Monday, September 28, 2009

Head Fakes, Y2K, Peak Oil, Inflation/Deflation and the Doomers...

I got some email from folks I can only describe as HOPING for doom...

I have no idea what drives their desire for Armageddon. Some of these people have been hoping for the end since Y2K. Ten years is a major portion of your adult and productive life... sitting around hoping something bad happens seems a terrible waste of time.

This last "Chernobyl" (that is Wall Street trader speak for losing all of your money or going out of business, etc...) was fairly easy to see, and still none of the bloggers - yours truly included - got it exactly right. Why would we? Forecasting is failure prone. The "next blow up" will not likely come on time, as predicted, or as conveniently as the Doomers seem to wish. There were only a few guys that were "right" every time, every call, every trade. Bernie Madoff was their poster boy.

Let me give you an example. In the Long Term (let's say 10 - 20 years) I believe that the US$ will go Chernobyl, Flame Out, Blow Up (you pick), ergo I do not plan on depending on that as a store of value long term. In the short term, a US$ rally could come at ANY time and kill the shorts - dead. Look what just happened in the US equity market. Hence the term "Head Fake". Markets LOVE to use that move on traders. Yes, I think the US$ is doomed, but that doesn't mean I'd be long the other currencies here (short US$). NOTHING moves in a straight line. Markets ebb and then flow.

But back to the Doomers... Eventually, you guys will probably be right. BUT, it is going to happen so slowly - say, over a decade - that you will adjust to the changes and never really see a blow up (unless the reinflation strategy of the Central Banks is so successful that the next balloon pop is overwhelming).

So...

Inflation? Or Deflation? Both. I think it probable that another Deflationary scare is in the offing. I DO NOT think we will experience Zimbabwe style hyper-inflation. Why would the Central Banks need to do that? If the U.S. was just another Banana Republic that might have already happened, but with the US$ being the reserve currency for the world? Nah... I think garden variety VERY high inflation will get the job done. Several years, perhaps a decade, of double digit price inflation will bring the US Budget Deficit down to a very manageable level as well as the average American's debt load - and destroy the life's work of the industrious, frugal, and productive (but in America, at least, we have always despised these f*ckers anyway - "Die Yuppie Scum!"), and it will have the added benefit of keeping the Establishment ESTABLISHED (hey, that's what inflation does - it hobbles the Nouveau Riche (first generation professionals, small business owners... folks working there way UP the ladder) to the benefit of the outright Rich).

Yea... I think 12% inflation for 4 or 5 years should do it. A loss of purchasing power of 12% per year for 5 years and an equal and opposite increase in printing would devalue the US$ by 50% or so. That would be the MINUMIM, with 10 years at 12% yielding a 75% or so decline in the value of the US$ being more likely. (And it will sneak right up on you. Nobody rioting in the streets (and rightly so). No big deal. Just a lot of time wasted working hard for something when you could have been hard at the wine, women, and song. So, if you are a Doomer that started Dooming for Y2K, you will have had to wait 20 years and it will have happened so slowly that the collapse of the US$ just won't be that satisfying.)

If one thinks about it, the above scenario dovetails nicely with the Gold $2,000 crowd. That would mean a 50% decline in the US$, and Gold $3,000 would be close enough (especially for government work) to the 75% decline in the value of the US$. Of course, Gold might succumb to the Defaltionary scare I see as highly likely. Remember, Gold is not the perfect investment. It is simply an alternative store of value, one that has worked for 8,000 years or so - somewhat longer than any paper currency has held value. Paper currency, stocks, bonds, small businesses, etc... are only markers, a place holder, indicating the owner's cut of the world's:

  1. Fisheries
  2. Forests
  3. Ranching and Live Stock
  4. Agriculture
  5. Mining & Minerals
  6. Fresh Water
  7. Fossil Fuels
  8. Human Resources Capital

There is nothing else. If The Powers That Be print more currency, issue more stock certificates, lend more money, huff, puff, suck, or blow etc... you don't increase ANY of the above - not even a little bit. Capital Stock? Means of Production? These are merely 1 thru 7 and the application of 8.

Well, TPTB are printing, but even they can't print fast enough to collapse everything overnight. Sorry Doomers, this is going to take more than a day or 2, but less than 3,650 days I should think.

In the meantime, life goes on. Tonight I am going for a walk on the beach with the kids, then its off to Dairy Queen for some ice cream, and later a glass of wine with my wife.

The best line I ever heard in my LIFE was when I lived in NYC and some nitwit or other was proposing to make a park within Central Park, taking land away from children's play areas and dedicated to, wait for it.... "World Peace". A bunch of locals came over to heckle these jerks when the media got there and after a few back and forth came the line of the Century from a stereotypical NYC mom:

"World peace will come and go. My kids gotta play little league."

Brings tears to my eyes.

Greg






13 comments:

bureaucrat said...

I doubt anyone will even enjoy the end of the world when/if it comes. Being a "doomer" is more a way of showing the world that "you were right all along!" OK, so you were right all along, and the world ends up toast. Now what? Food available? Affordable? Running water? Heat and A/C? Can you find clothes? Lighting for your house? Can you sleep at night listening to the phantoms trying to break into your house? I don't think the doomers realize that you should be careful what you wish for ...

