Letter Re: Wood Stove Selection, Operation, and Safety

James Wesley,
We have heated our current home with a wood stove and a pellet stove for ten years now. I disagree with one aspect of the recent article on your web site.

Our wood stove in the basement is set up to burn coal as well as wood. Where we live in Colorado there are a large number of dead trees — from pine beetles — that we can and do burn for free. However, with pine wood even the best stove will not hold the coals overnight. Hence the ability to use coal is a godsend. When the weather is only a little bit chilly we can place a basketball sized lump of coal in the stove and the stove will hold the coal — burning slowly — for up to five days. Hence in the mornings all we have to do is toss on a few pieces of wood and they will catch right away.

During the coldest part of the winter we can load the stove with a five gallon bucket of coal and it will heat the whole house for three days. Given the cyclic nature of our weather here (a couple of days of stormy weather, followed by a couple of days of biting cold, then a couple of days of sunny and warmer weather) we can clean out the stove during a sunny day as coal produces lots of ash.

Burning coal does one other thing as well. Pine wood has a tendency to produce a lot of creosote. But by using the coal, the creosote deposits in the chimney are burned off leaving a hard discoloration. Not burned off as in a chimney fire but apparently one of the chemicals in coal smoke reacts with the creosote and chemically burns it off of the inside of the chimney. At least this is how our chimney sweep has explained it to us when he shows up and inspects our chimneys every year.

Our pellet stove (upstairs) is good for those cool cloudy days in the spring and fall when firing up the wood stove in the basement will heat the house too much.

Now one warning — our wood stove is designed to burn coal. Your typical wood stove is not designed to do this and the coal will burn through the sides/bottom of the stove. – H.D.



Economics and Investing:

Reader Steven H. wrote to mention: VP Biden puts on his Captain Obvious cape and declares “This is a depression”. Of course, Joe Biden has developed quite a track record for the inability to keep his mouth shut–most notably when he revealed the “secret” nuclear blast bunker beneath the VP’s Residence.

Ralph N. suggested this piece over at Volokh about how the FedGov conceals some of its debt: Treasury Inc.: The Shadow National Debt. (It is hidden under a TARP, dontcha know…)

Commentary from analyst Niall Ferguson: The Dollar Is Dying a Slow Death.

From the Housing Storm blog: Strategic Foreclosure And The Last Man On The Boat

Also by way of Housing Storm: Subprime Mortgage Myths Debunked

Items from The Economatrix:

Sun Microsystems Slashing Up to 3,000 Jobs

Stocks Fall After Mixed Economic Data, Earnings

Fewer Home-Building Permits Signals Weakness Ahead

US Stock Market Returns to Housing Industry

UK: Business Failures Predicted to Surge in 2010 as Recession Deepens

Recession-Hit Spain Goes Back to Black Economy







Note from JWR:

Today we present another entry for Round 25 of the SurvivalBlog non-fiction writing contest.

First Prize: A.) A course certificate from onPoint Tactical. This certificate will be for the prize winner’s choice of three-day civilian courses. (Excluding those restricted for military or government teams.) Three day onPoint courses normally cost between $500 and $600, and B.) Two cases of Mountain House freeze dried assorted entrees, in #10 cans, courtesy of Ready Made Resources. (A $392 value.) and C.) A HAZARiD Decontamination Kit from Safecastle.com. (A $350 value.)

Second Prize: A “grab bag” of preparedness gear and books from Jim’s Amazing Secret Bunker of Redundant Redundancy (JASBORR) with a retail value of at least $350.

Third Prize: A copy of my “Rawles Gets You Ready” preparedness course, from Arbogast Publishing.

Round 25 ends on November 30th, so get busy writing and e-mail us your entry. Remember that articles that relate practical “how to” skills for survival have an advantage in the judging.



Wood Stove Selection, Operation, and Safety, by Kevin K.

Heating with wood has been a “necessary” tradition for thousands of years, but with the advent of the industrial revolution, and the advancement in methods of heating homes and buildings, heating with wood became less and less popular.  During the 1970s Energy Crises, there was interest in seeking “alternative” energy sources, and people started to rediscover the benefits of heating with wood. In the early 1990s, gas stoves and inserts took the place of traditional wood burning.  People were just too busy to deal with the time and energy required with wood.  In the last few years however, wood has come full circle, yet again.  It’s funny how people go back to things that are simple, reliable, and secure, in times of uncertainty.

I am a former Technical Administrator for a Wood and Gas Stove manufacturer, and thought I might be of some help by passing on some of my experience and knowledge. Basically, I was the guy who trained “the stove professionals” at the places that customers buy their stoves.

