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Things Are Unraveling At An Accelerating Rate

Because the option set for system "saves" is exhausted
Wednesday, March 18, 2015, 1:36 PM

Does anyone else have the feeling that things are not just unraveling, but that the unraveling is gathering speed?

Though quantifying this perception is more interpretative than statistical, I think we can look at the ongoing debt crisis in Greece as an example of this acceleration of events.

The Greek debt crisis began in 2011 and reached a peak in 2012. The crisis was quelled by new Eurozone/IMF loans to Greece, and European Central Bank chief Mario Draghi’s famous “whatever it takes speech” in late July, 2012.

The Greek debt crisis quickly went from “boil” to “simmer,” where it stayed for almost two-and-a-half years. But no one with any knowledge of the gravity and precariousness of the situation expects the latest “extend and pretend” deal to patch everything together for another two years.  Current deals are more likely to last a matter of months, not years.

We can discern the same diminishing returns in Federal Reserve/central bank interventions, as the initial rounds of quantitative easing pushed stock and bond markets higher for years at a time, while the following interventions generated lower returns.

What factors are reducing the positive effects of intervention and causing increased volatility? Let’s start with the engine behind every central bank/state intervention and every “save” of the status quo: debt.

Debt Brings Forward Consumption & Income

Debt has one primary dynamic: borrowing money to consume something in the present brings forward consumption and income.  Economists describe trading future income for consumption today as bringing consumption forward. And since debt must be repaid with interest, bringing consumption forward also brings income forward.

Let’s say we want to buy a vehicle with cash, and it will take five years to save up the lump-sum purchase cost.  We forego current consumption to save for future consumption.

If we get a 100% auto loan now, we get the use of the vehicle (present-day consumption) and in exchange, we sacrifice some of our income over the next five years to pay back the auto loan. We brought consumption forward, and in essence took future income and brought it forward to pay for the consumption we’re enjoying today.

We can best understand the eventual consequence of this dynamic with a simplified household example. Let’s say a household has $2,000 a month in net income, i.e. after taxes, healthcare insurance deductions, etc., and rent (or mortgage payments), basic groceries and utilities consume $1,000 of this net income. That leaves the household with $1,000 in disposable income.

At the risk of boring finance-savvy readers, let’s briefly cover the difference between net income and disposable income. Net income can be earned (wages, salaries, net income from a sole proprietor enterprise, etc.) or unearned (dividends, interest income, rents, etc.) Net income can only rise by making more money or reducing taxes. There are limits to our control of these factors. In a stagnant economy, it’s tough to find better-paying jobs and harder to demand higher wages from employers.  Since governments’ expenditures are rising, taxes are also going up; it’s difficult for most wage-earners to cut their total tax load by much.

Disposable income is more within our control, as it is fundamentally a series of trade-offs between current consumption and future income/savings: if we choose to consume now, we have less income to save for future consumption or investments.  If we sacrifice consumption today, we have more money in the future for consumption or investing. If we borrow money to consume today, we’ll have less future income because a slice of our future income must be devoted to pay down the debt we took on to consume today.

If our household borrows money to buy a vehicle and the payment is $500 per month, the household’s disposable income drops from $1,000 to $500. If the household takes on other debt (credit cards, student loans, etc.) with payments of $500 per month, the household’s disposable income is zero: there is no money left to dine out, go to movies, pay for lessons, etc.

In effect, all of the future income for years to come has been spent.

The Only Trick To Expand Debt: Lower Interest Rates

There are only two ways to support additional debt: either increase net income, or lower the rate of interest on new and existing loans to free up disposable income.  Suppose our household refinances its auto loan to a much lower rate of interest and transfers its credit card debt to a lower-interest rate card.  Huzzah, each monthly payment drops by $100, and the household has $200 of disposable income to spend on current consumption or on more loans. Let’s say the household chooses to buy new furniture on credit with the windfall. This new consumption brought forward pushes the monthly debt payments back up to $1,000.

This additional debt-based consumption profits two critical players in the economy: the state (i.e. all levels of government) and the financial sector. The state benefits from the higher taxes generated by the sales, and the financial sector profits from transaction fees and the interest earned on the new loans.

The household’s consumption and debt rose as a result of lower interest rates, but there is a limit on this dynamic: lenders have to charge enough interest to service the loan, reap a profit and compensate shareholders for the risk of default. 

If lenders fail to properly assess the risk of default. They will be unprepared to absorb the losses incurred as marginal borrowers default en masse. This places the lender’s own solvency at risk.

Using this trick to enable further expansion of debt thus creates a systemic risk that borrowers will over-borrow and lenders will not have sufficient reserves to absorb the inevitable losses as marginal borrowers default and other borrowers suffer declines in disposable income that trigger further defaults.

In other words, the trick of lowering interest rates yields diminishing returns: the more debt that is enabled,  the thinner the margins of safety and thus the greater the systemic risks rise in direct correlation with rising debt loads.

The Trick To Increase Consumption: Punish Savers

While lowering interest rates increases disposable income and enables an expansion of debt, it also generates a disincentive for households to forego current consumption by saving disposable income rather than spending it.  Near-zero interest rates actively punish savers by reducing the interest income earned on low-risk savings accounts and certificates of deposit (CDs) to near-zero. Savers are pushed into either investing in high-risk markets that benefit the financial sector or by spending rather than saving—a choice that benefits the state, as more spending generates taxes for the state.

The Global Expansion Of Debt Has Increased Systemic Risks

These are the basic dynamics of the entire global economy: interest rates have been pushed to near-zero to punish savers and encourage expansion of debt-based consumption. But this inevitably leads to a reduction in disposable income and current consumption, as debt brings forward both consumption and income.

Once the borrowers have maxed out their borrowing power, there is no more expansion of debt or additional debt-based consumption.  This is known as debt saturation: flooding the financial sector with more credit no longer boosts borrowing or brings consumption forward.

