THE LIBERTARIAN ENTERPRISE
Number 570, May 16, 2010
"Prepare for the future by getting to it"
Special to The Libertarian Enterprise
So, did you see the rally engineered even before the open on Monday 10 May? Astounding how the futures markets were up by over 300 points on the Dow before the opening bell.
Over the weekend, the European central banking gangsters engineered a bail-out plan for Greece with pledges of on the order of $980 billion. Since these are EU euros, the conversion to dollars is a moving target. Check with xe dot com for current rates and conversion calculators.
But the bail-out plan is enormously under-funded, even if we are to believe the view that only Portugal Ireland Italy Greece and Spain are over-burdened with debt. From what I've seen there isn't a country in the Euro-zone which has low taxes, high productivity, and limited government. They are all embarked on Bismark's grand plan of taxing the productive and providing free money and social welfare of all kinds to everyone.
The problem as Hayek once noted (and was paraphrased by Thatcher) with state socialism is, eventually you run out of other people's money. Which they are.
Now, how can I say that nearly a trillion dollars is woefully underfunded? Simple. I can add.
Yes, an amazing ability. I've even been known to add an entire column of five numbers up in my head.
The euro-zone currently consists of Austria, Belgium, Cyprus, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia and Spain. So let's tote it up, shall we, then? Yes please.
The above figures for national debt are each taken from the Wikipedia entry for that particular country's economy. I suspect that Wikipedia's source for most of that is CIA world fact book, and that the CIA is the espionage and wet operations collections desk for the international banking gangsters. YMMV
The total was obtained using a calculator and the arithmetic function of addition. I mention this point because central bankers seem to be a bit lost where such basic mathematics are concerned. -smile-
Now, one trillion in scientific notation would be 1 times 10 to the 12th. Twenty-seven trillion would be 2.7 times 10 to the 13th. You see where I just rounded 26.7 up to 27? Well, sure, because there has been interest accumulating on all these national debts since the end of 2009 at least. So it is probably closer to 28 trillion. But the point of converting to scientific notation is to make note of the fact that there is an entire order of magnitude difference between 1 trillion and 27 trillion. Also notice that the real figure was something like 960 billion dollars, not a trillion. So, even less. (To an astronomer, 110 = 990, more or less.)
All of these numbers are very dated, because of interest rates reaching recent highs in excess of 20% in some of those countries. My figures are end of December 2009. Internal to Greece some bankers have been offering interest at 25%, I see in one recent news story. Presumably they are lending at even higher rates. Greece had official gov't ten year bonds on offer last week bearing over 12.5% interest.
Against which the European governments and banking gangsters have assembled less than $1 trillion. This seems obviously to be a figure mounted in desperation over recent stock market crashes all around the globe. It includes hundreds of billions from the International Monetary Fund which is in part funded by the uSA taxpayer. I gather Angela Merkel of Germany held off on the bail out program trying to win re-election, failed in her bid, and the delay hasn't been helpful. In any event, they have come to the table kicking and screaming with about a quarter of what they need to handle the debt crisis in just the five countries mentioned.
Nor do things necessarily get better as the Euro zone expands in future years. Bulgaria is expected to join with a relatively minor external debt around $49 billion. Denmark may or may not join the euro in future, and has $607 billion in external debt. Sweden, which has the world's oldest central bank, the Riksbank since 1668, should be reluctant to join the euro, as they are enjoying relatively low inflation with their own currency despite $670 billion or so in external debt and public debt running about 43% of GDP. Joining the euro would probably prove to be a poor choice for Denmark and Sweden.
Poland, on the other hand, is coming into the euro in 2012, and currently has over $200 billion in external debt, with public debt running about 48% of GDP. Last I looked they were running about $10 billion annual deficit. So not necessarily a huge burden to the euro zone, but not a huge help, either.
Hungary, which has been famous, like Germany and Austria, for hyperinflation in the past, has $150 billion in external debt, with public debt running over 72% of GDP. Somehow a country which persistently prints a 20,000 forint currency note doesn't seem, to me, likely to be helpful when it chooses to join the euro. But that's just me and my native scepticism.
Prepare for the Worst
So, yes, you can now protect yourself from the wild rides in stocks and bonds. Gold seems to have firmly de-coupled with the other currencies and with stock and bond prices, and is now un-correlated. What does that mean?
Well, in modern portfolio theory, correlated assets rise and fall at the same time. So when two stocks that are closely correlated rise in price, they are both high at the same time. Portfolio theory suggests that you diversify your risk by choosing assets that are not correlated. So when one is rising, another is falling, and a third is staying steady. The less correlated your portfolio the better your chances of preserving wealth in all market conditions.
Today, however, we don't have all market conditions. We have a highly volatile stock market, persistent high unemployment globally, very high in the USA (running about 22% nationally based on the figures at shadowstats.com which use the 1980 algorithm against current data from the fedgov), and a massive global sovereign debt crisis. I don't think the current bail-out is going to succeed. Rather, I think the current crisis exposes the weakness in all currencies and amongst all national governments.
Which means that you should be looking for assets that are particularly strong in conditions such as we have now. I think gold, silver, copper, platinum, and even palladium are good choices.
As well, you should be anticipating weakness amongst government supported enterprises like banks. You should not expect the bank where your money is to be solvent forever. Which is why you shouldn't put gold coins in a bank safety deposit boxit isn't your safety they have in mind when they call it that. Remember that after 1933 when President Roosevelt confiscated the gold, the secret service went to banks and searched safe deposit boxes for "contraband."
