Saturday, August 21, 2010


Thanks for all the info you share.  My question is about inflation and how some things jumped in price.  In particular I was wondering about ammo prices and the cost off a new car.  I can do the math but was wondering what the actual jump in dollars was taking everything into consideration.



The way hyperinflation works has a few similarities whenever it goes out of control. For imports (or products that require a minimum amount of imported materials to produce) the price stays the same as it does abroad in relation to the more important currencies that haven’t gone down the drain.
In our case it was the dollar. Houses, cars, electronics, guns and ammo. It all stayed in dollars. Even today, in most cases those are priced in dollars. A new Glock costs 850 USD here. I’ve never since any gun store or shooter bother with how many pesos it is worth. Of course as the exchange rate changes you need more and more local currency to keep up, 1:3, 1:3.5 1:4 The exchange rate is the actual index of how poor your getting. Since prices (even in pesos) keep up with the dollar, the exchange rate gives you an idea of how poor the country and its population gets. Even for locally produced goods like meat, they are internationally priced as well because they can always be sold to Europe and other foreign markets. The peso goes up or down in relation to the US dollar? Local prices follow according.

If something like this ever happens in US, of course the currency of comparison will be the Euro. No one cared about the European currency a couple years ago, but people sure took notice in October 2009 when it reached 1 Euro: 1.5 USD. As of right now the exchange is 1.27 which isn’t that bad. If it ever gets to  1:2 , know that it will soon go up to 1:3 or 1:4 as people rush to a safer currency. 1.5 was pretty bad for a country like USA.
Regarding ammo prices, as I said before they are priced in dollars and local brands, even though priced in pesos, keep up to the dollar and then some. Ammo here is usually twice as expensive as in USA. Again that’s another number to keep in mind and go buy.
No matter if its South America or Africa, a good index to somewhat guess the price to expect after an economic collapse is the price in foreign currency x 1.5 or some cases x2. This is because a) it has to be imported and usually the government going to hell tries to protect its industry with heavy taxation to imports b) Scarcity. Few people can pay expensive prices, so the product is somewhat scare. Hey, if you can pay for that you probably have money, so why not pay more?. This is why a Glock costs 850 bucks and ordinary cars costs easily twice as much as in USA. This means that maintaining the same lifstyle level will be more expensive in the collapsed country than in the one that didn't go down. How can this be explained? Most people wont be living up to those standards. Most people will be poor, and the elite left wont care much one way or another, the thin line in between will often leave the country or stay strugling. 
2010 Silver American Eagle - West Point Mint - Investment Grade Silver Bullion 

Because of all this, gold and silver are of particular interest to survivalists. Right now since we are already involved in  a global crisis, gold price is affected also by both increased demand and the belief that its safe ground to stand in the future as well. Because of this silver is still a precious metal that protects your savings against devaluation but you’re not paying that much prime as you do with gold.



Don Williams said...

1) Page 15 of today's Financial Times (the UK paper) has an article titled "Growing Concerns over Bond Bubble".

2) Basically, long term bonds issued in years past have appreciated in value as interest rates have fallen.
(i.e, a 6 percent bond is worth more when interest rates are 2.5 percent.)

Hence, investors have shoveled large sums into bonds for safety during this economic collapse.

3) However, investors who buy TODAY's long term bonds will suffer massives losses if the US Federal Reserve drove interest rates back upwards (to head off
inflation, fall in the dollar,etc.)

UNLESS the investors hold the bond for its full life term (30 years).
Although even then they will lose due to inflation.

4) The Financial Times does NOT discuss The larger issue.

Which is that such wealthy investors will (a) tie up large sums needed for capital investment in businesses into long term bonds and (b) will use their considerable political power against any moves to raise interest rates.

But without interest rate increases, the Federal Reserve will have no way to head off rising inflation and a falling value for the dollar.

5) Note that it does no good for the US Government to hand out $Trillions in bailout money if that money just gets shoved under the mattress as a safeguard against losses on bad investments.
Given the size of that hole, not even the US Government has enough money to fill it.

Patrick said...

I don't agree with your projections for EUR/USD, but I'd like to remind folks that exchange rates trade on fractions and the price of precious metals trade on whole dollars, so if you're looking for how many more cents of USD you can get for 1 Euro, maybe you should be looking at how many more hundreds of dollars an ounce of gold costs.

Bill N. said...

If you think the US is headed the same way as Argentina why do you want to move to the US? Seems like if that was the case you would want to stay where you have family and friends.

Anonymous said...

