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Understanding The Endgame

Wednesday, June 8, 2011, 9:51 AM

Understanding The Endgame

Wednesday, June 8, 2011

Executive Summary

  • Greece as a case-study in sovereign debt collapse
  • Why peak oil assures we will not be able to pay our debts
  • Understanding the dynamics of a future of less/no growth
  • Steps we as individuals need to be taking in preparation
  • How to preserve purchasing power during the coming market rout

Part I - Death by Debt

If you have not yet read Part I, available free to all readers, please click here to read it first.

Part II - Understanding The Endgame

How might the end game for a debt crisis play out?  We need look no further than one of the PIIGS for our answers.


Greece is in immediate danger of defaulting on its sovereign debt.  As one of the charts in Part I makes clear, the pain of such a default will land primarily on German, French, and UK banks.  Sure, they can probably kick the can down the road a bit longer, but it won't change anything. 

The levels of Greek sovereign debt alone are far beyond anything that can reasonably be repaid, even under very aggressive growth scenarios.


Argentina: A Case Study in How An Economy Collapses - Part 2

Wednesday, June 8, 2011, 12:49 AM

(Part 2 of Chris' interview with FerFAL, which focuses on smart steps an individual can take in preparation before an economic collapse, is only available to enrolled users.)


Part 2 of Arnie Gundersen Interview: Protecting Yourself If the Situation Worsens

Friday, June 3, 2011, 2:55 PM

Arnie Gundersen Interview (Part II): Protecting Yourself If The Situation Worsens

Friday, June 3, 2011

Executive Summary

  • Identifying the health dangers from radiation & contamination
  • Steps those living in Japan and the US West Coast should be taking today
  • Precautions to take with food
  • The implications of radioactive seawater
  • Urgent steps to take in a worst-case scenario if reactor 4 collapses 

Part I: Exclusive Arnie Gundersen Interview: The Dangers of Fukushima Are Worse and Longer-lived Than We Think

If you have not yet read Part I, available free to all readers, please click here to read it first.

Part II: Arnie Gundersen Interview: Protecting Yourself If The Situation Worsens

Chris Martenson: So yes, I am interested in personally, now much more than I used to be, I think in really thinking these issues through. So the first thing is here is where I’d like to start because here is where a huge source of confusion lies - and the media hasn’t helped this one a lot. It's the difference between radiation dangers and contamination dangers from radioactive particles. Can you talk to us about that? 

Arnie Gundersen: There are three kinds of radioactive material: there are gamma rays: initially when the nuclear reactors blew they emitted large clouds of xenon and krypton gases. Those are noble gases. They don’t react with your skin or anything but they emit gamma rays. So the readings you saw with people walking around with the Geiger counters were from essentially being in a cloud of gamma rays hitting them from the outside. And that’s significant but it is also dispersed over your entire body. To my mind, the bigger problem, are the two ways that radioactive material decays and those are called beta particles and alpha particles. They don’t travel as far but they have an enormous amount more energy than a gamma ray. So if they lie on your skin, you are just fine. You can wash it off and life goes on. The problem is if they get inside they can selectively go to an organ and bombard a very small piece of tissue with a lot of exposure and potentially cause a cancer and that is what we call a hot particle. 

All of these particles are radioactive. But when you talk about contamination it means almost always that one of these particles gets attached to an organ and begins to bombard that organ. 

Click the play button below to listen to Part 2 of Chris' interview with Arnie Gundersen (runtime 22m:26s):

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Chris Martenson: So with radiation there is three types, there is the alpha particles, which is a particle, we have beta, which is a particle and then we’ve got gamma rays. So I guess when we are saying radiation it is like somebody says oh, let’s talk about cars. There is Lamborghinis, there is VW Beetles, there is Mustangs there is all these different things so we have to first we have to know a little bit about that and radiation exposure levels, as I understand them, are set at sort of a whole body level that says you can have so many REMs. Which you can get a REM of alpha particles hitting you, a REM of beta, a REM of gamma. It is just sort of a standardized way of saying you are going to get this whole body exposure, we are just going to hit you. Like when you go to get an X-ray or something, another type of radiation, an X-ray. So that is one part. But the contaminated particles that happen to be emitting radioactivity are the issue because they can localize just make it simple, we inhale a 10 micron particle and it happens to be radioactive. It goes into our villi in our lungs and it sticks there potentially. And it is now going to in a very, very, very small, very close way, intimate way, be bombarding that tissue around that particle for however long it happens to be radioactive or until it gets excreted somehow. 

