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Tuesday, May 19, 2015

Credit is money

Shades of the old inflation/deflation debate. Zerohedge points out the vast imbalance between credit money and cash.
1)   The total currency (actual cash in the form of bills and coins) in the US financial system is a little over $1.36 trillion

2)   When you include digital money sitting in short-term accounts and long-term accounts then you’re talking about roughly $10 trillion in “money” in the financial system.

3)   In contrast, the money in the US stock market (equity shares in publicly traded companies) is over $20 trillion in size.

4)   The US bond market  (money that has been lent to corporations, municipal Governments, State Governments, and the Federal Government) is almost twice this at $38 trillion

5)   Total Credit Market Instruments (mortgages, collateralized debt obligations, junk bonds, commercial paper and other digitally-based “money” that is based on debt) is even larger $58.7 trillion.

6)   Unregulated over the counter derivatives traded between the big banks and corporations is north of $220 trillion

When looking over these data points, the first thing that jumps out at the viewer is that the vast bulk of “money” in the system is in the form of digital loans or credit (non-physical debt).

Put another way, actual physical money or cash (as in bills or coins you can hold in your hand) comprises less than 1% of the “money” in the financial system.
The simple facts tend to make the whole "war on cash" concept look absolutely absurd, as well as entirely obvious that it is about political control, not economic growth. The reason the central banks want to ban cash is because the credit money system is on the verge of collapse and they see it as a straw that could nevertheless cause the whole damn thing to collapse.

Which, of course, it is going to do anyhow. The map is not the territory and it will never be the territory.

Labels:

148 Comments:

Blogger dc.sunsets May 19, 2015 10:07 AM  

"The reason the central banks want to ban cash is because the credit money system is on the verge of collapse and they see it as a straw that could nevertheless cause the whole damn thing to collapse."

I still think the real reason is that when the mood turns down this time and people rush the exits, they won't stop running once they reach "bank deposits" and it would take only the tiniest trickle of movement to exit all the way to banknotes to collapse the banking system.

Stocks and bonds are already toast in a deflation. But the perceived ability to exit banks to banknotes truly threatens banking in its entirety.

Blogger dc.sunsets May 19, 2015 10:12 AM  

Credit is "access to cash," right?

Then the perceived ability to sell all that tens, if not hundreds of trillions of dollars in assets is part of the mass mind's money supply, term it "M4?"

How much of all that nominal value arose since the last true stock market lows of 1974/1982? Can it all return to the ether from where it came?

Blogger JartStar May 19, 2015 10:22 AM  

In the camp which believes there will be a crash in the next 20 years what is being debated are the events leading up to the crash (inflation or deflation), then the events after the crash (a slow decline like Japan on one end, to collecting the morning dew in skulls after the nuclear holocaust on the other).

I think nearly all of the Ilk believe there will be some sort of crash in the next 20 years. The more important question than the “if” is “how severe”. Do we need to have a year’s supply of food, or is 3 months enough? Will there be continental war, or simply rioting in major cities?

Nobody knows the answers to those questions, so the important thing is to prepare at least a little, unless you are of the opinion there won’t be any sort of significant crash.

Blogger dc.sunsets May 19, 2015 10:25 AM  

So Nate, are you good with the following:
Credit becomes money through borrowing?

Blogger Nate May 19, 2015 10:28 AM  

"So Nate, are you good with the following:
Credit becomes money through borrowing? "

No.

Vox and I had a massive debate about this. If you'd like my thoughts on it you can read them there. There is no reason to rehash them all here again. Which is why I deleted my earlier comment.

Anonymous Porky May 19, 2015 10:30 AM  

No. Credit is not money.

It's a store of value that is almost universally accepted.

Sounds like money to me.



Anonymous MW May 19, 2015 10:31 AM  

So they want to avoid bank runs, and they will, even if they just cap withdrawals. But cash will never go away. When there is no commonly accepted cash, everything becomes cash.

Anonymous Cash May 19, 2015 10:32 AM  

Nate

What was the date you gave in the debate? I feel like it was 2016.

Anonymous RedJack #22 May 19, 2015 10:32 AM  

A number of years ago, I read an article saying the James Ramsey was going to crash the economy. Simply put, if people pay off debt, the whole house of cards falls down.

That made me change a number of things in my life. If the only thing keeping the economy going is credit, then the economy is in deep crap.

Blogger Nate May 19, 2015 10:33 AM  

the TL:DR version is this...

Vox looks at the mechanism for money creation, and I look at reasons people actually want it. that one difference explains the differences of why Vox sees it going into a deflationary collapse... and why I see it going into a hyper-inflationary collapse.

Blogger Shimshon May 19, 2015 10:34 AM  

If you are of relatively modest means, and are unable or unwilling to be one of the unbanked, it makes no sense to leave more the bare minimum in banks.

One of the interesting things I read not too long ago was that, long after Zimbabwe coins became worthless due to the hyperinflation, they became valuable again later because the government could no longer afford to mint them and there was a huge need for a relatively stable means of exchange for small transactions. Even totally worthless base metal (government) tokens would likely hold their value very well compared to paper notes, once it became clear where the money is headed. The paper dollar will still be worth something for quite a while after the credit dollar disappears.

Anonymous Cash May 19, 2015 10:34 AM  

@redJack

Is James perhaps related to Dave? Dave is also the guy who says you will get 10-12% in "good growth mutual funds."

Anonymous BigGaySteve May 19, 2015 10:39 AM  

Do we need to have a year’s supply of food, or is 3 months enough?

Don't Mormons require a 5 year supply, enough for all the kids the 50 wives might have? /JK. Anything less than a bare bones year supply risks catastrophe. You would need at least enough to make it through the winter in case a CME took out the power grid or an affirmative action token screwed it up.

Anonymous Cash May 19, 2015 10:41 AM  

@Shimson

I have wondered about that. Will the green paper with the presidents still be worth something? Worth more? If there is a true collapse then I would imagine so just because the paper money supply is so low. I mean will 99% of "wealth" evaporate? IDK it's complicated and I am not sure of a historical example that compares. John Law's France maybe?

Blogger Bodichi (0031) May 19, 2015 10:50 AM  

@Cash

Great questions. I wonder the same thing and my simple minded answer is diversification. Make sure you have a little bit of everything.

Blogger JartStar May 19, 2015 10:52 AM  

BGS, I agree and 3 months is the minimum I recommend for anyone. It doesn't have to be perfect either, just calories in case things get really bad. Perhaps I'm naive, but I still have some faith in my fellow Americans that even if a bad event happened, that in a couple of months we'd figure out how to get basic services going again like power, water, and food distribution.

Anonymous Porky May 19, 2015 10:57 AM  

If only there was a way to buy and sell using some kind of a mark on your hand or your forehead or something.

Blogger YIH May 19, 2015 10:57 AM  

Cash:
Quite likely he meant Dave. Dave's bailiwick is ''I'm [all forms of] debt free!!!''. He thinks only of gold/silver in investment terms:
The truth is that gold is a lousy investment with a long track record of mediocrity. The average rates of return tracked as far back as Napoleon are around 2 percent gain per year. In recent history, gold has a fifty-year track record of around 4.4 percent, about the same as inflation and just above savings accounts
I tend to agree with this part though:
It is important to remember that gold is not used when economies fail. History shows that when an economy completely collapses, the first thing that appears is a black-market barter system.
Whiskey (as in ethanol), ammo and non-perishable food will be more viable as currency than gold/silver because they can be appraised quickly and easily and can be broken down for smaller transactions.

Blogger Nate May 19, 2015 10:59 AM  

"What was the date you gave in the debate? I feel like it was 2016."

I said that sometime in 2015 the debt to income ratio will reach the point where folks will refuse to buy american debt... and that will start the process that leads to hyper-inflation.

I said that if that didn't happen in 2015 I would concede in 2016.

Blogger dc.sunsets May 19, 2015 11:00 AM  

Given the continuing shortage of 22 LR, apparently many prepping for the ZA expect CCI Mini-Mags to become cash and are lining the walls of their basements with what comes off the production lines.

Blogger Stilicho #0066 May 19, 2015 11:00 AM  

It is important to remember that gold is not used when economies fail.

Prove it. I suspect you'll find that it isn't used where it isn't available.

Blogger Nate May 19, 2015 11:01 AM  

"If you are of relatively modest means, and are unable or unwilling to be one of the unbanked, it makes no sense to leave more the bare minimum in banks."

***chuckle***

yeah... except for the fact that they can prosecute you for federal money laundering crimes for simply having that much cash on hand.

