[Cid_Yama]

Pray the hyperinflation is short. The US will be a smidgen compared to it's former self, but if we don't let them ship the food out under arms to foreign nations, we should be ok.
link

[Sixstrings]

http://news.yahoo.com/s/nm/20081124/pl_n....

Paulson announced today that they're going to look at ways to loosen consumer credit to get consumers spending. If he can talk the banks into it, that would mean lower interest (since fed rate is headed for 0 anyway) and easier to get credit. So, some folks may want to use some new fast and loose credit for preps perhaps.

Also, I would suggest that if anyone has some home equity they've wisely put off tapping, there may be an opportunity to do so with lower-than-ever interest rates. Just don't get an adjustable.

As for general deflation, I guess we'd all be smart to take advantage of it for preps (rather than iphones and plasma tvs).

[Cid_Yama]

<i>I am selling some calves next month though because spring may be worse than winter this time.</i>

That is the kind of scary statement I have been waiting to see.

When it becomes too expensive to grow/raise food, it isn't, and people starve.

[CarlosFerreira]

My question is "increase spending - on what?" - you can loosen the monetary conditions, but you'll be living in a bubble again, and people would keep on spending what they don't have in stuff that, arguably, few do really need. Of course, those things nobody needs are, arguably, what keeps the ball rolling, economy-wise. Economic activity = employment. So, cutting back is painful, and I'm don't think any politician wants to tell voters about that.

In short: we also need to buy those i-phones and so on... it's boring, stupid but needed. Adjustment, like payback, it a b***h!

[patience]

National Public Radio today said that the outrageous budget (and hence, deficit) coming up from the $7.5 TRILLION spent on bailouts, or committed at this time, will cause US Treasury auctions to fail at some point. They said WHEN, (not IF) that happens, the dollar will collapse, as in Iceland--nobody wants their money, couldn't even get a BID on an exchange rate for a while. I don't know if the Kronar is trading yet or not, but I recall hearing something like it had fallen in value to a fraction of its' previous exchange value.

I think that will happen to the US. Until it does, we are deflating. Oil, however, started back up today, from $50-ish to around $55. I think that was just a bounce based on the bailout/rescue news for Citigroup, but the other possibility is that smart money is saying the US Dollar is risky at this time, due to the untenable debt position, and the shaky condition of all our banks, bailouts notwithstanding. I'm not sure on that one.

I do think the dollar has a short future. So, no, I am not betting on deflation for the near term, I'm betting on collapse of the dollar. Since I have nowhere near enough background to bet the farm on my prediction, I'm hedging as best I can.

-Selling US Treasuries, and hope like hell we get it done fast enough.
-Dump that money into my kids' mortgage, a diesel generator, and a couple hundred gallons of diesel. (backup for solar PV in winter).
-Buying household needs like there is no tomorrow.
-Might buy a used tractor if I see this falling in a day or two. (We don't need a tractor, but I can swap it for what we do need, and it will hold its' value. My version of PM's. I can always use it on rented ground.)
-Buying welding supplies for the shop business, including enough extra gas tanks to get us past a supply disruption.
-Holding on to some cash, until I can see which direction the wind really goes!

If deflation it is, I will have spent too much money, but I will have what I need. If the dollar implodes and I DID NOT do this, I could lose most of what I have. What I believe implicitly, for right or wrong, is that the Fed and US govt have vowed to fight deflation without respite, and the Fed has followed Bernanke's outlined 5 steps to the letter. His next step is to hold down the yield of long term Treasuries. the only way he can do that if no one ELSE is buying them, is for the FED to buy them--with unbacked dollars. Poof. It's over. As I think Eli said, watch the band markets for the "tell".

Somebody straighten me out if you know i'm headed wrong here.

[CarlosFerreira]

We're all out of depth here; but I believe, patience, there's one fundamental difference between the dollar and the krona.

The dollar is the world's reserve. Going bust means a lot of the world's reserves would be worth nil, and that's not something I believe the Chinese, Japanese, Koreans and Saudis would want to see. I think they'll buy the dollars needed to prop up the dollar as long as necessary. For a lot of time, the US has enjoyed the luxury of being able to expand money supply without inflation. The greenback controls the scene. That does not change that easily.

