Wednesday, September 15, 2010

Hyperinflation 2010

    Dear Fernando,

    I have read your book and found much of it both interesting and valuable. I would like to make a recommendation that you summarize each chapter in the next addition. ie things to do, and not to do. Another way to look at it is “the Cliff Notes”. This makes a quick review.

    For those of us who already have purchased the book, I would like to be able to purchase an ebook summary. Maybe something available through Paypal.

    On another issue, I have attached a link to the Shadow Stats article on “Hyperinflation 2010” that just came out. (let me know if you can not access it, and I will send a copy).  I am very interested in your opinion on the part starting page 32 “Hyperinflationary Great Depression” as compared to what you have experienced.

    I find it interesting that Mr. Williams writes that there will be a shortage of physical paper currency. Is that what you had experienced? He also writes that Howard Ruff commented that the barter system would take some time to be establish. Again, what was your experience?

    Please be elegant with your comments as Mr. Williams is well respected in the gold and finance world, and his information is quite unique and valuable. I am not sure that he himself has lived through or experienced a hyperinflation or a barter system and may be a bit off here. Please let me know what you think.

    Thank you


Hey J.C. , what do you mean?  I'm always "elegant" with people... or at least I try yo be. ;-)

Those are good suggestions for the second edition of my book. I'll take them into account, thanks. A lot of people have been suggesting a Kindle edition but I've been reluctant since you can't scribble all over it, its sort of a fragile platform and not exactly bomb proof or something that would last long during a disaster (no power), but a lot of people have been asking for it for some time.

About your questions,

The shortage of paper money is likely to occur, and yes it happened here too. Anyone that was here during the 2001 collapse will tell you the same thing. People wanted to physically "hold" their own money while banks of course stole it. Yes, indeed, you wanted cash on hand. At the same time both the gov. and banks where desperate to convince people to use debit cards instead. This was a way of controlling the transactions, but also avoid the need to print money like crazy. That makes the devaluation worse, and you dont want to have the printer running all day when the currency is already collapsing, its like throwing a match to a pond of gasoline. It didn't help though that most stores only accepted cash in those days, jeje . People dont know it, but the US government is already working this problem as I write this and its been doing it for years now. Cash in US is portraited as "out of fashion", even ATM give only a laughable amount of cash per day. Get this: The LIMIT of USD you can get from an American Bank ATM in Argentina (messed up country to begin with) is TWICE AS MUCH as the MAXIMUM limit allowed in U.S. ATMs. We can look at it through all sorts of pink glasses but that is NOT a good sign.

About barter, I think its a valuable skill to train and all, not that different from the haggling you use in any other transaction, but we've seen barter fail in the long run, I mean you already read it in my book, its just too complicated to do it at large scale for a long period of time. We simply can't avoid needing money. There's ample info on the different barter clubs, and that's pretty much the consensus on why they ultimately failed. There still are places to do it, some people swear by them, but even themselves admit barter has unsolvable limitations. Do it when/if you cant, but know its not going to replace the economy we've had for several thousand years already.

As always, no easy answers, and these topics are complex, without an easy, simple to understand answer. As a wise man once said "For every complex problem, there is a solution that is simple, neat, and wrong."



David said...

Cash is a crime magnet.
Cash can burn.
Cash is "associated" with criminal activity (and large quantities are tracked by FinCEN).

Cash is trash (so that makes it THE contrarian "investment" today).

In the Argentine economic debacle, what would you have been best off having buried in a box in the back yard (pre-crisis)?
a) $100,000 in Argentine pesos.
b) $100,000 is U.S. dollars.

[Yes, gold has risen 5x since then so I'm sure you'd choose gold but the price rise had nothing to do with Argentina's economic troubles. Gold may go up, down, or sideways in coming years.]

I'm assuming those who had dollars or pesos "deposited" at the bank lost big.

Anonymous said...

I read the shadow stats paper. Interesting how a former head of the San Francisco Federal Reserve said that they would literally be helicoptering in physical currency in the event of a run on a large bank. I hope that this J.P. Morgan Chase issue doesn't spark a bank run.

Anonymous said...

