Preparing for the “crisis window”

This is a Financial Sense podcast.

Joel Salatin of Polyface Farm in Virginia offers workable solutions to the average person in how to mitigate the projected tripling of food prices in the next decade.

Silver: The Undervalued Asset Looking for a Catalyst

The most important point to understand is that silver and gold represent real money that is not someone else’s liability.

Precious metals stand in sharp contrast to the fiat currency system that now dominates global finance. This system of credit and paper money—with nothing to back it—is now heading straight for a financial crisis with the dollar at its epicenter.

 
The dollar's recent declines have been arrested through active intervention in the currency markets. However, history shows that planned intervention eventually fails. The markets always, and I say always win out in the end.

The present madness or delusion at the Fed that they can create prosperity through massive debt creation is about to be shattered. The trade deficit, the national and state governments' deficits and America’s total outstanding debt dramatically show that this giant mountain of debt is about to reach its upper limits. When consumers no longer have the ability to borrow money or extract equity out of their homes, when the housing bubble begins to deflate, when foreigners no longer buy our paper or even worse—refuse to accept it as payment—the crisis will be upon us.

America’s debt problem is so large now that the only way out is to inflate our way out of it. The appetite for government spending in this country is insatiable. We are running not only large current account balances with the rest of the world, but we are also incurring large budget deficits that could run as high as $400 billion and go still higher. At the same time we are also about to add a major new entitlement at a time we are at war. It is back to guns and butter again, although this time our debt levels are far greater. This means that with government revenues declining and government spending accelerating, the government is now actively printing dollars to finance its deficits. This is what is causing the dollar to depreciate.

Insolvent and Going Deeper

The US is on a fiscally unsustainable path and has almost entirely wasted the opportunity this crisis represented to get its house in order.

Obama, and whoever sits in the oval office next, has an enormously difficult task of explaining to ordinary people why the belt tightening that is to come applies to them and not to the banks that created the mess (and are feverishly handing out record bonuses as a result).

Given this constraint, and the general paralysis of logic that now grips DC, we can almost certainly expect that the resolution to the multi-decade game of kick-the-can will be a crisis of sorts. 

The only way out is to accept the idea that living standards have to fall to match the prior excesses, an admission that 'experts' agree is politically impossible in the US at this time.

Yet the conditions and risks remain, regardless of what experts think is doable.  The job of any primary bear market -- and we are in the mother of them all -- is to destroy wealth.  Your job is to preserve wealth. But buckle up; it's going to be a rough ride.  

My overall advice for what's to come remains: Convert your fiat money to useful things. True, gold doesn't earn any interest, but neither does money in the bank these days, and gold can't be devlaued away by reckless monetary policy. So holding precious metals for purchasing power preservation should be a fundamental part of your plans. And while there is real risk of a short-term deflationary downdraft in commodities as the Fed jawbones about ending quantitative easing, my general advice is anything that you expect to buy over the next year you should just buy now. What the heck, you'll use it anyways, and you just might buy it for a lot cheaper than later on.

Enjoy life, love your family, and note that the sun still rises, the birds still sing, and all of our human foibles will resolve themselves eventually. We've arrived at a peculiar point in history where attitude is a tangible element of your future wealth and paper money has become like fog on a warm morning.

Justice Department Has No AppetiteTo Go After Goldman Sachs.

Extend and Pretend Is Wall Street's Friend

The reality on the ground does not match the rhetoric coming from the government, Wall Street and the corporate mainstream media. The truth is as follows:

• The vacancy rate for office space in the U.S. is currently 16.5%.
• The vacancy rate for industrial space in the U.S. is currently 14.2%.
• The vacancy rate for retail space in the U.S. is currently 13%.
• Delinquencies within collateralized debt obligations in commercial real estate loans rose to 14.6% in February. The increase signals a trend of higher delinquencies in the segment. Signs of pressure surfaced as early as January when the delinquency rate on CDOs within commercial real estate loans hovered well above 13%.
• According to Moody’s, CRE prices are down 4.3% from a year ago and down about 43% from the peak in 2007.
• The delinquency rate on loans packaged and sold in commercial mortgage-backed securities rose to a record 9.2% in February, according to a March 15 report by Moody’s.
• Regional and local community banks have as much as 80% of their balance sheets tied up in commercial real estate, and very few other sources of significant fee income to offset CRE losses.
• CRE once had an estimated national value of $6.5 trillion. Today it stands at an optimistic $3.5 trillion.
• There are 1.8 million homes seriously delinquent, in the foreclosure process or REO that are not currently listed for sale.
• There are about 2 million current negative equity loans that are more than 50% “upside down”.
• Home prices are off 31.3% from the peak. The Composite 20 is only 0.7% above the May 2009 post-bubble bottom and will probably be at a new post-bubble low soon.

The silver supply constraints

Inflation Actually Near 10% Using Older Measure