skipbreakfast
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Automatic Earth has been predicting Trump for at least 5 years now. If you’ve been a long-time reader, you were not at all surprised by Trump. A shift towards local vs global, increased sentiments of protectionism, rejection of establishment. All of this has been explained by The Automatic Earth since I started reading in 2010.
Of course all those shifts can be negative…but they can also be positive. And ironically, despite all the hair-pulling and clutching at pearls, Trump is far, far, far more positive than many of the alternatives could have been.
Because as the global unwind gathers pace, more such seismic political shifts will take place, and some of those truly will be dangerous and authoritarian.
Thankfully Trump is not those things. Yes, he is “protectionist”. Yes, he is “populist”. But he’s far more progressive than the Left are willing to give him credit for.
Trump is a necessary correction. I’d rather have a benign “necessary correction” than an evil one.
I’m relieved to have Trump. He’s a positive example for other such regime changes coming elsewhere in the world. But he really has inherited the poisoned chalice. I think he knows it too. That’s called sacrifice.
Yes, I think crude private conversations are completely defensible. In fact it’s strangely ironic that the progressive left fought for twenty years to give us the right to be sexually free adults with the liberty to live our private sex lives the way we want, but all of a sudden these same “champions” of freedom have become some kind of morality police that deems sex talk unacceptable. I will continue to defend my right, and anyone else’s right, to talk about sex in private conversations, full stop. The day that my private conversations about my sex life become illegal will be a very scary day indeed, and it seems that’s the direction the regressive left is taking us today.
In an unwinnable scenario, short of Jesus showing up and running for POTUS, Trump is the only option. I do not believe he will solve things, because they are unsolvable. But I do believe he is the only one who might actually keep things from being worse than they otherwise would be. So I don’t totally agree with the notion that he’s going to blow things up because of his unsuitability for office–rather he will blow things up because they are going to blow up anyway, and he will be the spark that ignites the long dead forest. Trump will begin dismantling the charade so something better might have a chance of surviving in its place. In fact, I actually can’t think of a policy statement he’s made I couldn’t get behind. Except he said Snowden was a traitor. That’s almost enough for me to reject Trump. But no one, sadly, is perfect.
RE: Trump’s taxes.
Using LEGAL financial structures to avoid taxation is part of the game of the system. It’s not a crime. In fact it’s a requirement.
Trump himself argues for simplification of the tax system. But he was not the one writing the tens of thousands of pages of rules. Given the rules that are put in place, any successful business will and in fact MUST use those rules to maximize their profit and minimize their tax.
Charity is called “charity” because it’s a CHOICE. That is, a business in this capitalist system has a choice as to what it donates to a government or any cause. Requiring a company to pay more tax than it needs to ceases to be charity because it then becomes an obligation not a choice.
You can critique an individual or a company for not being charitable enough. But it’s still not illegal not to be charitable. And truth be told, none of us are particularly charitable.
Tax avoidance is a business NECESSITY. Tax evasion is the crime. Tax avoidance is what any smart individual does. To do otherwise, is essentially to make a charitable donation to government. And I don’t know about you, but the last charity I would want to give any money to is a corrupt, over-bloated government. In fact, if you don’t agree with the direction of government (Trump is on the record being critical of government policies for decades now), then why on earth would you charitably DONATE millions of dollars to such a despicable, corrupt institution as the current U.S. government.
Raul writes: “Both will be failures. All we really get to do is try to decide who may be the lesser failure.”
This really hits the nail on the head. What only readers of The Automatic Earth understand is that the system will fail regardless, but that there are better choices we can make as individuals, communities and nations as we weather that failure. I agree Trump offers a necessary departure from the status qho in order to weather that failure.
As Nicole Foss pointed out so accurately many times, the winner of such elections is simply the inheritor of the poisoned chalice. Our leaders, no matter who they are, will be pilloried, vilified and denigrated as the wheels come off the bus of the financial system. But the best of them will sacrifice in order to find a safer, saner path that preserves freedom, while the worst of them will capitulate to powerful interests that seek to control wealth for their own benefit while everyone else starves. Ironically it really does appear that the “capitalist” Trump in this instance has individuals’ interests at heart over the “socialist” Hillary’s interests in big banks and Globalism.
Thanks Raul for posting this article.
Hillary is unelectable because she is clearly a corrupt criminal and to top it off is far too unwell to assume such an office.
In fact, it’s starting to get downright confusing to pick a reason why she cannot and should not win.
Trump as the only other choice is clearly a far, far superior choice. He represents the start of the war for real change, which must include resurrecting freedom of the press and anti-corporatization of government. No leader is perfect. — why is anyone so shocked by that truism. But you start to scratch the surface of what Trump truly represents, and you realize he is a necessary first step, and the only one the American people have if they are going to reclaim freedom in their country. It would be another clarion call heard around the world, not unlike Brexit.
For me, fascism is the persecution and denial of reason.
I’m only seeing that from one candidate, Hillary Clinton.
My sympathies Ilargi.
A few years ago, I lost my mum after her lengthy illness. I know it changed me. You only get one mum, and it sounds like you had a truly good one.
Definitely check out the Primers section on this website (see link at top of the The Automatic Earth main page). You’ll find a few such article-summaries there. Definitely worth reading and discussing.
Ilargi writes, “there’s a whole camp around Paul Krugman that would disagree. What they don’t understand is that no amount of stimulus can lead to a real recovery if the initial debt levels are too high, because you would need to achieve absolutely miraculous growth levels just to avoid being overrun by interest payments.”
And I just can’t help wondering how Krugman doesn’t understand this. Ain’t he smart or something? It seems rather obvious that the numbers don’t add up–interest will consume our “growth profits”. Krugman seems to argue that we just have to stimulate ENOUGH and we reach some kind of magic escape velocity that WILL create exactly enough miracle growth to repay the debt and the interest. Or rather we will attain enough miracle growth so that we can perpetually service the debt forever (because he really doesn’t seem to care that we have debt as long we can service the interest payments, even if that relationship extends forever). You just have to ask how on earth one believes such a state of affairs could be spun forever–won’t we eventually reach some other insurmountable obstacle in the road sometime later, crushing growth and forcing default all over again? So we’re supposed to just put that off until some indeterminate date later (maybe next week or next year) and hope for the best until then? I don’t see how such projections don’t lead to eventual default. And I ain’t stupid neither.
Krugman wants us to drink enough poison until somehow it becomes a cure. Even while, thus far, increasing the poison levels seems to do no measurable good. We’re just supposed to have faith that if we just take more–a lot more, even–then we will be all better.
It’s truly absurd.
How can the man be so deluded? Has he no doubts at all? Are his frantic tweets–he apparently comments on everything these days–the signs of a desperate academic whose ivory tower is showing some cracks?