So the idea here then is that radiation tells us sort of something, but very few people actually die from radiation as I understand it. It is a very rare event because you need a whole lot of it on a whole body level to really take somebody down. But contamination is a whole different matter that the lethal dose from contamination can actually be really small measured on a radiation scale. I am thinking now of this guy, Lenchenko, who was actually poisoned. He was a Russian dissident and he was poisoned in London in 2006 with a very, very small amount of polonium 210, it is an alpha emitter. He got that in his food somehow and then because of where polonium goes it ended up killing him, I think very rapidly, in nine or 10 days, considering. So the thing that I really want to invite people to consider is the real key around contamination is to not get it in your body. That’s part one. 

How would people, how do you do that? If you were so let’s imagine, Arnie, there you are, you are living in Tokyo now or closer, how would you be behaving over there right now? 

Arnie Gundersen: Yea, and actually we should extend this to the West Coast, because the same particles there too. To answer your question about Tokyo; what I’m advising people in Tokyo who are there now, is take your shoes off at the door, wet dust. Don’t dry dust. We are actually finding that contamination inside houses is higher now than contamination outside because it has been trucked in over the last two months and it hasn’t left. And if you dry dust you throw all of that radioactive material up into the air. I am also advising friends there to buy these little HEPA filters, high efficiency particulate filters that look like a little round device that sits on the floor, and change the filters frequently. Also advising people to remove the filters in their air conditioners and the air conditioner in their car, and replace them. Because they pick up particles over the last couple of months and it is a good time to replace them as well. Also telling people don’t do any demolition work. The last thing you want to do right now is tear a wing off your house because you will stir up that dust, not knowing exactly what’s in it, you run a risk of contamination.

The other things I am telling friends in Tokyo is keep your eye on Unit Four.  If there is an earthquake and Unit Four topples don’t believe the authorities you are well beyond where science has ever imagined and it is time to get on a flight and get out of there. 

Chris Martenson: Don’t ask any questions. Just move. What about food? I mean, this is a big issue and I would think this would be potentially an issue for people on the West Coast of the US even. Is the idea that there are certain isotopes up there and particles that can somehow get through the food chain, maybe through milk because cows graze a whole lot of grass and turn it into a very little bit of milk helping to concentrate whatever was on that grass or leafy vegetables that have a real affinity for certain of these isotopes, potentially cesium, certainly iodine if that is still around, which it shouldn’t be, but apparently it still is. How do you approach food? Because that is one quick way to ingest things. 

Arnie Gundersen: Well, the cow milk predominantly would have iodine and we are out now at 80 days and most of the iodine should have disappeared because it has an eight day half life and the rule of thumb is 10 half lifes. But we are still seeing iodine which is kind of strange and it gets back to that issue of criticality re-criticality that we talked about earlier. So I’m still telling friends until the middle of June stay away from milk and dairy products. Clearly washing the vegetables is critical. In Japan we are saying avoid fish caught in the Pacific, unless you know they are caught a long way away from Fukushima. I am saying 100 miles of Fukushima, don’t even consider it. I think that will actually get worse with time. Greenpeace has some numbers that came out indicating that it is worse with time. So we are telling the Sea of Japan is a different story. You can probably feel safe eating fish from the Sea of Japan. But if you believe it came from the Pacific, avoid it. 