Don Williams said:
"5) Note that it does no good for the US Government to hand out $Trillions in bailout money if that money just gets shoved under the mattress as a safeguard against losses on bad investments.
Given the size of that hole, not even the US Government has enough money to fill it."

Bailout money to banks is apart of the scheme to help them appear solvent. A second set of books, unenforced regulations and other neat tricks are apart of the magic act. Should particular or enough financial institutions fail, the pyramid of derivatives contracts could cascade in to a black hole taking everything with it. Direct infusion of funny money is planned because of the reasons you've provided, and the risk that a trillion of bailout $ at the Fed could no longer be paid enough interest will tempt banks to lend it at higher rates the Fed does not set, and because it is Fractional Reserve System, lend that trillion a minimum of 10 up to a 100 times, never mind the derivatives that will be bot.

Once price inflation is obvious next spring, if not before to some, or the market continues to follow the Great Depression charts and crashes, the dynamics will change and there will be a rush to gold by the undead regardless. The rest will suck hind tit. Revaluation seems more likely to many than outright hyper inflation. They'll be trapped in dollars. Revaluation can be severe official and calculated, or controlled hyper inflation. Kinda like letting the air out of a balloon a little at a time, instead just hitting it with a pin. The currency wars continue, yet as the Euro stabilizes, and it is, it will be the dollars turn.

We all speculate based upon the facts available and as we understand them. History is the best guild. Austrian Economic Theory is still better grounded even in this now Fiat Money World, yet gold still exists to keep them honest. Deflation dominates prior to an inflationary period, or an expansion of credit. Once politicians believe deflation is the result of their money printing, they will print with impunity. And once price inflation goes rampant, they will feel forced to print even more chasing those higher prices. The classic trap.

Been think of heading to Brazil, yet as this is global, and all things considered, escape may not be entirely possible. At least we know this backyard and Ferfal has helped by mapping out the rest.


Anonymous said...

The us is going to be differant than Argentina. For a start. US is probably the majority of the market for ammo, so if they increase the price, they will sell less - there won't be any demand elsewhere.
Similar situation used to exist with oil etc. However, now when the dollar goes down the price of oil goes up, suppliers know there are plenty of buyers outside the USA (this did NOT occur in previous recessions. US used to be 50% of the world economy, now its 22% and falling). The US is a big market and no matter the state of the dollar, suppliers will compet for american customers in a way that they simply don't have to in Argentina or ther smaller countries.

Maldek said...

Ferfal is a great fan of the USA and should be able to find good business opportunities there in the years to come.

When the world stops buying T-bonds and oil is priced/traded in gold instead of U$ the situation will be very different from now.

The interesting part of this "idea" is not "if" it will is "when" it happens.

David said...

"Once politicians believe deflation is the result of their money printing, they will print with impunity. And once price inflation goes rampant, they will feel forced to print even more chasing those higher prices. The classic trap."

Over 90% of the dollar money supply is credit. All that credit rests on trust that it will be serviced by borrowers. The trust is evaporating, and with it goes the "money." As bank accounts, retirement savings, and other forms of IOU's evaporate people will scramble for...what?

The answer to that question determines what you want to accumulate today. For some the answer is gold, but I think in the next couple of years (during the deflation period) a man who owns gold and needs to pay his property taxes, buy groceries, or fill his gas tank will sell his gold (net selling driving $/oz lower) to get dollars.

Maybe I'll be wrong, but today buying gold is NOT the contrarian trade that it was in 2001, accumulating cash or T-bills is.

FWIW, I'm seeing the price of ammo drop at retail. Wait until tens of thousands of guys who rarely shoot but accumulated tons of ammo "just in case" decide they need the money instead and dump it on or at the gun shows.

FerFAL said...

David, I think you're playing crystal ball saying "next couple of years (during the deflation period) " as if it were a fact. The fact is that based on every other time this has happened, its INFLATION , not deflation, that is by far the most likely to occur.

David said...

For those convinced that the U.S. central bank can inflate at will, consider the argument made here:

Don Williams said...

1) Financial Times today also has an interview (p.3,Life and Arts) with Adam Fergusson, author of a book on the hyperinflation of the Weimar Republic. This 1975 book, titled "When Money Dies", is suddenly in great demand by City of London bankers for some reason and is being reprinted.

2) In the interview, Fergusson notes two malign effects of the Weimar hyperinflation:
a) It greatly CONCENTRATED wealth into a new plutocracy while destroying the German middle class

b) Hence It totally destroyed the social fabric -- destroyed the German peoples' faith in liberal government and drove many of them to support a dictator who would protect them.

