Tag Archive: Economic Collapse

Source: SFGate

For the first time since 2008, inflation is hitting consumers in the stomach.

Grocery prices grew by more than 1 1/2 times the overall rate of inflation this year, outpaced only by costs of transportation and medical care, according to numbers released Wednesday by the U.S. Bureau of Labor Statistics.

Economists predict that this is only the beginning. Fueled by the higher costs of wheat, sugar, corn, soybeans and energy, shoppers could see as much as a 4 percent increase at the supermarket checkout next year.

“I noticed just this month that my grocery bill for the same old stuff – cereal, eggs, milk, orange juice, peanut butter, bread – spiked $25,” said Sue Perry, deputy editor of ShopSmart magazine, a nonprofit publication from Consumer Reports. “It was a bit of sticker shock.”

But it makes sense. Since November 2009, meat, poultry, fish and eggs have surged 5.8 percent in price. Dairy and related products have gone up 3.8 percent; fats and oils, 3 percent; and sugar and sweets, 1.2 percent.

While overall inflation nationwide was 1.1 percent, grocery prices went up 1.7 percent nationally and 1.3 percent in the Bay Area, said Todd Johnson, an economist for the Bureau of Labor Statistics office in San Francisco. “The largest effects on grocery prices here over the last month were tomatoes, followed by eggs, fish and seafood.”

Produce steady

Across the country, the price of produce has remained fairly steady. But the U.S. Department of Agriculture predicts that next year the price of fruits and vegetables, like many other food commodities, could go up. The government agency is forecasting a 2 to 3 percent food inflation rate in 2011 – a pace that is not unusual in a rebounding economy.

“We usually err on the conservative side,” said Ephraim Leibtag, a senior economist with the USDA, adding that “2011 holds a bit of uncertainty, so I wouldn’t be surprised if it goes higher. If it goes to 6 percent, then we should be worried.”

Michael Swanson, an agricultural economist at Wells Fargo, said that as long as corn, soybean and energy prices continue to climb, food inflation could reach 4 percent in 2011.

“The USDA always plays it safe,” he said, adding that the nation is likely to see the biggest increases since 2008, when the food inflation rate was a record 5.5 percent.

The global demand for corn – used for food and ethanol – has swelled so much that feed costs for farmers and ranchers are being passed on to the consumer, Swanson said.

Gas, diesel play a role

Gas and diesel prices also are playing a role. Wheat costs went through the roof this year when 20 percent of Russia’s crop was destroyed by drought and wildfires, causing the country, the third-largest producer in the world, to ban exports of the grain. The price of sugar, also used for ethanol in parts of the world, is priced at a two-decade high.

Kraft Foods Inc., one of the world’s largest food producers, has already announced plans to increase its prices because of mounting ingredient costs and flagging sales. General Mills, maker of everything from flour and baking mixes to cereal and Yoplait yogurt, has said it, too, will raise some of its product prices in January. Experts said consumers can expect the same from Kellogg’s and Nestle.

The silver lining, Swanson said, is that retailers such as major supermarket chains and big-box stores are likely to push back at wholesalers to keep prices from jumping too much.

“Food is a high-frequency driver,” he said. “So if stores like Walmart and Kmart want to get shoppers in the door, it’s to their benefit to keep prices low.”


Source: Telegraph

Right from the start of the financial crisis, it was apparent that one of its biggest long-term casualties would be the mighty dollar, and with it, very possibly, American economic hegemony. The process would take time – possibly a decade or more – but the starting gun had been fired.

At next week’s meeting in Seoul of the G20’s leaders, there will be no last rites – this hopelessly unwieldy exercise in global government wouldn’t recognise a corpse if stood before it in a coffin – but it seems clear that this tragedy is already approaching its denouement.

To understand why, you have to go back to the origins of the credit crunch, which lay in the giant trade and capital imbalances that have long ruled the world economy. Over the past 20 years, the globe has become divided in highly dangerous ways into surplus and deficit nations: those that produced a surplus of goods and savings, and those that borrowed the savings to buy the goods.

It’s a strange, Alice in Wonderland world that sees one of the planet’s richest economies borrowing from one of the poorest to pay for goods way beyond the reach of the people actually producing them. But that process, in effect, came to define the relationship between America and China. The resulting credit-fuelled glut in productive capacity was almost bound to end in a corrective global recession, even without the unsustainable real-estate bubble that the excess of savings also produced. And sure enough, that’s exactly what happened.