Therefore, they will keep on betting on this sort of blackmail, printing money like hell, that miraculously holds its value.

[Revi]

We're going to do some stuff to our house to make it through the coming problems. I figure it makes sense to do things now, because we may be here for a while. I am going to get some more wood for this coming winter while we can. I can't see too much further down the road than this spring.

It's hard to plan when the future is still so fuzzy. It looks like deflation may be what happens for a little while yet.

It doesn't make much sense to stock up much more. We can live for a while on what we have.

I'm taking life about one day at a time now.

[Sixstrings]

CarlosFerreira wrote:
$this->bbcode_second_pass_quote('', 'S')o, cutting back is painful, and I'm don't think any politician wants to tell voters about that.

[patience]

CarlosFerriera,

No doubt that I am out of my depth! Problem is, I'm stuck in the game like all the rest of us.

I agree that the rest of the world will try hard to prop the status quo. The Saudis and Chinese have lately though, shown a big interest in gold, and long term US Treasuries are getting harder to sell, I hear.

Of course, I don't know. But I'm required to bet anyway.

[Sixstrings]

CarlosFerriera,

I agree with you, I *should* be feeling out my depth. Oddly though, things are starting to come together and make some sense. That either means I'm right, or have officially become a member of the Tinfoil Hat Club for Men.

[CarlosFerreira]

Hi,

First, sorry if I didn't explain myself properly. I was pointing out that, as problems unfold, anything could happen, therefore my prediction was worthless. Sorry!

Second, I still back my opinion that the current system will live on, if there is no major discontinuity in the events. The launch of an "Amero", I believe, wouldn't stop the underlying problem - the US has a big problem in paying its debt. The response of the market would likely be a devaluation of the currency; however, foreign governments don't want that, because their life savings would be worthless overnight; the US government doesn't want that because of political reasons and because a devalued currency buys a lot less foreign products.

The reason why someone wants to have some country's currency is to buy stuff produced in that country. When the dollar became the world currency for reserves and trade, it went beyond that point. The Euro-area doesn't want the "reserve currency" status, and probably couldn't back it, neither do Japan or China.

So, I'm out of my depth here. It sort of makes sense that the US should be entering really troubled water, since their fiscal and economic policies have driven it close to chaos. However, the "special status" of the dollar might avert that.

[patience]

I believe in the deflation thesis. That is, deflation will ultimately overwhelm all efforts to stop it. But before that happens, the PTB will exhaust all possible means to prevent it. I think we are in the middle of that conflict just now, which gives rise to much confusion about the way things will go.

I think the next few months will be crucial, a last-chance to get prepared for a low energy, deflationary depression. As we wind down to that situation, businesses will fail, govts will be short of money and increase taxes (Michigan has done that, and probably others), and govt services will be reduced (Kentucky is giving unpaid holidays to police, jailers, city employees).

The cost of food in dollars is rising, while oil has fallen (just bounced up 10%), so now is the time to grow your own food, and exploit the heck out of cheap oil. (We are having driveway stone hauled, dozer and logging done and buying building materials for the kids' place, and plan to stash diesel and gasoline against oil price rising due to a falling dollar later on.)

Eventually, yes we will have falling prices in many things, but I think we are in a transition time, when it is hardest to predict the near term future, but great benefit can be had if we get it right. As businesses fail (K-Mart, Circuit City, and a discount store closed here this week), there will be close out sales, and then--spotty shortages of goods.

What we are buying now is the things most needed that could be harder to find and more costly in REAL terms, as stores close leaving less competition. Drill bits cost more now at Harbor Freight and coffee went up at Wal Mart, examples of what's in store for the prices of imports to the US (see Iceland).

It is easier to save money in cash than to figure out what to do with it once you have saved it, in this changing world. But for now, once debts are paid and preps are done, I think cash is the place to be. And be ready with a plan to defend its' value, should inflation become the problem later.

[patience]

Here's an interesting thred from Tickerforum with a scenario of how credit failure of the US Govt could play out:

After Citi, is BAC next?

Check out Leraconteur's post. THAT's what worries me. A lot. Chris Martenson's Crash Course talks about dollar failure, but puts it a couple years down the road. Looks to me like the whole works is moving FAR FASTER than anyone expected.

