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New Martenson Report Ready

Monday, October 6, 2008, 9:02 PM

This one is available to all registered users as it outlines my basic approach and gives a sneak peak into Chapter 20...

The opening: 

My belief is that massive, unprecedented change is coming. No, I
believe that it is already underway. When the dust settles in one,
five, or twenty years, the economic landscape will be utterly changed.
Another belief is that by taking steps now, both small and large, you
can significantly minimize disruptions in your life that so many others
will experience. While we will all end up in the same place in twenty
years, I want your path to be as gentle as possible. By undergoing
voluntary change, you will have more opportunities to shape your path
than those who find change involuntarily forced on them. Where others
will someday reach a cliff face that needs to be scaled all at once, my
goal is to walk with you up the side trail. The Crash Course is my main
offering and each Martenson Report is designed to reinforce those
lessons with my goal being to help you navigate the changes ahead. 

A Preview to Chapter 20 (or, How to Read a Martenson Report) 

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19 Comments

G's picture
G
Status: Bronze Member (Offline)
Joined: Aug 3 2008
Posts: 37
Wow

Truly intriguing and disappointing; and hopefully enlightening to policy makers. I have been researching the economy, financial and monetary policy for the last year, using up the majority of my free time, to gain an understanding of what I casually had been reading in the news headlines starting last July. I was just a concerned and mostly curious consumer.

I wonder how Chris feels about the Austrian school of economics. I have extensively read the literature at the Mises site. To me it seems that both share many of the same fundamentals and outcomes, although I feel that Chris has been more holistic and Mises has kept their focus on the economic discussion.

It is truely amazing that the mass media and our government are puzzled as to the cause of the current crisis, absolutely pitiful. One other point, it is amazing that there is so much denial of the real potential this crisis has for explicit changes in everything, as well as the unsustainable present into the future. One other observation, most people will not even accept what is presented here on this site, until they have completed the course.

My little tid bit, is just a big jaw dropping wow, that this will happen in my life time. I hope my kids have a reasonable future. I, like so many others, were/are so completely naive. My apologies for not advancing a theoretical discussion or even discussing anything of substance. I guess I want to thank Chris for opening my eyes and many others as well. Have you thought of attempting to open this discussion up on a national level? If our government could grasp just the concept of the exponential function and the other basic concepts presented here, let alone the more complex concepts, I think we would actually have a chance for a better outcome.

I searched since last year for the real ANSWERS for what was going on and I found them here and at Mises.

Thank-you.

G

pinecarr's picture
pinecarr
Status: Diamond Member (Offline)
Joined: Apr 13 2008
Posts: 2259
Add my thanks too, Chris!
Chris, I'm with gggdude.  Thank-you so much for your dedicated efforts to help us understand the situation that is now unfolding, with all its complexities!  And thank-you for giving us advanced warning, to do the best we can to prepare for our families and loved ones.   It is a great service that you have done for a lot of people!
reistr's picture
reistr
Status: Bronze Member (Offline)
Joined: Jul 15 2008
Posts: 50
Ignorance is bliss

Well put gggdude...

 Most people still have no idea of what's going on, since their heads might explode if they ever read the BBC news or any real news coverage. Although I have to admit that Bush stating, up to a few weeks, ago that the fundamentals of the economy were strong was more than a little misleading... Also Obama AND McCain still promissing tax cuts can lead more that a few voters to think that things are still under control... How can you not appreciate the show?

 The only way to get any more entertaining is if Palin ends up president, after an unlikely victory by McCain and some unfortunate event... Easy for me to laugh, since I live in Canada.

 All joking aside, I really feel for you guys. This is an world wide event and anyone blaming the US is in denial - The dominoes are falling fast. Most nations participated in the party, now we all must pay the bill and nurse a hangover.

 One thing that I found really interesting watching Charlie Rose the other day was the statement from a senator (As they toiled to pass the bailout). He was saying that the key to "solve" this problem is to unlock the credit market - That's the goal of the bailout, "unlocking the credit market".

 How ironic, eh? Don't all these smart people realize that credit is exactly what brought about this mess to start with? So let's spend 700 Billion of tax money so we can go on borrowing... Brilliant!!!

 I need to personally thank Chris for the crash course. You literally saved me thousands of dollars in investments - I "forced" my "financial advisor" to move my money from mutual funds to the Canadian money market. Your information gave me the confidence to make that decision at the very beginning of the downturn. I will be making that donation soon... :)

 Your course has also re-enforced my belief in a more sustainable life style - My wife is all for it as well, so we are keeping those goals in mind for our long term decisions.

