That dreaded phrase: ''The system is fundamentally sound''

[tombat1913]

Re: That dreaded phrase: ''The system is fundamentally sound''

There are currently 102 members and 1596 guests viewing this thread. This is by far the most exciting Tuesday morning I've had in awhile, thanks for the great thread Mr. Janzen.

Well for those of us who really do have money buried in the backyard I suppose we'll file this under "bearish information" and go about our normal business.

Do we have a "really bearish information" thread yet?

[FRED]

Re: That dreaded phrase: ''The system is fundamentally sound''

Good points above, but I was really talking about nickles dimes and quarters, no kidding. Take the same amount of cash and put it into local usa coinage. Use that to buy stuff (and save your gold and silver to smuggle yourself across a boarder someday).

I've got several thousand in a fairly heavy piggy bank of sorts. I think "coin" cash will keep its value far longer than "paper" cash, and that was the point I was trying to make.

This is the best site I could find for first hand experience of a person who has lived through an economic crisis.

SURVIVAL AFTER ECONOMIC MELTDOWN - AN ARGENTINEAN EXAMPLE

As you might have figured out, I live in Buenos Aires, Argentina. This is located, precisely, at the other end of the American continent, as the small map above points out.

I was born here, though all my grandparents emigrated from Spain during the civil war, and I lived for a few years in USA as a kid. I picked up my English there and I also attended bilingual schools all my life.

Argentina, though a Latin American country, used to be one of the best, if not the best, countries in Latin America. Our standard of living was similar to the one in USA. Our population is mostly Catholic and it’s about 90% white, descendant from Europeans. The rest is either mestizo (mixed blood, Native American and European) or Native American.

Our cultural level used to be quite high. This is a country that has survived many tragic events, such as civil wars, dictatorships, and the war against UK. But the one of the greatest recent crisis was in December 2001 when our economy, which used to be pegged to the US dollar, collapsed, and our paper money lost 66% of it’s value to the US dollar.

Banks closed their doors, keeping the people’s money, rioting and looting spread all over the country like a forest fire. The citizenship protested and concentrated in front of the government house asking for the president’s resignation. The president did resign, and so did 5 other presidents in the period of one week.

Today, almost 6 years later, we are still suffering the consequences of what happened. Some believe that we are doing a little bit better, some think that we are still sinking and we haven’t seen the worst of it yet. Me? I think that things didn’t get better, but that people got “used” to living like this so they try to convince themselves that we are doing ok.

Buenos Aires is one of the largest cities in America, one of the top 5 largest cities in the continent.

I will be writing articles on urban survival, things I do or learned that help me in keeping my family safe.

Please forgive any grammar mistakes you may find, I’ll do my best to keep them to a minimum.

I hope you find my articles useful and thought provoking, and that they help you to better understand what world would be like, if you ever have to deal with circumstances similar to mine.

Sample 1:

When it comes to security things get even more complicated. Forget about shooting those that mean you harm from 300 yards away with your MBR. Leave that notion to armchair commandos and 12 year old kids that pretend to be grown ups on the internet.

Some facts:

1) Those that want to harm you/steal from you don’t come with a pirate flag waving over their heads.

2) Neither do they start shooting at you 200 yards away.

3) They won’t come riding loud bikes or dressed with their orange, convict just escaped from prison jump suits, so that you can identify them the better. Nor do they all wear chains around their necks and leather jackets. If I had a dollar for each time a person that got robbed told me “They looked like NORMAL people, dressed better than we are”, honestly, I would have enough money for a nice gun. There are exceptions, but don’t expect them to dress like in the movies.

4) A man with a wife and two or three kids can’t set up a watch. I don’t care if you are SEAL, SWAT or John Freaking Rambo, no 6th sense is going to tell you that there is a guy pointing a gun at your back when you are trying to fix the water pump that just broke, or carrying a big heavy bag of dried beans you bought that morning.

Sample 2:

GOLD!!

Someone hit me in the head please because I messed up about the gold issue. Everyone wants to buy gold! “I buy gold. Pay cash” signs are everywhere, even on TV! I can’t believe I’m that silly! I just didn’t relate it to what I read here because they deal with junk gold, like jewelry, either stolen or sold because they needed the money, not the gold coins that you guys talk about. No one pays for the true value of the stuff, so big "WARNING!" sign for people that are buying gold coins: since it is impossible to determine the true mineral percentage of gold, small shops and dealers will pay for it as regular jewelry gold. What I would do if I were you: Besides gold coins, buy a lot of small gold rings and other jewelry. They should be less expensive than gold coins, and if the SHTF bad, you’ll not be loosing money, selling premium quality gold coins for the price of junk gold. If I could travel back in time, I’d buy a small bag worth of gold rings.

