Straight Talk

Straight Talk with John Rubino: The Damage Is Already Done

Tuesday, March 22, 2011, 2:01 PM

"Straight Talk" features thinking from notable minds that the PeakProsperity.com audience has indicated it wants to learn more about. Readers submit the questions they want addressed and our guests take their best crack at answering. The comments and opinions expressed by our guests are their own.

This week's Straight Talk contributor is John Rubino, publisher of DollarCollapse.com, a popular hub for news impacting the economy. John is the author of several well-received books foretelling (years in advance) the collapse of the housing market and the decline of the US dollar. Before starting his website, John was a featured columnist with theStreet.com, Individual Investor, and a number of other influential financial publications. His perspective on Wall Street and the currency markets is shaped by his past roles as a Eurodollar trader, equity analyst and junk bond analyst in the 1980s.


1. Several times, you’ve published prescient forecasts when it mattered. For example, you and James Turk published The Coming Collapse of the Dollar and How to Profit From It in 2004 – about a year and half before the US Dollar Index dropped from 90 to nearly 70. Similarly, How to Profit From the Coming Real Estate Bust was released in 2003. What led you to accurately predict these major market moves so far in advance?

I’ve been involved, one way or another, with financial bubbles for most of my life. Back in the late 1970s I picked up a book by Harry Brown, a Libertarian philosopher who, it turned out, was also a gold bug investment advisor. So I got interested in precious metals and watched with interest as they soared in that decade’s monetary crisis and then crashed in the early 1980s.  

After grad school in the mid-1980s I went to Wall Street as an equity analyst, but when junk bonds got hot -- and demand for junk bond analysts exploded -- I switched sides. Just in time for the junk bubble to burst. In the 1990s I became a tech stock columnist with TheStreet.com and spent the next few years covering the dot-coms as they soared and then crashed.  

So by 2003 bubble dynamics were pretty familiar and it was clear that housing had all the classic traits: prices through the roof, regular people making fortunes doing things like flipping condos that even pros used to find difficult, and tried-and-true business practices being tossed overboard in favor of “innovations” like option-ARMs that were really cons designed to increase deal flow.

So pointing this out in a book (How to Profit From the Coming Real Estate Bust) was easy. But in the course of the research it became clear that what had seemed like a series of unrelated bubbles were really part of a meta-bubble resulting from the Federal Reserve’s ability to create as many new dollars as it wanted. That privilege was being abused big-time, and this “dollar bubble” had inflated asset prices around the world and led governments, businesses, and individuals to take on absolutely insane amounts of debt. Hot money was pouring into one asset class after another, with housing being just the latest and biggest. The process had to end badly, either with the US and other developed economies collapsing under the weight of all their debt, or the Fed and the other central banks printing their currencies into oblivion.

The upside of this admittedly apocalyptic vision was that traditional forms of money like gold and silver would go through the roof once everyone figured out that the dollar was being inflated away. In 2004 gold was about $400 an ounce and silver was under $10, so we were looking at a once-in-a lifetime opportunity for investors able to see past the conventional boom-time wisdom.

I had interviewed GoldMoney’s James Turk for a couple of magazine articles and found that he lived up to his reputation as both a good guy and a deep thinker on money and precious metals. He and I decided to write a book on gold, which gradually expanded into a critique of the whole concept of fiat currency (The Coming Collapse of the Dollar…). We’re both very proud of how it turned out because the analysis proved to be correct, and the investment advice -- go long precious metals and short the banks and homebuilders -- made anyone who followed it very rich in just a few years.

2. How would you summarize your fundamental thesis for our current economic plight and its likely outcome?

In a sentence: Fiat currencies always fail. If you put a printing press in the hands of politicians and bankers, you guarantee that the power will be abused until the currency is destroyed. The destruction takes the form of rising asset prices and deceptively low interest rates which lead businesses to over-borrow for new factories (malinvestment in economist-speak) and consumers to borrow rather than save. The result is an increasingly overindebted society that can only be kept going with ever-larger amounts of new debt. The central bank finds itself in a “print or die” situation in which the two remaining outcomes are deflationary depression or hyperinflation. That’s where the US, Europe and Japan are now.

3. At this point in the timeline, how much of your predicted collapse of the dollar has come to pass? From your recent writings, it seems you still expect it to weaken further. If so, why, and how much lower do you expect it to fall?

As Voltaire said, “Paper money eventually returns to its intrinsic value -- zero”. The US seems to have very predictably chosen to try to inflate its way out of all the debt it has taken on. That means massive deficits and low short-term interest rates as far as the eye can see, with the dollar’s value an afterthought. So the process will continue as long as the global financial system is willing to accept dollars and dollar-denominated debt.

But once investors and central banks realize they’re being scammed and demand a much higher rate for US Treasury bonds, we’ll enter the final stage of the process, in which the Fed buys ALL the bonds issued by Treasury directly. Or perhaps we’ll simply print the money the government spends, with no borrowing needed. At that point, no sane person will want to hold dollars and we’ll see a wholesale flight out of the currency and into pretty much any real asset. We’ll define this as inflation but it will really be the total loss of confidence in the currency.