3) Fregusson's own efforts to deal with British inflation of the 1970s did not work out well. He invested a lot of money in a painting -- which was revealed to be a fake 20 years later when he tried to sell it.

David said...

You're right, Fernando, I am making a statement of probability. In the past, whenever a crisis mounted (2003, 1998, 1991, 1981, 1974, 1968, etc. all the way back to the 1940's) the "fix" appeared to be credit inflation. The reason we're "here" today is that Keynesian monetary and fiscal stimulus appeared to work and created a mountain of (now unsustainable) IOU's. This is why for a very long time people have come to expect continuous inflation, with some periods of low inflation and some with high inflation.

That's what we see in the rear view mirror. The data I examine show that this time it's different. I've shared the data (the CRB index, Real Estate prices, bank capital impairment, State tax receipts plunging and their budgets imploding, etc.) showing that one set of prices after another already peaked and fewer and fewer asset prices are holding up.

We should know soon the answer to this question. If asset prices do collapse, people will be left with very little money with which to make purchases. Then it's Econ 101 that prices for most consumer goods will decline hard until asset deflation has run its course. I think the probability of this is >90%, but your mileage may vary.

Anonymous said...

Isn't it textbook that when governments exploit the citizens with their criminality that they deflect the citizens from rising up against them by instigating wars?

Isn't it textbook that in America when it gets this shitty it's a world war?

FerFAL said...

Indeed, I see prices going up in USA, not down. We can hope for little or moderate inflation, hyper in a worst case sceanrio, but prices going down? Sorry David, just not seeing that.

Anonymous said...

FYI. My wife works in a business for nearly 30 years where many many of the richest people in the world are customers. Her job enables her to speak on very friendly terms. She knows their children. Watched them grow up. So by my urging the last year, she has brought up the subject with them, "so how we looking with the economy?" Same answer over and over :"We've hit bottom we're on the way to recovery."

With one exception:

There is one customer who has spent more money there then all the other richest customers in the world combined. He has some sentiment for this place my wife works at. She told him what everyone else is saying and asked if that's what he thought. He told her the exact opposite. He said very seriously that she has to get very very tight and that the Federal Reserve has put into place things that will not enable us to recover from this for a very long time. That it's going to get worse, and it's only going to be about survival.

He's a member of one of the families that owns the Fed. This was a few months ago. She asked him again recently just to be sure and he smiled
and said, "I don't know."

Just thought I would share that. It helped me at least so far in that my wife was very annoyed with my prepping and quoting Ferfal. Now she's on-board.

Another thing is that the rich have a lot more money to spend. They have never had a year as good as this one, where my wife works. Spending very extravagantly.

Anonymous said...

Anonymous ( not me)said:
"The us is going to be different than Argentina. For a start. US is probably the majority of the market for ammo, so if they increase the price, they will sell less - there won't be any demand elsewhere.
Similar situation used to exist with oil etc."

Very much agree. There are many fundamental differences, yet it is a good comparision from the perspective of daily life and the insane politic that appears to be following Argentina's script. The outcome can have similarities as the process unfolds, and major differences in the eventual end. Perhaps the U.S. will be no more as regions of states assert themselves, perhaps attempt to return to form it once knew, or become something entirely awful or all three and more. If a gradual decline can not be managed, the transition could be very ugly, you know, Mad Max and all that. A WW3 would hurtle us into the uncertain as well.

A comparision to Argentina can only be partly made, yet it's experience is key to understanding that we are headed down the road to a possible hell of various kinds and degrees. The loss of World Reserve Currency status will be a Clarion Call, that the end of the American Empire has occurred, that the rest of the world can breath easy. To say that the worst cannot happen is ignoring the vary reason most folks consider insurance, if that is, if they have the foresight.

History does not repeat itself, but rhymes, and we fit a model closer in scale to that of the U.S.S.R or the Roman Empire rather than tiny Argentina. The 'bigger they are, the harder they fall'. Those involved surely understand the extremes to where this can lead, but can they avoid it? Can they thread the eye of the needle? And more important: Can those who brought us to this point save us? Yet do they understand? Do they care? Their actions speak louder than words. The answer is a big fat NO. To say we can have any confidence in any outcome well defines the meaning of ignorance.

Anonymous said...

Again, about this financial mess heading us to war. I have a stepbrother who is retired Delta Force. Never been able to get him to talk about anything. Our stepfather knows, but he isn't talking either. In the mid 90's on a Thanksgiving holiday my other brothers and I were yakking on and on about the problems in the world like we knew what were talking about.
Then the silent one pipes in that there are no real threats in the world. It's all politics. Except one. Pakistan. He said that we have no idea what to do about them. Only can try to either keep their govt. from getting too organized or control it directly ourselves and how it's a very bad situation there. No solution. Just prevent it from going off. Then he doesn't want to say anymore. I'm remembering this now because just the other day I found this recent article in the Washington Post:

Think the shit won't hit the fan and we're just in for a slow decline? Take a closer look here.

