"The accelerating bankruptcy rate (while economic activity expanded for five years during the 1990s) indicates the explosion of the credit-balloon. A financial system explosion brings about Total Collapse.
"Government functions break down, business activity grinds to a halt, credit markets cease to exist, and turmoil prevails.
"A Total Collapse is worse than an economic depression. In a depression, government functions continue. In a Total Collapse, government becomes ineffective."
"Over the past 50 years the government has nurtured a growing underclass of dysfunctional citizens. By giving people money they didn't earn the government provided incentives for welfare recipients to drop out of the work force.
"With nothing to do these people were far more prone to mischief. Alcoholism and drug addiction became the chief method to relieve the boredom from idleness. The government became the chief enabler of a vast army of alcoholics and drug users. [An excellent psycho-dynamic factual and proof of this is given in At the Crest of the Tidal Wave, by Robert R. Prechter, Jr. Write: Elliott Wave International, Post Office Box 1618, Gainesville, Georgia 30503, U.S.A.]
"Families disintegrated and the offspring of chemically dependent mothers were prone to criminal activity. Love and order were replaced by neglect and abuse. Good character withered and the crime rate soared. The government's trillion dollar attack on poverty turned into fertilizer for crime and addiction.
"They added to the welfare rolls and made poverty worse. Approximately 30 million people get welfare and receive aid and assistance in housing, energy, health and food stamps. They have convinced themselves that it is their right to get other peoples money to pay for their worldly needs.
"The first time these doles get seriously pinched, they will go berserk. [other writers say "bonkers" or "bananas"] Nobody gets madder than someone who gets something taken away from them."
"During this coming economic depression, which has already begun, the quality of life in major cities throughout American [sic] will fall so far so fast it will take your breath away.
"As I said earlier, living in a major city will be like living in a war zone. No one will be safe. Crime will be rampant. Gangs will cause chaos and kill for fun. Public services, street repair, garbage collection, will become sporadic at best. Police will be non-existent"
"Japan, the largest single holder of U.S. Treasuries at the end of 1997, has now turned into the largest seller. On April 13th, Japan sold $12.1 billion worth of Treasuries in a single day !
"Interest rates in the U.S. shot up ten basis points overnight. Traders didn't know what to do. A Salomon Brothers bond trader was quoted as saying, 'It was the first time we had ever seen anything like this before. We hadn't seen the magnitude.'
"But Japan's record dumping of U.S. paper last month wasn't the first shot. It was just the loudest in a barrage of U.S. Treasury selling that began late last year. The bankrup countries of Southeast Asia, now holding nearly $100 billion of U.S. Treasuries, have been quietly selling over the last few months. China and Hong Kong have largely held onto theirs, but they hold another $100 billion -- a good portion of which could also flood the market."
Source: The Fleet Street Letter; May 1998. For subscription: (800) 433 - 1528 (U.S); Outside U.S; (410) 783 - 8440. Fax (410) 783 - 8438.
Folks, if you have been keeping up with these pages, then you know this is very serious. When foreign countries start selling off our debt, U.S. Securities (Treasury Notes), to raise much need capital; shore up their currency; and increase the value and exchange rate of their currency, then those securities come back to the U.S. and our central bank monitizes them.
This causes interest rates to skyrocket; your bonds/securities become practically worthless--in a word, it will set off the worst depression the United States has ever experienced. One of the main reasons is because now our government has to raise the needed cash to pay off our Treasury Notes to foreign governments holding them. It will desperately need liquidity.
Just remember ! When countries holding our debt start selling in the aggregrate of billions, we are in serious trouble.
Fifteen years ago, Japan was doing fine, now it is in serious trouble. And their trouble threatens us, the same as Southeast Asia's. The financial scene goes something like this:
Their (or another's) stock market plummets. In 1990, Japan's was around 40,000; but currently, it has plummeted to about 16,000, in just about 8 years. Japan's share prices fell; they accumulated $600 billion in bad depts on various Japanese banks' books, their unemployment is soaring; goods are no longer moving because consumers are not are not buying--liquidity has dried up; all point to a country about to have a "Total Collapse."
Their economy has been in a recession for over eight years and with a "Total Collapse" looming in the not-to-distant future, this will not only be bad news for them, but us (America) too. Singapore's recent prime minister said that if Japan doesn't come around soon, it will lead to a "worldwide economic collapse."