There is two isotopes there; the predominant one is cesium, which is a muscle seeker so of course fish meat is muscle and cesium is likely to build up in your body if you take it from fish. The other one, strontium, which would be in the fish bone. So unless you have some kind of a delicacy that uses the fish bone, the fish is unlikely to expose you to strontium. So eventually though we are going to see top of the food chain animals like tuna and salmon and things like that that have this process bio accumulates. The bigger fish gradually get higher and higher concentrations. And I am concerned that the FDA is not monitoring fish entering the United States because sooner or later a tuna is going to set off a radiation alarm at some part and people are going to think it’s a dirty bomb or something like that. So that’s not here yet because the tuna haven’t migrated across the Pacific. But I am thinking by 2013 we might see contamination of the water and of the top of the food chain fishes on the West Coast. 

Chris Martenson: I keep hearing the Pacific is a really big ocean, that old saw has been touted out a lot. And I think what they are missing here, in those stories of course, is what you mentioned is the bio accumulation which is that these are – many of these isotopes mimic really important elements and so our bodies preferentially take them up and so do microorganisms and they all get eaten by something larger than them and so on as we go. And over the course of that, we should all be familiar with this. Because this is how mercury tends to bio accumulate. This is how a lot of toxins bio accumulate. So we are talking about the concentration of radioactive particles. You mentioned that you had some assessment that more radioactivity has landed in the Pacific than did in the Black Sea from Chernobyl. Do you have a sense of how much you think has gone in? 

Arnie Gundersen: Well, actually it’s Woods Hole, and they are certainly a reputable scientific organization. They are saying 10 times more. And yes, the Pacific is big. But we are still talking about what’s there now and I think it’s important for everyone to understand that we are not out of the woods, when Chernobyl was over we are still 10 times when Chernobyl is over and we still have no end in site from releases from Fukushima and it is already 10 times that. I am concerned, we have already seen small fish on the order of four or five inch fish as far away as 50 miles containing cesium levels of 10 to 50 times higher than allowable. And of course those fish are going to get eaten by bigger fish up the food chain. So it’s a concern. Seaweed seems to absorb iodine, but it also absorbs cesium which is something that I just learned. I was worried I was telling people don’t worry about seaweed after 90 days because the iodine is all gone. But I’m not sure about that at this point. Because as I understand it now it can also absorb the cesium, so I am a little unsure on that science. 

Chris Martenson: Well, fortunately the EPA has a rigorous testing program in place, right? 

Arnie Gundersen: Trust me, I’m from the government. 

Chris Martenson: Yea, unfortunately on that. So this is part of the environmental legacy of Fukushima. And oh, by the way, I should mention in my research I came across the idea that shellfish particularly crabs and other crustaceans will accumulate cesium pretty heavily in their shells so we might want to add shellfish to the cesium story there as well. 

I think if I lived there, personally, I would just be avoiding all seafood Pacific. As you mentioned I think that is sage advice at this point. Until and unless we had a really believable and aggressive monitoring program I would be personally leery myself. Can you talk to us, what really then are the health risks that are faced by those that live in or near the reactor at this point, on the reactor complex?

Arnie Gundersen: Well, there is a large plume of radioactivity that moved to the north and to the west. Out as far as 50 miles. I don’t know how you are going to clean it up economically. The cesium deposition higher than the forbidden zones of Chernobyl, out 50 miles just in that northwesterly direction. So again, thank God, the wind was blowing mainly out to see. I think it’s going to boil down to does Japan want to spend the money. I can’t imagine people ever getting back in to the 20 kilometer zone, especially in the northwestern quadrant. It just is going to cost way too much to decontaminate that land. Farming is going to be a problem now as well because again, cows and cattle will absorb cesium for years to come. We are seeing that in Germany after Chernobyl we are still seeing, 30 years ago, wild boars in Germany that eat mushrooms are still contaminated with cesium. So this is not a problem that goes away in a generation, it hangs around for quite a while. 

I think there is two cost issues here. I think the cost – and it really does boil down to money at some point. The cost to decontaminate the site is probably going to be on the order of $30 to $50 billion. Normally a decommissioning is around a billion to decommission a plant that is really clean. But each of these plants has got a molten glob of fuel at the bottom which is territory that no one has ever assessed. And that is just the site. So I am thinking that a $30 to $50 billion hit for the nation of Japan because I don’t think Tepco can afford it, as well as contamination further inland could easily be $100 billion more.

