13 Aug 2011

Double Depression- Time to warm up the helicopters

The sun is shining. The sky is clear. The weather is warm.
What a great day for a meltdown!
Dow down another 519 points yesterday. Gold zooming towards $1,800...in fact, reports this morning tell us it has passed the $1,800 mark. And the 10-year T-note yield slipping down close to 2%.
Are we at Armageddon, yet?
"You don't know how pleased I am to live this long," said our mother, whose 90th birthday party will be celebrated in 3 weeks. "I will see two major depressions during my lifetime."
Years ago, we guessed that the price of gold and the price of the Dow would converge. We also guessed that they would meet around 3,000.
It seemed crazy when we first suggested it. Then, the price of gold was only around $500 an ounce, while the Dow was over 10,000...and still going up. That put the Dow to gold ratio at about 20 to 1...way down from the peak at 43 to 1 set at the end of the ‘90s.
We said the ratio would go to one-to-one. One ounce of gold would be equal in value to the 30 Dow stocks... just like it was, very briefly, at the end of the ‘70s. When would it happen? We didn't know. But it would feel "like Armageddon" when it happened.
Well, now it doesn't seem so crazy. In order to get down to a bear market low, the Dow needs to be cut in half...and more. All we need is another two weeks like the last one.
The price of gold could easily double from here too. In fact, it won't match its 1980 high – properly adjusted for inflation – until it is back near $3,000. And this time, it should go much higher. Whatever problem gold signaled back in the late ‘70s is worse today. Much more debt. More willingness on the part of the feds to "monetize" debt. More wobbly economies run by wobbly economists.
The real problem is debt. It's been building up for more than half a century – thanks to encouragement from the same officialdom in whose hands the problem now rests.
The feds think...or thought...they could deal with this slowdown the same way they dealt with every other post-war recession – by adding more and easier credit. That is, by increasing the amount of debt in the system.
They tried direct spending – fiscal stimulus. They tried re-flating the banks. They put the key lending rate at zero. And now Bernanke says he'll leave it there for two more years! They even tried money printing – their QE I and QE II programs.
Nothing has worked. Fewer people have jobs today than when the crisis began. Real incomes are going down. House prices are going down. The US has the lowest percentage of people gainfully employed ever recorded. The rich may be getting richer...but the poor are getting poorer, faster than ever. And real, private sector, per capita GDP is still going down.
Bernanke once joked that if he ever got in such a situation he would know what to do: he would drop money from helicopters.
Time to warm up the helicopters!
But the feds are beginning to realize that it is not enough to offer more cash and credit; they have to do something about the debt. At least, we think they're beginning to realize it. Several top economists have appeared in the papers recently arguing in favor of actual debt liquidation as well as more stimulus.
Both Nouriel Roubini and Ken Rogoff have written to support debt restructuring (reduction) initiatives. And even dodos such as Thomas L. Friedman have finally realized that debt is a problem.
"All this debt blew up in 2008..." he writes... "and that led to the second problem: Homeowners, firms, banks and governments are all now "de-leveraging" or trying to – meaning that they are saving more, shopping less, paying off debts and trying to dig out from mortgages that are under water."
Typical. He gets confused. You can't dig out when you're underwater. You drown. But at least he's beginning to understand what is going on. And since he is the last man on earth to understand anything...it is likely that even the feds are catching on.
So what? Well, you'll begin to hear more about debt reduction as well as stimulus measures. They'll get the banks to write down mortgages, for example, in exchange for more cash from the government. This is classic political legerdemain. Debt doesn't go away. Ever. It has to be reckoned with. Moving mortgage losses to the government pushes the government further underwater. That will have to be reckoned with too.
But not today, dear reader. Lenders are still buying US debt. As the Dow goes down, gold and bonds go up. The 10-year note is nearing a record high... This allows gives US authorities a lot of rope. They don't have to cut US spending. They can still bailout whoever they please. They can borrow...borrow...borrow...spend, spend, spend...until Daddy takes the T-bird away!
Then, they can use all that rope to hang themselves.
And more thoughts...
Open source unemployment.
Here is a very serious thought. As far as we know few people have written about it. Few have even thought about it. And no one has figured out what it means. But it could mean that the whole nature of the economy...and how we measure it...will have to change. More immediately, it is another cigarette for the wheezing Middle Class.
The seed was planted by a headline from the Wall Street Journal. We didn't read the article. But we noticed the headline.
"Porn industry profits down," or something like that.
Hmmm.... surely, the demand had not decreased. We began to think about why the porn industry might be less profitable.
We'll take a guess – open source technology. It's now so cheap and easy to make and distribute dirty pictures that the profit must have gone a little limp. An amateur with an I-phone or a $100 filming aparatus can make a fairly clear movie. He can send it over the internet at no cost. So, the recipient can view it in the privacy of his home for nothing...or almost nothing.
