd be particularly keen to read a piece by Chris laying out the range of possibilities and, in particular, signs to watch for that will help predict what direction this will take.

Best,

Erik

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Re: The Financial Crisis is Far From Over

I agree with you Erik on this. Guns and the Military are game changers for the U.S. People get angry when they are hungry. I am hoping that they all go to the FEMA camps.LOL! People that talk about community are I think most right in their thoughts of surviving this is key. I too would like to hear what Chris has to say.

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Re: Yeah, but what's the end game?

capesurvivor wrote:

How uncivil do people get with 300 milion firearms.? No one knows.

SG

Let's hope the old saying that 'An armed society is a polite society' is true.  If so, it should be really polite in the US in coming years.

Tim

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Re: Yeah, but what's the end game?

Tim_P wrote:
Let's hope the old saying that 'An armed society is a polite society' is true.  If so, it should be really polite in the US in coming years.

I actually think it will be safer than it would be without the gun owners.  After all, most people who own guns do so because they care about their own safety or hunt and know that they may have to handle issues on their own.  Many of those will be the same people who are prepared for disasters or at least understand the government or public services may not always be available.    But I suspect we are going to find out and then you will get your answer since we have countries  with and without gun ownership to compare when TSHTF.

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sofistek
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Posts: 637
Re: The Financial Crisis is Far From Over

Chris,

You talk about buying gold to preserve wealth but it's done a lot more than that, since you started to give this boring advice. Your wealth will have quadrupled (before adjusting for inflation). How is that "preservation"? Do you see the future as one of survival or as business as usual, where preserving one's wealth is a way to keep enjoying the same standard of living?

Surely, there must be a better way to invest in our own futures than simply quadrupling our personal worth, as measured in monetary terms? Invest in hand tools, manual skill sets, a property better able to support you, and so on. Why are you fixated on treading water in terms of wealth (even though your advice has a very different effect)?

When do you start on your declared new tack of preparing for a very different future?

Tony

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Doug
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Posts: 2745
Re: The Financial Crisis is Far From Over

My guess is that the US gov't's first priority, in the event oil nations start restricting our supplies in a militant way, is to secure sources and supply lines of oil.  I think the US military is quite capable of doing that, but the long term consequences could be self defeating.  And, once peak oil becomes clear to the public, concerns about environmental consequences will be seen as antiquated silly notions, and we will drill everywhere all the time.  Sarah Palin's  and Dick Cheney's dreams will come true.

Doug

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mr008d
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Re: The Financial Crisis is Far From Over

I seem to be missing the egyptian/pirate/Scrooge McDuck gene that gets people excited to horde gold. I am honestly not interested in hording anything. But I agree with Chris that paper is doomed. So my question is, what physical assets besides gold/silver can I get into that others haven't piled into already? I am interested in things that are useful for reasons other than being shiny. Does anyone here buy copper? (I know the penny is now worth 2 cents in melt value and you can buy copper bullion on ebay) What about things that are not traded as ETFs and therefore do not have big speculative bets on them already. I have heard there are some metals (I think tungsten was one) where there aren't a lot futures contracts on them. What about lithium? I read that there is not enough to power a new world fleet of electric vehicles.

If things fall apart as we all see them doing. I simply do not see everyone in modern times agreeing that whoever digs up the most yellow metal is the country that is the new world superpower. It seems to me things like land and energy will be far more valuable than soft, yellow metal.

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Travlin
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Re: The Financial Crisis is Far From Over

Erik T. wrote:

I agree completely that the primary focus should remain on exactly the level that this post was written - to appeal to those not yet acquainted with Chris' work. But for those of us who have been following it for years (I'm just coming up on 2 years myself), I think there's a lot of interest on Chris' take on those subjects we've already read Orlov and Aguirre's views on.

Hi Erik

I appreciate your reply.  You make a good point about moving to the next level of discussion, particularly for older members.  Since I have a wife and two kids I tend to focus on the personal level.   You seem to be looking for Chris’ thoughts about the big picture of geo-political-military affairs.  That’s a huge subject, and I sure don’t know what’s coming.