I tend to side a bit more with your outlook, Variable. While I think collapse can and probably will get just as bad as Orlov (and even TAE) ultimately predicts, I think TAE has a very wise strategy for the “in between” period that I certainly expect. And in that “in between” period, money will be more valuable than ever. That is to say, a deflationary collapse will be with us for a few years if not decades. Even a couple years is too long a period to be without money. After all, at the moment money buys food and I don’t know anyone growing enough to entirely feed themselves without money.
It’s a question of timing, and timing can be dangerous. As Stoneleigh has said all along, some people will be able to tolerate more risk and try to time their prepping purchases (land, equipment, power independence) when prices collapse further, as they inevitably will. For some, especially those with either very little money or much too much of it, spending now to prepare may be the only option, as self-sufficiency will be the most reliable survival strategy in ALL eventualities. But short of being a multi-millionaire, I agree with Variable that it doesn’t make much sense for me to buy Canadian land at these exorbitant Ponzi bubble prices, if that would erase all my savings/liquidity.
Just as I would advocate using a private vault service to spread risk around, I advocate having some money right to the bitter end, no matter that said money might become toilet paper. Along with fostering self-sufficiency for yourself and community, strategically preserving your money hedges other risks. It is still the most nimble of resources to get yourself out of a jam. And I also happen to believe money will be one of the last things to go, as central economies like the U.S. will ensure that their control is intact as long as possible, and that depends on money. That raises the question of which currencies to hold in your locale, as some currencies will retain their purchasing power longer than others.
Frankly, if the strategy is to simply buy land now no matter what, I see no difference between the hyper-inflationist’s collapse scenario and the deflationist one . In both cases, one is left broke, and that is not the point of preparing for deflation. I fear the variables are too many, even while the big-picture outcome is looking increasingly certain–therefore, liquid, diversified money, in the strongest currencies possible, under your own control, allows for a better chance of adapting to the volatile changes on the horizon.
Everyone’s situation is different. If you have children and jobs and already own a house, your strategy might not be the same as a person with none of those things already. I see great benefit in keeping options open as long as possible (via retaining purchasing power), but I’m also very flexible and adaptable in that I can move anywhere on a moment’s notice.
I wouldn’t want to buy and build my homestead in the wrong place for me. If I hate my neighbours or the taxes in the region become draconian, I’d have to leave anyway. Even in apocalypse I want to have some options to lead the life that best suits me under the circumstances. And I know the life that best suits me isn’t the one that best suits most people. I’m willing to tolerate more risk in order to ensure I can find/create those circumstances when it makes more sense for me to do so.
I put a huge premium on mobility and adaptability in these precarious times. I will only buy a property I can afford to walk away from and start anew somewhere else. And at current Ponzi prices, I could not walk away from most of these properties.
I think private vaults certainly have their place in diversifying your savings against risk. The key for me is diversify liquid holdings wherever possible. I wouldn’t trust all of my savings in a vault, just as I would not trust all of my savings being in any one place anywhere.
Vaults do get robbed. Vaults do get robbed by insiders/operators–or so I’m told. I can’t refer you to any historical accounts of such crimes, but it definitely stands to reason that vault operators can get desperate and greedy, like anyone else. In a systemic collapse, I don’t think vaults will be exempt from plundering. Perhaps they’d offer you more time to withdraw your savings than a bank holiday, though.
Insurance is only worth something if the system is still intact and functional. If it even gets precarious, I wouldn’t trust insurers to compensate you for a vault loss.
The critical thing to remember is that risk is everywhere. And vaults won’t be immune to theft or confiscation. Neither is your mattress though. So I agree that private vaults are one more way to spread some of your risk around.
XYZ post=7268 wrote: Hello,
In response to Skip who wrote, “Going back to being sheep farmers terrifies them. So credit is what they want no matter what.”
I agree that people are afraid of “going back”, but I do not think they are consciously thinking about credit.
This is simply speculation by me sitting here in France and talking to neighbours, reading the press, etc., but my impression is that people from recently poorer countries in the EU are convinced that they must “modernise” and that such a process is possible only by joining, associating with, perhaps even “merging” with the richer EU countries. Exiting the euro is seen as throwing away any chance of making “progress”.
You’re right XYZ–they’re not consciously thinking about credit. But they recognize that the Euro allowed them to buy more stuff and join the globalization cult of consumerist progress. Which is all because of “credit” even if they haven’t made this implicit connection.
Your question about “how long can this last” is really, really pressing. Credit is so seductive. How long does it take a heroin addict to quit the junk after hitting rock bottom? Sometimes they never quit. They just die. So who knows how long Europe will continue jonesing for a fix. Until the bitter end is a real possibility, I reckon.
gurusid post=7261 wrote:
Now, in both body and spirit, I long for the physical, mental and communal satisfaction of the real work we abandoned a long time ago. I know I’d be happier building a barn AND being able to eat. Question is, going forward, how many of us will be able to do both, once the real work starts.
So what’s stopping you? Got a garden? Go grow some veg. No land/not enough land? Go beg borrow or steal…
L,
Sid.Hi Sid,
Many things are stopping me, and the rest of us, from starting the real work. There aren’t many barn raisings these days unless you’re a Mennonite. As you suggest above, wage slavery is the dominant force in industrialized societies. The “real work” will have to be systemic, I reckon–as in all of our societies have to re-conceive of roads, power delivery, food growing. Not just me as an individual worker.
But your point is well taken–we as individuals have to begin to form communities and make changes despite the resistance at the systemic/societal/governmental level. And to that end, I am doing some of that “real work”. Moving to a country with a better growing climate, better access to fishing and fresh water, moving to a more rural community, connecting with other and sharing ideas and inspiration, raising chickens, making do with less, training up with new skills, gardening. I’m doing all these things now as part of real work. Haven’t built a barn yet. I’m terrible with a saw and hammer. I have been entirely shaped by my knowledge economy training. Fortunately people around me are excellent builders and they’re patient too! I have a lot of “work” to do, aye.
I see what you’re saying James. I guess I was distinguishing “work that needs to be done” from “employment”. In respect of employment, you’re right. Employment, as we’ve come to understand it in our lifetime, is contracting. There is not enough of the current kind of employment to go around. So I agree with you on that. I just have trouble calling most of it “real work”–not over the past 25 years. Rather it was just credit-conjured make-believe jobs. Maybe it’s arguable that the only reason there’s less “employment” now is because there’s simply less credit to go around now (i.e., deflation).
pipefit post=7253 wrote: Regarding the comments on ‘no work to do’, I doubt that. If there’s an abundance of everything, the cost of living should be going through the floorboards, not through the roof (the actual case). It is possible we’ve reached the stage where far more entrepreneurial spirit and talent is required, but it shouldn’t be that hard to rekindle, once the present welfare edifice fails.
