Letter Re: Drastic Changes in the Global Derivatives Market–Be Ready for the Mother of All Bailouts

Jim,
Scroll down this article to the link to the Quarterly Derivatives Fact Sheet. It shows Citi[Bank] exposed to $3 trillion and J.P. Morgan at $7.8 trillion [in OTC derivatives.]

Continue to the bottom of the piece for “Intelligence Czar Can Waive SEC Rules.” It looks like the Plunge Protection Team is operating in overdrive.

Eisenhower warned of “The military-industrial complex”. What about the corporate-government complex? This looks like something Il Duce would have been proud of.

Best wishes for our free enterprise system, – William

JWR Replies: I’m glad to see that some readers took the time to look through the soon-to-be defunct Economic Indicators page link that I provided earlier this month. The executive summary for the Q3 2007 Quarterly Derivatives Fact Sheet mentions “U.S. commercial banks generated $2.3 billion in revenues trading cash and derivative instruments in the third quarter of 2007, down 62% from the $6.2 billion reported in the second quarter. This decline is attributed largely to the difficult trading environment in credit markets.” That is putting it mildly!

In more recent months, the banking community has been fleeing the derivatives market like a bunch of scalded cats. Since August, the volume of new OTC derivatives has dropped by a whopping 97%. But the scary thought is that there are still trillions of dollars in banking derivative bets in play, with very risky CDS hedges still active in very large numbers. Many of these contracts will not expires for years. In essence, many of the outstanding derivatives were essentially “borrowing short and lending long.” Any time that there is a big swing in interest rates or credit expansion/contraction, such traders are at risk of getting murdered. Every derivative has party and a counterparty. If one party goes belly-up during the life of the contract, there is a huge naked exposure.

Yesterday, rumors been circulating that the Bank of America (BofA) and other bankers (including some from Switzerland) are very quietly courting the US congress, seeking a big bailout. Here it comes, folks! As I mentioned previously, BofA recently bailed out Countrywide, to the tune of $4 billion, partly with taxpayer dollars. (One reason cited was that Countrywide was on the hook to BofA for some huge derivative plays, and that by buying them out, BofA effectively became both party and counterparty which zeroed out that derivative paper.)

Now, it seems, BofA and the other banksters expects Mr. and Mrs. US Taxpayer to bail them all out of their exposure to subprime-backed bad paper! I have warned you, folks: Get ready for the mother of all bailouts. As I’ve said before, there are not nearly enough tax dollars or foreign investor dollars to bankroll these gargantuan bailout. It is very likely that the Federal Reserve will be forced to monetize this debt–effectively creating money out of thin air. This will be outrageously inflationary. Monetization is something that I mention when I wrote the opening chapter of my novel “Patriots: Surviving the Coming Collapse”, back in the winter of 1990. But I never anticipated Federal over-spending on this scale. If the bailouts take place the way that I predict, we are talking about many hundreds of billions of dollars–and possibly even trillions of dollars–by the time all of said and done. Warm up the helicopters, Ben!

Dear readers, I must warn you once again: Get out of any investments other than mining shares that are US dollar-denominated, and into tangibles, pronto! Got Ammo? Got grub?

Two Letters Re: Thoughts on Overseas Retreat Destinations

Sir,
I concur with David in Israel regarding overseas retreat destinations. Before any of this discussion was brought up for survival locations, I entertained the idea of relocating to New Zealand, but not for survival reasons. As much as I am attracted there, I rule it out now. I also served in the Middle East as a soldier and served in Moscow, in a different capacity. I spoke fluent Russian at that time. Residing in a foreign country is just that, foreign. Don’t kid yourself, in a real situation, you don’t have much of a chance, even with family. Your best bet is to stay here and circle the wagons. Plus, since you’re reading this blog, we ‘survivalists’ all need you here so that we can help each other. – Flhspete

 

Hi James,
I disagree with Tonga as a retreat location. I spent six weeks sailing through and visiting most of the islands from the Ha’apai group south including Lifuka, Oua, Nomuka, Kelfesia and Nuku Alofa. These islands are small, low lying and hit with tropical storms, including cyclones almost yearly. There is severe lack of fresh water on most islands to the point that the Tongan Navy has to supply some islanders with fresh water by boat. There is no way for most of the islands to be self sustaining for more than a few dozen people without resorting to “the other white meat”. Guns are heavily restricted, and there were recent riots. The place is ripe for a coup.