 Oh, and welcome to Erik for joining the team and helping fight the good fight.

 Thanks again!

T

aczop's picture
aczop
Status: Member (Offline)
Joined: Sep 24 2008
Posts: 9
Unbelievable how many people don't want to listen

I may be young (26 yesterday!) but I'm taking this (economic situation) serious.  I've never before kept up with politics or the economy or any of that.  But after trying to figure out what the housing crisis and bail out were all about, at the core, I stumbled upon this site and I've been hooked ever since.  It really is pretty scary.  More scary to me than maybe it should be at my age, because I'm one of the "problem makers" so to speak.  I didn't know how bad off I was until I found out where the economy is headed.  Unfortunately, bad decisions have led to an (interest only) ARM that resets in 3 years, on a house that is declining in value - just now at or (probably) below what we owe, coupled with way too much credit card debt.  I can easily make the payments for everything now, but in the future?  I don't know, but I'm definitely trying to take steps to get myself out of this hole.  For some reason I thought I could just go on like I was and everything would be ok as long as I could "afford" it (make payments comfortably).  I had no idea that such big changes were on the horizon.

It really is unbelievable how many people don't want to listen, though.  I'm trying to spread the word to friends and family to AT LEAST take the crash course, and then, if they still don't want to listen, read more, or open their minds, then, alright, no problem - carry on.  Maybe I care more because I have the potential to be affected more than they do, and they know this, but their response to anything I let them know about (that I've read here) is "they'll never let that happen" ("they" = the government).  And these are well educated people who normally have an open mind.  But if you propose the possibility of major change, their minds instantly close and they want to hear no more.  Since most of them have little to no debt and secure jobs, they feel they don't need to worry at all.  And maybe they don't, but I can't help but think they are representative of everyone - people who should be worried.

rlee's picture
rlee
Status: Silver Member (Offline)
Joined: Sep 18 2008
Posts: 148
Lighten up on yourself!

Hey aczop!  You're not one of the "problem makers", you're a victim of the "problem makers", just like a lot of us out there.  You have a huge advantage over many of us though, and that's your age.  Take advantage of the opportunities that time has given you!  Your preparation today will have the potential for HUGE returns in your future.  The fact that you're on this site, and that you're taking action, is evidence that you are actually one of the "problem Solvers"!

Give yourself some credit!

Bob 

gyrogearloose's picture
gyrogearloose
Status: Platinum Member (Offline)
Joined: Sep 8 2008
Posts: 549
Some learn to accept it.....

I was lucky, my wife "got it" as I showed her selected bits of the CC, and boy was she pissed at "them", mind you I had been making her aware of peak oil already.

Some friends who 6 months ago would go "bla bla bla" when I tried to make them aware of the coming slow emergency have accepted it. Others think I am nuts. 

For some I have explained it by saying.

""It is like everyone is driving down a long straight highway at 100 Mph on a foggy night. A while I met a guy who had a radar unit and he told me that further down the road there is a speed bump, followed by a washed out bridge. I decided to check out this radar, and wow, there in the fog I could see them. ""

I then ask them "" Well we have now hit the speed bump, do you want to carry on at 100 Mph to the bridge that is out?""

Keep it up, a few "conversions" ;-)  are worth it.

 

 

 

 

Xflies's picture
Xflies
Status: Silver Member (Offline)
Joined: Aug 19 2008
Posts: 157
So if default is one of the outcomes of which debt can be

paid from and the other is ever expanding economic growth, why is it that this recent increase of $1.5 Trillion in new gov't bailout debt be solved with partial default?  Doesn't this $1.5T represent the financial losses from real estate and other structures/leverage?  Are we all looking at this right?  Let's say that the $1.5T represents losses and that the gov't buys all this debt at a discount.  Let's say it was represented by just one mortgage of $2T and the gov't buys this loan from a distressed banking system at $1.5T.  The gov't then approaches the homeowner and renegotiates the loan and gets paid $1.5T.  $0.5T of losses now represent a partial default but this was taken into account when the bank first sold that $2T mortgage to the gov't for $1.5T.  So 2 things:

 1.  Who took the initial loss?  It was the banks either through market cap or equity value destruction.  There are ways in which banks and make up this loss by either defaulting, cutting jobs, losing equity market cap etc.

2.  If the bank didn't default because of its $.5T loss from selling that loan to the gov't, then it required some capital to make up for it.  If foreign investors put up that capital, that would keep the capital untouched but there is overall dilution to the equity value of old shareholders.  Basically the destruction of value/wealth and an overall drop in the standard of living can show up short term in the markets going down in value.  There is definitely a trickle down effect into things like pension plans and overall consumer savings and spending.