I am also in total, diametric, polar opposition to the argument that we no longer have work to do. On the contrary, we have avoided real productive work so long now that there is more work (as in true sweat-on-the-brow labour) than we will ever be able to accomplish in our lifetime. And as long as we just exhaust ourselves pushing needless paper around, that real work will remain un-finished (let alone started).
We will begin the work when we’re really good and hungry. But obviously the best time to do the work is when you’re well fed, not when you’re sick and starving. There is so much to do we won’t be able to do it in time. Credit has borrowed against the future of this labour. We have squandered hundreds of years of future wealth in order to play Xbox. I thought I enjoyed it. I finished all fifteen levels of Halo 2 one summer.
Now, in both body and spirit, I long for the physical, mental and communal satisfaction of the real work we abandoned a long time ago. I know I’d be happier building a barn AND being able to eat. Question is, going forward, how many of us will be able to do both, once the real work starts.
Dave
Great question. My guess is based in part on living in Europe in my early 20s and also my current experience in New Zealand. I believe there is a strong collective memory in countries like NZ or Spain of being “poor”. North Americans have trouble relating to this mind set because even while we may have been poor as individuals/families, we lived in a world of “modern progress” and affluence. Not so for a traditionally sidelined country who sold barrels of oranges or mutton to richer countries. The eurozone gave everyone credit. Which they could use to buy range rovers and pretend they were not farmers but rather a new and respectable knowledge economy. Going back to being sheep farmers terrifies them. So credit is what they want no matter what.
“Our definition of work has slowly slid from doing something that is useful to yourself, your family and the society you live in, to doing something, a job, that will allow you to buy as big a car and home as possible, and consume as many products as you can whether you need them or not, in order to keep the economy growing. This change in definition has gone largely unnoticed until now, but in light of the levels of – youth – unemployment we see in ever more places, maybe we should take another look at what it means.”
Great reminder of where we’re at / where we are going. The above paragraph really struck a chord for me. As someone who has drifted in and out of “normal employment” my entire professional life, I most recently put my toe back in (an office job) and was aghast by how far removed “work” has become from “doing something useful for yourself or your family. It’s now just such bizarrely non-productive make-work type labour with no other purpose than to warm a seat, usually to “produce” nothing at all and certainly nothing we “need”. So the job really is just a placeholder that is supposed to allow me to keep buying more junk.
The solution truly must be, as you suggest, that we return to labour that benefits us directly, rather than labour that benefits some unseen, unknown, unquantifiable Borg collective.
Charles Hugh Smith just wrote an interesting essay on the state of work for the young (though it applies to all ages, in fact). Also worth a read.
https://www.oftwominds.com/blogmay13/different-economy5-13.html
Thanks as always for the insights, Ilargi.
skipbreakfast post=6976 wrote: It seems to me that many hyper-inflationists (I’m talking to you Marc Faber) are getting really desperate and jumping through incredible hoops to try to prop up their predictions in the face of really powerful evidence to the contrary.
Check out this slightly bizarre interview with Marc Faber last month. This is a guy that told everyone to buy gold because hyper-inflation was imminent and the Fed would “print, and print, and print” until cash had no value.
Now Mr Faber, like many hyper-inflationists, including Peter Schiff, are starting to hedge their bets. In fact, Faber is looking a bit crazed to be honest.
When challenged about gold’s inability to hold up as a safe haven lately, Faber responds that Fed liquidity is creating “bubbles and bubbles and bubbles…and also this bubble will come to an end”. So wait…gold is now a bubble Marc?! Whoa. That is not what you were saying last year or the year before, when you were predicting hyper-inflation and gold going to the moon. Now he says “not even gold can protect you”. Of course, in a deflation, gold is not protection, because all asset prices are pressured down in a deflation.
And what’s up with his trademark laugh (at 3:20 to 3:30). That is the nervous laugh of a man on the defensive. Clients are probably yelling down the phone at him daily: “Where’s my hyper-inflation!”
I think Stoneleigh provides some good advice here:
https://theautomaticearth.com/Lifeboat/how-to-build-a-lifeboat.html
Personally, I’d read all the Primers (see the links at the top of the TAE main page).
But a lot of the insights from Ilargi and Stoneleigh are best gleaned by reading as much of the Primers, articles and even the comments, going back as far as you have the patience and tenacity to read.
I hope you’re right that capital controls will be difficult. Arguably, some aspects of modern life make it EASIER for governments to control our money:
– No one carries cash. When we’re all reliant on digital accounts, the capital control is as easy as the flick of a switch. In the hold days, when cash was always kept on hand for “a rainy day” it would have made capital controls harder.
– We’re more easily tracked. Our whereabouts and movements are easy to monitor–our cell phones identify our location, our passports keep tabs on every exit and entry to nearly every country.
– We’re all so complacent. In other times, we might have been more wary. I have a mate here in NZ whose father had to escape Eastern Europe. His father is old now, but insists that some money be kept well hidden out of the banks. My friend thinks his father is crazy. Unfortunately, my friend is the majority and his father is the minority. With so few people prepared to resist capital controls, I wonder if they’ll be instituted more easily.
Tell me how you think we are less likely to succumb to capital controls–I’m honestly curious to hear that point of view.
Hey Sid. Yes, The Automatic Earth has discussed the scarcity of certain items, including some necessities, in the worst of deflation, as factories close due to bankruptcy and lack of credit to start new enterprises. That is a real juggling act. When do you buy that big cast iron wood stove. We’ve decided to start accumulating some of those things, even at inflated prices, given that there could be shortages of such things. I still question whether the nominal value of such items will be greater than they are currently. After all, as purchasing power drops, each dollar buys a lot more. So the $2000 wood burner today may be only $200 next year but that might suddenly be a lot more expensive when no one has even $20 in their pocket. But if you have somehow preserved your cash through to the bottom of deflation, then you could buy 10 wood stoves if you wanted–though they might be the LAST 10 wood stoves around. I heard Stoneleigh point out in one of her talks that even the best farmland in the nation went totally bid-less at auction during the Great Depression.
As you say, some items might get bid up before the worst of it, but I also believe that will often be temporary. Cash may well ALWAYS be in shorter supply than any goods of ANY kind, by the nature of its function in a negative feedback loop in a deflating economy.
