Economics and Investing:

Greg C. mentioned some commentary by Howard Rich: The United Fiefdoms of America. “For the first time ever, federal aid – not property, sales or income tax – is the top revenue source for state budgets, the paper reported.”

GG flagged this by Karl Denninger: Nothing Suggests We’re Anywhere Near the Bottom

CJB suggested this article: Social security to run out of money…

And, in a disturbing echo, GG suggested this: Medicare already in the red

Items from The Economatrix:

Social Security and Medicare Worsens (since yesterday’s article) “The trust funds — which exist in paper form in a filing cabinet in Parkersburg, West Virginia — are bonds that are backed by the government’s “full faith and credit” but not by any actual assets. That money has been spent over the years to fund other parts of government. To redeem the trust fund bonds, the government would have to borrow in public debt markets or raise taxes.”

Oil Hits $60 on Global Recovery Hopes

April Foreclosures Rise 32% More than 342,000 people received at least one foreclosure notice.

Gasoline Prices Jump in California and US

Breathing Easier After Bank Stress Tests? You Shouldn’t Here are a couple of quotes from the article: “Largely unnoticed in last week’s government report on the condition of the nation’s biggest banks was the disclosure that five of them, topped by Bank of America, could lose $99 billion from the kinds of exotic bets that sank the global economy.” and, “The banks’ financial reports to regulators for the quarter ending March 31 also tell a potentially ominous story about their holdings of derivatives, instruments whose value is tied to an underlying asset, such as a pool of subprime mortgages. Seventeen of the 19 largest banks reported that, in the event of an economic catastrophe, they face combined derivatives losses exceeding $568 billion.”

Is Anyone Minding the Store at the Fed

Treasury Wants More Oversight of Derivatives

UBS Suggests Gold Could Go to $2,500

Credit Card Companies Piling on Fees, Raising Rates Ahead of New Federal Rules

Dollar Rally Will End, Rogers Says; May Short Stocks

Stocks Drop More than 2% on Economy Worries

Home Prices Drop Most on Record Per Quarter Dropped 14%

Soda Tax Weighed to Pay for Healthcare

Trade Deficit Widens in March to $27.6 Billion

Citi: $45 Billion Goes to Loans

Odds ‘n Sods:

Any of our readers living in Norway (and Norwegian ex-pats) will want to bookmark this blog: Ingen fare…Undergangen er skremmende nær!

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More about Pakistan, the Taliban, and The Bomb: Experts predict Pakistan’s collapse. Speaking of Pakistan, here is a prime example of lack of planning and lack of the survivalist mindset: Pakistan’s ‘displaced deluge’. Do your best to never be a “refugee ” It is just one short step away from “casualty statistic.” (Thanks to Ben M. for the second link.)

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Tamara mentioned that the National Rifle Association (NRA) is continuing their Free Membership promotional campaign.

Note from JWR:

Just three days left to bid! The high bid in the SurvivalBlog Benefit Auction. is now at $1,100. This auction is for a large mixed lot, which includes:

1.) A Three-Color Desert Camo Interceptor OTV (Outer Tactical Vest) size XL only, and a spare Woodland camouflage outer shell, kindly donated by BulletProofME.com. These items have a combined retail value of $960!

2.) A vehicle detection system, which includes: one MURS Alert Probe Sensor (MAPS) with 50 foot probe cable and one MURS Alert Hand Held (M538-HT) transceiver. The MAPS unit’s probe can be covertly installed under the surface of a driveway or road to detect vehicular traffic and a voice alert is sent to the hand held transceiver when a detection occurs. Donated by MURS Radio. Retails for $303

3.) Two cases of Yoder’s Canned Bacon, courtesy of CampingSurvival.com. (12 cans per case.) A $276 retail value.

4.) A NukAlert compact radiation detector donated by at KI4U.com (a $160 retail value). 

5.) Three Garden Security Collections, and two Garden Bean Collections, donated by SeedForSecurity.com. With included free shipping to any US postal address, this is a $100+ retail value.

6.) Two America Stone knife sharpeners (with belt pouches), donated by the manufacturer. (A $60 retail value.)

Thus, this auction has a combined value in excess of $1,800. This auction ends on May15th. Please e-mail us your bid. Your bid will be for the entire mixed lot.

Letter Re: That Post Die-Off Fragrance

I have read many [preparedness-oriented] web pages and other scenarios of the impending collapse as they see it. A common theme in most of them is there will be a sudden and short lived phase of total chaos. In your novel “Patriots” I remember the couple who took to a storm drain while the blood ran in the streets overhead.

So let’s say we are unfortunate enough that this really does happen, and at least half the people on the planet get wiped out in short order. Meanwhile, the other half can do nothing more than fight, run, and hunker down. And those survivors of the great collapse are all very careful about cooking odors, no perfumes, plain soap only, etc. The survivors are just dang busy setting up their means to survive, because its a new, tough world. But just weeks earlier, it was a much more sanitized world. In my 30 years as a Paramedic I was called out many times to check out “that foul odor” coming from somebody’s house or apartment.

I can’t even begin to imagine what its going to smell like with about three billion fresh corpses scattered around rotting without a single funeral home open for business. I can tell you its probably not going to smell too good! Heaven help us who are down wind of a major city!

Sure, in time the problem will fade away. But let’s face facts, most people don’t have any real exposure to the possible stench “The Big Die Off” will conjure up. So, what are some recommendations to get through “The Big Stink” while you are trying to survive the post social chaos event? Vicks Vapo-Rub under the Nose? I can tell you from first hand experience that it offers only minimal relief. I became quite good at putting on a Fire Fighters Self Contained Breathing Pack. Some of our Tactical Team Medics who went to New Orleans in the days following Hurricane Katrina can tell you a little about how its going to smell. Most of them ordered new uniforms after their deployment, since the old uniforms had taken on a new fragrance. – EM Joe

Letter Re: Food Storage–Will People Ever Learn?

Hello Jim,
Of [your oft-mention triad a of] Beans, Bullets, Band-Aids, I want to share some thoughts about the “Beans” category

I read that a lot of folks prepping for the future. That’s great, we all should. The day after Hurricane Ike, I saw people in huge lines to get into grocery stores, hours of waiting. The day after! They did not even have one day worth of food in their homes.

Then I read lots of info and blogs about people getting their emergency supply of food stored. There is a place for the MREs, beef jerky and all the dehydrated food in cans. It is a very important part of food storage and preparation. I personally don’t want to live on it, and quite frankly I can’t afford it. I am a strong believer in the “store what you eat” concept. My family and I have a supply of red and white wheat, but we eat some fresh made wheat bread every week. Therefore it gets rotated. We are using it.

Does someone really want to wake up one day after the SHTF scenario, open a bucket of wheat and ask, “now what”? The food that you store should be a part of your regular diet. About five years ago we started home canning. This almost forgotten art. It is a wonderful way to store food you actually want to eat. Stews, soups, meats, chicken, chili, spaghetti sauce with meat can all be canned in glass jars by any average joe. And for a lot less money than the freeze dried emergency foods. And it will be rotated regularly because it’s good and therefore you will eat it.

I hope people don’t have a false sense of security because they have a bunch of boxed-up dehydrated food under their bed [that they have never used]. Store what you eat, eat what you store, and continue to stock up! – T.

Letter Re: Ideas for Home-Based Businesses?

Mr Rawles,
I am brand new to this mindset so I hope the that my questions are not redundant. I am a self-employed construction worker in Idaho. I would really like to start prepping and stockpiling. Do you have any suggestions as to a home based business that might prove fruitful? I appreciate your time. – Micah

JWR Replies: I have posted several lists and commentary on suggested home-based business ideas. Just search through the “Self Employment and Home-Based Businesses” posting category, starting at the bottom,a nd work you way up.

In today’s economy, especially with the prospect of an influenza pandemic, I think that mail order businesses are probably the best possibilities to pursue. Anything related to home security should sell well, even in a full-on Depression. Ditto for DVDs.

Economics and Investing:

White House forecasts higher budget deficit: ” …a $1.75 trillion deficit, or 12.3 percent of GDP.”

Skip sent me this: Is America About to Go Broke?

WSJ Video: Dow 4,000 Still in the Cards (Thanks to Chris for the link.)

From Greg: Commodities – Shortages stir coffee and sugar prices

From Tom S.: Where are Argentina’s coins?

Items from The Economatrix:

US Red Ink Rises Even Higher, $1.8 Trillion The Federal government will have to borrow nearly 50 cents for every dollar it spends

Chinese Deflation Picks Up Speed

Local UK Governments Lose 2.5 Billion Income

Enjoy The “Rally”…Sucker Punch Coming

Stiglitz: Green Shoots? Don’t Speak Too Soon

GM Shares Drop to Lowest Since Great Depression

US Banks Brace for Credit Card Write-Offs “Experts predict that millions of Americans will not be able to pay off their debts, leaving a gaping hole at ailing banks still trying to recover from the housing bust.”

Fed Dread: The New York Fed is the most powerful financial institution you’ve never heard of. Look who’s running it.

Despite Signs to the Contrary, Real Estate Will Get Worse

Odds ‘n Sods:

Cheryl sent this: How Gardening Became Fashionable Again

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Also courtesy of Cheryl: USA Today Poll: 96% Affirm 2nd Amendment

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Now that I’ve successfully met my manuscript deadline with Penguin Books, I can come up for air. For the first time in many weeks, I’ll have the time for some quasi-recreational reading. I’m about to begin 7 Deadly Scenarios: A Military Futurist Explores War in the 21st Century. (Yes, I’ll post a review.)

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Mike Williamson (our Editor at Large) mentioned that Survivalblog advertiser Shelf Reliance now has a “monthly budget plan”–set up payments with them, and they’ll deliver the goods on your schedule. This is a great way for people with limited financial resources to build up their emergency food supplies without having to save up a
bunch of money all at once. Set up a plan, make payments, get the foodstuffs you want, delivered.

Jim’s Quote of the Day:

“All over the world, interest rates have been cut and budgets padded. France’s deficit is running at 8% of GDP. England is running a deficit of more than 12% of GDP. And the U.S. is mobilizing as if it had been attacked by Martians. On the credit side, the feds have cut rates more than ever before, for a monetary boost equivalent to 18% of GDP, according to Grant. As to spending, $13 trillion has been pledged…an amount equivalent to a full year’s annual output of the United States of America. This response is three times more (adjusted to today’s dollars) than the U.S. spent to fight WWII. It is 12 times more (relative to GDP) than the total committed to fight the Great Depression.” – Bill Bonner, The Daily Reckoning. May 4, 2009

An Update to the Classic: The Hyperinflation Survival Guide, by OSOM

Published in 1989 to educate US businessmen on how to cope with hyperinflation, Gerald Swanson’s book “The Hyperinflation Survival Guide: Strategies for American Businesses” contains a wealth of lessons for non-business folks as well. If you run a business or have investments, do yourself a favor and read the book. For the rest of us, here is a concise adaptation (and updating) of Swanson’s business lessons for the individual / family.

Hyperinflation is defined as “rapid, debilitating inflation that leads to a major devaluation of a country’s currency”. Argentina, Bolivia, and Brazil in the 1980s were used as case studies to extract lessons for the US. In all cases government overspending, and paying for deficits with printed money is the underlying cause – sound familiar? The fiat money supply supply was grown exponentially, and the foreign exchange value of the currency plummeted. Foreign exchange, and wage / price controls followed.

Are We Facing Hyperinflation Now?
With almost a doubling of the adjusted monetary base since August 2008, serious inflation is already “baked in the cake” as those clever folks at Casey Research put it. The M1 has already spiked 10%.

With ongoing multi-trillion dollar deficits, hyperinflation is a distinct possibility. The prescient economist Dr. Gary North is of the opinion that the Fed will be smart enough to pull back and keep it confined to mass inflation. When push comes to shove, he thinks they will choose a full-blown depression over the horrors of hyperinflation. Of course this assumes no major mistakes from the Fed in a situation where past mistakes, and a rickety mal-investment economy make the path between hyperinflation and depression increasingly narrow. As government regulation, taxation and inflation has distorted the natural order of the economy more and more, the mal-investments made become more and more severe. The endgame is an economy so distorted and arthritic that it can only sink into depression to correct the mal-investment, or be stimulated into hyperinflation. We are a long way down that road – how much further we will go is a matter for debate. Bottom line, the lessons of this little book are worth internalizing, as we are going to have serious inflation – the only question is how much, and for how long. The following are lessons from Swanson’s book:

Time Eats Money
Lesson Numero Uno – keep repeating the mantra “time eats money” – over even short time periods. Ingrain this in your thinking. If you continue to act as you have in the past, your wealth and standard of living will be eaten… Cash in the bank, or currency in hand, is a rapidly depreciating asset – a “hot potato“.
A 1% per month inflation rate means the purchasing power of $100 in the bank or currency is reduced to $88 in one year. But at 10% per month inflation, $100 goes down to $31 in 12 months! At 20%, just 11 cents of purchasing power left.