Those who brought their consumption forward can no longer add to present consumption, as their future income is already spoken for.

That’s where the global economy finds itself today.

This vast expansion of debt on the backs of marginal borrowers and the expansion of risky investments has greatly increased the systemic risk of losses from defaults arising from over-extended borrowers.

No wonder every attempt to further expand debt-based consumption is yielding diminishing returns: net income is stagnant virtually everywhere in the bottom 95% of the populace, and further declines in interest rates are increasingly marginal as rates are near-zero everywhere that isn’t suffering a collapse in its currency.

The diminishing returns manifest in three ways: the gains from each round of central-bank tricks are declining, the periods of stability following the latest “save” are shrinking and the amplitude of each episode of debt crisis is expanding. 

That things are speeding up is not just perception—it’s reality.

In Part 2: The Coming Age Of Confiscation, we’ll look at the threat of the other fundamental driver of rising instability: the broken-logic TINA (there is no alternative) mind trap our global leaders are mired in. As the trajectory of the status quo worsens for all the reasons discussed above, government will become increasingly heavy-handed in appropriating the remaining wealth in order to keep things stumbling on just a little bit longer -- justifying its actions by claiming it "has no other choice".

Click here to read Part 2 of this report (free executive summary, enrollment required for full access)

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43 Comments

climber99's picture
climber99
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Posts: 183
Your savings are someone else's debt

97% of money in circulation is created as debt.  Your savings are someone else's debt. Got that ?  Worth repeating. Your savings are someone else's debt. Hard to get your head around.

The consequences of this is that If they can't repay their debt then they will come after your savings.  Hard to take, I know, but the system is what it is.  They will do this through inflation, negative interest rates, confiscation of money in your account, taxes etc.

Ed

ps the only way that the system can avoid this happening is to maintain infinite growth on our finite planet !!

Time2help's picture
Time2help
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Great point
climber99 wrote:

97% of money in circulation is created as debt.  Your savings are someone else's debt. Got that? Worth repeating. Your savings are someone else's debt. Hard to get your head around.

The consequences of this is that If they can't repay their debt then they will come after your savings.  Hard to take, I know, but the system is what it is.  They will do this through inflation, negative interest rates, confiscation of money in your account, taxes etc.

That is a really well put.  Thanks Ed.

charleshughsmith's picture
charleshughsmith
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and debt is somebody else's asset

Excellent point, Ed. And we can add the second half of that: our debt is somebody else's asset. So when we talk about Debt Jubilee, we're talking about wiping out trillions of dollars in assets held by pension funds, insurers, 401K retirement accounts, etc.

TANSTAAFL--there ain't no such thing as a free lunch.

thc0655's picture
thc0655
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Not all savings are debt

If your savings are in "the system," (banks, etc), then your savings ARE someone else's debt.  But if your cash savings are in physical currency then much of that is avoided.  Cold, hard cash is still the debt of the Federal Reserve in the US, even though it isn't redeemable for anything.  I don't have to worry about the bank  being unable to honor my check or savings withdrawal slip. I only have to be concerned about whether the whole currency system will implode.

OTOH, if your savings are in tangible assets held in one's actual possession (gold, silver, land, etc.) then those savings are not someone else's debt.  I'm not holding my breath hoping someone will repay me my savings when I need them.

Bankers Slave's picture
Bankers Slave
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"OTOH, if your savings are in

"OTOH, if your savings are in tangible assets held in one's actual possession (gold, silver, land, etc.) then those savings are not someone else's debt.  I'm not holding my breath hoping someone will repay me my savings when I need them."

 

Looks like you have prudently concluded your own wealth transfer prior to the impending crash deadline. Let us all replicate this fine example as best we can!

Please bear in mind that the rapacious nature of the state can legally confiscate or force us to dispose of any property that we protected from the debt ridden financial system. It might do this in a desperate attempt  to survive. Let us hope that it does not come to that.

Jbarney's picture
Jbarney
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Charles Hugh Smith

Anybody can make predictions, but I became a little more interested in Mr. Smith's writings and points of view after his prediction last year that the dollar would actually strengthen.  At the time many of us were wondering when the ravages of inflation would take hold, especially with QE3 still alive at the back then.   I thought it was interesting he was calling for strength in the dollar at a time when a lot of us were thinking weakness would be the "obvious" outcome.

So I read the first part of this report with interest, and am intrigued by the title to Part II.  I immediately started to think of ways where TPTB would start to confiscate things of value...and some of the most logical paths would seem to be movement on a couple of "legal" fronts.  Raising the retirement age for social security benefits and asking pensioners to contribute more to current pensions will probably be two "quick fix" suggestions if the next crisis doesn't happen too quickly or if it is not too large.

Beyond that, I would expect further bailouts from taxpayers at the national level (unfortunately we are already on the hook for some risky bank endeavors) or even the discussion about bail ins starting to surface.  I believe bail ins fit the bill of the conversation happening in the above posts.

Sad to think we are about to enter an "Age of Confiscation".

climber99's picture
climber99
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Inflection point coming.

An inflection point may be just round the corner.

"Energy ascent" = "Age of Accumulation"

"Energy descent" = "Age of Confiscation"

The circle completes.  Humans started out as a wood burning society, reaches to the moon, returns to a wood burning society.  (Unless we follow the Easter Island business model)

Ed

Phaedrus the younger's picture
Phaedrus the younger
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easter island, land "ownership"

Land ownership always seemed an oxymoron to me if you consider the land tax as a form of rent payment.  The worst part is there are no 'rent' controls on these taxes....

ps I wonder how many years the planet's forests would last if wood burning became our primary fuel source?  Has anyone done a calc to see how many BTU's of wood exist in North America vs annual BTU consumption we use for heating?

aggrivated's picture
aggrivated
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capital punishment for cutting a tree

I'm open to correction on the front end (unlike Brian Williams), but if my memory serves me correctly, the Irish very quickly burned through their trees and so the king(s) instituted capital punishment for the second offense of cutting one of the kings trees--all trees belonged to the king(s).  I think I will go for a black roof and water tank sun collector for heating--the government will have a hard time claiming the sunshine.

debu's picture
debu
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Ravages of Inflation

If Adair Turner http://www.ejinsight.com/20150317-japan-debt-it-s-not-what-it-looks-like/ (H/T Naked Capitalism) is correct inflation is some way off as it seems Japan is on its way to successfully monetizing its much of it debt without consequence apart from some currency weakness.

