Financial topics

[Lily]

"Where and how to best survive a possible collapse is unknowable at this point."

Well, certainly it can't be known precisely. But as Aristotle might say, let's demand from the subjects we study only the level of precision appropriate to them. Human history is rich and complex, so by comparing our situation to other similar situations, analyzing how things might play out, and making educated guesses, we can get about as precise as we can get. That's what the social sciences do, and despite what some might call their lack of rigor they're pretty darn good at it, provided they're wielded with appropriate caution. They aren't as clear cut as technical indicators for stock charts, but they certainly give us a great deal of additional projective power.

I'd strongly recommend that anyone interested in the topic check out Jared Diamond's Collapse as a good primer on the history and science of catastrophic social collapses, as well as the internal and external factors that cause them and affect the outcomes.
http://www.amazon.com/Collapse-Societie ... 0670033375

I agree with you that life in the cities won't be too pretty after everything goes to hell. But I think that we really can come up with clear answeres for what the best courses of action are, within the limits of what we know. A lot of information is available on the nature and composition of the societies involved, their traditions and behaviors in the past, and thier physical capacities for action. When we combine this with what we know of past societies in applicably similar situations, we should be able to produce a decent guesstimate for how things will play out this cycle.

Scenario planning is a great idea. You can have a main timeline or scenario in mind, and plan for that, and then include many sub-scenarios, organized by probability of playing out, with their own linked plans. Fluidity and adaptability are key to making things happen in chaotic situations, so you'd want to have a lot of options and know as much in advance as possible. This is a useful area for further endeavor, I think.

The more I examine likely scenarios in detail, the more I keep moving forward the likely time for when things start getting seriously weird.

In this thread, we talk a lot about the financial problems as if they're isolated. It seems to me that the financial problems being faced today are symptomatic of much larger problems (political and social) that can't go away by just changing the money system.

I emphatically agree! A much more complex dynamic is at play here than perhaps people give it credit for.

Higgenbotham, if you're interested in the study of how human societies adapt to technological and historical change by changing their natures over time, I would **highly** recommend Phillip Bobbit's masterful Shield of Achilles. http://www.amazon.com/Shield-Achilles-P ... 0385721382

This is one of the best guideposts I've been able to find for getting a clear idea of what the soon-to-arrive future will look like. The author is not quite as cynical as he should be about US power, but otherwise the work is excellent, and touches deeply on the topics you've mentioned. It also accords quite pleasingly with the theories of generational dynamics, if you find that interesting.

[John]

Dear Thomas,

> I know you're a deflationist and I understand HOW you've arrived
> at your forecast, but at the same time, I often see you reference
> the Malthus effect. Would not the Malthus effect naturally lead to
> inflation? How do you get decreasing availability of certain goods
> and deflation at the same time? If you combine the Malthus effect
> and the effect of Peak Oil, I don't see how we avoid
> inflation.

The Malthus Effect is pushing up food prices, but with deleveraging
and high unemployment, consumers have less money to spend. So they
spend more on food, but less on other things, inhibiting inflation.
Thus, the CPI has remained very low for years, despite near-zero
interest rates and despite the experts' predictions.

The real crisis has not yet occurred. When it occurs, there'll be a
big deflationary shock that I expect will lower the CPI by 30% or so
over a period of a couple of years. At that time, there will be a lot
of people who won't be able to afford any food at all (this is already
true for a lot of people), and we'll see things like soup lines again.

John

[Higgenbotham]

http://nymag.com/daily/intel/2011/03/ca ... eturn.html

Carl Icahn, the founder of the hedge fund Icahn Capital, sent a letter to clients saying that he intends on returning their money by April and only investing with the firm's own capital. Icahn joins a growing list of prominent managers like Stanley Druckenmiller and Chris Shumway, who've given investors their money back in recent months. But considering Icahn's fund delivered gross returns of 104 percent since it started and 8.7 percent returns already in the first two months of this year, his decision comes as a shock.

He wrote:

“Given the rapid market run-up over the past two years and our ongoing concerns about economic outlook, and recent political tensions in the Middle East, I do not wish to be responsible to limited partners through another possible market crisis.”

[Higgenbotham]

I emphatically agree! A much more complex dynamic is at play here than perhaps people give it credit for.

Higgenbotham, if you're interested in the study of how human societies adapt to technological and historical change by changing their natures over time, I would **highly** recommend Phillip Bobbit's masterful Shield of Achilles. http://www.amazon.com/Shield-Achilles-P ... 0385721382

This is one of the best guideposts I've been able to find for getting a clear idea of what the soon-to-arrive future will look like. The author is not quite as cynical as he should be about US power, but otherwise the work is excellent, and touches deeply on the topics you've mentioned. It also accords quite pleasingly with the theories of generational dynamics, if you find that interesting.

