Monday, January 19, 2009

The Climax of the Fall is Now in View

I am writing this post with a profound sense of unreality nagging at me. When I first wrote about the UK economy (you may want to read here for a summary of where I started), I was profoundly worried, and could see that we were heading towards a massive economic shock. A little while later the realisation that the UK was effectively bankrupt struck me, followed by the realisation that the US was in the same position.

When I first started writing, I could see no way of avoiding crisis, but could at least see a way to minimise the crisis, and plant the seeds for a future recovery. As the crisis has progressed, I have been horrified at the bank bailouts, more recently horrified at the jump into quasi-Keynesian policy, and even more horrified that quantitative easing has been proposed to finance this lunacy. Such actions, as I have argued over many posts, will serve only to magnify the scale of the economic destruction to levels that I had never imagined were possible. The cure to the disease has been to take a hefty dose of poison.

In the newspapers we can read endless reports about the 'financial crisis', which is of itself a misnomer. This is not a financial crisis, but an economic crisis, of which the banking system failures are just one symptom. Throughout this blog I have kept in mind very simple principles and applied them to the state of the world economy. I realised that the key to all of the problems is that the world had entered a period of hyper-competition. The world had changed, and countries like the UK and US complacently stood still, resting on their laurels, with no real attempt to adapt to the changes in the world.

Instead of adaptation, instead of confronting change, we have seen ever greater attempts to bury the reality that underlies this crisis. The reality is that many of the countries in the West, and I refer in particular to the US and UK, are unfit for the competition. Putting it in both simple and accurate terms - we do not produce enough value of goods and services to support our current lifestyles.

This is not a new situation, but has been developing for a long, long time. All that has happened is that the reality of the situation has been obscured from us through a series of bubbles. The dotcom bubble, the telecoms bubble, the stock market bubble, the housing bubble and the credit bubble. One after another they have come, but the greatest bubble of all will be the final bubble to burst - and it will explode our complacency.

This final bubble is the currency bubble. In the case of the £GB it has been rapidly deflating, but is now set to burst. In the case of the $US, once it starts to deflate, it will pop violently.

Of all the factors that have hid our underlying economic fragility, the currency bubble is probably the most significant. In crude terms, those who have been selling all the commodities, goods and services to us have been lending us the money to buy their output. As a result, they have amassed huge amounts of our currencies, and are now starting to realise that the paper they exchanged for goods has no meaningful underlying value.

Why did it all last as long? Part of the reason is that there was an ongoing demand for the paper, so that it could be used to lend back to us. Part of it was just a false belief in the value of the paper, an illusion.

The illusion was like a magician who, with the clever use of mirrors, manages to hide an elephant on the stage. The elephant that has been hidden is that we just can not compete, do not produce enough of value. In the meantime, the rest of the world looked on in wonder at what appeared to be the miracle of our wealthy economies. We seemed to just keep growing, becoming ever more wealthy, ever more indulged in the luxury of comfortable lives. It all seemed to be inevitable, and it was believed by many that this was our natural state.

This grand illusion meant that the rest of the world looked on in wonder at our wealth and power, and continued to take our worthless paper. In fact, the demand for the paper seemed to grow endlessly, and as the demand increased, so did the issuance of paper from our governments. The result is that more and more of this useless paper has been amassing in the treasuries of our creditors, such that there are now mountains of it.

And here comes the problem. What happens when someone tries to use the paper to buy something from us?

It is here that the light finally shines on the illusion, and reveals the mirrors that hid the elephant from sight. It is at this point in time that the realisation occurs to our creditor that we just do not produce enough for the paper to be exchanged for. To mix metaphors, they can come to the shop, but there is very little on the shelves that they want to buy. Sure, they can rummage around and find a few useful items here and there, but they will be left with a mass of paper still stuffed in their pockets, wondering how it might be used.

The truth is; the paper can not find a use, and it is therefore without value.