You bring up another point worth more thought, which I also allude to in my first comment: re-denomination of a currency is NOT the same thing as hyper-inflation. Some very savvy, humanitarian economists and activists are advocating abandoning the Euro and re-denominating the national currency into a new currency. Such as in Spain. Note, these people are not wishing hyper-inflation on the country when they demand re-denomination out of the Euro! Yes, this would immediately devalue the purchasing power of Spain. But if re-denomination is “well-managed” (and it’s almost hard to do worse than the current bad management), then that new currency finds a floor. It doesn’t become toilet paper, even though there is a time when the world doesn’t trust it. Think of a now-debt-free country with great internal resources and wealth. Even re-denominated, a well-run currency will return to some level of fair competitive value. Hyper-inflation on the other hand does not necessarily entail a re-denomination at all. Hyper-inflation is the result of a debauched government that throws in the towel on fiscal management and the world refuses to take any of its currency at any value at all (or at least exponentially devalues it to the point of near nothing-ness).
Cyprus could re-denominate. This is high inflation as priced in the re-denominated currency, at least initially, but not necessarily a “hyper-inflation” where all fiat is rejected. It depends on what Cyprus can do to manage its resources and people. How much can it eject corruption and avoid external manipulation? How much can it return to its roots and manufacture or farm using its unique advantages.
Arguably, some places have no unique advantages. Those countries may never return to real competitiveness. They really have only been supported by credit all along, and eventually might become desolate. I think James Howard Kunstler has interesting things to say in this regard, when he talks about parts of the Middle East. A hundred years ago, much of that region had NO people in it because it was so inhospitable. Take away oil from such a place, and there is no way for such a region to sustain itself. No matter what it does with its currency. It has nothing else to offer and no one can live there, because there’s no water or arable land.
davefairtex post=7023 wrote: Gold may be money (in that its a store of value) but it acts more like a foreign currency at the shopping center. Namely, to spend it, you must first
a) convert it into the local currency, and when this happens, you
b) receive a variable-sized haircut on its quoted valueThat’s because we’re not on the gold standard any longer – when exchange rates were fixed between gold and the dollar.
And the less cash there is – say we have a bank holiday – the bigger the haircut will be for people trying to sell gold.
But even today when things are calm you expect to lose 3% on the spread for gold eagles.
I’m not saying gold is bad, far from it. But I’m saying “gold is not money.” Take your gold bar to Whole Foods and see just how much you can get. Same reaction if you take a stack of Yen. “WTF is this, and can you please bring me some dollars?”
Everything has its place – and I totally agree with Skip, cash has its own merits, and it is not to be sneered at. And at the point that it becomes obvious that it is important – it will be way, way too late to get some.
Nicely put–thanks Dave.
One thing I can’t stop contemplating is that even in universal deflation, strategies for wealth preservation will probably still vary from state to state. One thing that won’t vary is the value of self-sufficiency, and in this respect it is surely the best strategy of all, but I still have to try to anticipate some of the pitfalls in my particular circumstances here in New Zealand, and there are some conditions here which I think might be unusual.
Like Cyprus, this is an island country. Unlike Cyprus there are oceans of difference in terms of New Zealand’s geographic isolation. One COULD practically sail out of Cyprus and land in many ports. This will exacerbate capital flight even in the face of strict capital controls. Of course, such flight will entail risk, such as imprisonment and wealth confiscation. But at least it is possible. In New Zealand, only the hardiest sailors could contemplate sailing to another country. It’s far. It’s dangerous. And so capital controls could have even more extreme effect here in New Zealand.
In the same vein, there is not the population here to give full effect to some strategies, like US dollar cash holding, for example. I’m only speculating, but if you take a South American country where millions of people have long relied on US dollar cash as a backstop against corruption/devaluation, not to mention the criminal underground, then the power of US dollar cash as a hedge against deflation is quite obvious to me. In a super-isolated country like New Zealand, it seems that US dollar cash might be easily stamped out under capital controls. Unlike Europe, Asia or the Americas, there isn’t an immediate border with which to transact using the US dollars. And there isn’t the history of the underground US dollar market.
I guess this takes me to something Stoneleigh has alluded to: the “currency risk”. Each country might encounter differing conditions even while the effects of capital controls have some similarities. It would be really easy to make US dollar holding illegal in a little isolated country like New Zealand. Then again, so few people would be doing it, that it might be well under the radar, and banks would still want US dollar liquidity, in theory. Certainly the New Zealand dollar is terribly over-valued currently, and that is a great risk in and of itself. But at least NZ cash would be highly liquid within my country even after the NZ dollar collapses in value. Just like Euros are in Cyprus right now, no matter what the future prognosis is for the Euro itself.
Within NZ, I don’t see gold as having many advantages in the short-term for all the same reasons as above, but perhaps it might have some special advantages for a place like New Zealand, even while its nominal value drops through the floor. Everything will have a spread/cost associated with dealing in it, including some forms of cash. Again, it shows how nimble we have to be. I’m beginning to appreciate my chickens a lot more…though they’re still too young to start laying, so I better not count them yet.
gurusid post=7024 wrote: The ‘cash crunch’ coupled with the non-operative banking system is going to cause…[w]ealth…to be re-assessed in terms of what wealth really means; from access to true power and influence, and the ability to stay alive and in good health via such necessities as eating, something familiar to the developing world, but long forgotten (for about six decades) in the west. And as for being a ‘fun guy’ 😆 , the fungibility of anything in terms of what an items trade value will be worth will depend much less on the spot price of anything, and much more on whether the seller is willing to take said item at all in exchange for say food. Unless at the pointy end of a gun perhaps…
L,
Sid.All very true, Sid.
One complicating factor that further confuses hyper-inflationists is the current dominance of RELATIVE pricing of wealth between countries. Cyprus is currently somewhat isolated in its deflationary extremes, by its geography and its capital controls. This re-prices assets within its borders while surrounding countries are not yet forced to re-price wealth. So you get a Cyprus Euro actually being worth LESS than a German Euro, due to their relative portability (the German Euro is still entirely portable while the Cyprus Euro is not).
A couple of things: I see Cyprus as a valuable example of the shape of things to come. And so one must be able to extrapolate these conditions beyond Cyprus. Folks seem to have trouble even intellectually comprehending the current conditions WITHIN Cyprus, which are so obviously deflationary. If these conditions spread, as I believe they will, the relative pricing between countries becomes less obfuscating in regards to the direction we’re really headed here–towards Deflation. We must imagine what happens when ALL Euro countries must institute capital controls. With the outflow of billions from Italy lately, that day is getting very close. Who the heck is leaving any money in Spain, Italy, Greece, Portugal, now that we’ve seen the Cyprus solution? If we are to believe in the inter-connectedness of global finance, how long before Euro Zone capital controls trigger outflows from non-Euro countries, including New Zealand, Canada, the US, and more capital controls there too. The age of free-flowing capital is ending. Even Paul Krugman admits that.