Heating your home/retreat with wood can be very rewarding, especially in a SHTF scenario. It can literally mean the difference between barely surviving, and comfortably thriving.  If a wood stove is not installed, operated, and maintained properly, there is a very real possibility that there can be substantial loss of property, and or life.

Fireplaces

While fireplaces do add warmth and comfort, they are far from being efficient.  Most fireplaces are only about 10% efficient, in other words, 90% of your fuels’ BTUs are going straight up the chimney.  If you do have a fireplace in your home, and would like to make far less trips to the wood pile, please consider installing a wood burning fireplace insert.

Selection of a wood burning stove

There are many types of woodstoves, and not all woodstoves are built alike, and there are a few features that are highly advantageous. Most stoves will burn wood effectively, that is, yes the wood does burn, but there is a bit more to it than that.

Catalytic Stoves – The king of wood stoves

A catalytic stove utilizes what is called a “Catalytic Combustor”.  This combustor is similar to the catalytic combustor (converter) in a cars exhaust system. Its’ size can differ, but usually is 7” round, 7 x 9 oval, or rectangular, and about 2” thick. The combustor is a ceramic or stainless steel honeycomb on which is coated a catalyst. The catalyst may be a combination of one or more precious metals, including the following: platinum, palladium, rhodium and cerium.  The catalyst chemically lowers the combustion temperature of the smoke from a wood fire, thereby allowing more smoke to burn, resulting in higher efficiency, and less creosote buildup.  The active operating range is approximately 700-to-1,400 deg. F. The unit will glow red around 1,000+ deg., but is operating properly as long as it is in the active range. Catalytic Stoves come with a “Cat Thermometer” When operating properly; all that should be exiting the chimney is a white, steamy plume.

Pros
Saves Time and money
Dramatically longer burn times. Up to 40 hours on low setting (Blaze King Brand)
Much higher efficiency
Fewer trips to the wood pile
Chimney stays much cleaner, less chance of chimney fire
Greater burn control, resulting in more even temperatures in the home/retreat
Uses less woods
Cons
More expensive than traditional non-cats
Average life of converter is 5-9 yrs, depending on use and type of fuel burned
Replacement Cat’s are expensive. (This cost is made up by time and money saved)
Note:  In worst case scenario (i.e. TEOTWAWKI) and the cat is no longer working, the by-pass door (not the loading door) can be left open and the stove will still operate. The EPA will say that it is illegal to operate the stove without the use of a properly operating catalytic combustor. If it is TEOWAWKI, I’m sure you will get a pass on this.

Non-Catalytic Stoves

Non-cats are more commonplace, yet they too, are not all the same.  You have your basic type, that is, a box with a hole in the top, and you have others that employ what is called “secondary air”.  Secondary air aids in better combustion of smoke, resulting in lower emissions.
Pros
Less expensive than Catalytic
Fewer parts to wear out
Cons
Shorter burn times (cold mornings?)
Less efficient
Uses more wood
More trips to the wood box
Thermostats
Woodstoves with thermostats are much better at controlling the burn, and maintaining a more even temperature in the house.  They are incorporated into the stove itself. (Not on the wall) A thermostat is comprised of a “flapper” that is controlled by a wound, bi-metal strip. As the stove gets hotter, the flapper will start to close, thus controlling the amount of fresh air given to the fire, and conversely, will open up as the fire dies down.
A stove without a thermostat will generally have a manual air intake control, in the form of a plate that you can move to control the volume of air coming into the firebox.

Positioning of stove in the house

It is generally best to place your stove in a centralized area in the home.  Natural air flow is a large consideration.  Most average sized homes can be heated sufficiently with a quality woodstove, based upon layout and natural air flow. It is preferred to have the chimney within the envelope of the home and not routed on an outside wall.

Pre-Manufactured Chimney Systems

Most installations will utilize a pre-manufactured chimney system.  It is important to understand that there is two different systems, one is standard residential, and the other is High Temperature Mobile Home/Alcove/Close Clearance. Normally, single wall pipe called a connector, is used to come off of the stove. This pipe must be 24/26 MSG Black/Blued steel stove pipe. (Do not use aluminum or galvanized pipe) Once reaching the ceiling, it will transition into a “ceiling box” that has Triple Wall (actual chimney), that runs the rest of the way.
  Always follow the manufacturer’s installation requirements, and local codes.  DO NOT MIX DIFFERENT CHIMNEY SYSTEM.