If I were cash one single month's pay and keep it on hand... assuming the bank would actually give me that much cash... I would likely go to jail for holding it.

Blogger dc.sunsets May 19, 2015 11:02 AM  

@ Nate: So rising interest rates would be a signal of coming (hyper)inflation rather than occult deflation (as the monetary value of bonds decreases?)

Blogger Nate May 19, 2015 11:03 AM  

"Given the continuing shortage of 22 LR, apparently many prepping for the ZA expect CCI Mini-Mags to become cash and are lining the walls of their basements with what comes off the production lines."

actually 22lr is catching back up. There is every reason to believe it will be back on the walmart shelves perpetually in a few months.

Blogger Nate May 19, 2015 11:05 AM  

" So rising interest rates would be a signal of coming (hyper)inflation rather than occult deflation (as the monetary value of bonds decreases?)"

Could be.

My argument is geo-political more than economic. In the debate I compared it to a tsunami. Vox wonders how I can predict a tsunami when he sees the ocean levels falling and falling. And I am looking at this massive cliff near the shore that's showing signs of collapsing into the water.

We reach different conclusions because we look at different things.

Blogger Stilicho #0066 May 19, 2015 11:06 AM  


I said that sometime in 2015 the debt to income ratio will reach the point where folks will refuse to buy american debt... and that will start the process that leads to hyper-inflation.


China's still buying hand over fist: http://www.zerohedge.com/news/2015-05-18/revealing-identity-mystery-belgian-buyer-us-treasurys

I said that if that didn't happen in 2015 I would concede in 2016.

You also said you'd pose for a photo wearing an Ohio State hat if they beat 'Bama. Then you said your dog ate your homework...

Honestly, people, if you want Nate to take a wager seriously, the penalty for losing has to be something like giving up bourbon for a year or drinking scotch twice a week.

Blogger dc.sunsets May 19, 2015 11:07 AM  

Nate, your interpretation of the Bank Secrecy Act of 1970 is a little more creative than mine. Structuring is what gets people separated from their cash these days, not simply having large quantities of it.

Civil asset forfeiture (a separate thing entirely) would not stick for long if one has generated the CTR's to document a paper trail. Cash is not illegal (yet.)

For those willing to pay the freight, you can pay Safe Wealth a fee to store your US banknotes in a vault in Switzerland (min. $500,000) as the ultimate deflation/capital controls hedge.

Blogger JartStar May 19, 2015 11:07 AM  

Obama to ban police military gear that can 'alienate and intimidate' | US news | The Guardian

Maybe this is part of the double secret plan to lull the American people into further complacency about the coming police state, but I'm inclined to think that there are those in the government who realize turning the police into a military with guns pointed at the populace is a bad idea.

Blogger Aquila Aquilonis May 19, 2015 11:10 AM  

Under what circumstances would both Vox and Nate be wrong. How would that scenario play out realistically?

Could technological progress to further push towards a post scarcity society so that these shenanigans become less important?

Blogger dc.sunsets May 19, 2015 11:11 AM  

"actually 22lr is catching back up. There is every reason to believe it will be back on the walmart shelves perpetually in a few months."

You must live closer to the origin. I've seen mini-mags at Cabela's brick-and-mortar store, limit 1 box of 100 per day, and nothing else. Of course, eventually those soaking up all this will realize they have either a lifetime supply or they'll need to get a Class 3 license and convert a 10/22 to full auto to use it up.

Blogger Stilicho #0066 May 19, 2015 11:13 AM  

Structuring is what gets people separated from their cash these days, not simply having large quantities of it.

Uhm, no. Google "asset forfeiture" and "cash". Has little or nothing to do with banking laws.

Anonymous Porky May 19, 2015 11:14 AM  

@JartStar

Rule #1: They always lie.

Blogger Stilicho #0066 May 19, 2015 11:14 AM  

I'm inclined to think that there are those in the government who realize turning the police into a military with guns pointed at the populace is a bad idea

No, it's Who/Whom. All the way down.

Blogger Nate May 19, 2015 11:16 AM  

I should point out that my timeline is already a little screwed because in my calculations I accounted for more government spending than has actually taken place in the last couple years. I expected at least 1 more giant spending bill that so far hasn't happened... and I expected for more military spending than has taken place as well.

So those are two specific errors that I made in the calculations used to make the 2015 prediction. We'll see how the rest holds up.

Blogger Stilicho #0066 May 19, 2015 11:18 AM  

Could technological progress to further push towards a post scarcity society so that these shenanigans become less important?

Shit in one hand and wait for the singularity in the other. Guess which one will fill up first. Moreover, the abundant time on the hands of various vibrants due to the abundant gov't dole leads to Ferguson, Baltimore, and violent "flash mobs" of "teens" at a mall near you... so pick your poison.

Blogger JartStar May 19, 2015 11:18 AM  

There's also the possibility they realized they are turning every Sheriff's department into light infantry by handing out military gear like candy and if one of those departments decides not to play along...

Blogger Nate May 19, 2015 11:19 AM  

"Nate, your interpretation of the Bank Secrecy Act of 1970 is a little more creative than mine. Structuring is what gets people separated from their cash these days, not simply having large quantities of it. "

***sigh***

jumping to conclusions is a really bad habit.

Blogger Aquila Aquilonis May 19, 2015 11:20 AM  

Do you guys remember the Southwest Blackout? Power goes out and nothing bad happened. I think that the effect of the crash depends a lot upon where you live. If that blackout had effected Las Angeles rather than San Diego, I think it would have been a much different situation.

Anonymous zen0 May 19, 2015 11:21 AM  

@ Jartstar

Do we need to have a year’s supply of food, or is 3 months enough?

After much deliberation over many years now, imagining various scenarios, I have come to the conclusion that my best chance is to join the looters.

Blogger Nate May 19, 2015 11:23 AM  

"After much deliberation over many years now, imagining various scenarios, I have come to the conclusion that my best chance is to join the looters."

Bane approved.

Blogger dc.sunsets May 19, 2015 11:23 AM  

"My argument is geo-political more than economic."

Shedlock's position is that hyperinflation is actually a loss of confidence in the existing political system, not a monetary event. I'm with VD on this one; first we get the monetary/economic event. Then we get the political event. China has to reject its export mercantilism model for it to stop buying Treasuries, or else it has to start buying up Manhattan...or FL swampland.

As an aside, I anticipate 1) a collapse in nominal prices, but 2) even as nominal prices collapse, affordability will collapse further. Paradoxically, as things get "cheaper," they'll still be less affordable as wealth bleeds out even faster. Stock up on your favorite shoes, clothing and such. It may never be cheaper in real terms, except at garage sales.

Blogger Stilicho #0066 May 19, 2015 11:23 AM  

If that blackout had effected Las Angeles rather than San Diego, I think it would have been a much different situation.

NYC 1977:
The blackout occurred when the city was facing a severe financial crisis and its residents were fretting over the Son of Sam murders. The nation as a whole was suffering from a protracted economic downturn, and commentators have contrasted the event with the good-natured "Where Were You When the Lights Went Out?" atmosphere of 1965. Some pointed to the financial crisis as a root cause of the disorder, others noted the hot July weather. (The city at the time was in the middle of a brutal heat wave.) Still others pointed out that the 1977 blackout came after businesses had closed and their owners went home, while in 1965 the blackout occurred during the day and owners stayed to protect their property. However, the 1977 looters continued their damage into the daylight hours, with police on alert.[1]

Looting and vandalism were widespread, hitting 31 neighborhoods, including most poor neighborhoods in the city. Possibly the hardest hit were Crown Heights, where 75 stores on a five-block stretch were looted, and Bushwick, where arson was rampant with some 25 fires still burning the next morning. At one point two blocks of Broadway, which separates Bushwick from Bedford-Stuyvesant in Brooklyn, were on fire. Thirty-five blocks of Broadway were destroyed: 134 stores looted, 45 of them set ablaze. Thieves stole 50 new Pontiacs from a Bronx car dealership.[1] In Brooklyn, youths were seen backing up cars to targeted stores, tying ropes around the stores' grates, and using their cars to pull the grates away before looting the store.[1] While 550 police officers were injured in the mayhem, 4,500 looters were arrested.[1] During the blackout, numerous African-American looters stole DJ equipment from electronics stores. As a result, the hip hop genre, barely known outside the Bronx at the time, grew at an astounding rate from 1977 onward.[3]

Anonymous Porky May 19, 2015 11:25 AM  

There's also the possibility they realized they are turning every Sheriff's department into light infantry by handing out military gear like candy and if one of those departments decides not to play along...

