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What Happens When Your Money Is Worthless? Living with a Devalued Currency

March 31, 2018

What Happens When Your Money Is Worthless? Living with a Devalued Currency

This is one of the most important and valued articles to help you prepare. I think it could be useful, based on our experience with the economic collapse and its effects on the currency. Let me tell you what life is really like when your country has a devalued currency that is nearly worthless.

How do you buy things with devalued currency?

These last few days I was asked by a fellow prepper overseas how our internal trading, with such a devalued currency, was going on. He asked if we used silver coins and bartering. I answered him that we use mostly US dollars and Euros for large transactions like vehicles, land, and housing, as far as I know. But the reason people are mostly selling is that they are desperate to get out of the country, and the wealth they have accumulated in previous years vanishes, with the bad deals they seem forced to accept.

On the other hand, for day-to-day payments, bolivars are still used, but the prices go up (always UP by the way) depending on the black market dollar price. This is, though, a perfect evidence that this black market dollar is controlled by the government: look at the evolution price, and you will find it stable just before any important election, political campaigns and such.

This is no surprise, those who benefit the most from this black market are those “companies” that aligned with the dollar river…and nowadays that stream is getting dry.

Bad news for oil industry workers

I received very bad news for those still working in the oil industry. So you can understand what is in store for the employees, I have to explain some background first.

As part of our monthly payment, we received a savings incentive: the company retained the 12.5% of our salary in their accounts until the end of the month, and provided another 12.5% (it sounds like a lot but it is not). So, by the end of the month, we had in the corporative account an additional 25%.

This was one of the main benefits for the oil state workers, and that helped to deal with the high performance demanded by the industry. This money, during better times, was kept there until the end of the year, for a new car, or starting a side business,  some fancy vacations, and stuff. However I never used it for traveling overseas, but invested in land, some prepping gear and equipment, assisting my parents and my wife’s family, and short family trips from time to time to the beach, or my folks’ place and such.

…click on the above link to read the rest of the article…

Red Screen At Morning, Investor Take Warning

February 10, 2018

Shutterstock

Red Screen At Morning, Investor Take Warning

It’s time for safety. And it’s beginning to pay better, too

Growing up as I did in coastal New England, this old rhyme was drilled into us as children:

Red sky at night, sailor’s delight;

Red sky at morning, sailor take warning.

Because many of the people in town still made their living on the sea, the safety of person and property depended on being able to recognize the signs of approaching danger.

A notably red sky at morning is usually due to sunrise reflection off of moisture-bearing clouds, signifying an arriving a storm system bringing rain, wind and rough seas. Those who ignored a red sky warning often did so at their peril.

Red Sky In The Markets

I’m reminded of that childhood rhyme because the markets are giving us a clear “red sky” warning right now. One that comes after (too) many years of uninterrupted fair winds and smooth sailing.

The markets have plunged nearly 8% over just a single week. And the losses are across the board. Nearly every asset class from stocks to bonds to commodities to real estate are participating in the pain. Market displays are a sea of red.

We’ve written so often and recently of the dangerous level of over-valuation in asset prices (caused by years of central bank intervention) that to re-hash the premise again feels unnecessary.

But the chart below is worth our attention now, as it really drives home just how dangerously over-extended the markets have become. It’s a 20-year chart of the S&P 500, showing how it has traded vs its 50-month moving average (the thin green line).

Importantly, the chart also plots the Bollinger bands for this moving average. These are the thin red (upper) and purple (lower) lines above and below the green one.

…click on the above link to read the rest of the article…

Can an Economy Advance Without Savings?

January 21, 2018

Can an Economy Advance Without Savings?

According to Frank Decker, Honorary Associate at the University of Sydney Law School, it certainly can. Not only that, but eschewing savings in favor of “monetisation of assets” will yield better results! I refer to his article in Economic Affairs–Volume 37, Number 3, October 2017–, a publication of the Institute of Economic Affairs, London.

Mr. Decker purports to answer the question “Central Bank or Monetary Authority? Three Views on Money and Monetary Reform.” The three views examined are commodity money, state money, and money as a derivative of property. All three views are explained very well, and a beginner to the study of the role of money will learn a lot in a short period of time.

Commodity money is the name Decker aptly gives to money backed by gold or some other widely accepted medium of indirect exchange. Commodity money’s proponents see two major advantages–that it ends inflation and the business cycle. He quotes Mises and Rothbard to good effect.