Tangibles
As Rawles keeps repeating – get out of cash and into tangibles, Tangibles, TANGIBLES.

Get your income into another currency, precious metals, or tangibles EARLY and FAST to preserve purchasing power. (2009 update to the book – are there really any hard currencies left outside of gold and silver? Even the Swiss are inflating now.) Stockpile goods you are sure you will need before they zoom up in price – part of John Pugsley’s Alpha Strategy.

When, and what price you buy at, may become as important to your standard of living as how much money you make. Stockpiling is even more important as governments often resort to the economic snake oil of wage and price controls. This pushes legitimate transactions onto the black market, and cripples the economy with shortages. Don’t expect a normal availability of goods. Low profit margin goods are often the first to disappear, as price controls wipe out the small profit and make production uneconomic. Imported goods will become much more expensive with currency depreciation, and/or largely unavailable with foreign exchange controls. Having your own inventory will help cushion the shortages.

Banking
If you have cash you must shop around and negotiate hard to get a high rate of interest – to at least partially keep up with inflation. Diversifying your deposits over different banks is a good idea as some banks likely will go bankrupt. Even if you are fully reimbursed by the FDIC, you will have lost a lot of purchasing power by the time the bureaucrats cut you a check.

Think REPLACEMENT Cost
Forget historical costs, it’s not what you paid in the past – it’s the REPLACEMENT cost in the future. Example – unless your insurance specifies replacement cost it‘s worthless. Selling anything, you only make a real profit if you cover the replacement cost, plus an inflated profit margin. Budget for what it will cost, not what it costs now.

Decision Making
Once it is underway, inflation can accelerate frighteningly quickly. When money loses value by the day or week there is no time for procrastination. You have to make decisions fast to stay ahead of the curve. Do your research, and make plans NOW. You want to be one of the first to react – not caught in the herd‘s stampede.

Information Sources
You have to pay close attention to foreign exchange rates, and the price of gold and silver to get a handle on what is happening in real time in real markets. Relying on government statistics that only tell you what happened in the past is like driving using your rear view mirror. Even worse, government statistics on inflation are bald-faced lies understating the REAL inflation rate.

Relying on US government numbers is like driving looking backwards – using the side mirror with that little warning “Objects are CLOSER than they appear.”
Stay ahead on the information curve – read Survival Blog daily, and follow Austrian economists who foresaw this crisis, and have made consistently good predictions, e.g.: Gary North, Richard Maybury, and Casey Research. (They all offer a lot of valuable, free information to motivate you to become a subscriber.)

Your Job
Your wages will probably NOT keep up with inflation:
You get a cost of living increase to catch up on last year’s inflation, so you are always playing catch-up
The actual inflation rate is accelerating so you never get a full catch-up on the rate.
You will probably not get a full cost of living raise from your employer due to the fact that they are being hurt financially as well.
Your cost of living will probably be based on government statistics which understate the true rate of inflation.
Combine all this with possible wage and price controls, and your job income will not maintain your standard of living

Coping Strategies:
Get paid by your employer weekly or even daily so you can get your earnings into tangibles right away before more purchasing power is lost. When inflation really gets rolling, even a week or day’s delay can be significant. Keep contract periods short so you can renegotiate as needed.
Try to get your pay increases tied to something real in a free market – an interest rate, foreign exchange rate on the real (“black“) market, or the price of gold or silver. Be prepared to document the basis for your request with hard evidence.
Become more valuable to your employer now. Non-essential staff will often lose their jobs. Gary North, to his credit, hammers on this theme relentlessly – “Fireproof Your Job”

You will need to be constantly negotiating with your employer about pay raises, and payment schedules to try and keep up with inflation. Be a model employee if you want your employer to help you when they are under extreme stress. Imagine trying to get a raise of more than the official inflation rate the government admits to… – “not gonna happen” unless you are a vital part of the team. Similarly, if wage controls are slapped on – you will be asking your employer to get very creative about working around regulations to compensate you – you had better be worth it…

Credit – Forget It!
Even if available, the interest rate will be horrific. Who wants to lend money that is paid back with dollars depreciated at an unknown, but accelerating, inflation rate? You’re probably on your own to finance purchases. If you have any variable rate debt, e.g., credit cards, get rid of it now before the interest rate is jacked up. Your income will probably not keep up to make the payments. If you are owed any money, better collect it fast (and have a high interest rate to at least partially compensate for projected future inflation).

