tag:blogger.com,1999:blog-7766273935038042110.post4902951909414016520..comments2023-10-17T03:30:00.824-05:00Comments on Prudence for Dummies: Time for a New Thermometermushroomhttp://www.blogger.com/profile/07651027035577798096noreply@blogger.comBlogger6125tag:blogger.com,1999:blog-7766273935038042110.post-15855544313094388452011-11-29T01:23:33.609-06:002011-11-29T01:23:33.609-06:00Bankrupting countries that can print their own mon...Bankrupting countries that can print their own money runs a little differently. As debt increases, the central banks will try to buy it up and devalue their way out.<br /><br />When the derivatives scheme came about in 2008 we would have headed into a deflationary collapse because several trillion evaporated. The purchase of bonds by the Fed injected some money into the system during QE1, and we would have had price stability for a while. Except QE2 started which has created some significant inflation.<br /><br />I think there is going to be inflation because heavily indebted countries which cannot pay their bills cannot afford deflation. They would have to drastically cut expenditures. <br /><br />Metals are not going to make you rich. They will generally retain some value, and it's good to have some. I keep thinking gold will correct somewhat to about $1200, but I may be very wrong about that. Silver seems fairly reasonable at the moment. Someone commented a while back about saving nickels, which are worth more as metal than their face value. That's something that's really easy to do. <br /><br />Buy food. Seriously, canned beans or ravioli or whatever it is you like to eat until the pantry is full. The worst case scenario is that you will end up eating it. So don't stockpile weird stuff that you don't really like. Canned goods will keep for 12 months or so -- if they are acidic. Low-acid foods like tuna, salmon, and Spam will be good much longer. I've seen things that say up to five years -- I don't know, but a couple of years shouldn't be a problem.<br /><br />The point is that you are not going to look foolish or waste your money if you invest in food. So you have an excessive amount of salt, sugar, and flour, you'll use it eventually, even if the economy rights itself.<br /><br />I am concentrating mainly on buying things I know I will use, or goods that I think might be of value in trade. Get stuff that would be hard to MacGyver like work boots and gloves, or stuff you can MacGyver with -- caulk, duct tape, adhesives, fasteners, #12 smooth wire, etc.<br /><br />You want to be able to pay your taxes and utilities and have some reserve, but other than that, it is probably better to have stuff that you would use gold to get than to have an excess amount of the gold itself. You know what I mean? Firearms, ammunition, generators, fuel, tools, productive land, domestic animals, warm clothing -- all that stuff is useful now and in the future regardless of the direction things take.mushroomhttps://www.blogger.com/profile/07651027035577798096noreply@blogger.comtag:blogger.com,1999:blog-7766273935038042110.post-34977046896447215472011-11-28T16:31:53.464-06:002011-11-28T16:31:53.464-06:00This is indeed complex.
So applying that to the b...This is indeed complex. <br />So applying that to the big scale (say bankrupting countries or states) when a large, huge bankruptcy happens, do you think we should keep the cash or try to buy metal?jimhttps://www.blogger.com/profile/03860567522899865053noreply@blogger.comtag:blogger.com,1999:blog-7766273935038042110.post-60909449280064741262011-11-13T22:43:40.796-06:002011-11-13T22:43:40.796-06:00Thanks, Jim. I hope I can encourage you to look i...Thanks, Jim. I hope I can encourage you to look into some of this on your own and read other sources who are more knowledgeable than I am. <br /><br />I think I understand your point in that once a person has declared bankruptcy, they will still have some of their stuff and will have eliminated their debt so that they can now spend their income on other items -- which is true. But it will be very difficult for them to incur additional debt for some time -- probably several years. They will have to live within their means, more or less, based on their productivity and income-generating power. <br /><br />They will, in other words, create no new money based on debt. The loss the bank takes also decreases its ability to create new money via fractional reserve banking.<br /><br />Say you buy a car on credit. The bank has loaned you $20,000. They count that $20,000 promise to pay by you as an asset. On your side, you count the car as a liability as far as the amount owed is over market value. The manufacturer and the dealer have the banker's money. <br /><br />Now where did that $20,000 come from? Did it come out of the bank vault? Did they take the $20,000 Joe had deposited in the bank and use it to pay the local dealer? If they did, how is it that Joe still sees it on his statement? <br /><br />Banking is done on the factional reserve system -- meaning that banks need keep only a small fraction of depositors' money as a reserve. <br /><br />So here's the deal. Joe thinks he has $20,000 down at the local bank. The local car dealer actually has Joe's money. Meanwhile you have a car for which you are diligently paying the bank. Money has been multiplied. <br /><br />Then you fall on hard times and are forced to declare bankruptcy. The bank might get some of its money back. They may even repossess your car and sell it. But you no longer have a liability, and the bank has lost an "asset" or a portion of it. Money has disappeared from the system, because all fiat money is debt-based and some debt has been "destroyed" by the bankruptcy. The bank still has to cover Joe's $20,000 deposit, so it has to rebuild its reserves somewhat and can make fewer loans (create less money) because it can no longer count on you giving them more of your money every month. <br /><br />This what should happen in all economic cycles. You have an inflationary bubble of economic activity and investment which then corrects itself with a deflationary cycle of debt-elimination as "assets" are charged off and losses taken by lenders.mushroomhttps://www.blogger.com/profile/07651027035577798096noreply@blogger.comtag:blogger.com,1999:blog-7766273935038042110.post-85771719713273997802011-11-11T15:50:58.903-06:002011-11-11T15:50:58.903-06:00Hi mushroom,
If you don't know much about econ...Hi mushroom,<br />If you don't know much about economics let me tell you you have a fine insight.<br />One idea I didn't get though. Why is bankruptcy deflationary? It destroys wealth, not the representation of it (cash). Shouldn't it be then inflationary?<br />Great blog by the way.jimhttps://www.blogger.com/profile/03860567522899865053noreply@blogger.comtag:blogger.com,1999:blog-7766273935038042110.post-18982679712612156162011-11-03T18:01:26.547-05:002011-11-03T18:01:26.547-05:00Hey, John.
When my now-16-yo granddaughter was ...Hey, John. <br /><br />When my now-16-yo granddaughter was about 3, I took her to a Memorial Day airshow. A couple of bright yellow planes staged a mock dogfight above us. She was sitting on my shoulders, yelling, "Dare chasin' each other! Dare gonna cwwaaash!"<br /><br />That is sure the way it looks. <br /><br />I post stuff here that I feel guilty about even thinking. But you are always welcome to stop by and view the lunacy.mushroomhttps://www.blogger.com/profile/07651027035577798096noreply@blogger.comtag:blogger.com,1999:blog-7766273935038042110.post-81357413991966684962011-11-03T16:10:16.279-05:002011-11-03T16:10:16.279-05:00Hello again Mushroom. No, I'm not stalking yo...Hello again Mushroom. No, I'm not stalking you but found this through your other blog. It seems we have similar views about the future and what to do about it. Thanks for splainin the Greek/Euro mess. It's all gonna crash.John Lienhttps://www.blogger.com/profile/15607964922479543670noreply@blogger.com