Sail or fly there for a visit. You will have fun as the people are very friendly and the water sports are very good. But don’t even consider it for a retreat location. A far better choice would be the Marquesas islands. Even though they are French controlled, the islands are very mountainous, sparsely populated and have rich soil. They are also out of most cyclone paths. Regards, – Bert W.

JWR Replies: Most of the islands in the Marquesas have unreliable rains, and hence are overall worse than Tonga, in terms of water availability. Like the rest of French Polynesia, residents of the Marquesas are subject to some draconian gun control laws, including universal registration. For that reason, I don’t recommend any of the French-administered islands. At least Tonga is an independent, sovereign nation. I included it on the list mainly because of its reputation as a tax haven.

Letter Re: G.O.O.D. by Canoe or Other Boat

Jim,

I have been reading your blog for some time, thanks for all the great info.

One idea that I have not heard much about is using medium size rivers as a way to Get Out of Dodge (G.O.O.D.). I know that it would require just the correct locations for both your work as well as your retreat. But a lot of large cities are near some sort of river or lake. In the best case if you work or live upstream from your retreat you could have a small flat bottom or a canoe stored some place to get back to your retreat. I am always surprised how quietly you can move in a canoe. And if you make your move at night you would be even harder to detect. If your retreat is a short hike from the river it could work out quite well. If you live or work down stream you could paddle back upstream or you may want to look at a small trolling motor. These little electric motors are very quiet and the deep cycle battery could then be used with your solar panels once you get to your safe place. If you are lucky you may be able to use this waterway as a way to travel after things hit the fan. The drawback would be that others can use it as well and may be using it for bad reasons. Maybe some of the other readers could add some ideas of their own. I know traveling by canoe creates some problems of its own but it may be better than walking down the road when they are full of cars that are stalled out or just gridlocked. Thanks, – Korey

#1 Son Replies: I have given some thought to people Getting Out of Dodge with a canoe or small boat, since we do quite a bit of canoeing here at the ranch. If you could do it overnight, it might work. As soon as it starts getting light, you might have trouble. Firstly, anyone padding along in a canoe makes a perfect target. He’s not moving too fast, and has nowhere to hide. Since this will be the day after TEOTWAWKI many people might go into WDNNSB Mode or might think that they can shoot up whomever they please. Even if the savages don’t kill you outright, they might shoot a few holes in your canoe for fun.

Jim’s Quote of the Day:

"The Revolution was effected before the War commenced. The Revolution was in the minds and hearts of the people; a change in their religious sentiments of their duties and obligations … This radical change in the principles, opinions, sentiments, and affections of the people, was the real American Revolution." – John Adams

Letter Re: Advice on a Whole Life Insurance Policy and Firearms

Jim,
I’m a newbie to your site and I love it! Read it every morning instead of the newspaper. I’m a single female horse rancher living in Alabama (not originally from Alabama). I attend a home church and have been preparing for our future events for several years before reading your blog. After reading the blog I realize how much farther I have to go. Especially in the home defense area. I own two .22 rimfires and a BB gun. LOL! Thank you so much for all the time and information your providing us. I’ve referred many of like mind to your site.

My main question to you is about whole life insurance. I recently received a [whole life] plan through my parents (something I would never waste my time acquiring). They’ve paid into it for over 30 years. I did a archive search to see if there are any articles on this subject and found none. Do you have any recommendations? Cash it out? Borrow against it? Leave it alone? I’m thinking something like this will become irrelevant in the future. Any thoughts or reading material you could give me? Thanks for your time. – Merry

JWR Replies: It is apparent that you already recognize the difference in value between whole life and term life insurance plans. (A lot of people are clueless, and waste money on whole life plans, which are not appropriate for the circumstances of most folks.) Unless the value of a whole life policy is appreciating faster than the rate of inflation (currently 18% in the real world, versus the “official” Commerce Department statistic), then it is losing net value.