This is very different from the old days. You needed a whole crew to make a film of any sort...and expensive cameras, lights – all sorts of things. Then, when you had made the film, you put it on a reel and sent it all over the country...to physical theatres in dingy parts of town, where people drove in their automobiles to buy tickets and watch smut. Lots of middle class jobs involved.
In the old days, the enterprise consumed large expenditures of energy – human and mechanical – to produce what was recorded as an increase in GDP and considered an increase in living standards. Energy = GDP = Standard of living = jobs.
Now, very little energy is expended. Very little money is spent. No increase in GDP is recorded. Nor is there any measurable increase in standards of living. And jobs have been eliminated (no film crews, no drivers, no gasoline sold, no theatres built, no popcorn sold, no carpets cleaned). From an economic standpoint, the switch over to internet-based porn looks like a net loss. And yet, the pleasure of the viewer is as great or greater than ever. The clients are getting the same bang, so to speak, for many fewer bucks.
Now, imagine this same principle applied to, say, warfare. The US spends trillions on defense. This is great – or so it seems – from an economic point-of-view. Lots of jobs making big ships and big tanks and big airplanes. Lots of energy used moving them around. Lots of money spent. Lots of support personnel and profits in the contractors' pockets. Lots of bribes (campaign contributions) for Congress too.
But now imagine that, say, China figures it will challenge the US empire in a different way. Let us imagine that it spends just a little bit and figures out a way to scramble communications. Its signals crossed, the US battleship runs aground. The US airplane bombs the wrong city. The tank gets lost, runs out of fuel...and is abandoned.
This is a purely hypothetical example, but it is how things work. Old imperial forces get fat and stupid. They are always ready to fight the last war! New challengers have to figure out new techniques and try new technology.
But if it were to work out this way, communications technology would have done to the defense industry what it has done to books and pornography. It will have de-materialized it. Fewer jobs. Less energy. Less money. Fewer resources. Again, you get the same bang...with many fewer GDP bucks.
Already, terroristas have noticed. Here's an article about how new open source communications technology is being used by England's rioters:
Lots of the activity going on in London is based on open source warfare precepts. Much more going on here than a simple riot or looting. It's a learning lab. Communicating via BlackBerry instant-message technology that the police have struggled to monitor, as well as by social networking sites like Facebook and Twitter, they repeatedly signaled fresh target areas to those caught up in the mayhem. They coupled their grasp of digital technology with the ability to race through London's clogged traffic on bicycles and mopeds, creating what amounted to flying squads that switched from one scene to another in the London districts of Hackney, Lewisham, Clapham, Peckham, Croydon, Woolwich and Enfield, among others – and even, late on Monday night, at least minor outbreaks in the mainly upscale neighborhood of Notting Hill and parts of Camden. NYTimes.
When property can be so easily vandalized, the benefit of owning it goes down. Asset prices fall. Lower asset prices make building and investing less attractive.
But that's what Open Source does. It lowers the value of traditional capital – theatres/bookstores/battleships and so forth. And it kills jobs and wipes out GDP.
The new economy may yield the same pleasures...the same quality of life...more or less. But it may also produce a nightmare: very high unemployment for a very long time. Here's Jeff Jarvis at the Huffington Post and on the case:
We're not going to have a jobless recovery. We're going to have a jobless future.
Holding out blind hope for the magical appearance of new jobs and the reappearance of growth in the economy is a fool's faith. Politicians who think that merely chanting the incantation "jobs, jobs, jobs" will bring them and the economy back are fooling us if not themselves. When at least a tenth of Americans are out of work, for Wall Street to get momentarily giddy at the creation of 117k jobs is cognitive dissonance at its best. No one can make jobs out of thin air. Jobs will not come back. A few new jobs reappearing won't fix anything.
Our new economy is shrinking because technology leads to efficiency over growth. That is the notion I want to explore now.
Pick an industry: newspapers, say. Untold thousands of jobs have been destroyed and they will not come back . Yes, new jobs will be created by entrepreneurs – that is precisely why I teach entrepreneurial journalism. But in the net, the news industry – make that the news ecosystem – will employ fewer people in companies. There will still be news but it will be far more efficient, thanks to the internet.
Take retail. Borders. Circuit City. Sharper Image. KB Toys. CompUSA. Dead. Every main street and every mall has empty stores that are not going to be filled. Buying things locally for immediate gratification will be a premium service because it is far more efficient – in terms of inventory cost, real estate, staffing – to consolidate and fulfill merchandise at a distance. Wal-Mart isn't killing retailing. Amazon is. Transparent pricing online will reduce prices and profitability yet more. Retail will be more efficient.
The housing market has imploded and is not likely to reinflate for a long time to come. So the market for new homes will not recover and construction jobs will not come back.