...it would be the perfect excuse to Nationalize the police.

Bazinga.

Blogger Nate May 19, 2015 11:25 AM  

"Shedlock's position is that hyperinflation is actually a loss of confidence in the existing political system, not a monetary event. "

Yes. That's mine as well. Because while it is a fiat/credit hybrid... its the fiat nature of the money that makes it the money.

And fiat money gets its demand from the government... and once the government is seen as done... the demand disolves... no one wants it anymore...and hyper-inflation occurs.

Blogger dc.sunsets May 19, 2015 11:28 AM  

***sigh***

"If I were cash one single month's pay and keep it on hand... assuming the bank would actually give me that much cash... I would likely go to jail for holding it."

Where the hell do you live? I can go to the bank and get any amount of cash I want. Or am I making another assumption error, and your paycheck is north of, say, $50k? Because, yes, if you want that kind of cash, you'll have to give your bank a week or two to get it, based on their cash ordering schedule.

Your comment is either based on a location operating under different laws than mine (I do live in the USA) or on ignorance.

Anonymous dh May 19, 2015 11:33 AM  

I have had my share of commerical disputes before. One thing I deeply enjoy is paying people in very uncomfortable ways for debts. A lot of people mistakenly think you can pay a bill or buy something with pennies as a sort of punishment. But they can refuse to accept a purchase or paying most types of bills.

But people to whom you owe a debt cannot refuse any legal tender. I had an ongoing dispute with a mortgage and a fee they wanted to charge me. USPS flat-rate boxes are great, because they can hold a lot of coinage, and the shipping rate doesn't change up to a very heavy weight limit. My first month I had pity on them and paid a several-thousand dollar mortgage payment in dimes. The second month it was nickels. We never made it to a third month to find out I could really source that many pennies.

One other time, I think one guy who was being difficult in following the letter of the agreement (who was far removed from the payment mechanics) at the servicer was interested in finding out if I could really pull off a balloon payment using small bills. Not only did I, I believe at one point I had the largest privately held supply of $2 bills in the United States, carefully collected from over 40 bank branches. As I explained to him and his colleagues, hate and willing interns are a powerful weapon against big business.

The point being, I oppose the cashless society because it would cut off a vital means of redress that I personally enjoy using.

Blogger dc.sunsets May 19, 2015 11:41 AM  

"Uhm, no. Google "asset forfeiture" and "cash". Has little or nothing to do with banking laws."

Yes, I thought my 2nd paragraph addressed this. Civil Asset Forfeiture is a creature of the Drug War, not the BSA. And if the presence of cash was all that mattered, why aren't DEA agents pulling over every Brink's truck leaving a regional Fed bank?

Funny; you never hear about a relatively wealthy person getting his cash seized. Predators rarely target those with the means to resist (a lesson Mike Nyfong learned the hard way.)

Blogger Nate May 19, 2015 11:45 AM  

"Where the hell do you live? I can go to the bank and get any amount of cash I want. Or am I making another assumption error, and your paycheck is north of, say, $50k? Because, yes, if you want that kind of cash, you'll have to give your bank a week or two to get it, based on their cash ordering schedule."

Actually yeah... I was actually talking about near that a month for a monthly pay heck. and yeah I hear this from city people. I'm sure in your shithole you can go take out 20k or even 40k in cash if you want it. But I once made the mistake of trying to take out the cash to go buy a vehicle with and ended up getting a call from a regional banking vice president to explained it was a very unwise thing to do and why... and then just asked me to have the dealership call him and he would take care of it all.

it was an eye opening experience.

Its not your money mate. Odds are you have no idea how many laws and regulations you break every single day when it comes to how you manage that money.

Blogger Salt May 19, 2015 11:47 AM  

Go right ahead. Do away with cash. At least here in the US, there's lots of ammo floating about and plenty of rope.

It would be an interesting battle between a government edict declaring cash obsolete or unlawfull to possess versus what it says on dollar bills - this note is legal tender for all...

Yeah. Try it and see what happens.

Blogger Stilicho #0066 May 19, 2015 11:49 AM  

Yes, I thought my 2nd paragraph addressed this. Civil Asset Forfeiture is a creature of the Drug War, not the BSA

That's why it was curious that you should bring up banking laws when Nate's point about possessing large amounts of cash had nothing to do with banking laws. "Possession" being the key word here.

And if the presence of cash was all that mattered, why aren't DEA agents pulling over every Brink's truck leaving a regional Fed bank?

Why would they try to rob their own people? I say again: it's Who/Whom all the way down.

Blogger Nate May 19, 2015 11:52 AM  

"Yes, I thought my 2nd paragraph addressed this. Civil Asset Forfeiture is a creature of the Drug War, not the BSA. "

Correct.

which is why I said jumping to conclusions was a bad habit. Because you jumped to the conclusion that it was a banking law... not a Drug War practice.

And it IS a drug war practice... a really nasty drug war practice.

They go after cash and people with cash.

Blogger kaflick May 19, 2015 11:52 AM  

>It is important to remember that gold is not used when economies fail.

After the hyperinflation in Zimbabwe, Argentina and Germany all three
of these had large uses of tiny amounts of gold and larger amounts of silver
as some of the main currencies. They also included canned goods, ammo,
toilet paper, liquor and soap as currencies. I have read that in Argentina people
used boxes of macaroni & cheese quite effectively.

Anonymous Possible Farmer May 19, 2015 11:53 AM  

Financial Advice: Pull out retirement investments in the stock market to purchase a farm or not?

Anonymous BGS May 19, 2015 11:55 AM  

Whiskey (as in ethanol), ammo and non-perishable food will be more viable as currency

You don't want to be known as a supplier of booze by those who have nothing to trade but are addicted. Selling ammo requires trust it wont be used against you. Also you never have enough ammo. That said I do plan on providing hemlock wine to looters.

"Given the continuing shortage of 22 LR, "" they'll need to get a Class 3 license and convert a 10/22 to full auto to use it up."

some people have discovered a bump stock gives you a poor mans automatic

regional banking vice president to explained it was a very unwise thing to do and why...

"We hire affirmative action people fired from the TSA to count your bills"

Blogger Nate May 19, 2015 11:55 AM  

"That's why it was curious that you should bring up banking laws when Nate's point about possessing large amounts of cash had nothing to do with banking laws. "Possession" being the key word here. "

ding ding ding

I think dc.sunsets is just used to being around normal blogs where people don't know and discuss stuff the way we do here. He hasn't quite adjusted his eyes to the blog yet.

He'll be fine. give him a bit.

Blogger Nate May 19, 2015 11:58 AM  

"some people have discovered a bump stock gives you a poor mans automatic"

please! Tac Con has a drop-in trigger for that.

Bump stock...

Luddites.

Blogger JartStar May 19, 2015 11:59 AM  

Possible Farmer

Diversification in whatever way you are comfortable is the way to go. There's no magic bullet as we are in uncharted waters with the economy. The best advice I can give is don't overreact, and do what makes you feel comfortable, think long term.

Blogger Nate May 19, 2015 12:02 PM  

correct. Buying a farm doesn't do you any good if you don't have the skill to run it and make it produce. You'll just end up losing it... then what?

Blogger Nate May 19, 2015 12:04 PM  

also... I'm starting to think .223 will better option for currency than .22lr is.

Blogger swiftfoxmark2 May 19, 2015 12:06 PM  

A cashless society is just one more step toward solidifying that you don't own the money that is in your bank accounts. You have merely lent the bank money on their terms.

Anonymous jack May 19, 2015 12:10 PM  

This is most enlightening and scary. With ref. to some of the above. Nate is probably right about cash on hand. Won't matter if you have stuck it in the mattress for years forgoing buying other things, if you cannot prove the sourcing. To do that would require a massive amount of receipt keeping logged against purchases/income from salary. Who does that?

Food on hand. A practical rule of thumb, if you can do it, have enough to get to the next harvest assuming seeds planted within a week or two of collapse. You have to have current viable seeds on hand. You have to rotate seed stock maybe every year.
You have to have access to decent farming land, the tools to do the work; they have to be manual tools since gas will go fast. You have to have weapons to protect all this. And, a lot of luck. That implies a years supply; better two years if the first year harvest is a bust. You have to have been growing stuff for awhile. A civil collapse is no place to be climbing the learning curve.

To the person that mentioned joining the looters. Go for it. Come my way and you are a looter and 2nd amendment kicks in regardless your other sterling personality traits.

