Thursday, May 26, 2011

An Excellent Interview

RT has done an excellent interview with journalist Matt Taibbi.  I highly recommend it.

More on Belarus

I previously discussed some lessons to learn from the currency crisis underway in Belarus.  Zero Hedge has more insight into what is happening there, and warns of an impending hyperinflation there.

"Ultimately, Belarus will succumb to hyperinflation, as will each and every other government seeking to devalue its currency (hint: all of them): "Unless Belarus heeds Russia’s call for mass privatization of state assets, it is headed for “hyperinflation, massive un- and under-employment, and a shutdown of production,” VTB’s Moiseev said. The ruble will slide to 10,000 per dollar, he added." Of course, this is the primary side effect of attempting to avoid formal bankruptcy through currency devaluation. And all those who continue to believe deflation is an outcome that will be allowed by the Fed, need to look just to the former Soviet satellite to see what lies in store for everyone currently doing all in their power to devalue their currency."

Note that the situation has become so dire that the nation's assets must be sold to avoid hyperinflation.  The Belorussian  government has kicked the can down the road long enough that they've found themselves backed into a corner with essentially only two options: sell their sovereignty or hyperinflation.

I wonder if we've gone beyond our tipping point here in America?

Another Lesson on Inflation

Belarus is currently experiencing a very high rate of inflation and this article has some good lessons on what inflation does to a country and how the government acts as a demagogue in such situations.  Here are some key effects of inflation:

1. Rapid move from cash into tangibles and out of cash:
"Belarus consumers are sweeping store shelves bare in a frantic attempt to spend their devalued rubles before prices of imported goods go even further through the roof in the cash-strapped former Soviet state."

2.  Rapid devaluation of currency creates a panic and a desire (but lack of ability) to move to other currencies:
"On Tuesday, Belarus devalued its ruble by 36 percent, fixing it at 4,930 rubles to the US dollar.
But for consumers, buying dollars at the official rate has become a real problem with so few willing to sell any US currency leading to lines at exchange booths.

Five people sat on crates and folding chairs next to one booth in Minsk waiting for dollars -- or any other currency to go on sale."

3.  The government acts as demagogue:

"The president on Wednesday admitted that the ruble's value was plunging but refused to attribute the troubles to his own policies, blaming them instead on rising energy prices set by Russia.

"Perhaps we overdid it with the easing but the main thing is the leap in the price of energy," local news agencies quoted him as saying while on a visit to Kazakhstan."

4.  Bailouts required, and the weakened government loses sovereignty to another nation: 

"Lukashenko has pushed for a bailout loan from Russia, which has for years supported its economy by selling it cheap gas.

But Moscow hiked the price last year, with a senior Russian official noting Tuesday that Belarus "has lived at our expense long enough."

A Russian-led union of ex-Soviet states is now preparing a $3.0 billion loan which calls for Belarus to sell off its main government-owned firms. A final decision is expected on June 4.

Russia is already in a position to take control of the Belarus state gas transport company and has its eyes on other prized industrial assets."

Of course the government won't accept responsibility for the weak currency, instead, they blame someone else for their troubles.  This is precisely what happened in Weimar Germany, and what happens whenever the government is caught devaluing their currency.

The article states clearly what is the cause of the ruble's troubles:  "The economic crisis in Belarus was triggered by a colossal trade deficit and massive state spending that preceded last year's presidential elections which gave a new term to authoritarian ruler Alexander Lukashenko."

Sound familiar?

As Adam Fergusson writes in When Money Dies, the government blamed the Mark's problems on

"an adverse trade balance, the consequent necessity to sell German currency abroad, and its resulting depreciation, followed by the fall in the exchange rate and inevitable rise of home prices, leading to increased costs of materials and labour and so to new rifts in the budget.  Dr Rathenau expressly and publicly denied that the printing press had any role to play in that permanently spiraling sequence of events, and by ascribing the country’s ills primarily to the unfavourable trade balance caused by reparation payments he totally failed to understand the reality that the country was living far beyond its means, printing money to pay for excesses which included over-employment, the inordinate subsidy of industry, the import and manufacture of luxuries for domestic consumption, and a grossly inefficient tax-collection system.”

As Herbert Schlossberg writes, "Inflation is both a cause and effect of moral decline."  The panic buying of tangible assets and out of paper currency creates a spending furor that encourages greed, hoarding, and a sort of savagery.

As Fergusson concludes, "Thus must sound money be the first bastion of a society’s defence."

Wednesday, May 04, 2011

Now for Something Completely Different

I was asked to comment on the Minnesota Twins season-to-date, and I thought I'd take a quick excursion on an entirely different topic than of late.

To begin, I must confess that I have yet to see or hear a game yet this season, so my comments will be limited to the team's statistics thus far.  Unfortunately, the statistics show precisely the same problems fans have been lamenting thus far.  The team can't hit and can't pitch this year, and I see no reason to believe they'll turn things around in time to save their season.

The Twins had a very good offense last year, but losing Hardy and Hudson left two glaring weaknesses up the middle the Twins, and Nishioka's injury has only widened that gap and shown how truly thin the Twins middle infield is.  Who was the last really good Twins middle infielder?  Rod Carew?