The U.S. is the first, Japan is the second world's largest economy and that is bad for all, with their present economic woes. Their economy is larger than England and Germany's taken together. What happens in Japan economically, is felt; the same if the U.S. falters, around the world.
Japan's way of doing business (real estate bubble, easy credit, etc.) brought them down; it also helped in bringing down the Southeast Asian Tigers. But; here's the rub, their extremely low interest rates brought on their troubles, and have actually created a boom (bull market) here at home.
In order to raise money, they have little choice but to sell off our debt, spoken of earlier. This could be the trigger that starts a spiral-down of the stock market, ending in a "Total Collapse" for use. As their stocks fell; investors sought new grounds for investing, and this helped create our bull market (more money poured into our market from overseas and home).
We also have easy credit, "invest for the long-haul," "put your money where it makes more than the 'old' passbook savings" (and that is mutual funds), the 125 % home equity loan, etc...
The problem worsened for the Japanese, however. In order to halt the falling economy and to stimulate growth, they cut interest rates. That failed. The economy took a further beating-- the YEN fell more.
Now, the Central bank of Japan has bought U.S. Treasuries (high-yields). At the end of last year, the Japanese had purchased $300 billion plus. They are holding more of our debt than other countries. For instance, Germany and England hold the sum total of $400 billion.
Recall earlier, we said that Southeast Asia is approximating $100 billion in our Treasury Securities. China and Hong Kong $100 billion.
By buying our Securities, this pushes our interest rates down. This in turn gives the American consumer and corporate giants more borrowing power, they can borrow money for less payback. This easy credit gets larger and larger, as interest rates go even lower. The unwary American consumer doesn't know the process, nor does he care.
He just sees an opportunity and goes for it. Also, various financial advisors project larger and larger earnings, but when the credit bubble bursts (it can't sustain itself forever--Japan, and other countries start selling off our Securities to shore up their own), then the "House of Cards" we have built here comes tumbling down too, as Kurt Richebächer is fond of saying. You are now in the Bear Market....and it ain't going to be pretty this time for sure !
Consider for instance the Home Equity Loan. The Fleet Street Letter, May 1998 (for subscription (800) 433 - 1528) says,
The problem, folks, is that when the mutual funds go, so goes your HOME !
"Recently two professors, William Goetzman of NYU and Alok Kumar of Yale, back-tested the theory rigorously and found, as will be reported in an upcoming issue of the Journal of Finance, that Dow Theory works--and they ignored the profits of selling short! In other words, in their modeling, they assumed that when the Dow Theory signaled a sell, investors went to cash. "
The whole point of this is it's better to be out of the market a year too early than a day too late.
---Source: The Fleet Street Letter; June 1998. For subscription: (800) 433 - 1528 (U.S); Outside U.S; (410) 783 - 8440. Fax (410) 783 - 8438.
"The world's economy is dependent on nearly 500 space satellites for telephone service, navigation, TV and weather observation. In November the earth will be hit by the biggest meteror shower in 33 years. The Leonid storm is expected to damage or destroy an unknown number of satellites. Most of the meteors are the size of grains of sand but they move so fast they hit with the impact of .22 caliber bullets.
"Building and launching replacements could take months or years, so here's a warning. If communications are seriously disrupted, it might trigger a stock crash."
---Source: Last Days Journal, July 1998, a reprint of Richard Maybury's U.S. & World, Early Warning Report; June 1998 (for subscription: (800) 509 - 5400), as reprinted in the June 25 issue of The Reaper.
Earlier, we spoke of food shortages. And with the economic problems coming soon and the now occurring world-wide drought, you need to get prepared. Dr. Gary North puts it all together succinctly in the following:
Gary North's Reality Check, Questions & Answers September 1, 2006
Age: 35; location: Columbia, MO; occupation: engineer; annual family income: $83,000; net worth: $40,000; #1 goal: build up savings/asset base.
Should one plan for asymetric changes in the economy/politics? Debt collapse/hyperinflation historically leads to rewriting the rules for real estate, taxation, etc.
Dr. North Responds:
You have selected a good goal. Your family's income is double the national average. You live in a region of the U.S. where you can buy affordable housing.
