Despite
humanity surviving and thriving for thousands of years using commodity
currencies the fiat currency proponents
have effectively marshaled the press and academia to equate
those in favor of a commodity currency with those counting down to Armageddon.
When looking back through the corridors of history one lesson is clear
from humanity’s experience: at all times and in all
circumstances gold and silver remained money. After fiat
currency debacles that resulted in self-inflicted financial and
economic wounds it was the individuals with the foresight to store tangible
assets that were able to provide the capital for humanity to do what they
have always done: rebuild.
Therefore,
those in favor of a commodity currency who store tangible assets are
the optimists.
Commodity currency advocates are
neither ‘doom and gloomers’ nor vampiric fatalistic
fiat currency disciples who will be vaporized by a rising golden
sun. Those in favor of a commodity currency who store tangible assets
realize that the earth rotates, the sun rises and the ages turn. As the
night shifts to day life will go on with breakfast being cooked and eaten.
The issue is who will do the cooking and who will do the eating.
MEMORIAL DAY
WEEKEND
Like
most people I enjoyed the long weekend. With a bunch of pizza we watched
Lebron James sink an amazing three-point winning shot with 1.0 second left on
the clock. The following night I devoured a delicious coconut-banana
smoothie with some friends while listening to a giant singing frog.
Afterward Aaron Krowne, the founder of ML-Implode.com, and
I decided to recap our intense financial and economic discussion which is
now available as episode #37 of the RunToGold podcast.
STRATEGIC
RELOCATION
Shortly
before Memorial Day I received an interesting, if not unanswerable, question
from a reader: ”Would you recommend a place to live in the
Montana to Colorado area that will have minimal economical damage?”
The
principle of human action holds that every
individual derives utility according to their own preferences
resulting in a subjective perception for determining value and price. I
hate cold weather. Being trained in the law I am often accused of being
cold-blooded but the reality is that I am just a desert rat.
While preparation expert
Joel Skousen, author of Strategic Relocation, may consider Montana or
Nebraska attractive locals I have about the same desire to live in Montana or
Nebraska as I have for eating sauteed rats in South Korea.
Nevertheless, I know people who love living in Montana and others who
find sauteed rat a delicacy. Everyone has their own individual
preferences based on their human action.
PREPARATION
A
motto I have tried to implement is: Be prepared. Often the first
step is to assess the environment and circumstances. There is an
infinity of scenarios that can play out. The key is being able to
assess what is possible
and its probability
of occurring.
Sure,
a metorite could come hurling out of left field and destroy your car, or the
earth for that matter, but the probability is extremely low. Even if I
did purchase meteorite insurance I would still bear the counter-party risk.
Therefore, I have chosen to forgo meteorite insurance.
Nevertheless, I would not be surprised if a few of my extremely
conservative readers did purchase meteorite insurance and maybe even
additional reinsurance. Everyone has their subjective preferences.
MENTAL
CALCULATIONS OF VALUE
The
use of fiat currency has greatly retarded the ability of the general populace
to performance mental
calculations of value. These fiat currency illusions are
like using the term ‘foot’ or ‘feet’ to perform mental calculations of distance
when constructing a building but having either no definition of inches or
conflicting definitions of inches.
Let us
assume plans were drawn up for a building with a 7 foot door within a 10 foot
wall. However, the definition of feet when used for the door was 24
inches per foot and when used for the wall it was 6 inches per foot.
Can you imagine the resulting chaotic structure?
But
that is precisely the problem most individuals and financial professionals
have found themselves in. As a result most people can neither
accurately appraise the economic environment nor make accurate assessments of
the possible events and their probability of occurrence.
SUBURBAN
SURVIVALISTS
Yahoo Finance!
reported that a new trend is coming out of chaotic California:
’Crisis spurs spike in ’suburban survivalists’.
”Six months ago, Jim Wiseman didn’t even have a spare
nutrition bar in his kitchen cabinet. Now, the 54-year-old businessman
and father of five has a backup generator, a water filter, a grain mill and a
4-foot-tall pile of emergency food tucked in his home in the expensive San
Diego suburb of La Jolla.”
I find
Mr. Wiseman’s tale of ’spending roughly $20,000 since September
on survival gear’ rather ironic on multiple levels. First is his name. Second is
that he is a ‘fire protection contractor’ so it appears that he
is in the risk management business. Third is how he has approached the
performance of these mental calculations of value.