The process might not be linear though. It’s easy to see interest rates spiking in response to rising inflation, which would have a horrendous impact on the interest costs of consumers with adjustable rate mortgages and credit cards, and governments like the US that have to roll over a lot of short-term debt. This could cause the financial markets to freeze up, sending us back into a 2008-style financial crash. So for a while it might appear that deflation is winning out after all.

The world’s central banks would of course respond to another financial crisis with even more printing. And since their ability to create new currency is infinite, they’ll just pick a number deemed to be big enough to do the trick, click “send”, and the banks or consumers or whoever will find themselves with nice liquid accounts once again. And the currency debasement game will go on until its inevitable conclusion.

4. What are your thoughts on Peak Oil, and what contributing role (if any) do you see it playing in the economic collapse you foresee?

The world is definitely running out of cheap oil, so its price will tend to be higher going forward. This is a drag on energy-dependent economies like the US, and a potential geopolitical nightmare, as we send more and more money to some of the world’s most dangerous dictators. And turmoil in the Middle East could cause another oil shock that might be seen as the catalyst for a global financial crisis.

But Peak Oil isn’t necessary to the dollar collapse thesis. Even if oil was $10 a barrel the US would still be borrowing and printing too much currency, which would lead to a financial catastrophe eventually.

5. You spent the 1980s and ‘90s working on Wall Street as a eurodollar trader and equity/bond analyst. What are the safe havens you recommend for investors trying to protect against the collapse you’ve been warning about?

Precious metals of course, because gold and silver are time-tested forms of money that governments can’t create out of thin air. As fictitious paper currencies flood the world, the imbalance between paper and metal will continue to grow, which will send the paper currency prices of gold and silver much higher. The key thing to understand about this process is that gold and silver aren’t becoming more valuable; they’re just holding their value as paper declines.

Other real assets like oil and farmland will do well in this kind of scenario. And the least-badly managed fiat currencies will go up versus the dollar. I’m not crazy about the currency diversification idea though, because the Canadian dollar and Swiss franc are still fiat currencies subject to the whims of whoever gets elected. So eventually they’re doomed too, which means owning them just delays the day of reckoning. You lose more slowly than with the dollar but you still lose. 

Foreign real estate is tricky but potentially a good way to protect against a dollar crisis. Much of Latin America and Asia have avoided the debt bubble of the past decade, so they’ll weather the storm pretty well. The problem is that real estate is illiquid and foreign real estate is a far away, so buyers should approach this asset class with extreme caution, hiring professional help and paying attention to local laws and customs.  

6. You’ve lamented that through quantitative easing, the Fed is flooding markets with liquidity - causing nearly all asset classes to rise in tandem, making historic correlations irrelevant. Elaborate on your recent statement that in such a dysfunctional system, the short side is the place to be.

That’s more of a year-ahead recommendation than a blanket statement about investing in inflationary periods. If all prices are rising because of monetary debasement, equities might go up in nominal terms while declining in real terms. So shorting them is a losing bet. That’s what happened in the past year, as newly printed dollars flooded the world and pushed up pretty much everything, including US stocks.

But this is not a sign of a healthy recovery -- it’s actually a sign of growing instability. Austrian economists call this a “crack-up boom” in which excess liquidity flows into assets of all kinds and produces a manic market that ends the way you’d expect, with overinflated assets hitting air pockets and dropping by 50%  - 90% in a matter of months.

I think we’re heading for something like this, where a catalyst -- trouble in the Middle East, an oil shock, soaring food prices, a failed state (US or Europe) debt default, whatever -- flips the sentiment switch from optimistic to pessimistic and everyone heads for the exits at the same time. For a year everything that went up goes back down. Gold and silver might still outperform in this scenario because they’re safe havens. But not much else will be spared: developing and developed world equities, real estate, you name it, they should all be great shorts. I’m ‘talking my book” here by the way. I’ve been accumulating short positions for a while now, though I wish I’d waited a few months before starting!

7. Since your days on Wall Street, you’ve founded the website DollarCollapse.com, which serves as a popular “hub” for the better articles published in the econoblogosphere. What are your goals for the site?

DollarCollapse basically contains the articles I read -- or would read if I had the time -- and my hope is that it will continue to serve the same purpose for like-minded people. Its tag line is “Your ringside seat for the global financial crisis,” and that’s the goal.

8. You now live far away from Manhattan, in a much more remote, agrarian part of the country. Was moving to a more self-sustaining locale a conscious choice given your vision of the coming collapse? What (if any) lifestyle changes do you advise individuals adopt today in preparation?

We moved to Moscow, Idaho from the east coast a few years ago, but it was more about outdoor culture -- you can bike all day on country roads and practically live on your boat out here -- and about having a great place to raise our two sons. Because it’s a college town, you can’t throw a rock without hitting a PhD, so there’s more intellectual stimulation than you’d expect from a small Idaho town.