Germany Must Defend The Euro: George Soros

Financial markets abhor uncertainty; that is why they are now in crisis mode. The governments of the eurozone have taken some significant steps in the right direction to resolve the euro crisis but, obviously, they did not go far enough to reassure the markets.
At their meeting on July 21, the European authorities enacted a set of half-measures. They established the principle that their new fiscal agency, the European Financial Stability Fund (EFSF), should be responsible for solvency problems, but they failed to increase the EFSF’s size. This stopped short of establishing a credible fiscal authority for the eurozone. And the new mechanism will not be operative until September at the earliest. In the meantime, liquidity provision by the European Central Bank is the only way to prevent a collapse in the price of bonds issued by several European countries.
Likewise, Eurozone leaders extended the EFSF’s competence to deal with banks’ solvency, but stopped short of transferring banking supervision from national agencies to a European body. And they offered an extended aid package to Greece without building a convincing case that the rescue can succeed: they arranged for the participation of bondholders in the Greek rescue package, but the arrangement benefited the banks more than Greece.
Perhaps most worryingly, Europe finally recognized the principle – long followed by the IMF – that countries in bailout programs should not be penalized on interest rates, but the same principle was not extended to countries that are not yet in bailout programs. As a result, Spain and Italy have had to pay much more on their own borrowing than they receive from Greece. This gives them the right to opt out of the Greek rescue, raising the prospect that the package may unravel. Financial markets, recognizing this possibility, raised the risk premium on Spanish and Italian bonds to unsustainable levels. ECB intervention helped, but it did not cure the problem.
The situation is becoming intolerable. The authorities are trying to buy time, but time is running out. The crisis is rapidly reaching a climax.
Germany and the other eurozone members with AAA ratings will have to decide whether they are willing to risk their own credit to permit Spain and Italy to refinance their bonds at reasonable interest rates. Alternatively, Spain and Italy will be driven inexorably into bailout programs. In short, Germany and the other countries with AAA bond ratings must agree to a eurobond regime of one kind or another. Otherwise, the euro will break down.
It should be recognized that a disorderly default or exit from the eurozone, even by a small country like Greece, would precipitate a banking crisis comparable to the one that caused the Great Depression. It is no longer a question whether it is worthwhile to have a common currency. The euro exists, and its collapse would cause incalculable losses to the banking system. So the choice that Germany faces is more apparent than real – and it is a choice whose cost will rise the longer Germany delays making it.
The euro crisis had its origin in German Chancellor Angela Merkel’s decision, taken in the aftermath of Lehman Brothers’ default in September 2008, that the guarantee against further defaults should come not from the European Union, but from each country separately. And it was German procrastination that aggravated the Greek crisis and caused the contagion that turned it into an existential crisis for Europe.
Only Germany can reverse the dynamic of disintegration in Europe. That will not come easily: Merkel, after all, read the German public’s mood correctly when she made her fateful decision, and the domestic political atmosphere has since become even more inhospitable to extending credit to the rest of Europe.
Merkel can overcome political resistance only in a crisis atmosphere, and only in small steps. The next step will likely be to enlarge the EFSF; but, by the time that step is taken, France’s AAA rating may be endangered. Indeed, by the time Germany agrees to a eurobond regime, its own AAA standing may be at risk.
The only way that Europe can escape from this trap is by acting in anticipation of financial markets’ reactions, rather than yielding to their pressure after the fact. This would require intense debate and soul-searching, particularly in Germany, which, as the EU’s largest and best-rated economy, has been thrust into the position of deciding the future of Europe.
That is a role that Germany has been eager to avoid and remains unwilling to accept. But Germany has no real choice. A breakdown of the euro would precipitate a banking crisis that would be beyond the global financial authorities’ ability to control. The longer Germany takes to recognize this, the higher the price it will have to pay.