As Chris was saying, he is not sure that the conclusion of his theories are going to happen in the next day/month or even years but that the confluence of events will happen over the next 20 years.  Is there opportunity to profit (or loss mitigate) from it now?  Yes, of course there is.  My above example rests on the assumption that there is only $.5T of losses in the real estate market and leverage hasn't been applied but I did want to just point out that the losses are finite (it's not that every house in the US is going to 0 or negative value) and the payment of debt can be offset by partial defaults, the increase in foreign investment and an overall small drop in the standard of living through a falling market and personal savings amount.  If you've just taken a 20% hit on your portfolio, you are less likely to go on vacation- result- lower standard of living.

 I'd rather see someone try and define what the finite limits are to real estate losses, break it down state by state... then compare it to the overall wealth destruction in the markets and the cost to providing liquidity.  I am starting to think that with the general markets representing wealth down this much, the losses taken to date now represent more than the possible finite losses.  If liquidity is an issue and it's affecting overall markets that lower the value of let's say a Big Pharma company who isn't operationally affected by the liquidity issue, then that loss can be taken into account since it is all part of the related loss to this basic real estate and leverage problem.  There is real and true opportunity cost to crawling in your bomb bunkers too early... yes, it is always good to be prepared but once it starts to affect your ability to recognize your surroundings and act off it, the opportunity cost becomes very real whether it is in the form of taxing your way of life early and thus cause undue stress in your family life or work, or the opportunity cost comes from not recognizing that you can still make a good profit on things and that this capital can then be used later on when we are indeed in greater trouble.

 Any thoughts?  Can someone try and quantify that real estate loss so we can compare it to what losses we've seen so far?

Doug's picture
Doug
Status: Diamond Member (Offline)
Joined: Oct 1 2008
Posts: 3200
aczop

Don't worry about others' lack of interest.  I've referred a fair number of people who are very smart, well educated and generally up on current events to this website.  The lack of interest expressed by most is somewhat consternating since some of them are good friends, but in the final analysis you have to worry about yourself first. 

 I've got two high school aged kids, the oldest of whom is a senior this year and hoping to attend perhaps the best environmental science college in the country next year.  I'm hoping for some decent scholarships, but have to wonder just how to proceed with that whole endeavor, given the various grim scenarios of the near term future.  Also, retirement is looming down the road a bit and I'm hoping my retirement fund doesn't disappear down a rat hole.  There's plenty to worry about without concerning yourself with how others are preparing.

switters's picture
switters
Status: Platinum Member (Offline)
Joined: Jul 19 2008
Posts: 744
Denial is almost always the first response

azcop,

In her work with terminally ill patients, Elizabeth Kubler-Ross has defined five distinct stages that people go through when they learn of their condition: denial, anger, bargaining, depression and acceptance. It has been suggested - and I agree - that most people go through these stages when they first learn about peak oil, resource depletion and climate change. The most dangerous stage to get stuck in is denial. I still find myself drifting back there, and I'm spending a couple of hours a day researching and writing about this stuff!

Kubler-Ross's work is one lens through which we can view people's responses to this crisis.  Another paradigm that is useful, however, is addiction.  Most people living in Western society are addicted to the affluence and conveniences provided by cheap, abundant oil.  Like most addicts, they will not be willing to simply give up those benefits because someone tells them that their consumption of oil is harming the planet, or even that the supply of oil is running out.  Addicts will go to extraordinary lengths to convince themselves that they are not addicted and that their addiction doesn't pose a danger to themselves or others.  Addicts will also do just about anything to obtain a supply of their drug.

So, when I apply both of these paradigms to the culture at large the response most people have makes perfect sense.  I'm not defending it, I'm just saying that if you understand basic human psychology it is exactly the response you'd expect.  We need something like a 12-step program for those who deny economic collapse and peak oil!  I'm only half kidding... the most serious problem we face right now in my opinion is that the vast majority of the population is still completely addicted to oil and still stuck in denial, which is only the first stage of both Kubler-Ross's journey towards acceptance (and right action) and the 12-step paradigm for recovering from addiction.

