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Modern fiat currencies are not going to disappear, no matter how hard Obama
and Bernanke try to destroy them. They are simply too good of a medium of
exchange. The ease with which labor is divided over the whole globe and
capital exchanges are transacted across thousands of miles, instantaneously,
is a planetary first! It is a marvel of the modern computer age!
Even in collapse, man has shown his resilience in using these modern fiat
mediums. Just look at Mexico. Still using the peso, albeit in a slightly
different form. Mexico is proof that in most cases there is a riverbed
somewhere down the waterfall. Zimbabwe is proof that this is not always the case.
The electronic form of fiat digits occupies no physical space whatsoever.
Think about this. And even the paper form can explode in face value and
continue holding only the same amount of space. So as a medium of exchange,
it does not really matter the value of each individual digit. I can do a good
day's work for you and you may pay me $100 or $1,000,000,000, depending on
the value of each digit. The value of the digit doesn't matter. The currency
still functions fine as a medium of exchange.
Then of course there are adjustments to be made. Like "lopping off
zeros" and printing colorful new bills. In the virtual world of
electrons these adjustments a are minor task for a computer programmer. You
see, managing a fiat currency is easy. Heck, even Gideon Gono and Ben
Bernanke can do it!
Here is the problem though, kids. Most mature investors retain their life
savings fully invested within the financial industry, denominated in dollars,
and will not get off these tracks even when they see the train coming. They
will stay there because it is impossible for them to believe they occupy the
wrong position! Who can blame them or call them fools? They have been trained
their whole life to believe in saving for the future inside of a monetary
system that serves no purpose other than as a medium of exchange.
Worse, they perceive that all of their assets are correctly valued by this
system that does not care about the value of a digit. How can they possibly
be correctly valued in a system that only functions properly as a medium of
exchange, not a store of value? How can assets meant to be stores of value be
correctly valued when denominated in a unit whose value DOESN'T EVEN MATTER
in the context of its primary function? They can't. They shouldn't. They
aren't. And soon this FACT will be known by everyone.
This fantasy illusion that the dollar can be a store of value is built upon a
foundation of raw sewage, that all people in the world using the dollar in
its PRIMARY FUNCTION will continue to act NORMALLY no matter what happens.
That homeowners will continue to make dollar payments on loans that are twice
the size of their house. That retirees will continue to buy and hold crappy
investments. That toxic financial instruments will continue to yield interest
and trade at par even when the underlying cash flow has been declared DOA.
That holders of physical gold will continue to surrender their precious at
the rate of one ounce per 950 US dollars. That oil producers will continue to
ship oil to the US military at the rate of one barrel per 70 US dollars, even
when those dollars smell like fresh ink. That a nation of 1.3 billion will
continue to work their hands to the bone in exchange for US dollars that
stink of wet ink. And that the entire planet will continue to honor the US
leadership with the amazing privilege of being the only entity in the entire
solar system that gets a free lunch.
You see, the truth of the matter is that there is no free lunch. Yet the US
federal government is now funding its fantastical folly at the rate of
TRILLIONS per year through the Federal Reserve's printing press, nicknamed
POMO. If the dollar doesn't collapse in purchasing power, this could go on
FO-EVAH!! Free lunches for everyone (in the United States)!!! We can all work
for the government!! Be a G-man! A nation of G-men!! How cool would that be?
Look, they make more DOLLARS too...
There is only one way this madness stops. It is not going to stop by Ben
Bernanke telling Obama "no more!" It is not going to stop by
Congress suddenly slashing its pork-laden budget to sustainable levels. It is
not going to stop by the real economy suddenly rising to the occasion. Yet it
WILL stop soon. This insanity is sucking the very air out of the global
economy like a pyromaniac's fire that extinguishes itself in an airtight
space once the air is gone.
It is a truth about inflation and hyperinflation that only the VERY FIRST
entity to use the newly created money profits from the exercise while
everyone else suffers. This is because newly created money draws in real
economic goods and services to the printer at the same rate as they were
offered in the open market before that new money was created. And the printer
receives this SUBSTANTIAL PORTION of the real economy at precisely ZERO cost
when that new money comes via Ben's mouse named POMO. This 'first spender'
effect can be seen both in the BOOM TOWN that Washington DC has become in the
middle of a damn depression, and in the LAVISH lifestyles lived by Gideon
Gono, Robert Mugabe and all of Mugabe's cronies and friends.
If you can imagine the real economy, the gross national product of everyone's
efforts in the whole country for one year, as a bloody red flow animated on a
map of the United States, then imagine that at least 20% of this lifeblood of
the US (all goods AND services) are flowing right into Washington DC! No
wonder 3 out of 10 people in this country work for the government! No wonder
DC is the only place in the country that is THRIVING right now. It is
receiving 20%+ of EVERYONE'S efforts at ZERO real cost. Is that freaking
amazing or what??!!
Is anyone getting the feeling that something just isn't right here? I sure
am. And I'm not here to talk about karma or some kind of magic universal
justice. I am here to talk about the invisible hand of the planetary market
organism. It is this giant invisible hand that is moments away from cutting
off the power.