Small time thieves will snatch gold chains right out of your neck and sell them at these small dealers found everywhere. This is VERY common at train stations, subways and other crowded areas.

So, my advice, if you are preparing for a small economical crisis, gold coins make sense. You will keep the value of the stuff and be able to sell it for its actual cost to gold dealers or maybe other survivalists that know the true value of the item. In my case, gold coins would have been an excellent investment, saving me from loosing money when the local economy crashed. Even though things are bad, I can go to a bank down town and get paid for what a gold coin is truly worth, same goes for pure silver. But where I live, in my local are small time dealers will only pay you the value of junk gold, no matter what kind of gold you have. So, I’d have to say that if TSHTF bad, gold jewelry is a better trade item than gold coins. Forgive me for not talking about this before, but I didn’t realize this until today, when I visited my local market warehouse and saw a “Buy Gold” sign.

Not easy to read, but there it is: first hand, practical, and credible.

[LargoWinch]

Re: That dreaded phrase: ''The system is fundamentally sound''

Pete, why the Fed Notes for a "couple of months" in a safe?

It is my understanding that Gold performs well at both end of the spectrum: deflation and inflation.

[metalman]

Re: That dreaded phrase: ''The system is fundamentally sound''

Pete, why the Fed Notes for a "couple of months" in a safe?

It is my understanding that Gold performs well at both end of the spectrum: deflation and inflation.

what idiot or idiots told you that?

[LargoWinch]

Re: That dreaded phrase: ''The system is fundamentally sound''

It is from: Dr. Stephen Leeb : The Complete Investor...

Since he is a "Dr." I figured he should know better than me. You know "Dr.", it sounds menacing ... almost like Grrr.

Give me some time and I will pull out the article from the archive...


Update: See TCI Archive October 2007 article "Gold, Glorious Gold: Massive Gains in the Metal's Future".

[...And if we perceive a growing risk of sharply higher inflation—or of deflation, for that matter—we’ll recommend higher levels.] (italics mine).


During the Depression, there was a gold mine stock that did extremely well and we all know about the 70s. So both Deflation and Inflation no?

[metalman]

Re: That dreaded phrase: ''The system is fundamentally sound''

It is from: Dr. Stephen Leeb : Complete Investor...

Since he is a "Dr." I figured he should know better than me... You know "Dr.", sounds menacing almost!

Give me some time and I will pull out the article from the archive...

let me save you the trouble... gold goes to shit in a deflation.



during the last disinflation, gold fell from 320 top of tech bubble to 255 bottom after the crash before the printing presses and dollar depreciation kicked in.

the dollar strengthened because us credit quality improved...



that's a 20% drop or from 950 to 760 if it happened over the next couple of years.

but... this time the property markets are crashing. bank credit is drying up and usa credit quality is plunging. does leeb say the dollar is going to strengthen? that is the only way we get a deflation.

outright deflation is ridiculous. against what? no gold standard. the dollar is deflating against euros, gold, food, etc. zero instances in history of an indebted country's currency appreciating in a credit crisis. none. not one.

[mesyn191]

Re: That dreaded phrase: ''The system is fundamentally sound''

Don't hold cash, hold coins! US regular change, same effect, much better protection.

I read the whole series of posts by that Argentinian guy a couple of years ago and bought a bunch of junk stirling silver rounds to get dough from the local pawns if things get bad enough, as others have said you won't get the proper value from locals who are willing to buy. I reeeeaaaally hope things don't get that bad though, if you read the rest of that Argy's posts he goes into detail just how bad it got, basically he planned on leaving his country last I heard...

Oh and everyone go get one of these. Very nice, I have one, it's perfect.

http://www.msarinc.com/stg556_sporting.html

Thats a nice gun and all but very expensive and difficult to accquire depending on local laws. The Argy guy touched on this stuff too. He recommended some sort of moderate sized concealable pistol in what ever caliber that was most easily available, a cheap and simple bolt action rifle as a back up in your home like a K98K, and if possible a semi auto center fire rifle or assault rifle too. Main thing was they had to be CHEAP and RELIABLE and be chambered in something that was easy to find, so he recommended a AK74 or AKM variant for home defense though said a AR15/M16 variant was fine too just too expensive for him.