I’ve studied world military history from ancient times to the present.  In the late 1970s I became aware of the US military’s plans to become a high-tech force that could use the “automated battlefield” any place in the world to support our economic dominance.  By the 1980s we had some kind of military mission established in nearly every country in the world of any size.  I was still surprised recently to learn that the US military budget is greater than all the rest of the world’s combined.  So much for the “peace dividend” from the fall of the Soviet Union.  Since we aren’t likely to be invaded by Canada, or Mexico (not by their army anyway), the only justification for that kind of spending is to be able to guarantee access to  dwindling resources in a “last man standing” scenario.  I’m half way through ­Rising Powers, Shrinking Planet, by Michael Klare and there are many other books that cover this topic if you are not already familiar with them.

My only firm conclusion is that this force will be used if needed to secure resources, and since wars never go as planned it will get very ugly and go on much longer than anyone expects.  But anyone who has followed the news the last nine years knows that.  I think it is likely that the military option could come before economic collapse to try to stave it off.  That would be a delicate balancing act.  If it scares the rest of the world, they sell dollars and we just assured our collapse.  On the other hand, the world might see this as making the US economy the last refuge for investments.

On the economic crises and ramifications I’m late to the game.  As I am rushing to research this I feel events are moving faster than me (Greece, the euro) and I’ll have to make decisions before I understand things as much as I need to.  What is truly scary though is how most people don’t even know what’s happening.  I’m getting the impression that more of them are feeling a deepening unease.  To quote Bob Dylan, “You know that something’s happening, but you don’t know what it is.  Do you Mr. Jones?”

This site and the forums have been a big help and I appreciate everyone’s efforts and thoughts.

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Re: The Financial Crisis is Far From Over

Chris,

This may be a dumb question, but accepted “wisdom” seems to be that federal debt reaching 140% of GDP is a disaster. OK, but if actual debt to GDP is around 900% right now (I deleted household and business) how does this illusion keep going? I mean if 140 is seriously bad mojo, I would think 200 would be nothing but wreckage. And 900 wouldn’t even be wreckage, just ashes. Why are things still “standing” at all, as it were?

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fju07
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Re: The Financial Crisis is Far From Over

Joelandsonia said "It's possible, even likely there will be spots of internal conflict at the height, but I see them more as local riots than revolution".

The key word is local here! As global systems disintegrate and cause and effect come full circle, the train comes to a grinding halt and all must disembark. It will most likely cause nations to turn inward and erect old physical and virtual barriers again like we had them since time memorial. The ever expanding array of security measures and punitive restrictions on both US and non-US citizens traveling to the USA, for better or worse are a perfect example in case. However, this does not exclude the possibility that nations used to having their way and living the .... dream, may well find themselves forced, if only through the view of their leaders, to take expansionistic action in order to maintain what is effectively a bankrupt way of life. 

Fact is that what you can access from within your immediate vicinity will carry the day. A good example is Marqt, a supermarket in Amsterdam where: " my grandmother can understand what's written on the labels, no product is obtained from further then 24 hours transport away and the (growth) seasons define your choice to a large extend.

Winston Churchill had it right when he mentioned that mankind needs a good war every 50 years or so. We just do not seem to learn any other way and force ourselves back to a local level time and again, whether we like it or not.

With kind regards,

FJ

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guardia
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Re: The Financial Crisis is Far From Over

rev29 wrote:

Chris,

This may be a dumb question, but accepted “wisdom” seems to be that federal debt reaching 140% of GDP is a disaster. OK, but if actual debt to GDP is around 900% right now (I deleted household and business) how does this illusion keep going? I mean if 140 is seriously bad mojo, I would think 200 would be nothing but wreckage. And 900 wouldn’t even be wreckage, just ashes. Why are things still “standing” at all, as it were?

The way I see it is that people are kept intentionally in the dark. See the "Fuzzy Numbers" chapter of the Crash Course. If you don't know something bad is happening, how can you be angry about it? You have less money, less jobs and stuff, but you just say to yourself "That's just how things are" and move on, just like a dog that survives after being hit by a car

Samuel

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Erik T.
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Ask and you shall receive! - I LOVE THIS SITE!

Erik T. wrote:

Chris,

Great read as always. And you know I'll always be a huge fan.