Now, I put that out on my website and I had people say oh no, it is never going to be that high. Of course it will be a long time before we get there. And some of those costs might get mixed up with tsunami costs as well. It wouldn’t surprise me in excess of $100 billion to decontaminate that area within 20 to 30 kilometers of Fukushima would be a realistic number.

Chris Martenson: And when we say decontaminate, so I guess you scrub surfaces, but once you have got stuff down to the soil level don’t you do what they did at Chernobyl? What can you do besides carve the top number of inches off and cart it away and pile it up somewhere, is there more that can be done? 

Arnie Gundersen: No. No, there’s not. Basically it becomes a disposal somewhere. So it has to go to somebody’s backyard. And cesium is quite water soluble so it does move down through the soil over time. There is some work with zeolite that seems to indicate you can lay down some zeolite and it will pull the cesium back out. You are talking about hundreds of square miles here. So this is a little more than a science project.

Chris Martenson: I am still a little bit shocked that you were able to receive air filters through the mail, I presume in some way, that came in with some contamination on them and this is something I have been focused on for a while, is trying to assess what the real economic impacts are going to be outside of the borders of Japan. A very important manufacturing, industrial center, critical in certain supply chains. Maybe we will find ways to mitigate that over time. But for now they have a bunch of critical functions. And just worrying about what might happen to their import/export balance if it turns out that there is more evidence of these strange contamination moments popping up; hey, it’s in the sludge. Oops, it’s in air filters. They don’t really, it could end up anywhere. Do you have any insight into what sort of supply chain disruptions you might expect at this point or how they might manage this process of importing/exporting given everything needs to be checked for contamination and how would you go about that? What are we facing here? 

Arnie Gundersen: Well I was a little bit surprised that Hillary Clinton made sort of a pact with the Japanese to try to encourage buying Japanese food and vegetables. Clearly the food and vegetable chain we already talked about. I think the large industrial products like automobiles and transistors and computers and things like that are going to be just fine. The boxes they are made in I might be a little bit concerned about that they are shipped in. But I would expect that the shippers would be on top of that because the last thing somebody wants is a crate load of televisions coming up contaminated because the boxes are contaminated. So I think the big guys are going to be alert to that Mitsubishis and the Sonys and the Hitachis and they are going to watch that a lot. The intermediate people in the market, the small manufacturers who some clay pots coming out of Japan and things like that I am hoping there will be some kind of government monitoring on that because without that I don’t have any confidence of what kind of product I am buying. 

Chris Martenson: Alright, to wrap this up, I am just interested in for all of our listeners who may live in Japan or live in the West Coast or wherever they may be; if there is an aftershock and if Building four sort of topples over what would your advice be, I heard your advice to the people in Japan, get on a plane if possible or get far away or know which way the wind is moving and go in the other direction. What would you do if you were in the United States and you saw that that had happened? 

Arnie Gundersen: Well, I am in touch with some scientists now who have been monitoring the air on the West Coast and in Seattle for instance, in April, the average person in Seattle breathed in 10 hot particles a day. 

Chris Martenson: What? I did not know that. 

Arnie Gundersen: Well, the report takes some time to make its way into the literature. The average human being breathes about 10 meters a day of air, cubic meters of air. And the air out in the Seattle area are detecting, when they pull 10 cubic meters through them, this is in April now, so we are in the end of May so it is a better situation now. That air filter will have 10 hot particles on it. And that was before the Unit Four issue. Clearly we all can’t run south of the equator to our second homes in Rio or something like that. But it will stay north of the equator for anyone who has a Leer jet and can get out. But I guess what I am advising at that point is keep your windows closed. I would definitely wear some sort of a filter if I was outside. I certainly wouldn’t run and exercise until I was sure the plume had dissipated. This isn’t now. This is, as you were saying, this is worst case. If Unit Four were to topple, I would close my windows, turn the air conditioner on, replace the filters frequently, damp mop, put a HEPA filter in the house and try to avoid as much of the hot particles as possible. You are not going to walk out with a Geiger counter and be in a plume that is going to tell you the meter. The issue will be on the West Coast, hot particles. And the solution there is HEPA filters and avoiding them. 

