Jim’s Quote of the Day:

“Men are expendable; women and children are not. A tribe or a nation can lose a high percentage of its men and still pick up the pieces and go on… as long as the women and children are saved. But if you fail to save the women and children, you’ve had it, you’re done, you’re through! You join Tyrannosaurus Rex, one more breed that bilged its final test.” – Robert A. Heinlein, “The Pragmatics of Patriotism” address at the U.S. Naval Academy, April 5, 1973, later published in the book “Expanded Universe” (1980)

Note from JWR:

The high bid in the current SurvivalBlog Benefit Auction lot is now at $210. This auction is for four items: a MURS Alert Base station, a MURS Alert Hand-held transceiver, an earbud, and a Kaito KA-1102 AM/FM/Shortwave. These radios were kindly donated by the owner of Affordable Shortwaves and MURS Radios. The three radios have a retail value of $210, plus shipping. The auction ends on April 15th. Please e-mail us your bids, in $10 increments.

Letter Re: Using Natural Caves on Private Property

Sir:
My friend has a piece of property that has a cave. The initial opening to the cave is circular, about four feet in diameter. Inside the cave is a large room with a 20 foot tall ceiling and an approximately 70 foot long floor. We have been inside three additional smaller [side] rooms. Also, we have found a source of water deep in the cave. We spent the night in the cave about two weeks ago. It got cool at night, but no bats or other animals joined us.

The biggest potential problem I can think of is the relatively small opening. However, due to its small size, my friend and his wife walked by the cave hundreds of times before they realized it was an opening.

Would this make a good retreat when the stuff hits the fan?- Linda H.

JWR Replies: Caves do have their uses, particularly as expedient fallout shelters. Finding a cave with an unobtrusive entrance on a piece of privately-owned land that is under your control is very fortunate. I’m surprised that it wasn’t mentioned by the previous owners at the time that your friend bought the property. Keep in mind that caves are far from vermin proof, so you would need to store anything inside in sturdy, waterproof containers. Many caves are seasonally wet, so waterproof containers put up on at least 4×4 wooden blocks are also a must.

The existence of caves is often widely known by locals, so don’t consider anything you store there truly secure. It might be worth your time to make a “rock” door to camouflage the entrance. Start with a wooden framework of 2x2s, covered by doped fiberglass with a highly irregular “hilly” shape. Then prime, coat, and seal it to match any nearby rock outcroppings. There are now some amazing rock texture paints—pioneered by Zolotone–that look quite natural. One of the popular brands is “Roller Rock”, made by Daich Coatings. When applied with a rough-textured roller, these coatings can be very natural looking. These paints can be custom tinted. It is probably best to bring a sample of the local rock to the paint store, and have them match the color)

Before storing anything of value in the cave, leave your camouflaging “rock” door in place for at least a full year, using a telltale. (A twig wedged into the doorjamb–if it has fallen you’ll know that the door was disturbed.) Storing anything in the cave without taking that precaution is an invitation to theft. You might want to set up a Dakota Alert (or similar passive IR intrusion detection system) to see if anyone goes near the cave entrance. If you have welding skills, or you have a trustworthy friend that knows how to weld, then you might want to install a locking steel security door or barred gate back behind your “rock camouflaged” door. Just keep in mind that given enough time, a determined burglar can reduce nearly any barrier. (At this juncture I should mention that I get one or two e-mails a year from readers that have had their CONEXes broken into by thieves with bolt cutters or cutting torches.) But at the very least a locked security door will slow burglars down. It will also tremendously reduce your risk of an attractive nuisance lawsuit.

Getting it All Together, Or, The Worst Pencil is Better than the Best Memory, by Sled238

If you are even moderately past the first stage of becoming prepared, you have (or will have) the experience of finding things you had forgotten you had bought. Yeah, Christmas! I thought, until it occurred to me that if I had needed that item really, really badly, I would have just screwed up, big time. Cancel Christmas.

After the third – or was it sixth? – time reading “Patriots: Surviving the Coming Collapse”, it occurred to me there was one thing I wish had made it into the book: the Gray’s notebook. Their preps notebook, to be more specific. Only thing I remember is the lists on the chipboard

Jim has been kind enough to share an abundance of gifts. In my opinion, one of the greatest of these gifts is the List of Lists.