But honestly, I think it's time to move beyond this analysis and start to consider the potential conclusions to this mess. Everything you say here is spot on. But it's also (as you acknowledge yourself in the first paragraph) old news to everyone who's been following your writing for a while.

...

I know that this particular piece is appearing in the public blog and on FinancialSense, so I think it is perfectly written for its intended audience of relative newcomers to your work. But I hope that over in the subscriber area you'll write about potential outcomes after the financial collapse. Those of us who have followed your work for a long time are already bought in to the idea that the U.S. is headed for economic collapse unless things change that are unlikely to change. It's what happens after the collapse that worries me the most.

I wrote that hoping to inspire Chris to expand his scope and start writing more about potential outcomes in the enrolled member area in coming months.

Not months, not weeks, not days, but hours later, Chris penned an absolutely outstanding piece - arguably more complete than this one - on the Martenson Insider (the premium blog for enrolled members), addressing exactly the scenarios I queried about. Wow, Chris. Just Wow!

You guys who are not yet enrolled members have no idea what you're missing. I just love this site!

Erik

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V
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Re: The Financial Crisis is Far From Over

You can subscribe or you can go to the essential book page on this site and start with "The Long Emergency" Then sahshay over to some Richard Heinberg. Or wander off site and read some Paul Erhlich, Urban Survival, Half Past Human, Survival Blog etc. etc.

Or better yet pull up a chair and grab a beverage of choice and watch it unfold on the MSM.

V

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M.E.
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Re: Ask and you shall receive! - I LOVE THIS SITE!

Erik T. wrote:

I wrote that hoping to inspire Chris to expand his scope and start writing more about potential outcomes in the enrolled member area in coming months.

Not months, not weeks, not days, but hours later, Chris penned an absolutely outstanding piece - arguably more complete than this one - on the Martenson Insider (the premium blog for enrolled members), addressing exactly the scenarios I queried about. Wow, Chris. Just Wow!

You guys who are not yet enrolled members have no idea what you're missing. I just love this site!

Erik

CRAP!  I can't take it any longer!  After watching the CC last summer, I enrolled for 3 months.  It was totally worth it and I was contributing to a great cause.  I'm headed back over to the enrolled side . . .

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Erik T.
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Posts: 1232
Re: The Financial Crisis is Far From Over

Welcome back Mary Ellen!

Be sure to check out Chris' latest Insider post about the topic discussed above, but don't stop there! The last couple of months have featured some fantastic Martenson Reports and Insider blog posts. And a lot of the stuff on the Insider is still just as valid today as when it was written.

My advice to anyone signing up for enrolled membership: Take the time to get your money's worth by going back and reading all the great "paid content" from the last few months. It's a lot of reading and will take some time, but it's well worth it.

Also, don't just read Chris' writing alone. In the Insider posts in particular, I strongly recommend reading all the comments in addition to the main article. Two reasons: First, the enrolled member community tends to be more serious about this stuff. No offense to the free community - it's just that those of us who really dig into this stuff tend to have our "substantive discussions" over in the paid area because everyone there is pretty serious about the subject matter. The result is far fewer newbie questions and a lot more substantive posts. Second (more important) reason is Chris' participation. For the most part, the comments under the articles and the forum posts are just for us in the reader community. Chris very seldom comments himself in the free forums or in comment threads like this one unless he really has something to say. But over in the enrolled area, if someone asks a question that wasn't covered in the original article, Chris often gets involved in the discussion himself, often posting graphs, charts, etc. It's a night and day difference, IMHO.

Anyway, welcome back and glad to have you again.

Erik

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idoctor
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Posts: 1731
Re: The Financial Crisis is Far From Over

Chris & this website are what pushed me into stocking up on idems plus buying Gold & Silver. Look how this has helped right now. The last few days have really been worth some of the ideas I have seen. Nice place to hang out LOL.

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Doug
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Posts: 2745
Re: The Financial Crisis is Far From Over

I echo Erik T's comments.  The Insider forum is my go-to place for keeping up with the unfolding disaster, otherwise known as our economy.  I don't comment over there much because the people who do post there are ahead of me in their understanding and sophistication of economic issues and markets (I flatter myself in thinking that I'm catching up).  I don't have a whole lot of time for reading.  So the paid area helps me focus on the important discussions and to avoid  others that may be interesting, but not necessary.