When I first started writing on the economic crisis, I saw a window of opportunity. If we could just grasp the reality that we were not competing, that we were not producing enough goods and service to support our lifestyles, we could start to turn the situation around. It was a question of us popping the bubble of our own illusions and seeing the result of our own conjuring. The trouble was that, if we saw the nature of our own conjuring, we would have to face the reality that there was, and is, no magic. It would mean that we would have to accept that all that we had come to expect was no longer going to be delivered. We were much poorer than we imagined. It would mean that we would have to accept reform, changes to our economy that would have made our lives that much less comfortable.

Such a reform might have persuaded our creditors that it might be worth hanging on to our paper. The paper might not have much use now, not much value at this moment in time, but they could at least see the potential for value in the future. It was an opportunity to save ourselves, an opportunity to buy time.

Instead of this, the answer of both the UK and US governments has been to seek to maintain the illusion, even as the lights shining on the stage are revealing the mirrors. The lights are brightening and are revealing mirrors everywhere, whether in the bailout of Citibank, the collapse of the financial position of RBS, the rising unemployment, the contraction in what remains of our manufacturing, the collapsing retail and service industries. In amongst all of this collapse, the relentless march of imports continues as a bright light upon our inadequacies.

Above all, the desperate measures of governments shine the brightest light of all. In their increasingly frantic attempts to rescue the illusion, they just serve to highlight to all the nature of the illusion itself. The printing of more paper is like trying to sneak another mirror onto a stage on which the lights are already shining - the illusion is already revealed.

Bit by bit, we are now seeing the result of the loss of belief. The rich are starting to move their money into gold. They are not even holding gold on paper, but holding gold as 'stuff' that can be physically held in their hands. China, one of our former creditors, has pointed that it will direct its sovereign wealth towards emerging markets. Even if we take an example of news today, we can see that the Abu Dhabi sovereign wealth fund are pulling out of a major infrastructure project in the UK:
“The economics of this project should be revisited,” Ziad Tassabehji, the director of innovation and investments for Masdar, said at a renewable energy conference in Abu Dhabi. “We are working with our partners to study the feasibility of the project.”
The economics of the project should be revisited. In that telling phrase, we can see the end. All across the world, as I predicted would happen, our creditors are 'revisiting the economics' and they want no more of our paper.

It is at this point that the bubble starts to burst. The demand for the paper was what maintained the value of the paper. When the demand disappears, the paper becomes useless, as the question arises as to what that paper might be used for. There are already mountains of it in circulation, and nobody wants any more. At just this moment in time, the governments are issuing ever more paper.....

So now we come to the crunch. We have been living on the labour of others by exchanging useless paper for goods and services. What are we going to use for those imports now? If nobody want to exchange their goods and services for our paper, what can we do? It is here that we come to the real problem.

Not only do we have too little to exchange for those goods and services, there is also a huge stock of paper in relation to the goods and services available for exchange. As those that hold the paper realise that the paper has little value, they will seek to exchange the paper as quickly as possible, before the illusion is fully revealed. They will try to exchange the paper whilst is still appears to have real value.

The trouble is that, as soon as one creditor starts everybody else will follow in a mad rush to unload the paper. More and more of the paper will be dumped ever more quickly into the market, and the faster it is dumped, the lower the value of the paper will fall. In this situation there will be ever more paper made available to chase a limited supply of goods and services.

Welcome to currency collapse and hyper-inflation.

As the currencies collapse, the goods and services that are imported will shoot up in price. These are the goods and services which we have been exchanging for worthless paper - goods and services that we have been obtaining for very little in return. It is this massive importation of the effectively subsidised labour of others that will suddenly disappear. We will be left, in practical terms, with the fruits of our own labour and will find how little fruit that labour produces.

All the while this is happening, governments will fall into crisis, and be faced with a situation spiralling relentlessly down. Their revenues will be collapsing, their expenditures escalating, but with no overseas credit available to rescue them from crisis. All the while the bills need to be paid. The military, the police, the health services, the unemployment benefits, the wages of the civil servants, the pensions and so it goes on. How will they pay for all of these people, all of these services?