An ancient insoluble problem that's now nuclear and America's strategy is; Well we never tried pouring gasoline on the fire to put it out yet, did we?

Anonymous said...

From the Calderwood LRC article:

"Would you borrow a million bucks and buy four or five houses in suburban Las Vegas?

Carrying the debt may be interest-free but property has costs. The value might still decline. Taxes and insurance premiums must be paid. You probably aren’t optimistic enough to take that million at zero interest and buy some houses now, are you?"

In my industrial/agricultural U.S. town (pop 300,000) new signs are up and scattered about saying, "Pete buys houses!"

So I think perhaps the answer is, Yes, yes, and yes.

Don Williams said...

1) A copy of "When Money Dies" --about Weimar Republic Hyperinflation -- is here.

It has first hand accounts -- extracts from the dairies of Germans who lived through that period. One excerpt:

"But inflation shed its deadly rain discriminately, so that for some the reality of pauperisation lay hardly below the surface. The rentier classes — the people whose livelihoods depended on their savings, or on annuities or pensions — have already been mentioned. They included the poorly paid professions — judges, army officers, parliamentary deputies and the like — whose positions and dignity had traditionally been supplemented by private means. There were other groups, mainly the professional people, whose services turned out to be expendable in what their clients would have seen as the short-term. Civil litigation, for example, became a luxury. Who would buy books? Who was in a hurry for architectural advice? Art and tuition could wait. There was no rush for any but emergency medical treatment, and even that could not always be paid for as soon or in such amounts as doctors would have wished: private patients were slow to come forward, and health-insurance companies could not pay the full fees because of what inflation had dpne to their funds. No one could tell how many dependants of these professional people went short on account of such a recession in business.
The common assessment that it was the middle classes who were left destitute is only part of the story. Certainly they had savings to lose, and they lost them, whether in paper form, or in the form of the jewellery, silver, furniture, pictures or other precious possessions with which they were obliged to part. Certainly the landlords were reduced, if they had no other source of livelihood, to beggary through the restriction of rents to nominal sums or through having to sell off their property at knock-down prices simply to stay alive. Some householders survived by renting off apartments at realistic rates."

Don Williams said...

Another excerpt from "When Money Dies":

"Nor was German honour inflation-proof. The corruption among officials in 1924, Lord D'Abernon reported, was 'appalling', whereas before the war bribery had been almost unknown, and a high degree of uncorruptibility evident in public and private, if not always in commercial, life.

There were few in any class of society who were not infected by, or prey to, the pervasive, soul-destroying influence of the constant erosion of capital or earnings and uncertainty about the future. From tax-evasion, food-hoarding, currency speculation, or illegal exchange transactions — all crimes against the State, each of which to a greater or less degree became for individuals a matter of survival — it was a short step to breaching one or other of the Ten Commandments. Whereas the lower classes with the further goad of unemployment might turn to theft and similar crimes (the figures up by almost 50 per cent in 1923 over 1913 and 1925) or to prostitution, the middle and upper classes under a different kind of strain would resort to graft and fraud, bribing, bribable. Once bribery was the norm, by definition normal people resorted to it, the more so in the months of abject scarcity. No people could be expected to remain unconcerned while huge
profits and riotous luxury were ostentatiously being enjoyed by the few. Corruption bred corruption, and the Civil Service caught the infection even in the war years. Counterfeiting was widespread."

Don Williams said...

"When Money Dies" ends THUS:

"What is precious is that which sustains life. When life is secure, society acknowledges the value of luxuries, those objects, materials, services or enjoyments, civilised or merely extravagant, without which life can proceed perfectly well but make it much pleasanter notwithstanding.

When life is insecure, or conditions are harsh, values change. Without warmth, without a roof, without adequate clothes, it may be difficult to sustain life for more than a few weeks. Without food, life can be shorter still. At the top of the scale, the most valuable commodities are perhaps water and then, most precious of all, air, in whose absence life will last only a matter of minutes. ...

In war, boots; in flight, a place in a boat or a seat on a lorry may be the most vital thing in the world, more desirable than untold millions.

In hyperinflation, a kilo of potatoes was worth, to some, more than the family silver; a side of pork more than the grand piano. A prostitute in the family was better than an infant corpse; theft was preferable to starvation; warmth was finer than honour, clothing more essential than democracy, food more needed than freedom."