Bob Chapman - Stockmarket, Gold and Silver Predictions 2011/2012

11 Aug 2011

Gold Futures Margins Increased 22% by CME as Investors Drive Record Rally

Spot gold dropped as much as 0.8% to US$1,779.20 and traded at US$1,788.25 at 12:58 p.m. in Singapore. Earlier, the yellow metal rallied as much as 1.2% to US$1,814.95.

Gold prices fell from a record high above US$1,800 an ounce after the CME Group Inc. (CME) lifted the margins on futures contracts to rein in possible speculation. The precious metal has been consistently surging in the past several days, hitting new all-time highs, as global investors flock to its relative safety amid rising concerns on the economic prospects of the US and the eurozone.

Spot gold dropped as much as 0.8% to US$1,779.20 and traded at US$1,788.25 at 12:58 p.m. in Singapore. Earlier, the yellow metal rallied as much as 1.2% to US$1,814.95.

CME, the world’s largest futures market, raised margins on gold contracts by 22% with effect from the close of business on Thursday.

The initial-margin requirement, or the minimum amount of cash that traders must deposit with the CME, will rise to US$7,425 per contract from US$6,075.

The margin for hedging will also increase 22%, rising to US$5,500 from US$4,500, it said.
Cash silver fell as much as 1.1% to US$38.8325 an ounce. Spot platinum climbed for a third day, gaining as much as 1.1% to US$1,789.75 an ounce. Cash palladium rose as much as 1.4% to US$738.25 an ounce.

Gold for December delivery rose as much as 1.9% to a record US$1,817.60 on the Comex in New York. It was recently trading at US$1,788.10.

Gold in euros, pounds, Australian and Canadian dollars also surged to all-time highs.

Gold holdings in exchange-traded products rose to a record 2,216.756 metric tons on Aug. 8. Assets are up 5.4% this year and were at 2,209.526 tons yesterday.

The Shanghai Gold Exchange also increased margins on gold trading. China’s largest physical gold market will boost the trade-margin requirement to 11% from 10% for gold contracts.


Gold Breaks Free, Silver Remains Chained To The US Dollar

“Gold was the investment of the last decade and silver is going to be the investment of this decade.” -Eric Sprott

Few things in the investment world could match the frustrations of a Silver Bull.  The "investment of a lifetime" performs as if lifeless as it's Big Brother Gold answers the call to safety as the World's debt markets begin to collapse under their own weight, taking the fiat currencies that support them down the rat hole with them.

Silver may appear lifeless and adrift here as it teeters up on to the big stage...it is not.

There is no question that to be a Silver investor [let alone a trader] takes a cast iron stomach, and balls of steel.  We are right to be confused by Silver's lack of participation in the Global "Flight to Safety" that Gold is now experiencing.  But is that confusion justified?  Perhaps not.

It is now quickly becoming quite clear that Gold is decoupling from all fiat currencies, and much to Bumbling Ben Bernake's shock and awe, Gold is asserting itself as the Global currency of choice.  That's right Ben, you !#*!ing jackass, GOLD IS MONEY.  Confidence in the US Dollar, and ALL fiat currencies, is no longer simply waning...it is beginning to collapse.  And a "crisis of confidence" in fiat currency, and in particular the US Dollar, is all Gold needs to reach for "Infinity And Beyond".

Gold is no longer swayed by a "bid in the Dollar".  Gold no longer gives a damn about the Dollar, the Euro, or the Yen.  GOLD IS MONEY NOW.  And Big Money is now chasing Gold.

But the question is, what about Silver?

Here is what is holding Silver back...right now, but not for long.  The damn US Dollar.  Shocking, I know, but look at a chart of the US Dollar.  Despite teetering, the Dollar has remained firm and well bid since the announced debt-ceiling increase AND the debt downgrade.

You would be right to ask, "How can that be?"  Good question.

The stock markets did not react kindly to the debt ceiling increase, or the debt downgrade [and don't forget the horrendous GDP report on July 29].  The stock markets have for all intents and purposes, collapsed over the last eight trading days.  Historically, when stocks crash, investors sell-out and and hold cash.  They hold that cash in short-term US Treasuries. [Thus the rise in Treasury prices DESPITE the debt downgrade.]  Us Treasuries are bought with US Dollars.  This creates a demand for US Dollars thus putting an "artificial bid" under the Dollar.  Investors will sort out the cause of the crash "after" they are safely out of stocks and in cash.  Investors will stay parked in cash [Dollars] until they decide next where to put their cash to work for them in the financial markets. 