When politicians see a problem, especially one on this scale, they feel obliged to regulate it. But so far, they’ve been unable to make headway. This is mainly because the surplus nations are jealous defenders of their essentially mercantilist economic models. Exporting to the deficit nations has served them well, and they are reluctant to change.

Ironically, one effect of the policies adopted to fight the downturn has been to reinforce the imbalances. Fiscal and monetary stimulus in the US is sucking in imports at near-record levels. The fresh dose of quantitative easing announced this week by the Federal Reserve will only turn up the heat further.

What can be done? China won’t accept the currency appreciation that might, in time, reduce the imbalances, for that would undermine the competitiveness of its export industries. In any case, it probably wouldn’t do the trick: surplus nations have a habit of maintaining competitiveness even in the face of an appreciating currency.

Unable to tackle the problem through currency reform, the US has turned instead to the idea of measures to limit the imbalances directly, through monitoring nations’ current accounts. This has already gained some traction with the G20, which has agreed to assess the proposal ahead of the meeting in Seoul. As a way of defusing hot-headed calls in the US for the imposition of import tariffs, the idea is very much to be welcomed, as a trade war would be a disaster for all concerned. China, for one, has embraced the concept with evident relief.

Unfortunately, the limits as proposed would be highly unlikely to solve the underlying problem. Similar rules have failed hopelessly to maintain fiscal discipline in the eurozone. What chance for a global equivalent on trade? With or without sanctions, the limits would be manipulated to death. And even if they weren’t, the proposed 4 per cent cap on surpluses and deficits would only marginally affect the worst offenders: for a big economy, a trade gap of 4 per cent of GDP is still a massive number, easily capable of creating unsafe flows of surplus savings.

No, globally imposed regulation, even if it could rise above lowest-common-denominator impotence, is unlikely to solve the problem, although it might possibly stop it getting significantly worse. But what would certainly fix things would be the dollar’s demise as the global reserve currency of choice.

As we now know, dollar hegemony was itself a major cause of both the imbalances and the crisis, for it allowed more or less unbounded borrowing by the US from the rest of the world, at very favourable rates. As long as the US remained far and away the world’s dominant economy, a global system based on the dollar still made some sense. But America has squandered this advantage on credit-fuelled spending; with the developing world expected to represent more than half of the global economy within five years, dollar hegemony no longer makes any sense.

The rest of the world is now openly questioning the merits of a global currency whose value is governed by America’s perceived domestic needs, while the growth that once underpinned confidence in its ability to repay its debts has never looked more fragile.

Already, there are calls for alternatives. Unwilling to wait for one, the world’s central banks are beginning to diversify their currency reserves. This, in turn, will eventually exert its own form of market discipline on the US, whose ability to soak the rest of the world by issuing ever more greenbacks will be correspondingly harmed.

These are seismic changes, of a type not seen for a generation or more. I hate to end with a cliché, but we do indeed live in interesting times.


Amid the market tumult, a handful of stocks have seen their share prices ratchet up to record highs in recent weeks. And many of them are connected by a curious, if disconcerting, thread: Between them, they provide an investor with essentials for any respectable fallout shelter—makers of bottled water, canned goods, dehydrated broth, gas masks and auxiliary generators.

A portfolio of the 18 companies that reached their peaks in the past month would be up about 24% this year, compared with the broader market’s 4.5% decline, a sign some investors may be taking the prospects of financial Armageddon more seriously than one might think.

Hormel Foods Inc., the 120-year-old producer of that dugout staple, Spam, is up 12% this year, and hit an all-time high of $43.95 in recent weeks. The company’s stable of long-life provisions, from instant packets of dehydrated broth to wrapped sausages, are critical for weathering even the most prolonged storm.

Bottled-drink maker Dr Pepper Snapple Group Inc., whose brands include DejaBlue purified drinking water, has soared 32% this year. The company also makes Schweppes ginger ale, great for any gnawing queasiness.

Also in the bunker club, Cummins Inc. The maker of a wide range of auxiliary power generators in addition to truck engines is up 66% this year. Shares of the Columbus, Ind., manufacturer hit a record $81.83 last Wednesday.