When all countries are equally isolated by capital controls, the effects of deflation are greatly magnified, both in terms of their deflationary power(the effect is multiplied when trading partners are also locked down under capital controls) and in terms of the clarity in which the deflation falls into focus for us (i.e., the trend will be undeniable for all, unlike today where people can’t extrapolate beyond Cyprus). Right now, people see Cyprus as a speck in a sea of free-flowing credit. I see it as the growing of a parasite that will consume the host. Credit will be toast.
Once capital controls lock a country into isolation, all forms of wealth begin to reveal their pitfalls, and there will be increased costs in dealing with them. Stoneleigh has long argued as a result that cash is not a long-term solution to our problems, but fully advocates building self-sufficiency in terms of community, food production, etc.
Golden Oxen post=7018 wrote: BTW, what is that about the world moving into gold? $20,000 an ounce? Are there really still people touting that line? Yawn.
I remember hearing that one from another gold basher when it was $200. Amazing how some folks learn nothing from history, especially ones that should know better. Hold on to your cash, it has an excellent history of preserving wealth. Yawn
The point of the thread is mainly that this week, this month, undoubtedly this YEAR, people in Cyprus need cash. And we can learn lessons from this painful scenario.
When you lose access to all your cash because your government and banks won’t let you take anything out, then you will do whatever you must to get some cash. Including liquidating gold, even when one truly wants to hold onto it until the total collapse of all fiat currencies. Whenever that is.
Grocery stores in Cyprus may take your gold this week, but at nowhere near the spot price.
Hey thanks Dave.
And it’s nice to beat the Zero Hedges and Martin Armstrongs to the punch, in terms of timing. Such as this days-later article in Zero Hedge, that is now making all of the same points, but then can’t seem to say the word “deflation”. After all, the entirety of Zero Hedge is devoted to the hyper-inflationary religion. At least they conclude:
“[T]he deeper the rabbit hole goes, and the more countries are Cyprus’ed, the greater the onslaught and attack against gold, silver, and other traditional and historic fallback currencies to what is increasingly pejoratively known simply as “paper.”
Sounds like deflation to me, just poorly stated.
Alan, on gold, above, I actually write in general about diamonds, fine art, and gold, all as ways to store wealth and their pitfalls in a deflationary environment such as we find in Cyprus today. That is, there is pressure downwards on all assets when people need cash and there is a shortage of cash. Within Cyprus, there is a shortage of cash.
Reading about Cyprus in Business Insider today: “Picking out a €10 note from her cash till, Mrs Charilaou, 59, told The Sunday Telegraph: “This is what I’ve earned today. My rent is €500 a month, how am I going to pay it? The retail business is bleeding, everybody is shutting down. Today it’s Cyprus, tomorrow it will be Italy. It will be a domino effect. We use to live peacefully, we had jobs. Now they have changed our lives.”
So Mrs Charilaou has only €10 in her till but a €500 rent. If she has only otherwise saved diamonds and gold, she’ll need to liquidate some of those assets for much needed cash. At the same time everyone else who has diamonds or gold are liquidating some of theirs too to get some cash.
And lest you think it is only the “poor” who want cash, you may have already seen this article: “I Went To Sleep Friday A Rich Man, I Woke Up Poor”
I want to point out that even in the ideal circumstances of our still-(barely?)-functioning credit-driven Ponzi, there is a COST to move in and out of gold every time, also known as a “spread”. This spread is just one of many layers of profit which must be generated by those who deal in gold to make it worth their while. So every time someone transacts in gold to get cash, she loses 3%, 4%, 5%, in ideal conditions but certainly more under conditions where cash supply tightens and an economy slows. Gold dealers are a business after all. When volumes of transactions are high, they can afford to keep the spread lower.
I do write about the speculative upside in gold and recognize that there are some advantages to any store of wealth in a bank run. Just not over cash. And that is deflationary. Actually, Mish Shedlock is a deflationist who still sees gold as having big upside in a deflation. Certainly possible.
The point of the entire exercise is to point to deflation WITHIN CYPRUS, which is, at the moment pretty much indisputable. And people, banks, companies, even the state, needs cash. There is not enough cash to go around. This is in stark contrast to a world that thinks cash has no value. If Cyprus is the shape of things to come for the rest of us, then we have some lessons to learn here. Cyprus’s island isolation makes it an even more useful example since we should be able to see the effects more sharply. If we see increasing capital controls, we will all increasingly become islands no matter what our geography, because that is the effect of capital controls.
Trucks delivering Euros to Cyprus (picture in The Guardian):
Precisely, Nassim. And my point has been that this deflationary phenomenon within Cyprus has not been mentioned at all, even while so many have predicted that Cyprus-like “solutions” will be coming to other countries. New Zealand and Canada are tabling legislation to allow deposit confiscation. Other Eurozone countries are at risk of capital controls. And so I argue that Cyprus is a microcosm of our future. If we can expect Cyprus-like conditions spreading, we can expect deflation spreading too.
By the way, loss of confidence in banks has been seen before in history. And so the consequences aren’t as unknown as you suggest.
Okay, Alan. You’re a hyper-inflationist. You said you could see it going either way, but in fact, you have clearly shown your hand, and sit very firmly in the hyper-inflationist camp. Which is not what TAE is about. Which is not what this thread is about. You aren’t interested in listening to some real, verifiable facts about deflation, and so I’m not even sure why you’re here. Maybe you’re more open-minded than you currently admit, and so I hope you will still go over these discussions and consider them.
By the way, this is not a thread about cash versus gold. You missed the point. It is about deflation. And you are refusing to acknowledge or address some basic realities in this regard.
This thread is about Cyprus, and capital controls, and how people have no cash. The headlines clearly state that people want cash. They’re lining up for it. They’re desperate for it because it is in short supply. You have to start there and fully consider the implications before you can understand deflation. You want to skip this step and go directly to a hyper-inflationary loss of confidence in money. But Cyprus makes it clear that the rush to get CASH has only just begun. There is some window of time wherein that must be played out.
As for the rich, I know very wealthy individuals who are liquidating hard assets for cash, and moving money around to safer and safer havens. This continues to reduce the velocity of money. And a reduction in velocity and supply leads to higher demand for money at all socio-economic levels, including state levels. There is good reason to imagine that Cyprus, as an entire country, is very CASH short right now, and is longing for some US dollar liquidity right now. Alas, not much is to be had. The noose is tightening.
That is really the crux of the argument. Walk the streets of Cyprus and pull out a thousand dollars in Euros or US dollars, and people want it. Rich Russians who have just lost all their money, to the tune of hundreds of thousands if not millions, might now be bankrupt. They will also want some cash about now, or anything else they can convert to cash.