What I had, was a pile of papers, which is not really useful at all. So, I just got a bunch of clean paper, some pens, three-ring binders, and here is what I did, and how it got done:
Print out the Rawles List of Lists, writing the title of each at the top of a sheet of paper.
This page will be the rough draft page, and the info put on it will be used on a separate template with the same name.

Lay out each rough draft paper where you can see it (I had the entire dining room table, couch, and coffee table covered).
Go through your giant pile of disorganized papers, placing each article, story, list, clipping, on the appropriate sheet, being sure not to cover the heading.

(Some files are really big (Flu pandemic PDF files come to mind); set these aside to be put in a reference binder – but make a note that you have this reference On the page with the heading.)

Now, for those of you with awesome PC skills, format a template page as follows (if no PC skills, pencil and ruler for you! LOL):

Heading, bold capital letters at top. WATER, for example.
Under this, make a section about one third of the sheet of paper (this section is called info/notes/goals). Leave space for hand written notes, and make a horizontal line at the bottom of this (again, this is about one third the way down the page).

Below this, the remaining two thirds of the page has two columns:
On the left: next steps, with a numbered list below.
On the right, three sections one atop the other:
Short term, with room for a few listed items;
medium term, with room for a few listed items;
long term. with room for a few listed items.

Something like this:
WATER
==================================
Info/ notes goals

==================================
Next steps short term
1 1
2 2
3 3
4 Medium term
5 1
6 2
7 3
8 Long term
9 1
10 2
11 3

(With a vertical line between the two columns.)

Print one of these forms for each list subject heading.

The real work begins.
We have a rough draft sheet with WATER written on it in pen, and also a template with WATER in the heading.
I took the rough draft page, and really quickly, listed every thought I had about water as it concerns my preps. Something like …I have about 8 big water cooler bottles in the basement; have two hand water filters, one is not made anymore, the other I can still get filters for; have a base camp filter, do not remember what type of replacement filters it takes; want a big berky filter, need to find best price; can you drink swimming pool water? I need to stock more bleach, can you use dry bleach as well?…

This is your rough draft page, questions page, and brainstorming page.
Do this with every heading.

So, now, on my fancy template, in the first section, is info about drops of bleach per two liter bottles for purifying. Also, is a reference to a PDF form about sand water filter construction, kept in a bigger, separate binder called Reference.

In the bottom right section, under short term, I have listed the amount of water I have on hand or have immediate access to.

Under Medium term (middle box), I have my various filters listed with prices for replacement filters.

Under Long term, I need info on a manual pump for my well, possibly a solar powered setup, if feasible.

Move to the left, to next steps.
I know I have to rotate the stored water, so I write “Enter water rotation date on master yearly calendar list”. I also know I need a little more bleach, so I note that. I might put in a note to price filters, and one more to see how much power my well requires to pull up water, so as to further develop or drop the solar power train of thought.

Now, do this with every heading.

With a new sheet of paper, flip through the notebook, taking at least two next steps from each heading, and make a quick and dirty “Next Steps” list. This will not be pretty, because you will, I am sure, be crossing off the next steps in a lively and methodical fashion. Those of you in the know will understand how this list can become a “thickly padded clipboard”. (An inside joke, if you have not yet read “Patriots“.)

Pretty simple, I know.
I would say “The end”, but we all know we are just now entering the beginning.

Now, go and execute your next steps. – Sled238

Odds ‘n Sods:

The recent dip in precious metals prices is a buying opportunity for those of you that thought that you had “missed the boat.” Market analyst Adam Hewison suggests that there might be further pullbacks on the spot price of gold to $855 or perhaps even $750. My reaction? Great! A “full Fib” retracement presents a great short term buying opportunity in what will otherwise be a long term bull market.

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Two months ago, a few readers chided me for being too harsh in my criticism of gadget-oriented “Mall Ninja” survivalists. This auction listing shows exactly what I was talking about: (Thanks to Mike Williamson for spotting the auction for this monstrosity.)