On the bright side, your pre-hyperinflation fixed-rate mortgage can be easily paid off with gold or depreciated dollars – if you still have an income that has even partially kept up with inflation. Who said hyperinflation wasn’t fun? It’s great to be a previously indebted homeowner – until the riots hit your neighborhood.

Seriously, the good news is that forewarned, and acting on the knowledge, you have a big head start to survive financially, when most folks are being wiped out. You must take big, speculative risks if you want to profit, but coming out the other side with most of what you have now is a good goal, and will put you far above average.
I‘m not so optimistic about the larger society, or world in general. Read FerFAL’s blog. [JWR Adds this Proviso: Be advised that there is some crude language at his site, and some anti-Semitic statements.]

FerFAL’s blog will give you an idea of what economic desperation did to the crime rate in Argentina. Being in a safer place, with good security, and a strong team is advisable.

The truly scary part of a hyperinflation is that wiping out the life savings of the middle class tends to erode their moral base and the foundations of society. This often results in scapegoat wars, and guys like Hitler becoming more popular. To get a feel for Weimar Germany, read When Money Dies

As they say, history doesn’t repeat exactly, but it often rhymes, and we aren’t starting off with an overabundant moral base…

Retreat, Barn and Shop Building Resources From Uncle Howard’s

The Uncle Howard’s web site doesn’t come right out and say “Hey, these buildings make a great place to store your preparedness gear!” or “Be sure to ask about our bullet-proofing upgrades!”, but Howard is all about filling the needs of land owners that want to build. There are plenty of off-the-shelf models, but they are willing to have extended conversations to get a one-of-a-kind perfect-fit design. Uncle Howard’s has a drafting department that takes a conceptual sketch all the way to engineered and stamped plans to satisfy buyer with specific needs.

The site has some general information stuff that would be helpful to anyone looking at a construction project, even if they choose a different company, such as their Glossary (What do you call walkway along the top of a wall?) They also have some very informative FAQs. (What is the difference between engineered plans and “wet stamped” engineered plans?), and links to sites for each state so you can find your local info, for permitting, equipment rental, etc. I highly recommend the printable Homework page(Quick: which seismic zone are you?) and the Total Cost Estimator which helps you run through the total cost of the project, not just the structure. (Did you remember the outhouse for your workers?)

If yo ‘re thinking about building, you’ll find a whole lot of great information and planning ideas. Oh and if you do call to ask about their floor plans or kits, be sure to mention that you read about Uncle Howard’s on SurvivalBlog, because they have sales, discounts, and offers that don’t always get posted to their web site.

Two Letters Re: A Practical Tip on Using Roof Catchment Rainwater

JWR:
In response to today’s post, I would like to offer an alternate method to avoid going outside in the rain to flip the value after five minutes.

Cut the down drain pipe into about 5 feet from the discharge elbow. At the elbow end install a blank over the opening. Drill a small hole in the blank, perhaps 1/8th inch diameter, and reattached the outlet ducting to a container to catch the runoff.

At the above cut in the drain pipe, install a “T” and an ell to move the water downward into a barrel.

[During each fresh rain shower,] the pipe that is blanked off should hold the initial water that would contain bird droppings and other unpleasant things before it starts to run out the “T” above into the clean water receptacle. This method gives you clean water for drinking and dirty water for the garden. Of course run your clean water through the Berkey before drinking.

I wish I could take credit for this method, but the thanks will have to go to Mel Tappan. – JH in Arkansas

 

Jim,
I found a rainwater diverter that looks interesting. It can be turned on and off in seconds so you can let the first few minutes of rain wash the bird poop off the roof before you start collecting water. I imagine with a rain sensor and a little effort, it could be made to start diverting water automatically a few minutes after it starts raining. – Matt R.