I seem to recall Ambrose Evans-Pritchard musing that the BoE should be able to get away with doing the same.

So far, so bad or so good depending on one's perspective. For Japan and the UK good. For PM investors not so much.

It would seem, though, that this genius monetization scheme will break down eventually with the catalyst and timing unknowable.

Wait for the snow to melt and grow vegetables in the meantime, I suppose.

davefairtex's picture
davefairtex
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bank credit & currency: a picture

Climber99-

I agree with the other posters, that's an awesome summary.  All forms of currency are someone else's liability at the same time they are your asset.  And as best I can tell, they all are backed up by some amount of debt.  However, there are some important distinctions to be made.

Currency, as Tom pointed out, is a liability of the Federal Reserve itself - probably the last domino to fall in our monetary system.

Bank credit, on the other hand, is a liability of a normal bank.  Banks die all the time, and if FDIC insurance turns out to be not enough, the difference between a liability of the Fed itself and a liability of one of its member banks might end up being very, very significant.

So in a real SHTF scenario, bank deposits and FRNs may end up acting quite differently.  Its easy to seize (bail-in) your deposits.  It is much less easy to seize your FRNs.

Currency, it turns out, is about 10% of M2 - total bank credit in the system.  (Note: M2 includes retail money market accounts, which often are comprised of short term bonds, and are thus not strictly bank credit.  But that's just a note for the geeks.)

Hladini's picture
Hladini
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Passive Solar: A Way to Save Trees

Our energy consumption pyramid:  buildings are number 1 for energy consumption,  animal agriculture is  number 2 for energy consumption, and transportation is number 3 for energy consumption.

Building passive solar homes and offices would manage a large part of our energy predicament.  With a passive-solar design, there is no need for an AC/Heating unit.  The temperature of the building stays the same throughout the year no matter where you live. 

If we built new and retrofitted existing buildings for maximum energy efficiency, we could take a big bite out of energy consumption, and create jobs!  If we all switched to a vegan diet, then the number two energy consumptive activity would be routed.  Finally, developing walkable communities would take another big bite out of our third most energy consumptive activity.

robie robinson's picture
robie robinson
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If we all switched to a vegan diet, then the number two energy

http://permaculturenews.org/2013/09/19/healing-the-planet-through-photos...

 

 

climber99's picture
climber99
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How our money system works.

A really good description of how our money system works and a possible alternative here:

www.resilience.org/stories/2015-03-18/the-grexit-proposal

 

I learning things from it.

 

aggrivated's picture
aggrivated
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davefairtex's picture
davefairtex
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alternate money system

Climber-

The mechanism of money creation described in your link would work just fine.  And it avoids the whole issue of the government having to pay interest on money that (more or less) it could create itself.  Why governments pay interest on money they can just print themselves is beyond me.

The thorny issue would be primarily one of which entity controls the rate of money printing in the society.  It is a simple matter to create a boom if you have control over the rate of printing.  If you are the government in power, changing that magical rate of printing will make everyone feel really good - assets go up, everyone gets more money, etc, and you will stay in power.  No need to have budget limitations.  Everyone gets everything they want!  And for all the best reasons!  Yay!

Here's my suggestion.  To leash the dragon of "government currying favor with citizens by endless print-fests" (gee, do u imagine they'd do that to stay in power), I would propose adding three things:

1) demand deposit accounts can either be denominated in gold (stored by the government or elsewhere, convertible on demand.  The gold in storage must be audited yearly, and must be fully reserved/allocated) or in currency.  Transfer between gold and currency is a tax-free event.

2) full transparency on the amount of money printed each month vs the money in circulation.

3) A properly run futures market with position size limitations to discover actual price for gold, operating 24/7.

Once I can protect myself from government shenanigans of too much money printing, I don't care if the government prints like crazy.  Money will slosh right into gold and out of currency, removing currency from circulation.  It allows savers to easily execute a vote of "no confidence" in the government if they get too crazy.

Make it part of the consitution - and its all one package deal - and I'm fine.

However, without easily available protection for savers, we end up with Zimbabwe.

I really like the "fully reserved" demand deposit accounts.  I'd love to have one right now.  I've often thought  of opening "The Fed Bank" which simply took all its deposits and dropped them off at the Fed.  No possible way this bank could ever go under.  It would have to charge monthly fees for managing the deposits, but - talk about safety!  No need for FDIC.

climber99's picture
climber99
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Sorry I can't help you, Dave

People try to invent new monetary systems all the time.  I have no idea if your suggestion would work or not.  None.  

At the end of the day "money" is a human construct that is claim on energy.  The value of this "money" depends on how much of it is circulating in relation to energy (past and present) in circulation.  Past energy, by the way, is energy used in extracting resources and embedded in objects like houses, cars and iPhones etc.

The important thing is energy.

Ed

gillbilly's picture
gillbilly
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Yes, but the foundation

Climber, Money is a human construct. It is many things, including a claim on future energy. But the bedrock of all currency is trust, which is based in collective human emotion. If the majority of the population distrusts the currency it has no chance of success. It doesn't matter if it's backed by gold, silver, wheat, dirt, or nothing/everything. I've been reading the "Wealth of Nations" again, and the thread that runs through all of Smith's writing on money is that trust is the ultimate foundation.