But it has also turned out to be a good place to be during crazy times. We’re surrounded by farms, so the local economy benefits from the kind of food inflation that accompanies currency debasement. And there’s the whole western ethos of self sufficiency and self defense. An amazing number of our friends have gardens, raise chickens and own multiple guns.

This isn’t a frivolous point. Great Depression-scale financial crises tend to bring all kinds of political and social turmoil, and Americans can’t necessarily count on “society” taking care of us in the worst-case scenario. So the lifestyle equivalents of buying gold and foreign real estate are probably a good idea. These would include holding some precious metals in a safe, accessible place, having some emergency supplies on hand, and generally becoming more self-sufficient. And scaling back your expenses now, before the economy insists.

9. There is no shortage of criticism for the mess we find ourselves in. Far more scarce but much more important are solutions.  How does the world restore fiscal “soundness” and what needs to be done to set the stage for a rebirth?

The sad truth is that there’s no fix for the mess we’ve created -- at least nothing on the menu of politically feasible options. The vast majority of the politicians and voters in the US, Europe and Japan don’t yet understand what’s coming. The US left thinks that raising marginal tax rates will let us keep expanding the welfare state ad infinitum, while the right thinks that whatever we have to spend on our global military empire is worth it. Neither sees the edge of the cliff that’s approaching, so neither is willing to make the kinds of massive, dramatic cuts in government spending that might have an effect.

And even if we did wake up today, the damage is already done. The US total debt (federal, state, local, consumer, business) now comes to nearly $800,000 per family of four. And that’s not counting a similar amount for unfunded Medicare benefits and who knows how much in derivatives liabilities. So a painless fix is no longer possible. Our choices have narrowed to only two: a crash that will dwarf the Great Depression or a hyperinflation that wipes out a whole generation’s savings.

That’s why I don’t publish much political commentary on DollarCollapse. Today’s debate over federal spending and taxes is just so much fantasy. We’re like a family arguing about redoing the kitchen while the house burns down. It’s an irrelevant, annoying discussion. The interesting debate will take place after the collapse, when we have to decide what kind of society to rebuild from the rubble. Then we can argue for limited government and individual rights and sound money and all the rest. Politics will be interesting again!

Until then, we should protect our families and tend our gardens.


If you have not yet seen the other articles in this series, you can find them here:

Readers can submit their preferences for future Straight Talk participants, as well as questions to ask them, via the Straight Talk forum.

Related content

26 Comments

JAG's picture
JAG
Status: Diamond Member (Offline)
Joined: Oct 26 2008
Posts: 2490
Cash-to-Assets Conundrum

Thank you Mr. Rubino for the interesting interview. It does bring up a question, however.

John Rubino wrote:

That’s what happened in the past year, as newly printed dollars flooded the world and pushed up pretty much everything, including US stocks.

I'm having trouble reconciling Mr. Rubino's statement above, a very common-sense and ubiquitous observation, with the following statement from John Hussman:

John Hussman wrote:

Every security that is issued has to be held by someone, in precisely the form in which it was created, until that security is retired. Period. That means that if the Fed creates $2.4 trillion in currency and bank reserves, somebody has to hold that money, in that form, until those liabilities are retired. The money ultimately can't go anywhere. If someone tries to get rid of their cash in order to buy stock, somebody else has to give up the stock and hold the cash. In the end, every share of stock that has been issued has to be held by somebody. Every money market security that has been issued has to be held by somebody. Every dollar bill that has been created has to be held by somebody. None of these instruments somehow "find a home" by going somewhere else or becoming something else. They are home.

Link

If I understand Dr. Hussman's statement correctly, then someone is holding all the cash or cash-equivilents being created by QE. To say that traders are collectively moving from cash into assets is a misperception, is it not? Someone has to accept and hold the cash for each market transaction.

Can someone please clarify this conundrum?

Thanks....Jeff

robbie's picture
robbie
Status: Bronze Member (Offline)
Joined: Jul 16 2008
Posts: 91
Cash to Assets conundrum

This sounds like the "cash on the sidelines" argument which has been effectively debunked here and in other forums over the years for the reasons you've stated.

Rob

plato1965's picture
plato1965
Status: Platinum Member (Offline)
Joined: Feb 18 2009
Posts: 615
  Someone has to accept and

Someone has to accept and hold the cash for each market transaction.

Can someone please clarify this conundrum?

During normal market operations, yep.  the Conservation of cash rule applies.. cf conservation of energy.

 When the Fed buys things, it's different.. it's digits are essentially "cash"... ex nihilo


SingleSpeak's picture
SingleSpeak
Status: Gold Member (Offline)
Joined: Dec 1 2008
Posts: 430
"...It's an irrelevant, annoying discussion..."

What a great piece. I could have just quoted the entire article, but I'll just pick one of the highlights.