 

FNKRoue's picture
FNKRoue
Status: Bronze Member (Offline)
Joined: Oct 4 2008
Posts: 36
Trying to get the word out
I've resolved that the singular most influential thing I can do is to spread the crash course to as many people I know as I can.  Beyond that it is difficult to figure out what I can do on subjects like horizon II and III changes.  Please keep up the efforts Chris, they go very appreciated.  I've tried to show my support for what is obviously many many hours and dollars of your own you've spent with my subscription.
joe2baba's picture
joe2baba
Status: Martenson Brigade Member (Offline)
Joined: Jun 17 2008
Posts: 807
real estate losses

zflies

i am a real estate broker and have been for 25 years. i have no idea how you could get specific data to find the info you want.

the economists at the NAR would seem to be the logical choice but they are so hopelessly  a bunch of pollyannas and intent on keeping the troops morale up they are next to useless. chris pointed this out in his posts a couple months ago when they were saying house sales were rebounding.

in my state it is so schizpphrenic by region of the state i  cant see how it could be done here on a statewide basis.

my only answer to come up with a ballpark guess would be to look at the bubble in each state say starting in 99 or so and see where we are in relation to that. as chris has pointed out when the bubble pops values will return to their pre bubble levels. or a little lower.

here my best guess is we will see at least another 20% drop in house prices. but here is anothr issue. commercial real estate.

none of the discussion has been about commercial up to this time. so that is athe 800# gorilla in the corner.

otherwise i am as lost as everyone else.  but  i do know cash is king right now and if you have some to invest come out of your bunker and do what warren does buy at the bottom. there are some incredible deals in real estate. ex. a friend told me that at an auction of reo's by arvest ( bank owned by wal mart) a house on two acres sold for $2000.00 yep 2k.

rent it for $ 400  a month.......................

carparker's picture
carparker
Status: Member (Offline)
Joined: Aug 31 2008
Posts: 4
thanks chris!

I really appreciate all the work you put into CC and this site Chris!

I'm trying to convince my parents of these circumstances because they had planned to retire in the next 10 years.

 

Xflies's picture
Xflies
Status: Silver Member (Offline)
Joined: Aug 19 2008
Posts: 157
Real estate value data points

Thanks Joe!  This is exactly the type of data I was looking for.  We need to collect more of this as I think this is a huge data point.  How can we get a sense as to how close the markets are to impending doom if we can't try and place an estimate on what real estate losses are?  I think we get side tracked from the real issues... talk of leverage and complicated CDO structures are red herrings... in the end they represent the overall potential loss in real estate values.  In other words, let's say there was $4 trillion in inflated value in the real estate markets... all that the leverage and complicated CDO structures meant was that to fund that $4 trillion in value, only $100B of capital was put up (40x leverage).  If more than $100B was lost, that would mean capital calls which brings us to today's market.  What I'm trying to get at is that it is so important we try and identify the key data points and issues. 

 The other key point I am looking for is what price the gov't decides to pay for these mortgages.  Why?  Well that will give you a sense as to what the split should be for losses btwn the gov't (taxpayers) and the market.  Let's assume for a minute that the total losses in the real estate market shouldn't exceed $4 trillion.  The gov't uses up their $1.5 trillion in bailout packages (AIG, FNM, TARP etc) but buys assets at such high prices that their entire investment goes to 0.  That would mean the public markets would take the $2.5 trillion loss but keep in mind that the transfer of risk happens exactly when the banks sell assets to the gov't.  OK, now take a look at the overall wealth destruction that has already occured... The markets are off from 13000 (DOW) to 10000 which I think represents over around $6 trillion in losses.  Now, granted some of that will be due to unrelated events to real estate such as overall multiple contraction and a lower expectation of corporate profits so let's just say that $4 trillion was attributed to real estate losses.  So if the gov't loses $1.5 trillion (taxpayers) this then becomes a real increase in money supply and the banks/mkt loses $2.5 trillion, then there's huge upside in today's market which is off $4 trillion.  If the gov't is paid back over time, there's no increase in money supply.  The gov't is doing all it can to stop the contagion from spreading so if it works to correct the liquidity crisis, the quesiton of estimating finite losses becomes extremely important to view risk/reward in the markets.

Golden Age's picture
Golden Age
Status: Bronze Member (Offline)
Joined: Aug 2 2008
Posts: 61
Little House on the Prairie

Millions of people watched this TV series but never dreamed they might be living that life.  That was life when I was a lad.  Milking cows before school, gathering eggs from the hen house, making hay and shocking wheat, shelling corn and chopping wood for the pot bellied stove. 

Life was a lot simpler then.  It was physically demanding but we didn't need sleeping pills when it was time to go to bed.  I am not alarmed at the prospect of doing this again.  Many of you may be because it will be a new experience and it will be a "brave new world" for you.  You will be fine.  But you need to learn some new skills.