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From Matt Drudge’s news site: British authorities try to quell damaging financial rumors

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Reader K.A.F. asks: Is CIT the next domino to fall on Wall Street? CIT Group draws on $7.3 billion of bank lines

Jim’s Quote of the Day:

"The militia is the natural defense of a free country against sudden foreign invasions, domestic insurrections, and domestic usurpation of power by rulers. The right of the citizens to keep and bear arms has justly been considered, as the palladium of the liberties of the republic; since it offers a strong moral check against the usurpation and arbitrary power of rulers; and will generally … enable the people to resist and triumph over them." – Supreme Court Justice Joseph Story, "Commentaries on the Constitution of the United States", Vol. 3, pp. 746-7, 1833

Flawed Oral Arguments in DC v. Heller

The press has been heralding the apparent agreement by the majority of supreme court justices in the recent oral arguments to DC v. Heller. that the Second Amendment confirms an individual right to keep and bear arms. This is good news, but I think that at least two crucial points were missed in the oral arguments.

The arguments made by Mr. Gura, in my opinion, were a disservice to American gun owners and “the militia at large”. (Which consists of all male citizens age 17 to 45, per US Code Title 10, Section 311.) Gura discounts any Second Amendment protection for machineguns, because he claims that the Second Amendments protects only those guns “in common use” as suitable for individuals to bring from their homes, for their personal use in service with the militia. Gura stated:
“They wished to preserve the ability of people to act as militia, and so there was certainly no plan for, say, a technical obsolescence. However, the fact is that [US v.] Miller spoke very strongly about the fact that people were expected to bring arms supplied by themselves of the kind in common use at the time. So if in this time people do not have, or are not recognized by any court to have, a common application for, say, a machine gun or a rocket launcher or some other sort of …”

That was a specious argument. What he overlooked is the fact that machineguns are not presently “in common use” only because 74 years ago, Congress effectively banned them, by placing a confiscatory tax and onerous fingerprinting and background check requirements upon purchasers. It is a tax of $200 per machinegun transfer. That might not sound “confiscatory” these days, but in 1934, $200 was nearly two months wages for the average working man! For comparison purposes, in 1934 that same $200 was more than the purchase price of a used Thompson submachinegun, 10 times the purchase price of a used M1911 pistol, and 20 times the purchase price of a used M1898 Krag service rifle. Clearly, only the very wealthy could afford to pay this tax. Hence, the potential market share and large scale production (“economies of scale”) of privately owned machineguns was never allowed to develop. This was a glaring error that should have been caught by the court justices. Granted, shoulder-fired machine guns were fairly expensive in 1933 since they were a fairly recent technological development, but they became prohibitively expensive in 1934, after enactment of the National Firearms Act (NFA). The bottom line is that in 1933 your grandfather could have walked into your local gun store or hardware store and bought (or had them place special order) a Thompson submachinegun, and walk out with it, sans any paperwork. But in 1934 that became impossible. Hence, shoulder-fired machineguns were never allowed to come into “common use” by civilians.

In my opinion, Gura also stumbled badly when he stated: “At the time that — even at the time Miller was decided, the civilian arms were pretty much the sort that were used in the military. However, it’s hard to imagine how a machine gun could be a “lineal descendent,” to use the D.C. Circuit’s wording, of anything that existed back in 1791, if we want to look to the framing era.”

I beg to differ! The US Springfield Armory designed and produced nearly all of the shoulder-fired arms for the US infantry from 1777 to the 1950s. You can follow the “lineal descent” of those rifles directly from flintlock muskets, to caplock rifles, to the Trapdoor Springfield, to the M1898 Krag, to the M1903 Springfield, to the M1 Garand, (semi-auto) and finally to the M14. Each of these iterations display some quite distinctive design features that are carried on from its immediate predecessor. Some design features are almost continuously-used (such as bayonet lugs and butt traps for cleaning equipment), but others (like stacking swivels) were eventually dropped, as military doctrine changed. It is notable that the pinnacle of this unbroken lineal descent was the M14 and it is fully automatic! The only distinct “lineal break” came when Defense Secretary Robert McNamara forced adoption of the Colt M16. But, again, the selective-fire (semi-auto and full auto) M14 pre-dated that lineal break. And, coincidentally, M14 rifles (now equipped with plastic stocks) are still in service with the US Army in limited numbers in the present day, as designated marksman’s rifles.

Justice Kennedy hit the nail on the head when he stated: “It seems to me that [US v.] