Food for thought from a friend.

Dear Friends,

 

Happy holidays to all and I hope the New Year is safe and prosperous for everyone. 

 

It’s been some time since I’ve shared my thoughts on the economy, our general fiscal health and overall state of the world.  I’m feeling the urge once again.  

The big hang up lately in our news cycle is the fiscal cliff and what’s going to happen to our taxes and is Congress going to extend our debt limits so that we don’t default?  Yes, Congress will temporarily extend the credit line of the Federal Reserve so that is can continue to trade debt from one hand to the other.  And yes, some payroll taxes will rise and some of the wealthiest wage earners in the country will pay some more taxes.   We will all listen to the pundits and politicos trade jabs, make estimates and arm wrestle with their theories, but at the end of the day, the story will fade again on the short term, and the channel will turn to gun control, mental health issues, Syria, North Korea and if Mr. O was borne in the U.S.    There’s infighting, but it’s politically beneficial for both parties to eventually play nice for the moment, so that it looks as if they really care, but it doesn’t really matter long term since it’s a runaway snow ball with no end in sight.  The Federal reserve is now purchasing 75% of the net new treasuries issued.  And the charade continues as the treasury is retiring long term debt, using short term notes, sold to the central bank.   It’s like using your credit card to pay your mortgage payment, eventually the revolving door stops working. 

Unfortunately, 60% of the Federal debt is coming due, because of the short term treasuries maturing, in the next three years.   My feeling is that China, Japan and the rest of the world will hold tight.  Yea, they will play and  buy a little, but nothing near what’s needed.  So that means the Fed will pump up the proverbial presses and add some digits from the computers to increase the money supply further and drive inflation into overdrive. 

 Moreover, according to AARP,  baby boomers reaching 65 are retiring at the rate of approximately 7-8000 per day, for the next 18 years.  The strain on the entitlement system will be off the charts as social security, Medicare, O’care, and the orgy of other entitlements such as the SNAP (food stamps), Medicaid, HUD, free drugs for seniors and the like dig in.  These are all of the unfunded liabilities, that don’t consider the real time national debt of 16 plus trillion dollars.   Estimates of 80 – 150 trillion pop up if you factor in all of the federal liabilities and what about the States debt?  But who really knows?   The fact is that the math doesn’t work, the country is broke and broken. 

 The deficit is a trillion plus or more each year with no end in sight with continued spending in all areas.  It’s a stuck record, I know. 

 We can tax everyone 100% on their earnings and it wouldn’t even make a dent on the balance sheet or future obligations of the country.

The collectivists and central planners of the world would like to have a one world currency, so they can continue the charade.  I don’t see it happening because there’s too much against it, particularly the experiment of the European Union and the Euro currency which is falling apart.  My feeling is that we will experience a hyper-inflationary period and the destruction of paper wealth.  The likely event is either a default or a re-boot into a new currency, that has been devalued, at a lower face value. 

 The U.S. government ,with a national security declaration, will strategically stop paying interest against all of the paper debt issued in bonds and notes to other nations and individuals that hold our debt.  I think that the dollar will be forced to be exchanged for another U.S. currency that will be worth less than the original face value.   Possibly, a twenty note would be exchanged for a new $5 note or even less?   Retiree’s and those on fixed incomes will be wiped out, but savers with new currency will enjoy some high interest rates.  Here’s where some gold and silver may help, in that an exchange for the new currency or old, will produce some serious returns for savers and lenders of capital after the default.   As we know, the metals will hedge and move upwards with the devaluing of the dollar, as it has since 1913 since we created the Central Federal Reserve Bank.   The reserve currency status of the dollar will cease to exist and – who knows we may find our way – and go back to a currency backed by a real asset? 

 Another question is, what happens to our current personal debts and obligations.  Does the liability remain the same against the old currency value, or does it too, reboot?   My feeling is that it would have to reboot as well, to keep the balance sheets on par with the face value of the new dollar.  So what if that happens – nothing changed – those that have, still have etc., but the problem is that the buying power of the those smaller dollars or notes, will be much less.  Our products that we buy will cost much more in relationship to other currencies, since the faith in the dollar will be next to nothing and the exchange for goods and services against  other currencies will be against us, since the dollar will be worth much less than other stable currencies, particularly China.  They will feel pain too as will all nations, but we can’t handle it as a people and a culture, to live with nothing and forced to survive on our own without safety nets, convenience etc.,  Just look at the natural event with hurricane Sandy and how it impacted a small  geographic area.  The struggles with no food, fuel, housing etc., Imagine, a national event with a break in the supply chain.  The suffering would be unimaginable. 

 

We all talk about what should we do to protect ourselves and our existing assets, both paper and real.  All of us haven’t experienced hyper-inflation or a depression.    It’s old history, stories of our past, but it’s real.   It can happen again and I think that it will.  There’s a layer of denial that it can’t happen, but that’s our problem as a nation and culture.  We find it hard to be independent and self sustaining, but dependent and consuming.

 Simply, we need to plan to be as self sufficient, to be off and out of the loop as much as possible.  Crowd mentality will prevail and survival of the fittest will too.  Here’s a question, can any of us go a week, a month or even a year without buying fuel, food or clothing at a local store?   I would say not – I know that I can’t. 

 

As most know, I’ve been living and working in the Caribbean.  I’ve been watching and working with local tradesmen and people that have to work for a living and to survive.  Some of the fruits, juices, vegetables, meats and fish that they bring to eat for breakfast and lunch has been harvested by their own hands and prepared by their own hands.  Some amazing foods, that I’ve enjoyed tasting and discovering.  Unfortunately, they too depend on the supply chain for a lot their needs, but I know that if the shit storm started, I feel that they could survive.  The fiscal health of the Caribbean is really vulnerable since unfortunately, it’s pegged to the U.S. dollar and they have become assimilated into the world order of dependency in a lot of ways.  In the past several years, I’ve noticed that the costs of food in the stores, fuel etc., has really escalated, because of their tie to the U.S. dollar, cost of the supply chain and the real inflation.  The push back is a further continuation and or return to their roots to take care of themselves and to sustain themselves.  It’s interesting to see, explore and for all of us to consider wherever we lay our heads.    

 

 

Marcus

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