I hope that made sense.  This scenario in the markets: stocks to cash, cash to treasuries, occurs during most any upheaval in the stock markets...it is normal.  This is why the commodity market has been smashed along with stocks.  Commodities are bought with US Dollars the world over.  A strong Dollar results in weak commodity prices every time.  In many respects, this stock market crash was probably engineered by The Powers That Be specifically to crash the commodity markets, and convince the unsuspecting that Inflation has been contained.

Sadly, for Silver, it has been lumped in with all the other commodities.  It's monetary virtues ignored at this moment in time.  This misfortune is unlikely to last for long.

“To 250 million persons in 51 countries the word for money is the same as the word for silver and silver literally means money.”

-Silver Profits in the 80’s, by Jerome F. Smith and Barbara Kelly Smith, copyright © 1982, ERC Publishing Company, page 43.

Bumbling Ben Bernanke, by guaranteeing the Fed Funds Rate will remain at ZERO into mid 2013, has set in motion the collapse of the US Dollar.  The loss of confidence in the US Dollar that this announcemnt will bring very shortly, will eventually send Silver and all the other "commodities" soaring in a race to catch up with Gold.  It is only a matter of time.

And Silver has been marking time for the past seven years.  In the very near-term, Silver may "appear" lifeless and adrift as the backside of our financial hurricane finally comes ashore and exposes the weakness of all that was propped during the "eye of the storm" from Spring 2009 to Spring 2011.  The reality is that Silver is "right now" poised for a major move higher.  A move higher that may lead to the recognition that the US Dollar's day as the World's Reserve Currency are over.

The Big Picture in Silver tells us that a breach of the $50 barrier will signal the collapse of the US Dollar is imminent or in progress.  All efforts to keep Silver bottled up as EVERY other commodity on the planet has risen to new All-time highs have been to avoid the inevitable...the complete destruction of the global fiat currency system.

A move below 73.50 on the US Dollar Index will light the fuse on Silver.  A move below 72.75 on the US Dollar Index will launch Silver to levels only dreamed about, and forever be remembered as The Day The Dollar Died.

Silver will "nickel and dime" you to death if you stare at long enough.  It's time IS coming.  Patience, the US Dollars days are now numbered.  

The countdown on Silver has begun.

The Five Stages of Collapse

Stage 1: Financial collapse. Faith in "business as usual" is lost. The future is no longer assumed resemble the past in any way that allows risk to be assessed and financial assets to be guaranteed. Financial institutions become insolvent; savings are wiped out, and access to capital is lost.

Stage 2: Commercial collapse. Faith that "the market shall provide" is lost. Money is devalued and/or becomes scarce, commodities are hoarded, import and retail chains break down, and widespread shortages of survival necessities become the norm.

Stage 3: Political collapse. Faith that "the government will take care of you" is lost. As official attempts to mitigate widespread loss of access to commercial sources of survival necessities fail to make a difference, the political establishment loses legitimacy and relevance.

Stage 4: Social collapse. Faith that "your people will take care of you" is lost, as local social institutions, be they charities or other groups that rush in to fill the power vacuum run out of resources or fail through internal conflict.

Stage 5: Cultural collapse. Faith in the goodness of humanity is lost. People lose their capacity for "kindness, generosity, consideration, affection, honesty, hospitality, compassion, charity" (Turnbull, The Mountain People). Families disband and compete as individuals for scarce resources. The new motto becomes "May you die today so that I die tomorrow" (Solzhenitsyn, The Gulag Archipelago). There may even be some cannibalism.

Although many people imagine collapse to be a sort of elevator that goes to the sub-basement (our Stage 5) no matter which button you push, no such automatic mechanism can be discerned. Rather, driving us all to Stage 5 will require that a concerted effort be made at each of the intervening stages. That all the players seem poised to make just such an effort may give this collapse the form a classical tragedy - a conscious but inexorable march to perdition - rather than a farce ("Oops! Ah, here we are, Stage 5." - "So, whom do we eat first?" - "Me! I am delicious!") Let us sketch out this process.

