Remember That Crumbling Edge ... -- UPDATE: Ben says, Or, like, whatever

... I have mentioned a couple of times?

Looks like Bernanke is preparing to shove us over. ZH does a lot of bomb throwing so I don't normally pay too much attention to them. However, the Fed is clearly talking QE3 despite the warning against it from that harshest of critics, our old friend Reality.

As I have said before, the way I look at it, the federal government has no choice other than to devalue the dollar and ramp up inflation. Well, actually, they do have a choice, though not one spineless politicians are willing to make -- politicians from either party.

The righteous alternative would be to demand an audit of the Federal Reserve, face the crisis directly, and drastically cut government spending. Yes, it would hurt. As a consequence, however, we would eventually have a genuine recovery based on agriculture, mining, manufacturing, energy production, and trade rather than yet another bogus bubble based on the proliferation of bureaucrats.

For those with debt and an ability to generate some income, the scenario is not completely bleak. They will be paying back their debt with increasingly worthless dollars. This, of course, includes government -- not just in Washington, but in the states like California. Inflation will absolutely devastate the savings of those who have played by the rules -- especially as long as the Fed holds the interest rates down while trying to inflate the markets. Back in the '80's, Volcker beat inflation by jacking interest rates and tightening the money supply. But no one was lying about inflation back then. The government was not attempting to claim "mild" or "controlled" inflation when fuel and food were spiraling (if not rocketing) higher. Bernanke, Geithner, et al, clearly intend to let inflation run in the hope of sparking something they can label as growth in the economy.

Apart from successful implementation of home-based cold fusion generators, a massive push for thorium nuclear reactors, a move to build cars and airplanes out of graphene, or some similar technological breakthrough that impacts energy costs and productive on a global scale, we are going to suffer if the Fed attempts to inject more liquidity into the system and further erode the dollar's buying power.

It's like a dam that has been erected. The water level behind it rises. Instead of opening the spillway and relieving the pressure -- i.e., allowing the bubble to burst and the economy to reset -- the powers-that-be keep the gates closed and sandbag on top of the dam. What this guarantees is that when the makeshift Keynesian sandbags topple, and they will, the downstream flood is going to be unimaginable. And the dam itself may be destroyed.

Of course, there remains the possibility that QE3 is merely an empty threat intended to move money temporarily into commodities, but that doesn't make sense as it seems like it would put upward pressure on bond rates. But what do I know?

The best investment still looks to me to be "means of production" and enhanced self-sufficiency. Commodity investments -- including metals -- might be a good hedge, but I can offer no advice one way or the other. I'd rather talk about handgun stopping power.

Update as of 7/14/11 -- Apparently Bernanke isn't as sold on QE to the Nth power as we thought. Maybe.

Greg Ellifritz -- Stopping Power Study

This looks like a very well done study with some different statistics. It is well worth the read. I may have some comments of my own after more consideration.

Here's the pay-off -- Ellifritz says:

What I believe that my numbers show is that in the majority of shootings, the person shot merely gives up without being truly incapacitated by the bullet. In such an event, almost any bullet will perform admirably. If you want to be prepared to deal with someone who won't give up so easily, or you want to be able to have good performance even after shooting through an intermediate barrier, I would skip carrying the "mouse gun" .22s, .25s and .32s.

Now compare the numbers of the handgun calibers with the numbers generated by the rifles and shotguns. For me there really isn't a stopping power debate. All handguns suck! If you want to stop someone, use a rifle or shotgun!

What matters even more than caliber is shot placement. Across all calibers, if you break down the incapacitations based on where the bullet hit you will see some useful information.

(Emphasis added by me).

Is the Dollar Dead?

It's looking mighty pale at least. The Chicago Mercantile Exchange will launch renminbi trading on 8/22. The Chinese government had pegged the renminbi 1:1 to the dollar to improve exports. The massive devaluing of the dollar the last couple of years has put pressure on China to attempt to establish the RMB as a new reserve currency. If this happens, the USD will crash.

Unfortunately for China, they may crash as well. Their all-too-often cheap, crappy goods will still be crappy but no longer cheap. The question will be whether they can sustain their own economic base internally. No doubt that would be possible in the long-term under stable global conditions. However, they may have only the short-term to do or die, and they are certain to face serious global turmoil as the euro and the EU threaten to break down.


Another factor is the debt deal, or lack of one, and Obama scheduled to read some words off the TOTUS in the morning, at 11:00am Eastern. Things could get really interesting by tomorrow noon.

The Audacity of Bogosity

Let this be a lesson to us, friends: Put not your faith in ADP employment numbers. Essentially, ADP can make up numbers. If I were into conspiracy theories, I would suggest that someone used those bogus numbers to set up the stock market yesterday then cashed out.

What does it all mean? For one thing, it means a sell-off of the market gains from the last week or so.

Secondly, it means that commodity prices may again escalate – oil, gold, wheat, coffee, etc. – not on the basis of increased demand but as a “safe-haven” speculative bid.