State money, or money as a state liability, is fiat money that all the world knows today. Its two most famous proponents are Keynes and Friedman. State money’s main advantages, as seen by Decker, are that the state can engage in countercyclical spending and the state can fund itself by printing all the money that it needs for current expenditures.

Decker’s third type of money–money as a derivative of property–sounds no different than fractional reserve banking, except that the fraction of reserves required to be held by the lending banks is so low that it is not a factor of lending restraint. Decker gives the example of a business that uses its assets as loan collateral. According to Decker, the money that the bank creates is NOT created out of thin air, because it is backed by private property; i.e., the loan collateral.

…click on the above link to read the rest of the article…

Is Funding About Money?

November 9, 2017

IS FUNDING ABOUT MONEY?

A key factor that constrains people’s ability to generate goods and services is the scarcity of funding. Contrary to popular thinking, funding is not about money as such but about real savings.

Note that various tools and machinery or the infrastructure that people have created is for only one purpose and it is to be able to produce final consumer goods that are required to maintain and promote peoples life and well-being.

For a given consumption of final consumer goods, the greater the production of these goods the larger the pool of real funding or savings is going to be. The quantity and the quality of various tools and machinery i.e. the available infrastructure, place a limit on the quantity and the quality of the production of consumer goods.

Through the increase in the quantity of tools and through the introduction of better tools and machinery a greater output can be secured. The increase in the quantity of tools and their enhancement requires funding to support various individuals that are engaged in the production of new tools and machinery.

This of course means that through the increase in real savings, a better infrastructure can be built and this in turn sets the platform for a higher economic growth.

A higher economic growth means a larger quantity of consumer goods, which in turn permits more savings and also more consumption. With more savings a more advanced infrastructure can be created and this in turn sets the platform for a further strengthening in the economic growth.

Note that the savers here are wealth generators. It is wealth generators that save and employ their real savings in the buildup of the infrastructure. The savings of wealth generators employed to fund various individuals that are specialized in the making and the maintenance of the infrastructure. Real savings also fund individuals that are engaged in the production of final consumer goods.

…click on the above link to read the rest of the article…

Stagnation Nation: Middle Class Wealth Is Locked Up in Housing and Retirement Funds

October 25, 2017

Stagnation Nation: Middle Class Wealth Is Locked Up in Housing and Retirement Funds

The majority of middle class wealth is locked up in unproductive assets or assets that only become available upon retirement or death.

One of my points in Why Governments Will Not Ban Bitcoin was to highlight how few families had the financial wherewithal to invest in bitcoinor an alternative hedge such as precious metals.

The limitation on middle class wealth isn’t just the total net worth of each family; it’s also how their wealth is allocated: the vast majority of most middle class family wealth is locked up in the family home or retirement funds.

This chart provides key insights into the differences between middle class and upper-class wealth. The majority of the wealth held by the bottom 90% of households is in the family home, i.e. the principal residence. Other major assets held include life insurance policies, pension accounts and deposits (savings).

What characterizes the family home, insurance policies and pension/retirement accounts? The wealth is largely locked up in these asset classes.

Yes, the family can borrow against these assets, but then interest accrues and the wealth is siphoned off by the loans. Early withdrawals from retirement funds trigger punishing penalties.

In effect, this wealth is in a lockbox and unavailable for deployment in other assets.

IRAs and 401K retirement accounts can be invested, but company plans come with limitations on where and how the funds can be invested, and the gains (if any) can’t be accessed until retirement.

Compare these lockboxes and limitations with the top 1%, which owns the bulk of business equity assets. Business equity means ownership of businesses; ownership of shares in corporations (stocks) is classified as ownership of financial securities.

…click on the above link to read the rest of the article…

You are currently living through the dumbest monetary experimental end game in history (including Havenstein and Gono’s)

June 18, 2016

You are currently living through the dumbest monetary experimental end game in history (including Havenstein and Gono’s)

We have seen several explanations for the financial crisis and its lingering effects depressing our global economy in its aftermath. Some are plain stupid, such as greed for some reason suddenly overwhelmed people working within finance, as if people in finance were not greedy before 2007. Others try to explain it through “liberalisation” which is almost just as nonsensical as government regulators never liberalised anything, but rather allowed fraud, in polite company called fractional reserve banking, to grow unrestrained. Some point to excess savings in exporting countries as the culprit behind our misery. Excess saving forces less frugal countries reluctantly to run deficits, or so the argument goes.