Financial collapse, as we are are currently observing it, consists of two parts. One is that a part of the general population is forced to move, no longer able to afford the house they bought based on inflated assessments, forged income numbers, and foolish expectations of endless asset inflation. Since, technically, they should never have been allowed to buy these houses, and were only able to do so because of financial and political malfeasance, this is actually a healthy development. The second part consists of men in expensive suits tossing bundles of suddenly worthless paper up in the air, ripping out their remaining hair, and (some of us might uncharitably hope) setting themselves on fire on the steps of the Federal Reserve. They, to express it in their own vernacular, "fucked up," and so this is also just as it should be.

The government response to this could be to offer some helpful homilies about "the wages of sin" and to open a few soup kitchens and flop houses in a variety of locations including Wall Street. The message would be: "You former debt addicts and gamblers, as you say, 'fucked up,' and so this will really hurt for a long time. We will never let you anywhere near big money again. Get yourselves over to the soup kitchen, and bring your own bowl, because we don't do dishes." This would result in a stable Stage 1 collapse - the Second Great Depression.

However, this is unlikely, because in the US the government happens to be debt addict and gambler number one. As individuals, we may have been as virtuous as we wished, but the government will have still run up exorbitant debts on our behalf. Every level of government, from local municipalities and authorities, which need the financial markets to finance their public works and public services, to the federal government, which relies on foreign investment to finance its endless wars, is addicted to public debt. They know they cannot stop borrowing, and so they will do anything they can to keep the game going for as long as possible.

About the only thing the government currently seems it fit to do is extend further credit to those in trouble, by setting interest rates at far below inflation, by accepting worthless bits of paper as collateral and by pumping money into insolvent financial institutions. This has the effect of diluting the dollar, further undermining its value, and will, in due course, lead to hyperinflation, which is bad enough in any economy, but is especially serious for one dominated by imports. As imports dry up and the associated parts of the economy shut down, we pass Stage 2: Commercial Collapse.

As businesses shut down, storefronts are boarded up and the population is left largely penniless and dependent on FEMA and charity for survival, the government may consider what to do next. It could, for example, repatriate all foreign troops and set them to work on public works projects designed to directly help the population. It could promote local economic self-sufficiency, by establishing community-supported agriculture programs, erecting renewable energy systems, and organizing and training local self-defence forces to maintain law and order. The Army Corps of Engineers could be ordered to bulldoze buildings erected on former farmland around city centers, return the land to cultivation, and to construct high-density solar-heated housing in urban centers to resettle those who are displaced. In the interim, it could reduce homelessness by imposing a steep tax on vacant residential properties and funneling the proceeds into rent subsidies for the indigent. With plenty of luck, such measures may be able to reverse the trend, eventually providing for a restoration of pre-Stage 2 conditions.

This may or may not be a good plan, but in any case it is rather unrealistic, because the United States, being so deeply in debt, will be forced to accede to the wishes of its foreign creditors, who own a lot of national assets (land, buildings, and businesses) and who would rather see a dependent American population slaving away working off their debt than a self-sufficient one, conveniently forgetting that they have mortgaged their children's futures to pay for military fiascos, big houses, big cars, and flat-screen television sets. Thus, a much more likely scenario is that the federal government (knowing who butters their bread) will remain subservient to foreign financial interests. It will impose austerity conditions, maintain law and order through draconian means, and aide in the construction of foreign-owned factory towns and plantations. As people start to think that having a government may not be such a good idea, conditions become ripe for Stage 3.

If Stage 1 collapse can be observed by watching television, observing Stage 2 might require a hike or a bicycle ride to the nearest population center, while Stage 3 collapse is more than likely to be visible directly through one's own living-room window, which may or may not still have glass in it. After a significant amount of bloodletting, much of the country becomes a no-go zone for the remaining authorities. Foreign creditors decide that their debts might not be repaid after all, cut their losses and depart in haste. The rest of the world decides to act as if there is no such place as The United States - because "nobody goes there any more." So as not to lose out on the entertainment value, the foreign press still prints sporadic fables about Americans who eat their young, much as they did about Russia following the Soviet collapse. A few brave American expatriates who still come back to visit bring back amazing stories of a different kind, but everyone considers them eccentric and perhaps a little bit crazy.

Stage 3 collapse can sometimes be avoided by the timely introduction of international peacekeepers and through the efforts of international humanitarian NGOs. In the aftermath of a Stage 2 collapse, domestic authorities are highly unlikely to have either the resources or the legitimacy, or even the will, to arrest the collapse dynamic and reconstitute themselves in a way that the population would accept.