You are in a good job. You probably will not get fired. But there is probably a salary peak close to where you are now. You should not expect annual raises in the 10% range. So, you need to build wealth outside your occupation. Most people do.
You should always have some assets that are geared to increase in value in times of disruption. My view is that the best such investment is a home outside of town in which you have a well, some ground with soil that is productive, a garden produced with non-hybrid seeds, and whatever it takes to defend this patch of turf. You buy a good lifestyle now, yet this lifestyle tends to persevere in a disruption.
I will relate a story told to me by Prof. Hans Sennholz. In the 1940s, he was still living in Germany. He dated a woman whose father had been a philosophy teacher in a gymnasium in Essen, a comparatively well-off German city. He had a good education. When Hitler came into power in 1933, he saw the handwriting on the wall. He repositioned his career. He went into mathematics. This would keep him under the radar of politically correct Nazis. He then applied for jobs in rural areas. He finally got one in the late 1930s. He moved his family, bought a place in the country, bought some goats, and taught school. During the war, there was not a single military conflict in the area. Meanwhile, Essen got pulverized. Finally, after the war ended, he found himself several miles inside West Germany's boundaries. He survived the war with his wealth intact.
This story has fascinated me for many years. Anyone who can do something like this, and not feel the loss of the good life, is in better shape than most others.
Your first task in building wealth is a maniacal dedication to thrift. In the early 1950s, when Sennholz got his first teaching job, he saved 50% of his income. This is high, but it's the sort of attitude that will pay off.
I of course recommend starting a business on the side. That's the best way to build wealth.
Put your liquid savings into non-dollar-related investments. Right now, be in a foreign bond fund. Equities are too risky right now. A recession will hurt equities. But if your money is coming in the form of foreign currencies, mass inflation by the Federal Reserve will not harm you. Mass inflation by other central banks will harm you, but this is less likely in a mixed portfolio of currencies/bonds. You are hedging your income by moving out of dollars. Your salary is in dollars You need diversification.
[To Help You Prepare: See Gun Page and When The Hell Breaks... ]
"Fisher noted that about two thirds of US cash currency is overseas, with two thirds of the hundred dollar bills in Russia. And that brings to mind the US money supply. The one measure of money supply that the Fed actually has control of is M-1. M-1 is just one measure of the money supply that includes all coins, currency held by the public, traveler's checks, checking account balances, NOW accounts, automatic transfer service accounts, and balances in credit unions.
"M-1 is not growing. In fact, it is actually contracting, as the charts above show. Further, the large majority of the additions to the money supply are physical cash, and cash is deflationary, and much of it ends offshore, effectively reducing our hown grown money supply.
"...the money supply has not grown since the middle of 2005. ...the money supply has actually fallen over the last year. This, sports fans, is another example of the Fed hitting the brakes. You don't contract money supply unless you are worried about inflation. In tandem with the rate hikes, it is another reason why the Fed is taking a pause to see if their efforts will slow inflation.
"Notice that in 2003, when everyone was worrying about deflation, the Fed was clearly and significantly growing M-1. Then when inflation started to rise, they started to back off and then in 2005 they started to hit the brakes.
"(For the record, M-2, which includes money markets and other time deposits, is only growing around 5%, but the Fed does not have direct control of M-2, although they can influence it.)"
I fear the level of violence most of all, as young people trained by movies, videos, and vicious 'music' notice the raunchy party is winding down and they must go out and take what they want to sustain themselves.
'The fall of a great nation is always a suicide.'
'We have it in our power to begin the world over again!'"
The progressive dilapidation of subdivisions and strip malls, the depopulation of the American Southwest, and amid a world at war over oil, military invasions of the West Coast; when the convulsion subsides, Americans will live in small places and eat locally grown food."
James Howard Kunstler's WebSite where you can order his books, including his artwork, and read his blogs.
"There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved."
"'In mid-December, the premiers of Quebec and Ontario, along with the governors of eight U.S. states, signed a pact that will ban all large-scale water diversions from the Great Lakes basin. That will prevent fully 20% of the total fresh surface water of the Earth being exported by pipeline to thirsty states like California, Arizona or Nevada. The eight states that border the Great Lakes---Illinois, Indiana, Michigan, Minnesota, New York, Ohio, Pennsylvania and Wisconsin---have seen the future. And the future is that fresh surface water is going to be more and more valuable as it gets more and more scarce.'