It all comes full circle in our ability to build community where individuals trust each other. As PP says "trust yourself," but ultimately we have to trust each other. We don't trust the FED, we don't trust the government, we don't trust TPTB, we don't trust people outside our circle, etc.. Switching monetary systems in this case will not solve anything, because the foundation will be the same. We already have the answers, but our hearts are not open to them.

Jbarney's picture
Jbarney
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Posts: 233
Good Question
Phaedrus the younger wrote:

Land ownership always seemed an oxymoron to me if you consider the land tax as a form of rent payment.  The worst part is there are no 'rent' controls on these taxes....

ps I wonder how many years the planet's forests would last if wood burning became our primary fuel source?  Has anyone done a calc to see how many BTU's of wood exist in North America vs annual BTU consumption we use for heating?

 

I have been thinking about the question you raise here for a couple of days, on and off.  I was raised and have lived in Vermont all of my life, where some form of heating system is needed somewhere between 4-6 months of the year.  As resource scarcity based on population hits the economy, it is natural to assume people might go back to trying to heat their homes with wood.  Easy.  Simple.  As peak oil unfolds, it will probably be much cheaper than some of the alternatives.

So....Even up here in Vermont, there has been a bit of a transition away from old fashioned wood stoves over the last 10-15 years.  The number of homes which have pellet stoves has increased dramatically.  I don't know for sure but I would imagine that a company making wood  pellets make a point of knowing how much wood they have available for the process.  If they didn't they would be idiots.  So I imagine they talk to different suppliers and long term forest management is in the cards.  Long term management of their product. 

That said...I would imagine a move away from fossil fuels would push people back to old fashioned wood stoves or something similar.  Your question about everyone heating their homes with wood is thought provoking, but not as encompassing as one might think.  At least at this point in time, and things could change abruptly, nobody knows, a good deal of the population doesn't have to do much to heat their homes at all.  Anyone living in the southern portions of the US....it is just not a good investment to go about buying home heating for the amount of time the temperatures are uncomfortably cold.  I have never lived in the south, but I would expect uncomfortable winter nights are something that people could just deal with.  Could be wrong.  Same consideration for many parts of the globe.  So the strain on wood resources would be heightened, but not a critical or scary change.

I would also think that as changes occur, some of them abrupt, some of them long term, that long term management of wood resources becomes a generational theme.  Much like the development of orchards or Maple Sugar woods today.  People and business would know they would have to be patient, thus they would take care of the trees in a sustainable manner.  If people can profit off from something, you would think they would grow to understand how to treat it.

You have me thinking about small scale energy economics and Chris's comments in the Crash Course and "What Do I Do?" series about the value of timberland and acreage in the future.  I would imagine these would be sound, safe investments.  Obviously wood would not be the only productive avenue for the land, but in a world where the price of natural gas/home heating oil/propane is likely to increase greatly over time, woodlands could be a GREAT long term investment.

I am a history teacher, so I thought I would add this little piece.  A future where natural resources are "governed" would not be the first time wood and tress were deemed critical by government.  Up here in Vermont, many of the town charters....created in the 1760s, specifically state that many of the trees in each town should be reserved for the King of England and his efforts to put ships on Lake Champlain.  Given how the world has changed, one wonders what such language might look like in the future.

Peace.

Phaedrus the younger's picture
Phaedrus the younger
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wood pellet stoves

Jbarney, we have a wood pellet stove as our main heating source here in the great white north.  It seemed like an excellent choice for environmental reasons and we took comfort that the pellets were likely made from sawdust that was waste from local sawmills.   But we've noticed this past winter that supply was less reliable because demand had picked up.   My fear is that the suppliers will move beyond reclaiming waste to actually dropping trees in order to create sawdust to meet demand.  Sadly, there's no free lunch...

rlmrdl's picture
rlmrdl
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Punishing Savers

There's only one error in the piece that I can see and it is the assumption that savers are being punished. This is wrong. Those who require a return on their surplus cash are not savers, they are investors. Admittedly at a very low level, but by seeking rent they are buying into the same game as the rest of the financial smart people.

I am a saver, I have accepted that the return on my savings is shrinking but it has been my contention since 1998 that capital preservation is the key to the next phase which is massive deflation. The vanishing interest rates and the inability of the Fed to risk raising them are both very clear signals that capital is being extinguished and that deflation is proceeding as some, including Chris, have predicted for a long time.

When I look at the small returns on my cash in the savings account I also do a rough guess at the increased long-term value of that preserved cash. Don't get me wrong, I have no illusions about the safety of anything I leave in a bank and since we are moving into the confiscation phase I have also been spending down any new surpluses into land, fertilisers, seeds, tools and skills development. But whatever cash I do hold is steadily rising in value and I account for that in my thinking.

BTW, I also understand climber99's point that all my savings are someone else's debt. In the early 00's, when everything was zooming, we used that easy money to pay off our debts and then to get out of any "financial investments", converting it all into savings. We have also used the rise in urban property values to move out of town and increase our landholding from 1,000 sq/m to 40,000 without new debt. We are spending some more on transport costs to my wife's work but the fall in fuel prices is offsetting some of that and the increased food and fuel production is offsetting most of the rest.

I disagree with CHS, however, the vast majority of debt is not borrowed from someone else's savings as in a pension fund, it is debt created out of thin air by the banking system. A debt jubilee would suit me fine because I acknowledge that I have already had my jubilee by using other people's debt to extinguish my own. That has not diminished the total amount of debt, just transferred it to some other borrower and since my life is significantly better on the back of that borrower's pain, I would be OK with their pain being alleviated.