None of this would be any fun unless you are twisted mentally.

Anonymous BGS May 19, 2015 12:14 PM  

I think dc.sunsets is just used to being around normal blogs where people don't know and discuss stuff the way we do here.

Either that or he thinks you have lots of pot smoking friends.

please! Tac Con has a drop-in trigger for that. Bump stock... Luddites.

The trigger has only been available since 2013. Lets see how reliable it is in a few years.

Food on hand. A practical rule of thumb- Freeze dried nitrogen packed lasts for 30 years. Fruit/nut trees with a tree guild almost take care of themselves. http://www.permies.com/t/1475/plants/fruit-tree-guilds

Blogger Nate May 19, 2015 12:15 PM  

"None of this would be any fun unless you are twisted mentally. "

correct.

No one wins but the undertakers.

Blogger rycamor May 19, 2015 12:15 PM  

Possible Farmer,

Nate May 19, 2015 12:02 PM

correct. Buying a farm doesn't do you any good if you don't have the skill to run it and make it produce. You'll just end up losing it... then what?


The critical question to ask yourself for anyone prepping for TSHTF is... what skill or skills do I have that can be de-monetized (bartered)? If you can farm or garden, that's a good option. If you can make things--good. If you have medical skills, etc...

In other words, capitalize first on what you do best (or 2nd best if your skill has no barter value). If you are an insurance adjuster who has never done any real, practical work and has no other skills, better get learning something, quick.

Blogger Nate May 19, 2015 12:16 PM  

"The trigger has only been available since 2013. Lets see how reliable it is in a few years."

reliable? Its a toy... just like a bumpstock.

Anonymous Athor Pel May 19, 2015 12:19 PM  

" zen0May 19, 2015 11:21 AM
...
After much deliberation over many years now, imagining various scenarios, I have come to the conclusion that my best chance is to join the looters."




This isn't all that far off the mark. But I'm not talking about looting an unwilling business.

If I owned a gun store in a place where I knew most or all of the locals and the nation went grid down I would begin contacting under-gunned neighbors as quickly as I could. I'd try to get my guns in hands that could use them for good as quickly as possible. Better there than in the hands of travellers or MZB's.

Blogger dc.sunsets May 19, 2015 12:19 PM  

I concur that I'm undoubtedly unaware of the countless laws I break daily. "Three Felonies a Day" and all that.

Y'all appear to me to be playing semantic games on me. Nate said "yeah... except for the fact that they can prosecute you for federal money laundering crimes for simply having that much cash on hand."

Money laundering is Bank Secrecy Act, boys. Not drug war civil asset forfeiture. Money laundering is picked up by structuring deposits, which is why I referred to it.

Then Nate said, "If I were cash one single month's pay and keep it on hand... assuming the bank would actually give me that much cash... I would likely go to jail for holding it."

1. The bank will give you all the cash you want; yes, they will suggest it's a bad idea, but since when does anyone reading here listen to that sort of thing?
2. Civil Asset Forfeiture does not put the PERSON in jail, it simply charges the money with a crime, and money has no civil rights so is not innocent until proved guilty.

In reading back through the dialogue, I fail to see why any of my points were controversial. And if you're being paid $50k/month, Nate, count me as impressed. I know orthopedic surgeons not pulling that down, net.

Anonymous Possible Farmer May 19, 2015 12:22 PM  

Grew up on a farm. Know how to farm. Already looking for a farm. Plan to keep commuting to suburban job for now while job exists and farm is starting. However, I have retirement savings (IRAs in stocks) that we were not going to use to pay for the farm. When there is a collapse, stocks become pretty much worthless, correct?

Wouldn't it be wiser to pull out the retirement savings that I most likely will never get to (late 30's, crash coming before I get old enough), and buy a better farm?

Though, for that matter, I'm wondering whether I should be looking for a far out farm that is far from any particular suburb.

Maybe I should just plan to bug the family out to the old family farm 3.5 hours from the city and suburbs. Problem is, my parents aren't planning for what I feel is certainly coming down the pike. They're "moderates," or else we'd probably be living down there already. Sigh...

Blogger dc.sunsets May 19, 2015 12:22 PM  

"under-gunned neighbors"

Sounds like handing sports cars to 14 year old boys, and then standing on the road.

Blogger Gary Bourgeault May 19, 2015 12:25 PM  

Possible Farmer

Recently I read farmland is likely to drop in the U.S., possibly by as much as 25%. I can't remember where I read it, but below is a link to an article that talks about the probability farmland will continue to drop in value over at least the next quarter, suggesting you may want to wait for prices to fall further before investing.

Farmland Prices

Anonymous BGS May 19, 2015 12:25 PM  

reliable? Its a toy... just like a bumpstock.

If the bump stock doesn't work its still a stock, if the trigger doesn't work after the SHTF the rifle is a club.

Blogger dc.sunsets May 19, 2015 12:26 PM  

"Wouldn't it be wiser to pull out the retirement savings that I most likely will never get to (late 30's, crash coming before I get old enough), and buy a better farm?"

If you want to farm either way, why not? If it's because you're certain that the SHTF soon, well....

No one knows the future. It is a surprise perhaps especially to those most smugly certain about their forecasting. How many read Mel Tappan's original work in the 1970's and bugged out, expecting the ZA? Where are they now?

"Crisis Investing for the Rest of the '90's" by Doug Casey, as poster child.

Blogger Chris Mallory May 19, 2015 12:27 PM  

"actually 22lr is catching back up. There is every reason to believe it will be back on the walmart shelves perpetually in a few months."

Locally, I haven't seen any 22lr in Wal Mart in a couple years. The LGS is hit and miss. The past month, the local Gander Mtn has had 22LR stay on the shelf for 3-4 days. It used to be gone within 20 minutes of opening the doors on load days.

Blogger Nate May 19, 2015 12:29 PM  

***OFF TOPIC PUBLIC SERVICE ANNOUNCEMENT***

Attention Guardians: House of Wolves drops in 30 minutes.

That is all.

Blogger rycamor May 19, 2015 12:29 PM  

Possible Farmer,

Think about this also: is your farm experience strictly with modern industrial farming techniques? If that's the case, remember that in a true anarchic situation you can't rely on monthly deliveries of fertilizer, animal feed, herbicides, pesticide and what-have you.

(I'll also take this moment to hawk my good friend David's book, which is extremely relevant to this topic)

Blogger tweell May 19, 2015 12:29 PM  

Looking at previous economic collapses, gold either becomes a black market currency (Argentina) or gets confiscated (US depression). If it gets confiscated, it's still used as a currency on the black market, it's just riskier (and the black market is that way anyways).

Throughout recorded history man has considered gold valuable, there is nothing else that combines gold's appeal and portability. Food, clothing, tools, weapons, ammunition etcetera are important, but it's much harder to carry a month's worth of food than the amount of gold needed to buy that food. If you have to run for your life, a bit of gold is right up there as a survival tool along with your pistol and knife.

Blogger Nate May 19, 2015 12:30 PM  

"In reading back through the dialogue, I fail to see why any of my points were controversial. And if you're being paid $50k/month, Nate, count me as impressed. I know orthopedic surgeons not pulling that down, net."

Not every month but yes... in that range.

And if your orthopods aren't bringing that much... then they are doing it wrong.

Blogger Nate May 19, 2015 12:32 PM  

Orthopods down here are pulling 800k or so... so if you're not netting 600k.. well... you need a new tax guy.

Anonymous Jack Amok May 19, 2015 12:33 PM  

Under what circumstances would both Vox and Nate be wrong.

If we stopped sending kleptocrats to congress and the State Houses, hanged 90% of the banksters and shot 98% of the lawyers, we might be able to dodge both of their scenarios.

We'd still have a royal mess on our hands though, as we have a depressingly large number of young people with no useful skills or aptitude for productivity. But at least we'd start fixing the problem and eventually work our way through it.

Blogger Nate May 19, 2015 12:34 PM  

""Wouldn't it be wiser to pull out the retirement savings that I most likely will never get to (late 30's, crash coming before I get old enough), and buy a better farm?"

Its the call I would make.

Converting something that is likely to be worthless at some point into a good means of production is never a bad call.

Blogger Stilicho #0066 May 19, 2015 12:47 PM  

a good means of production
=the secret to higher living standards and inter-generation transfer of wealth

Anonymous BGS May 19, 2015 12:48 PM  

Orthopods down here are pulling 800k or so... so if you're not netting 600k.. well... you need a new tax guy.

