An article by Elliot Turner last week ("Why I Sold My Gold") echoes what I've been saying for a while:
No one knows what will happen in the event of chaos, but to me the only real answer would be to buy a cave stocked with canned goods. Forget about gold, as that would do nothing in a state of anarchy. Gold ultimately relies on the same psychological comfort that fiat currencies do in universal acceptance, and therein lies the gold as currency paradox.
I'd suggest that gold is not a protection against disaster per se, but a speculation during moderate troubles, and a store of wealth for a future time after disaster, when recovery has happened. But as with the Staffordshire Hoard, that latter time may be a long, long while later and you may not be there to benefit.
So I propose a new currency valid in good and bad times:
"Ah," you may say, "but this currency is perishable." So was the scrip issued in Wörgl in 1932-33; in fact, a negative interest rate was built into the scheme to encourage circulation instead of hoarding during a deflation. It worked wonderfully - so well that it displeased the local socialist party and the central bank.
Which leads me to think that the true measure of a currency's virtue, as of a man's, is not its supporters but its enemies.
Footnote:
The Heinz will also be superior to the current pound (= 100 pence) in terms of giving change, as was the old British pound. The latter was worth 240 pence, each penny legally exchangeable (until the end of 1960) for 4 farthings, thus £1 = 960 farthings.
You can get two 400g cans of Heinz beans today for less than £1, and each tin contains over 400 beans. So the modern pound must buy you c. 960 individual baked beans. I therefore propose to call a single baked bean a "farting".
DISCLAIMER: Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog.
Karl Denninger draws our attention to an interview with David Stockman on CNBC (see below). Key points:
Combining middle-class earners with government employees (aside from teachers), we see that millions of jobs have previously been lost and there is now no net gain in half the 130 million American jobs market. Stockman terms this the "new normal".
Numbers are increasing among part-time earners, but their annual pay averages $20,000 instead of the middle class' $50,000. As Stockman says, you can't support a family on that.
This is industrialization in reverse gear. America - and even more so the UK - now faces a great question: are we prepared to watch our industry eaten away? Last month, it was reported as a sort of victory that Britain made a deal with China to export pigs to them. Though agricultural production is important - God speed the plow - I don't see a bright future for the whole nation as pig farmers.
In a digitized world and globalized economy, our problems are evident and important to our competitors. Back in September China's "Beijing Review" crisply summarized America's woes and their causes:
Increasing financial pressures forced middle class Americans to rely on debt to continue their current lifestyles. Meanwhile, thriving financial innovations on Wall Street have encouraged their lifestyle of high debt and high consumption. The median debt-to-income ratio of the middle class families climbed to 1.19 in 2004 from 0.45 in 1983. So basically, credit-supported over-consumption of the middle class laid the groundwork for U.S. economic prosperity over the past three decades.
The over-consumption can be corrected by cutting back - something that is certainly a matter of concern to Beijing - but though the spending song is over, the debt melody lingers on. Private and public debts are absorbing the resources that should go into trade and industry. Lowering interest rates further is scarcely possible, and as Michael Panzer reports in "Ready for some crowding out?", the need (especially in Japan and the USA) to roll-over huge amounts of debt in the near future may see a bond market revolt and higher interest rates, instead. Commercial finance may well become both harder to obtain and significantly more expensive.
Meanwhile, the burden of debt now lies not in interest rates but in the capital repayments. As average incomes fall (owing to the shift from higher-paying to lower-paid jobs), the liabilities will grow heavier in proportion. Some of this ballast may have to be ejected from the balloon if we are not to crash to earth.
Normally, one would say that letting debtors off the hook is a moral hazard, but I think the scale of the emergency takes us beyond that consideration. In any case, default is already happening piecemeal in the residential mortgage market, and would be far more extensive if lenders constrained by capital adequacy requirements were not reluctant to foreclose. Beneath the tide of "jingle mail" is a savage undertow of tolerated delinquencies (*). Similarly, the banking sector would be pretty much dead if the government had not also been willing to defer foreclosure.
The challenge is to tackle the debt monster openly and through policy, not inaction and denial. Cutting welfare won't do it fast enough and generates many other problems. If we can't restructure our debts by agreement with creditors, we have to accept the "new normal": high unemployment, a reduced and distressed middle class and, perhaps, political instability barely restrained by greater authoritarianism.
(*) See today's post (with many graphs) by Michael David White, who thinks housing in America is only halfway through its correction.
DISCLAIMER: Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog.
