Wednesday, July 11, 2012

A Silver Lining

The economic clouds are gathering and the approaching storm reminds me of the "derecho" we experienced here in the mid-atlantic on the 29th of June.  I have been in hurricanes, near tornadoes, inundated by tropical storms in Africa, swamped by Monsoons in Bangladesh but this was unlike any storm I have ever been in.  80 mph sustained winds with almost no rain.  We will be even more surprised by the impact of what is coming over the next two years.  No, it will not be as sudden as the derecho which arose out of the west in less than a minute.

We will see instead a series of events that will creep over us like a plague over days weeks and months and we will be left wondering when it all began?  Did it begin in 1913 when insurance tycoons gathered in secret to craft a system (The Federal Reserve) for parking their huge cash surpluses from the life insurance craze? Did it begin when the world's currencies got pegged to the dollar At Bretton Woods?  Did it begin when we started going to war using a credit card?  Or should we look to the turn of the century day when the barriers between banks, insurance companies and finance institutions were illegally breached only to be validated by congress?  Or did it begin with Quantitative Easing?  Or QE 2?  Or QE 3?

As of today, QE 3 is only a rumor and the Greeks are still accepting bailout funds, and China is still hanging in there as a major creditor and the price of gold and silver are moving sideways.  Will there be a defining day in 2012 that we say this was it?  Or in 2013 after the inauguration of the president?  It really doesn't matter.  What matters is that the day of reckoning will come and the time to start preparing for that is today.

If you take anything away from this, know this.  Fiat, debt based, paper currency has no intrinsic value.  None.  When the mountain of debt backing it gets too large it will crash into a spiral of hyperinflation that will decimate the imagined "wealth" of most of us.  I do not scorn the person who uses some of this paper money to set aside some silver or gold coin for trading in a future day.

And the American Silver Eagle coin is perhaps the very thin silver lining to the very dark cloud roiling on our horizons.  Because the historic ratio of gold to silver (16) is now over 50, silver has more upside than gold.  And it has industrial value in addition to a history of being viewed as money.  And it has germicidal properties that make it a metal of the future where antibiotics are losing their punch.  And it is priced low enough to be a more convenient means of exchange in a world where wheelbarrows are too small to haul the paper needed to buy a pair of shoes.

Perhaps a more subtle silver lining to the cloud is time.  We have been given more time to prepare than many expected.  Tactics are being employed (is this an election year?) that will ultimately make the crash more severe but it does give those who take heed some room to maneuver.  So what are the economic steps we can take to prepare?

   1.  Shift assets from cash to physical assets.
   2.  Shift from cash to productive assets such as solar collectors, garden tools, fruit trees, etc.
   3.  Reduce debt.  (this assumes that distancing ourselves from the system outweighs the advantage
        of paying back of our debt using cheaper dollars.)
   4.  Reduce energy dependence by lowering consumption while creating alternative sources.
   5.  Lower our cost of living by lowering dependence on processed food, eating out less, reducing cable.
   6.  Consolidate our fleet of vehicles.
   7.  Cultivate community. (is moving house an option?)

We have been given more time but how much?  I don't know.  I am simply astounded that warning bells are going off from every tower and the people below are scurrying along as usual.  Could I be simply wrong and there will be no crisis?  I hope so.  But as I said in my opening article, the things I do to prepare will stand to benefit within any scenario except perhaps rampant mob violence.  

We will turn next to taking a look at energy.

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