...... Today’s debate over federal spending and taxes is just so much fantasy. We’re like a family arguing about redoing the kitchen while the house burns down. It’s an irrelevant, annoying discussion. The interesting debate will take place after the collapse, when we have to decide what kind of society to rebuild from the rubble. Then we can argue for limited government and individual rights and sound money and all the rest. Politics will be interesting again!

Thanks for another "Thumbs Up" article CM team.

SS

Augustine's picture
Augustine
Status: Bronze Member (Offline)
Joined: Oct 13 2009
Posts: 36
Latin America

Adding to the advise by John, foreign land ownership in Latin America has a sketchy record.  At least in my home country, Brazil, foreigners have been able to lawfully own land only since the mid 90's, after a hyatus of about 25 years.  And now the newly elected president is known to be against it and the idea is being bounced around the corridors of congress again.

I'd also like to say that there has been a major real estate bubble in Brazil since 2009, when the government lowered interest rates.  One would think that months after the housing bubble inflated by low interest rates collapsed in the developed wcountries would teach the world a lesson...

I'm convinced that the least likely asset worth to owning is gold.  Surely, the government might outlaw it again and bands of marauders could come after it.  But none of these possibilities deny the fact that it's the safest storage of wealth, IMO.

PastTense's picture
PastTense
Status: Bronze Member (Offline)
Joined: Dec 13 2010
Posts: 47
"I'm convinced that the

"I'm convinced that the least likely asset worth to owning is gold.  Surely, the government might outlaw it again and bands of marauders could come after it.  But none of these possibilities deny the fact that it's the safest storage of wealth, IMO."

"Least, likely asset worth to owning". I think you miswrote.

jrf29's picture
jrf29
Status: Gold Member (Offline)
Joined: Apr 18 2008
Posts: 444
Musical cockroaches

JAG wrote:
To say that traders are collectively moving from cash into assets is a misperception, is it not? Someone has to accept and hold the cash for each market transaction.

Can someone please clarify this conundrum?

Sure, somebody has to hold it, but the question is, at what price will they hold it?  In other words,what is the equilibrium between one thing (dollars) and another thing?

When cash is perceived as valuable, people will give up a lot of stuff (wheat, corn, soybeans) to own some. When cash is perceived as less valuable, people will give up less stuff in order to get their hands on a dollar bill, and by the same token those who have dollar bills don't demand a lot of stuff in return for them, since they are anxious to get rid of them.

Suppose that gold had some economic opposite.  Let's imagine solid 1 oz. chunks of compressed dead cockroach.  Unless I'm mistaken, there isn't a big demand for these.  Suppose your distant relative dies, leaving you a ton of these "cockroach nuggets" in his will.  You'll probably be pretty anxious to get rid of them, and you'll probably take whatever you can get for them, before they start to rot (a good metaphor for inflation).

Despite what you might think, you will probably find somebody who has a use for your cockroach chunks.  Maybe a farmer can use them as fertilizer, and he offers to give you one ha'penny in exchange for taking away the whole 2,000 lb. load.  You say, "Done, and done!"

Somebody has to end up holding each and every dollar and security that is issued.  And somebody somewhere will have some use for them.  But if the value of a dollar goes low enough, you might end up trading trillions of them to this lady, for a single cup of tea, who intends to use them to make the tea!

Somebody has to hold all the dirt in the world, too, but you can't buy very much with a teaspoonful of it. 

You are absolutely right: it is incorrect to say that all traders are "moving out of" dollars, since they are still passing the dollars around to each other.  That's like saying everybody is "getting out of dirt."  The dirt isn't going anywhere.  "Moving out of dollars" just reflects the subjective mindset of people who are trying to get rid of it at a lower and lower price.

Doug's picture
Doug
Status: Diamond Member (Offline)
Joined: Oct 1 2008
Posts: 2748
Fed money

At least with respect to QE2, there is no someone else holding the money.  The freshly printed money goes to Treasury which disposes of it in normal gov't spending.  Theoretically, I suppose, the Fed could come back and demand money for the security, but where is Treasury going to get it?  Sell more bonds to the Fed?  Fact is, that money is in circulation.

Of course, Treasury has to pay interest on those bonds or Tbills, and they get that money by selling more bonds or Tbills.  Ain't fiat money grand?Money mouth

Doug

SailAway's picture
SailAway
Status: Gold Member (Offline)
Joined: Aug 11 2010
Posts: 347
"...It's an irrelevant, annoying discussion..."

SingleSpeak wrote:

What a great piece. I could have just quoted the entire article, but I'll just pick one of the highlights.

...... Today’s debate over federal spending and taxes is just so much fantasy. We’re like a family arguing about redoing the kitchen while the house burns down. It’s an irrelevant, annoying discussion. The interesting debate will take place after the collapse, when we have to decide what kind of society to rebuild from the rubble. Then we can argue for limited government and individual rights and sound money and all the rest. Politics will be interesting again!