Where one wants to convert cash to hard assets, one will find, within Cyprus that there is less cash to compete with there. That is, fewer people have it. You are richer for it. You have fewer competing bids for that villa when you’re the only one who got his cash out in time.
The fact that some hard assets in some pockets might temporarily go up in value in the flight to safety does NOT mean there is a loss of confidence in fiat. It means people need to find safe havens. The irony is this INCREASES the need and desire for cash as it takes cash out of the economy, reducing its supply and increasing the demand therefore. The knock on effect of that will ultimately be pressure downwards. But one has to be able to extrapolate the Cyprus scenario to your own. When banks close you out of your account, no matter how much you have in it, you want and need cash. Period.
Thank you Ilargi for pointing out that even a hard asset purchase can be another way to hoard wealth, thereby halting the velocity of money, since there is no buying and selling. It is the hoarding of wealth, be it cash, gold or art, that is what you see under capital controls, or even the “threat” of capital controls. Especially the hoarding of cash, but also the hoarding of some other assets if one can afford to do so. You can stuff a diamond in your mattress along with your cash, and the velocity of money grinds to a halt.
And yes, under capital controls, a lot more people will hide their cash out of the bank and in places like mattresses, but hopefully in much more innovative hiding places.
Alan, you are confusing me with your use of the word “confidence”. When “confidence” plummets, the velocity of money plummets. So you seem to be getting that part backwards, suggesting that we have slowing money supply because confidence is intact. Quite the opposite– when no one has confidence in their bank or the economy, they hoard their cash.
I think you are referring to a lack of confidence in the fiat itself. And what any deflationist points out is that you have INCREASED confidence in cash when you have deflation. And using the example which was the basis of this thread–Cyprus–we see people have A LOT of confidence in their fiat cash even while they have no confidence in their banking system. That is, they want their cash a lot! They are happy when they have it out of the bank and in their wallet.
Hyper-inflationists are waiting for the day when people don’t want cash anymore. That day seems to recede into the horizon with every passing day. That is not to say it doesn’t exist in the future, but we have a present and immediate future in which we NEED cash. This is increasingly suggestive of a current deflationary environment, and one which will not vanish overnight, but will increase tremendously before it goes away. It could take years. And we’ll all have to eat in those years before a possible hyper-inflationary explosion.
When I have this discussion amongst other people in real life, I’m often confronted with the statement, “cash has no value, it is worthless, it’s just paper”, to which I respond, well then please give me yours then if it’s worthless. That seems to stop folks cold. Because it presents them with the reality that they do want their cash. Flash a one-hundred dollar bill in front of a hungry man, and he is very confident he wants that hundred-dollar bill.
We do not have anything like a hyper-inflationary loss of confidence in cash in Cyprus. We have line-ups at banks to get their cash OUT so they can eat. They desperately want their cash. And whatever they get, they are going to want to keep. And this is what’s coming for the rest of us. And that is deflationary.
alan2102 post=6983 wrote: [quote=skipbreakfast post=6979] everything I say leads to the conclusion that ANY hard asset is better than a vapourized account…. put your money in gold, diamonds, art and anything but a bank account.
YES. Do you think other people are not on the verge of reaching that same conclusion, any moment now? It is called loss of confidence, and if it happens, it will lead to SUDDEN screaming increase in the velocity of money. As Jim Sinclair has pointed out, every hyperinflation on record was preceded by conditions of low money velocity, and arose as though from out of nowhere, suddenly. Confidence was lost, suddenly. As long as confidence is maintained, you will be right; velocity will remain low.
Do you think confidence will be maintained?
I don’t have an answer for that. Maybe yes, maybe no. It sure will be interesting to watch and see.
You’re being disingenuous here, Alan. You’re leaving out the best part of what I said without actually addresssing it or refuting it. I wrote:“So put your money in gold, diamonds, art and anything but a bank account. But fully expect to need cash more than any of the aforementioned hard assets. And fully expect liquidations of the aforementioned hard assets to free up much needed cash.“
And that was right after the part where I say “cash is better than all these hard assets in the current Cyprus circumstances (which circumstances are coming to the rest of us too).”
Hm, as soon as capital controls are threated, people rush to extract their cash. They hoarde it. That is deflationary.
They don’t go out to restaurants and live it up with the cash they got out. Because they know they won’t get any more out.
And they don’t go and buy a villa with the $2 million in cash they got out either. Because they know capital controls are coming, so they feel lucky to have got cash out at all.
I do not agree that you have increased money velocity happen when capital controls are threatened. You’d have to demonstrate how this would happen in a real world example, where you fear that banks are going to close in your town and country.
Yes Nassim, everything I say leads to the conclusion that ANY hard asset is better than a vapourized account, but that cash is better than all these hard assets in the current Cyprus circumstances (which circumstances are coming to the rest of us too).
So put your money in gold, diamonds, art and anything but a bank account. But fully expect to need cash more than any of the aforementioned hard assets. And fully expect liquidations of the aforementioned hard assets to free up much needed cash.
Removing large quantities of gold is just as difficult as moving large quantities of paper cash notes (in some circumstances harder, in others easier). But both can and will be stopped at in and out of borders, when it suits the powers that be to stop them. Swimming with gold is difficult.
Thank you alan, I’m glad you posted that, because that is a really good example of the completely deluded articles on hyper-inflation I’m talking about.
It seems to me that many hyper-inflationists (I’m talking to you Marc Faber) are getting really desperate and jumping through incredible hoops to try to prop up their predictions in the face of really powerful evidence to the contrary.
The article states “What we should see now is cash withdrawals from European banks in other troubled countries – Italy, Portugal, Spain, Greece, etc. That cash should then be used by those individuals to start transacting in goods and hard assets.” As I mention in my original comment, the mistake they’re making is that the desire to have a hard asset rather than a vapourized bank account is not inflationary, when the desire to have cash is even greater. Yes the Celine Dion CD is preferable to a vapourized bank account. But what we’re seeing with Cyprus is CAPITAL CONTROLS to stop the run of hard cash out of the bank. As soon as everyone tries to extract cash, the banks MUST clamp down. There is simply not enough cash to go around if even a small percentage of folks start withdrawing it. Thus we have a shortage of cash notes and increased demand and desire for it, not a lessened desire.
And as soon as you have capital controls you DO NOT have money sloshing around in the system. That is deluded. The amount of real printed notes in the world is a very tiny percentage of the 1s and 0s on bank ledgers, and a very, very tiny percentage of all the credit in the world. It is the credit that is being used to buy stuff. It is the credit that is being used to send prices up. NOT the cash.
As soon as we see people withdraw cash in any noticeable way, the cash will be hoarded for good reason, because the banks and governments will allow LESS and LESS of it to get out as time goes on. They have not really printed more notes. And so why would anyone buy a diamond or a painting with all their cash, when they know that it is probably the last cash they will be able to get their hands on.