Joe Mauer was evidently rushed to the active roster after what had been described as minor off-season knee surgery.  Clearly the surgery wasn't as minor as advertised, or it was done too close to the beginning of the season because Mauer wasn't ready to be playing every day.

Justin Morneau has managed to play 23 of the first 28 games, but he's been ineffective and without the power stroke to which we're accustomed.

The rest of the Twins hitters have either been plagued by injury, or simply haven't performed to expectations.  Thome is old, and may not have much left.  Young had a career year and may never be so good again.  Valencia was playing far above expectations last year, and likely won't repeat.  Cuddyer has been overrated for years now.  Kubel is a streaky player that can't hit lefties, but is continually exposed to them.

Liriano's no-hitter was one of the ugliest, and luckiest no hitters you'll ever see.  6 walks agains 2 strikeouts, in just about any other situation, would have led to Gardenhire pulling him long before finishing a game.  I had hoped the Twins would lock-up Liriano over the off season for the next few years, but what we learned in Spring Training, is that Liriano has a very poor work ethic, and seems to lack the mental acuity and discipline required of an ace pitcher.  He might be about done as a top of the rotation starter.

Baker and Duensing have pitched pretty well so far, but after them the staff and the bullpen are a mess.  Slowey's return may bolster the staff some, but he's not enough--especially if he's not going to start.  Pavano will give the staff some good innings, which is very valuable, but he's not an ace.  I expect him to improve.  But I'm not confident that Blackburn will get much better.

The Twins are not playing like a playoff team, and I don't have any confidence that they will play any better the remainder of the season.  They'll get better, but I can't envision the Twins being much better than a .500 team this year--that might even be a stretch.

Tuesday, May 03, 2011

More on Hyperinflation

I posted a brief review of When Money Dies recently, a book dealing with the Weimar hyperinflation.  About the same time I encountered this blog post about hyperinflation that I also found very helpful, and helped me grasp some of the concepts of the book.  It is a very long post, but it is worth reading to gain further insight into why hyperinflation is an almost certain outcome of our current financial situation.  Please note that in my previous post I expressed doubt about this, but this article reminded me that the political will that has brought us to this point will ensure that hyperinflation does indeed occur.  There is no going back, read the article if you doubt this.

One of the most important things in the article is the idea that hyperinflation is a political event, or as Adam Fergusson calls it, a moral one.  Our political, or moral will, is simply not strong enough to pursue the reversal of the current policies, and because of this, hyperinflation is all but guaranteed.

As counter intuitive as it might seem, bankers, traders, and Wall Street at large would prefer hyperinflation to deflation--and these are the only two options at this point.  We either cease spending and money printing leading to deflation, or we continue doing what we are doing and we get hyperinflation.  The deflationary route would wipe out Wall Street, pensions, banks, and investors.  Our monetary system is built on debt, and the cessation of debt creation would lead to economic devastation that would be unacceptable to nearly everyone--but most importantly to the financial oligarchs.

Hyperinflation, on the other hand, ensures the system of debt creation continues longer--how long no one really knows.  Debts can continue to be paid, Wall Street continues to get its huge bonuses, and the public is at least consoled by a nominal rise in the Dow, Nasdaq, S&P, etc.  And when hyperinflation comes, it is the bankers and Wall Street that will get the new money first, and the first fruits of the inflation. 

The blogger, "FOFOA", divides people into two groups--debtors and savers.  It is critical to understand that the financial oligarchs, though wealthy, are debtors.  That is, they feast off of a monetary system that creates debt, which gives them their wealth.  Without their leveraging debt, they would be forced to produce something (other than debt) to grow their wealth.  It is the largely the middle class that are the savers--and that will ultimately pay the inflationary piper.

FOFOA writes:

"This is very important: Once hyperinflation commences it is characterized by a running shortage of cash, even though it appears like the opposite to the outside observer. The currency collapses in value against economic goods because the debt and the credit collapsed. There is no credit, only cash, and there is a shortage of cash for everyone, including the Elite and the government. So they, the Elite/government, print and print for their own survival while saying it is for yours."

I made a similar argument in my previous post about the Weimar inflation.  Cash is very difficult to come by--largely because credit is gone.  Purchases that were once made with credit must now be transacted in cash.  Imagine having no credit card and relying upon cash to make all purchases!  There simply isn't enough cash in our system, and it would have to be printed, which would drive further inflation.  It is a self-perpetuating problem that ends in the "crack up boom" Mises predicted.

Silver and gold have increased remarkably since I first wrote about them on this blog, but it is still not too late to protect your wealth, rather than let it be confiscated by the financial oligarchy through a hyperinflationary crisis.

FOA acknowledges you don't invest in gold to see you through hyperinflation.  He writes:

" is not at its highest and best use being spent (circulated) as a currency during a hunger crisis. Instead, if you are one with PLENTY of net worth, gold is the very best way to shuttle your wealth THROUGH a crisis to the other side. If you are forced to deploy this wealth for food during a crisis, then you apparently planned poorly."

I'll simply add that silver (especially pre-1960s silver coinage, aka 'junk silver') is perhaps the best way to get through a hyperinflationary crisis, as it is denominated in small coins making small, simple transactions easy.  It is not too late!

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