The so-called savings of pension funds etc are also transferred debts that are being used to seek rent for those able to set them aside. But the math of pension funds is itself a fiction and will collapse anyway, the theft occurs on the first day that you put any money into them with the expectation that you will be able to live on the proceeds. The fund steals the money and pays a chunk of it to pay its top people while chasing risk with your savings. When that eventually blows up, the fund collapses, the top people still have the wealth they stole (unless they drink their own kool aid of course) and their responsibility to you is zero, its a great scam while it lasts - believing the propaganda is the failure, not the final denouement.

rlmrdl's picture
rlmrdl
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Almost 100% with you

The only disagreement is that they will confiscate through inflation. This has been the goal for the last 8 years with trillions of new "money" being created in a vain attempt to spur the inflation they need. This has been accompanied by dire warnings of hyperinflation because creating that much money in the past has always led to huge inflation.

But in the past the money was created unencumbered by Treasuries literally printing it, since all new money is now created as debt it has the brakes on its effects already built in, as was designed by those who made the decisions that governments would no longer be permitted to create money, only to borrow it, supposedly as a financial discipline. 

All that's happened is that the moral hazard has been relocated to the financial and banking system itself.

But as you say, there are other tools, negative interest rates are one, leading to actual savers removing their cash from the bank and placing it in land, precious metals, booze etc. That will make the final stage of actual confiscation even harder for the state/banking complex to achieve so I would guess there is a limit to how far they can push that process.

Since the systematic collapse of the economy is removing what remains of any savings from most people's accounts and since only those with the power to resist confiscation (ie the 001%) will have any wealth to steal, I'm guessing that the final stages of collapse will be very fast indeed as the last few options are run through in double-quick time.

rlmrdl's picture
rlmrdl
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Wood Pellet Stoves

My main objection to wood pellet stives is that the supply of pellets is embedded in the failing system. It requires

a) a profitable company able to keep making the pellets to fit your stove and

b) your continuing income able to afford to buy the fuel. Even if the fuel is sustainable, if your income source isn't, you will go cold.

We have bought a place with many trees, the last of which were pruned to a workable hgeight last week at some expense. Our aim is that all the harvestable wood on the property should be 100mm or less and able to be reached with a hand pole-saw. Then all we have to do is grow enough food to keep us fit enough to hand cut about 5 tonnes of fuel a year. Which is why I'm looking for some kind of rocket-stove-based oven/water heater/space heater which could cut that demand by about 60%.

robie robinson's picture
robie robinson
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Fiat dollars could be turned

into pellets.

If the fed keeps printing it seems you won't get cold

Jbarney's picture
Jbarney
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Joined: Nov 26 2010
Posts: 233
Pellet Stoves

I do understand the points being raised about the problems with wood pellet stoves.....believe me my original post was designed just around this point.  Much of what we are talking about depends on the phases or the levels of collapse.  If we are on the verge of re-entering the dark ages, yes, wood pellets are a worthless investment.  However, if we are in a long period of collapse, then pellet stoves and wood stoves might be a good safe investment.

Pellet stoves do have their problems, yes.  This year has not been the only year of rationing in the northeast.  Last year's cold temperatures, and the length of their duration also brought on the need to ration pellets.  One of the aspects of pellets stoves that I fear is there need to be connected to the grid.  Yes they can run off a generator, but you still need the fuel.

All of this in mind, I lived in town house in Colchester VT for four years, about 1500 square feet, with the primary heat source being a pellet stove in the basement.  When it got really cold, especially upstairs, we turned on the monitor heater to supplement the warmth of the house.

Don't get me wrong....wood stoves are great.  I actually prefer them.  Having one brings on its own set of issues, some of them similar, but not exactly the same as pellet stoves.  The Chimney usually needs to be cleaned once a year, requiring a ladder.  Downing trees, cutting them up into the appropriate lengths, drying the wood, and having ample stacking space also become issues.  In a true collapse scenario a wood stove would be the primary method of heat that I would want, as it does not require electricity to run the fans, etc.  Just cleaning the ash pan regularly.  Even a large house can run a small wood stove to prevent the pipes from freezing.  45 degrees in the winter inside a house may not be ideal, but it beats the alternative.

Good discussions.

 

kaimu's picture
kaimu
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Posts: 160
ASSET IS AS ASSET DOES!

ALOHA!! Like our money government and central banks dictate what "assets" are. They tell us which assets are the least risky and it is no surprise they define government debt as a "risk free asset"! Well, lets face it ... as close to risk free as possible in a world operating under the Debt Standard. 

My Father who used to work for Chevron all his life told me from a very young age why he bought Chevron stock. In those days for every share he bought the company gave him one as an incentive once he vested. Aside from that great deal he said the real reason he bought Chevron stock is that if Chevron ever went bankrupt that would mean that the US government was already bankrupt. He felt that private industry, especially the oil and gas industry would survive any government collapse. When you are in your 20s you hear stuff like that and you think ... hmmm! Okay ... now what??? It does not mean much and it never meant much to me until I realized I had something to lose in this "game"! Once I started making serious money from my own businesses I understood that preserving wealth was the name of the ultimate game! When you're in your 20s working for others your just "numb" ... you're getting by on minimal income. When you're making $400k a year you start to really pay attention to who is always in your pockets. In my case it was always government, either IRS or State of California, not to mention all the other lower governments. I always thought of myself as a guy with a wheelbarrow full of $400k in $100 notes running down the street as other people grabbed at my cash! HA!! Was that an absurd analogy? NO ... If someone making $400k a year thinks that imagine what does someone like Steve Jobs think! Well, at that level he hires a bunch of attorneys and bankers to think for him! As we see sometimes that works and sometimes it doesn't. What rich person is proud of investing in Bernie Madoff's company now? Or Enron? Or WorldCom? Or Global Crossing? Or Lehmans? Or Bear Stearns? The rich lose, its just they have more to lose! And there lies the real issue when it comes to corrupt government.

The problem with these 100% risk free guarantees that the US government backs is that now in order to keep that guarantee somewhat guaranteeable the government is forcing many working Americans to invest in that debt. That would be stuff like G FUND and C FUND and many pension funds and annuities are forced there also. Why forced? Well either by government dictate or the choice of the "lesser evil".

