When the Deflation Tsunami Hits, Losing the Least is a Winner

Detroit Publishing Co. Nôtre Dame de Montréal 1900 “Main altar, Church of Notre Dame, Montreal, Quebec.”

This is a Guest Post by long time TAE regular, El Gallinazo.

A subject that commonly comes up in TAE is what to do with your savings if you have too much to stuff in “that creative place” that Nicole often refers to. And what she suggests is that the safest place to put it is in short term treasuries. If you are a citizen or a legal alien in the USA, that means T-bills, and if your money is not tax deferred, the only sensible way to do it is via Treasury Direct. A couple of days ago one of my closer friends sent me the following piece by Robert Moore on Rick’s Picks:

T-Bills May Offer Boomers a ‘Safe’ Way to Lose

She sent it with the message, “What’s this mean?” She is never one for verbose emails. As you might imagine, the title of the article by Robert Moore, intrigued me, but as I read through it I became a bit irate, and I decided to reply with a comment. Well this comment got supersized and I thought it might have the makings of a feature on TAE. I haven’t done one for almost a year. Instead of interleaving my commentary with the offending article, I would like to present it in a continuous format. So may I suggest that you read the Moore article and perhaps some of the comments and then come back.

I found this article to be quite irritating, not because your ideas were ipso facto bogus, but that you should label anyone who might disagree with them to be a fool and ignoramus. The entire premise of your article is that we are headed into a period of immediate global inflation or hyperinflation. However, there are some very bright people, Nicole Foss (Stoneleigh) of The Automatic Earth comes first to mind, who believe that the collapse of the global Ponzi, which began in 2008, and which is slowly accelerating, will result in the short term, perhaps several years, in a global deflationary depression.

She maintains that this deflation is already under way, in the Austrian School use of the word, as a net reduction in the sum of money, credit, and velocity. Mish also believes this. The continuing collapse of the shadow banking system and consequent credit destruction are the current cause though it is soon to spread to the TBTF banks and sovereign treasury bonds. This will lead in the short term to a price deflation of paper and physical assets in terms of the USD, which can already be seen in regard to US residential real estate.

The inflationistas will counter that the Fed and the other central banks will never allow a deflationary collapse. They will “print” their way eventually into hyperinflation (HI). (I put print in quotations because expanding debt through a central bank is really quite different from actually printing paper currency for which there is no true debt holder, but simply a dilution of the currency value.) This assumes that first they would want to, and second that they can. As to the first point, probably only the Rockefellers and the Rothschilds have an accurate idea of what the cartel’s long term strategy is.

A severe deflation, which they would have prepared for as they have engineered it, would allow them to buy up the remaining physical assets of the globe for pennies on the dollar. And could they prevent it even if they wished to? The growth of the central bank’s balance sheets of the USA, ECB, UK, and Japan since the collapse started in 2008 is less than $5T. (I am leaving China out as their statistics are moot). The collapse in global real estate values alone is considerably larger, and when you include all asset classes and throw in the quadrillion dollar derivative market, it is many times that. There are many expert analysts who predict that when the defaults begin in earnest, Uncle Ben and Don Capo Draghi will be as helpless as the Wizard of Oz to stop it. They will be overwhelmed by the collapse of the Ponzi resulting in a tsunami of default.

But let me regress for a moment to contemplate the strategic plans of the NWO. Some might say that the capos of the global banking cartel have no long term strategy. That they do not even discuss this concept with each other and all their actions are based upon fear and greed with a time horizon of 72 hours. They might even argue that the Bilderbergers, like Wendy’s, simply wish to compete with McDonalds, and the Trilateral Commission and the CFR are just watering holes with good leather upholstery. But for those people who believe that the people who possess most of the world’s wealth and coercive power might deem it as useful to construct a long term business plan as a garage based entrepreneur, we might give it a little thought.

My conclusion is that the final goal is to subject the global 99% into permanent debt serfdom. But if they permit the currencies upon which those debts were structured to go into hyperinflation, then the potential debt serfs could divert a wheelbarrow full of said currency from their home heating systems and buy their way out of life long debt servitude into the bright light of freedom, if one of debt free poverty. Ah yes, as Janis wailed, “Freedom’s just another word for nothing left to lose.” So I must conclude that the NWO capos regard HI as a potential disaster to be avoided.

But any intelligent economist, meaning one of the Austrian School, will freely admit that the natural consequence of the world’s all time hugest bubble bursting is a deflationary collapse, as in deflation. And that the only way that could be conceivably avoided would be for the central banks to “print” stupendous amounts of offsetting credit. But this could lead to a global HI which are the bankers’ worst nightmare as it would essentially lead to a jubilee for the 99%.

In a severe deflationary collapse, most assets will drastically lose value in nominal terms. In my opinion, the S&P 500 is absurdly overpriced. Every time the Fed or the ECB expands their balance sheets, whether covertly (currency swaps) or openly, the so call risk assets surge. So what are the options of a person with some savings? We have the general risk assets of equities and commodity futures, physical assets such as land and buildings as well as assorted junk from China, bonds excluding the US Treasury, US Treasuries, and the precious metals.

So if deflationary collapse, which I predict, does come to pass, then all but the last two will be obvious losers in both nominal and real terms. As to precious metals, it is my opinion that they will maintain their real value over the longer term, as they have since the time of Rome. However, I believe that during the collapse, PMs will lose nominal value for two basic reasons. First, their current nominal value is artificially high because it is propped up by extreme margin leverage extended primarily by the commodity brokers (such as MF Global) and their backers (JPMC). What do you think the value of paper gold would be if there were no credit to buy it on margin? And I think we are rapidly entering a world where most credit is disappearing.

