Getting Ready For Anything

Finance U Public Finance U
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Originally published at: https://peakprosperity.com/getting-ready-for-anything/

Welcome to this episode of Finance U! This week, Paul and I discussed the implications of getting to The Fork In The Road, where one fork takes us down a path of bond (debt) destruction, and the other path is currency destruction.

The main issue we’re all going to be facing together, like it or not, is that after the tether to gold was severed on August 15th, 1971, there was no limiter left on how much debt could be created at the national level.

Which meant there was no effective spending restraint as long as the Federal Reserve, in cahoots with other allied central banks, was willing to print up fresh money to sop up all the new debt.

But the private sector does not live in a vacuum, and there, too, the message was received; borrow, borrow, borrow! And borrow we all did – there’s now just over $104 trillion of debt outstanding across all sectors of the US:

Perhaps obscured in that chart is that little wiggle there at the GFC from 2008-2010 is the event that very nearly destroyed the entire Western financial system, and scared the beejeebus out of the financial elites.

So, let’s look at that same data but expressed as a percent change in total debt as compared to a year ago:

Ah! Now we can see, circled in blue the first issue, which is that if credit creation dips negative, our system of money and credit and derivatives thereof threatens to completely collapse. Perhaps that wasn’t the best system to create and entirely depend on?

The second issue is that if you squint at the chart carefully, you’ll see that credit growth is sometimes as high as 16% but rarely below 5%. Well, that’s a lot more than GDP growth, which contains the insight that perhaps it’s not wise to constantly grow one’s debts faster than one’s income.

Unwise decisions meet fork in the road.

We’ve arrived. Navigating this period of financial, monetary and economic realignment is going to be really tricky. Gold and silver (over $60!) are perhaps telegraphing that we’re not alone in our concerns about the financial system and its murky ecosystem of counterparties and incalculable risks.

Another warning sign is in the sudden collapse of the “DIP” bonds that were only just placed on top of the First Brands reorganization husk. When trouble starts, it begins on the outside and moves in.

Tune in to hear the rest…

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Thanks for the steady stream of clear information, @cmartenson and Paul. You went over silver’s progress and it has been fun to own some lately! I need to find some help with evaluating the risks of both keeping and selling.

This comes to mind because the price is going up, and I’d rather own farmland than metals if it goes up enough. Not there yet. But also, it seems there are risks piling up for both owning and selling precious metals.

What is stopping any government from doing what Italy is contemplating?

We could be very wealthy in gold or silver, and yet unable to access the value if owning/selling/buying are made illegal or costly.

I get the part about holding some silver to help with transactions/trade systems when fiat dies, but maybe not all of it!

Taxing, confiscation, laws banning transactions in silver, tax implications of selling enough to buy land, vulnerability to having my silver investments unexpectedly become not mine (great taking, war). How are people evaluating these factors as the price gets tastier? We know big money and gov’ts will look for ways to steal that value and grab the silver for industry. Imagine having to think like that… What will the warning signs be?

Thanks
Susan

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I feel that. I’ve always been of a mind to live humbly, so that people would not have envy or want to take what I have. If i have a doublewide mobile home that has a few visible issues, set on hilly, poor land partially in a flood zone, and drive a very common older vehicle, and wear good, servicable thrift store clothes, maybe i won’t be a target.
But if the modest stuff i have suddenly becomes valuable to the sort of people who’ve always had grabby hands, then what do i do?

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Suggest possibly 3 different answers for the 3 different personality types.

The wolf type is what you are describing with grabby hands. They can get much worse than grabby hands. There is plenty wrong with being a wolf type.

The sheep are the next type. They typically just want to be left alone. There is nothing wrong with being a sheep type. They typically are neither mentally, emotionally, nor physically prepared to handle critical wolf type problems on an urgent basis.

The sheep dogs are of a different breed and they come in all kinds of different temperaments. Sheep dogs tend to love and protect their flock and themselves and can get quite grumpy if fate allows them just a few moments of reaction time.

Many good folks have written much about this subject. The answer can vary widely and even differently depending on the areas of one’s life / family being impacted. Even a young mother can be a sheep dog protecting her baby with nothing more than a 9 iron, a good swing, and a fearless attitude. You see examples of this in nature all the time and there are much better tools available than 9 irons.

And, that is not to diminish the difference a 9 iron could make. Imagine, for a moment, one of the terrible school intrusions that have happened over recent years.