There are some clever deflationists that will tell you that the dollar is
going to rise in value giving Ben, Tim, Barack and the entire DC gang a
lengthy free lunch, all because of the giant debt overhang in the economy
that backs the US dollar. The thinking goes something like this. The world is
full of debt. The dollar is backed this debt, and is therefore balanced by
it. As long as the debt remains, it must be serviced with dollars which
drives up the demand for dollars, and therefore the value of dollars. If the
service of the debt starts to fail then the dollar will start to fall making
the service of the debt easier (with cheaper dollars) and the service will
then resume, raising the dollar back up. I call this the see-saw theory. I
see what you're saying, now let me saw it in half.
You see the biggest debtor of all is the very printer of the currency all
that debt is denominated in. And this debtor is now picking up ALL of the
slack left behind by everyone else. Only his debt service will never fail,
because he can print that service with the click of a mouse. And since he
doesn't have to seek dollars on the open market, his debt has the OPPOSITE
effect of all other debt. Instead of driving up demand for the dollar,
it drives it down (and drives up supply at the same time)!
Normal debt = dollar demand up, dollar supply down.
US Fed Gov't debt = dollar demand down, dollar supply way the f up!
As the dollar starts to fall in value, this has no effect whatsoever on the
ability of the world's biggest debtor's ability to service it, and therefore
has no see-saw-leverage effect that raises the value of the dollar back up.
Instead, it has the exact OPPOSITE effect... once again. Because now this
biggest debtor must print even MORE dollars to suck in the same SUBSTANTIAL
AMOUNT of the real economy at ZERO cost. It is a brutal cycle, and it has
just begun! Notice that I said substantial AMOUNT this time, and last time I
said substantial PORTION. That's because as this cycle proceeds, the AMOUNT
of the real economy that the government sucks in at ZERO cost actually grows
in proportion to the real economy that is shrinking. If the deflationists are
right, then someday we WILL all be G-men!!
Additionally, there are some misinformed hyperinflationists that believe
hyperinflation will be our savior. That it will alleviate all the debt and
free up the housing market to rise once again. In response to this view, some
deflationists have argued that hyperinflation or currency collapse will never
come in time to save the debtors. Very quickly, I would like to dispel this
malformed (from both sides) argument. Hyperinflation, by its very nature,
will come well before all of the debts are cleared. It will be "the
cleaner" called in by the invisible hand to mop up the massacre. But it
will not deliver a free lunch to the many debtors who have no real savings,
and certainly none in REAL money. They will find out that even though their
debts are now payable in much smaller dollars, that even those smaller
dollars are hard to obtain in necessary quantities. They will wish they had
hoarded some miniscule savings in physical gold before the crash with which
to settle their debts. As hyperinflation or currency collapse takes hold,
they will find that debt settlement requirements race just slightly ahead of
the ability to pay through normal economic means. You see, hyperinflation is
really just a deflationary collapse party with Gideon Gono or Ben Bernanke
spinning the tracks we all dance to.
"So what are you saying FOFOA? Just spit it out already!" Okay.
Here is what I see coming. I see the US dollar, a medium of exchange,
devalued by the external world sometime soon and its CHARADE as a store of
value exposed and brought to conclusion. This is the only way I think things
can play out now based on what I have seen over the past year. Furthermore, I
believe there will be a flood of "dollars" as the dam breaks,
spilling from the make-believe $600Trillion+ financial paper economy into the
$60Trillion global REAL economy. And I believe a highly disproportionate
amount of this flood will be absorbed by gold! I believe this may actually be
a primary plan for some very large physical gold holders in some very high
places. In fact, I would bet on it!
Furthermore, I believe that if you are not already positioned in the safety
of real physical gold when this happens, you will not be able to get there
until after the flood recedes. I believe that things could get ugly and life
could get real hard if and when this all goes down. But I also believe that
having some gold will make life easier on you, by quite a lot. Of course
there are some other obvious preparations that everyone should make, like
stocking up on food and water, the necessities of life. But it is very
expensive and difficult to prepare in a survivalist kind of way for every
possible scenario. Some can do it and that is a great thing. But for the rest
of us, gold is a good substitute for the unknown. A substitute with
tremendous upside potential at this particular time in history!
I have made a few 'survivalist' purchases myself, that go beyond metal and
beyond the norm. I have a specific thought and use that goes with each one.
In most cases they are items that could a) become very useful in a lifesaving
way under certain scenarios, and b) become valuable for barter because they
will be scarce. I do not recommend these items for everyone because we all
have our own unique situation. But this list should at least give you some
food for thought, and I'm sure some of you all can add more things in the
comments. Anyway, here is my short 'beyond gold' list:
Guns, including large home protection and small concealable
Ammunition stockpile
A concealable bulletproof vest
A generator
Gasoline storage
Plastic water storage
Water purification tablets
A portable ceramic water filter
Freeze dried food
N95 masks
Camping gear
There are some other low cost, low probability, high impact items that I
like. These include IOSAT tablets and surgical kits. They say it is easier to
find a doctor than it is to find a doctor and an OR! Others, like my gasoline
will definitely be used in one way or another. The generator is still in the
box, so it could be a barter item or a necessity at some point. Who knows?
But I doubt it will lose value like the dollar will.
So there you have it. No Free Lunch! For ANYONE! Do what you can to take care
of your family. And if you think the government will carry you through this
on its own Free Lunch program, guess again! The power is about to be
extinguished by a giant hand.
Sincerely,
FOFOA
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