Ultimately though he said the best way to be prepared for a major economic collapse/disaster was to have lots of money overseas and easy fast access to transportation in and out of the country.

[metalman]

Re: That dreaded phrase: ''The system is fundamentally sound''

Ultimately though he said the best way to be prepared for a major economic collapse/disaster was to have lots of money overseas and easy fast access to transportation in and out of the country.

bingo. argentina was already 1/2 3rd world country before the 2001 collapse. the usa has a loooooong way to go to even get to pre-collapse stage. in the mean time, plenty of time to get ready to go elsewhere why hang around to get shot and infected with viruses? **** that.

[LargoWinch]

Re: That dreaded phrase: ''The system is fundamentally sound''

Metal, I think both you and Leeb are right.

However, can you please provide more information regarding the following comment you made:

... gold goes to shit in a deflation. During the last disinflation...

I am confused by your explanation, because you seem to refer to both disinflation and deflation and its impact on Gold as the same. Am I missing something?

I was under the impression that during deflation, gold and even fiat money would gain in value compared to virtually all other assets (I agree here with you that there is absolutely no chance of deflation occuring under the current fiat system, but that is another topic altogether).

During disinflation, I entirely agree with you: Gold would indeed be a bad investment.

It is my understanding that disinflation is a reduction in the growth rate of inflation (inflation remaining however positive), which is different than deflation (contraction of the supply of money).

As such, I also agree with Leeb that during deflation, Gold would be a fantastic investment (again no chance of this occuring, but lets discuss it anyway).

Case in point: Looking back at the last deflation in the US, we all know that starting March 5, 1933 gold was outlawed. As such, the best proxy is "Homestake Mining Co." (currently ABX or Barrick Gold) and during that period, the stock soared (see link below - Flash required).

http://www.thelongwaveanalyst.ca/flash_pres.html




In Summary, I agree with both you and Leeb:
a) Disinflation: Bad for Gold
b) Deflation: Good for Gold


We need to be careful not to confuse Disinflation and Deflation however.

[Chris Coles]

Re: That dreaded phrase: ''The system is fundamentally sound''

Back in the early 1980's I was told a story about someone who by then was a well known wealthy individual, (I will not risk how or where for obvious reasons), who, it turned out was available to fly an aircraft into Germany at the height of the great inflation they endured in the 1930's. The aircraft was stuffed with US Dollars to buy property for a friend who died between takeoff and landing. (Not while on the aircraft). to cut a long story short, he went on to buy the property and made his fortune.

The main point to take away is not to hoard the local currency. A very good example today is Zimbabwe where, if you stuffed a years cash in the pillow, by the end of the first year it would be worthless. Perhaps it would be better to keep safe a stock of a well known, but recognised as stable, currency from another region which could be exchanged based on public knowledge of the rate which in todays world will be easy to find.

As for gold coins, surely the best would be the South African Krugerrand which is very much a 99.99% pure 1oz coin. As it has absolutely no other alloy, it looks like the business, where many other coins of lesser quality can look not much different to cheap gold jewelry.

Personally, I would recommend difficult to find but easy to store long term - food. You cannot eat gold or jewelry or cash and as such, the one thing you would be able to exchange for anything you might need would be the likes of good quality tinned meat. Easy to store, carry in small quantities, and certain to be able to trade for absolutely anything if things get really bad.

[metalman]

Re: That dreaded phrase: ''The system is fundamentally sound''

Metal, I think both you and Leeb are right.

However, can you please provide more information regarding the following comment you made:

I am confused by your explanation, because you seem to refer to both disinflation and deflation and its impact on Gold as the same. Am I missing something?

I was under the impression that during deflation, gold and even fiat money would gain in value compared to virtually all other assets (I agree here with you that there is absolutely no chance of deflation occuring under the current fiat system, but that is another topic altogether).

During disinflation, I entirely agree with you: Gold would indeed be a bad investment.

It is my understanding that disinflation is a reduction in the growth rate of inflation (inflation remaining however positive), which is different than deflation (contraction of the supply of money).