You need to learn how to plant, cultivate and preserve the fruit of your labors.  You can learn the basics about these things on the web.  Then you have to get your hands dirty.  I have 60 quarts of canned tomatoes in the pantry as I write this.  A few hens and a rooster can provide a lot of omelets & chicken and noodles. Laughing 

If you live in an apartment, you need to move.  Get out of Dodge because when the economy goes down the tube, the gangs roaming the streets today are different from the homeless roaming the streets back in the '30s.  The police will be overwhelmed, IMO.  There will be a lot of "every one for himself" and that is just my opinion, but there are a lot of dangerous gangs out there today.  

Really all you need is to be informed and prepared.  Life will go on and it will be better than you supposed. Smile

 

DeVel's picture
DeVel
Status: Member (Offline)
Joined: Oct 7 2008
Posts: 1
Now what.

 In your opinion, how will this down turn effect the seniors, those who have retired, and are on a fixed income, those who thought they could do some traveling and enjoy what this great land has to offer, with gasoline so high, and everything else on the rise, it kind of puts a crimp in those plans we had, income fixed, while everything else is going up fast, and in some cases things are collapsing, or at least deteriorating.

 

joe2baba's picture
joe2baba
Status: Martenson Brigade Member (Offline)
Joined: Jun 17 2008
Posts: 807
denial

yep same here denial is not a river in africa it is a stream of consciousness in america.

lots of good advice on here but dont give up trying to educate people. the word needs to get out especially the word about the federal reserve. if we never get rid of it we will continue down this road at 100 mph to the washed out bridge.

i spoke with lou dobbs yesterday and read him the jefferson qoute about the central bank and he had never heard it before.

the patient is dying of cancer and people are worried about the acne. read the creature from jekyll island and watch the money masters video. vote something other than republican and democrat .

live the courage of your convictions and do what warren does buy at the bottom. which chris has postulated at about 5000.

anger is the next stage . the govt is preparing more fema camps with razor wire and moving the army into position for a "natural disaster" or a "terrorism attack"

gee i wonder who in the govt has read kubler ross ???????????????

Woodman's picture
Woodman
Status: Diamond Member (Offline)
Joined: Sep 26 2008
Posts: 1028
That's funny, I actually

That's funny, I actually rented recently a few episodes of LOTP for my kids to help clue them into that kind of life.  They are excited the pumpkins they planted last summer are ready for harvest soon.  We did a lot of camping this summer too.  My spare time the last few months has been dedicated to learning how to garden better, fixing up the old chicken coop and goat barn, composting, laying in firewood, and tightening up the house.  Unfortunately the financial crisis caught me a bit sooner than expected, but I've had time at least to open my mind for flexibility and change; that keep me positive.   

Doug's picture
Doug
Status: Diamond Member (Offline)
Joined: Oct 1 2008
Posts: 3200
gangs

I live in a small rural community.  I'm willing to bet that my neighbors are better armed than the gangs, and know how to use them.  They also know how to use camouflage and how to stalk.  The woods are our back yard.

I'm cutting firewood for 2009-10 winter.  This year's is already stacked and seasoned.  Our garden is harvested and preserved.  We don't have lifestock yet, but we're thinking about it, and many of my neighbors already have them.  Plus, there is a large Amish community nearby.  Those folks know how to live off the land, and make everything they need themselves.  Oh yeh, they have guns too.

In the event of a real meltdown, the big challenge will be organizing all these folks for a common purpose.

Davos's picture
Davos
Status: Diamond Member (Offline)
Joined: Sep 17 2008
Posts: 3620
1,5 or 20

 

Hello Chris: 

I pray you are right in the one, five or twenty year prediction before the economic landscape transforms. If I recall 1921 the market was at 68 points, 1929 it dipped from 368 points to 260 points and 1937? it dropped to 60 points.

I'm less concerned with the market then I am with the preservation of our sacred Democracy. 

Hearing Martial and Law uttered by a senator makes me ill.  http://www.youtube.com/watch?v=HaG9d_4zij8  Warning sick sacks should be in reach when viewing.)

Golden Age, I think thereis a 50/50 chance that this will be good advice, we didn't wait, our 11 hens are now of age and are cranking out 8 eggs a day. Also, I think our social fabric has changed a bit since 1930 a time when road rage wasn't part of the vernacular.

Like Jeffersonsaid, allow banks to create money....

I'd like to see a poll on how many in Congress even know the Constitution says of Gold and Silver Coin and how many of them even know the "Federal" Reserve is a private bank. This is clearly what happens when you leave your charts (the Constitution) in your flight bag and blunder off on a journey without a clue as to how to navigate to there of for that matter where there is.

Now we have a Congress who is relying on the problem (private banks) to resolve the problem (having private banks.) Congress needs to get rid of the problem, clearly if they can't even figure that out the writing is on the wall.

  

 

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