Thanks for another "Thumbs Up" article CM team.

SS

+1

Agreed this is the highlight. The debate over federal spending and taxes is pointless, too late.

maxwellbach's picture
maxwellbach
Status: Bronze Member (Offline)
Joined: Oct 13 2009
Posts: 29
The Damage is Already Done

This is a great piece and I notice that another reader has commented on the same section that caught my eye as well but for a different reason:

"The interesting debate will take place after the collapse, when we have to decide what kind of society to rebuild from the rubble. Then we can argue for limited government and individual rights and sound money and all the rest. Politics will be interesting again! Until then, we should protect our families and tend our gardens." 

I have a real problem with this attitude. I'm not attacking John directly or personally for this comment as its pretty much the consensus view at his own site, CM.com & many similar sites. My problem with this approach is the passivity of it. It sounds something like" I've got my popcorn & my seat high up in the bleachers, I'm just going to sit back & watch the circus unravel".

I can't subscribe to this.

I agree, its pointless discussing any form of politics in its current state but I think we shouldn’t waste time waiting for a collapse to occur before we start seriously discussing what sort of economic system we might replace 'growth-based economics' with, or how a money system which is not based on debt might operate. Some discussion on how the world might implement a viable population reduction program, without resorting to tyranny would also be useful.

These things are all political in nature and most certainly not boring or irrelevant. When it comes to population control, I can't think of hotter political potato than that! My real concern is that this community and those like it are not the only people 'aware' of what's coming. It’s likely that every member of the Forbes richest 1,000 is just as aware of the impending situation as we are. Do you think the richest 1% of the world's population who control something like 50% of the world's resources (or more) will sit around waiting for the house to burn down before positioning themselves for what comes next?

If we refuse to think about, discuss and envision a better (but radically different) world for all of us & our children, then its likely that those people who currently wield the power & own most of the resources will fashion one for themselves - at our expense. By the time the public wake up to what’s going on it will have already happened. This is the rhythm of history.

Folks, perhaps just once it could turn out different - but only if we have the courage and discipline to take up the real political cause now - right here on this site and those others you frequent. This is a time in history not unlike the one that Jefferson and Lafayette lived thru where the old order is crumbling and we are in need of visionaries to articulate a positive alternative future. All of us can help. We have adequate forums to do this we just need to think courageously and innovatively and brainstorm constructively – leaving our fears and certainties behind. 

Max Back

jrf29's picture
jrf29
Status: Gold Member (Offline)
Joined: Apr 18 2008
Posts: 444
Hi Max,

Hi Max,

I have idealistic tendencies.  I like to believe that all people have an obligation to do something to support, improve, and protect things they believe in whether or not their efforts will be successful.  We have an obligation to participate at all times.  To this extent I disagree with Rubino.

On the other hand, I subscribe to the theory that major changes in society often can happen only at certain times, when big a crisis has opened the door and an aroused population is in a mood for big change.  While people should certainly discuss what to do when the opportunity for change presents itself (because those people will seize the opportunity first and most effectively), this doesn't prevent us from admitting when the intertia of society and the paralysis of its leaders are so great that a crisis is almost unavoidable, and that major change might be impossible until then.

Population and Population control

I do not agree that it is worthwhile to discuss population control.  Without petroleum, the natural long-term carrying capacity of this earth may be on the order of 1 to 2 billion persons.  Perhaps 3 billion. 

The 7 billion people (and rapidly increasing) who are here right now, are here only because of oil.  Maybe we'll find a replacement but -- today -- these 7 billion are alive only because of oil and the resources that petroleum energy makes available.

Still, I don't think it is worthwhile to discuss population control.  It's a waste of intellectual effort because we're not going to have a policy. We're simply not going to have one.  It is politically absolutely impossible.  We should focus our energies on things that we can do something about, and let Mother Nature take care of the things that we cannot do anything about.

I'm not sure that we should have such a policy even if one were practically possible, and even if we assume that it was a good idea.  One of my favorite quotes is by Joubert: "There are some acts of justice which corrupt those who perform them."

Travlin's picture
Travlin
Status: Diamond Member (Offline)
Joined: Apr 15 2010
Posts: 1322
Show me

Thanks for the excellent interview.  I read The Coming Collapse of the Dollar and recommend it.  I will have to check our DollarCollapse.com.

maxwellbach wrote:

I agree, its pointless discussing any form of politics in its current state but I think we shouldn’t waste time waiting for a collapse to occur before we start seriously discussing what sort of economic system we might replace 'growth-based economics' with, or how a money system which is not based on debt might operate. Some discussion on how the world might implement a viable population If we refuse to think about, discuss and envision a better (but radically different) world for all of us & our children, then its likely that those people who currently wield the power & own most of the resources will fashion one for themselves - at our expense. By the time the public wake up to what’s going on it will have already happened. This is the rhythm of history.

<Snip>  We have adequate forums to do this we just need to think courageously and innovatively and brainstorm constructively – leaving our fears and certainties behind. 

