And now, here we are, nearing the end of the road with the largest banks of all endangered and with no larger bank that can swallow them up. It’s a day of reckoning that leaves me no choice but to issue this three-part warning:
Despite the U.S. government’s massive Citigroup bailout, it is going to be difficult for the global banking system to survive the shock to confidence for very long.
Even if insured depositors do not pull out their funds, uninsured institutional investors are likely to run with their money, threatening to bring the system down.
And alas, even if you have your money in a safe bank with full FDIC coverage, you could be adversely impacted.
I find it very interesting to find that quite a few active posters on this site do look after their own food supply. I think there is a message here for the rest of us that haven’t done this ourselves (including myself although I’m actively moving down this road). If we want to be more productive in our lives we need to change our ways and start being active about our food.
The problem with conventional or mainstream farmers is that they buy retail and sell wholesale. Everyone sells to the conventional farmer and the conventional farmer only gets about 1/15th of the retail value of the product. The conventional farmer has been roped into the Matrix. The other branch of farming (called sustainable or alternative) is the successful route to the future.
Yes the problems in the developing world get worse when you consider exponential population growth. However consider the Western World today - calories we have in abundance. When you look at the people around you - do you see healthy people? Do you see obese people starving for nutrition? How many medications are people taking? What about stress levels?
If we want to get out of the Matrix a fundamental step is growing our food, processing our food, and who we buy our food from. I’m further and further into the details of the book You Can Farm: The Entrepreneur’s Guide to Start and Succeed in a Farming Enterprise by Joel Salatin…who clearly outlines the problem of the Matrix on page 206… talking about a farmer who was recognized for awards by a pinnacle of conventional wisdom but who was foreclosed on a few months later. This farmer said: "You know what really hurts? I did everything - everything - just the way the experts told me to." The author continues:
"Any government agent who reads these words should be stricken to the quick, should be sobered by this statement. The emotional carcasses in America’s rural communities, left to rot by supposed farming experts, are monuments to arrogance, money and power. We are awash in bland and unsatisfying vegetables, potentially toxic meat and devitalized food - this is the legacy of a wrong philosophy skillfully implemented and nurtured at the public trough. Heaven help us."
If you trace injustices back through the system right at the crux of the matter is the long forgotten farmer. Conventional farming is what we have - sustainable farming is what we need. Through Chris we may now be aware of the Matrix but awareness doesn’t let us leave. Action does.
We each have a role to play in the Matrix with every bite of food we consume.
The following link provides an interesting perspective on where we are at present and why such an extreme effort has been made to preserve the Wall Street banks. In a nutshell, when they die, Main Street dies with them.
I think the only way "their" system will work is if they include those at the bottom of the pyramid in the solution, i.e., they need a "bottom up" approach to handling their "systems failure" instead of their "top down" approach". I see it like gambling… but in a different way. These people are chasing their money, thinking that by going to the ATM, once more, will give them a better probability of getting their money back-- which is clearly false. Every sucker realizes this myth and the mathematical fallacy too late in the game. The Fed and Treasury, if they want to keep the system from crashing, need to cut their losses and start injecting the trillions from the bottom up. Who are the consumers that keep the system alive? It’s us— way down here… give us the money and we’ll keep your system. That’s the deal.
For all those in favor of getting rid of this "system" of money, I mean debt, I’m with you.
My only concern lies at the burdens of bartering, self-sustaining, and the problems associated with practicality measures.
I wonder what it will be like 20 years from now.
I can imagine a couple of different scenarios.
"Wow, I can’t believe I thought the money system would crash! I guess "they" were right." "Honey, how much is in our retirement account? Oh my gosh-- that much!!"…We should talk about retirement.
"Wow, I can’t believe we don’t have a currency. Come over here, Joe, and I’ll show you what we used to buy things with. You see this dollar?" Joe asks: "Dad, what does ‘buy’ mean?" "I’ll tell you later, go fetch me a pail of milk from Betsy and pull some lettuce from the garden; your mother just called us in for dinner."
[quote=emdiaz]Can somebody explainme why if we are in deflation mode the groceries are more expensive now?
Can we have both( deflation/inflation) and how that works? It is hard for me to understand the concept.