Since you are single, your only “after assuming room temperature” concerns should be your burial expenses and settling your debts. I recommend that you cash out that whole life policy and set aside roughly $12,000 in precious metals (which would cover your burial expenses), pay off any car loan and credit card debt, and invest the rest in preparations (real “life assurance“) and various investment barterables. Since you know horses, your tangible investments should include hay ground, brood mares, tack, and vet supplies. Your knowledge of horses has value, so capitalize on it. In a world with scanty and expensive gasoline, if you have extra horses (with brood mares to produce more) and extra tack you will be considered very wealthy.

Since you are lacking in the area of self defense, give purchasing priority to firearms, ammunition, spare magazines, gun cleaning equipment, holsters, scabbards, and web gear. (Web gear is tack for people. You need a comfortable and practical way to regularly carry loaded spare rifle and pistol magazines, a pistol holster, and a canteen.)

Proper training is just as important as the guns themselves. Budget for training with one of the top-notch training organizations. Here are some suggestions. I haven’t attended all of these, but they come highly recommended by SurvivalBlog readers):

Front Sight. Pahrump (near Las Vegas), Nevada. The biggest and the best, in my opinion. They are particularly successful at training women, since they eschew the macho posturing and drill sergeant bullying used by some of the other schools. Try to schedule your class dates from October to April, to avoid the summer desert heat. They also have a training facility in Alaska (“Front Sight North”), if you can only get away in June, July, or August. FWIW, I was a strong proponent of Front Sight’s training long before they ever became a SurvivalBlog advertiser.

RWVA/Appleseed Project. Inexpensive but very effective rifle training.

Western Rifle Shooters Association (WRSA). Inexpensive but very effective rifle and pistol training.

Badlands Tactical in Oklahoma. They specialize in long range shooting.

Yavapai Firearms Academy Louis Awerbuck is a mobile trainer that specializes in defensive shotgun shooting. If travel expenses to attend a school seem prohibitive, then watch the Yavapi training calendar. (The training may come to you!)

Defense Training International (John and Vicki Farnam)

Lethal Force Institute (Massad Ayoob)

Suarez International A very high intensity school. They specialize in the AK-47.

Thunder Ranch Clint Smith is the inventor of the ‘Urban Rifle’ course, and a great instructor.

E.A.G. Tactical Pat Rodgers is a master of the carbine.

Range Master (Memphis, Tennessee). Tom Givens has been recommended to me by readers from the midwest and in the southern US.

Holland’s (Powers, Oregon.) Darryl Holland specializes in long range shooting. He is soft-spoken and has a real gift for sharing his knowledge and skill.

Letter Re: Guinea Fowl for Bug Control in Your Garden

After reading yet another article about how guineas do no harm in the garden, I thought it was time to toss in my thoughts on the matter.

First, guineas do not do nearly the damage a flock of chickens will do. However…

When mine were free to roam the garden, they dug their dust pits right at the base of plants because the soil under plants is cooler from both shade and watering. Be prepared to sacrifice plants to exposed roots.

They walked up and down the rows of strawberries and pecked at all the green strawberries, which then just lay on the dirt because they didn’t taste good and were too small to ripen.They also did this with all the pinto bean pods long before the beans ever matured. And they found each tomato as it began to turn red and from the side that was red, pecked out the entire inside so I was left with what looked like a hanging green ice cream scoop. They did this as high as they could reach. They pecked at squash and melons and when they pecked deep enough, either they liked it and ate it, or ants found the wound and made short work of the whole thing.

They pecked every red raspberry they could reach and apparently didn’t care for them. This didn’t stop them from still pecking off every berry they could reach and just leaving them on the ground. Every day.

I no longer have grape hyacinth all over my yard, because the guineas graze them off like little lawn mowers. I think they can see very tiny things, because I rarely get chigger bites and only get ticks from the cats when they’ve been in the tall grass.

Guinea hens will not sit on any eggs they might lay if they are penned up. You have to put the eggs under a good mother hen, best being a game hen. Guineas hide their nests and if you don’t find them, you will probably lose the nest and the hen, as they will not leave the nest when threatened. They will be lost to skunks, raccoons, possums and dogs. Armadillos will also take the eggs, but I don’t think they harm the hen.

Guineas usually make turkey appear intelligent by comparison, but they can be smart in some ways. I have seen them send a youngster to go get a lost keet peeping in the tall grass, and lead it back to the flock. I have only one left now (he is called “Little Schumer”), and he talks to me. He hangs with the chickens now that he’s alone, and doesn’t wander so far, but he gets really naughty about going into the henhouse at night. His last remaining brother got killed by an owl and I hope to keep this little “tame” one around a long time.