Never use more than a total of two 90 deg. turns in an installation.  Any more than that, will significantly reduce your draft.  If possible, use two 45’s instead of a 90. Furthermore, never slap a 90 deg. elbow right off of the top of a stove.  Preferably, you would go a minimum of 36” up, before turning.  Furthermore, if a horizontal run is needed, it should be 36” or less, AND have a slope of ¼” per ft., downward into stove. It is important and required, that the chimney extends a minimum of 3 ft. above a roof, and is at least 2 ft. higher than any area of the roof within 10 ft.
Note:  Chimney sections should ALWAYS funnel into the stove collar, meaning the crimped end faces down into the stove. This allows for condensation/creosote to drain into the stove, and not leak outside of the pipe

Masonry Chimneys

If you have an existing masonry chimney, and are able to route your stove pipe into it, you can save a lot of money. A masonry chimney must be lined; the liner is usually made out of clay 5/8” thick min., and appropriate cement. A chimney liner should never be smaller than the cross sectional area of the stove collar, example: An 8” collar is approx. 50 square inches.  A visual inspection of the chimney is needed prior to the installation of the stove.  Look for cracks/holes, loose field stones/bricks, and mortar that is crumbling/deteriorating.  Creosote patches are signs of fresh air being introduced through these cracks.  Have a professional chimney sweep inspect and repair the chimney if you feel that this is beyond your capabilities/judgment.  Overly large, unlined, existing chimneys often will not draft properly, will accelerate the buildup of creosote, and usually violate code and installation requirements. All installations require a thimble when the pipe enters the chimney through a combustible wall. It may be constructed of brick, or pre-manufactured.
Note: Make sure the ash clean out door on the outside base (if installed) of the chimney is closed.  This will keep cold air from being introduced into the chimney, and reducing draft.

Creosote and chimney cleaning 
Creosote is basically caused by smoke cooling and condensing on the chimney walls. It can be built up with the addition of ash and other large, unburned carbon particles. It can present itself as hard and shiny, or thick, light and fluffy. You should inspect your chimney and connector system twice a month during burn season. Pay close attention to the appearance of creosote patches inside of the chimney. The existence of these patches is an indication of fresh air leaking into the chimney, and should be repaired or replaced immediately.

Use only a tight fitting chimney brush to clean your chimney. Getting “Bubba” up on top of the roof with tire chains, hoses, and the pool skimmer, will not only result in unsatisfactory results, it can potentially damage your chimney. Remove the first section of pipe off the stove, and attach a plastic bag to the open end of the pipe. Again, follow manufactures cleaning instructions, if available. You cannot expect to get every speck of creosote cleaned off, so don’t lose any sleep over it.  Just do your best to brush as much of it out as you can. 

WARNING: NEVER INTENTIONALLY START A CHIMNEY FIRE TO CLEAN OUT THE CHIMNEY

“Magic” Chimney Creosote Cleaning Logs/Products

My experience has shown that nothing can substitute a tight fitting chimney brush for cleaning a chimney.  While there are several products out there that claim to “clean” or otherwise break down the buildup of creosote, I would not recommend them.
Safe Operation of Stoves
Always follow the manufactures operating instructions, and procedures. If none are available, please consider the following:

Never leave the stove unattended
with the loading door left open. Leaving the loading door open, then getting distracted by a phone call, or knock at the door, can have disastrous results.  Once a loading door is opened, there is virtually an unlimited supply of combustion air available for the fuel. If left unchecked, especially if the stove has just been filled, the stove can reach temperatures exceeding that in which the stove is designed.  This can warp the stove, or worse, cause a house or chimney fire.

Never use gasoline, kerosene, lighter fluid
or any other type of accelerant, to start a fire, or to “freshen up” a fire.

Never mix, or substitute chimney brands/systems
.  If you are trying to save money by mixing and matching stove pipe, you stand the chance of losing so much more. Chimney Systems are just that, “systems”.  They have gone through extensive testing for a reason, to save lives and property.  Many have gambled and lost on this issue. Do not use aluminum or galvanized “duct” piping, they cannot withstand the high temperatures of burning solid fuels.

Use only solid, seasoned wood as fuel
, unless the stove has otherwise been designed for such fuel. Do not burn coal, oil, plastics, wrapping paper, charcoal, railroad ties, particle board, and sawdust, painted wood, or anything else that is not dry, seasoned wood. Using unseasoned “green” wood will increase production of creosote, and make for poor draft up the chimney. Seasoned wood is wood that has been cut and allowed to “season”, or sit, for a period of usually at least 8 months. Saltwater driftwood can be death for a stove; it will [cause rust that will] eat right through it

If you are experiencing a chimney fire
and it is safe to do so, then make sure the loading door is closed, turn down the thermostat all the way (or manual air control), evacuate your home, and call 911.

Check Loading Door Gasket
twice during each burn season.  You can do this by opening the door and positioning a dollar bill on the area where the door gasket meets the opening on the stove, now close and latch the door.  There should be noticeable resistance when pulling the bill out. Try this in different areas around the door.