Hard hats and gas masks? Airgas Inc. makes both. Shares of the Radnor, Pa.-based company, which spiked in February after a hostile bid from rival Air Products & Chemicals Inc., has since added to those gains, hitting its best-ever close, at $66.72, on Friday.

“If it’s the end of the world, what do you buy? Canned foods, guns and the generators,” said Keith Springer, president of Capital Financial Advisory Services. “There are a huge number of people who feel this is the end of the world.”

Continue Reading…

Source: WSJ

The Hindenburg Omen reared its ugly head late last week, signaling more doom and gloom as stocks plod along amid the dog days of summer.

The Omen, a technical indicator which uses a plethora of data to foreshadow a stock-market crash, was tripped again on Friday, marking the second time since Aug. 12 it has occurred. (It also came close on Thursday, but one of its criteria fell short.)

The latest trigger has prompted the Omen’s creator, Jim Miekka, to exit the market. “I’m taking it seriously and I’m fully out of the market now,” Miekka, a blind mathematician, said in a telephone interview from his home in Surry, Maine. “I would’ve probably stayed in until the beginning of September,” depending on how the indicators varied. “That was my basic plan, until the Hindenburg came along.”

The Omen has been behind every market crash since 1987, but significant stock-market declines have followed only 25% of the time. So there’s a high likelihood that the Omen could be nothing more than a false signal.

But that isn’t stopping Miekka from taking any chances, especially as September, typically the market’s worst-performing month, sits only one week away.

“It’s sort of like a funnel cloud,” he said. “It doesn’t mean it’s going to crash, but it’s a high probability. You don’t get a tornado without a funnel cloud.” He added he’s not currently shorting anything, although he may look to short Nasdaq stock index futures in the next few weeks, “depending on how the technicals go.”

Despite the ominous forecast, there are some glimmers of hope. Miekka doesn’t expect to sit on the sidelines for very long. In fact, Miekka, who is an avid target shooter despite being blind, is looking at put volumes and various moving averages that will offer clues of when he will start buying again.

“With what we have now, I think it’s possible we could get a 20% decline going into the fall,” Miekka said. “But I would expect some type of selloff and be buying at a lower price.”

Source: Rebel Traders

Recently I commented on the outflow of money from mutual funds and the increase in 401K hardship withdraws.

Today the New York Times carries the story further by stating that investors have simply given up on the stock market. While this may indeed be true that investors simply don’t trust it anymore, and who could blame them, I contend that there is still a significant percentage of those pulling money from stocks who need the funds to live.

Investors withdrew a staggering $33.12 billion from domestic stock market mutual funds in the first seven months of this year, according to the Investment Company Institute, the mutual fund industry trade group. Now many are choosing investments they deem safer, like bonds.

If that pace continues, more money will be pulled out of these mutual funds in 2010 than in any year since the 1980s, with the exception of 2008, when the global financial crisis peaked.

Small investors are “losing their appetite for risk,” a Credit Suisse analyst, Doug Cliggott, said in a report to investors on Friday. {…}

“At this stage in the economic cycle, $10 to $20 billion would normally be flowing into domestic equity funds” rather than the billions that are flowing out, said Brian K. Reid, chief economist of the investment institute. He added, “This is very unusual.” {…} (NYTimes)

What is also at play here is the long bear market rally that began in March 2009. As the major indices rose more and more investors who lost substantial amounts of capital began withdrawing funds while they had an opportunity to recoup a portion of their losses. Perhaps forever never trusting the stock market ever again.

There was a significant outflow of funds in 2008 at the height of the economic uncertainty. The new rise in outflows of funds this year I view as being two parts now, the first is the continued mistrust of the financial markets, and the second is the increase hardship the financial disaster is having on Americans. And for this reason the stock market is becoming the new ATM where withdraws are being utilized to pay the bills.

The reality of the ‘real economy’, as measured by people, not Wall Street, is a deteriorating economy where any source of funds is fair game to be tapped into. Due to the rise in financial hardships across the nation thoughts of that long term nest egg have turned to ‘I need it now’.

An old expression was that people invested money and saved for a rainy day. Well it has been raining non stop for nearly three years and people are using that money for everyday living expenses. What happens when the rainy day savings are depleted?

Source: CNN


The chance of a national double-dip recession is hotly debated amid an increasing number of signs that the economic recovery is losing pace, but the risk is particularly troublesome on a local level.