For years they have been paying for all of this with borrowing. Even in the 'good times' they could not afford to pay the costs of government. In a situation of greater expenses, less revenue, and the clamour for ever more bailouts, how can they possibly pay for all of this?

The answer is the printing press. They will have no choice but to print money, and another accelerator of hyper-inflation will kick in.

I think that the path is now set, and there is no climbing off the path. All that remains now is the question of the 'push', of what will start this collapse. In an article here, Eric deCarbonnel thinks that China will precipitate the crash. I hesitate to summarise the article, which offers a sophisticated and plausible case. However, my scenario (and it is no more than that) is as follows:

One possibility is that Ireland may be the first to fall, as they are in deep, deep trouble. There is already one prominent commentator talking of default on debt, and the prospect of a rash of defaults across Southern Europe. Although this is just one commentator, there are solid reasons for why Ireland is so vulnerable, in particular a very nasty variant of the credit bubble. Alternatively, confidence in the UK economy is leeching away at an accelerating pace. The EU commissioner's report on the UK is just one of increasingly pessimistic forecasts for the prospects of the UK. On top of this, the UK government continues to stretch itself ever thinner, seeks to prop up ever larger sections of the economy, and all to no avail. All the time that is going on, the words risk will be flashing in the minds of the UK's creditors.

I have had one commentator suggest that the US will be the first to fall, and the commentator presents a convincing argument. However, I would argue that the illusion of the US is the most deeply ingrained, and therefore the hardest to shatter. There is even the factor of a 'good will' and optimism bounce of Barack Obama's new presidency as a potential pause for breath. What I am saying is that the economic fundamentals are only part of the equation, as we are also dealing in belief.

From my point of view, it will be the collapse of the UK economy that will be needed to shatter the belief in the US economy, and will be the final impetus to push the $US over the edge. Such a collapse might even see a brief run to safety into the $US, before the realisation hits that it is a run into danger.

However, this is just thinking of orders of collapse, and such scenarios are about emotional reaction and belief, as much as they are about economics. Such reactions are difficult to predict, and there is always the influence of events, such as badly worded official statement or any other small trigger. In the current situation, small events have potential for major outcomes.

Whatever the final push, I now believe that we are on the edge and, as such, I will brave a timescale. I would now say with considerable confidence that we are within three months of the plunge. By plunge, I mean the serious collapse in either the $US or the £GB, either of which will shortly after precipitate the collapse of the other. I am not tempted to say how far they will fall, but it will be a dramatic fall over a period of about two weeks, sufficient that we will all look on in complete shock. I am not talking about 10% but tens of percent. Once the sell-off starts, I am not sure where it will stop.

I have always been a 'doomster', and taken a negative view on the prospects for anything but deep, deep crisis. To date, the events that have occurred have largely agreed with such a pessimistic outlook. In this case I sincerely hope that I am wrong, and that I will be eating these words in three months time. My worry is that this will not be the case.....


  1. So with the climax in sight what do we who are stuck in the UK and the US do to protect ourselves and our families? Currency hedges? Gold? If the wealthy are so fearful as to only want their gold in a form that they can carry what can a person of moderate means do to lessen the damage?

    I have been following your blog closely as it provides some of the best discourse anywhere on the web in regards to our current situation. While I feel like I have a fair grasp of the theory of it all I find that I am perplexed at what to do in the practical sense -- in the here and now as it were. How about a practical post while there is still some time to potentially react? Does anyone have links or pointers to sites that discuss such short term tactics?


  2. A good article; I think this is only one scenario, but not unlikely. The world will realise the danger internationally of allowing the UK to sink. However the IMF are passing the hat round to raise £150bn, it seems difficult to imagine that they are capable of raising enough to keep the UK afloat for long.

    I enjoyed the google ad that appeared directly underneath your post (see below), I recommend HMG put in an application double quick!

    "Money problems? Solve your Debt Problems and Write Off All The Debt You Can't Afford."

  3. CE you have surpassed yourself. I have read the blog since first directed by a post of yours on Comment-Is-Free back in October and I think this is your best article, full of nuggets of clarity and accuracy. What a pity one cannot trade them!

    Here in Philippines I am interested in £, $ and peso and have watched the £ go from $1.47 last night to less than $1.42 now. Looks like it has already hit the fan.

    Good job we purchased that land when we did. At least it grows things.

  4. My comment does not relate to the blog, but I'll make it unway.

    The UK money supply, by all accounts, nearly tripled between 1997 and 2007. Thus the money supply has increased by nearly 200%.

    Yet, according to the UK CPI (Consumer Price Index), £1.00 in 1997 was equivalent to £1.16 in 2007. Thus there has been an inflation of 16% in prices from 1997 until 2007. But the money supply went up by about 200%. So what’s going on? Clearly, we did not get price inflation of 200% simply because the government increased the money supply by that amount.

  5. I used to think my pessimism's coincidence with reality was... well, a coincidence! Then I started reading this blog and the mechanics of the crisis were revealed.

    Thank you Cynicus for your efforts in recent months. Even if there are few choices remaining, you have informed them.

  6. I just thought I would express my appreciation for the kind comments that have been expressed. They come as a suprise, but are very much appreciated.

    Everson: I am very hesitant to make any practical recommendations, but hope that what I am discussing naturally points in some directions. I have suggested gold in the past, but with caveats that I will not repeat here. I'm afraid, whichever way you turn, there is significant risk at the moment.

    On the one hand you have the currency risks, inflation risks, and on the other big political risks and, **in the event that I am wrong**, gold will prove to be a bubble (political risk e.g. Asia).

    David H: I think that, in one of the articles I have linked to in the post, I asked the question as to who would be able to finance the IMF?? It has long been one of the concerns, that there will no one to bail out the 'bailouter'.

    The IMF is largely funded by the US and other OECD countries, but they are the ones in trouble....

    Lord Keynes: There **has** been inflation, but it just does not appear in the figures - house price inflation. If you trawl through my early posts I wrote about how odd it was that house price inflation does not appear in the inflation figures.

    Another factor is that inflation results from too much money chasing the same 'things'. As fast as the supply of money has increased, the emerging markets have been adding to production of goods, such that the prices have not increased.The supply of goods has increased.

    As such there has been a mechanism that has sterilised (eaten up, if you prefer) the additional money, and another mechanism holding down the price of goods (and wages through labour competition).

    The mystery is why anyone would not measure the single largest item of expenditure for most individuals in inflation.....

    Fatticus: Thanks. I guess you have noted my comments regarding measuring the 'main' currencies against a broader range of currencies, rather than just comparing one with another.

  7. Cynicus,

    In line with everyone else I must say a brilliant article.

    Check out this brilliant song (I Want My Bailout Money) I saw posted as a comment after a Telegraph article:

  8. Thank you, Mark, for this your pièce de résistance that, I must admit, makes harrowing reading.

    Whether it is Ireland or China that facilitaes the final solution to this mess, it matters not. The fact is that there are going to be fundamental and massive changes to our way of life and we had better get used to it sooner rather than later.

    That having been said and having fastidiously followed your blog, I feel I am better placed psychologically to deal with things that are to come.

    May I be the first to suggest that you become President (or, at the very least, Financial Secretary) in any order that emerges from the chaos in coming months?

  9. CE: I came across your blog about 6 months when I Googled a comment on the Spectator site, and have been reading determinedly ever since. It's excellent stuff, articulated fluently - thought-provoking, even if the thoughts provoked are deeply unpleasant and depressing.

    What in practical terms do you think the implications of hyper-inflation and/or depflation will be for the man of the Clapham omnibus - a guy with a mortgage, modest savings and a job in a service-related industry? Is there a possibility that if the shock is sufficiently massive it will be paradoxically light? ie the banks collapse, their debts (eg owners) are bought out, the institutions re-form under new (Middle Eastern? Chinese? Indian?) ownership, and carry on normal jogging...

    Or is this too big a question?

  10. I agree this is the best article in ages, and that's hitting a high standard for you because your articles are almost always excellent.

    Three months? I hope you're wrong. I wonder what the consequences of it are if you are correct? Civil unrest? Rationing? Mass strikes? Power outages?

  11. Maybe this question is stupid,

    If the government is printing money and giving it to the banks, but the banks don't circulate it (won't lend) isn't this money irrelevant in causing inflation?

  12. Hi CE, I have been reading all your posts and like everyone else, and you yourself, I cannot but agree that the western world is going down hard. With its fingers in its ears saying "Lalalalalala I'm not listening".

    One point to raise - in your discussion of what happens when no one is willing to lend money to the west to maintain its profligate lifestyle, you may have intentionally left out a horrifying option that I immediately thought of.


    All that bubble spending has, in the US (N.B. unlike the UK), gone to finance the most powerful military establishment humanity has ever seen. Despite the failure of Iraq, would a desperate USA not unleash hell on a reluctant Asia to obtain more money? At least the savvy Chinese - being a nuclear power - would be able to play a game of brinksmanship with them, but what about, say, the Saudis? Japan? The EU other than nuclear France?

    I fear a serious period of international conflict as well as domestic anarchy within western countries.

  13. Great article thanks! - just found your blog too and being a long time 'observer' like yourself you might like plus search on the 'web bot predictions' on youtube. Interesting reading/listening, the both of them.

    I've also found Roubini and Schiff (and others of a similar persuasion to have caught this situation we're in almost perfectly i.e. predictions since 2005 onwards). I also found it a little odd Buffet wasn't as bearish as I thought he'd be even though his 7 signs of a crash have been unraveling since 2005.

    I left the UK in 2005 because of the promise of what is happening now, I've been buying long lasting food, gold and silver too for the last year.

    Good luck to us all this coming year!

  14. Cynicus, adding to all the other comments I would lilke to express my ongoing appreciation for the insight and clarity of your blog. As a merely comfortable (at present) UK resident rather than a rich one I see little alternative to 'hanging on in quiet desperation'.

    One thing continues to puzzle me though, and perhaps you can see your way to explaining it. China is our major creditor, but they have been lending us the money to buy that which they have produced. As we cannot repay the money, they have effectively given us the fruits of their labour. Moreover as we (i.e. the west) are their main market they have no one else at present to sell to. Is China then in just as dire straits as we are?

    The answer to my question is maybe not. I see one possible 'New World Order' as some form of Asian imperialism taking raw materials from those countries that are still rich in commodities. In this scenario the British Isles becomes a marginalised irrelevance subsisting as best we can and trying to pull ourselves up by our own bootsraps. This would indeed be desperate as we have spent the last forty years destroying nearly all our industry and much of our agriculture in order to replace it with a thin-air economy based on debt. Despite sitting on massive coal reserves we are not even self sufficient in energy and yet we hardly dare to touch our coal due to anxiety (exagerated?) about global warming.

    Does any of this make sense?

  15. I will try to do a follow on post to answer some of these questions but, in the meantime, a quick response to Lord Sidcup's comment/question.

    The banks are not sitting on the cash, but are buying so called safe assets, such as....government bonds. As such, the money is created/borrowed by government, lent to the banks, who then lend to government. It's a merry-go-round....

    Jonny - an interesting link. I have never seen economics rap before!

  16. Excellent article.

    I came to the same conclusions about six months ago. When I saw the bailout happen, I couldn't understand why they were adding fuel to the fire. There is now an inescapable conclusion that this entire crisis (including the currency crisis about to occur) has been engineered for reasons that are simply unfathomable to me. I say that, because the guys doing these bailouts must know that they are nuking the currencies.

    I think the degree of severity of this crisis is being way understated, however. Hyperinflation does not move currency values by 10% or tens of percent, as you posted in your blog. Hyperinflation reduces currencies by, effectively, 100%. Look to Germany after WWI or Zimbabwe now with their trillion dollar bills to see the results of hyperinflation. If the pound or the dollar hyper-inflate, it will take $100,000 dollars to fill your car up at the gas station, all of the banks will be out of business, the US stock markets will close down (public companies will buy back their stock with pennies of other currencies and retreat into privacy) and so forth, ...

    Everyone will be penniless. Farmers will be rich, because they grow food and everyone will be willing to trade their jewelry and other hard (hard=real) assets for food.

    In this environment, the world will break out into WWIII. It is inescapable and probably what is being engineered.

    God bless everyone. Good luck to you all.

  17. CE,

    Just a short comment on the McWilliams article: McWilliams is seriously overrated. Caution is advised.

    Unfortunately Ireland is slowly sinking into the slurry! The only process that will slow our immersion is a general default of domestic debt; ie. mortgage, credit card, auto, etc., and similar for commercial real estate. Each of these is like a lead weight around our (taxpayers) necks. Have you any comments on the possible outcomes of such a Jubilee?

    Brian P

  18. From Lord Patel :

    Point 1 . Every commentator overlooks the fact that the mendacious bastards that run the large banks have simply lied. They have produced fraudulent balance sheets with overdeclared assets for a decade.

    This has produced profits from thin air, distributed as divvies and bonuses to the wuderkind who have maintained the monetary ilusion.

    I notice that Barclays deep, deep, deep in the doo doo lost the estimable srvices of their modeslty overpaid American MD of Barcap etc., etc. miracle man Goodwin had been shredded after trousering a final £23 MN bonus from RBS before they announced their eye watering results,etc.,

    Point 2 . Electricity from being 100% relian ton indigineous energy supplies , oil, coal, gas, nuclear 6 years ago in 2012 we will import 70-80% of our energy (depending on gas run off how long the antique nuke plants last and if the EU ban on our coal fired plants is not ignored).

    We are as we speak running on stored gas for about 7-10 days supply.

  19. A couple of thought on wars and rumours of wars. Sorry if I bot on, especially as it's not my blog...

    Notwithstanding the Chomsky-Moore schools of thought, the western democracies have not fought previous large-scale wars in order to bolster their economies or to capture territory for material gain. Partly as a result of post-war statism, the withering of military capacity even in France and the UK, and the US underwriting the defence of the Free World, the pacifist habit is now so deeply ingrained in the western psyche that it is effectively impossible to envisage a circumstance, even including national survival, for which a military solution would be accepted - particularly, given the controversy over the casus belli in Iraq, pre-emptively.

    Additionally, wars need not only kit but manpower. Since the current crisis is very clearly rooted in incompetence and mendacity, and given the traction of the left-liberal anti-capitalist and 'anti-bellicist' line, I very much doubt that even the US would be able to find sufficient manpower to prosecute a major war of territorial conquest. It would simply be impossible for a democracy rooted in anti-imperialism to motivate its citizens to conquer territory. Most modern military recruiting explicitly plays down the 'kinetic' aspect of soldiering, and majors on the 'armed NGO' side: bringing relief to frightened women in Kabul etc. Whatever you think of the wars in Iraq and Afghanistan, this was *not* the primary purpose, nor the motivation of the young men who executed the campaigns. And even if they could mobilise to create the size of armies needed to undertake any war of conquest, it would be a massively difficult task to train and integrate them. This would require an order of years, not months, even for the US forces' active reserves.

    That is not to say that the US's overseas adventures do not generate commercial advantage for big companies. But so did WWII.

    Civil society in the core north Atlantic countries is pretty well established, and the peaceful transition of governments is still far more likely than civil unrest or some kind of coup. Obama's election, whether or not it steadies the markets, will probably buy the US a period of grace; a GE in the UK likewise.

    Again, this is not to say that there will not be major social tensions. I'm a security risk analysis, and have been highlighting the security consequences of the recession for some time. A lot of the indicators are already there: there's an increasing level of public sector activism across Europe; Russia has formed 'anti-crisis' police units, and has stepped up its constraints on political opposition; there have been violent protests in the more - ahem - volatile Mediterranean countries, but protests in Iceland - Iceland!- have turned violent; there's been a rise in racist attacks in central and eastern Europe, and union action by immigrant workers against discriminatory working practices in central Asia; anecdotal evidence of increasing instances of petty street crime against foreign travellers across the same region...

    I think all these things will affect the UK to a greater or lesser extent in the next few years; my country home is well-stocked with tinned food and candles.

  20. I worked through the period of inflation in the 1970s. This was also the result of a period of Labour government. The economy was a disaster with Britain going cap in hand to the IMF for funding.

    The difference this time is that the general feeling in the country is less polarised. In the seventies half the population thought Labour were left-wing maniacs who were determined to fulfill the communist manifesto by nationalising banks and drafting the population into 'industrial armies'. Talk about paranoia.

    Nowadays the population believes that Labour are a party of the centre so we do not need to fear that they might dismantle the pillars of our constitution by removing habeas corpus or removing the effective vetting of legislation by the upper house. There is no danger of them drafting the young unemployed into forced labour at less than the minimum wage.

    In the seventies people were genuinely afraid that we would end up with a far left country allied to the Soviet Union in which the government would control all communications (in modern terms this would be like storing all emails or monitoring all mobiles!) and slowly make it so that their agents could take out opponents (though this would have required the abolition of coroner's powers).

    Thank goodness we don't need to worry about such things any more and can just let the government "save the world" as part of its five year plan.

  21. Cynicus:

    You are saying what I have said for many years now....that someday, the nations sending us REAL STUFF would wake up to the fact we have been paying with paper promises, and come to realize it was all a con job.

    Remember when the Chinese wanted to buy UNOCAL ( United Oil of California ) and Congress said "no" ? That alone should have been a HUGE wake up call to them...."we will buy your stuff with our paper, but DON'T think you can come buy something valuable here with the same paper"....ahahahahaaa.....what a slap in the face ! I would have dumped a few hundred billion in treasuries on the market just for spite had I been them.

    Yeah folks....this is coming. I can't put a time line on it, but it IS coming. And Cynicus isn't even coming close to painting how bad the picture is going to be in terms of the social chaos that will follow.

    The bigger you are, the harder, and farther, you have to fall. If you were living in Zimbabwe in a grass hut, eating bugs and tree bark before hyperinflation set in, it probably didn't affect you all that much. But picture the 'average' American, totally dependent on 'money' to buy food, energy, etc to keep them alive....then destroy the 'money' and think about the results.

    Food, ( and the ability to keep producing ) gold, guns.....don't let the next few years catch you without them.

    Living in the back woods and glad of it,


  22. I dont know if anybody here reads Guido Fawkes' Blog, but this old quote was there today. I thought you might all enjoy it.

    Ludwig von Mises wrote in Human Action (1949)
    "There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of voluntary abandonment of further credit expansion, or later as final and total catastrophe of the currency system involved."

  23. Yes, we're dealing with belief. So please,take a deep breath and a step back and consider this proposition: we'll muddle through.

    Of course, the pound is being sunk. So what? I was around in 1971 when the Bretton Woods I was in its death throes and the dollar was toilet tissue. Same thing again in '80. Financial Armaggeddon is a recurrent phenomenon, not a one-off apocalypse.

    The fudge factor inherent in paper money is huge. To someone other than an analyst of your caliber, though, it makes little different whether a bank is technically insolvent or perfectly healthy - as long as the teller window stays open. To an entrepreneur, the possibility of a hyperinflation in a year or two is less important than the price and availability of capital, and the sense that money can be made.

    Certainly, the UK leads the way in misguided bailouts that will tank the currency and yes, the stock market with it. But finance is a relativistic universe. Short of war or revolution,prices rebound.

    In fact, wrongheaded as it is economically, the bailout impulse can be seen as an attempt to preserve as much of the status quo as can be preserved - and that includes the assumption that business should continue to function as it has, and that people should remain employed.

    As long as people do not lose their sense, the situation will be resolved. The solution is easy: expose the bad debts, bankrupt the relevant creditors. Getting there will be hard, because the relevant creditors have disproportionate influence over the governors. But if the world just keeps its head, we'll get through this. The average person will lose more than he should; the banker will not lose as much as he should. But we'll make it.