Maybe their malpractice insurance is high or they have a couple ex wives leeching alimony.

Blogger Nate May 19, 2015 12:52 PM  

"Maybe their malpractice insurance is high or they have a couple ex wives leeching alimony."

mal prac is high for them but they aren't the ones really bending over for it... those are the poor OBs... you wouldn't believe...

Anonymous BGS May 19, 2015 1:06 PM  

" those are the poor OBs... you wouldn't believe"

I know, there are nurses out there that make more than doctors. OBs get sued for moms smoking crack & drinking booze when pregnant then seeing a commercial. "Did you walk thru the desert under 3rd world conditions to squat out a baby in the US and it ended up stupider than all the Asians and whites? Better call Saul."

Anonymous CurlyQ May 19, 2015 1:27 PM  

With the responses to Possible Farmer, I would like to pick some brains concerning retirement, if it doesn't steer the conversation off course too much.
We have just entered our 30's and have been setting aside money for retirement. However with the stability of the economy and the dollar in question for the relatively near future, it seems diverting resources to a retirement account that could go worthless might not be the best course of action.
It seems to me that putting resources toward hard assets, skills, food storage, means of production, etc. could be a better way to go.
Because when it really comes down to it, I have doubts that retirement will be a possibility for many in my generation.

Blogger JartStar May 19, 2015 1:43 PM  

CurlyQ,

Only if you are comfortable with it, and understand what you are doing. Never, ever put your money into something you don't understand at least reasonably well. You don't have to be an expert, but you need to know the fundamentals. If someone asks for your money and can't explain the business in less than 2 minutes to where you understand it, it's almost assuredly a scam.

I'm assuming by a retirement account you are referring to fixed income and equities, and sure they could go to zero tomorrow, and they could have go to zero 40 years ago too. Nothing is without risk, and if you can't handle the risk don't do it. Some people see a 10% correction in equities and shake all night thinking about the money they are losing, they shouldn't ever be in equities.

If you are completely convinced that our financial system will be taken to zero by some event, then you should have effectively zero of your assets in the financial system in any way beyond paying next months bills.

In other words, only put your money into something where you think you'd be OK losing it all on the risk. The real estate could burn down, the looters could smash your store you bought, the farm could succumb to a drought, equities could end up like Japan, and the US govt could make Greek debt look attractive.

The only imperfect defense is diversification across all asset classes you are comfortable with and understand. If things get as bad as some people think you'll still lose money, what you are trying to do is limit the damage. If they doom and gloom is wrong, well hey you have created a nice portfolio of assets which will probably take you into retirement with a nice income.

Blogger Aquila Aquilonis May 19, 2015 2:02 PM  

Think about this. If all the banks close and the dollar becomes worthless will the company Apple become worthless? Probably not.

OpenID mattse001 May 19, 2015 2:14 PM  

Without pre-reading through the comments:
No, credit is NOT money. It is LIKE money. If the US were sitting on $50 trillion in bills and deflation hit, the money would not disappear (unless the Treasury told the banks to start turning over the bills for destruction). Credit, on the other hand, will disappear as people de-leverage.
The proper physics analogy is: money is like stable matter. Credit is like a virtual particle created from zero-point energy, where its anti-particle is always created at the same time.
Money endures (barring devaluation), credit is transitory.

OpenID mattse001 May 19, 2015 2:36 PM  

"Shedlock's position is that hyperinflation is actually a loss of confidence in the existing political system, not a monetary event. "

That would require a population that mostly pays attention, when we KNOW that isn't the case. I don't believe a loss of confidence will precede everything else, because the masses are the definition of inertia.

Blogger Bard May 19, 2015 2:38 PM  

Q
30% in physical gold and silver. One year of food. Start now because it takes months to seal and store. 1000 rounds per weapon. 2k cash in bank to run life. 10-20k cash at home in 100s and 20s. Own your home. 4 rental homes (goal is 10) as there is 1.3T in student loans and those kids are not buying. I dont do stocks or bonds

Blogger Salt May 19, 2015 3:13 PM  

Think about this. If all the banks close and the dollar becomes worthless will the company Apple become worthless? Probably not.

You're right. There will still be the worm.

Blogger Nate May 19, 2015 3:13 PM  

"That would require a population that mostly pays attention, when we KNOW that isn't the case."

so.... you think the people of Zimbabwe pay attention?

Dude seriously. You don't understand the process we're talking about. You shouldn't comment on it much until you do.

OpenID mattse001 May 19, 2015 3:16 PM  

Another thing that occurs to me as I'm reading the comments:

People are conflating two traits of money with each other: 1) medium of exchange and 2) store of value.
In a hyperinflation barter economy, people trade for what they need. They intend to consume immediately, in most cases. Using macaroni as currency serves this purpose.

What happens if you have $10 million worth of assets? Assuming macaroni lasts 2 years (just to grab a number), you would need to roll over your entire net worth ever two years to keep it from spoiling.
THIS is why gold is used: not because it's so convenient, but because it has never been worthless and will keep forever. In that case, the bulk of your assets are stored in forms that won't spoil, and you keep the minority on hand in quick currency like macaroni, etc.

OpenID mattse001 May 19, 2015 3:20 PM  

Dude seriously. You don't understand the process we're talking about. You shouldn't comment on it much until you do.
You are talking about people losing faith in the government, which then leads them to eschew the currency since it's backed by nothing except faith.
The other side is talking about a monetary/economic event which then sparks a panic.
Correct, or no?

OpenID mattse001 May 19, 2015 3:39 PM  

Inflation can be seen in two cases:
1) The currency retains its value in aggregate, but the government prints more units, making each unit worth less. (Example: Weimar Republic)
2) The government doesn't print more units, but the users of the currency lose faith in its value, making each unit worth less. (Example: Zimbabwe, partially)
I would say "partially" for Zimbabwe because there were elements of both (I would assume there usually is, in any case). They printed money, but the horrible mismanagement of the government led people to lose faith in the currency as well.

In the US, I doubt the mismanagement will be so overt. Hillary is obviously corrupt, but many people will vote for her anyway. It doesn't matter to them. On the other side, the establishment always does its best to excuse poor economic performance.
In such a case, I find it hard to believe there will be a preference cascade away from the Dollar. Not unless there's an event.

Blogger J Thomas May 19, 2015 4:13 PM  

It seems to me that what makes money valuable, is confidence. Confidence in an authority to enforce it as legal tender. Whether "credit" or "cash" is that enforced tender, does it really matter? Barring an event where the electronic credit system shuts down, I don't see how even the debt levels can collapse the currency, especially when the rest of the world is going down the shitter as well, and many going there faster than us.

Anonymous Porky May 19, 2015 4:23 PM  

I find it hard to believe there will be a preference cascade away from the Dollar. Not unless there's an event.

Hyperinflation typically is not occur because of a single "event". Weimar's took about 5 years of tinkering with solutions until there was no solution left. Zimbabwe took about 10 years of watching land reforms slowly decay the economy. Peru took about 7 years of various government interventions which ultimately failed.

The US isn't even in the initial stages.

OpenID simplytimothy May 19, 2015 4:43 PM  

Stock up on your favorite shoes, clothing and such. It may never be cheaper in real terms, except at garage sales.

You are a woman, yes?.

Anonymous BGS May 19, 2015 4:51 PM  

Because forcing banks to give non Asians minorities with bad credit mortgages before 2008 was not good enough, lets extend it to illegals and deadbeats.
http://www.newsmax.com/Newsfront/deadbeats-illegal-immigrants-credit-invisibles-unscorables/2015/05/18/id/645235/?ns_mail_uid=54786106&ns_mail_job=1621276_05182015&s=al&dkt_nbr=maqh9jyf

http://www.newsmax.com/Newsfront/deadbeats-illegal-immigrants-credit-invisibles-unscorables/2015/05/18/id/645235/?ns_mail_uid=54786106&ns_mail_job=1621276_05182015&s=al&dkt_nbr=maqh9jyf

OpenID simplytimothy May 19, 2015 5:14 PM  

Tac Con has a drop-in trigger for that. Bump stock....

I commented to my neighbor that his semi-auto needs repair cause it started going all full-auto on him the other week. He got a sly grin and showed me bump-firing. (I had never heard of it)

He didn't have no stock nor no fancy trigger, he just gripped the magazine lightly and let the recoil against that off-balance grip 'jitter' the thing into 'automatic' fire.

I forget the gun, (he told me 3 or 4 times and I am terrible with names) .