I put thick, slippery plastic sheets about 30″ high around the three trees the birds chose to roost in. These won’t stop owls, but since being installed they have prevented any more losses to opossums and raccoons.

Here’s a helpful hint. Use the poultry to help, not ruin a garden. Stagger plant potatoes in a three foot wide row, barely below the surface of spaded soil. Cover generously with straw, and then roll out a length of 2″ x 4″ welded wire fencing, four feet high, flat on top of the whole bed. This prevents the chickens from digging it up, the straw means you don’t need to hill the potatoes, and the chickens and guineas will eat all the potato bugs and not touch the plants because they are poisonous.

I hope this is of help to anyone who plans to get guinea fowl. – Carol in Arkansas

Odds ‘n Sods:

Mike found a web site from a builder of modern-day castles. Sadly, their extant castle projects seem to be designed for “fantasy” looks rather than tactical practicality. They have far too many windows at ground level. At least the walls are two feet thick. If I could ever afford to spend that much on a castle, I would want a real portcullis –not a fake one that is nothing more than a flimsy door.

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D.K. sent us an article which updates first mention in SurvivalBlog more than a year ago: Biodiversity ‘doomsday vault’ comes to life in Arctic.

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Reader Mark K. suggested this mail order firm as a very inexpensive source for spare eyeglasses.

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Reader “CalgaryShooter” suggested this piece of market commentary: The ultimate sell signal–Resignation of top GAO official directly impacts your portfolio

Jim’s Quote of the Day:

"When it comes time to die, be not like those whose hearts are filled with the fear of death, so when their time comes they weep and pray for a little more time to live their lives over again in a different way. Sing your death song, and die like a hero going home." – Chief Aupumut, Mohican. 1725

Note from JWR:

The high bid in the current SurvivalBlog Benefit Auction lot is now at $60. The auction is for three items: a 120 VAC/12 VDC BedFan Personal Cooling System (a $99 retail value), kindly donated by the manufacturer, a Thieves Oil Start Living Kit (a $161 retail value) donated by Ready Made Resources, and a copy of the latest edition of “The Encyclopedia of Country Living” by the late Carla Emery (a $32 retail value). The auction ends on March 15th. Please e-mail us your bids, in $10 increments.

Letter Re: Tradeoffs of Various Retreat Designs

Hi Jim
What are your thoughts on the advantages of basements for cool storage, elevated construction for flood protection, sod roof/earth contact for insulation versus steel roofs for water collection?
Perhaps some of the SurvivalBlog readers may wish to submit hypothetical retreat layouts with advantages and disadvantages and why they would choose a particular layout design. Regards,- JG

JWR Replies: A sod roof or earth-berming creates some contradictions in retreat design goals, most notably that they typically block the defender’s view of one entire flank. This can be partially mitigated by properly placing supplementary defensive positions. Sod roofs are also contradictory with the goal of rainwater catchment. My general advice is: Unless you also expect your roof to provide gamma (fallout) shielding, then use metal roofs in dry climates.

There are several distinct approaches to retreat architecture. These should all be modified depending on your local climate and the particular threats that you anticipate.

In an area with a high water table, earth-sheltered houses can only be considered if you start out by building above the existing grade, and build up embankments from there. Details on underground house architecture and design are fairly well described at the Davis Caves web site.

In a dry climates with deep wells, water catchment is a paramount concern. In those areas, I generally recommend one story house designs (to maximize roof surface area), and metal roofs for the house and all outbuildings, with rainwater catchment systems for all of them. Even small sheds should be equipped with gutters and rain barrels.

Anyone living in a high population density area or that is along a potential refugee line of drift should make the need to repel looters one of their primary design considerations. This means large cleared areas in all directions (“clear fields of fire”), ballistic hardening (most easily accomplished by sand or gravel-filled bags–see my comments later in this post), infrared floodlights (for use in conjunction with Starlight scopes and NVGs), and plenty of defensive concertina wire or razor wire. In essence, you want to make your house a “tough nut to crack”, so that looters will quickly decide go find easier pickings.

