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 | Friday, October 16, 2009 at 8:54:05 mst
Comment ID: #1
Name: Chris L
One form of asset protection is ramping up purchases of physical assets / commodities. The characteristics to look for are 1) high value, 2) long shelf-life, 3) small storage-space footprint, 4) things you'd want to have even if inflation / hyperinflation / high taxes don't materialize.
Possible items
1) Tools / auto parts / gardening or outdoor equipment / camping equipment
2) Guns / ammo
3) Liquor / wine
4) Home improvements / storage sheds / building materials / copper wire (actually that's just a nod to Atlas Shrugged)
5) Copies of Atlas Shrugged and other books (not kidding, would be fairly valuable)
6) Canned food (to some extent, storage and expiration dates are problems)
7) Household commodities / toiletries / medicines / first aid kits
8) Gold / silver / silver coins
9) Electrical equipment / Generators / fuel (big storage problem however)
Pennies up through 1982 contain almost 2c worth of copper, and will skyrocket if the dollar collapses. Melting is illegal, but melting is not necessary to capture the value. Sorting is a pain. There are many people actively sorting large quantities (pick up from one bank, dump excess at another). Roughly 20-30% of wild pennies are copper, this will drop quickly after any tipping point.
No sorting is required for nickels; they're about 4.6c each right now and it's much easier to obtain a larger dollar amount. See also www.coinflation.com for general information, although not everything linked from there is of value. For example, some articles are written by gold/silver sales companies, and like advice from some realtors, it's always the perfect time to buy in large quantities.
A lot of this ties in with general emergency preparation. |
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| Saturday, October 17, 2009 at 0:16:11 mst
Comment ID: #2
Name: Paul Lin
E-mail: paul.linux.lin(at)gmail.com
I doubt hyperinflation will happen because I don't think the US government is dumb enough to print money directly. However, high inflation seems possible because the Fed may raise the interest rate too late.
Based on my observations on the real estate bubble, I think it is too similar to the Japanese bubble in the 1990's.
In 1990's, Japan went through deflation, so for this reason, it is possible the US economy will go through the same thing. If this scenario becomes true, then China will certainly benefit because China holds a lot of US government bonds. Many Asian economies will benefit also, so I'm betting on Asia for now.
I have problems with Mauldin's conclusion which states a tipping point of deficit being 40% of the expenditure. That number may not apply to the situation in the US. Credit analysis is much more complicated than that. One number alone is not a good assessment on the ability of the US government to pay its own debts. |
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| Sunday, October 18, 2009 at 0:59:39 mst
Comment ID: #3
Name: Park Jennings
E-mail: ceasar911(at)yahoo.com
Paul Lin said: "I don't think the US government is dumb enough to print money directly."
Interesting; I don't think they have a choice.
Of the 28 hyperinflation episodes mentioned (Zimbabwe's got some Hope 'n Change: everyone there's now a billionaire! [ht the ppl's cube]), exactly how many of those countries' leaders do you think hadn't heard of the prior hyperinflation episodes? Everyone *KNOWS* it's dumb and doesn't work. Then again, everyone also knows that price/rent controls don't work and are dumb, but they're still epically widespread...
The point is, when the national debt hits umpteen-trillion-gazillion dollars, people will stop believing the US Government will be able to repay it and they won't be able to "roll over" the debt any more. The US federal government will then actually have to pay, in cash, like any other debtor. Then what is Congress going to do? There are only 2 possible options: they either pay it or they don't, i.e. hyperinflate or repudiate the debt. Repudiation of the US federal debt would be a repudiation of the US dollar because the USD is a fiat currency. It will become literally worthless because the only reason it has value is because it's what the US government demands people use when dealing with it (personally, I think the fact that personal income taxes must be paid in USD, on penalty of federal prison, is the only reason the USD still exists). The US will cease to be a monetary economy, at least temporarily. Society will collapse as everyone refuses to trade in dollars and governments will be unable to pay police, etc. The other option is hyperinflation.
All of this is caused by an inability to deal with the laws of causality, where our government has sought to confer value without having any real value to confer. You can't get something from nothing, and when the creditors of the US Government find that out the hard way there will be hell to pay. |
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| Tuesday, October 20, 2009 at 5:06:27 mst
Comment ID: #4
Name: Paul Lin
E-mail: paul.linux.lin(at)gmail.com
Park Jennings:
In the 28 hyperinflation episodes, those governments has a central bank run by stupid people with no financial background. You cannot equate people like that with those working for the Federal Reserve.
It is true that USD is the legal tender within the US border, but there is no way for the government to stop people from using a foreign currency. The only problem is that most Americans are "brainwashed" to use USD all the time for patriotic reasons. Personally, I think it's dumb. A true capitalist exchange value for value and does not distinguish a domestic good from a foreign one, currency included.
There is one thing that is absurd in the US, which is that people cannot open a foreign currency account in any bank. If I want to hold a foreign currency, I will have to travel to another country and do it there. I think this inconvenience is the root cause of the reason why the US government is able to maintain its monopoly on currency usage.
Just one more point, if you are concerned with depreciating USD, you can buy foreign currencies. I recommend Asian currencies because they are net exporters. |
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| Tuesday, October 20, 2009 at 20:46:27 mst
Comment ID: #5
Name: Park Jennings
E-mail: ceasar911(at)yahoo.com
Paul Lin:
I don't think your assertion that all the people in those central banks "were just stupid" is very accurate. While I have no particularized knowledge of those 28 cases, I would venture a guess based on the typical educational background of foreign diplomats that most of the finance ministers of those countries were educated at European or American universities. My main point here is that they KNEW about the prior hyperinflation, they knew what would happen, but they still did it; they even persisted in hyperinflation when they could actually see the effects of the hyperinflation (months, sometimes years of active inflation). The reason that I think they did it is because, as I said above, their only choices are to pay their debts (with hyperinflated dollars), or repudiate them and destroy their capital market and currency.
As for the government stopping people from using foreign currency, they kinda do. Taxes must be paid in USD, and pretty much every transaction is taxed. When you go to buy a gallon of gasoline with Euros, silver bars, or Pepsi points, you still owe old Uncle Sam the $1.50 or whatever it is per gallon - in USD. True, the gas station might just take your transfer and convert it to USD to pay the tax, but that would be a huge hassle and expensive. Even if it's worth all the hassle, there has to be someone who the gas station can trade your payment to for USD, again requiring lots of financial institutions to have lots of dollars. Therefore, it just makes sense to only accept USD.
As for buying Asian currencies because they are net exporters, I'd like to point out that they are net exporters... to the US. So if the US economy does a nose dive, they're going to come tumbling after. |
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| Wednesday, October 21, 2009 at 1:58:53 mst
Comment ID: #6
Name: Paul Lin
E-mail: paul.linux.lin(at)gmail.com
Park Jennings:
I think the reason why the central banks still printed money even though they knew about the effects of hyperinflation is they are forced to do it for political reasons by a dictator - either in form of a person or a majority. The US is the constitutional republic, which has mechanisms to prevent it from happening. In addition to that, if the US government prints money, there are financial defense mechanisms to punish the government, e.g. shorting bonds and buying options, buying and selling credit default swaps, deliberate bankruptcies, deliberately not paying taxes (you owe a lot less when there is a hyperinflation)...
Many central banks of Asian countries also hold a lot of gold. If USD collapses, they will survive. |
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