Surprisingly
Professor Markman does hit on a key issue when he says, “We have no
real causal understanding of the way our world works at all”.
COMPLEX
SYSTEMS
A few
years ago I was touring a Wal-Mart store with its general manager. He
showed me all around, how the trucks were packed and explained the
Just-In-Time computer system that automatically managed the inventory to make
sure that just the right amount of goods arrived at the stores at just the
right time. After all, this helped reduce inventory which freed up cash
and made the company more profitable.
Also a
few years ago at a lunch I had a discussion with Kevin Rollins, former
President and CEO of Dell Computers, about inventory management. His
statement still sticks in my mind about measuring inventory turnover not in
days but hours.
Tremendous
innovations in supply chain management have taken place over the last decade.
Companies and their inventory are leaner than ever which conserves
their cash and supposedly increases profitability. But sometimes a black swan flies
in, disrupts the system and chaos in sues. Other times it is a
gaggle of black swans.
SIMPLE
PREPARATION
If Mr.
Wiseman really needs his various preparations then what would the probability
be that the area he is in is experiencing massive civil unrest, supply chain
disruptions, gang warfare and a host of other undesirable effects?
Often
when thinking of disaster preparation people get a little extreme,
do not accurately assess the probability of events, focus on fairly
immaterial questions like how to buy gold or silver and
neglect the more important issues.
When
considering physical preparation I think the best insurance is a three month supply of food
and a 72 hour kit.
The
kit should be extremely portable such as a backpack which may be quickly
taken in the automobile should there be a need to evacuate. The food
storage is a great hedge against inflation, insurance that you can eat which
is not subject to counter-party risk, protection against potential supply
chain disruptions such as the recent swine flu advertising campaign, and
relatively cheap. Food storage is a form of savings and procuring a
three month supply of food may cost only a few hundred FRN$s.
Many
of the economic establishment has an insane belief that savings can be too
high and often berate China for their high savings rate. The savings
rate can never be too high.
For
example, an individual can never have too much food. But
many negative effects, such as death, result from having too little food.
Therefore I would rather bear the risks from having too much food such
as spoilage, etc. than any of the effects from having too little food.
After all, the body measures food and water inventory in hours not
days. To reduce the cost of having excess food therefore I follow the principle of storing what I eat
and eating what I store.
Many,
such as billionaires Eric Sprott and Richard Rainwater, find the Peak Oil theory persuasive
and foresee a long emergency.
Sure, there are additional preparations you can make such as opening a
free GoldMoney
account where you can begin using gold or silver in ordinary daily
transactions, procuring a shotgun or Glock 9mm, storing a year or two of
food, spending hundreds of thousands or millions of FRN$s on a ranch in a
remote location, etc. For those interested, I address the principles
for a comprehensive strategy in chapter 6 of The
Great Credit Contraction for dealing with the current
environment to protect, preserve and grow one’s wealth.
CONCLUSION
Using
gold to perform mental calculations of value is extremely important
in determining how to profitably allocate capital. The current
worldwide monetary system is based on a rapidly evaporating illusion.
The FRN$ system is facing intense pressure which is resulting in many
undesirable consequences. Being able to assess possible events and
discern their probability is becoming increasingly important.
Our
current society functions because of complex systems and they can easily be
disrupted. Preparation to hedge against
these uncertainties can cost anywhere from a few hundred FRN$s or
become a black hole for capital and time. Having a three month supply
of food and a a 72 hour kit will
provide protection against the vast majority of probable scenarios. The
Great Credit Contraction has only begun and the landscape
is changing at a rapid pace.
Are
you prepared? You may even consider taking a survivalism course.
To benefit other readers please leave you questions or suggestions in
the comments.
DISCLOSURES:
Long physical gold, silver, platinum and
plenty of food.
Trace Mayer
RuntoGold.com
Trace Mayer,
J.D., holds a degree in Accounting from Brigham Young University, a law
degree from California Western School of Law and studies the Austrian school
of economics. He works as an entrepreneur, investor, journalist and monetary
scientist. He is a strong advocate of the freedom of speech, a member of the
Society of Professional Journalists and the San Diego County Bar Association.
He has appeared on ABC, NBC, BNN, many radio shows and presented at many
investment conferences throughout the world.
|