Logically, speculators and investors should be residing in two different groups, but the two kinds of sheep keep wandering out of their respective pens. And there are wolves outside the pens.
John Lounsbury, reviewing ‘What Investors Really Want,’ by Meir Statman.
This is the difficulty we face now. If you are a savvy speculator and willing to accept a high degree of risk, you may (with luck) do well in today's volatile markets.
But if you are an ordinary investor (like most people), you are looking for something that will at least preserve the value of your savings and reward you with modest real growth for not spending them.
Unfortunately for investors, our governments' attempts to shore up an essentially bankrupt banking system and profligate welfare system involve lower-than-inflation interest rates, and at least one product that is guaranteed to overmatch inflation has been withdrawn - see what happened to NS&I Index-Linked Savings Certificates in July.
Sadly, one suspects that even if such products continue to be available, inflation will be defined in a way that does not fully reflect increases in the cost of living for ordinary people. In fact, definition tweaking is already happening, as in the case of "hedonic adjustment" in the American CPI Index. This means, for example, that a new computer that costs the same as your old one but has double the memory, has effectively halved in price - even if the extra computing speed has absolutely no practical benefit for you (we don't all live in the fantasy world of role-playing games).
I'm quite happy to let the speculators play high-stakes poker with each other, as long as the rest of us can humbly and patiently build security through thrift. It should be a lasting shame to governments that they are denying us ways to do this.
"The hungry sheep look up, and are not fed."
DISCLAIMER: Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog.
At the briefest instant following creation all the matter of the universe was concentrated in a very small place, no larger than a grain of mustard.
The matter at this time was very thin, so intangible, that it did not have real substance. It did have, however, a potential to gain substance and form and to become tangible matter.
From the initial concentration of this intangible substance in its minute location, the substance expanded, expanding the universe as it did so.
As the expansion progressed, a change in the substance occurred. This initially thin noncorporeal substance took on the tangible aspects of matter as we know it.
From this initial act of creation, from this etherieally thin pseudosubstance, everything that has existed, or will ever exist, was, is, and will be formed.
Rabbi Moshe ben Nahman (aka "Ramban" or "Nahmanides"), 1194 - 1270; Commentary on the Torah
Wikipedia article here, looked up in reference to a reader's query in the Dail Mail today.
Which American bank is going to be blown apart by promised revelations from Wikileaks?
Britain's Daily Mail newspaper today reported US speculation that it might be Citigroup, but that doesn't appear in the online edition so maybe it was just a wild guess. Tyler Durden hears that the hard drive of a Bank of America executive casts a shadow over Merrill Lynch and/or Countrywide.
Slightly creepy though Julian Assange may be, it seems he's doing what our journalists over here used to do, before they started to see themselves as part of the New Aristocracy. When the horse-puckey hits the turbo, maybe we could see another Enron-type scandal complete with jailings and business foldups.
But I think there will be other repercussions. One will be, presumably, a drive to "clean up the act" - more regulations to try to bring the rogues under control.
Another will be how discussions are (or aren't) recorded in future. I'm sure that thanks to Assange's latest stunt, many diplomats will now be encoding their gossip prior to transmission.
But the most significant will be how observation will be evaded and rules circumvented.
This has already happened in politics: it's one of the curious features of Tony Blair's decade-long "sofa government" that decisions were often made without civil servants present to take minutes: no name, no pack drill, as they used to say in the Army.
We can expect the same in commercial circles. Again, some smart guys have been doing this all along: Jordan Belfort's book "The Wolf of Wall Street" describes how, in order to carry on share-ramping without the inconvenience of explaining their office telephone transcripts to SEC investigators, his boys would simply tell the client they'd call back, then go out and fire up their personal cellphones for an intimate, no-repercussions sales spiel.
The Sicilian Mafia showed them all the way. Bernardo Provenzano ran the Outfit from a shack, avoiding all electronic communication and typing little notes ("pizzini") on his Olivetti instead.
It's kind of a Darwinian co-evolution of predator and prey. We can expect continued crookery, with heightened secrecy. And a surge in sales of two-colour typewriter ribbons.
DISCLOSURE: No positions. Not even in typewriter ribbons.
DISCLAIMER: Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog.
I have wondered for some time whether the investment community were a bunch of con artists, or deluded.
I believe that I have my answer.
In the November issue of the US edition of Playboy is an article titled 'How to Destroy a Bank'.
In it, the author interviews several investment bankers. All of them lost a great deal of money in the recent collapse; are convinced that they can make it back with 'hard work'; and see financial Doomsday as impossible.