(A reprint will be Available on Amazon in October, 2010.)

Anonymous said...

It appears that the problems the people in Germany experienced during the hyperinflation were compunded by the war time restrictions more than the currency's value.

Their silver was not worthless to the rest of the world at the time, only in that region.

With things being so dire then, having a way out of the country or having the ability to sell abroad (or even to own foreign currency) was probably worth more than food or water, or so it seems.

That's not to say it couldn't happen here too, especially if the U.S. becomes more protectionist and becomes more like Gaza. That's a scary thought.

Also, "Pete" is not the only speculator buying real estate right now:

Comment by Rancher
2010-08-23 06:37:36

We have a whacked out buyer here in town. In the last two weeks, someone bought over $9 million dollars worth of commercial properties, several that are new and never occupied. Two on main street sold for almost double their actual worth. Two of my friends were the happy beneficiaries of this glutton for punishment. No one can figure it out.

Anonymous said...

History does "historically" repeat itself until the lesson in life is learned.

Don Williams writes..."This 1975 book, titled "When Money Dies", is suddenly in great demand by City of London bankers for some reason and is being reprinted.

2) In the interview, Fergusson notes two malign effects of the Weimar hyperinflation:

a) It greatly CONCENTRATES wealth into a new plutocracy - while destroying the German middle class.

b) Hence it totally destroyed the social fabric -- destroyed the German peoples' faith in liberal government and drove many of them to support a dictator who would protect them."

..(end of quote)...

Does this not bring to mind the state of affairs that could easily happen here in America? So many are dependent on our very "liberal" government - for social programs, free benefits and handouts - for others it is not having any income due to losing their jobs - this could easily induce the masses to "fall into line" and to unwittingly allow this to happen here.

Does anyone else see that this is exactly what may happen - if historically you know that to get people to "fall into line" so their families can eat, to get much needed medicines, etc., when people feel they have nothing left - this allows the "dictator-type" who is more than ready (and willing) to step in now to take full control in order to "save the people".

This brings to my mind - how we have been experiencing the lessening of our freedoms, the forced "medical care" no one wants and being plied with unproven-as- yet "safety of vaccinations", the total encroachment of government control into the private sector and the massive destruction of American jobs. Have we witnessed the cavalier attitude of our current administration for the wishes of the American people.....? What next? Will we now be told we need to stand in long lines for bread?

History does seem to repeat itself and maybe there is good reason why this book is experiencing a resurgence amongst bankers.

It is probably due to the fear of what is coming next.

Don Williams said...

1) Of course, The dictator who the German people thought would protect them just dragged them over the cliff into the abyss.

People starved during the Weimar Republic -- but Berlin in 1945 was in far worse shape than it was in 1930.

2) Many Russians had a similar experience with Stalin. Although Stalin would have argued that he was waging a war to keep Russia free and independent -- and war demands sacrifice and discipline.

That argument lost a lot of support over the decades -- but gained a lot of credibility after some Harvard economists helped corrupt Yeltsin cronies loot Russia. One of those economists was a close friend of Obama's main economic advisor, Larry Summers.

See the Institutional Investors article "How Harvard Lost Russia" at

Anonymous said...

I'll give David some credit though, and so does Gary North in this article where he translates what Ben Bernanke is saying:

{Ben Bernanke said:} By agreeing to keep constant the size of the Federal Reserve's securities portfolio, the Committee avoided an undesirable passive tightening of policy that might otherwise have occurred. The decision also underscored the Committee's intent to maintain accommodative financial conditions as needed to support the recovery.

Translation: I keep saying "accommodative," which means "inflationary," because we have in fact been deflating. No one notices, except futures speculators.

{Ben Bernanke said:} We will continue to monitor economic developments closely and to evaluate whether additional monetary easing would be beneficial.

Translation: I say "additional monetary easing" because we have been deflating. Nobody notices, except futures speculators.

{Ben Bernanke said:} In particular, the Committee is prepared to provide additional monetary accommodation through unconventional measures if it proves necessary, especially if the outlook were to deteriorate significantly. The issue at this stage is not whether we have the tools to help support economic activity and guard against disinflation. We do.

Translation: We will inflate. This will eventually pop the bond bubble. I am not about to say this in public.

From another article:

The man talks of multiple tools to let the FED exit from the doubling of the monetary base in October 2008. It is all talk. The FED dares not do it.

He {Ben Bernanke} talks about tools for getting the recovery rolling again. This is basically one tool that is banker-proof: inflating in the good, old-fashioned way: buying assets.