A new report from Moody’s Economy.com singled out 22 cities that are at risk of slipping back into a recession in as early as three months. To come to this conclusion, the economists considered dwindling progress in employment, housing starts, home prices and industrial production. (See the map above for the full list.)

The at-risk cities are spread across the country, though more than half of the cities are in the South, and five are concentrated in the Midwest.

“With chances of a national double-dip recession now estimated at about one in four, several metro areas will probably experience their own downturns in the first half of 2011,” said economist Andrew Gledhill, author of the report.

Private sector hiring has been tapering off in recent months compared to the start of the year, triggering Moody’s to boost its forecast for a national double-dip from a 20% chance to 25% chance.

In the 22 identified metro areas, Gledhill said private sector hiring is particularly sluggish, increasing the chances of a slowdown.

Without a substantial pick-up in hiring, Gledhill said the number of cities in danger of a double-dip recession could grow, possibly reaching the triple-digits.

“There was a time when all 384 metro areas were in a recession. We probably won’t get to that point again, but given the growing risk of another national recession, we’re on the lookout for more metro areas that will be weakening substantially on several levels over the next six months to a year,” Gledhill said.

He added that a handful of metro areas, particularly those that are industrial economies, are also suffering from a recent falloff in manufacturing.

Source: OregonLive.com

SALEM — Oregon’s state budget picture is bleaker than previously thought, with revenues down by as much as $1 billion since the Legislature wrote the current, $14 billion two-year spending plan.

On Tuesday, Gov. Ted Kulongoski advised legislative leaders, school superintendents and agency directors that state economists expect tax collections to be down significantly more than the $577 million shortfall projected in May.

Because the Oregon Constitution prevents state government from running a deficit, the governor ordered agencies to cut spending by 9 percent to fill the $577 million hole in the 2009-2011 budget.

Now state economists believe revenues will shrivel by an additional $200 million to $500 million, prompting Kulongoski to send a flurry of letters and notices warning of more cuts to schools and state services.

“Unfortunately, it now appears that the ongoing effects of this recession will continue to undermine our budget,” the governor wrote in a letter to his fellow Democratic leaders, Senate President Peter Courtney and House Speaker Dave Hunt.

The warning comes nine days before state economist Tom Potiowsky is scheduled to deliver an updated economic forecast to lawmakers. But Potiowsky offered a disturbing preview of that talk in a memo to the governor obtained Tuesday by The Oregonian through a public records request.

“Many indicators, including housing starts, consumer spending, bank lending, job growth and others have been weaker than expected,” Potiowsky wrote on Aug. 11. “Likewise for Oregon, the indication is that the recovery is weaker than our assessment in the last quarterly forecast.”

Potiowsky and other economists are still crunching the numbers and say next week’s official forecast could show revenues down $200 million to $500 million. There’s also a chance the final number could be lower or higher.

Continue Reading…

Source: Activist Post

The United States by every measure is hanging on by a thread to its First World status.  Saddled by debt, engaged in wars on multiple fronts with a rising police state at home, declining economic productivity, and wild currency fluctuations all threaten America’s future.

The general designations of the ranking system for world status date back to the 1950s, and have included countries at various stages of economic development.  Since the Cold War, the definition has come to be synonymous with repressive countries where a wealthy class of ruling elites segment society into the haves and have-nots, many times capitalizing on the conditions that follow an economic crisis or war.

While much of the world is still mired in poverty, the reduced cost of innovative tools such as computing and connectivity ironically puts traditional Third World countries at the forefront of a new lean-and-mean economy that is based on ideas of empowerment for the disenfranchised.   For better or worse, the world is leveling due to Globalism.  However, America and other over-leveraged countries face this re-balancing of the globe at a time when they have dwindling resources. We can speculate about who and what is to blame for America’s fantastic fall, but for the purposes of this article we shall focus on the obvious signs that the United States is beginning to resemble a Third World country.

1. Rising unemployment and poverty: Unemployment numbers, food stamps, and home foreclosures continue to reach new record highs.  The ugly reality of those numbers was recently on display when 30,000 people showed up to apply for public housing in East Point, GA for 455 available vouchers.  Fights broke out, people were fainting from the heat while in line, and riot police showed up to handle the angry poor.