This gives me a starting point for some thoughts on the subject of depth of collapse, which I had previously said was unknowable. Come to think about it, I have gone through this exercise before. I haven't heard of this author or his work, but the reviews of his work indicate something along the lines of what I've discussed.

Perhaps collapse can be better thought of as reconfiguration of political and social systems for the purpose of conforming to present and future conditions. I've heard it said that if the Dark Ages hadn't occurred, humans would be traveling the galaxy by now. I disagree. If the Dark Ages hadn't occurred, the existing political and social systems would have been unable to accommodate the new technologies, the system would have failed in a manner far worse than the Dark Ages collapse, and the surviving humans may have been set back to hunting and gathering. Important work went on during those 5 or 10 centuries.

It seems likely to me that the new technologies that are presenting themselves are perhaps one order of magnitude less differentiated from the agrarian Roman model versus the industrial nation-state model. The nation-state can probably survive in some form with adaptations and it may take 50 to 100 years to fully reconfigure it. I think some of the adapations will need to be in the area I discussed where within the nation-state there will appear differing venues that are tailored to the particular needs of local population groups. A lot of movement will take place as each individual finds their appropriate place. Nobody in the US can currently agree on anything and the current political model doesn't serve hardly any ordinary citizen's needs. Rather than fighting another Civil War, the new technologies give the option of organizing "market-states" within the nation-state model. People can make choices among various models with regard to taxes, monetary policy, social policy or what have you and move into locations to be among those who agree with them. In addition to functioning as a political model, the "market-states" would double as an ideal economic model. There would remain many areas the nation-state model would have jurisdiction over.

This plays into generational issues and the debate about deflation and hyperinflation. If the dollar doesn't suit the needs of certain groups, they can network and use barter and alternative local currencies. As time moves on, the likelihood of that happening increases exponentially with each step the Fed takes toward inflation and each increment of the younger generations who reach adulthood. Small merchants who trade in alternative currencies will be preferred over large ones who can not or will not. As an example, I met a local organic farmer 5 years ago who said he would like to be paid in silver. I simply asked him how he wanted to be paid without offering suggestions. The "market-state" in many ways comes about from the ground up because people can use the new technologies to actively manage their environment. If someone wants to transact business only with those who pay or accept payment in certain types of currencies, it will be more and more possible to do so. The local politicians will respond by legitimizing or aiding such activity. If the Fed chooses to make the dollar an illegitimate alternative, it will go away. I don't think the timeline for that is anywhere in the immediate future, say, the next 3 years though.

Getting back to the essence of this, the first step in developing collapse scenarios in my estimation is to gauge the magnitude of collapse that is being faced. The other model I have for making that estimate is some work I did a few years ago in comparing and projecting the length and subsequent magnitude of collapse of the Exploration Age with that of the Industrial Age. The collapse of the Exploration Age began after the collapse of the South Sea Bubble and lasted about 60 years. I would imagine you think it may be worse than that, but let's see what your estimate is before going further.
________________________________________________________________________
There's a point I should add on here that I think is important. One social aspect that probably contributes to collapse and the need for a Dark Age is the ethnic hatreds that build up over time. I don't know if we've reached a limit there. When the world came out of the Dark Ages enough time had elasped where everyone had forgotten what a Goth, Visigoth, Roman, Angle, Frank, Lombard, Saxon, Jute or any of the other tribes were and the world could move forward with a clean slate. The world is reaching a point where any small group who holds a grudge has the technological means to act on it. Part the need for diffuse specialized living arrangements is the fact that, in order to prevent terrorism disruption, it will be necessary to make the system more diffuse and less vulnerable to attack. It may take a couple more terrorist attacks in major cities during a crisis era to get that hammered home.

[vincecate]

I think hyperinflation is usually triggered when a government's budget gets so far out of balance that people stop wanting to buy a governments debt and the government is forced to print for the full deficit and, more importantly, for a huge number of previous bonds coming due.

In that light, PIMCO, the largest bond fund, getting rid of all US government bonds is interesting. If this is the start of a trend, and others start bailing out of US government debt, then I think hyperinflation follows soon after.

http://www.bloomberg.com/news/2011-03-0 ... ports.html

http://www.bloomberg.com/news/2011-03-0 ... e-day.html

http://www.pimco.com/Pages/Two-Bits-Fou ... ollar.aspx

[Higgenbotham]

Markets are behaving normally today for the first time in a long time. With stocks down: dollar is up a normal amount, bonds up (interest rates down) a lot, silver and gold down, silver down more than gold.

[OLD1953]

I think the drop is because the markets are finally pricing in the unrest and uncertainty in the crucial fuel supply sources for Europe. Apparently they are finally recognizing that this time is different, a handful of toys are not going to appease the people who want elections and jobs and cheaper food.