Still GIGO prevails in all instances ... This is the principle of Garbage In-Garbage Out, not unlike FIFO except that GIGO infers "quality" not "quantity".

Defined as ...

Computer industry phrase. Denotes that a program working on inaccurate data yields only misleading results. Promotes the attitude of assuring high quality of source information for a computerized system to better assure the quality of the results produced. Quality is composed of several characteristics of computerized information. These are in part: accuracy, completeness, relevance, and timeliness.

QUALITY is the key word. Could we define US government debt as "quality" when compared to Chevron debt? The Debt Standard produces GIGO debt money while Chevron is much less likely to have GIGO define its debt issaunces mainly because Chevron produces a product that supports the masses while the US government debt supports only those who are closest to government and its debt spigot. In a convenient corrupt world that means central banks and their member banks.

What corrupt government and its money invariably ends up producing throughout history is "war" and that is the ultimate "garbage out" in the equation! Therefore any monetary system that aids in limiting government powers has a much better chance of promoting peace over war. Look at any past world war and they all thrive on "debt". We now have the perfect system for perpetual war in place ... the Debt Standard! Good for politicians, bankers and defense contractors ... bad for all Middle Class wage earning families!

 

 

 

 

 

 

pinecarr's picture
pinecarr
Status: Diamond Member (Offline)
Joined: Apr 13 2008
Posts: 2244
Root root-cause of financial crisis

I stumbled on a great quote on the top banner of Jesse's Cafe Americain, http://www.jessescrossroadscafe.blogspot.com/

"the financial crisis which we are experiencing makes us forget that its ultimate origin is to be found in a profound human crisis. In the denial of the primacy of human beings! We have created new idols. The worship of the golden calf of old has found a new and heartless image in the cult of money and the dictatorship of an economy which is faceless and lacking any truly humane goal." Francis I

Christopher H's picture
Christopher H
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Joined: May 29 2009
Posts: 148
Heating with wood

I think that the question regarding using wood for a primary fuel source needs to be clarified, or perhaps approached from a slightly different direction.  If we want to burn wood in order to maintain the levels of winter space heating that we've become accustomed to in cool-to-cold temperate regions, then I agree -- our forests will be cleared in short order.  But it doesn't have to be this way.

Frank Aragona has done a couple of shows on his Agroinnovations Podcast regarding the largely untapped biomass industry (basically tapping into the immense stream of material that comes from the thinning of forests and clearing brush for forest fire prevention).  Here's the links to the two shows:

http://agroinnovations.com/podcast/2015/02/09/episode-167-the-us-endowme...

http://agroinnovations.com/podcast/2014/12/22/episode-161-the-wood-bioma...

Then there's also the Jean Pain composting mound approach -- he regularly shredded woody brush cleared from the forests of his farm in France, and used the heat generated by decomposition in massive mulch piles to supply all of his heat and hot water for his farmhouse.

http://www.motherearthnews.com/organic-gardening/jean-pain-zmaz80mazraw....

Making use of this kind of a resource -- especially as fossil fuels become more dear in the future -- could be a viable approach.  But it also requires a few other measures that I'm not sure we're quite ready for.  They include:

  • Learning to make use of conductive heat (i.e. heating a bench you're sitting on) as opposed to radiant heat (heating the space)
  • Heating a smaller space (i.e. one room) rather than an entire house
  • Learning to live in cooler temperatures (putting on long underwear and sweaters so we're comfortable in a 52F house as opposed to a 72F house in January)
  • Retrofitting and adjusting our housing designs to better take advantage of heat flow and stack multiple functions into burning firewood (see Ben Falk's VT homestead as an excellent example here: http://www.permies.com/t/21011/homestead/Wood-burning-Ben-Falk-book)

So, in my view there isn't an inevitability that wood supplies will be stripped in short order -- but avoiding that fate means that those of us who are in a position to do some innovation on this front get busy.  This way we have established examples of how to live more comfortably when TSHTF.

charleshughsmith's picture
charleshughsmith
Status: Platinum Member (Offline)
Joined: Aug 15 2010
Posts: 716
a most interesting discussion

Thank you all for contributing to a most interesting discussion. Here are a few semi-random points:

1. Davefairtex's chart suggests holding actual cash is a good idea. This is known as the coffee-can or jelly-jar bank.  Actual cash, being such a small % of total "money," can very easily drift into scarcity.

2. Some academic studies (sorry, can't find the link) found that money systems that borrow their money into existence (i.e. modern central banks) do not experience hyper-inflation (at least historically)--that is a characteristic of sovereign money. As long as the state runs the printing press, printing more money will always be the least painful option. IMO this means the only sustainable money is non-state, i.e. the old stand-bys gold and silver or digital currencies.

3. As I have argued for years, Greece would do well to just adopt the US dollar for its currency. This would immediately stabilize its economy, but it would dis-allow trickery such as money-printing. The state hates to lose the trick of just printing money, but that always fails--see Argentina et al.

4. While a debt jubilee would not harm cash, it would destroy student loans ($1 T), mortgages ($10 T) and auto loans, credit card debt, etc.-- not a huge % of total household wealth (roughly $80T in the US) but enough to trigger a free-fall in pension funds and other owners of debt-as-assets.

5. My call on the USD strengthening was actually pretty straightforward: the amounts of USD created by the Fed have been quite modest compared to the global debt machine, so an eventual scarcity of USD was baked in.  Also, the fact that Treasuries are still yielding 2% while the rest of the world is heading for negative interest rates means capital will flow to USD. Lastly, the economies of Europe, China and all the developing-world economies that depend on them are in deep structural trouble--which is why Chinese millionaires are buying everything they can get their hands on in Europe and North America--vineyards in Bordeaux is the latest craze, it seems. If China was really so wonderful an investment, you'd see capital selling Bordeaux vineyards and rushing to invest it in China. Instead, trillions of yuan are flooding out of China--and also out of Europe. Much of it will end up in USD.