Ensure proper combustible clearances
to the stove are maintained.  Refer to your owner’s manual on distances.  If your stove is bought second hand, and does not have the clearances and certification agency labeled on the unit itself, contact the local authority having jurisdiction, to verify code requirements.

I have gone through most of the basics regarding wood burning stoves, and I’m sure that I’ve missed a thing or two. What I have presented are just general guidelines. I cannot emphasize enough that you follow the manufacturer’s Installation and Operating Instructions, doing so will ensure best performance, with the lowest risk of danger. – Kevin K.



Letter Re: Preparedness for Families that Move Frequently

Mr. Rawles,
Just finished reading your book “How to Survive the End of the World as We Know It. I finished it in one long sitting, and have plans to go over it again with highlighter and pen and paper to take more detailed notes. Great work!

As a member of the Armed Forces, I face a difficult dilemma in that I understand and can clearly see the need to prepare/plan ahead, but my family and I feel hamstrung by our relatively transient lifestyle. I’ve been in the service for just over four years, and in that time I have been relocated every 18-24 months. This makes it extremely difficult to build up a deep larder and establish a self-sufficient infrastructure and a live-in homestead. How do we work around this?

We have a few things going in our favor:
– We are debt-free, with about $60,000 squirreled away in a Certificate of Deposit (CD) that will mature next year; we intend on using that to purchase a piece of fertile land in a quiet corner out west, and are working with some like-minded family members to pool our resources for collaboration and (hopefully) get a better deal. One thing we have discussed is that there are some very good deals on land in Canada – would could by twice or three times the amount of property than we could buy stateside with the same amount of money. In your experience, do you see any advantages/disadvantages in buying in the US or Canada?
– After all the bills are paid, we have enough left over to put about $1,000 away in long-term savings and another $500 left for preparedness purchases. I have a running list of prioritized items (firearms/ammunition, long-term food/water storage equipment, etc.), and as the money comes in I purchase them.
– We are currently renting a small farm property (seven acres) in New England near my duty station. While here, we are taking the time to use it as a practice ground for growing a vegetable garden and small-scale haying for livestock. This will give us valuable experience once we do have a piece of land to call our own. We are coordinating with several friends to learn canning, cheese making, and small scale home brewing to improve our self-reliance.
– We do have two horses, mostly for pleasure riding; I intend on trading out at least one for a larger Draft cross – much more practical for farming/homesteading. My landlord also agreed to let us keep some poultry, so I will use the winter to build a coop for some chickens.
– Deer are abundant in our area, and several wander through our backyard on a regular basis. I’m going to pick up a deep chest freezer this week, and hope to put one or two deer in the freezer this fall/winter.

In summary, my two questions are then:
1) Canadian versus US land?
2) How to build a deep larder in a nomadic lifestyle?

Thanks for everything, and keep up the great work! – MPJ

JWR Replies: Yes, your situation is a challenge, but you are not alone. The good news for you is that the weight allowances for military PCS moves go up, as you gain rank.

Given an option, I generally don’t encourage retreats in Canada because of their more stringent gun control laws. It is fine if you already live there, and have structured a firearms battery that takes full advantage of some loopholes. For example, buying M1 Garand rifles. (The only semi-auto that is an exception to the absurd 5 round rifle magazine capacity limit.) But to voluntarily move from a country that has fairly favorable gun laws to one that does not, just doesn’t make sense to me.

For folks that move often, I generally recommend building up two stockpiles of food: A larger one with very long shelf life food s(such as hard red winter wheat and Mountain House(or similar) canned freeze dried foods) that is kept your intended retreat, and a smaller one with shorter shelf life foods that you will keep with you, as you move from place to place.



Letter Re: Storing Food in Commercial Storage Spaces?

Hi Jim,

What do you think of storing food at commercial storage sites until you can get the your retreat? Do you think these sites will be targeted and vandalized when TSHTF?

We will be moving north as soon as our house sells. I was wondering if we should move preps to a storage site closer to where we will be moving?

I hope you and your family are able to find comfort in your memories of the Memsahib. Thanks, – Kimberly

JWR Replies: In most of North America, commercial “U-Stor” storage spaces with roll-up doors are not a good choice for storing your food supplies. Inside temperatures temperatures that can exceed 120 degrees F in summer months. This will greatly decrease the shelf life of most storage foods. Traditional warehouses with interior doors have less extreme temperatures, but there you are more likely to have access problems when the Schumer hits the fan. There are some exceptions, in places like Maine, but even there, you have to wonder about stored foods being subjected to repeated freezing and thawing.