Peak oil doesn't mean a shortage of oil, at this time (due to recession/depression) it appears peak production will be reached next year, and will be about 3 million bbl per day above actual use. Oil price is related to production capacity distantly, if at all. The unrest in the MidEast may very well result in price declines, if OPEC falls apart. OPEC is the second longest lasting cartel that I know of, the only one that's lasted longer is DeBeers in diamonds.

The way to have fewer goods and deflation at the same time is simple, you just have to recognize that inflation is SOLELY a money supply phenomena. As I've said here before, if I developed a process that produced food from air and water (possible, as all elements in food are in air and water, save trace elements) then the price of food would drop to near zero - cost of maintenance plus production plus amortization plus overhead plus profit which would be much cheaper than the current complex crop cycle. So food drops to 1/10 it's current cost, but nothing else changes (besides a crash in the agricultural sector). What did that have to do with inflation? Nothing, I just created a new process. Food prices dropped because of increased efficiency of production, not because of deflation or inflation, they are irrelevant to production efficiences.

The simplistic definition of inflation or deflation would be simply tracking changes in paper money, and declaring increases "inflation" and decreases "deflation". The more sophisticated (and correct) definition tracks everything in the economy that can be classed as "money", and that used to be listed as "M3" and published by the Fed.

So inflation and prices are not really related save that rapid inflation and deflation of the money supply will cause price increases/decreases related to those changes. The govt has blurred the definitions by playing games with "market basket" inflation, which isn't closely related to actual inflation at all, it's all about price changes for goods over time.

Vince, you might want to think about filling cargo containers with polyurethane foam and welding them shut for floats in your seasteading ventures. Those containers will take an almighty collision to rupture, and the foam would make them unsinkable. The smallest ones I've seen are about 10x10, three or four of which would float a pretty good sized house.

Late breaking news: Investors were jarred when China reported a surprise trade deficit in February. China's exports fell in February as businesses closed for the weeklong Lunar New Year holiday, but imports of higher-priced oil and other goods jumped, widening the country's deficit to $7.3 billion.
Securities and Exchange Commission budget cuts sought by Republican lawmakers would force staff furloughs, halt technology improvements, and block implementation of Dodd-Frank Act rules, the SEC chairwoman, Mary Schapiro, said yesterday.

Both of those are pretty important and bear watching. If China makes a habit of trade deficits or the SEC is gutted out, it will have enormous consequences.

Further research on the China trade question - Higgs, take a look at this chart of Chinese trade, set it from 1990 to now.

http://www.tradingeconomics.com/Economi ... Symbol=CNY

While I'm not a chartist, as I've been at pains to explain before, that looks very much to me like a graph that's topped out and predicting a decline over time. What's your opinion?

[Carl Lieberman]

All,
This is slightly off topic, but I found it really thought provoking. John and the rest of us are carrying on with our lives as we watch this tidal wave of generational destruction roll in. In addition to this site I am also a regular follower of the zerohedge.com website. Williambanzai7, a frequent and very creative contributor, posted this today: http://www.zerohedge.com/article/mappin ... -contagion

This is a piece of hope, probably ahead of its time in the cylclic nature of things. Read through the first 15 comments, especially those on Rhizomes. Watch Louis singing "Wonderful World" and Cat singing "Peace Train" Oh to live in Generational Spring, after Generational Winter has passed.

[OLD1953]

Holy howling Hannah! Talk about fanning the flames of hate for business, this will certainly accomplish THAT goal!

http://www.cbsnews.com/8301-504763_162- ... 91704.html
*****

For years, a drug given to high-risk pregnant women to prevent premature births has cost $10 to $20 per injection. Next week, the price shoots up to $1,500, meaning the total cost during a pregnancy could be as much as $30,000.


The drug, a form of progesterone given as a weekly shot, has been made cheaply for years, mixed in special pharmacies that custom-compound treatments that are not federally approved.

*****
Sure takes the whole "you don't know what that costs" argument off the table, doesn't it? Hand compounded, 20$, made with modern production facilities, 1500$! Now THAT'S a price hike! This is BEGGING for intervention in how drugs are sold.

[vincecate]

Holy howling Hannah! Talk about fanning the flames of hate for business, this will certainly accomplish THAT goal!

http://www.cbsnews.com/8301-504763_162- ... 91704.html

Probably, but look again:

The drug, a form of progesterone given as a weekly shot, has been made cheaply for years, mixed in special pharmacies that custom-compound treatments that are not federally approved. But KV Pharmaceutical recently won government approval to exclusively sell the drug, known as Makena (Mah-KEE'-Nah). The March of Dimes and many obstetricians supported that because it means quality will be more consistent and it will be easier to get.

It seems no one anticipated the dramatic price hike.

Note that part about government giving exclusive approval, supposedly to get more consistent quality? Bet you someone in government and some big supporters were paid off by people who own shares in that company so they could make a lot more money. This exclusive approval, when they did not have it before, is eliminating competition. Of course they could charge more after the government eliminates their competition. But the hate should be directed towards government corporatism, not capitalism or free markets.