As such, I also agree with Leeb that during deflation, Gold would be a fantastic investment (again no chance of this occuring, but lets discuss it anyway).

Case in point: Looking back at the last deflation in the US, we all know that starting March 5, 1933 gold was outlawed. As such, the best proxy is "Homestake Mining Co." (currently ABX or Barrick Gold) and during that period, the stock soared (see link below - Flash required).

http://www.thelongwaveanalyst.ca/flash_pres.html




In Summary, I agree with both you and Leeb:
a) Disinflation: Bad for Gold
b) Deflation: Good for Gold


We need to be careful not to confuse Disinflation and Deflation however.
:p

no. this is what mush, leeb, and other deflationist goofballs say instead of making the more concise statement... 'i was wrong'

disinflation = negative rate of inflation. eg 2.5% to 1.2%

deflation = negative inflation rate. eg -3%

this is right out of econ 101. no debate here. none. they will debate it but at some point you have to stop at a chair is a chair and a dog is a dog, and not a chair is a table when you eat off of it and a dog is a cat when you step on its foot and it yelps like one.

disinflation is bad for gold because the purchasing power of money is rising.

deflation is horrific for gold because the money supply is imploding and the purchasing power of money is exploding.

if you expect deflation... SELL YOUR GOLD NOW!

end of story. that is all.

[mesyn191]

Re: That dreaded phrase: ''The system is fundamentally sound''

bingo. argentina was already 1/2 3rd world country before the 2001 collapse. the usa has a loooooong way to go to even get to pre-collapse stage. in the mean time, plenty of time to get ready to go elsewhere why hang around to get shot and infected with viruses? **** that.

How far do you think we'll have to fall? AFAIK rural and suburb midwestern/rust belt cites and towns are already fairly depressed, its just the big cities on the coasts that are still living it up (relatively speaking that is...) at least it seems that way to me. I don't want to live out in the middle of nowhere nor do I have any arm chair fantasies of taking on all comers in the wilderness, but it does seem to me that moving temporarily at least from the major pop. centers would be a great way to avoid anything truly ugly as that was where most of the violence and disorder was during the Arg. Financial Crisis...

Maybe I'm stupid but I'd rather not have to leave the country... D:

[LargoWinch]

Re: That dreaded phrase: ''The system is fundamentally sound''

As for gold coins, surely the best would be the South African Krugerrand which is very much a 99.99% pure 1oz coin. As it has absolutely no other alloy, ...

Mr. Shadow Fed, I believe this is not completely accurate.

I understand that the SA Krugerrand lost a lot of shine precisely due to the fact that they are not 99.99% pure (24K), but only 91.67% or 22K pure.

This allowed other gold coins such as the Canadian Maple Leaf (crowd cheering ;)), Chinese Panda and Australian Kangaroo to overtake the gold bullion coin market. Later the US Mint issued the Buffalo which is also 99.99% pure (unlike the American Eagle ones).

[LargoWinch]

Re: That dreaded phrase: ''The system is fundamentally sound''

Metal thanks for this.

I need to think about this a bit more and may get back to you on this post

This is surely due to the fact that we are no longer on the gold standard.

I have a hard time to believe that Leeb would miss something like that...but again, what you say make some sense.

Lets just say that I am confused for now! and again thanks for the comments.

[Guest]

Re: That dreaded phrase: ''The system is fundamentally sound''

no. this is what mush, leeb, and other deflationist goofballs say

Metalman - isn't it great when we can recite iTulip 101 and sound like gurus? You are of course right on the point. Leeb is getting his definitions a little woolly with that statement.

However, I do note you reference Leeb as "another deflationist (goofball)" - my suggestion is to be cautious about sweeping statements about other analysts besides the iTulip guys (we know Leeb gets your hackles up as he's been [cough cough] the topic of some "controversial" threads here before). However your comment suggests you've perhaps not actually read him? If you had, you'd know in the space of just a few sentences he's been an inflationist since at the very latest year 2001.

I think it's best when iTulip's astute calls make their way into our recognition quietly and by proof of the unfolding events, without too much overt boosterism and fanfare, don't you? That's what actually makes the more striking impression. Meanwhile, EJ a while back referred to Jim Puplava as a "deflationista". When it was noted that Puplava is a well known "inflationista" instead, he was quick to acknowledge it. How about you? Meantime your point on the sloppy definitions which Leeb has indulged on this point are certainly well taken.