Commercial storage spaces are statistically quite safe from burglary. The biggest risk that I’ve seen is people losing track of their storage contract pre-payments, and losing the contents of their storage spaces! (State laws vary widely. In some states, only one notice needs to be sent via mail before forfeiture proceedings can begin. OBTW, in my travels, I’ve seen several storage companies that are co-located with antique furniture stores. I consider that no mere coincidence. Obviously, their are a lot of forgetful, unfortunate, or just plain flaky people that have forfeited the contents of their storage spaces! In my 20+ years of doing guns shows, I’ve met several dealers that regularly bid on the contents of abandoned storage spaces, essentially sight unseen, with varying degrees of success. Typically, the bidders gather, the door is rolled up, and the bidding commences, with the bidders not allowed to enter the storage space. They must base their bids on what they can see through the open door.

Another risk for the contents of commercial storage spaces is flooding. Make sure that you pick a company that has their building on “high and dry” ground, not on a flood plain. But even then, there is always the risk of ruptured pipes, or a malfunctioning fire sprinkler systems. So positioning a layer of inexpensive (or free) wooden pallets under your stored good is cheap insurance.

Ideally, you should store your gear and grub in the climate-controlled home or cool basement of a trusted friend that lives their year-round



Economics and Investing:

New Hampshire Senator Judd Gregg: U.S. could be on path to a ‘banana republic’ situation. (Thanks to Tom B. for the link.)

Reader MP sent this piece in Business Week: What happens if the dollar crashes?

MP also sent this from The Motley Fool: The recession’s second wave, subtitled “Green shoots? Sure, but there is actually little evidence of a solid recovery”

GG flagged this: FDIC bank fund in the red until 2012.

Tom R. suggested this piece: Intractability of Financial Derivatives

Items from The Economatrix:

Weiss: Bernanke Gone Berserk! Bank Reserves Explode! “Martin here with the most shocking new numbers I’ve seen in my lifetime. My conclusion: Fed Chairman Bernanke has dumped so much funny money into the U.S. banking system and has done so little to manage how that money is used, the fate of our entire economy has now been cast under a dark shadow of doubt. This is not conjecture or exaggeration. Nor are the underlying facts subject to debate. They are blatant, unambiguous, and fully supported by the Fed’s own data …”

Stocks Rise as Earnings Reports Top Expectations
. [JWR’s comment: “Another bear trap rally!”]

Oil Jumps Above $79 to 2009 High Before Retreating

Iran and Russia Propose Oil Trade Without US Dollar

Housing Market Getting Worse

Wall Street is Winning: Elizabeth Warren “Speechless” About Record Bonuses

From Golden State to Failed State

Best Things to Buy in the Fall

Lloyds Short-Selling Doubles; Collapse Predicted

UK: Tax Raid on Banks Planned By Ministers



Odds ‘n Sods:

Reader Jane L. sent this: River walkers discover weapons cache. There rae two lessons to be learned from this: 1.) Be very careful where and how you cache your guns, and 2.) Be sure to list the serial numbers of your guns, and leave that documentation well-hidden in the home of a relative or a well-trusted friend.

   o o o

Jonathan sent this one about over-reliance on technology: GPS Causing Truckers to Crash Into Bridges. Jonathan’s comment: “As you have said many times, you have to know how to use your tools or you’ll get in trouble. It also shows the need to use the right tool for the job. In this case truckers are using consumer-focused GPS units that don’t look at truck requirements like bridge height and road restrictions.”

   o o o

Field and Stream readers go ballistic, debating the survival firearms selection implications of “Patriots: A Novel of Survival in the Coming Collapse”. Rather than debating the merits of my book, they embarked on a lively debate about guns, traps, snares, and even primitive weapons. Gee, just imagine how much they’d have to debate if they actually read my novel!

   o o o

HPD sent this news item from Nanny State Scotland: Why can kids get these weapons? William Wallace is surely rolling in his grave!





Twenty-Two Reasons Why this Recession is Different and Why it Will Endure

I find it surprising that I’m now getting inquiries from readers, asking if “we’ve reached bottom” in the current economic recession, and asking if the time has come to start buying stocks or residential real estate. It seems that the talking heads of mainstream media are using some sort of voodoo. How can anyone think that we’ve hit bottom, and an economic recovery is in progress? To dispel the myths from the CNBC Cheering Section, please consider the following. (And note that I’ve provided references for each assertion, just so you know that I’m not talking out of my camouflage hat.):