2. Economic dependence: The United States finished 2009 with a debt-to-GDP ratio of 85%, according to the International Monetary Fund (IMF).  The current trend projects the United States to finish 2010 at 94% and 2011 at 98%.  The 90% level has become the IMF’s make-or-break point for countries hoping to grow their way out of debt. If the government debt load climbs above 90% of GDP, economic growth slows so much that growth is no longer a viable solution for reducing that debt, and the IMF insists on austerity measures. Surpassing this debt threshold has also caused China’s lead credit rating agency to cut America’s credit rating.

3. Declining civil rights: Everyday freedoms are often a casualty of a society in collapse.  As the anger of the populace mounts in response to declining economic conditions and political corruption, the government counters by increasing draconian measures that restrict the political rights and civil liberties of its citizens.   America is becoming a country like China, which has one of the lowest scores according to Freedom House.  In America, private discussions and movements are monitored, free speech is corralled, the freedom to assemble for protest is by government decree, and independent thought that questions the political system is increasingly looked upon with suspicion.  A final indicator  is when the government insists upon secrecy for its own actions, while new laws and systems are created to put the individual under nearly constant surveillance.

4. Increasing political corruption: When political corruption becomes the accepted norm, as opposed to the exception, then there’s a good bet your country resembles the Third World.  Congress and all major institutions face a growing crisis in confidence, where a record-low 11% of the population believe Congress is doing a good job. It now seems obvious to all observers that big corporations directly control the agenda in Washington — much like typically corrupt Third World countries.

5. Military patrolling the streets: The rise of a militarized police state is a hallmark of most Third World countries, particularly in times of rapid economic collapse.  America’s declaration of the War on Terror has created a constant threat to National Security that has allowed for the military to be deployed on American soil.  Building upon the War on Drugs, this has created a fusion between the military and local police, where military-grade weapons and tactics are being used against American citizens in a cascade of violent confrontations over non-violent offenses.  Military checkpoints are moving farther inland, away from meaningful border control functions, and a full-blown military presence in American cities has been planned by the U.S. Army War College.

6. Failing infrastructure: As 46 of 50 states are on the verge of bankruptcy, cities are going dark, asphalt roads are returning to the stone age, and nationwide budget cuts are leaving students without teachers, supplies, or a full-time education.  These are common features one will see as they travel through the poorest of Third World countries.

7. Disappearing middle class: During the last presidential debate season, they argued that a family income of $250K was solidly middle-class.  Well, Census data shows less than 15% of families make over $100K, and only 1.5% of families make over $250K.  The income gap between the rich and poor has increased at a staggering pace, while many more middle-class folks join the ranks of the poor every day.  Cavernous income gaps may be what Third-World nations are best known for.

8. Devalued currency: The value of the Federal Reserve Note (U.S. dollar) has declined 96% since the inception of the Federal Reserve in 1913.  The value of the dollar is based on its supply in circulation and, to a lesser extent, the demand for those dollars. For the last three years, the money supply has spiked literally off the charts. It can be argued that the dollar has become America’s top export as the world’s reserve currency, and if the volatile dollar is scrapped, which the U.N. and IMF now suggest, then demand will plummet, killing the currency.

9. Controlling the media: A government-influenced media that censors information is a key component of Third World countries.  In some countries it is openly owned by the State.  In America, privately-owned major media is not as balanced or as diverse as it seems; the concentration of ownership has led to censorship when national and corporate interests have sometimes overlapped.  The persecution of high-profile investigative journalists such as WikiLeaks is set amid a backdrop of the proposed Internet censorship of bloggers who wish to remain anonymous.  The end of net neutrality creates a pay-to-play system that can lead to further corporate and government control of information and opinion.  Cybersecurity initiatives are the final nail in the coffin, as the entire free flow of information can be vetted in a China-style system of “identity management.”  On the street, the police state and media control have converged in the recent rise of arrests for those who videotape the police.  This is a huge blow to First Amendment rights and the role of photojournalists who wish to document public police behavior.

10. Capital Controls: Many nations have enforced capital controls as their economies collapse.   It most recently happened in Argentina and Venezuela as they sought to keep the remaining wealth within their borders. The SEC already has adopted policies to allow money market funds to suspend withdrawals during a financial crisis, while the recent HIRE bill (HR 2487) puts restrictions on Americans moving capital to foreign countries. Some economists suggest that the national debt has gotten so high that the government must now force investment of private capital into U.S. Treasury debt.