As stage 3 collapse runs its course, the power vacuum left by the now defunct fedral, state and local government is filled by a variety of new power structures. Remnants of former law enforcement and military, urban gangs, ethnic mafias, religious cults and wealthy property owners all attempt to build their little empires on the ruins of the big one, fighting each other over territory and access to resources. This is the age of Big Men: charismatic leaders, rabble-rousers, ruthless Macchiavelian princes and war lords. In the luckier places, they find it to their common advantage to pool their resources and amalgamate into some sort of legitimate local government, while in the rest their jostling for power leads to a spiral of conflict and open war.

Stage 4 collapse occurs when society becomes so disordered and impoverished that it can no longer support the Big Men, who become smaller and smaller, and eventually fade from view. Society fragments into extended families and small tribes of a dozen or so families, who find it advantageous to band together for mutual support and defense. This is the form of society that has existed over some 98.5% of humanity's existence as a biological species, and can be said to be the bedrock of human existence. Humans can exist at this level of organization for thousands, perhaps millions of years. Most mammalian species go extinct after just a few million years, but, for all we know, Homo Sapiens still have a million or two left.

If pre-collapse society is too atomized, alienated and individualistic to form cohesive extended families and tribes, or if its physical environment becomes so disordered and impoverished that hunger and starvation become widespread, then Stage 5 collapse becomes likely. At this stage, a simpler biological imperative takes over, to preserve the life of the breeding couples. Families disband, the old are abandoned to their own devices, and children are only cared for up to age 3. All social unity is destroyed, and even the couples may disband for a time, preferring to forage on their own and refusing to share food. This is the state of society described by the anthropologist Colin Turnbull in his book The Mountain People. If society prior to Stage 5 collapse can be said to be the historical norm for humans, Stage 5 collapse brings humanity to the verge of physical extinction.

As we can easily imagine, the default is cascaded failure: each stage of collapse can easily lead to the next, perhaps even overlapping it. In Russia, the process was arrested just past Stage 3: there was considerable trouble with ethnic mafias and even some warlordism, but government authority won out in the end. In my other writings, I go into a lot of detail in describing the exact conditions that inadvertently made Russian society relatively collapse-proof. Here, I will simply say that these ingredients are not currently present in the United States.

While attempting to arrest collapse at Stage 1 and Stage 2 would probably be a dangerous waste of energy, it is probably worth everyone's while to dig in their heels at Stage 3, definitely at Stage 4, and it is quite simply a matter of physical survival to avoid Stage 5. In certain localities - those with high population densities, as well as those that contain dangerous nuclear and industrial installations - avoiding Stage 3 collapse is rather important, to the point of inviting foreign troops and governments in to maintain order and avoid disasters. Other localities may be able to prosper indefinitely at Stage 3, and even the most impoverished environments may be able to support a sparse population subsisting indefinitely at Stage 4.

Although it is possible to prepare directly for surviving Stage 5, this seems like an altogether demoralizing thing to attempt. Preparing to survive Stages 3 and 4 may seem somewhat more reasonable, while explicitly aiming for Stage 3 may be reasonable if you plan to become one of the Big Men. Be that as it may, I must leave such preparations as an exercise for the reader. My hope is that these definitions of specific stages of collapse will enable a more specific and fruitful discussion than the one currently dominated by such vague and ultimately nonsensical terms as "the collapse of Western civilization."

Full Article here

10 Aug 2011

The Main Battle Now Is The SILVER Market: BIX WEIR

The Federal Reserve Saves The Stock Market?

