Fed cuts dollar, Fire sales vs FIRE sales, Duh-flation, and Bezzle shrinks again - Eric Janszen

[LargoWinch]

Re: Fed cuts dollar, Fire sales vs FIRE sales, Duh-flation, and Bezzle shrinks again - Eric Janszen

In that spirit, we offer up a video located by eagle eye iTuliper LargoWinch

Thank you EJ for the acknowledgment and for another superb article.

Keep an eye out for a YouTube video then lamenting the scourge of deflation and promoting an old idea re-tread and marched out as a modern monetary policy cure – new again as in 1933 – inflation, accomplished, as usual, via currency depreciation, but this time executed by unwitting US creditors selling dollar denominated assets versus deflating the dollar against gold.

I will make sure to keep my "eagle eye" for this one too...

[BadJuju]

Re: Fed cuts dollar, Fire sales vs FIRE sales, Duh-flation, and Bezzle shrinks again - Eric Janszen

What can the average American do to protect themselves during this time of economic upheaval? What are the prospects for the next couple years?

[The Outback Oracle]

Re: Fed cuts dollar, Fire sales vs FIRE sales, Duh-flation, and Bezzel shrinks again - Eric Janszen

Somewhat true, like in the sense where I call the ECB's buy & sell actions in the gold market either manipulation or control, but the difference in my usage of "evil" above is in a very dark sense and well beyond things like national self interest or similar.

The problem is that the word evil has such a broad connotation, like the smoke filled back room picture. Although there is some of that, I'm more referring to things like a major worship of power, control and Mammon to the exclusion of other important things in life - including ethical or even moral behavior. And now that I've used almost all the truly hot words (except sex) in life and very intentionally avoided specifics, I'll be heading for my cage...

'Evil' is often used in reference to Psychopaths and Narcissists and I have little disagreement with that classification. Given that it is held that this group consitutes 1 in 25 of the male population and one category of Narcs, aptly described by Bart, "major worship of power, control and Mammon to the exclusion of other important things in life - including ethical or even moral behavior." tends to head towards public life of one form and another for obvious reasons, then Bart's observation has some merit.

[ASH]

Re: Fed cuts dollar, Fire sales vs FIRE sales, Duh-flation, and Bezzle shrinks again - Eric Janszen

What can the average American do to protect themselves during this time of economic upheaval? What are the prospects for the next couple years?

Ain't that the question. I'm just a random dude, but here's my take:

My impression is that the average American (not necessarily the average iTulip reader) has little in the way of savings and few assets, other than their home. They are also encumbered by debt -- a mortgage or home equity line of credit, possibly a car loan, and probably a balance on their credit cards. The average American is working now, but probably doesn't have much job security.

If we are going by iTulip's forecast (which I would guess is understood), then we likely have several years of high unemployment, lower asset prices (such as homes and stock shares), and high inflation ahead of us. Many Americans will find themselves out of work, and most of the rest will probably face stagnant wages. The purchasing power of wages, and most forms of savings, will drop over time. At the same time, the interest rate charged on variable-rate consumer credit (variable-rate mortgages and credit cards, for instance) will go up. So, to sum it all up, the average American is going to have a lot of trouble affording the things to which he/she is accustomed. The risk of being unemployed will go up, we will be able to buy less with what we earn and what we've got saved, and we will have to pay more for what we've already borrowed.

If that is where we're going to end up, there are several things the average American can do to prepare. Employment security is a hard one, and I don't have too many ideas there. If you're in a job, now is not the time to switch employers, unless you've got an unusually secure job lined up (e.g. a full-time job in a permanent position with the federal government). If you presently have two wage-earners, start thinking about what you'll have to do if you lose one of those incomes. Managing the impact of inflation is a bit more straightforward. Lose the variable rate consumer credit; when inflation hits, your wages will not keep pace. Also, try to get in front of the inflation by frugalizing now. If the purchasing power of your wages is going to drop, then life will be a lot easier if you drop your lifestyle first -- that will give you some breathing room to adapt and adjust. This could easily mean selling unaffordable cars or down-sizing your residence. The goal is to live substantially below your means now so you can absorb the hit to the purchasing power of your income (or an interruption of that income). Finally, as regards savings -- this presents a big problem. On the one hand, if your employment is at risk, the best thing to do would be to accumulate as large a cushion of savings as possible at the same time that you are cutting your expenses to the bone. On the other hand, if consumer price inflation coincides with asset price deflation, there are few attractive places to store wealth. Obviously, some of that cushion ought to be in a regular savings account, and you'll just have to take the hit on purchasing power. However, you should attempt to protect any larger balance from erosion of its purchasing power. Here opinion is divided, because there is quite a significant degree of speculation involved. The average American is not a financial genius, so I think Treasury Inflation-Protected Securities (TIPS), while imperfect, are a reasonable lower-risk choice.