Max

You’ve raised this issue before, but you explained it better this time.  I understand what you want, and why.  I just don’t see how it can be effectively done now.  At this point, it is hard enough just to get people to open their eyes to see the problems and the likely outcomes.  For these same people to redesign our system at a fundamental level, before things go bad, is beyond a reasonable expectation, in my view, for four reasons.

1 – Most people have a vested interest in the current system, and have deeply internalized it.  They like it.

2 – The aware people are consumed by preparing for the storm while working and raising families.

3 – We haven’t suffered enough to understand the problems viscerally, and have the motivation to try to change.

4 – No one (or group) is smart enough to create a theoretical model that will function well in real life.  Healthy human organizations grow organically out of living.  The hard experience of bad times will be necessary to make the needed decisions, and win wide acceptance to make them stick.  People must see the changes as vital and rewarding based on their daily lives.

You can call me a nay-sayer if you like, but that is my assessment based on a lot of study of “the rhythm of history”.  I invite you to show me the error of my thoughts.  More than once you have called for discussion of this issue.  Now show us the way.  Start a thread where you take the lead and tell us specifically what you think we need to do.  Give us something solid to chew on and you may get the response you are looking for.

Travlin 

sundarb's picture
sundarb
Status: Bronze Member (Offline)
Joined: Jan 10 2011
Posts: 72
@ Max

Max,

I do understand your point of view and share the same frustration that you do. Based on what I've learnt so far from CM and a few other websites, the fundamental problem that is blocking our economy from functioning efficiently is that most people do not have a true grasp of what money really is. The delusion that money is debt is then combined with a government that wants to recklessly spend on a completely irresponsible scale leads us to a problem of epic proportions. We have constructed a debt tower so huge that when it falls, it will smash the whole world down.

This is not just the US economy, it is the entire global economy that is running on a fiat system with corrupt politicians in power and the financial elite in control of global resources. People should really understand the true nature of money and why the fiat standard that we are currently going on with -- fosters greed, hinders productivity (the spine of the economy) and misallocates capital. The monetarists and the keynesian experts have completely corrupted the economic intellect of this country, where as Travlin points out -- I see a lot of people falling under the category of #1. So in order to wake up the people to the real economics, we should have a concerted effort to: a) point out the flaws in existing economic policies and why they are completely doomed to fail and b) what is the right path to go forward.

The sad part is that the right path to go forward has already been framed in the Constitution and as a society, United States just chose to be ignorant of its own values established by the Founding Fathers. Sound money, less government and efficient free markets are the hallmark of Liberty. Economics is a much maligned subject these days, as people who are "centrally planning" the economy have made the field of economics subject to much ridicule.

Scientific enterprises (such as physics, chemistry and biology) have these fundamental axioms based on which the entire body of work is built. What should economics be based on? Does it have any axiom at all over which the economic study can be built? 

There is and there is only one axiom: "Value does not exist outside the consciousness of mankind". Think about this statement. Reflect upon it. Economics at the most fundamental level is human action. Humans act when they think that there is value resulting from that action. What is value? It is subjective, varies with each individual. If the whole body of economic study was based on this "subjective ground" of human nature, there won't be this level of delusion about money that we see today. 

So we have to grasp the real meaning of money, why we value it and then we need to educate ourselves to see clearly what the government and the central banks are doing. The reason why the dollar is still alive is because people think it has value. When billions of people over the world who hold dollars realize that the US government is eroding the value of the currency, they will go away from it leading to the fiat's demise. 

With free money, there is truly a free market and efficient allocation of capital. Only productive enterprises succeed and the inefficient ones will fail. Money should necessarily be in the control of people who can exercise their will to let the government know their opinion and therefore, make their choice upon the direction of the nation. 

Could the United States have gone to bomb Libya if people were in control of the money?

Could the central bank choose to print however much it wants to fuel the speculators if the people were in control of the money?

Will we still be depending on cheap, yet fast depleting energy source such as oil if oil were to be measured with a free-market determined money? The endless wars happen towards one end - cheap oil. How can the wars be funded if people controlled the money?

Augustine's picture
Augustine
Status: Bronze Member (Offline)
Joined: Oct 13 2009
Posts: 36
Erratum

PastTense wrote:

"Least, likely asset worth to owning". I think you miswrote.

I did, thanks.  I meant to say that gold is the worthiest asset to own.

t.tanner's picture
t.tanner
Status: Bronze Member (Offline)
Joined: Oct 16 2008
Posts: 43
A Response

Sundarb, 

I applaud the thoughtfulness of your comment, but you're way off base when you write, "the fundamental problem that is blocking our economy from functioning efficiently is that most people do not have a true grasp of what money really is."

