The lovely Miss Puddy accompanied me to the movies a few weeks ago for a viewing of "Unstoppable" with Denzel Washington. In the movie, Washington, a 30-year veteran locomotive engineer saves the day by not listening to the bureaucracy and trusting his instinct honed by years on the job. It is the story of a simple journeyman veteran who knows his trade well from 30 years on the job who saves the day. Washington represents the typical workingman who is fast disappearing in this country. He plays a blue-collar professional who has dedicated his entire working life to his career. I read the other day that the average young person entering the workforce today will have three different careers throughout his working life - not three different jobs, but three different vocations. How can anyone obtain proficiency in three different careers in one lifetime? I feel that if this country's manufacturing/mining/farming economy is to be saved, it will be by people like Washington's character. Even the ordinary newspaper delivery guy can take pride in his job. Google David Bond's short article, "The Dog Biscuit Miracle" and see how any job can be done with dignity and pride.
Unfortunately, everyone seems to be looking for Uncle Sam to be the hero and to rush in and save the day. Our old uncle is in poor shape and is hardly able to help anyone these days.
"The nation is badly insolvent and lacks legitimate income sources, something economists fail to grasp." ~ Jim Willie
"The US has lost 42,400 factories since 2001. The US has lost 32% of its manufacturing jobs since 2000." ~ Peter Grandich
We have allowed multi-national corporations to move our factories offshore and left our markets wide open. We were sold the idea that "we" could "think" and "they" could "work". The idea that factories and mines were dirty and should be moved offshore, while we could operate clean financial services, distribution and other service industry jobs was sold to us. We were taught that our economy was based on consumption. The Federal Reserve drove down interest rates and encouraged everyone to mine the equity out of their homes and to spend our accumulated wealth on new cars, vacations and other mindless consumer goods.
And don't just blame the democrats. Phil Gram's wife worked hard to repeal the Glass-Stengel Act that allowed banks to operate in other financial markets. You would have thought we learned something from the 1930's. All through the last 30 years, our local banks have been gutted and monster national and international banks have taken over the local bank branch in your neighborhood. There was a reason that the very special business of banking with all its special privileges was only allowed to operate locally on a county basis just a few decades ago. A banker from 1980 looking at today's mess would be astounded at what has happened. The gradual changes in banking over the past decades have been a travesty.
The Federal Reserve is now printing money with QE I (just creating money out of thin air; counterfeiting), QE II and QE to infinity. There will be no end to monetizing the debt. Stock outflows by investors have been high over the past year. Now bond outflows are alarming. The fed is quickly becoming the buyer of last resort for US bonds.
David Stockman says that our $800 billion defense and homeland security establishment will be forced to de-mobilize by the world bond market.
Bond vigilantes will force the US to finally balance their budget. The US cannot afford higher interest rates. The only other option is default. The Fed cannot monetize the debt forever without the dollar falling apart (a default on the dollar itself).
"Any bartender could explain the situation. Bernanke is watering down the whiskey." ~ Bill Bonner
We are now facing a deadline with the debt ceiling. Tim Geithner says if the debt ceiling is not raised soon the US will begin to default on its obligations. Of course, they have to raise the debt ceiling. Otherwise, they have to cut spending by 1/3rd and balance the budget immediately. Congress doesn't have the will to cut that deeply - YET. I predict there will be much posturing and many fine speeches, but in the end they will raise the debt ceiling.
Many government agencies (BLS in particular) claim that the economy is recovering and things will be better soon. I am afraid they are deluded (probably just lying but I will give them the benefit of the doubt and politely say they are crazy). Inflation is coming in things we must import, which is a long list these days. We used to feed the world and now we must import some of our own food. Inflation in food, energy and commodities are here now and will get worse. The BLS (Bureau of Labor Statistics, Dept of Labor) claims inflation is in the low single digits, but ask anyone who is writing checks to support a family. They will tell you their cost of living is up over 10% a year. Retail sales appear to be better, but a deeper look at the market numbers show high end goods purchased by the rich are doing well while Wal-Mart sales languish. The middle class is getting squeezed. Howard Davidowitz says there is 21 SF of retail space for every man, woman and child in the US. This is twice the usual amount. Internet sales will make the usual amount too high. Those retail malls that are marginal now will not make it far into the future. Avoid REITs (Real Estate Investment Trusts) for retail commercial real estate.
This is not just a depression like the 1930's, it is a debt collapse AND a currency collapse (our currency is now a monetized debt unit). Think more 1781 and 1865 when the continental dollar collapsed in the 13 colonies and when the CSA notes collapsed in the South at the end of the War Between the States. Until the debt is washed out, written down or forgiven the economy will remain anemic and will not recover. Transferring the debt from the banks to the government will not fix the problem. The debt is still too great. We must either cast off the debt or be slaves to it for the next several generations.
So, what should the average citizen of these great United States do at this point? Avoid municipal bonds like the plague. They will default first. Avoid long-term US bonds as well. Short-term US notes (6 months or less) are probably okay for now, but keep your finger on the sell trigger. Cut back on all expenses and raise cash. Live BELOW your means. Save cash and hedge that cash with precious metals. Keep your cash in local credit unions or locally owned banks. Check their ratings and make sure you are saving in the safest institutions in your area. Cut up those credit cards and quit using them. Pay cash for your purchases. Keep two months' of cash on hand in an emergency fund. Invest your precious metals 50% in gold and 50% in silver. Invest in physical precious metals when possible. For small investors, a good investment is to simply purchase six months of non-perishable supplies that they normally use every day. They will probably cost five to ten percent more in six months (not a bad return). Plant a garden or support a local farmer (or both).
"We live in an awkward time, too late to change course, but too early to line up and shoot those responsible." ~ Doug Casey
I will close with another movie. "The Voyage of the Dawn Treader" by C.S. Lewis is billed as a children's story but it is much more than that. In the movie, the magician tells the characters, "You're going to be tempted, and you've got to defeat the darkness within before you are able to defeat the darkness without." Bob Beltz of Walden Media says, "Lewis tells us in his story that God exists and evil exists and there's great conflict between the forces of good and evil, and ultimately God wins."
Greed has caused most of our financial problems we now face. We must overcome our own internal demons first. We must prepare for a great conflict. Like C.S. Lewis, I have no doubt of the eventual outcome.
"We have met the enemy and he is us." ~ Pogo
Silver Trading Company
Jan 19, 2011