According to iTulip, the prospects for the next couple of years are, in a word, terrible.

Finally, remember that free financial advice is worth what you pay for it. I'm just some dude on the internet.

[santafe2]

Re: Fed cuts dollar, Fire sales vs FIRE sales, Duh-flation, and Bezzle shrinks again - Eric Janszen

What can the average American do to protect themselves during this time of economic upheaval? What are the prospects for the next couple years?

Family, friends, work associates, community, savings. Protect yourself by giving of yourself. Although he couched it within financial circumstance, EJ made a great point in his post today, trust will have a high premium. If you're not building it now, it will come at a much higher premium later. We're not heading for Mad Max but we're done with Dude that's Cool!

No specific advice but I hope it helps.

[santafe2]

Re: Fed cuts dollar, Fire sales vs FIRE sales, Duh-flation, and Bezzle shrinks again - Eric Janszen

If that is where we're going to end up, there are several things the average American can do to prepare.

Or what Ash said...I've been one-upped by my friends from Caltech for so long I've just learned to appreciate their points of view...even when they miss the big picture with their perfect detail...LOL!

[Sapiens]

Re: Fed cuts dollar, Fire sales vs FIRE sales, Duh-flation, and Bezzle shrinks again - Eric Janszen

I'm sure I heard the birds ZIRPing outside this afternoon. If it wasn't for the Christmas carols I'd have sworn it was spring...

[that reminds me...has FRED checked the FED altimeter and VSI lately; maybe that was a ground proximity warning I heard?]

Supplement to the advice above. There are more bargains out there than appears on surface. Retailers will negotiate, especially on bigger ticket and higher end items, if you are an informed shopper, and actually ready to make a deal [not kicking tires]. My wife has been shopping aggressively for the appliances and selected fittings for the bunker. Sometimes she negotiates so hard it's embarrassing and I slink off into a corner of the store and pretend not to be with her . But it works. She's been able to get some top level stuff she never expected to afford, at prices she never expected to see. And our regional economy here has barely started to turn down [house prices just starting to decline, layoffs minimal so far, etc.].

I always insist on taking delivery immediately no matter what. As the bunker is still under construction I have rented storage space and am stockpiling everything we buy under my own lock and key. All the retailers tell me they will store our stuff in their warehouse for free until we need it, but I don't trust they'll still be there in many cases. Today on the local news there's a report of a high end furniture store that has closed and not delivered to customers who prepaid...even those customers that bought stuff at their two day "Going Out Of Business Sale" and didn't take immediate delivery. Ooops. Apparently a creditor managed to get a court injunction blocking distribution of any assets.

Be careful out there...:cool:

Great post! Sounds like Mrs. Sapiens on a trip to Turkey. ha ha ha Also, great advice.

[Chris Coles]

Re: Fed cuts dollar, Fire sales vs FIRE sales, Duh-flation, and Bezzel shrinks again - Eric Janszen

Where's Finster with his list of fallacies?

"Prove to me that the Apollo 11 moon landing was not fake. You cannot, therefor it was fake!"

Negative Proof fallacy: that, because a premise cannot be proven false, the premise must be true; or that, because a premise cannot be proven true, the premise must be false.

Nice try. You have to prove to me that the Fed had intent.

[quote=GRG55 As for... [INDENT]

"inflation, accomplished, as usual, via currency depreciation, but this time executed by unwitting US creditors selling dollar denominated assets versus deflating the dollar against gold."

[/INDENT]...my interpretation is that deflating the dollar against gold, as was done in the 1930's, isn't directly possible [by the Fed] since there is no longer any official convertability link, as there was then. That leaves creating inflation by creating a sufficient surplus of US$ compared to goods and services available. santafe2's post covers how they might do it./quote]

I think both viewpoints have been answered this morning on BBC Radio 4 "Today" with the first headline and slightly later interview with this report.

Obama 'must take dramatic action'

"The US Federal Reserve has cut interest rates to 0% - 0.25% in an attempt to revive the economy. Democratic Congressman Dennis Kucinich says Barack Obama must take control of monetary policy to ease the economic crisis. "

http://news.bbc.co.uk/today/hi/today...00/7787168.stm

If you have difficulty with that link here is the home page for the full program. (The item is the first on the headlines for the day). Top of page look for full program. For those of you unfamiliar with the radio here in the UK "TODAY" is THE flagship radio news program. The actual news item changes from the start at 06.00am. the 08.00am version started with more emphasis on the interview with Congressman Dennis Kucinich. (You can slide the time line along to start the program anywhere you please). It is absolutely reliable news and better than any TV program anywhere......

http://news.bbc.co.uk/today/hi/default.stm

In essence, the FED has run out of ammunition and that the new team will introduce new methods to try and control the economy with the emphasis on methods used by President Roosevelt during the 1930's.......