"Ultimately, many prices (especially in condos) are likely to fall 40-60% (or more) from the peak - especially in the most over-inflated markets. Foreclosures and bankruptcies will ultimately be in the millions.
The Panic is coming!"
Farmers Down Under are currently experiencing the worst drought in over 100-years. The continent's arterial rivers, the Murray-Darling, are drying up and, as the Melbourne Age reports, "...if things continue this way much longer, it's not water for crops that will be insufficient, but water for towns."
Here on the Gold Coast, water restrictions are now just a part of life for residents. All over this beach city of the Great South East fountains run dry, locals watch the evening news for updates on the Hinze Dam's water level and heavy penalties are dealt out to those caught disobeying strict water conservation laws.
A thirst for water is not a problem unique to Australia. Worldwide the crisis is growing. As one of the largest population migrations in history takes place in China, immense pressures are being placed on the booming nation's supply of clean water. Throughout the African continent our most precious resource is in critically low supply. All over this parched orb of ours farmers are feeling the weight of imminent shortages.
“‘November 2006 marked the single worst month for for-hire truck tonnage since the last recession,’ said ATA chief economist Bob Costello. ‘Both the month-to-month and year-over-year decreases indicate that the economic slowdown is in full gear. The most troubling number is the 8.8% contraction from November 2005, despite the fact that year-over-year comparisons are difficult due to the very robust volumes during the same month last year. One month certainly doesn’t make a trend, but if we continue to see year-over-year reductions of similar magnitudes in the next couple of months, it could indicate a greater economic slowdown than economists are projecting at this point.’
“Trucking serves as a barometer of the U.S. economy because it represents nearly 70% of tonnage carried by all modes of domestic freight transportation, including manufactured and retail goods.”
News of record-high temperatures and severe droughts are grabbing headlines worldwide. The earth has just logged its warmest year in recorded history.The “why” behind these remarkable meteorological phenomena is debatable. But the “what” is not. Simply put, it’s getting pretty darn hot and dry all around this big orb of ours…whatever the cause might be. If this trend continues – we say, “if” – water will continue to become an increasingly precious commodity worldwide. Chris Mayer examined this very issue in the Rude Awakening edition of January 9. (If you missed this column the first time around, you should take a look now.) In today’s edition of the Rude Awakening, Chris Mayer returns to ask the question, “What if?” What if hot, dry and dusty conditions persist around the globe? Chris does not merely pose this question, of course, he also provides a couple of answers…
The Return of the Dust Bowl
A darkness blacker than night is how it was often described. At least one could pierce the black veil of night. Not so with this kind of darkness. It was opaque. People were afraid. It was only midmorning. They had never seen anything like it.If you ventured outside into the cold and biting wind, sand would get in your nose and mouth and ears. You would hurry back inside and cough up black. While inside, people soaked sheets and towels. They would try to stuff them around windowsills and doorframes. But it didn’t help much. Choking dust still filtered in. It spread out in little ripples on the floor and seeped through windowsills. It was Nov. 11, 1933, Armistice Day, South Dakota. When it was finally over, families would stumble out of their farmhouses and peer out at a new surrealist landscape. The fields were gone. The trees were no more. Just mounds of sand and eddies of dust swirling in the light autumn breeze. There were no roads. No tractors or machinery, no fences. All of it laid buried in sand. As one observer said, “The roofs of sheds stuck out through drifts deeper than a man is tall.” The great Black Blizzard of 1933 destroyed acres of farmland stretching from the Texas Panhandle all through the Great Plains and clear to the Canadian border. The following day, the skies darkened over Chicago. A steady stream of filth fell on the city like snow. Even people as far east as Albany, N.Y., could see the menacing dark clouds roll their way across the horizon. That winter, red snow fell softly on New England. Yet 1933 was “only a prelude to disaster,” as Frederick Lewis Allen wrote in his panorama of the 1930s, Since Yesterday. In 1934 and 1935, the dust storms destroyed thousands and thousands of acres of farmland. The lives of more than half a million Americans changed forever. Many hit the road, forced to wander like refugees in their own land. Most headed west, looking for a new start. The Dust Bowl was a seminal event in American history. Unlike a natural disaster such as a hurricane, “There