The fundamental issue with our economy, as with our society, is that it we have come to believe in a physical impossibility - the meme that unending, limitless growth can occur on a finite physical sphere.  Until we can design a system based on long term, sustainable use of our resources - a system that eliminates externalities and encourages rational behavior and human happiness while discouraging consumption and pollution - there's no chance of building an economy that will function effectively for an extended period of time.

bushbaby's picture
bushbaby
Status: Member (Offline)
Joined: Feb 19 2010
Posts: 1
Path forward

In the future it seems food will need to be grown locally and without oil to drive machines. As you know this could all happen very quickly, as soon as we have supply issues with oil, food will follow. Farmers with not be able to plough fields or even get food to the market. We continue to invest in our own gardens and in PM, but should we also be investing in local food production. Food grown locally without oil. After all we are all in this together.

I am about to start on this endevour, I have read a book by Linda Woodrow 'The Permaculture Home Garden' she says with the right systems she makes a professional income working 40 hours per week off just 1600sqm.

If you are like me and you do not necessarily want to work 40 hours in the garden per week, employee people.

After all why buy silver, so you can buy things like food.

I hope this endevour will help both me and the wider community.

Kurt

trwiley's picture
trwiley
Status: Bronze Member (Offline)
Joined: Aug 11 2009
Posts: 78
Coming Collapse and How to Profit of it?

Does anyone see anything wrong with what's being said in the title of his book..."The Coming Collapse...how to profit off of it".

Does that not suggest  a very scary and selfish motive...I win at the expense of others? Is that not what's wrong with capitalism, that it's inherently set up to profit off of problems? Doesn't competition inherently mean someone wins and others lose? Aren't we more civilize than this?

I will continue to put forth the notion of a resource based economy as presented by the movie Zeitgeist Moving Forward. I see no other solutions as comprehensive as this. It addresses the fundamental causes of almost all of the world's problems. If you think it is too idealistic and naive, I'm thinking that its naive to think that any other type of reform (natural capitalism, steady-state ecnomies, etc.) will ever address, let alone, solve our problems. And if it does crash, what then? Are we going to rebuild the same systems, only this time with either more free markets, or more socialism? Isn't that the definition of insanity.

And maxwellbach, overpopulation is only a problem in our current monetary paradigm. There is more than enough resources and carrying capacity if we were to have a resouce based economy. Scarcity is only a problem now, because industrial capitalism feeds off of scarcity (as in "profit off of the coming collapse").

As crazy and unrealistic as it sounds to have a world with no money, it seems even crazier to think that there is any other way.

I guess 4.6 million viewers are crazy: Zeitgeist Moving Forward

Outcast 19's picture
Outcast 19
Status: Bronze Member (Offline)
Joined: Mar 23 2011
Posts: 46
In Support of Max

Greetings --

I'm a new member, posting for the first time.  The thoughtful insights and remarks in this particular thread inspired me to join.

From where I stand, it's late in the game and there is little anyone can do to check the forces at work in our economy.  There may be a slim chance of slowing the rate of decline, but the destruction of our old way of being is well underway and the outcome is inevitable.  It's only a question of how hard the landing will be.  That said, we still have a shot at determining how things will look after we hit bottom.  If we do nothing to shape the future, then we will get whatever comes our way...and deserve it for having done nothing. 

However, if we have an idea of what we want things to look like for future generations, and if we are willing to devote some of portion of the time and energy we spend on preparedness, then we can help that idea take root by 1) inviting people to share and support it, and 2) electing people to office who will stand firmly for it.  The key, though, is to begin with an idea (or ideas) worth supporting.  For me, preservation of individual liberty needs to be the focus because a systemic failure will provide multiple opportunities for the complete destruction of liberty.   I will not accept slavery or dependency.

If the idea of preserving liberty resonates with enough people, it will find a voice and take root.  That may sound naive and idealistic, and perhaps it is.  Still, we are privileged to live in a country where (as of today) we can vote people in and out of office.   A small percentage of voters can make a huge difference in the values and attitudes of our elected representatives going forward.  Ultimately, our votes affect the entire system.  All we have to do is look around us for the truth in that statement.  That means we do have a role to play in the outcome of this catastrophe.  We have a responsibility, too.  If we don't do something to shape the future of liberty, who will?

So Max, what's the next step?

Sidebar: I agree that a plan for population control is not something that will be politically acceptable in the West.  But a reduction in population is necessary for sustainability.  That said, nature will most certainly run its course as part of the bottoming process...one way or another.  We still have a responsibility to shape a future where liberty can prevail.

sundarb's picture
sundarb
Status: Bronze Member (Offline)
Joined: Jan 10 2011
Posts: 72
my point is ..

t.tanner,

thanks for your response. my point is if the money supply was limited and it was in the control of the people, it will find its way towards the most efficient use of capital.

This would in turn mean that since there is a finite cap of the available money, you cannot allocate capital out of thin air to non-productive, unsustainable enterprises. Finite cap on the available money in my mind is also capping the unrelenting quest for growth. Limitless growth is unsustainable, so naturally capital won't go towards funding these unsustainable resources. It would stop as soon as the collective conscience of the people realize that we are on an unsustainable path.  Rather captial would automatically find its way to sustainable enterprises that ensure overall prosperity but moderate returns. 