What if each classroom had an umbrella stand, stocked with umbrellas, a half dozen 9 irons, a half dozen rubber door wedges to keep doors shut whether they have locking classrooms or not, and maybe some tape/paper to block being able for a perp to see thru the door. Even a few young and growing sheep pups as a team with their teacher(s) could benefit from those few tools. What if one of these school attacking perps was faced with 30 students-teachers swinging 9 irons acting with one accord because the perp put them into a position with nothing left to lose.

Throw a handful of golfballs into the bottom of the umbrella stands so there is a reason for the 9 irons being there.

I guess it just boils down to one’s type.
Wolf ?
Sheep ?
Sheep Dog?
Don’t really answer here. Just think thru it and be prepared to accept or act thru the role chosen.

I am just sharing an opinion and not a lawyer, expert on laws where ever folks live, nor providing advice. Do your own due diligence.

Wolves can be quite surprised to learn they are playing FAFO with a prepared Sheep Dog(s)

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Here are both percentage-change lines in one chart: TCMDO, GDP, along with us recessions. A bit noisy, but - when you see that black line above the red line, its really bad news: “More debt than GDP”.

It looks like the big debt-increases (vs GDP) happened in the 1980s, a bit in the 90s, and also during the housing bubble. It really does look like “everything was ok” until about 1980. At least with this metric anyway.

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I like 9mm irons that expel lead. They work against golf balls also.

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Is there really a debt problem or is it just a fiat problem?

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If I take all debt and ‘Securiteez’ and convert that to priced in gold it looks like a downward trend is in place. For a family in 1970 the majority of debt would likely be a house and maybe a car. Today those necessities for participation in the common world cost in dollars much more than they did in 1970. I get that we have a currency crisis but does a declining debt in the case of real assets really signal a problem? Maybe it does because today we finance phones and food and the average salary doesn’t match the level of debt, in dollars.

Just thinking out loud…

Tommy.

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The reason people are not buying into the news coming from the capital is that their reality is different than the economic fairy tales being discussed by the administration. I know of a small family of 4 whose health insurance policy just went to an annual cost of $22,000.00 AND no longer covers hospitalization. At the same point in time, the rent on a very modest (1400 SF) 3 bedroom home is nearly $2K/month (no utilities) and it is not in California, NY or some other state where you would expect higher cost of living. Just those two costs alone are nearly $50k/year. That is reality and why people are looking around and wondering what is actually happening in the world.

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They cost more but they are not the same. The typical home in my coastal Florida city was between 750-1100 sf and had a single car garage or a double carport, 3brs and a bath or two. Kitchen cabinets were made of wood or plywood and most counters were formica over plywood bathrooms were also simple and appliances were basic. You were lucky to have two outlets in your bedroom, and it was fancy if the top plug was switched so you could turn the night stand light off at the doorway.

Most cars had no AC, used stick shifts and had an AM radio. We had to turn our necks to back up or see the side mirrors. The seats did not massage our backs or heat them, or blow cold air on them.

We have upgraded what are the “minimum requirements” in so many ways. Coffee is bought on the way to work instead of being made at home and put in a thermos. Ditto the soup we eat for lunch. Adults carried lunch boxes back in the day. Men had leather or vinyl carry pouches with straps for their coffee thermoses. They also had hankies and umbrellas. People got up early and took care of themselves before leaving the house. Now they outsourced lots of this by waiting in drive throughs, and making lots of stops using up gasoline, wear and tear on the car and time.

Medicine is more expensive because we trade taking pills for personal self discipline.

And on and on it goes. Today is not the 70’s.

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That’s a cool way to look at it.

But…there’s always a but, let’s ask “what fractional backing of debt exists here?”

There are 261 M ounces of official gold, allegedly. And there’s $38 trillion in official debt, so dividing $38T by 261M = $145,593 dollars per official ounce, or 2.95% backing of each dollar of debt by gold (at $4300/Oz).

I don’t know how many ounces of gold are in private hands in the US, which would be bars, coins, jewelry, Comex, etc…but that’s what’s backing the remaining $66 trillion of private debt.

Probably a similar-ish number to the calcs above? 2% to 5% backing? In there somewhere?

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I came across this video and it had some good explanations about why stock prices have not been falling. Over simplified maybe, maybe completely wrong.

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I might be way off base but I get the vibe that you’re a country girl and you know exactly what to do. Haha.

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Pigs need to eat, feed it to the pigs.

Metaphorical excuse

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Some people think digging small deep water retention ponds, and stocking strong lime is a thing…for potential soil improvement needs that is.

Never know when your gonna need to ph balance that lower layer of dirt.

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I wonder about a few things.