It's thus easy to say the current weakness in the USD is just a B leg retrace that will be followed by a much bigger leg up once the current euphoria drains away and the global recession kicks into high gear.

6. As we all know, conservation is the cheapest form of "energy" and one of the highest-return investments over time--especially as energy costs soar after the current head-fake.

7. As for bail-ins and confiscation: we might start by considering what the top .01% own and go from there, as they will never allow the state to confiscate their wealth directly. Thus the state won't grab homes and timberland directly, but it will raise property taxes so high that those without big incomes will forfeit their homes/land to pay property taxes. Owning land in a state with Prop-13 limits on property tax is one weak (but better than nothing) defense.

As Dave noted, savings in private banks can be bailed in--a 10-year T-Bill is not going to be bailed-in because the top .01% own some T-Bills, and the Fed can always create whatever money  the Treasury needs to continue the illusion of solvency.

8. Money is a social contrivance,so some form of it will always be around. I always ask: will the top .01% really allow the state to destroy the USD? Will the Deep State allow the lackeys and toadies in the elected govt to destroy its primary asset, the USD? I doubt it. 

9. That said, like everyone else here, I want tangible assets that the state cannot expropriate without triggering a revolution. The main threat IMO is taxes, as once a citizen falls in arrears, then all their assets become fair game for confiscation. Reducing one's taxable income, stripping household costs to the bone and avoiding owning land in states that can double or triple property taxes at will are good starts IMO.

Yoxa's picture
Yoxa
Status: Gold Member (Offline)
Joined: Dec 21 2011
Posts: 285
Insulate, insulate, insulate!

One major thing to add to that list is retrofitting our houses and other building stock so they're better insulated and less leaky.

 

Improving the energy efficiency of the house you live in is one of the most profitable investments you can make.

Heating with wood or other biomass sounds great on paper but remember that it's bulky and labor-intensive. That would be manageable for some households but not others.

We actually stopped heating with wood a couple of years ago and we're now just heating with electricity, which is hydro-generated in our part of the world.

EDIT TO ADD: My reply was aimed at CAH's list, and Charles posted while I was writing. I was glad to see Charles's comment about conservation! We think alike on that score.

jtwalsh's picture
jtwalsh
Status: Gold Member (Offline)
Joined: Oct 1 2008
Posts: 268
Coming True Already

Charles: Your predictions are again, already coming true. Here in Rhode Island the new governor (who faces a sever budget shortfall after promising no new general taxes in her campaign) has floated the idea of a "second home property tax" on vacation properties valued over one million dollars and owned by of out of state residents. (I would give you websites but I am awful at doing that.  Just google RI second home tax.)  This would be the first statewide real property tax in the three hundred seventy five years of European settlement.  I would also surmise that just like our state wide income tax, created decades ago as a short term, emergency bailout, it will never go away and will be gradually extended cover all real estate.

Confiscation by small cuts and slices begins.

JT

sand_puppy's picture
sand_puppy
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Joined: Apr 13 2011
Posts: 1890
Banning cash to stop terrorism

The government of France has determined that the terrorists involved in the Charlie Hebdo shooting used CASH to purchase some of their supplies!!

Very wisely, France has decided to strike at the heart of terrorism by banning cash transactions over 1,000 Euros.

Combine the ban on cash transactions with rampant "civil forfeiture" of cash (because all cash is obviously being used to purchase drugs) and the usefulness of cash on hand is greatly reduced.

So, how stupid are we willing to be?

 

charleshughsmith's picture
charleshughsmith
Status: Platinum Member (Offline)
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Posts: 716
Confiscation by small cuts and slices

JT, this is a perfect example--first, the new tax is aimed at "rich people" (grr, they deserve it!) or 'drug dealers" ($10K + deposits in cash). Then the tax includes not-so-rich people, then everyone...

charleshughsmith's picture
charleshughsmith
Status: Platinum Member (Offline)
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Posts: 716
good point, but small money is useful

SP, that's a good point, but I suspect "small money" ($20s etc.) will play a role if for no other reason that earthquakes etc. can bring down the Internet that handles all the non-cash transactions.

Assuming drug dealers are major players in banks (it appears they are, at least in some banks), then we can expect the banking sector to defend the use of cocaine-dusted $100 bills ....

pat the rat's picture
pat the rat
Status: Silver Member (Offline)
Joined: Nov 1 2011
Posts: 116
computer money

Inflation and hyperinflation are harder to see now, that because of  computer money. A  thumb drive can have $1000000.00 on it ; not a wheel burrow full of money like the 1920 of Germany. Inflation is harder to see for many people, that includes me. This time size dose matter. 

shastatodd's picture
shastatodd
Status: Bronze Member (Offline)
Joined: Oct 16 2010
Posts: 54
power needed

unless the design has changed, a pellet stove needs power to operate, so one of the great things about wood heat (simple and needs no electrical power to operate) is gone when using these.

also i just read a report that wood stove smoke is 13 to 30% more carcinogenic than tobacco smoke... so not the best thing to breathe.

Michael_Rudmin's picture
Michael_Rudmin
Status: Platinum Member (Offline)
Joined: Jun 25 2014
Posts: 834
Therefore, I suggest a ranger smokeless wood stove

You pointed out that wood smoke is highly carcinogenic. That isn't all: it kills about 200k people a year in india, destroying their lungs. for that reason, I suggest going online and learning how to build a Ranger Smokeless Wood camp Stove. I have done so, and it works extremely well.

Once you have that, learn how to make a larger, indoor smokeless wood stove, and route the gasses up through a flue.