There is also potentially some medical issues Maggie and I have been working with a couple of doctors to look at ways to mitigate to help your body cleanse particles if you know you have been exposed to them. But that is a little bit premature to go into much more detail on that. 

Chris Martenson: Right. So but this is all worst case and we are just going to keep our eyes on it. I think the important message here is that the situation is not yet over. It is something we are going to have to keep our eyes on, which is tricky, the media tends to not have a very long attention span when it comes to these things. In your estimation it is still an evolving situation over there. There could still be some curveballs. It is possible there might be a steam explosion at three, might be a toppling event at Building Four these are some of the key risks we are going to keep a look out for.  Is there anything else to this story you want to add?

Arnie Gundersen: No. It is going to be a long slog. 

Chris Martenson: Yea, well thank you so much, Arnie. It has been a fabulous conversation and again where should people go if they want to follow you and find out more? 

Arnie Gundersen: Martenson has an O in it and Gundersen has an E in it and so does Fairewinds, F A I R E W I N D S dot com is our blog and our website. And Maggie and I are doing it for free. It has been a volunteer work. We do have a donate button to keep our computer whiz computing but it is a not for profit venture.  


Housing Tumbles (or, Why the US is Headed Towards a Bond Market Disaster)

Thursday, June 2, 2011, 3:56 PM

There has never been an economic recovery without a rebound in housing. Of course, we don't really have an economic recovery now; it's more of a statistical mirage, thanks to trillions in thin-air money printing.  And we don't have a recovery in housing.

I have written extensively on the housing topic over the years because a rebound in housing will be an important signpost that some sort of stable economic recovery is actually underway.  

In the Crash Course chapter on bubbles, I suggested that if the housing bubble behaved like other bubbles throughout history, then 2015 would be a reasonable place to begin looking for a rebound. The evidence is now beginning to support that rough guess.

We begin with home prices, which hit a new low in the post-bust era, effectively rolling prices back to those last seen in 2002:

» Read more


How To Position For The Next Oil Shock

Friday, May 27, 2011, 9:50 AM

How To Position For The Next Oil Shock

Friday, May 27, 2011

Executive Summary

  • Saudi Arabia's reserve capacity is a myth
  • World oil demand is increasingly overwhelming supply
  • Why exports matter more than total world production
  • What the next oil shock will do to stock, bonds, commodities, precious metals, and real estate
  • What you should do to prepare

Part I: Past Peak Oil - Why Time Is Now Short

If you have not yet read Part I, available free to all readers, please click here to read it first.

Part II: How To Position For The Next Oil Shock

Putting It All Together

Let’s review the situation in the KSA:

  1. Despite assurances of 12.5 mbd of total capacity, the KSA has not yet produced more than 9 mbd on a sustained basis in 2011.
  2. The IEA is begging the KSA to pump more.
  3. The KSA has turned to outside companies to help it begin to unlock heavy oil reserves that will take a lot of time, energy, and money to prosecute.
  4. The KSA has a vastly expanded rig count as they expand drilling operations to produce more oil (odd behavior for a nation with an alleged 3.5 mbd of spare capacity?).

The simplest and therefore most likely explanation for all of this is that the KSA does not actually have 12.5 mbd of total capacity, it is already at peak, and it's now struggling to maintain even 9 mbd of total output on a limited basis.

Of course, there are other possibilities, but since those will not shake the world to its bones if they happen to be true, the safe course of action here is to go with the ‘KSA is at peak’ story.  Sooner or later it will be true, so there’s not a lot of harm in being early to it, while being late could be costly.

Now let's move onto the last part of this puzzle: demand.