Second, I think that many during the collapse will be forced to sell PMs, particularly gold, to meet margin calls, trying to stave off insolvency. Gold may be the only thing that anyone might be interested in buying at that point in time, and it would become a buyer’s market. I do believe, however, that gold will be the first physical asset to recover.

So here we are with US Treasury Bills as the last of the list. Let me state for the record that I am a retiree with modest savings; that most of my savings are in 13 week treasuries purchased through Treasury Direct, and that I am currently living in Mexico in very modest comfort on my Social Security checks. In short, I am one of Robert’s idiots.

Now let me direct my idiotic blather to several of his points as well as supporting commenters:

* When the currency of a country appears to be nearing collapse (most would regard this as imminent HI), then the yield on the bonds go into an exponential moon shot. This is because lenders would want to be compensated for the loss of real value as well as the probability of sovereign bond default. Greece is not a great example as it doesn’t have its own currency, but look at the current yield of their six month bonds. One might look at Argentina 2000-02 for a better example. So Robert is correct that only we idiots would invest in sovereign debt at 0 or negative nominal yields.

Say a currency does go into a deflationary collapse of 7% per annum in terms of general purchasing power, and you hold bonds with a minus 2% yield. While you are losing 2% in nominal terms, you are actually gaining a 5% yield in real terms. This appears strange to people simply because the Fed criminals have kept the country in inflation since 1913 with a few modest exceptions such as the Great Depression.

* Moore suggests that it would be smarter to kept your savings in currency under your mattress than in T-bills. First, the Fed and the NWO Banking Cartel frown upon currency. It is one of the few remaining areas of freedom and privacy in the money world. They would prefer to have every pack of gum you purchase recorded in their computers, complete with brand and number of pieces contained in the package. In order to villainize cash, anyone with large sums is ipso facto regarded by the “authorities” as either a drug dealer or a terraist. And this tends to be at the discretion of the Secretary of the Treasury or his minions. Recent “laws” in this regard deprive you of any judicial recourse, on the off chance that the courts are not totally rigged.

So anyone holding large amounts of currency is subject to it’s confiscation. Second, I challenge anyone to go to his bank, if you live in the USA, and try to withdraw, say $8000 in cash. See how easy and hassle free it is. First, they usually ask you, in writing, what it is for, like it is a loan and not your own money. When you tell them to go to hell, they tell you that Turbo Timmah made them ask it. For most, the only hassle free way to accumulate cash is to take out the daily max from your ATM. But I would imagine that the banks will shortly build a weekly or monthly limit into their ATM programs.

* Next we come to bank savings which includes CD’s. Legally your savings are a loan to the bank, and with the repeal of Glass-Steagall, your bank may go to the casino and gamble with it as it sees fit, or give it out as a bonus for their deserving traders to purchase hookers and snort. And with recent federal legislation, holders of derivative instruments are the first in line when a bank fails. Please note the transfer of $60T in derivative wagers from the Merrill-Lynch division to the BAC FDIC flagship. Wonder why they did that?

The segregated accounts at MF Global were legally more secure than any checking account, CD, or money market account. They were essentially virtual safety deposit boxes in which MFG was given the authority to take out money only upon the account holder’s explicit orders to purchase future contracts or cover margins. Yet Corzine and Dimon stole as much as $2B from these accounts without even a hiccup from Eric PlaceHolder, who was too busy running guns to the Zetas in Mexico. And you think your money in the bank is safe?

* And now we come to the FDIC. First, that Robert should accept the $250k limit at face value is bizarre. A joint account is insured up to $500k, and insurance goes by the account not by the person. So if some dude has five million bucks, he just opens up 20 accounts and puts $250k in each. No hay problema. But will the FDIC pay off on a systemic collapse of the banking system. Note that the C in FDIC stands for corporation. And it is basically broke as we breath. Are TPTB willing to monetize $5T to pay off account holders?

One may observe that the balance sheet of the Fed after all the illegal and quasi legal crap gone down over the last 4 years, including taking near worthless assets off the hands of their buddies at face value, stands at under $3T. So I don’t think so. The Boyz don’t put their money in checking accounts or CD’s and the Boyz run the show. As the late George Carlin put it, “It’s a club and you’re not in it.” I think it is far more probable that they will pay out the account holders a nominal sum, like $400 a month, until it is paid off in the 22nd century.

* As everyone interested in macroeconomics knows, since 1971 when Nixon closed the gold window, money is debt and nothing more. And the debt that supports the US currency is the Treasury debt. So the dollar is totally dependent on the confidence of the world in the US Treasury. The collapse of the Treasury would result in the dollar immediately becoming worthless, i.e. instant HI. There are some very intelligent people who believe that the NWO intends to collapse the dollar eventually and replace it with a global currency. I am one of them (though you may leave out the intelligent descriptive in my case).

And the easiest way to collapse the dollar is to collapse the confidence in the Treasury. However, in my opinion this is in the future and not the immediate future. And the advantage of buying T-bills through Treasury Direct is that you have no “private sector” broker in the middle (Jon Corzine for example) to steal them. The drawback is that you cannot use tax deferred funds to buy them. But the ominous future on tax deferred funds would be the makings of a rant for another day. It seems that people are becoming too irresponsible not to wait until after they die to withdraw them.

In a severe deflationary collapse, what appeared to be money during the bubble expansion (really credit) disappears with barely a trace as it is sucked into an alternate universe. Since the total sum of money and credit becomes a small fraction of what it was at the bubble’s peak, the vast majority of asset holders become losers both in nominal and real terms. With a few very rare exceptions, the ones who lose the least – win.

So, in summary, I remain “invested” in 13 week T-bills through Treasury Direct and have no intention of being forced into risk assets or using up my modest savings in a couple of years and then eating dog kibble.

Your faithful idiot,

El Gallinazo