Don’t look now…
…but there may be more trouble ahead.
I don’t pretend to have a truly informed opinion on what will actually happen. But I’ve heard a great many ominous rumblings about it.
The New Neo
A blog about political change, among other things
The shabby way that we have been treating our currency will end badly. The seeds have been planted and we are well on our way to inflation and a devaluation of the dollar. Thanks to Harry, Nancy, Barack, Tim and Ben. Although George, Alan, and Paul fail to help way back in the beginning of the real estate bubble. Stagflation anyone?
This is the classic way governments avoid paying the full cost of their debts. We’re going to punish China (and every other investor in our debt). Watch for the shift away from the US.
Unfortunately, this has usually been a very bad thing for the silly middle class savers who get carried along on the tide. They generally have something they want to protect but insufficient means to do so.
But don’t worry. Our gummint leaders are sure to protect us.
Also, there’s another election coming. Now if we can only figure out how to vote in a new bureaucracy, too.
It’s already started. Look at the price of gold and silver over the past two years. More recently it’s oil, cotton, and agricultural products. The stock market has been on fire for months.
The Republicans had better get a handle on spending and borrowing fast. Rising energy and food prices could really stall the recovery.
The only problem is, what do we buy as a hedge against that?
– gold is too expensive
– euros are tainted with PIIGS
– yen are tainted with Japan’s stagflation
– yuan are, well, let’s just say that there is no way China is getting out of this unscathed
– pounds are tainted with Britain’s capitulation to everything
Perhaps Canadian or Aussie dollars? Maybe rupees? Swiss francs?
Anna,
There are some good precious metals mutual funds which invest in PM mining companies — USAA and Oppenheimer are two. Big oil company stocks will go up with oil and they pay 3-4% dividends (Exxon Mobil, Shell, Conoco Phillips, Statoil). Utility stocks tend to slowly go up with inflation and they pay 4-6% dividends.
The Federal Reserve is buying existing debt from banks and pension funds. The bankers and the (union) pensioners are made whole on the Treasury debt they bought. But will they buy again, hoping that once again when the Federal Gov’t debt and deficit shows Uncle Sam to be a silly credit risk, the Federal Reserve will step in to save them?
And foreign buyers of Treasury debt (China) will be ever more reluctant to finance further US Gov’t overspending. But they have their own problems, and may have to keep buying to keep their own people working and docile.
Or, the Federal Reserve could also buy some foreign-held Treasuries and help the foreigners like they do the bankers and pensioners. Perhaps for a taste of the transaction, denominated in non-US currency.
We’re heading for the Federal Reserve becoming the only buyer for new US Treasury debt. But since the FedRes is owned by its member banks and is not under government control, at some point the bankers, too, will stop financing US Gov’t overspending.
When we the lowly people notice that the people on Wall Street have become predominantly invested in foreign assets, it will be too late for us.
Karl Denninger at the Market Ticker has been screaming bloody murder about this. It’s similar to what FDR did in the 30s when he devalued the dollar. It made the Depression worse.
Devaluation of the dollar makes commodities like food and energy more expensive. You know, the things we all need to live. Paying more for the necessities means that our standard of living will decline. The middle class will become poor; the poor will become destitute. America will become, eventually, a Third World nation. The elites and the super-rich won’t feel much pain. Do they really care if their wagyu beef costs $100 or $200 per pound? No, but you and I will sure notice when a gallon of gas costs $6.00.
Here’s today’s Ticker:
America’s Alarm Clock Has Rung: Time’s Up
An excerpt:
(Bold caps in the original.)
Please read it. This is an order of magnitude more important than the election, and is certainly part of the reason for my gloom over the past couple of days. Meanwhile, Denninger is frustrated that no politicians of any party, including the Tea Party, are talking about it.
Anna,
I should have noted the time to be setting up your defensive positions was a year to six months ago. Right now stocks and precious metals are not cheap. Much of the appreciation has occurred as people feared the future and pushed prices up. The best you can hope for now is to keep up with inflation.
Well, Karl Denninger said (in another Ticker) that the only way to avoid the sh*tstorm that’s coming is to move out of the country. Although a collapse of the American economy will certainly have worldwide repercussions.
For the near term, the best thing to do is stock up on necessities, like non-perishable food. If you have a meat freezer, fill it up. Buy clothes, coats, and shoes. Take care of necessary home repairs sooner rather than later. If you have an underground storage tank for fuel, top it off. That sort of thing.
Here’s a blog I bookmarked a while ago, by someone named “Ferfal” in Argentina. He described his experiences during the economic meltdown in 2001 in that country:
http://ferfal.blogspot.com/2008/01/most-important-need-in-first-few-days.html
He also has written a book, apparently, although I haven’t read it. I haven’t read much of his writing, but I’ve heard him praised a lot.
Well, if you have money sitting around and dont know what to do with it, you might consider buying a little piece of land to grow food on if you dont already have such.
There are ETFs (exchange traded funds) that are traded like stocks and can be used to essentially invest in gold, silver, and the Swiss franc. They move almost exactly with prices of these assets themselves. (If gold goes up 5%, its ETF goes up 5%.) They are vehicles that even a very small investor can use to take a position in these more solid assets and they are convenient for investing…they can be bought and sold like stocks.
Symbols:
Gold – GLD or IAU
Silver – SLV
Swiss Franc – FXF
If you are more speculative and have money for that
speculation, not long term investment, consider call options on SLV and GLD. They are truly on fire.
Here’s a great site for getting free, excellent charts for all stocks and ETFs:
http://www.freestockcharts.com
If things get really scary, I like Jon Baker’s idea of getting access to land upon which you can grow food. Also, exchange any gold and silver ETFs you have for actual physical gold and silver. Silver, especially, could become the new “money” for small, day-to-day transactions.
it looks like I will end up under the bridge.
after all the struggle…