Japan Teeters Over

Tuesday, May 24, 2011, 8:58 AM

The first-quarter economic results for Japan were grim, revealing an annualized rate of contraction of -3.7% over the first three months.  Note that the earthquake struck on March 11, so there really are only a couple of weeks of "earthquake impact" in that number.

The next quarter’s numbers will be even grimmer (that’s a prediction), and this will catapult the Japanese deficit and sovereign-debt readings into brand-new territory. » Read more


Gold & Silver

Tuesday, May 17, 2011, 3:49 PM

In response to the last piece, several of you asked me to clarify my views on gold and silver, especially regarding whether this is a good time to buy...or sell.  Here are my thoughts.

I’m going to preface the views that follow by saying that they utterly depend on QE II (quantitative easing) ending on schedule and as advertised. There are numerous ways that the Fed might short-circuit the proposed termination of QE, such as simply calling "additional money-printing" something else, asserting that it is being done for some other purpose, or other new sets of reasons. What we are looking for, very simply, is for the Fed’s balance sheet to stop expanding. Even here we have some difficulty. Although the Fed publishes the data at a high level, we cannot easily track whether or not it is playing games by revaluing the assets already on there, or even whether the Fed is being truthful. Without an audit, we’ll never really know.

» Read more


Positioning For The Coming Rout

Thursday, May 12, 2011, 12:23 PM

Positioning For The Coming Rout

Thursday, May 12, 2011

Executive Summary

  • What private and public debt levels are telling us
  • Housing's prospects for worsening the situation
  • Why endless compound growth is impossible
  • The crushing pain of a deflationary downdraft
  • Predictions and conclusions for the future

Part I - Why Growth Is Dead

If you have not yet read Part I, available free to all readers, please click here to read it first.

Part II - Positioning For The Coming Rout

Looking Deeper 

Okay, that's the big picture. It is why I am convinced that the next twenty years are going to be completely unlike the last twenty years. For starters, we're not going to be able to double credit this next decade, and that alone is a big shift with huge implications. But we're also going to be facing higher energy costs, which will further impair the smooth operation of the economic machine, because energy is an input cost to literally everything else. 

But to have an idea of what is going to happen next (say, over the next year) so that we can make better personal and investment decisions, it's important to dig a little deeper into the data. Here we want to lift the covers on total credit market debt and housing because these are the key elements of this story.

Total credit market debt is first broken into two main buckets: financial and non-financial sector debt. Financial sector debt belongs to commercial banks, savings institutions, credit unions, life insurance companies, brokers, dealers, and government-sponsored agencies. Non-financial sector debt belongs to households, businesses, and governments.

At this level we already see where some of the trouble lurks.


The Rout Is On

Saturday, May 7, 2011, 9:01 AM

The rout is on.  More market weakness lies dead ahead - unless the Fed reverses course, and soon.

Eight weeks ago, on March 8, 2011, I wrote that there was a very high chance of a rout in all of the major markets - stocks, bonds, and commodities - due to the sudden disappearance of quantitative easing (QE) money at the end of June.

Since markets are supposed to be forward-looking, if the 'rout' thesis is correct, we'd expect the markets to begin selling off well before the last POMO. Perhaps even right about, oh, say this past week.

But first, let's review what I said in The Coming Rout:

» Read more


What The Recent Volatility In Gold and Silver Means

Tuesday, May 3, 2011, 1:30 PM

Following several months of remarkable price appreciation, precious metals (PMs) have been experiencing whipsaw volatility over the past 48 hours. Quite understandably, PM investors (and those thinking about becoming ones) are trying to make sense of what's next for gold, silver, and the miners. Many of you have written in to us with the questions you're most interested in getting insight into.

This morning, I spoke with three respected experts in the precious metals field. According to their expertise, I put a brief question to each: 

  • What's behind the current downdraft in bullion prices? (Ted Butler)
  • Having lagged the increases seen in the metals, are the miners attractive here? (Frank Barbera) 
  • For money looking to enter the PM market, is now a good time to enter? (John Doody)

Here is the summary of their responses:

» Read more