Evelyn
[/quote]
I believe that we can and will have inflation and deflation at the same time. The problem is that what we consider to be “money” is not all created equal. When you use the word “money” think of it as really being “money AND credit”. The Fed’s Adjusted Monetary Base (AMB) is the closest thing to “pure money” that we have. In Aug of this year it was just over $850B. Today it is in excess of $1.5T … an increase of 75% in just 3 months.
see http://research.stlouisfed.org/fred2/series/BASENS
How is this possible without causing massive inflation? Because the authorities are trying to replace the other type of money which has disintegrated. What is this “other type” of money? The credit created by the banking system through what is called fractional reserve banking (see the Crash Course). The banks have lost much (all) of their capital by betting in the unregulated OTC derivative markets (CDOs, CDSs). As a result they have had to call in many of their loans in order to survive. This means that we are seeing massive de-leveraging or vaporizing of credit that masquerades as pure money. The authorities have been madly trying to keep the banks from failing so they have increased the amount of “real money” in order to provide equity and loan infusions to the banks. Replacing credit with “real money” is highly inflationary. However the massive de-levering that is still ongoing is deflationary (lost jobs, falling house and stock prices, falling consumer spending, etc).
So how do we end up with both inflation and deflation at the same time? In deflationary times people have to increase their savings rate so they will cut out all discretionary spending. Since spending will be limited to essentials, the increase in “real money” or “quantitative easing” as the economists call it, will find its way to the price of essentials such as food and energy as well as precious metals (gold and silver) causing these prices to increase while the prices of everything else will fall at the same time.
If I am right, how do you protect yourself? Firstly reduce your spending and pay down all your debts if you have not already done so. After that, invest in gold, silver, oil, natural gas, grains, food, fertilizer but keep 25% of your wealth in cash to buy the non-essentials and other assets that will become cheaper as the deflationary spiral continues.
I agree. The two types of money are identical once created but it is good to identify them separately so that we understand their origin.
Another term for "real money" is "currency money" or "FIAT money". But again - it is identical to credit money - except in origin.
The creation of currency or FIAT money is attempting to overcome the credit money being vaporized. This counteracts deflation of the money supply - but only in the location where the money was created - the banks. Eventually this will lead to hyperinflation once currency or FIAT money creation is created in excess and gets put through the fractional reserve system and generates new credit money (and people begin to borrow again). However the ongoing depression currently running leads to a decrease in the money supply as people pay back debts or default on them. So deflation has been ruling in the short term.
When you refer to inflation you are referring to rising prices and deflation as prices becoming lower (I’m clarifying because I use inflation and deflation only to refer to the money supply - I don’t have a term for rising or falling prices themselves which are influenced by the money supply but each item can move higher or lower in price for independent reasons).
You then raise some insightful points. It seems likely that price of essentials will rise or stay static or decline less compared to the price of non-essentials (which may not sell at all). Since essentials are energy, food, and water - these are the areas that I do believe we need to focus our efforts at a grassroots level - sustainable farming, energy efficient homes and complementary currencies for trade. Note that housing would normally be included in a list of essentials but it safe to say that with the unwind of the housing bubble this is one area that will continue to decline in price.
The first point of economic attention should be fixing the housing bubble. But the economy has a long way to unwind before people will want to start taking on new debt again. How many perfectly good cars will be driven 10 to 15 years before replacement - whereas previously these cars might have been replaced after 3 years? So it seems likely that there will be an ongoing depression until the excesses get rung out of the system.
Right. But there are far more regular people in the world than there are Austrian School devotees, and normal folks need a term to name rising and falling prices, and "inflation" and "deflation" have been around a long time for just that purpose. And I don’t think Austrian School economics is going to very well describe what is happening this cycle, when we have simutaneous inflation and deflation, especially if tis continues long term. We may need to consider several different types of money supply as being different in function as well as origin, and it may take a long while for them to integratte.
You are right. Inflation to mean rising prices and deflation to mean falling prices are convenient terms. But there is a very big problem with these terms - they don’t begin to get at an understand of what drives the rising prices and the falling prices. Generally speaking the effect of the money supply (creation/destruction of credit plus currency money) is the largest single influence on prices. Full stop. Give everyone twice as much money - prices double, cut everyone’s quantity of money in half and prices are down 50%.
So if we are going to understand why some prices rise and some fall we need to start with the rise and fall in the money supply. After that we then need to consider the characteristics of the individual items and why they might rise and fall in price. That’s why, generally, in a deflation of the money supply prices of all items will fall. BUT some items, such as essentials, may resist this trend while non-essentials might fall more in price.
Perhaps the middle ground is that we stop saying inflation and deflation and start saying: price inflation, price deflation, inflation of money supply, deflation of money supply. I know it is extra work but since this is a fundamental principle of understanding Chris’ material I’m going to try and be more clear about this going forward.
Incidentally, I do believe this cycle is being driven by the money supply and I think it is imperative that people understand the underpinnings of what is going on. Traditional economics is useful for understanding static concepts which don’t exist much in the real world and while I’m embracing of the Money Supply concept of the Austrian school of economics I’m open to a new direction. For instance I see fundamental flaws to a gold standard but, at a minimum, I am in favor of much better regulation over the Money Supply.