  1. A broken global credit market that has not fully recovered. See: After Lehman, U.S. firms adjust to new face of credit
  2. Lack of transparency in Mortgage-Backed Securities and other re-packaged debt instruments. See: Geithner Blames Lack of Transparency for OTC Derivatives Hit on Market.
  3. The increasing Federal debt, which is growing at an unprecedented rate. See: The National Debt Clock.
  4. Mountains of consumer and corporate debt. See: Observations on the US Debt.
  5. The Federal budget deficit. See: Federal Deficit Hits All-Time High of $1.42 Trillion.
  6. Ever-expanding bailouts. (I call this The MOAB.) See: As More Companies Seek Aid, ‘Where Do You Stop?’
  7. Monetization of the National Debt. See: Fed Could Expand MBS Purchases. (Can you spell Oroborus?):
  8. The destruction of the American consumer economy. (It had been artificially credit-driven). See: A Year After The Crisis, The Consumer Economy Is Dead.
  9. Chronic unemployment, possibly much higher than officially reported. See: Alternate Data at ShadowStats.
  10. More than $500 Billion USD in hedge funds that have borrowed short and lent long. See: Assets invested in hedge funds increase by $100bn
  11. A double wave of residential mortgage rate resets. See: this chart of scheduled mortgage interest rate resets.
  12. Continued down-ratcheting of house prices. See: Housing Prices Will Continue to Fall, Especially in California
  13. The under-reported “shadow inventory” of foreclosed houses. See: The “Shadow” Foreclosure Inventory
  14. The very likely collapse of commercial real estate (“the other shoe to drop”.) See: Is a commercial real estate bust inevitable?
  15. A huge crisis lurking in over-the-counter derivatives. See my analysis published in 2006 and the dozens of articles on the Derivative Dribble Blog.
  16. Under-funded pensions. See: Almost half of top unions have under funded pension plans.
  17. A coming wave of municipal bond and municipal bond hedge fund failures. See: The Failure of Leveraged Municipal Bond Hedge Funds.
  18. Increasing numbers of bank failures. See: FDIC: Bank Failures to Cost Around $100 Billion.
  19. Insurance company collapses–some, like AIG, were foolish enough to insure more than a trillion dollars in derivative contracts. See: AIG: Is the Risk Systemic?
  20. Worsening state, county, and city budget crises. See: State prepares for shutdown as budget deadline looms, and this article from a liberal site: Predicting Worse Ahead from America’s Economic Crisis.
  21. Loss of faith in the US Dollar, on the FOREX. See: Dollar’s reserve currency status in focus as G-7 finance ministers meet.
  22. The coming mass currency inflation, following some asset deflation. See: Which is more likely in 2010: Deflation or inflation?

Back in the Fall of 2008, I started hearing from consulting clients with notes of fear in their voices. They realized that something is horribly wrong with the economy, but they could not properly isolate and articulate the problem. In my estimation, the “something wrong” that they sensed is nothing short of a monumental shift in the economic climate.

America will continue in recession. Most economic recessions are simply a product of the business cycle. These recessions are relatively mild and they often last just 12 to 24 months. The economic engine just readjusts and everything soon gets back to normal. But the recession that began in 2008 is something radically different, and it won’t be short-lived. The current slow down was triggered by a collapse in the global credit market. For decades, the global credit market grew and grew, in an enormous debt spiral. Our neighbors to the south saw trouble coming decades ago, because their economies were at the time more debt-dependent than our own. As far back as the mid-1980s, their newspapers featured political cartoons that portrayed an enormous, insatiable monster that was invariably captioned “La Deuda“–“The Debt”. Our cousins in Latin America saw it coming first, but the dark side of the debt nemesis will soon be clear to everyone.

The Federal government’s debt, just by itself is cause for concern. As an old gunsmithing friend of mine, the late Chuck Brumley, was fond of saying: “If your outgo exceeds your income your upkeep will be your downfall.” Several decades of profligate spending by the US Congress are finally starting to take their toll. Just because their friend Helicopter Ben has a high-speed printing press does mean that they can continue to spend money like drunken sailors in definitely. (On second thought, I should apologize for impugning the reputation of drunken sailors. They are actually much more conservative with their funds than congressmen.)

Because modern banking in the western world is based on interest charges that create continuously compounding debt, credit cannot continue to grow indefinitely. At some point the excesses of malinvestment become so great that the entire system collapses. This is what we are now witnessing: a banking panic that is spreading uncontrollably as wave after wave of ugly debt gets destroyed by margin calls and subsequent business failures.

Some economists are fixated on reading charted histories–and unrealistically expect that by doing so that the can reliably predict future market moves. Although they are working from a flawed premise at the micro level, the chartists do have some things right on the macro level: There are major economic “seasons” and even climate changes. The most vocal chartists like Robert Prechter hold to what is called the Elliot Wave Theory. And the big bad nasty in this school of thought is a Kondratieff Winter. This “K-Winter” is an economic depression phase that the world has not fully experienced since the 1930s. An economic winter does not end until after the foundations of industry and consumer demand are rebuilt. This can be a painful process, often culminating with war on a grand scale. (It was no coincidence that the Second World of the early 1940s was an outgrowth of the Great Depression of the 1930s.)