[vanvaley1]

Re: Fed cuts dollar, Fire sales vs FIRE sales, Duh-flation, and Bezzle shrinks again - Eric Janszen

Thanks, EJ. I'm a wabbler in more ways than one. It's a blessing to have a cane about when it's needed. van

[lorisarasota]

Re: Fed cuts dollar, Fire sales vs FIRE sales, Duh-flation, and Bezzle shrinks again - Eric Janszen

Thanks, EJ. You provide a great service. I followed your recommendations a couple years ago and it has made a huge difference in my life. My friends and family thought I was over reacting and being too pessimistic at the time, but I did the right thing because your analysis and explanations made so much sense. For me, you site is an ongoing source of sanity compared to the nonsensical, mindlessness, behind the curve sources of information on TV and most other media sources. Your site and the I-Tulip community have greatly improved my quality of life, and I wanted to say Thank You!

[GRG55]

Re: Fed cuts dollar, Fire sales vs FIRE sales, Duh-flation, and Bezzel shrinks again - Eric Janszen

[quote=Chris Coles;66801]

"inflation, accomplished, as usual, via currency depreciation, but this time executed by unwitting US creditors selling dollar denominated assets versus deflating the dollar against gold."

[/indent]...my interpretation is that deflating the dollar against gold, as was done in the 1930's, isn't directly possible [by the Fed] since there is no longer any official convertability link, as there was then. That leaves creating inflation by creating a sufficient surplus of US$ compared to goods and services available. santafe2's post covers how they might do it./quote]

I think both viewpoints have been answered this morning on BBC Radio 4 "Today" with the first headline and slightly later interview with this report.

Obama 'must take dramatic action'

"The US Federal Reserve has cut interest rates to 0% - 0.25% in an attempt to revive the economy. Democratic Congressman Dennis Kucinich says Barack Obama must take control of monetary policy to ease the economic crisis. "

http://news.bbc.co.uk/today/hi/today...00/7787168.stm

If you have difficulty with that link here is the home page for the full program. (The item is the first on the headlines for the day). Top of page look for full program. For those of you unfamiliar with the radio here in the UK "TODAY" is THE flagship radio news program. The actual news item changes from the start at 06.00am. the 08.00am version started with more emphasis on the interview with Congressman Dennis Kucinich. (You can slide the time line along to start the program anywhere you please). It is absolutely reliable news and better than any TV program anywhere......

http://news.bbc.co.uk/today/hi/default.stm

In essence, the FED has run out of ammunition and that the new team will introduce new methods to try and control the economy with the emphasis on methods used by President Roosevelt during the 1930's.......

Chris: Some days I really miss the Beeb, now that I am back on this side of the Atlantic...

What Kucinich states and the BBC reported is what EJ said some weeks ago in a post...the FED would be close to exhausting its bag of monetary tricks in 1st H 2009, and the new Administration would have to step up and keep working the problem using fiscal policy...

An amusing excerpt, quoting Jim Grant, from hedge fund manager Bill Fleckenstein's column yesterday...

...For any doubters out there, the last paragraph of the communique read: "The Federal Reserve will purchase large quantities of agency debt and mortgage-backed securities . . . and it stands ready to expand its purchases of agency debt and mortgage-backed securities as conditions warrant." Furthermore, "the Committee is also evaluating the potential benefits of purchasing longer-term Treasury securities."

My friend Jim Grant said that paragraph should have had the subhead: "Gold $36,000." ...

[mcgurme]

Re: Fed cuts dollar, Fire sales vs FIRE sales, Duh-flation, and Bezzle shrinks again - Eric Janszen

Ash,
I think yours is a wonderful exposition of "what to do" from a financial preparation perspective, thanks for that.

But I'd also like to extend the discussion into personal/mental preparation. As per your disclaimer, I also disclaim that I'm just some random gal on the internet.....