While some theories are pure folly, others are partial right, but none seem to grasp the fundamental factor that pulled and keep pulling the world into such unsustainable constellations witnessed in global finance, trade and capital allocation.

Whenever we try to explain the reasons behind the crisis, such as the build-up in non-productive and counterproductive debt (see here, here and here for more details) people ask us why did this happened now, and not earlier? It is a fair question that we have thought about and believe have one simple answer. Bottom line, the world economy is running on a system with no natural correcting mechanisms.

As we are never tired of pointing out, the Soviet Union only had one recession, the one in 1989. The system was stable, until it was not. A system that does not correct internal imbalances grows just like a parasitic cancer, eventually killing its host. If unsustainable capital allocations are allowed to continue unchecked, the pool of real savings will at some point be depleted. At that point recession hits because the structure of production is too capital intensive relative to the level of real saving available.

…click on the above link to read the rest of the article…

The Central Bank War On Savers—–The Big Lie Beneath

May 5, 2016

The Central Bank War On Savers—–The Big Lie Beneath

The central bank war on savers is rooted in a monumental case of the Big Lie. Here is what a retired worker who managed to save $5,000 per year over a 40 year’s lifetime of toil and sweat in a steel factory now earns in daily interest on a bank CD. To wit, a single cup of cappuccino.

Yet the central bankers claim they have absolutely nothing to do with this flaming economic injustice.

That’s right. A return that amounts to one Starbucks’ cappuccino per day on a $200,000 nest egg is purportedly not the result of massive central bank intrusion in financial markets and pegging interest rates at the zero bound; it’s owing to a global “savings glut” and low economic growth.

Thus, Mario Draghi insisted recently that ultra loose monetary policy and NIRP are,

……… “not the problem, but a symptom of an underlying problem” caused by a “global excess of savings” and a lack of appetite for investment……This excess — dubbed as the “global savings glut” by Ben Bernanke, former US Federal Reserve chairman — lay behind a historical decline in interest rates in recent decades, the ECB president said.

Nor did Draghi even bother to blame it soley on the allegedly savings-obsessed Chinese girls working for 12 hours per day in the Foxcon factories assembling iPhones. Said Europe’s mad money printer:

The single currency area was “also a protagonist…….”

Actually, that’s a bald faced lie. The household savings rate in the eurozone has been declining ever since the inception of the single currency. And that long-term erosion has not slowed one wit since Draghi issued his “whatever it takes” ukase in August 2012.

…click on the above link to read the rest of the article…

Draghi espouses the old “excess savings” nonsense

May 3, 2016

Draghi espouses the old “excess savings” nonsense

From today’s Open Europe news summary:

DRAGHI REBUKES ECB GERMAN CRITICS

In a speech on Monday, the President of the European Central Bank, Mario Draghi, delivered a blunt rebuke to German criticism of the ECB’s low interest rate policy saying “There is a temptation to conclude that…very low rates…are the problem… But they are not the problem. They are the symptom of an underlying problem.” The real problem, Draghi argued, was the excessive amount of global savings a significant part of which was caused by Germany’s large current account surplus.  In what was seen as a thinly veiled attack on Germany’s finance minister, who has argued for an end to ECB stimulus, Draghi also noted that “Those advocating a lesser role for monetary policy or a shorter period of monetary expansion necessarily imply a larger role for fiscal policy.”

Source: The FT The Wall Street Journal

It is time for ECB president Mario Draghi to go home. He has run out of ideas and excuses. To wit, the above criticism of German bankers who, he says, do not understand that the real cause of low interest rates is not the ECB’s massive interventions into the bond market, but that the world saves too much and the Germans produce too much of what the rest of the world wants to buy.

Let’s get one thing very clear–there is no such thing as saving too much, just as there is no such thing as too much capital accumulation.  Capital accumulation is the foundation of all economic progress. Without capital accumulation there can be no further division of labor and no further increases in the productivity of labor. Savings–real savings, not fiat money creation–are required for capital accumulation; i.e., postponing consumption today in order to enjoy a higher standard of living tomorrow. 

…click on the above link to read the rest of the article…

We Need the Pain that Comes with More Saving

March 16, 2016

We Need the Pain that Comes with More Saving We Need the Pain that Comes with More Saving

The endgame of monetary side manipulations is upon us. Since 2008, central banks have done what they thought was needed to bring the markets back from the pain they experienced during the crash. The problem, of course, is that these Keynesians and Monetarists placed the high level of stock markets as the goal of “policy” and confused booming asset levels with economic growth.