I agree Nassim, some gold-bugs hold gold for no other reason than a hedge to give them a better shot at survival. I don’t agree that describes most gold owners, however. Most gold holdings are speculative, and most gold-bugs believe they will be very rich as a result of the reset.
My concern for the speculative gold-bug is that while the price could easily spiral way up from here, as remaining credit chases a refuge, the floor under that price will remain just that–credit. And when credit is finally outstripped by defaults, then the need for cash will finally pull the rug out from under gold’s price in a shockingly violent way. That floor will be gone and true price discovery of all assets will be at hand for some window of time. As Stoneleigh has suggested, if you can afford to hold your gold for the long-haul, it’s a good store of value, just ensure you can eat for the long-haul. Gold will always be worth something. Like any hard asset. But lots of hard assets will be liquidated out of necessity.
In a way I wish I hadn’t mentioned “gold” in my comment, because it distracts the hyper-inflationist so much from the thrust of the argument–that Cyrpus is our future, and that Cyprus is deflationary, and deflation devours ALL asset prices, just not in equal measure. I only mention gold because it seems to get mentioned in many of the comments about Cyprus being a hyper-inflationary harbinger. Which it is not. It is a deflationary harbinger, even while it takes us that much closer to the Euro’s collapse. Agreed, priced in the re-denominated currency of a bankrupt nation, drachmas, or whatever, you have a super-inflation on imported goods, but you actually have a sensibly re-priced currency in the world that reflects true purchasing power of the nation, as low as it is–and it will be very low.
Priced in stronger currencies, like the US dollar or Norwegian kroner, that will reflect deflation in the re-denominated country. Priced in the new currency, a floor could likely be found on the value of the currency, and it will stay around there, at its very low level globally, rather than becoming toilet paper, as the hyper-inflationist predicts, but rather serving internally as the medium of exchange, but not buying much outside the country.
A re-denominated currency does NOT NECESSARILY become Zimbabwean trillion dollar notes. That is a different phenomenon from insolvency and re-denomination. It is the distinction between sudden super-inflation, which levels out (but is devastating all the same, especially for those who haven’t prepared), and hyper-inflation, which is a complete loss of faith in a currency to the point that it is worth nothing. I strongly believe societies will continue to use money as a form of exchange, and that money will find a value quite quickly that reflects the purchasing power of a country. The better run country, even in insolvency, will find the floor on the currency more quickly. It will be low for quite a while, if not forever, but still functions as the medium of exchange within the country. And it will be easier and cheaper to buy a lot of those new Cypriot pounds with US dollar bills or other stronger currencies (notes that is–the kind you can fold), than anything else.
davefairtex post=6928 wrote: skip –
One last note. Götterdämmerung has not yet arrived. It may – or may not – ever arrive. So I am not going to act as if it is a present reality unless and until such a thing comes to pass. We still have trash collection, police (more or less), and paved roads. I will therefore continue to advocate that losses be apportioned largely along lines I consider to be reasonable.
In the case of Cyprus, I advocate that their banking system that has been acting as a safe-harbor for offshore money gets thrown under the bus and the small depositors on Cyprus get saved – given that explicit promises on that exact point were made to small depositors. Perhaps after the end of times actually hits I’ll feel differently, but until that catastrophe strikes, I’m cool with how things are proceeding today.
That is a pretty good argument. Safe, but persuasive. Nevertheless, we probably diverge in the respect that I do think this is part and parcel of the End Game. It is here. This is it. I don’t think the curtain opens and the music swells to cue the real commencement of the big event. Various cascading calamities have been with us since 2008. Just as TAE has predicted, it is now resulting in deposit confiscation and capital controls, and in a westernized Euro country no less. They will only increase in scale–eventually giving us a couple of events you might agree is the real “biggie”, but there will be lots of biggies that take us to the worst of it. It’s not a single night, in my opinion. Your roads will paved for quite a while, but the pot-holes will increase too (as they probably already have). And in this respect, that is the decline in the standard of living I was referring to, except it will come on multiple fronts, not just pot-holes in the road.
I think part of what doesn’t sit right for me, in making this “innocent depositor” distinction, is that it presupposes a solution. The notion is completely dependent on the idea that choosing some other option (i.e., bondholder haircuts, for example, and no deposit levy) will take us to a place where Cyprus or the Eurozone will be made whole. It is my deeply held conviction that it will not solve anything. And in not solving anything, deposits will ultimately vanish anyhow, just at some later date–maybe only days or weeks later, too.
Essentially, I do not think that any version of the Troika’s or even the Cypriot people’s preferred solutions makes an insolvent country solvent. Only declaring the insolvency can do this (which entails write downs everywhere in this case, including deposits, since there is not enough money to pay everyone out on their deposit, ever, once the Ponzi sham is fully understood). Bankrupt is bankrupt, and we’re not talking about a person, or a company or even a government, but an entire system. All the bets made in that casino are going to get raked in by the house, no matter who is making them. And that includes every Cypriot who made the bet of trusting their bank. And it means us too.
The dilemma reminds me somewhat of the protests in Spain. I sympathize with the plight, but most of the Spaniards hope their rioting will somehow convince the Troika to be nicer, with a view to returning things back to the way they were, when everyone had money for $8 coffees every day and great government jobs with pensions at age 55. However, the reality is that while Spain should be fighting for its freedom and independence from bankers control, winning this fight will not make them whole in the way they hope. They will still be broke. Standards of living must collapse and will collapse, because they don’t have the real wealth to continue living the way they have been living. None of us have the real wealth to live how we have been living. And our deposits, along with our bonds, must eventually reflect that. The question only remains whether you can try to preserve something more, as a weaker participant, given the stronger players are going to outgun us most of the time. This is where I think Ilargi and Stoneleigh have provided some great insights so the ordinary person has a fighting chance of staying afloat in the coming years.
davefairtex post=6911 wrote: What *should* happen in Cyprus depends on how they legally treat depositors in a bankruptcy. If a depositor is an unsecured creditor, wow, tough luck for them, they stand in line along with the junior bondholders. If they have depositor preference laws in place, then the bondholders should be completely wiped out before those depositors – even the uninsured depositors – lose a nickel.
Of course once the government steps in and circumvents the usual processes, then they get to pick winners and losers, just like we did when TARP parachuted billions in equity buys across the US banking system in 2008-2009.
…
As for the moral argument – I’m quite comfortable picking small depositors (especially the ones given a guarantee of protection by the government) over bondholders who were “the smartest guys in the room” who signed up for risk when they made their investment.