Publius said...

Greg,
Thoughtful post.
Could you address your view of the war/peace issue?
I have come to the conclusion that there may be no conspiracy in a secret chamber of men who are willing to start wars for profit, but the war drums always seem to start pounding when the economy just can't be saved anymore.
This may be an unconscious, or even conscious, element of human mass psychology. Hitler did it. Bush did it in the Iraq war. It's been done to death.

The recent demagoguery on Iran and its recently declared and non-operational (and legal) enrichment plant is quite concerning. I believe that a war would be just want the elites ordered... it will keep everyone occupied, excited, or dying... even the doomers.

I would be willing to try to explain doomer mentality for you sometime, since I naturally have that tendency. I am able to use reason to counter it somewhat, however. I believe that most humans are on a continuum from "doomer" to Pollyanna, and all points on the spectrum are sometimes survival advantages.
The outright doomers are ridiculed because their survival strategy is not very adaptive: until the point when it is. Just like obesity is non-adaptive until a famine hits. You get the point.
I believe the doomers have some things right: the wisdom of preparing for hard, and even desperate, times. After all, hurricanes do strike. Currencies do die.
What the doomers have wrong is that they underestimate the need for, and the likelihood of, human communities choosing to cooperate to survive and even form thriving localities and regions. New local currencies will arise (they did in the Great Depression), and people will work together once the self-bastards who are unable to think communally die off.

The big unknown variable, however, will be the posture of the FedGov when devolution starts by necessity. My hope is that the FedGov will go away gracefully, just like the USSR did under Gorbachev.
If the ridiculous neo-Fascist exercises of our paramilitary police in Pittsburgh for the G20 meeting is any indication, however, "they" are practicing with their new toys - toys and techniques they hope will keep the herd in line so it can be milked dry in the attempt to reinflate.

Does anyone think people like Barney Frank will go away with dignity and grace? It's men like that, real sociopaths, who have been undermining this republic for decades. The worm is almost out of apple.
What the American people think and do when they see the worm emerge will be quite interesting. I hope that Jefferson didn't underestimate how wussified the American people could become.
@Bureacrat: people are "doomers" for many reasons. The mormons from age-old wisdom. Some from paranoia. Other through calculation and reason. Very few simply so they can say "I was right all along." Most real doomers, aka preppers, do very little talking. Loose lips... etc. etc.

Anonymous said...

Publius,

People have never worked that well communally. In the USSR, the 2% of the land allocated for private farming produced 50% of the produce. Here in New England, every town has a common. Every common was over farmed and over grazed until it was ruined. With few exceptions, everyone believes he is overworked and underpaid. The motivated eventually tire of carrying the dead wood and the whole thing collapses. Consensus is great until it can't be achieved.

I'm more for enlightened self interest, personal responsibility and much less government. The private economy will take care of the transition if the Fat Boys permit it. I'm steadily less hopeful that the Elite are interested the good of the nation. They seem more interested in increasing their personal power through ever larger and more invasive and oppressive government.

Regards,

Coal Guy

Greg T. Jeffers said...

I gotta say, and not to blow sunshine, but you fellows really should be working for a think tank.

Since I suspect there are millions of rational, thoughtful, insightful and just plain smart folks around... I am not as negative as I ONCE was.

Pub:

I need to give your comments a bit more thought.


Coal Guy:

I am in your camp of enlightened self interest. Some will profit in this, let the smartest, hardest working folks win. I have zero faith in government's approach to much of anything, and I could not agree more about the f****ing elites.

Publius said...

ADDENDUM (prompted by Coal Guy's comment):
I agree with you, Coal Guy, on "enlightened self-interest.
Let me explain what I meant by the word "communal." Let's look at the Merriam-Webster online definitions of communal:
1 : of or relating to one or more communes
2 : of or relating to a community
3 a : characterized by collective ownership and use of property b : participated in, shared, or used in common by members of a group or community

I meant definition #2, and to some extent #3.

Even the most libertarian libertarian believes in communal action. Heck, even the real anarcho-capitalists. By working communally, I meant that human communities (which do exist by the nature of man, according to Aristotle and even atheistic sociobiologists) will have to REDISCOVER the ability to cooperate and work together to do that which Big Government will no longer be able to do for them. Right now, Big Government does most things poorly, some things OK, and maybe a few things well. For example, Big Government is good at killing foreigners and pandering to special interest groups!

However, as the ability of the Federal Government to sell its debt disappears, the efficacy, such as it is, of the Federal Government will disappear.

By Communal Action, I meant that in the best and libertarian and pro-liberty sense: small town meetings of the kind that inspired Tocqueville to praise America. I was simply making the argument that the hard-core survivalist in his redoubt is not the one who will make it.

