Monday, February 22, 2010
I also enjoy Mish, who is always thought provoking and doesn't pull any punches. This evening Mish is feeling the doom, with his two recent posts being Commercial Real Estate Apocolypse, and Doomsday Arrives for Illinois.
When you look at these budding crises, throw in the fiscal disasters of California, New York, New Jersey, Florida and Arizona, then consider the Euro crisis stemming from unsustainable debt levels in Greece, Spain, Portugal, Ireland, and Italy, and it's pretty hard to make the case that we're anywhere near a global recovery. And while we're all digging out of our debt hole, who's going to keep the factories in China humming?
We don't "dig" out of this debt hole. First "we" confiscate through forced investment in treasury bonds, then we print our way out of the hole. The road map is clear: Germany, Mexico, Argentina, U.S. All fiat currencies eventually reach their intrinsic worth: zero. We're no exception.
In a fiat currency system money is backed only by debt. Therefore, our money is only as good as the debt which supports its issuance. The market cannot hide forever the fact that our debt is unsustainable, and therefore our money is losing value, on its way to worthlessness.
Leveraged assets will deflate for 3-5 years as the financial system deleverages, then devaluation kicks in and inflation robs our savings.
This is no time to hold paper assets. I'm almost completely out of stocks in favor of cash in my retirement accounts. The only remaining question in my mind is whether to close them now, pay the taxes, and move the money overseas.
I'm slowly pulling cash out of my bank accounts and buying physical silver and gold. No guns and ammo yet, but working on it. Food pantry is stocked with 1-2 months of food.
Politically, what emerges from this fiasco is a far cry from our constitutional order. Unable to print money to cover operations and pension/benefits, virtually all states will go bankrupt. The Federal government emerges as the Alpha and Omega; states are irrelevant, citizens even more so.
Hope & change, baby.
"The Federal government emerges as the Alpha and Omega"
But the Federal Government will be unable to pay any of its dependents, unable to honor its debts -- and will have even less credibility than now.
We're more likely to see the Federal Gov't collapse, along with many of the coastal states. Civilization will remain in Texas and such like, where a functioning state will take over responsibility for paying for the military. After the coastal liberals have starved to death, the Texans may set out to reconquer North America.
At least, that's the optimistic scenario!
The weird part is that the solution to federal overspending is so easy to see, since it is essentially concentrated in just two programs: Medicare and housing support. We'd go through some pain, yes obviously, but at least we'd still be solvent.
>> We're more likely to see the Federal Gov't collapse, along with many of the coastal states. Civilization will remain in Texas and such like, where a functioning state will take over responsibility for paying for the military. After the coastal liberals have starved to death, the Texans may set out to reconquer North America.
I wish it were so. All states with fixed pension obligations will sink as deflation crushes the asset values underlying these pension obligations. Texas is no exception.
The Federal government will assume these liabilities. Look for comprehensive "retirement security" reform in Congress that will create a GSE to federalize state pension plans and force you to invest a portion of your 401k in T-bonds.
The feds have the printing press, which is all that matters in this scenario.
force you to invest a portion of your 401k in T-bonds
Do you think they'll be able to pass that? The citizen revolt will be enormous if they did that, or tried to strip Roth accounts of their tax-free withdrawals.
What do I do if I'm currently invested in illiquid assets, like private equity or real estate? I'd have to take a huge loss to convert to Treasuries, assuming I have the right to sell in the first place (private equity frequently restricts resales for a period of time).