The enemy of prosperity, in the eyes of global economic policymakers, is the desire of the consumer to save and  businesses to refrain — even in the short term — from investment. As such, their “solution” was the very poison that has infected the Western world over the decades: more credit, lower costs of money, more push for “consumer demand.”

The Current Orthodoxy Is Failing

But “easy” monetary policy has merely led to debt-ridden economies and a bubble that is increasingly being exposed as a complete farce. January saw a market pullback tease that reminded investors that what was pushed up artificially can’t be sustained forever. Monetary policy, even if it goes to negative interest rate territory with a vengeance, isn’t going to be the miracle drug needed to provide a better economic foundation. Austrians have long known this. The mainstream is just starting to publicly admit it.

The Savings-Glut Myth

However, the right lessons are not being learned by either the economic policymakers or the financial pundits. In fact, the most dangerous economic fallacies still underlie their entire financial worldview. For instance, there is the ever-constant theme that there is a “glut of savings” and that low consumer demand is the chief villain that stands opposed to economic stabilization. Martin Wolf, writes in The Financial Times:

…click on the above link to read the rest of the article…

Deutsche Bank Discovers Kuroda’s NIRP Paradox

March 7, 2016

Deutsche Bank Discovers Kuroda’s NIRP Paradox

Last October, BofA looked at Europe’s €2.6 trillion in negative-yielding debt and discovered something “stunning”: Savings rates were going up not down.

Don’t believe us, just have a look at these three charts:

But how could that be? By all accounts – or, should we say, by all conventional Keynesian/ textbook accounts – negative rates should force people out of savings and into higher yielding vehicles or else into goods and services which “rational” actors will assume they should buy now before they get more expensive in the future as inflation rises or at least before the money they’re sitting on now yields less than it currently is.

Well inflation never rose for a variety of reasons (not the least of which was that QE and ZIRP actually contributed to the global disinflationary impulse) and nothing will incentivize savers to keep their money in the bank like the expectation of deflation.

Well, almost nothing. There’s also this (again, from BofA): “Ultra-low rates may perversely be driving a greater propensity for consumers to save as retirement income becomes more uncertain.”

Why that’s “perverse,” we’re not entirely sure. Fixed income yields nothing, and rates on savings accounts are nothing. Which means if you’re worried about your nest egg and aren’t keen on chasing the stock bubble higher or buying bonds in hopes that capital appreciation will make up for rock-bottom coupons (i.e. chasing the bond bubble), then as Gene Wilder would say, “you get nothing.” And that makes you nervous if you’re thinking about retirement. And nervous people don’t spend. Nervous people save.

Deutsche Bank has figured out this very same dynamic. In a note out Friday, the bank remarks that declining rates have generally managed to bring consumption forward.

…click on the above link to read the rest of the article…

These 7 Things Are Better Than Paper Money In the Bank When the Economy Collapses

March 6, 2016

These 7 Things Are Better Than Paper Money In the Bank When the Economy Collapses

So you’ve done the hard work of getting your finances in order and now you’re looking to invest your hard-earned surplus into things that will protect or grow it.

Keeping your savings as fiat currency in the the banks may not be the safest way to store your wealth. Banks are beginning to give concrete evidence of actually penalizing you for keeping your money with them … and that’s if they don’t outright confiscate it via bank bail-in.

It would be prudent to look at investments that offer the dual purpose of getting around the banking system, while also offering ways to stockpile the tangible items that should fare much better in any economic collapse situation.

Here are seven investments that will hold value far better than cash if the current trends continue.

Food

We are beginning to see in real-real time what a collapse in the food supply could mean. One look at Venezuela should prove that even though most people believe “it could never happen here” or even that they have enough money to get what they need no matter what, this is not the case.  Even the supposedly wealthy in Venezuela are waiting in long lines with everyone else.

While things are still relatively stable, it makes sense to build a food stockpile slowly but surely. You can  pick up a few key food items each week at the supermarket to build up your food bank without having to spend thousands in bulk food acquisitions. It’s best to keep your storable food bank list simple and concentrate on common foods that you already consume regularly. We wrote an article geared toward foods that have long shelf lives but are also practical for most diets, so please read “10 Best Survival Foods At Your Local Supermarket.”