The US Federal Reserve and the other central banks are furiously pumping liquidity to the best of their ability, but in the long run they will not be successful. At best, dumping billions in cash on the economy will delay a depression by perhaps a year or two. But inevitably, a K-Winter depression will come. And the longer that it is delayed, then the worse the depression will be. Further inflating the debt bubble will only make matters worse.

“Big Picture” Implications

As I’ve mentioned before, hedge funds are presently most at risk in the unfolding liquidity crisis, because they use lots of leverage in lending funds that they themselves have borrowed. They borrow short and lend long, and effectively use debt compounded upon debt.

Even more alarming is the scale of global derivatives trading, particularly for credit default swaps (CDSes). Derivatives are a relatively new phenomenon, so most derivatives contract holders are only just now experiencing their first major recession. Thus, it is difficult to predict what will happen in a genuine K-Winter phase. In a perfect world, derivatives are a nicely balanced mechanism, where there are parties and counterparties, and every derivatives contract equation balances out to have a neat “zero” at its conclusion. But we don’t live in a perfect world: Companies go bankrupt. Contracts get breached. Counterparties disappear and disappoint. We have not yet experienced a full scale “blow up” of derivatives, but I predict that if and when it happens, it will be spectacular. The pinch in CDSes (a form of derivative contract) in 2008 was just a faint foreshadowing of what we’d experience in a a full-blown derivatives collapse.

The scale of derivatives trading is monumental, and the vast majority of the population is blissfully ignorant of both its scale and the implications of a derivatives crisis. There are presently about $500 trillion of derivatives contracts in play. That is many times the size of the gross product of the global economy, but the average man on the street has no idea what is going on. It won’t be until after the giant derivatives casino implodes that the Generally Dumb Public (GDP) awakens and asks, “What the heck happened?” Since the credit market began to collapse in the summer of 2008, the number of new derivatives contracts has dropped precipitously. But whether the aggregate derivative market is $400 trillion versus $500 trillion, when a crisis occurs there will undoubtedly be some very deep drama.

The next decade will likely be characterized by successive waves of inflation and deflation, and perhaps some of both simultaneously, at different levels. Countless corporations, and perhaps a few currencies or even governments will go under as this tumult plays out. (Take note of the recent vote of no confidence in Latvia.) The current low interest rates will soon be replaced by double-digit rates, much like we saw in the late 1970s. The dollar will lose value in foreign exchange, and may collapse completely. The Mother of All Bailouts (MOAB) will inevitably result in mass inflation. The bull markets in silver and gold will surge ahead, propelled by economic and currency instability. (Investors will be desperate to find a safe haven, when currencies and equities are falling apart.)

Mitigating the Risks

Be ready to “winter over” the coming K Winter depression. That will require: 1.) Prayer. 2.) Friends and /or relatives that you can count on (a “retreat group”). 3.) A deep larder, and 4.) An effective means of self defense with proper training. (For each of those four factors, see the hundreds of archived articles and letters at SurvivalBlog.com for details.)

Since additional large-scale layoffs seem likely, it would also be wise to have a second income from a recession-proof home-based business.

In the event of a “worst case” (grid down) economic collapse, it would be prudent to have a self-sufficient retreat in a rural area that is well-removed from major population centers. Get the majority of your funds out of anything that is dollar-denominated, and into tangibles, as soon as possible. The very best tangible that you can buy is a stout house on a piece of productive farm land. It will not only preserve your wealth, but living there may very well save your life.



Two Letters Re: Preparations for Eyesight & Hearing

Jim,

I thought that I would respond to Jake G.’s letter on “Preparations for Eyesight & Hearing”. I feel I can offer a little insight (no pun intended) on eyesight and Lasik.

I had Lasik a little less than two years ago. I had just turned 43 and, after 22 years of wearing glasses or contact lenses, I was ready to make the jump. I didn’t take it lightly, as having any procedure contains some degree of risk, but having surgery on arguably the most important of your five senses is scary. I had been in love with the idea of ditching glasses for good, but I was not willing to have the procedure until it had been around for a while and was more comfortable with it. After many friends and relatives had Lasik, I researched eye surgeons in my area and found one with the facilities and qualifications that made me most comfortable. I wanted a physician who had done this before, many times before. The doctor I selected had done over 14,000 surgeries. I wanted someone who had seen almost anything before. I wasn’t pressured to have it done, nor was I even encouraged to schedule a date while I was there.

I went in for the surgery, accompanied by my wife, who would be needed to drive home. While I was in his office for a good two and a half hours, the procedure itself took less than ten minutes and was relatively painless. It felt like someone was pressing on my eyeballs for a few seconds. I left the office feeling great and had little discomfort, although many people say they feel like they have sand in their eyes for up to 24 hours. I had a follow up appointment the next morning and went to work.
From a preparedness standpoint, it’s the best thing I could have done. I am 20/20 in both eyes for the first time since I was 21 years old. I don’t have to worry about contacts in a field situation, nor do I have to worry about losing or breaking my glasses. I can wake up in the middle of the night and can confront any situation without fumbling for eyeglasses. It is very comforting.