  • We say buy gold and silver etc. That’s great. It’s just there is always a good price to get in and a bad price. Which one are we closest to? I have no idea. I mean, if western currencies totally go to crap, gold at any price is a good price. But are we there yet? Or can we get a better price? I don’t mean let’s debate buying a tube or a box because that’s meaningless toy money BS. I mean a decision to invest a % of your money that will make a difference either way. Like, being a professional earning person now and wondering how to preserve the value of the work you’ve done. If you’d put a tonne into silver 15 years ago at $50 an ounce - that would be sore. Not if you just bought a box. But yes if you bought a meaningful amount.

  • So, you buy a load of gold or whatever. Like @herewego contemplates, as soon as the state fancies it, they may well move to tax it or take it. The precedent for that being the “Land of the Free” - or at least that’s the narrative. It may well turn out to be a “for the next generation” play - for a time when no one cares anymore and people can sell gold back into the market and no one cares.

  • Similar with property. As US knows all too well, it is a sitting duck for tax.

  • Bonds - Yes - a kindof bedrock in some ways, but I think they are on a permanent bad trend - as states try to issue more and more and can the market cope and as inflation goes up and up.

I just want something to go on sale before I buy a load of it!

I don’t think all this is as easy to navigate as is sometimes made out. Or maybe it is but I just can’t get comfy with “gold at any price” “silver at any price”. I mean, I’ve not listened to this week yet, but I guess Paul is still “playing the game by the rules that they gave us”

I don’t know.

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If you can dollar cost average, do so.

Look at the 45 year cup and handle pattern for silver. Where was a good chance to buy? Would you know at the time? Or would you wait for a better price that never comes, and miss out completely?

DCA means you don’t stress about trying to find the one very best time to buy. And that’s ok.

If you DCA’d into silver before it hit $50 - awesome!

Nobody tags the exact bottom to buy or the exact top to sell. Target getting 80% of the move instead of 100%.

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I have your same disability of wanting to buy stuff on sale.

Let’s say I have paper holdings (PHYS/PSLV) and they’re in a tax-free account. I could rotate between gold-n-silver. As the Gold/Silver ratio shows that one is overbought, I could rotate out of my paper “overbought” item (right now, maybe silver) and into the “oversold” item (right now, maybe gold).

Unless this time is different, and - during this upcoming event - silver won’t correct during a hypothetical AI bubble pop, and GSR will trade below 60 forever. In which case this strategy would stick me in boring gold instead of fantastic silver.

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Yes. and @redneck-engineer I have a load of gold that i’ve bought over the years. Yes, wish i’d more more etc etc. But that aside, i have a load of money on the sidelines. It’s whether to do a big buy in now or wait and look for a better deal. I’m talking about money and decisions that determine one’s financial future. That’s what makes decisions hard. Not whether to put £10k into this or that.

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My point is it is hard to know when it’s best to buy. If you can’t tell, then the work around is to DCA.

If you’re talking about a purchase you can’t DCA into, like a home… at some point you pull the trigger regardless of the uncertainty or you don’t.

If the question is how to tell what a good price looks like, I’d look at fundamentals and technicals.

What is cheap? What is expensive? Come up with rough levels. Then compare current prices.

Compare to other alternative investments. Oil for instance is dirt cheap compared to silver right now. And to the S&P.

Also:
How desperate to buy are you? Is it an emergency? How long can you wait?

If it’s urgent enough, the current price is the right one.

Is it a trade or an investment?

A trade is a plan to enter and exit a position when certain conditions are met.

An investment is a long term buy and hold, like your home or a stack of silver, you plan to keep for a very long time; you want to have it and don’t plan to sell except under specific conditions. Or it’s buying a business to run it for a profit. Etc.

Anyway… it’s a big complex question without a one size fits all answer.

Edit to add:
If you’re concerned about risks, then some sensible diversification makes sense. There is no asset immune from risk. It’s possible to hedge by taking positions opposite each other, like holding some fiat to offset the risk of deflation.

I like Fugger’s approach for that reason. The Dragon portfolio is similar but more complicated all-weather approach in which some things lose money but overall you do quite while in the long run.

If you want a fire sale today in an asset that has no risk and will guarantee a return…. Ain’t no such thing.

Life is risk.

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Here is a bit of a shocker (then again, maybe not.)

China has started issuing dollar denominated debt that pays a lower return then US Treasuries. Thus, you invest in these Chinese bonds and get paid back in dollars at a lesser rate that you would get it you bought treasuries. And people are buying these instruments. Apparently, people are willing to take a lower return simply to avoid the possibility of a default by the US on treasury instruments.

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