Phaedrus the younger's picture
Phaedrus the younger
Status: Bronze Member (Offline)
Joined: Aug 21 2013
Posts: 68
pellet stove redux

The pellet stove does require electricity to run.   As part of our home design, we have a solar system that we have the ability to switch our stove and well pump and a few critical circuits over in the event of a grid failure.  (as a test, we were able to function for 2 weeks last summer with nothing but solar)  The stove can run ~24 hours on a full charge of a marine battery.

As a backup we installed a high efficiency woodstove in the basement.

The pellet stove we got also has an air intake and exhaust from the outside to minimize the exposure to smoke and depletion of oxygen in your living space.    

I don't regret the purchase but we do worry about being reliant on supply and vulnerable to rising fuel costs.  If things get squirrely (technical term), we may retrofit with a traditional woodstove.

Jbarney's picture
Jbarney
Status: Silver Member (Offline)
Joined: Nov 26 2010
Posts: 233
Pellets

My brother apparently purchased a Harmon Pellet Stove yesterday....this is the type that I had in my basement for a couple of years.  Very nice pieces of technology if you have power.

I went around my property today, partly with this discussion in mind.  I own about 3.4 acres, and about 1/2 of it is wooded.  In northern Vermont, finding wooded areas aren't really difficult.  So I was evaluating the prospects for burnable wood on just my property.  Was trying to pay attention to trees that are dying or are already down and that could be salvaged, partly for firewood.  Different types of trees burn much better in a wood stove, but in a true collapse that lasted for several months or even a couple of years, I would burn anything I could get my hands on...I think anyone would.  Anyway, it was just a rough estimate, but just with the stuff I was noticing today...my guess is I would have enough wood for at least one winter....even if it was a cold one just like the one we are still in (When did spring start?  It was 21 degrees in northern Vermont today).   Chances are...even though I would need to purchase more saws, axes, etc...I would have enough wood for two winters, and that is without downing any trees.  Obviously, that would have to be dried for a season or two. 

This is all fascinating to think about.  Interesting to even be thinking about wood as a commodity, which is nice.  Frankly, I prefer wood heat.

Going to reach 30 degrees up here tomorrow....

robie robinson's picture
robie robinson
Status: Diamond Member (Offline)
Joined: Aug 25 2009
Posts: 1182
forest floor is fed...

...by the gleanings. ie. ifn we pull the dead fall out will there be sufficient to keep the forest fed?

 

there are too many of "us".

thc0655's picture
thc0655
Status: Diamond Member (Offline)
Joined: Apr 27 2010
Posts: 1615
Kuntsler on the gathering unraveling

http://kunstler.com/clusterfuck-nation/kicked-to-the-curb/

Ibegin to understand why the death of Ferguson, Mo, teen Michael Brown sent such shock waves through America last year. He truly symbolized our country: an overgrown, oafish, wannabe thug making one bad choice after another until his final, suicidal lurch against authority — followed by all the exculpatory lying on his behalf: the “gentle giant,” hands up, don’t shoot! This is exactly how America acts on the world stage these days. We are the Michael Brown among nations, high on exceptionalism, stoned on entitlement, swaggering moronically from one place to another grabbing what we feel like, smashing things up as we go.

Also, as in the case of the actual Michael Brown, supposedly sentient observers do not have the guts to call bullshit on all the excuses we make for ourselves. Has any self-styled presidential candidate made a peep about America’s idiotic campaign to make Ukraine the 51st state? Has Hillary (“It’s Her Turn”) Clinton asked publically why the US is egging on NATO to stage military exercises on the Russian border? Do we still have a senate Foreign Relations Committee, and does it convene once in a while? Is The New York Times so preoccupied with its “Gay Cities” index it forgot that the world is full of serious conflicts and hazards that extend beyond the choosing of apartment décor?...

Has anyone actually looked around and noticed what a scabrous sight American towns and cities present these days? There are places here in the old Yankee northeast that Borat would be ashamed to call home. We live amidst so much delaminating plastic it’s a wonder that virtually everybody doesn’t have cancer. The squalor is awesome, and to make matters worse, we’re even too lazy to clean up the stuff that is just lying around on the ground — and certainly too lazy to try to grow anything in that ground if it didn’t promise to grow up looking like a pepperoni stick or a corn dog.

America’s moment of getting kicked to the curb by other nations is at hand. I don’t think it will be a kinetic war, not right away, but it will be a hearty financial beat-down, and many of the members of our insane clown posse in Europe are going to feel the beat-down, too. America tried, at the very last moment, to join the new BRICs development bank. Who finally decided that? Barack Obama? John Kerry? Jack Lew: the Three Stooges? Get gold. If you can.

Waterdog14's picture
Waterdog14
Status: Silver Member (Offline)
Joined: Jan 18 2014
Posts: 127
Make your own pellets

It is possible to make your own pellets on a small-medium scale with a pellet mill.  Google "pellet mill" or search on ebay and you'll find several manufacturers of durable small mills for making wood stove pellets and feed pellets.  Some vendors claim that you can make pellets for wood heating from grass, tree trimmings scrap paper, and even old pizza boxes.   Biomass is easy to find, however, finding the energy to run the mill could be problematic.  A hammer mill could be needed to shred/pulverize the biomass prior to pelleting.  You would need to "run the numbers" comparing diesel or biodiesel inputs vs pellet BTU outputs.  If the EROEI works, pelleting fuel could be a viable strategy for heating and possibly bartering/producing. 

I haven't tried it.  I have a chain saw and a national forest "nearby".

And my "to do" list for this summer includes replacing older our wood stove with a modern, energy efficient stove.  A modern wood stove will burn about 1/3 the wood to produce the same amount of heat.  That will be a good investment!  (We've already insulated and replaced windows.)

darleneortiz's picture
darleneortiz
Status: Member (Offline)
Joined: Mar 26 2014
Posts: 17
Very nice explanation. i

Very nice explanation. i really liked the thoughts and ideas presented as so much of learning being delivered.

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