Doug

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guardia
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Posts: 592
Re: The Financial Crisis is Far From Over

Doug wrote:

I echo Erik T's comments.  The Insider forum is my go-to place for keeping up with the unfolding disaster, otherwise known as our economy.  I don't comment over there much because the people who do post there are ahead of me in their understanding and sophistication of economic issues and markets (I flatter myself in thinking that I'm catching up).  I don't have a whole lot of time for reading.  So the paid area helps me focus on the important discussions and to avoid  others that may be interesting, but not necessary.

I understand how you feel... I wish I had something substantive to add to discussions as well, but for some reason the subject of engineering or software development never comes up :)

Anyway, it's good education for me too, and the posts are always making plenty of sense to me. It's quite the opposite of any other site/school/workplace I've been to...

Samuel

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SagerXX
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Posts: 2115
Re: The Financial Crisis is Far From Over

idoctor wrote:

Chris & this website are what pushed me into stocking up on idems plus buying Gold & Silver. 

Apart from the awesome info/discussions over on the subscriber side, I must say that my subscription has more or less paid for itself -- the steps I've taken thanks to CM and all the other good folks have saved me and my family much more money than the sub costs.  

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M.E.
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Posts: 81
Re: The Financial Crisis is Far From Over

Erik T. wrote:
My advice to anyone signing up for enrolled membership: Take the time to get your money's worth by going back and reading all the great "paid content" from the last few months. It's a lot of reading and will take some time, but it's well worth it.

Exactly as billed.  The parts I missed the most when I was an Outsider were Dr. M's comments and answers to questions.   Come on, Romans12.2, JUMP!  It's totally worth it.  Laughing

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sofistek
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Posts: 637
Re: The Financial Crisis Is Far From Over (so gamble in gold)

Wow, this seems to have turned into an financial advice site, where you can find out how to make the most money from making the right bets. Just like the big boys.

Chris rarely joins in on these forum discussions, unfortunately (I don't live in the US and so many of the paid for articles are of limited use to me, so I'm not an enrolled member), but I'd sure like to know why he wants to preserve wealth and why quadrupling wealth (given that gold is four times its value when he started advising people to by it) is a good thing,especially through gambling (with more to come, apparently).

With his spot on analyses of our PREDICAMENT, I would have thought he'd be concentrating on adaptation strategies, by now, instead of trying to make more hay, while the sun shines. Indeed, I thought that was his stated direction, at the start of the year. I'm still waiting for the change.

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Romans12.2
Status: Silver Member (Offline)
Joined: Jul 14 2009
Posts: 227
Re: The Financial Crisis Is Far From Over

Mary Ellen....I'm convinced.  Today is my 16th wedding anniversary, and since my husband only bought me gold coinsSmileand not any jewelry....
I'm gonna treat myself to some insider knowledge.  I'm riding in the RV right now on my way up to look at farmland for our plan B...so I'll have to wait until Sunday.

I just hope the world does not end before then

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LogansRun
Status: Diamond Member (Offline)
Joined: Mar 18 2009
Posts: 1369
Re: The Financial Crisis Is Far From Over (so gamble in ...

Huh?  So, trying to keep what you have by buying Gold is BAD?  Embarassed

sofistek wrote:

Wow, this seems to have turned into an financial advice site, where you can find out how to make the most money from making the right bets. Just like the big boys.

Chris rarely joins in on these forum discussions, unfortunately (I don't live in the US and so many of the paid for articles are of limited use to me, so I'm not an enrolled member), but I'd sure like to know why he wants to preserve wealth and why quadrupling wealth (given that gold is four times its value when he started advising people to by it) is a good thing,especially through gambling (with more to come, apparently).

With his spot on analyses of our PREDICAMENT, I would have thought he'd be concentrating on adaptation strategies, by now, instead of trying to make more hay, while the sun shines. Indeed, I thought that was his stated direction, at the start of the year. I'm still waiting for the change.

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