The gun looked very similar to this PPS-43. Kinda of tinny feel to it and the 'bolt' had a very long slide action along the right side of the gun. It shot a small round that was very un-reliable (russian maybe)

I don't think that technique will do any good in an intense situation, so I treat it like a novelty. I am a bit disappointed that my neighbor does not have a "malfunctioning" semi-auto; I was a nice peaceful feeling thinking there is a full-auto nearby.

Blogger Nate May 19, 2015 5:26 PM  

"Hyperinflation typically is not occur because of a single "event". Weimar's took about 5 years of tinkering with solutions until there was no solution left. "

***chuckle***

No.

hyper-inflation requires 1 event and only one event. people have to lose faith in their currency.

Blogger Salt May 19, 2015 5:41 PM  

Bump fireing an AR/15

Blogger Nate May 19, 2015 5:42 PM  

"I don't think that technique will do any good in an intense situation, so I treat it like a novelty. I am a bit disappointed that my neighbor does not have a "malfunctioning" semi-auto; I was a nice peaceful feeling thinking there is a full-auto nearby."

Full auto is a waste. its could for cover fire and wasting ammo and little else.

Bump firing is pretty simple. You hook your thumb on a belt loop and pull the rifle forward with constant pressure against your thumb. The recoil pushes the rifle off your thumb.. your pressure pulls it back forward firing another round... on and on and on. again... it would work well enough to make folks run for cover. But you can do that semi-auto too.

Anonymous Too-Soon-ami May 19, 2015 6:08 PM  

"I commented to my neighbor that his semi-auto needs repair cause it started going all full-auto on him the other week."


That reminds me of this guy.

OpenID simplytimothy May 19, 2015 6:14 PM  

Bump firing is pretty simple. You hook your thumb on a belt loop and pull the rifle forward with constant pressure against your thumb.

That was one technique he demoed, but he had another. Next time he is in town I will remember the specs and technique. Both of us where in a bit of a rush to spend too much time shooting, so we kept the session short-ish and we had other guns to shoot besides that one.









Anonymous BigGaySteve May 19, 2015 7:19 PM  

Nate is probably going to print out this tread to put up at his gun club that only gays own bump stocks.

Blogger Salt May 19, 2015 7:39 PM  

No matter what one might think of a bump stock, does have a similarity to having a select fire switch. Watch the vid.

Anonymous kjj May 19, 2015 7:50 PM  

mattse001, at May 19, 2015 2:14 PM said:

> Without pre-reading through the comments:
> No, credit is NOT money. It is LIKE money. If the US were sitting on $50 trillion in bills and deflation hit, the money would not disappear (unless the Treasury told the banks to start turning over the bills for destruction). Credit, on the other hand, will disappear as people de-leverage.
> The proper physics analogy is: money is like stable matter. Credit is like a virtual particle created from zero-point energy, where its anti-particle is always created at the same time.
> Money endures (barring devaluation), credit is transitory.

No offense, but you sound like you have an academic understanding of economics, but not a practical one.

Money is no more real than credit, unless you choose to define money to only include physical currency. You can define it that way, but then you are only discussing the inside of your own mind, not anything that has to do with reality.

If you want to understand the real world, the only sensible definition of money is "that which people use as money". For most people, that is checkbook money. Now checkbook money is about as virtual as it gets. When you take out a loan, your bank creates checkbook money out of nothing, and when you repay the note, the money vanishes with it.

A good argument could be made for paper currency and token coin being almost as virtual. After all, the treasury prints it as needed, based on demand by banks, and retires it when worn out.

Anonymous farmer Tom May 19, 2015 8:13 PM  

dc.sunsets,

Nate is right. Want proof? Listen to this podcast from yesterday. An interview with Jim Rickards, "The Death of Money: The Coming Collapse of the International Monetary System"

on the Jan Mickelson show 1040 WHO. Second hour of the show.

Jim Rickards

Blogger James Dixon May 19, 2015 8:21 PM  

> Financial Advice: Pull out retirement investments in the stock market to purchase a farm or not?

Do you know how to run a farm without going into debt? Can you make money doing so? Is the farm land undervalued? If the answer to all of these is yes, then it's probably a reasonable idea. Maybe not a great idea, but a reasonable one.

> Money laundering is Bank Secrecy Act, boys. Not drug war civil asset forfeiture.

It's colloquially still called money laundering, even by the cops. They may be using the term incorrectly, but...

Blogger Robert What? May 19, 2015 8:43 PM  

Let's start with two givens: the first goal of the central banks and their cronies is to keep the asset bubble going because that is where all their own wealth is. The second is that, come the crash - which they will have caused - to be made whole on their own gambling losses by shifting them onto the taxpayers. So knowing these two "givens", anyone care to speculate on the next five years in financial terms?

OpenID simplytimothy May 19, 2015 8:58 PM  

So knowing these two "givens", anyone care to speculate on the next five years in financial terms?

dc.sunsets recently did some speculatin->
http://voxday.blogspot.com/2015/05/the-greek-canary.html#c1688534993737785520

Blogger Cail Corishev May 19, 2015 9:08 PM  

on the Jan Mickelson show 1040 WHO.

Is Jan still on the air up there? Damn, I listened to him when I lived in Iowa 20 years ago. He was probably my first introduction to a sort of populist conservatism; I'd listen to him and then Limbaugh, and always preferred Mickelson. I suppose nowadays I could listen to him online; I'll have to check that out and see if he's as I remember.

Blogger Robert What? May 19, 2015 9:41 PM  

@SimplyTimothy,

Thanks. Interesting comment. He also refers to killing cash. However killing cash will do little to keep the asset bubble afloat. It will, however, assist in the banksters second goal: shifting their gambling losses onto the taxpayers.

But here is the rub: there is not enough taxpayer money in the known universe to cover all the gambling losses of all the banksters and their cronies.

So at some point the banksters are going to have to turn on each other. What that will look like is beyond my feeble abilities to predict.

Anonymous BGS May 19, 2015 11:19 PM  

So at some point the banksters are going to have to turn on each other.

If you recall Martin Luther wrote about how a certain tribe took over banking. They had people get loans from non tribe banks and declare bankruptcy/name change. Then they moved, got a new name with full references from other tribe members for another loan. That's why I want to know if any of the "Banker suicides" belonged to that tribe.

Anonymous farmer Tom May 19, 2015 11:59 PM  

Cail Corishev, he's still there and as good as ever.

I consider him the most knowledgeable, well read talk guy I've ever heard. Makes most of these clowns sound like babbling idiots by comparison.

Anonymous Jack Amok May 20, 2015 12:47 AM  

It seems to me that what makes money valuable, is confidence.

Yes,

Confidence in an authority to enforce it as legal tender.

No.

What makes money valuable is confidence someone else will accept it in exchange for something you want to buy. The only thing the government "forces" people to accept money for is paying debts, and in an economic crisis sufficient to destroy a currency people are far more concerned with buying today's necessities than with paying off yesterdays debts.

In fact, in Nate's hyperinflation scenario, debts become mostly irrelevant because they've been devalued into obscurity. "Huh, I've got $50k in my wheelbarrow. Should I pay off my student loans, or buy that loaf of bread?

Blogger J Thomas May 20, 2015 1:17 AM  

What makes money valuable is confidence someone else will accept it in exchange for something you want to buy.

So it's a chicken and egg question. What makes the money valuable... My belief that others will accept it? Or other's beliefs that I will accept it? It seems to me both, and therefore neither chicken nor egg.

In the last analysis, we all know both cash and "credit" have no intrinsic value (meaning, retaining a human purpose that exists regardless of whether or not it is declared currency).

It seems to me that it comes down to multiple cascading/connecting/correlating factors.

The final reason why any currency had any value to begin with, is because it was declared legal tender. And it is assumed in this "declaration" that it will be backed by force. It is this implicit assumption that makes any currency valuable to begin with.

But of course, confidence in a currency can erode regardless of government power to enforce it, but again, that will only happen when people perceive or lose confidence that the dollar is being diluted, or whatever.

The bakery owner will still accept your German marks if he is unaware that everyone else around him has a barrel of newly printed marks. It is only when he *realizes* that everyone has barrel fulls, will he then stop accepting the currency.

Implied ability to enforce legal tender (which is perceived through military strength of the state, which is also established by the people to begin with) is the fundamental establishing of a currency. But from that point on, perception of ability to enforce, and perception of whether or not the currency is diluted, is the main factor as to whether "confidence" is maintained. At least so it seems to me.