I'm pretty sure that FerFal's point was that you want cash on hand rather than in a bank. Also, if you don't flash around your money it's not a crime magnet and fireproof boxes are cheap.

I don't know what FinCEN is but withdrawing $500 at a time from an ATM in the U.S. is no problem (in NYC at least) and I do it all the time. I'm not sure what the ATM limit FerFal is referring to in the U.S. is but getting a few $K in cash from a teller is no problem here either. That being said, I would never hold $100K of cash.

FerFAL said...

In Texas my limit for ATMs was 200 USD if I'm remembering well. In Argentina I can get 850 USD from the ATM.


Nolan said...

It is usually worthwhile to figure out how much money you are getting for allowing the bank to borrow your money. I think the fundamentals we should all remember are:

1) Stay liquid enough that you don't go bankrupt while having a lot of worth.

2) If banks went under, do you think the FDIC could cover the losses of everybody? The bank stops you from getting robbed or losing your savings in some natural catastrophe, but that comes with a downside as well.

Banks aren't inherently evil and can be very useful. That is why banking has been around for a very long time and virtually everybody uses them. Just don't make sure you use your bank for a purpose that it will not serve.

Anonymous said...

For the reader that says there's no inflation, please read:

Scoreboard, year to date, metals

Gold .........+ 15.9%

Agriculture, year to date (consumers take note)

Orange J........+18.2%
Soy beans......-1.4%
Wheat...........+ 30.1%

Yes, Soy beans are down a hair, everything else is up.

Please mind that I don't know what we'll see, or which will see FIRST if we have both hyperinflation and deflation, but for now, the FACTS point to inflation. Hard to get by without those agricultural items.

Regarding currency, I was in Venezuela after the currency collapse in... maybe 98 or 99. There was no cash to be found. Dollars were sought. The ATMs were cleaned-out. I had to get Bolivares in shady, back-alley transactions. The people were truly desperate. I flew a major US airline in Business Class with one of the officers of the airline. His personal assistant was basically held for ransom as she tried to get from the airport into Caracas... if the airport cab driver didn't get all her money, he was leaving her in one of the worst neighborhoods to her own means. She gave all her money and lived.

The airline shut down their Caracas route within just a few weeks (or a few months).

It was bad times and I was pretty concerned for my safety and my naive travel partner.

As to Howard Ruff, he's an extremist. Mormons have been preparing for the end of the world for some time and I am not sure they are quite on the money - and they're not sure either, but they'll be prepared in many ways (tons of food supplies/emergency supplies stored, their own rails, huge fuel depots out west in the US).

Assemble points of view from varied sources. Read Bob Prechter, read Richard Russell, read Saxena, read Bill Bonner, read Howard Katz, read Nouriel Roubini and so on. Learn as much as you can, learn your neighbors, your neighborhood, and your job possibilities and, as FerFAL says: Do what you can to prepare now.

Anonymous said...

Just to add on, at my bank in Iowa, the ATM cash limit is $300, it used to be higher a few years ago.

FinCEN - The Financial Crimes Enforcement Network of the U.S. Department of the Treasury is concerned with domestic and international anti-money laundering efforts.

I have never heard of them before. That must be who gets the slip the bank tellers fill out when a person withdraws a suspicious amount. Officially it's supposed to $10,000 but I think that number can be as low as $2000 or any amount a bank's management deems suspicious. With little transparency in government it's hard to tell these days what's ok and what's not.

Anonymous said...

Now you're getting into some interesting territory.

Many are calling for the USD to lose value, and yet there's this theme that having actual dollars in your hand will be a godsend in a panic. Kind of a dichotomy, at least on the surface. I'm thinking that it means that regardless of the bigger picture and what the USD will buy in International goods, in a SHTF situation people will go with what they know.

And the fact is (like it or not) is that people are familiar with USD. So if electronic, virtual 'paper' money isn't available (hey, I just made a huge joke.... 'paper' money), real dollars bills in ones hand will be especially valuable.

And yes, I am quite familiar with the argument for Precious Metals, in fact I am a proponent... however I can see a case being made that implementing a Gold/Silver backed system will take time, and in the heat of a panic real,dollar bills will be in demand for transactions person to person.

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