This ethical discussion reminds me of the argument that the majority of the blame for the housing bubble should be placed on home buyers. Bankers have been in the business of making loans for 400 years. Its not rocket science – there are well-established principles of doing business. … I’m quite comfortable placing the vast majority of the responsibility on the con men. Especially when “the con” is their entire business model.
Hey Dave, don’t get me wrong. I fully agree with the notion that corruption is rampant and corruption will squash the little guy, and I wish it weren’t so. Nevertheless, I do not agree that drawing a clear line between savers and bondholders gets us very far in preventing this.
1) While many bondholders are gargantuan financial enterprises with huge financial power, bonds are also held by ordinary investors trying to protect their wealth. Indeed, the aging widow may own bonds and have no savings. Her pension may also be made up largely of bond investments.
2) Many gargantuan financial enterprises are “savers”. Indeed, part of the insinuated moral argument behind the Cyprus Solution is predicated on the fact that huge savings in Cypriot banks belong to rich and nefarious Russian mobsters. So savers cannot uniformly be lumped together as innocents.
3) I am a saver. And so I know that I am a prime target. I must take responsibility for my future, or I fear someday I won’t eat. I have some “safe haven” bonds towards this same effort.
4) A bank deposit is another promise to re-pay with little distinction for me from the promise to re-pay on a bond. Both promises can and, going forward, certainly WILL be broken. There are more promises to pay than there is money to pay all the promises.
5) The fact that there is a sequence of entitlements in a default that is supposed to flow down from bondholders being hit first before depositors, well that is simply a rule invented by the very system that is now rewriting the rule. The rule was only in place so long as it suited the system. It provided a certain base of “trust” upon which the status quo accomplished all its dastardly, credit-driven deeds. The status quo must re-write these rules to survive. And being a depositor means being part of that game. I have long advocated NOT being a depositor, but rather a saver who relies much less on the banking system.
6) When we are broke, globally, because there are far more promises to pay than money to pay them with, then I maintain that trying to choose who gets a haircut first is tantamount to rearranging the deck chairs on a sinking ship. All the players will take haircuts, and the weakest will first. I would like that to be different, but in the interim it will not be.
7) An alternative, more palatable solution would be for haircuts to be means-tested. That is impossible for so many reasons. And so what cannot happen , will not happen. Just as what cannot be repaid, will not be repaid.
8 ) Finally, I’d argue that if we overly emphasize the moral high-ground of depositors over other players in our capitalist charade, then we risk increasing depositors’ complacency. Why did ordinary Cypriots not withdraw their money when they could have? Because they believed deposits were sacrosanct. How can anything be sacrosanct when the whole system is debauched and desperate? And so, I’ll argue for the sake of argument that deposits are one more facet of the same global Ponzi that includes bonds and stocks and we’d be fools to try to distinguish any of them on moral grounds.
9 ) I certainly advocate helping aging widows in your community. If you can survive all of this with some wealth intact, you have an opportunity to help those who do not. Because the social safety net that we also assume is a right will vanish along with the bonds and the deposits too. Just as your own wealth preservation is your personal responsibility, it will increasingly become our personal responsibility to help our neighbours in need.
[quote=Nassim post=6909]
The ageing widowed mother of a Greek-Cypriot friend of mine has already had her pension reduced, and now this.
Frankly, your attitude and ethics quite disgust me. They are a reflection of the times, I guess
I’m glad my ethics disgust you, because they’re not really my ethics so much as all of our reality. And reality is vomit-inducing these days.
Personally, if I could just find my magic wand, I would much rather enact an equitable distribution of wealth around the world. We don’t have that and I would probably have to admit we have never had that. Hardly. World poverty statistics put such lofty ideals to shame (and the aging widow lives much better than most, probably, just not in her hometown).
Yes, I’m throwing in the towel on fighting for such equity at this stage. Because I don’t believe it is going to have any impact. Not immediately at least. Not until we have survived the worst of the write-downs. As such, I would prefer that every aging widow protects herself by employing some of the wise strategies suggested by Ilargi and Stoneleigh. A broke system means even the widow has been living above her means in some respects (e.g., living in cities and countries that provide for their people by enjoying the largest credit bubble in world history–our standards of living have not been bought and paid for).
The write-down of your standard of living will take many forms. Even if you protect ALL of your wealth through various strategies and some very good luck, your standard of living will still drop as the services we take for granted disappear (paved roads, garbage pick-up, policing, etc.).
Ultimately, once the worst of this blows over (which is probably going to take decades), a society might arise with more humanity that insists on wealth equity. We’re not anywhere close to that yet.
So we’re left with the fact that we are ALL broke, and will ALL have our wealth reduced. And I find it very difficult to make a blanket statement that one saver is more deserving of preserving all/some of her wealth over another performer in this theatre in which we all play a part.
I’m going back to what I insisted on in much older TAE comments all along. The first country to leave the Eurozone will be made to suffer and stand as a horrifying example of the ramifications of exit. The pain will be exacerbated by the Troika–they will underhandedly fan the flames, though in such a way that it doesn’t appear that way. The media will jump on the bandwagon with video footage of babies being born in abandoned hospitals, empty grocery store shelves, violence in the absence of a police force. It will be mayhem. And Greece et al. will be fairly warned: take our offer or suffer the same fate.
I thought Greece would be the first to exit and be made the example. But many pointed out that the Euro can’t really AFFORD, financially, for Greece to exit. They can, however, financially at least, afford a Cyprus exit. So Cyprus will be our horrifying example.
Here the Troika apparently gave Cyprus a choice that they knew Cyprus would probably not accept. If Cyprus accepts, that’s a bonus. If it doesn’t, they have their example.
There will be blood. And it will make Mario Draghi smile. Just what the doctor ordered.
Then again…we all must admit that the people (sheeple) of Europe and the world have been absolutely shockingly passive about EVERYTHING. And so far the Troika has been exceptionally savvy about reading our ability/inability to react. We all thought what’s gone down so far would have toppled the sand castle. 50% youth unemployment in Spain anyone?! And yet still, the incredible momentum of this 75 year credit super cycle has lulled the people into an equally unprecedented degree of acquiescence. Might not the Troika simply be emboldened enough to say something like this?
A: But if we propose this stability levy, we WILL get a run on Cypriot banks, which will precipitate runs on banks in Greece and Spain.
B: Nah, we just keep saying the same thing over and over, that this Cyprus move is a one-time thing. And for six months, it will be a one-time thing. And within a few weeks, all the Chicken Littles who say the sky is falling will come crawling back. I mean where are they gonna go?The people still want their cappucino frothing machines and smart phones. They want those more than they want to rebel. People want this to keep going. We can do almost anything we want if we play it right.
A: Like duh. Of course. What was I thinking. Let’s do it.