  24. Wow, nice information you got here, i hope that you can elaborate more on sidebar topics. Because one of my blog have some problem on that. So if you can tell me how to get more topics, it would be nice !


  25. Interesting post, glad to have found your blog.

    Surely one of the obvious things that could/should happen is the wiping of debtors' debts on a much wider scale than has currently occurred. Something reminiscient of the Great Depression. At least when creditors are no longer creditors and debtors are no longer debtors, we'll have some sort of clean slate to start with.

    Sorry if you've covered this in previous posts, I haven't had time to read through everything properly.

  26. Lance Uppercut:

    The people of the US may possess an anti-imperial mindset but the government certainly does not. The US govt knows it has to fight an ‘evil’ enemy to get the public to support a military campaign. It has exaggerated/manufactured enemies towards this aim for decades.

    Given Cynicus' recent post on the growing unrest in China and the possibility for Chinese expansionism it would be fairly easy to imagine the US government dragging the old red army rhetoric out of the closet and go and ‘save the day’ with the full support of the American people, recruiting large swathes of the unemployed into the military in the process.

    Depending on the upcoming levels of social upheaval, when people are desperate they will look to their governments for help and will likely accept any policy if they think it will help their plight. This is epitomized by the closing lines (between Robert Redford and Cliff Robertson) of the 1975 Sidney Pollack film Three Days of The Condor:
    “Ask the people what they want us to do when there’s no heat in their homes and they’re cold. Ask them when their engines stop. Ask them when people who’ve never known hunger start going hungry. Do you want to know something? They won’t want us to ask them. They’ll just want us to go get it for them.”

    Like others here I suspect this crisis has been engineered. Time will tell how it unfolds but I fear it will lead to violent conflict. Sadly I live in the Gulf and I reckon trouble could be coming my way!

    Good fortune to all through these troubled times.

  27. I have been looking at the total external debt for the UK, which is $US 10.4 trillion (2007) or about 370% of GDP.(CIA World factbook)
    (External debt is defined as being the total public and private debt owed to nonresidents repayable in foreign currency, goods, or services)
    So far I haven't been able to find out in which currencies these debts are denominated. As you have pointed out, inflation seems to be the most likely outcome for the UK, and so it seems to me the cost of this external debt will rise with inflation. Is this right? If so, while "quantitative easing" may make debt owed by residents of the UK to UK banks more affordable, the external debt will become much more onerous. I would appreciate your comments.

  28. nobody can be certain of the day the pound will plummet because it is determined by other people who have the means to destroy a currency. unless you have inside knowledge of these plans then it is speculation.

  29. This article suggests the US is insolvent.

  30. I can see sterling divebombing but I can't see the same happening for the dollar.

    We've been sitting on the anomoly of a huge deficit for years and it works for the US despite the fact it wouldn't work anywhere else for so long.

    My belief is that the US is an exception and allowed to be so - it produces a lot, has a huge workforce, great mobility, one of the highest productivities in the world (albeit at a high cost) and is simply too important as the biggest market in the world in terms of everyone relying on it.

    On the other hand, as Jim Rogers says "what does the UK do?" - I've been saying this for years, all we have is a shabby service sector economy that is now diving, oh and the financial sector which is a shadow of its former self.

    UK will be another Iceland for sure. We survive currently on a legacy. Yes we may have a seat on the UN security council and be a big player internationally but why? We have nothing to show for it when you peel back the layers.

    My recommendation is to buy both gold and silver. I don't work for them so this is not spam but if you live in the UK then (a German company) is one of the best. Already I am up 20% since October.

  31. Your post is the best so far.
    Many farmers are reading your work,and commenting on british farmers forum.You may like to look in sometime.
    I would like to here your thoughts on Globealisation in so far as the impact to this mess we are in.

  32. I just found a picture that tell a lot

  33. Three days left to brush up on your recipies for crow.


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