As Jake stated, the potential change in one’s close up vision is an issue. I was gradually noticing that reading was a bit more difficult, particularly in low light situations, but I didn’t require corrective lenses. After Lasik, I noticed that I was having more trouble reading and I found that I was unable to read comfortably without reading glasses. I picked up several cheap pairs of “cheaters” from the local drugstore. It is true that people begin to notice a decline in their vision when reading sometime after age 40. Lasik can make it more pronounced. It has now been almost two years and my near vision has not worsened any further. Wearing glasses while reading is a bit of a pain and a concession to the advancement of Father Time, but the freedom from glasses in everyday life has been fantastic. I would highly recommend Lasik for those interested with the caveat that they do their research and choose a well qualified physician who explains all the risks to their satisfaction. All the best, – Ken B. on Long Island

 

Sir,
The discussion about Lasik and contact lenses prompted me to write about an alternative: implantable contact lenses (ICLs). The surgery is more-or-less the same as cataract surgery, except that unlike cataract surgery (which replaces the natural lens of the eye with an artificial lens), ICL leaves the natural lens in place along with an artificial lens. Because it is essentially a variation on cataract surgery, which has been around since the 1940’s, unknown negative long-term effects from ICL are unlikely.

The advantages of ICL over Lasik are several-fold. First, the result is significantly superior to Lasik surgery — vision is far more clear (mine is now 20/15) and with fewer and less severe optical “halos” (mine disappeared entirely within a few months of surgery).

Because you’re not changing the physical structure of the eye, you’re less likely to wind up with poor results.In fact, if you’re not happy with the results, the lens can be removed entirely and your vision returned to its pre-surgery condition. If your prescription changes, the implanted lens can be exchanged for a new one. If you develop cataracts, your natural lens can be removed and your artificial lens can be changed out if necessary.

During the surgery, local anesthesia is used along with a paralytic to prevent the eye from moving. This is a boon to those of us who have difficulty controlling our blink reflex. IV sedatives are also provided, making the surgery both pleasant and completely comfortable (as compared to Lasik, which is often described as “sucking my eyeball out of my head!”).

ICL does not impact your ability to participate in extreme activities: since my surgery, I have been both scuba diving and sky diving with no negative effects.

Finally, people who have been turned down for Lasik — such as those with corneas that are too thin for Lasik — may be eligible for ICL.

ICL is more expensive than Lasik; I paid $3,000 per eye in 2005. It cannot correct farsightedness, and won’t prevent the need to wear reading glasses (however, it will not increase the need for reading glasses like Lasik can).

I’ve had ICL for nearly four years now and I can’t recommend it enough. The web site for the group I used is www.GoodEyes.com. – E.



Letter Re: Gear That is Hidden in Plain Sight

James,
I have built a series of Hidden in Plain Sight (HIPS) bird house caches that can conceal a Seahorse Waterproof Case. These cases are similar to a Pelican brand case. The Seahorse company has cases developed for pistols, so I have built a birdhouse. It is a 4-place birdhouse.Two of the spaces are real bird houses, but the other two are dummies, with the top on hinges. The Seahorse case fits nicely inside. My thoughts on this were, for instance, say an intruder breaks into your home in suburbia, your space is compromised, you have enough time and thought to get you, your wife, and child out through a window or back door. You’d then go to the HIPS box retrieve your track phone and your Colt .45, call 911 and have your pistol in the event that the malefactors come after you. I am considering applying for a patent of sorts on this type of home security devices. They come in different configurations colors and made for different birds specified for regional “fit” for the back yard Thanks for all that you do, it is really appreciated. – Gary

JWR Replies:
That is a captivating concept, Gary. OBTW, I concur with concept of having a Model 1911 in hand before dialing 911. (“1911 before 911.”)



Influenza Pandemic Update:

Reader Sheila A. mentioned n informative piece on flu immunizations, from The Atlantic: Does the Vaccine Matter?

Swine Flu Claims 11 More Children

NY Judge Halts Flu Vaccine Mandate for Health Workers

Children Should Not Be Given Common Pain Killer After Vaccine

Swine Flu Taking Toll on Hospital Health Workers

UK: Swine Flu Death Toll Passes 100, 2 Pregnant Women Die

CDC: Production of Swine Flu Vaccine Lagging

More than Half of Americans to Refuse Swine Flu Vax

UK: Top Insurer Tells Doctors Not to Give Swine Flu