was a long story of human error behind it,” as Allen wrote. After World War I, there was a great demand for wheat. Mechanized farming also became common. Farmers tore up the sod that covered the plains and farms expanded. Production soared. The Plains were a region of high winds and light rainfall. Yet the 1920s were pretty forgiving in terms of drought. There were warnings, though, such as stories of topsoil blowing in Kansas after a stretch of dry hot weather. But in the 1930s, we had some real drought in these places. The combination of drought and desiccated farmland would create the epic dust storms. “Retribution for the very human error of breaking the sod of the Plains had come in full measure,” Allen wrote. I recently spent some time looking over pictures of the aftermath of these blizzards. They are incredible and simply hard to believe. Yet I see how something like this could happen again. Except this time, it will be bigger. And it will happen in China. But don’t think it won’t affect what happens in America. Plumes of dust emanating from northern China have already hit the U.S. mainland. As Lester Brown, author of Outgrowing the Earth, explains: “With little vegetation remaining in parts of northern and western China, the strong winds of late winter and early spring can remove literally millions of tons of topsoil in a single day — soil that can take centuries to replace.” These dust storms are so strong that they can peel the paint off cars. They often force the closure of schools, airports and stores — even in places as far away as South Korea and Japan. As with the Great Plains, northern China is dry and farmed intensely. Already, China’s farmland is turning to desert at an alarming rate. Estimates peg the loss at more than 900 square miles per year. Chinese farmers struggle to meet the demands of the Chinese people. Meat production, for example, has grown at an 8% clip since 1980. That’s the biggest increase of any major meat-producing country in the world, yet it still falls short of demand. It’s not so much the basic demand for food as it is a change in the mix of what people eat. Clearly, in poor countries, cereals and grains make up the vast majority of a person’s diet. But in richer countries, people eat more meat, as well as fruits and vegetables. Meat is incredibly expensive to produce, because raising the necessary livestock requires large amounts of grain. According to The Silk Road to Riches, the average cow consumes 2.5–3% of its body weight in grains every day. “A typical 1,200-pound beef steer could consume about 35 pounds of feed per day,” the authors write, “or more than 13,000 pounds annually. That’s enough grain to feed more than 10 average-sized adults for an entire year.” It’s also very water intensive. It takes about 6,600 gallons of water to produce just 8 ounces of beef. As you can imagine, this puts meat beyond the pale of many poor countries. There is limited arable land in northern China. So the Chinese rely more on fertilizers to boost yield. Currently, fertilizer use in China is more than three times the global average. China’s ability to produce the fertilizers it needs — in particular, potassium and phosphate — is limited. As a result, China is one of the largest importers of these fertilizers. This is one of the reasons companies such as Agrium (AGU: NYSE) thrive today. So you have chunks of Chinese farmland turning into desert every year. You’ve got limited water resources in a dry region. Already you’ve got dust storms that kick up plumes of dust that travel thousands of miles. All of this is reminiscent of the U.S. in the 1930s. We all have a stake in what happens in China. If China relied on the rest of the world for even 20% of its grain needs, there would be an incredible strain on the world’s grain producers. Many of the challenges China faces exist in the world at large already. Grain production per person is falling worldwide. So is cropland acreage per person. We are also approaching the limits of what fertilizers can do in terms of boosting crop yields. Plus, strong demand for biofuels — like ethanol — now competes with food demand. By some estimates, we’ll need to produce about 136 million tons of grain in 2007 to prevent grain stocks from falling again (they fell in 2006). Yet annual increases in grain production have averaged only about 20 million tons since 2000. That gives you something of a snapshot of the hurdle in front of us. The investment conclusion from all this seems to be that we are in a long bull market for grains. Expect the prices of corn and wheat to keep rising. Expect the price of meat to rise. It also seems that fertilizer producers, such as Agrium, should continue to do well. Other ancillary ideas also come to mind — shippers of dry goods (i.e., grains) and manufacturers of farm equipment. If you followed along with my Mayer’s Special Situations letter, for example, you’re up 40% since June on irrigation equipment maker Lindsay Co. The potential for another 1930s-style Dust Bowl only adds to the power and durability of these trends.