Key economic indicators point to a situation potentially worse than the Great Depression. The land of opportunity for so many is devolving into a system of government corruption, corporate looting, and military rule that threatens to sink the American Dream.  The capital flight from America has left a dwindling middle class holding an empty bag.  This style of underinvestment in the foundation of society is similar to what already has led to the exodus from the rural Midwest.  Now, there are ominous signs of a silent exodus of young, intelligent professionals seeking opportunities to realize their dreams outside of America; they are becoming known as Generation Xpat.  Lastly, many skilled immigrants have returned to their home countries to seek a better quality of life, which might be the scariest indicator of all.

Source: Telegraph

As they prepare for holiday reading in Tuscany, City bankers are buying up rare copies of an obscure book on the mechanics of Weimar inflation published in 1974.

Ebay is offering a well-thumbed volume of “Dying of Money: Lessons of the Great German and American Inflations” at a starting bid of $699 (shipping free.. thanks a lot).

The crucial passage comes in Chapter 17 entitled “Velocity”. Each big inflation — whether the early 1920s in Germany, or the Korean and Vietnam wars in the US — starts with a passive expansion of the quantity money. This sits inert for a surprisingly long time. Asset prices may go up, but latent price inflation is disguised. The effect is much like lighter fuel on a camp fire before the match is struck.

People’s willingness to hold money can change suddenly for a “psychological and spontaneous reason” , causing a spike in the velocity of money. It can occur at lightning speed, over a few weeks. The shift invariably catches economists by surprise. They wait too long to drain the excess money.

“Velocity took an almost right-angle turn upward in the summer of 1922,” said Mr O Parsson. Reichsbank officials were baffled. They could not fathom why the German people had started to behave differently almost two years after the bank had already boosted the money supply. He contends that public patience snapped abruptly once people lost trust and began to “smell a government rat”.

Some might smile at the Bank of England “surprise” at the recent the jump in Brtiish inflation. Across the Atlantic, Fed critics say the rise in the US monetary base from $871bn to $2,024bn in just two years is an incendiary pyre that will ignite as soon as US money velocity returns to normal.

Morgan Stanley expects bond carnage as this catches up with the Fed, predicting that yields on US Treasuries will rocket to 5.5pc. This has not happened so far. 10-year yields have fallen below 3pc, and M2 velocity has remained at historic lows of 1.72.

As a signed-up member of the deflation camp, I think the Bank and the Fed are right to keep their nerve and delay the withdrawal of stimulus — though that case is easier to make in the US where core inflation has dropped to the lowest since the mid 1960s. But fact that O Parsson’s book is suddenly in demand in elite banking circles is itself a sign of the sort of behavioral change that can become self-fulfilling.

As it happens, another book from the 1970s entitled “When Money Dies: the Nightmare of The Weimar Hyper-Inflation” has just been reprinted. Written by former Tory MEP Adam Fergusson — endorsed by Warren Buffett as a must-read — it is a vivid account drawn from the diaries of those who lived through the turmoil in Germany, Austria, and Hungary as the empires were broken up.

Near civil war between town and country was a pervasive feature of this break-down in social order. Large mobs of half-starved and vindictive townsmen descended on villages to seize food from farmers accused of hoarding. The diary of one young woman described the scene at her cousin’s farm.

“In the cart I saw three slaughtered pigs. The cowshed was drenched in blood. One cow had been slaughtered where it stood and the meat torn from its bones. The monsters had slit the udder of the finest milch cow, so that she had to be put out of her misery immediately. In the granary, a rag soaked with petrol was still smouldering to show what these beasts had intended,” she wrote.

Grand pianos became a currency or sorts as pauperized members of the civil service elites traded the symbols of their old status for a sack of potatoes and a side of bacon. There is a harrowing moment when each middle-class families first starts to undertand that its gilt-edged securities and War Loan will never recover. Irreversible ruin lies ahead. Elderly couples gassed themselves in their apartments.

Foreigners with dollars, pounds, Swiss francs, or Czech crowns lived in opulence. They were hated. “Times made us cynical. Everybody saw an enemy in everybody else,” said Erna von Pustau, daughter of a Hamburg fish merchant.

Great numbers of people failed to see it coming. “My relations and friends were stupid. They didn’t understand what inflation meant. Our solicitors were no better. My mother’s bank manager gave her appalling advice,” said one well-connected woman.