Blogger J Thomas May 20, 2015 1:23 AM  

But the situation is also further exasperated by the situation of the other economies around the world. If other countries are going to shit quicker than you are, then that might slow down the natural process of your own currency devaluation, by the fact that others are jumping ship from their own "faster-to-corruption-than-your-currency" situation.

So in that case, confidence in your currency will go up (and thus strengthen it) because others *perceive* that other places are unsafe.

Moral of the story? Economics in our society today, is really fucking complicated. There are no precedents to our exact situation today, and thus all economics is a guessing game. Even Vox admits to not getting the timing right.

Anonymous Jack Amok May 20, 2015 1:57 AM  

Implied ability to enforce legal tender (which is perceived through military strength of the state, which is also established by the people to begin with) is the fundamental establishing of a currency.

You do realize that people in many countries accept US dollars as payment for goods and services even though the US government has zero ability to enforce legal tender laws in those countries and the local government enforces legal tender laws for an entirely different currency don't you?

Anonymous kjj May 20, 2015 2:15 AM  

@J Thomas

It is turtles all the way down. Or rather, alternating chickens and eggs. Static analysis is not useful in economics. Your faith depends on your estimate of the next guy's faith, and his faith depends on his estimate of your future faith. To infinity, or at least as far as everyone is willing to go. It isn't that one of you has to go first, it is that all of you have to go all the time.

Legal tender status just means that you can't be sued for non-payment if you attempt to discharge a debt using the legal tender. It has no bearing on value. If the people don't trust some money, making it legal tender is of limited utility. They will take it because they have to, then get rid of it as quickly as they can while trying to avoid having to take it in the future. Hardly an improvement over barter.

Think of the Germans burning wheelbarrows full of cash because it was cheaper than fuel. That was legal tender, but it had no value. Well, it had a tiny little bit of value as currency, but considerably more value as heat. The people burning it didn't dispute the legal tender status, and they certainly didn't doubt the state's ability or willingness to enforce it. It simply wasn't worth enough to be useful in that role.

For the state to force the local toilet paper to have value, it has to have price controls. If the state is willing to use force to make a merchant sell you an apple for a dollar, that dollar is worth one apple. Which means that apples will disappear from the stores very quickly as soon as the black market rate for apples approaches the state's rate for apples.

In the absence of price controls, the value of a currency, whether legal tender or not, is merely an expression of the market's estimation of future worth.

That is slightly simplified. In practice, some small bit of value comes from the state through various mechanisms, like accepting it (and only it) for paying taxes. I'm reminded of the petrodollar wackos. To take that theory seriously you have to have never heard of forex. In a world with forex, a buyer that doesn't hold dollars can buy oil priced in dollars from a seller that doesn't want dollars, with neither of them holding dollars for more than a few milliseconds. Those milliseconds do have a teensy tiny impact on the value of the dollar, but it should be obvious that the transaction does not in any way depend on the value, only the spread. What matters is holding.

Blogger Cuca Culpa May 20, 2015 2:22 AM  

You would need at least enough to make it through the winter

Two words: ice fishing.

Also don't think they're going to care if people have a moose tag or not when SHTF.

Blogger Phoenix Training & Placement May 20, 2015 2:51 AM  

hrhrhrhrhrhrhrhrhrhrhrhrhrhrhrhr

Blogger Cuca Culpa May 20, 2015 3:08 AM  

If all the banks close and the dollar becomes worthless will the company Apple become worthless? Probably not.

IPhones were popular during the beginning of the Ukrainian war, although they would have to hook up to something may be a problem. A 2 meter rig would be more useful, as well as a way to power it.

Blogger Cuca Culpa May 20, 2015 3:17 AM  

Hillary is obviously corruptv

Trying to avoid the coronation coverage, but my doctor had CNN on in the waiting room. After learning that Ashley Banfield now thinks she's Texan, and the usual stuff about high noon in Waco with GASP white bikers, Cankles came on to non-answer questions.

She's doing the Oprah thing (going southern accent when expedient y'all) but it's barely noticible.

Blogger Cuca Culpa May 20, 2015 3:32 AM  

Hillary is obviously corruptv

Trying to avoid the coronation coverage, but my doctor had CNN on in the waiting room. After learning that Ashley Banfield now thinks she's Texan, and the usual stuff about high noon in Waco with GASP white bikers, Cankles came on to non-answer questions.

She's doing the Oprah thing (going southern accent when expedient y'all) but it's barely noticible.

Anonymous anonymous coward May 20, 2015 5:19 AM  

For the state to force the local toilet paper to have value, it has to have price controls.

No, not really. The US dollar bill is an IOU note from the government that it issues to civil servants and welfare recipients in lieu of payment. It's effectively a company scrip, except for a slightly larger than usual company.

The value of the US dollar bill in enforced by the businesses that are willing to accept it when servicing civil servants and welfare recipients.

As long as there are enough of those, the US dollar bill will hold value. :)

Blogger rumpole5 May 20, 2015 8:58 AM  

Having lived through prior periods of significant economic uncertainty, I agree with the commentors (Aquila Aquilonius & J Thomas) who view the present economic scenario as too dynamic to predict. If ISIS continues its northward push toward Constantinople, for instance, and Iran continues its adventures on the edge of Saudi Arabia, a whole lot more dollars may soon be winging their way home to purchase more secure assets here. Manufacturing may look more attractive in the USA with its new Cent. Am. cheap labor and/or robotics when the sea lanes are disrupted by the Chinese-Japanese-Vietnamese-Asiaese war looming on the horizon. A lot of Asian dollars are winging their way back too. And fracking gives us energy to sell and use if other producers go off line. It is all too chaotic to call, and it is quite possible that circumstances could make us the winners in spite of our unworthy leaders.

Anonymous BillB May 20, 2015 9:50 AM  

The only money in our hands is ----- nothing. The paper bills are merely IOUs, Bills of Credit, a specie not allowed under the Constitution. But then we don't follow the Constitution. The coins in use are not acceptable as legal tender because, again according to the Constitution, the only tender in payment of debts is silver and gold coins, not alloy or other crap. But we don't follow the Constitution. All the hand-waving and bullshit spouted by everyone, on the net, in actual social discourse, on TV, etc, about having a Constitutoinal government is freaking BS. No one really wants a Constitutional government in the US. Everyone screams when their ox is gored but cheers when it's somebody else's ox. Smoke and mirrors.

Anonymous Porky May 20, 2015 10:30 AM  

hyper-inflation requires 1 event and only one event. people have to lose faith in their currency.

Go talk to somebody who's lived through it. Losing faith in your currency takes a long time because you are constantly being reassured that your government is going to fix the problem.

Blogger J Thomas May 20, 2015 10:33 AM  

The people burning it didn't dispute the legal tender status, and they certainly didn't doubt the state's ability or willingness to enforce it. It simply wasn't worth enough to be useful in that role.

I very much agree that it lost value regardless of legal tender status, which is why I said legal tender status has more to do with the establishing of the currency to begin with. But when the mark did lose value, it did because people *perceived* dilution (and political corruption?), and so the baker would no longer receive them. Of course there are multiple complexifying factors that lead up to that situation, but where the rubber meets the road is that, if the true monetary reality could be hidden from the baker, he will continue transacting in credit, IOUs, FRNs, cash, whatever.

Implied enforced status set up the currency to begin with. *Confidence* in non-corruption and non-dilution (and that can be maintained through deception or other countries declining faster than you) is what keeps a currency afloat. Or so it seems to me.

Blogger J Thomas May 20, 2015 10:44 AM  

You do realize that people in many countries accept US dollars as payment for goods and services even though the US government has zero ability to enforce legal tender laws in those countries and the local government enforces legal tender laws for an entirely different currency don't you?

Yes I absolutely agree. Which is why I said legal tender (enforced) status has more to do with the establishing of the currency to begin with.

But out of all the established currencies on earth, the ones that are *perceived* as the healthiest and least corrupted (cleanest dirty shirt in the basket?) will be sought after, thus reinforcing the reserve status of the currency that has been that way, if it is perceived as healthier than others.

One thing also to consider is that, no matter how much people hate the US and it's military might (especially in it's display of power in Iraq and Afghanistan lately), people respect strength (yes, even if it's coming from the "neo-cons").

A subtlety of human nature is that people will rail against your corrupt expression of power, but then turn around and want to engage in your currency because they subconsciously respect your bigger testicles (regardless of your corruption). Granted this can't go on forever (as the bible says a man eventually reaps what he sows), but again, if others are going to shit faster than you, your karma will be slowed.