Americans who embrace the older notion of community in freedom, individuals and families and villages and towns acting democratically and with real debate and choice, are the ones who will make it.
A local currency is an example of communal action. A community garden.
Let's zero in on a community garden: Is this some kind of throw-back to the Soviet attempt to destroy the peasant farmers in the USSR? No! We have a community garden in our neighborhood. Individual families each "own" a plot, which they cultivate. Each family keeps their harvest. But the land is, yes (horror of horrors!) owned by the neighborhood.
Don't get me wrong: I tend to like and get along with the libertarian types, while having concerns and thoughts that go in other directions, too (another comment or post would be required to deal with this issue).
I've come to the conclusion that school of economics are like religions, with all the attendant schisms and in-fighting. But actually using your talents with enthusiasm, and bartering or trading or participating in the human community with those talents and resources, is akin to true spirituality in religion: it's the walk, not the talk, that counts.
I've really rambled here, but wanted to address the "communal" issue.

Mark my words: libertarians like Greg will find that they have more in common with the strange parts of the "left" like communitarian hippies than they do with the corporate neo-fascist right, let alone the statist left.
So let's work together, shall we?

Publius said...

@Greg: I was basically in a think tank at one time, at a prestigious university, but was kicked out and destroyed academically after an article I wrote against Bush and the war. This occurred just after I received a prestigious $20,000 fellowship given to only two people per year in the nation.
The program I was in suddenly destroyed my prospects. They assassinated my career. The wider university let me stay another year to teach. Unprecedented situation - I was good enough to teach their precious undergraduates, but not good enough to continue to work on my PhD.
The foundation mysteriously said that the award to me was a mistake: sent to the wrong email address or something. Seriously! I hired a lawyer for an hour to tell me what to write back to them. (Plus, I'm not stupid: I had the email evidence of the award, with email confirmation and personal correspondence with the foundation.)
The fellowship re-appeared as mysteriously as it disappeared. I got the $20K. But they foundation never put my name on their web site as having received the award.
I was completely destroyed emotionally for about two years. My cynicism about the character and morality of the "think tank" and academic world is incredibly high. Thanks to my wife, son, friends, and probably the Supreme Being, I didn't become violent or off myself, unlike graduate students and post-docs I've read about and in some cases actually knew. The suicide rate in academia is extremely high. I still remember the grad student above the lab I was working in as an undergrad who put a plastic bag over his head one night and took some pills: his note said he was worried about global warming... I suspect he had deeper issues. Or the poor undergrad down the hall who did himself in. Or the post-doc who was driven out of academia my his adviser because of personal incompatibility: the poor guy stewed for a few years, unable to find a new position, before tracking the professor down, shooting him (he survived) and then shooting himself. True stories. Academia in general is such a soul-killing exercise in hyper-specialization and toeing the line for uncertain reward that it is insanity. A friend of mine, a white woman who studied art history at Berkeley, can't get a job, because she's not a "real" minority. She chose motherhood and family just in time, while she still had some fertility.

Greg T. Jeffers said...

Pub:

My comments were not an attack on your communal sense whatsoever.

And clearly... well, judging by your writing skills and depth of thought process I felt pretty sure that you were an academic of some kind.

I enjoy our discussions immensely, and will get back to you shortly regarding your comments... right now I have a bay and a toddler to look after!

Anonymous said...

Publius,

Thanks for clearing that up. I certainly won't argue with that. The best government is the smallest and closest to the people. The best cooperation is through private organizations, religious, community, charitable or otherwise. These organizations have languished because they've got us too busy chasing a buck to participate. The biggest loss has been to our children, who have largely missed the cultural exposure and continuity that these organizations have provided. It is no wonder that so many are adrift.

Regards,

Coal Guy

bureaucrat said...

As a government person pretty up on politics and current events, I find the people who think doom is inevitable (not tomorrow but a long, long, long time from now), who embrace libertarianism (till they are crying to be rescued from the big old Hurricane), who want smaller government (don't want to pay any taxes but do want lots of benefits), who find government so oppresssive and domineering (in my govt. office we can't even get a holiday luncheon up and running properly, much less win the Iraqi war, which we had to win by bribing the 90,000 Sunni soldiers that were blowing up the place) .. I find these people to be dreamers with cognitive dissonance. No one wants government until they have no choice, and then they are aghast when the government doesn't do everything perfectly. Run for office then, all of youse. Let's see if Schiff carries or gets blown out of the water. :)

Anonymous said...

Bur,

Katrina? Katrina??? An absolute failure of government at all levels. The U.S Congress did not fund the Army Corps of Engineers to maintain sufficiently strong dikes. FEMA couldn't convince the governess of LA to accept aid. The governess of LA wouldn't call up the National Guard ahead of time. Mayor Dink wouldn't put people on school buses and get them out of harm's way. The police that weren't looting deserted their posts. The only government organization that performed well was the military.

Big Government? No thank you! I'd rather not.

Regards,

Coal Guy

bureaucrat said...

Picky, picky :)

oOOo said...

I went to the British museum last week and amongst other fascinating exhibits, they had one on 'the history of money':
http://www.britishmuseum.org/explore/themes/money/what_is_money.aspx

mfzmou said...

I am in your camp of enlightened self interest. Some will profit in this, let the smartest, hardest working folks win. I have zero faith in government's approach to much of anything, and I could not agree more about.alternative currency