Keep gold and silver coins at home. Bury them in your back yard, under an engine block or under a bunch of scrap metalsatellites and aerial surveillance systems can detect metal under ground. Keep them in your house. Buy guns, guard dogs, ammo, practice at the gun range to gain skill, and consider do-it-yourself electronic security systems for your doors and windows and cameras for inside and outside the house. I would stay away from the big name security services because they probably have to comply with government requirements to invade your privacy on demand.
Prepare a shelter in your home, underground or on a low floor, in a room without windows. Prepare that room so you can stay there for days on end. Think about what that means in terms of bodily fluids and such. Prepare for water, air filtration, food, medicines, prescriptions for your eyeglasses, and everything else. Get some medical gear and learn how to use it. Take some emergency medical classes. Have camping gear and supplies ready to go in a bug out bag, and have a second set of the same in the trunk of your best car or four-wheel-drive vehicle. Think about a place to go if you can't stay where you are.
Things are going to get very bad for a time. There's no way around it, now. There are no solutions to the sovereign debt crisis that don't involve monetising the debt, which means destroying the currencies. Situations like this current one come every few hundred yearsthe last major crisis of its type was 1722-1782 and was the harbinger for the modern nation state. Before that was the end of the Byzantine empire and gold solidus in the 1450s, and before that the end of the Islamic Caliphate and gold dinar in the 1250s.
So, really, we are somewhat overdue for this sort of world reserve currency crisis. And we are going to have the crisis. You can avoid some of its impact on you. You are very likely going to survive. But things that you may have been depending on, such as nation states, are not likely to survive.
That may mean a period of militarism and overt tyranny. Death camps, genocide, world wars. It definitely means a period of economic dislocation. So, don't go places where you aren't allowed to be armed. Don't keep all your eggs in one basket. And prepare for the worst.
The World as We Know It
In the long run, I believe technologies are making things better. We are seeing more and more open source software, open source operating systems, open source networking protocols, open source encryption. People I know personally are working on new free market money systems based on similarly robust and open source concepts without single points of failuremany issuers, many vaulting services, many database services, many settlement houses, many auditors.
We are seeing new technologies on the nanometre scale which promise all kinds of advances in materials, pharmaceuticals, life extension, and space access. We are seeing all kinds of new opportunities in space tourism, in high speed travel, and in alternative energy. I think the future is going to be full of wonders, with lots of alternatives to pollution, lots of parts of the Earth kept pristine in wilderness, lots of open frontiers in the oceans, in space, and elsewhere. We have barely scratched the surface.
But between now and then is a tough time. I won't kid you about it. We face severe economic difficulties. We face ego maniacs with huge armies and massive inferiority complexes. Some of these morons are probably willing to use nuclear, chemical, or biological weapons to keep their grasp on power. There's no way to know for sure.
So, prepare for the future by getting to it. Prepare for the future by surviving the next few years. The train wreck is happening, and it is happening in slow motion, right now.
Athens went up in flames over budget cuts and people died. Now Spain is talking about making "hard choices." So is Colly-fornya governor Arnold. Are you ready for a long hot Summer?
Things are going to get a lot worse over the next year. It is hard to predict the timing of any major event, but we know that the major event is in motion. It isn't like one of the trains in collision can move onto a siding at this point. The wreck is taking place. And it will continue to take place. I would not be surprised to see the euro ... See Moretrading at $1.10 within the next 12 months. I would not be surprised to see gold at $1,700 in the next 12 months.
One of the drivers that is going to make much of Europe go rapidly down the drain, along with Japan, is ageing population. If these countries don't stimulate population growth or accept a very large influx of immigrants, the maths won't work. And if the immigrants are of a very different culture, the riots are going to be very bloody.
There are no longer pretty scenarios on offer. There are a lot of really dismal scenarios for the near term. Eventually all this bureau-rat idiocy and pretended managerial competence is going to be shown up for what it is, and then the world is going to move on: without a lot of overhead. The amount of government that can survive this financial collapse is really very small.
Gold has been hitting record high prices this week. Just Wednesday it was flirting with $1,250 per ounce. Now it might be slightly over-bought, because it has zoomed up so much in the last two weeks. But if the Greece bail-out plan is going so well, why is gold still so high?
If the European banking gangsters and the International Monetary Fraud have in fact solved the crisis, why is the inter-bank lending rate (LIBOR overnight) still about 0.3%? If the EU ministersmore sinisters than ministershave actually solved anything, why does the value of the EU euro continue to plunge against other currencies? It was again closing on $1.25 to the euro this morning.
"I tell you this: no eternal reward can forgive us now for wasting
So if all things desperate have been resolved, gold should crash back down to about $200 an ounce, LIBOR overnight should return to its pre-crisis level of about 0.11% and the EU euro should zoom up to $2. These things are not happening because the problems have not been resolved. The problems are not even close to being resolved.
The sovereign debt crisis is contagious, and it can most definitely reach to other economies around the globe. Consider Japan with $2.13 trillion in external debt; Britain with $9 trillion; Switzerland with $1.3 trillion; Canada with $0.8 trillion; and the United States with about $14 trillion in external debt. Five more countries, another $27 trillion in external debt. A total of six currencies are involvedsix currencies that are going to have to weather the storm of either economic collapse if taxes were raised to pay down the debts, or monetary hyperinflation if all that debt is monetised.
So between the euro-zone 16 countries and these other 5 countries, a total of about $54 trillion is owed. That's a lot of debt in circulation, considering that the gross global product was about $70 trillion in 2009. The CIA world fact book estimate is $57 trillion in external debt for all countries in the world. In other words, the 21 countries mentioned above have about 95% of all the world's external debt.
You know, unless the CIA is still lying to us.
No, I don't think the global economy is out of the woods yet. So, no, I don't really like any of those six currencies.