A completely different approach is to make your house blend in with the terrain and go un-noticed. Outside of heavily-wooded areas, this is very difficult to achieve. Furthermore, the goal of self-sufficiency brings along with it the need for barns, greenhouses, wood sheds, photovoltaic panels, and various outbuildings such as hen houses. It is not realistic to expect that you can make all that magically disappear. But at least if you live on acreage in wooded country, you can make the entrance to your property look nondescript. If you have one of those fancy driveway entranceways, then recognize the fact that they scream: “Here is the home of someone wealthy.” My advice is to tear it down. If anything, you want your entrance road to look as much like a disused logging road as possible. Plant additional screening trees. Plant native shrubbery to make the entrance narrow and uninviting. If you have a perimeter fence, you might want to make your entrance gate look as much as possible like nothing more than a continuation of the perimeter fencing.

Regardless of where you live, it is important to black out all visible light. Odds are that in a grid-down collapse, you will be one of the few people in your area that still have electricity. Any visible lights at night will thus attract looters. So bes sure to lay in the supplies that you’ll need to completely black out your windows and make a light-proof “airlock” for any frequently-used exterior doors. (A wooden framework that is a bit bigger than a phone booth, covered with blankets, works fine.)

As recently mentioned in the blog, extra thick masonry construction is the best choice for ballistic protection. Another great option is an Earthship tire house. But even well-reinforced masonry and Earthships are problematic in earthquake country. There, wood frame construction is ideal, given its inherent flexibility. But what if you live in earthquake country and you want ballistic protection? What a quandary. Unless you are a multimillionaire that can afford hundreds of yards of Kevlar, then the only viable solution is to be ready to build small sandbag-reinforced fighting positions inside of your house, set back several feet from the exteriors windows. This will not earn you any Martha Stewart style bonus points from your spouse, so don’t consider doing this before the balloon goes up. Just keep all of the requisite materials handy. That big pile of 3/4″-minus gravel can be explained as “some extra rock for maintaining our driveway.” OBTW, unless your house is built on a slab, you will probably have to heavily reinforce the floors beneath your planned sandbagged positions, to allow them take the extra weight. If you aren’t a do-it-yourselfer, then have a story ready for any workmen that come to do the job. For example, you might tell them that you have a bad back and are planning to buy a king size waterbed.

Regardless of your design approach, give it some serious thought and prayer. Life is full of trade-offs. If you can’t afford to build a retreat that is way out in lightly-populated country, then recognize the fact that there will be lots of hungry, dispossessed people wandering by (or through) your property in the event of a “worst case.” Plan accordingly. Defensive architecture by itself will not be enough. Defending a retreat will take 24/7/365 manpower, and that of course necessitates teaming up with other families.

The possibility of a worst case situation complete with “mutant zombie bikers” is of course very small. Rather, the odds are that in the next Great Depression the lights will stay on, crime will be relatively under control, and most of your attention will be focused on your garden and orchard output rather than perimeter security. But if and when things ever do get truly Schumeresque, then the best words of guidance that I can give in a nutshell are: to think: “medieval castle.”

Letter Re: Guinea Fowl for Bug Control in Your Garden

Hi Jim,
In an e-mail, you had asked me “can guinea fowl can be kept in the garden or do they exhibit the same characteristics as chickens?” Our guineas free range into our open gardens all summer. They will eat small shoots, such as garlic and chives, and they do eat bean plants so we do need to protect them while young. They don’t seem to bother either tomatoes or squash/pumpkin plants. Once the garden plants reach mature height, they tend to leave them alone. I think they go after the small plants early in the season because there is a lack of insect food around. They do love garlic and chive plants and I have chives planted all over the place just for their enjoyment.

Overall, I think you would be okay with guineas once the plants matured. They will randomly check out your plants, rip off a leave or two, but I never get any significant damage. We have lots of Japanese beetles here and they do a great job taking care of them. Our area also has a large deer tick problem but I rarely see them on ourselves or the dog around our property. Guineas also love to kill snakes. They don’t eat them but go after them with a vengeance! I often have to rescue small garter and brown snakes from the angry mob. I think they would very much enjoy the grasshoppers you have.