Anonymous Athor Pel May 20, 2015 11:43 AM  

"simplytimothy May 19, 2015 4:43 PM
Stock up on your favorite shoes, clothing and such. It may never be cheaper in real terms, except at garage sales.

You are a woman, yes?. "



You've never worn clothing until its completely worn out have you.

If you've never known someone that lived through the great depression then you likely don't know what frugality is in its fullest sense.

Guess what, if you live long enough you will learn it first hand.

OpenID simplytimothy May 20, 2015 12:38 PM  

You've never worn clothing until its completely worn out have you.

heh. (wiggles toes through holes in socks) . My current jeans I got from the 'convenience center' (drive-in garbage dump) where somebody 50 lbs heavier and 3 inches shorter than left them by the side of the dumpster.

When I think 'clothes' I think warmth and work; that means coveralls, boots and a wool head covering, I don't think "shoes and clothes" that sounds like woman talk to me. Investment in those ran about $200.00 which is a lot of money to me. I don't just 'go shop" I have to budget and plan ahead.

Boots mean good boots and not walmart boots. My coveralls will make me sweat during walking in zero degrees and my wool face-guard/cap keeps my ears from falling off during bitter cold. Talking to the locals, these things last for years. Dressing up means my 1 pair of jeans that fit and a bleached t-shirt and my 1 button down shirt and the walmart boots I got.

That's it. When my t-shirts wear out, I use them for rags and when I get to the walmart and if I have the money, I buy a pack of em and wear them until they wear out.


I do have shopping plans for a pair of mucking boots; if shtf, I may be able to swing a deal with a local farmer to milk some heiffers in exchange for milk and butter.

It was a question, not an insult. If dc.sunsets is a dude, I will be surprised by his choice of words, that's all.



Blogger RL (#0052) May 20, 2015 2:24 PM  

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Anonymous Jack Amok May 20, 2015 9:04 PM  

Yes I absolutely agree. Which is why I said legal tender (enforced) status has more to do with the establishing of the currency to begin with.

The US Dollar began life backed by silver. Actually, it was silver, coins with 371 grains of silver. People used them because they trusted that the government coins did in fact contain 371 grains of silver. Later gold was added as an alternative.

The first paper currency issued by the US government (after the Constitution was adopted anyway) was specifically not "legal tender". They were instead treasury notes, debt instruments issued by the US Treasury. The first Legal Tender bills were Demand Notes issued to fund the Civil War. They were called Demand Notes because the holder could redeem them for gold or silver "on demand" at the US Treasury. They were used the Federal Government to pay soldiers and suppliers during the war, with the hope that instead of redeeming the notes, people would instead circulate them as money. The public only started accepting the notes as money when they were confident they could indeed be redeemed for metal.

"Legal Tender" was a very, very late comer to the party. The biggest impact government legal power has had on the dollar's acceptance has been creating impediments to competitors. Like FDR declaring private holding of gold to be illegal so people couldn't use it instead of federal notes.

Blogger J Thomas May 20, 2015 10:25 PM  

The US Dollar began life backed by silver.

Indeed. And it still doesn't matter to the point at hand. Whether the Greenback is actually silver, gold, credit, cash, IOUs, derivatives, chickens, whatever, it doesn't change the fact that it was still originally declared legal tender.

The denarius in Jesus' day, despite having value as whatever metal it was, was still declared legal tender, and the way they did that was stamping Caesar's face on it (an issue Jesus implicitly took issue with by pointing it out).

Whatever geopolitical reasons (corruption?) a government changes the "nature" of what is legal tender (from something that has " intrinsic value", to something that doesn't, it doesn't change the fact that it was established as legal tender by an authority that was perceived to be able to enforce it (whether it actually could or not).

Anonymous Jack Amok May 20, 2015 11:33 PM  

Indeed. And it still doesn't matter to the point at hand. Whether the Greenback is actually silver, gold, credit, cash, IOUs, derivatives, chickens, whatever, it doesn't change the fact that it was still originally declared legal tender.

"Legal Tender" status had nothing to do with establishing the dollar as a viable currency, no matter how many times you repeat it.

The coins issued for seven decades before the first "legal tender" paper bills were accepted as currency because of their metal content. And they competed with multiple other currencies issued by private banks (including private paper money).

The first paper instruments issued by the US government were not "legal tender" but were instead debt instruments used as currency (but only for large transactions as they weren't issued in small denominations).

When the government first issued "legal tender" paper, people rejected it. Suppliers wouldn't take it as payment for goods and services the Union Army needed in the Civil War. Soldiers didn't want them for their salary. Only when the Secretary of the Treasury guaranteed that the US depositories where the paper could be redeemed had sufficient bullion to cover it and would redeem the paper on demand did people start to accept the bills, and even then their trade value was about 55 cents on the nominal dollar. The US government didn't even accept them - despite the "Legal Tender" status - for customs payments, and was prohibited from using them to make interest payments on debt (probably necessary so that people would not refuse to loan the government money).

Legal Tender was nearly irrelevant. The only thing that made them work was confidence they could be converted to gold or silver if needed.

Blogger J Thomas May 20, 2015 11:46 PM  

The coins issued...

Can you elaborate on how specifically this "issuing" happened? What was on the first issued coins? Anything at all?

Anonymous Jack Amok May 21, 2015 12:56 AM  

Can you elaborate on how specifically this "issuing" happened? What was on the first issued coins? Anything at all?

"United States of American - Half Cent"

The word Liberty was also engraved on a headband.

Nothing else. Sorry Charlie.

Blogger Cail Corishev May 21, 2015 6:22 AM  

It seems to me that what matters with money is whether it will still have value tomorrow -- if I accept it from you today, will I be able to pay my bills and feed myself with it tomorrow. Two different things could make me confident that that will be the case: 1) It has an intrinsic value that people will always want, as in precious metals, or 2) some authority backs it with a guarantee, and I trust that that authority will have the ability and desire to do so.

So: intrinsic value OR legal tender from a trustworthy authority, or both.

Blogger J Thomas May 21, 2015 9:12 AM  

"United States of American - Half Cent"

And there you prove my point. You are being far too over technical on the word "legal tender".

Right there is legal tender. Are you being obtuse on purpose Charlie?

Blogger J Thomas May 21, 2015 9:15 AM  

And while you're at it, Charlie, why don't you be really specific as to who issued the coins?

Anonymous Jack Amok May 21, 2015 11:15 AM  

J Thomas, the US government issued different types of money in it's first century. They all were clearly designated as from the United States. The ones that also contained precious metal were readily accepted as currency. The ones that didn't contain metal were only accepted when people were convinced they could be redeemed for metal, and even then only at a discount.

At the same time, there were numerous private banks who issued paper currency. There was no backing of any government to those pieces of paper, but many were generally accepted - within geographical limits - as payment when people had confidence in the private bank.

Government authority had nothing at all to do with early acceptance of government money. The biggest impact government authority has had on acceptance of the US Dollar has been in effectively outlawing competing forms of currency, but that a) happened after the greenback was generally accepted, and b) isn't at all what you are claiming.

why don't you be really specific as to who issued the coins?

The US Mint, which was part of the State Department. The Federal Reserve wouldn't exist until over a century later.

Anonymous Jack Amok May 21, 2015 11:29 AM  

So: intrinsic value OR legal tender from a trustworthy authority, or both.

The "legal tender" guarantee isn't as important as a convertibility guarantee. When the greenbacks came out, nobody wanted them until Chase (Sec. of the Treasury) guaranteed they could be exchanged for silver or gold at depositories in Philly and, I think Columbus OH (there may have been a third location too, can't remember). Even then they were generally only accepted at half face value compared to coins.

And the government itself wouldn't accept them as payment for import duties - those had to be paid in metal. Remember that customs duties were the main source of federal revenue back then before income tax. The feds wanted their payment in "real money." It wasn't until viable competing forms of money had been eliminated that the feds could stop redeeming greenbacks for metal without tanking the value of the currency (they did that during the Civil War with an early form of paper dollars and those lost 97% of their value).

The early 20th Century finished hamstringing competitors to federal money with the Federal Reserve putting banks under the federal thumb and then FDR confiscating gold eliminated that as a competing currency. But if they'd tried to start with those measures, it never would have worked. There had to be a couple of generations of comfort with dollars redeemable for metal before the feds could wipe out the competition.

Blogger J Thomas May 21, 2015 2:24 PM  

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Blogger J Thomas May 21, 2015 9:48 PM  

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Blogger J Thomas May 21, 2015 9:53 PM  

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