Third, keep in mind that QE2, also known as Cutting the Value of the Dollar in Half Rides Again, ended with the fiscal year on June 30. If the market shows signs of collapse, Bernanke is going to devalue the dollar some more and let the Chinese see who will buy all the U.S. paper they are holding.

I said about a month ago when the Dow dipped below 12,000 that we were walking on the rotting edge of the precipice. We haven’t moved. Get out in the next few days and punch up your reserves a little – canned food, ammo, paper towels, toilet paper, duct tape, epoxy, batteries – nothing overboard, just the usual stuff you use everyday or would use if the store shelves were suddenly empty. Silver is still probably overpriced, but it has been fairly stable. It might not be a bad time to pick up a few ounces of old silver coins. Again, I urge caution when it comes buying metals. There is no need to dive off the high board when we're not sure it's on the deep end. Save your nickels. We are not yet at the point of collapse, and we may yet be spared from the worst of it.

The one shining hope – seriously – is that Congress will NOT reach an agreement to raise the debt limit. We are in the hole. Stop digging!

This is something easy to do if you are an American: contact your Congressman and Senators. Just send a simple email with "RE: DO NOT RAISE THE DEBT LIMIT (or else)" as the top line. Make a couple of nice comments. Tell them you do not want your great- or great-great grandchildren born owing a million trillion just so some SEIU member who produces nothing of value can have a cushy job and an inflated pension. Or words to that effect.

Garden Report

The garden is starting to produce heavily. I have nearly five gallons of blackberries in the freezer and more on the way. That is good. My strawberries were sadly pathetic but promise a full harvest next season. Our grapes, while improving, have a ways to go before I need to build a winepress. My fruit tree production will be light, due, I think, to the weird weather we had around blooming time.

This year I am producing several of my vegetables from last year’s saved heirloom seeds. The gigantic Holly Luscious cantaloupes we raise have been produced from our own saved seeds for the last five or six years. We have saved Kentucky Wonder pole beans the last couple of years, and they look great this season. Our cucumbers – I don’t know the variety – are the best we have grown.

I have struggled to find a sweet corn variety that will work, but it looks as though we may be successful this year with Sustainable Seeds (see sidebar) Golden Bantam. The watermelon, too, is from saved seed. There are actually two varieties this time, but I don’t expect them to cross-pollinate because they were planted several weeks apart. I think I am going to wind up with “Rattlesnake” as my go-to watermelon. And the squash, it appears to be very productive this year.

I will be harvesting my potatoes in the next couple of weeks. Once the two little patches are clear, I will plant black beans in one and heirloom golden wax beans in the other. I may have enough black beans left to sow in my sweet corn patch once all of it is harvested.

So it is canning time – mainly green beans and tomatoes.

Things I need to focus on include more storage space both for equipment and crops like potatoes. I also need to build some more fence and clear the brush encroaching on the back side. Another critical job is to replace the small swings for the grandkids with bigger ones. I need more range time, too.

The living may be “easy” in the summer, but I manage to stay busy.

Interesting Anecdote Related to Food Prices

I was talking to some people in the dairy business yesterday. Dairy farmers operate on the margin between the cost of feed grains and the bulk price of raw milk. Grain is running about $14 per hundred in our part of the country. Milk is around $20 per hundred in this area. There is a rumor that the price of milk will go to $25 a hundred, which it has to at some point in order for the producers to stay in business. The other option is that feed could drop back a few bucks to around $10. If milk does go up, don't expect the processors to eat the increase. They will pass all of it, most likely, along to the consumer. In easy numbers, if milk is selling in the store for $4.00 a gallon at the moment, it would not be unreasonable to see it go to $5.00.

Redistributing the Wealth -- Er, I mean, the Wheat -- Bonus Deflation Update

Yes, I know, Goldman repeats his lines. I'm hoping it's true.

Plus comments on the SPR Follies

The G-20 announces measures to stabilize the food prices. Central planning always works so well for everything else why not give a bunch of know-nothing bureaucrats control of the world's food supply? What could possibly go wrong?

As we have been saying, the upheaval in the Middle East is more about the skyrocketing price of staple grains than self-determination. This is a confirmation of the reality that food prices are destabilizing that region and possibly others -- including China. The world economic and political situation is capable of blowing like Mount St. Helens just about any day.

The dollar strengthened noticeably today as 60 million barrels of oil were released from the strategic reserve of the U.S. and other western nations. Gasoline might slip back below $3.00 at the pump in the next week. That, of course, is good news, but, again, it is indicative of the precarious state of the global economy.

I don't expect the actions of the G-20 to adversely impact food supplies in the States. I do expect it to impact food prices, which, as those of us who don't have Jeeves going to the market for us know, have been rising substantially -- up over 3% in May. I am not fooled by a smaller can of coffee selling for only slightly more money. I know how much coffee there is supposed to be in the can. Unfortunately, at this point, a temporary dump into the oil supply is not going to permanently bring down fuel prices, let alone food prices.

The only thing that will stabilize prices is a commitment by the Fed to not initiate further devaluation of the dollar. The federal government needs to rein in its fanciful expenditures and cut the deficit.