The Federal Reserve has saved the stock market!  Well, at least for a day.  That was one heck of a "dead cat bounce" that we saw on Tuesday.  Normally, after the kind of dramatic decline that we saw on Monday there is some sort of a rebound, but on Tuesday the market did not begin to soar until the Federal Reserve pledged to leave interest rates near zero until mid-2013.  Once the Fed made their announcement, the market went haywire.  At one point the Dow was down more than 200 points, but by the end of the day it was up 430 points.  It was a desperate move for the Federal Reserve to pledge not to raise interest rates for the next two years, and it has stabilized financial markets for the moment.  But what is the Fed going to do to save the stock market when it starts crashing next week or next month?  The underlying financial fundamentals continue to get worse and worse.  Europe is a mess, Japan is a mess and the United States is a mess.  The Federal Reserve can try to keep all of the balls in the air for as long as possible, but at some point the juggling act is going to end and the house of cards is going to come crashing down.
This move may calm nerves for a day or two, but there is still a tremendous amount of fear out there at the moment.  Many investors are pouring money into "safe havens" right now.  Huge amounts of cash are being poured into U.S. Treasuries and the price of gold is absolutely soaring.  The price of gold is up about $220 in just the last 30 days alone.
So how high could the price of gold go in the coming months?  Well, analysts at JP Morgan are forecasting that the price of gold could hit $2,500 by the end of this year.
Yes, that is how wild things are becoming.  The Federal Reserve is painting itself into a corner.  Never before has the Fed pledged to leave interest rates near zero for the next two years.  The following is an excerpt from the statement that the Fed released earlier today....
To promote the ongoing economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate, the Committee decided today to keep the target range for the federal funds rate at 0 to 1/4 percent.  The Committee currently anticipates that economic conditions--including low rates of resource utilization and a subdued outlook for inflation over the medium run--are likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013.  The Committee also will maintain its existing policy of reinvesting principal payments from its securities holdings.  The Committee will regularly review the size and composition of its securities holdings and is prepared to adjust those holdings as appropriate.

Needless to say, the rest of the world is not pleased by this nonsense from the Fed.  Yes, the Fed has stabilized financial markets for the moment, but a lot of ill will is being created with the rest of the globe.  The following is what Bruce Krasting had to say about how the rest of the world is going to react to this latest Fed move....

Brazil, Argentina, Korea, Indonesia are going to scream bloody murder over perpetual ZIRP. Russia is likely to get downright ugly with their rhetoric. I wouldn’t be surprised if they took this opportunity to vote with their feet and just abandon the dollar as a reserve holding. China will also make noise. They will make more calls for a new international currency to replace the dollar. The Central bankers in Japan and Switzerland are puking in the trashcan over this. Bernanke is exporting US deflation to them. Shame on the Fed for pursuing Beggar my neighbor policies. They deserve all the global criticism they are about to get.

The Federal Reserve is using up all of the ammunition it has available and the game has barely even begun.
Things are going to get a lot worse.  The U.S national debt continues to pile up at lightning speed.  The debt ceiling deal essentially does nothing to fix our debt problems.  Thousands of businesses and millions of jobs continue to leave the United States.  As a nation, we are constantly becoming poorer and we are constantly getting into more debt.
Meanwhile, Europe is on the verge of a financial meltdown and Japan has a "zombie economy" at this point.
Many fear that we could be on the verge of another major global recession.  The following is how a recent Der Spiegel article described the current global financial situation....
Many economists have been pointing out that last week's panic resembled the fear that swept financial markets after the collapse of US investment bank Lehman Brothers in September 2008.
Then as now, banks stopped lending each money. Then as now, banks' cash deposits at the central bank doubled within days. The European Central Bank reacted by assuring banks of unlimited liquidity in the coming months. It was an emergency measure that led to short-term relief but sparked anxious questions among bankers and stock market players. How long can the central bank keep up its market-soothing liquidity operations before it finally loses its credibility, the most important asset of a central bank? Is the financial crisis about to escalate?

In the old days, the U.S. and Europe could just borrow gigantic stacks of cash in order to solve any problems.  But now things are dramatically changing.
China's official news agency recently stated that the U.S. needs to understand that things are different now....
"The U.S. government has to come to terms with the painful fact that the good old days when it could just borrow its way out of messes of its own making are finally gone"

Not that the U.S. government and the Federal Reserve are going to suddenly give up their old habits.  The U.S. government is addicted to debt and the Fed is addicted to printing money.  When push comes to shove, they are going to resort to their favorite tricks.
But at some point the rest of the world is not going to play along anymore.  When that moment arrives, it is going to be very interesting to see what happens.
Meanwhile, the U.S. economy continues to slowly unravel, and people in this country are getting very angry.  Millions of Americans families are barely scraping by right now.  Most Americans just want someone to "fix" things, but unfortunately there are no easy "fixes" to our financial problems.
As our economic problems grow even worse, frustration inside the United States is going to continue to escalate.  A brand new Rasmussen survey found that only 17 percent of Americans now believe that the U.S. government has the consent of the governed.
That was a brand new all-time low.
Faith in the major institutions of our society is already dangerously low and the economy is not even that bad yet.
As horrible as things are now, the truth is that this is rip-roaring prosperity compared to what is coming.
In the months and years ahead, America is going to be greatly tested.  As the recent London riots have shown, things can spiral out of control very quickly.
When the economy completely collapses will America be able to handle it?

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