They do make quite a bit of noise when spooked and anyone within a half of mile from you will know you have them. They are also great watch dogs and will let you know if anything is different on the property. I had a couple of C-130s do a terrain profile fly over the other day and my birds went nuts for a half hour. They are fun to watch as they have a definite routine they go through every day. Mine raid our wild bird feeders in the morning, head over to visit the neighbor’s (who feed them and enjoy having them visit) by noon and then take their afternoon dust baths by three pm.

My dog is a Yellow Lab/Australian Shepherd cross and it is her job at night to round them up and put them in their pen. They tolerate her herding instincts and obey her pretty well. The guineas are her responsibility and she takes it very seriously. She won’t let any visiting dogs anywhere near them.

If you plan on raising them from keets, make sure they don’t get damp. Being African birds, they don’t take well to it. Chickens will raise guinea fowl chicks as their own without a problem. When they grow up, the hens tend to be the wanderers and the cocks are very protective if one wanders off too far. They will separate into small groups during mating season and the hens tend to lay a large clutch in the brush. I had one hen disappear this last September. She walked back in from the woods with 19 fluffy keets following her, a month later. Guineas tend to not be good parents but this hen has raised a brood for me nearly every year.

Pretty much everything in the “Gardening with Guinea Fowl” book is spot on. They are very interesting birds. I have never ate them but they are supposed to be very good meat birds. I’ve seen Guinea Fowl on restaurant menus at some high end places. The eggs are also edible but they have very thick shells. I can throw one across the yard and it bounces like a golf ball.
Let me know if you have any other questions. – Rob

Letter Re: Thoughts on Overseas Retreat Destinations

James
Since I happen to be one of the people who made the decision to relocate overseas I hope have a useful take on the topic.

Other than people who have a direct familial connection with the place they are planning to relocate to I generally am against overseas relocation. The only exception that I would consider is New Zealand but that is only if you have a skill that they are in need of right now and you fit their criteria.

Leaving your familiar surroundings, culture, and language is very difficult even if you have the money to smooth the path. Without family that feels responsibility for you you can become really cut off especially outside the Anglosphere. Expect that to be much worse in tough times if you are the foreigner taking away relief resources.

Israel is a very special exception which is only open to Jews. I highly recommend that Jewish readers at least consider this move since history seems to indicate all minorities including Jews end up on the bottom during economic hard times. Remembering recent hard times there was a cutoff in the 1930s where Jews were no longer allowed to escape to Israel, the last escape for Jews in Europe. Right now there are very nice assistance programs to help new Jewish immigrants both financially and with getting settled. See this site for the largest of these Israel
assistance programs.

For other minorities I wish there was good advice to give them. I seem to remember that in the 1930s white unemployment was over 50% but black unemployment was around 98%. I urge all SurvivalBlog readers to remember your brothers and sisters of different appearance or ethnicity and to take this into account both when hiring and and giving charity. – David in Israel

[JWR Adds: David is SurvivalBlog’s correspondent in Israel, currently a Torah student. He and his wife were American born, but emigrated to Israel as adults.]

Odds ‘n Sods:

RBS flagged these two articles: Price of bread rising on wheat shortage and Wheat prices could defy a recession. Remember what I wrote about investing in productive farmland?

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Also from RBS: As Economy Slips, Yacht Sales Skyrocket. Of course, a portion of the buyers could be buying some of the smaller yachts as a G.O.O.D. contingency.

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Another sign of the times. Catalytic Converters Stolen. (Of course, with platinum at $2,169 per ounce, one can understand the temptation.) Thanks to Josh W. for finding that article.

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Seven readers sent us links to articles published on both side of the border on this topic: U.S., Canada military ink deal to fight domestic emergencies

Jim’s Quote of the Day:

“Anyone who clings to the historically untrue – and thoroughly immoral – doctrine ‘that violence never settles anything’ I would advise to conjure up the ghosts of Napoleon Bonaparte and of the Duke of Wellington and let them debate it. The ghost of Hitler could referee, and the jury might well be the Dodo, the Great Auk and the Passenger Pigeon. Violence, naked force, has settled more issues in history than has any other factor, and the contrary opinion is wishful thinking at its worst. Breeds that forget this basic truth have always paid for it with their lives and freedom.”
– Robert Heinlein (in a lecture by Colonel Dubois in the novel “Starship Troopers“)