People have, throughout time, survived many situations that are very dire, with famines, disease, wars, etc. While the prospect of lost wealth is a scary one for many, I believe that the scariest part is actually a change in wealth. Because change is scary to most people. But, fact is, change is coming, and will impact most of us one way or another. We cannot avoid that change. So perhaps it requires mental preparation for the change, just as much as physical preparation. Wealth can always be taken away by circumstance, government, war, theft, fire, whatever. A broad swath of Americans have had the luxury for 50 or so years now of not often facing wealth destruction. But that is a historical anomaly, not regularity. Perhaps we are going to be returning to "normal".

Wealth is not happiness. For example, Brits are less happy now than in the 50's, despite being 3x richer. Happiness is in one's mind. It starts from a foundation of being healthy. So the first thing one can do to prepare is to have a healthy body, by eating right, exercising, and getting enough sleep. Sitting in front of the TV (or computer) all the time will not the problems coming soon to a neighborhood near you. It will require hard work to get the Production part of the Production/Consumption economy going, but hard work requires physical health. Hard work can be enjoyable, but many americans are not mentally prepared for this. And so it will be a rough road to transition from pure consumers into actual producers of value again.

Another aspect of this - building community. The explosion of (false) wealth in the US over the past 30 years has, for many, destroyed any sense of community. People drive their luxury cars to their luxury homes and then sit in front of their big screen TV's, without interacting with anybody around them. Ok, perhaps that's a bit of hyperbole, but most people I talk to lament that they have no sense of that community spirit, that friends are too busy, that life has just become a treadmill.

Recapturing a sense of community would have multiple benefits. First, it would have many benefits to the individual psyche, since being a part of a community has been shown to have positive mental health benefits. But more importantly, community is how humans have survived many catastrophes in the past. A tightly knit community of people is far more resilient in the face of problems than one that is not. Now, I say, but I have not fully implemented this part, because it requires other people who also want to do that. I believe that as the situation gets more dire for more people, a sense of community will naturally grow. I see the beginnings of it around me, but they are only beginnings.

Other things one can do - plant a garden. Learn how to cook. Learn how to be frugal. Learn how to enjoy time with family and friends that don't involve expenses like restaurants or etc.

But the biggest thing of all comes back to realizing that once change has happened, usually the fear is gone. People may fear losing their job, or their wealth, or whatever... but once it happens, most just deal with it, and get on with life. I cannot control those external circumstances - but I can control how I react to them. So to me, the best form of mental preparation is realizing that all I have is just temporary and illusory. I may get lucky (in combination with a bit of wisdom from sites like this) and retain some of what I have. Or I may not. But, I can choose to be happy and enjoy whatever I do have at any given moment. But happiness is not natural for many people (myself included) - it requires hard work and training, like anything. And so I am training myself to be happy. And, training oneself to be happier has many side benefits, such as a better immune system, and an improved ability to deal with difficult situations.

I believe that mental preparation will be just as important as the physical preparations one makes for the interesting times ahead.

Ain't that the question. I'm just a random dude, but here's my take:

My impression is that the average American (not necessarily the average iTulip reader) has little in the way of savings and few assets, other than their home. They are also encumbered by debt -- a mortgage or home equity line of credit, possibly a car loan, and probably a balance on their credit cards. The average American is working now, but probably doesn't have much job security.
snip...

[goadam1]

Re: Fed cuts dollar, Fire sales vs FIRE sales, Duh-flation, and Bezzle shrinks again - Eric Janszen

I'm nice to them but I won't let them know where the gold is hidden.

[BobH]

Re: Fed cuts dollar, Fire sales vs FIRE sales, Duh-flation, and Bezzle shrinks again - Eric Janszen

EJ's statement - "My guess is that will happen no later than after unemployment surpasses 20% in 2010 but likely much sooner."

OK, could someone put some meat on this forecast? From EJ's previous post on unemployment that we would see 10 M jobs lost in 2009 I'm having trouble seeing it go past 20% in 2010. Let's assume that U3 is at 7% by end of 2008. How does EJ get to 20% in 2010?

Candidly, trying to tie treads together here is very difficult! Or is it me? ;)

[Chomsky]

Re: Fed cuts dollar, Fire sales vs FIRE sales, Duh-flation, and Bezzle shrinks again - Eric Janszen

EJ's statement - "My guess is that will happen no later than after unemployment surpasses 20% in 2010 but likely much sooner."

OK, could someone put some meat on this forecast? From EJ's previous post on unemployment that we would see 10 M jobs lost in 2009 I'm having trouble seeing it go past 20% in 2010. Let's assume that U3 is at 7% by end of 2008. How does EJ get to 20% in 2010?

Candidly, trying to tie treads together here is very difficult! Or is it me? ;)

I read this as: 20% is the upper bound for unemployment before the government bites the bullet and inflates, but they will likely move to head off unemployment before it gets that high