It may seem too idealistic, but that is what I see in my mind.

SagerXX's picture
SagerXX
Status: Diamond Member (Offline)
Joined: Feb 11 2009
Posts: 2116
re: Show me

Travlin wrote:

1 – Most people have a vested interest in the current system, and have deeply internalized it.  They like it.

2 – The aware people are consumed by preparing for the storm while working and raising families.

3 – We haven’t suffered enough to understand the problems viscerally, and have the motivation to try to change.

4 – No one (or group) is smart enough to create a theoretical model that will function well in real life.  Healthy human organizations grow organically out of living.  The hard experience of bad times will be necessary to make the needed decisions, and win wide acceptance to make them stick.  People must see the changes as vital and rewarding based on their daily lives.

Well said, Travlin.

travlin wrote:

More than once you have called for discussion of this issue.  Now show us the way.  Start a thread where you take the lead and tell us specifically what you think we need to do.  Give us something solid to chew on and you may get the response you are looking for.

I'd participate in such a thread.

Viva -- Sager

txgirl69's picture
txgirl69
Status: Bronze Member (Offline)
Joined: Apr 21 2009
Posts: 96
Max

I'm in with Travlin and Sager,

Let's talk it out and see where it leads. I like your thinking.....

Rita

Travlin's picture
Travlin
Status: Diamond Member (Offline)
Joined: Apr 15 2010
Posts: 1322
Let's do it elsewhere

txgirl69 wrote:

I'm in with Travlin and Sager,

Let's talk it out and see where it leads. I like your thinking.....

But let's do it on a new thread.  This one has veered far enough.  We should give Mr. Rubino his own space for comments on his fine interview.

Travlin 

maxwellbach's picture
maxwellbach
Status: Bronze Member (Offline)
Joined: Oct 13 2009
Posts: 29
OK I'll do it

Folks,

Thxs for the comments & suggestions. I don't know how to set up a seperate thread but I'm happy to do so. Since it will cover a potentially broad range of topics I have a couple of ideas on how it might be structured and will talk to the webmaster to see if these are feasible.

Look fwd to your participation.

Max

Doug's picture
Doug
Status: Diamond Member (Offline)
Joined: Oct 1 2008
Posts: 2748
I'm on board

Max, thanks for the post.  I agree, count me in.

Doug

CB's picture
CB
Status: Gold Member (Offline)
Joined: Mar 18 2008
Posts: 365
A view of aftermath and

A view of aftermath and local response from Japan:

http://www.nytimes.com/2011/03/24/world/asia/24isolated.html?_r=1&ref=world

"..............With no time to mourn for their missing loved ones, they were immediately thrust into the struggle to stay alive in the frigid winter cold, amid a hushed, apocalyptic landscape of wrecked homes, crushed vehicles and stranded boats. They had scant food and fuel and no news from the outside world — not even the scope of the devastation.

On Wednesday, after the Japanese military finally reached them for the first time since the tsunami struck 12 days ago, by erecting makeshift bridges and cutting roads through the debris, they told a remarkable tale of survival that drew uniquely on the tight bonds of their once-tidy village, having quickly reorganized themselves roughly along the lines of their original community: choosing leaders, assigning tasks and helping the young and the weak.

The ability of the people of Hadenya to survive by banding together in a way so exemplary of Japan’s communal spirit and organizing abilities is a story being repeated day to day across the ravaged northern coastline, where the deadly earthquake and tsunami left survivors fending for themselves in isolated pockets. Some are still awaiting relief. ............."

In the near term these people will get help from the government - long term the massive investment of 'make work' projects that the Japanese government initiated in this region over the past 25 years will likely not be rebuilt. National priorities will likely prevent it and they will once again be left to largely fend for themselves.

stewl's picture
stewl
Status: Member (Offline)
Joined: Nov 24 2008
Posts: 4
I take issue with the "limited government" concept.

A lot of what John said makes sense to me, but have to take issue with one of his closing points. I know that "smaller government" is a very popular mantra these days, but I believe it is concept that is being carried forward without merrit, and pushed by the very people who want to run roughshod over the rest of us. Anyone with a half a brain that did not profit from the wild excesses in unregulated behavior by the banking industry (most of us) that brought us to the current economic situation understands that giving greedy capitalists a free ticket to do whatever they want is a ticket to disaster. Corporations have no moral or ethical obligations. Their only motivation is to generate more profits. That is exactly what happened in the economic meltdown. That is what is happening  in many places across the planet where pollution and unsafe environments are overlooked to expedite increasing profits. Greed and corruption go hand in hand with unregulated capitalism. Drug companies bypass critical safety checks and equipment maintainence to keep the products rolling out-even when they know the products are tainted. The examples are limitless. No regulation means a free for all with our lives, our economy, our health - all in the name of more profits.

We need good regulations, strongly enforced.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Login or Register to post comments