[CarlosFerreira]

I agree with most of what you say, but can't really picture where an Amero and the debt kick in to cause deflation. They would be, I believe, a consequence and a cause, respectively, of inflation: debt makes government run the printers to pay, money becomes worthless, government creates a new currency, that is a fraction of the old one and is worth a fraction of it, as part as an overall macroeconomic plan to stave hyperinflation. So, where does deflation go?

Also, we disagree with the depth and speed of an ongoing deflation crisis. patience points out that this could all melt down in a couple of months, am I right? A year, let's say. That's Great Depression territory, I believe. And the deflation in the US in the Great Depression touched, if memory serves, some 30%. We're nowhere near that territory, the predictions of the Bank of England's Daniel Blanchflower were 1 or 2% deflation for 2009. And he's the radical "cut rates now!" guy in the Monetary Policy Commitee. So, it's (as usual) a question of scale.

[Falconoffury]

We are in a deflationary period, and that may last a few more years. The hyperinflationary period will be brought about by a trade crisis. The trading partners of the USA will no longer be able to afford to support the US economy. The drop in consumer spending is already lowering the demand for imported goods. Producer countries will be exporting less and buying fewer treasuries because they will need to work harder to take care of themselves. There will be a flight to tangible goods as the banking system around the world falls into question.

This will all ultimately lead to increases in prices for everything due to scarcity. The only way out will be for trade systems to rebalance. The USA will have to export as much as it imports, which could take decades of infrastructure rebuilding.

[CarlosFerreira]

When you stopped being a net exporter, the value of the dollar should have gone down. It didn't because of political reasons and because it was the reserve currency of the world - a political reason in itself, actually. So, to prop up the dollar in real terms, you will have to start producing and exporting. As Falconoffury says, it might take years - and to produce what for whom?

Besides, an overvalued currency acts as an export tariff on trade. To regain competitiveness, the dollar would have to devalue massively.

[Pops]

Oops, sorry, I didn't see the previous thread.

[patience]

As seahorse said in another new thread, promising bailouts is one thing, but financing them is quite another. I see the US having a lot of trouble with that, which I think will lead to US default on debt, or more likely, a big devaluation of the dollar brought on by the inability to sell US Treasury debt abroad. So, the Fed "buys" the T's with "money" they conjure up out of thin air, and POOF goes the dollar value, RELATIVE TO OTHER CURRENCIES, and relative to commidities like oil.

If we agree that deflation is a decline of the money supply (Austrian definition), then deflation of the world's money supply (which is not evenly distributed, nor is the deflation) is happening now, as credit evaporates. The US Fed's attempts to save banks and everything else are inflationary efforts, but pale in size by comparison to the worldwide contraction of money supply (debts gone bad). So the deflation I expect to continue in the ROW, but if the US cannot float new debt (Treasuries) then they are forced to monetize--print, if you will, to finance the black hole of bailouts, National debt, next year's budget, ad nauseum. For a scenic description of this, see the link "After Citi, is BAC next?" in my post above. In that thread on Tickerforum, Leraconteur desribes eloquently how it could easily happen.

What happens to PRICES in the US and the ROW will be the results of what the various Central Banks and Govts do, and have done. So, we could see the US dealing with a watered down dollar (like Iceland, Argentina, etc.), while other countries are still experiencing the deflation of contracting money supply of bad debts.

For the US, recovery from the monster National debt will resemble the experiences of Argentina and Russia, a long slow grind of trying to get productive again. No politician will vote for any policy that causes such a result, so they WILL try to kick the can down the road---right up until they CANNOT, when investors no longer regard US Treasury debt as safe. Then, the deflation monster comes to the US to stay, in a deflationary Depression.

RE: "to regain competitiveness, the dollar would have to devalue massively". That's what I think the Fed is trying to do-and failing, due to the massive amount of deflation going on. For a reference point, Argentina devalued from a peso = dollar, down to 3 to 1 when they last crashed. That is what I fear first. THEN deflation sucks the US into the void.

[patience]

I'm sure Falconoffury is correct. The next 10 years in the US is gonna suck bilgewater.

[CarlosFerreira]

Thank you for you patience, patience. I was messing my line of thinking around the relationships.

The day Treasuries are not safe... that's usual a supply and demand problem. I just wonder if the demand doesn't have a lot to lose from letting that happen.