…click on the above link to read the rest of the article…

The West Is Traveling The Road To Economic Ruin

February 1, 2016

The West Is Traveling The Road To Economic Ruin

Michael Hudson is the best economist in the world. Indeed, I could almost say that he is the only economist in the world. Almost all of the rest are neoliberals, who are not economists but shills for financial interests.

If you have not heard of Michael Hudson it merely shows the power of the Matrix. Hudson should have won several Nobel prizes in economics, but he will never get one.

Hudson did not intend to be an economist. At the University of Chicago, which had a leading economics faculty, Hudson studied music and cultural history. He went to New York City to work in publishing. He thought he could set out on his own when he was assigned rights to the writings and archives of George Lukacs and Leon Trotsky, but publishing houses were not interested in the work of two Jewish Marxists who had a significant impact on the 20th century.

Friendships connected Hudson to a former economist for General Electric who taught him the flow of funds through the economic system and explained how crises develop when debt outgrows the economy. Hooked, Hudson enrolled in the economics graduate program at NYU and took a job in the financial sector calculating how savings were recycled into new mortgage loans.

Hudson learned more economics from his work experience than from his Ph.D. courses. On Wall Street he learned how bank lending inflates land prices and, thereby, interest payments to the financial sector. The more banks lend, the higher real estate prices rise, thus encouraging more bank lending. As mortgage debt service rises, more of household income and more of the rental value of real estate are paid to the financial sector. When the imbalance becomes too large, the bubble bursts. Despite its importance, the analysis of land rent and property valuation was not part of his Ph.D. studies in economics.

…click on the above link to read the rest of the article…

Australia Cannibalizing its own Economy

December 29, 2015

Australia Cannibalizing its own Economy

Australia-Behind-Curtain

The Australian Tax Office (ATO) has applied to access to everything to hunt for money. They want access to phone calls, emails, posts, and SMS text messages. We have verified this with several sources. Like Rome, Australia is cannibalizing its own economy. They will succeed in destroying Western civilization and when the G20 tracks every penny in 2017, the 2017-2020 period will look like a cliff on a global scale.

The ATO asked for these powers back in 2012. Guess what? They are getting them. They have already begun using children to hunt their parents. This is precisely how they force people to to hoard their savings and withdraw it from banks, which become highly dangerous whenever government needs money. They have created wars to enable taxation. For you see, historically the king had NO RIGHT to impose taxes. He had to summon Parliament and ask for their “consent” to tax the people and the only justification was war to DEFEND the country, not to invade another, hence 100 year war. Even in the USA, income taxes are technically “voluntary” and Congress must introduce legislation to raise taxes by pretending to be the people requesting to be taxed. They cannot imprison you for NOT PAYING your taxes, the crime is failure to “file” as it is your criminal obligation to tell them you owe taxes. They cannot imprison you if you cannot pay what you do not have.

A reader forwarded this except from a professional accounting newsletter in Australia. As the reader points out, Australia is copying USA’s every move. At least our politicians are openly saying they are hunting taxes instead of pretending the phone tapping is to prevent terrorism!

 

…click on the above link to read the rest of the article…

How Money Disappears in a Fractional-Reserve Money System

December 10, 2015

HOW MONEY DISAPPEARS IN A FRACTIONAL-RESERVE MONEY SYSTEM

Most experts are of the view that the massive monetary pumping by the US central bank during the 2008 financial crisis saved the US and the world from another Great Depression. On this the Federal Reserve Chairman at the time Ben Bernanke is considered the man that saved the world. Bernanke in turn attributes his actions to the writings of Professor Milton Friedman who blamed the Federal Reserve for causing the Great Depression of 1930s by allowing the money supply to plunge by over 30 percent.

Careful analysis will however show that it is not a collapse in the money stock that sets in motion an economic slump as such, but rather the prior monetary pumping that undermines the pool of real funding that leads to an economic depression.

Improving the Economy Requires Time and Savings

Essentially, the pool of real funding is the quantity of consumer goods available in an economy to support future production. In the simplest of terms: a lone man on an island is able to pick tewenty-five apples an hour. With the aid of a picking tool, he is able to raise his output to fifty apples an hour. Making the tool, (adding a stage of production) however, takes time.

During the time he is busy making the tool, the man will not be able to pick any apples. In order to have the tool, therefore, the man must first have enough apples to sustain himself while he is busy making it. His pool of funding is his means of sustenance for this period—the quantity of apples he has saved for this purpose.

…click on the above link to read the rest of the article…

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