“You used to see the appearance of their flats gradually changing. One remembered where there used to be a picture or a carpet, or a secretaire. Eventually their rooms would be almost empty. Some of them begged — not in the streets — but by making casual visits. One knew too well what they had come for.”

Corruption became rampant. People were stripped of their coat and shoes at knife-point on the street. The winners were those who — by luck or design — had borrowed heavily from banks to buy hard assets, or industrial conglomerates that had issued debentures. There was a great transfer of wealth from saver to debtor, though the Reichstag later passed a law linking old contracts to the gold price. Creditors clawed back something.

A conspiracy theory took root that the inflation was a Jewish plot to ruin Germany. The currency became known as “Judefetzen” (Jew- confetti), hinting at the chain of events that would lead to Kristallnacht a decade later.

While the Weimar tale is a timeless study of social disintegration, it cannot shed much light on events today. The final trigger for the 1923 collapse was the French occupation of the Ruhr, which ripped a great chunk out of German industry and set off mass resistance.

Lloyd George suspected that the French were trying to precipitate the disintegration of Germany by sponsoring a break-away Rhineland state (as indeed they were). For a brief moment rebels set up a separatist government in Dusseldorf. With poetic justice, the crisis recoiled against Paris and destroyed the franc.

The Carthaginian peace of Versailles had by then poisoned everything. It was a patriotic duty not to pay taxes that would be sequestered for reparation payments to the enemy. Influenced by the Bolsheviks, Germany had become a Communist cauldron. partakists tried to take Berlin. Worker `soviets’ proliferated. Dockers and shipworkers occupied police stations and set up barricades in Hamburg. Communist Red Centuries fought deadly street battles with right-wing militia.

Nostalgics plotted the restoration of Bavaria’s Wittelsbach monarchy and the old currency, the gold-backed thaler. The Bremen Senate issued its own notes tied to gold. Others issued currencies linked to the price of rye.

This is not a picture of America, or Britain, or Europe in 2010. But we should be careful of embracing the opposite and overly-reassuring assumption that this is a mild replay of Japan’s Lost Decade, that is to say a slow and largely benign slide into deflation as debt deleveraging exerts its discipline.

Japan was the world’s biggest external creditor when the Nikkei bubble burst twenty years ago. It had a private savings rate of 15pc of GDP. The Japanese people have gradually cut this rate to 2pc, cushioning the effects of the long slump. The Anglo-Saxons have no such cushion.

There is a clear temptation for the West to extricate itself from the errors of the Greenspan asset bubble, the Brown credit bubble, and the EMU sovereign bubble by stealth default through inflation. But that is a danger for later years. First we have the deflation shock of lives. Then — and only then — will central banks go to far and risk losing control over their printing experiment as velocity takes off. One problem at a time please.

Source: ConnectMidMichigan

New types of money are popping up across Mid-Michigan and supporters say, it’s not counterfeit, but rather a competing currency.

Right now, you can buy a meal or visit a chiropractor without using actual U.S. legal tender.

They sound like real money and look like real money. But you can’t take them to the bank because they’re not made at a government mint. They’re made at private mints.

“I sell three or four every single day and then I get one or two back a week,” said Dave Gillie, owner of Gillies Coney Island Restaurant in Genesee Township.

Gillie also accepts silver, gold, copper and other precious metals to pay for food.

He says, if he wanted to, he could accept marbles.

“Do people have to accept dollars or money? No, they don’t,” Gillie said. “They can accept anything they want or they can refuse to accept anything.”

He’s absolutely right.

The U.S. Treasury Department says the Coinage Act of 1965 says “private businesses are free to develop their own policies on whether or not to accept cash, unless there is a state law which says otherwise.”

That allows gas stations to say they don’t accept 50- or $100 bills after a certain time of day in hopes of not getting robbed.

A chiropractic office in Lapeer County’s Deerfield Township allows creativity when it comes to payment.

“This establishment accepts any form of silver, gold, chicken, apple pie, if someone works it out with me,” said Jeff Kotchounian of Deerfield Chiropractic. “I’ve taken many things.”

Jeff Kotchounian says he’s used this Ron Paul half troy ounce of silver to get $25 worth of gas from a local station.

While the government and banks don’t accept them, many others do.

So why is there interest in these competing currencies?

Is it just novelty or is there something deeper?

%d bloggers like this: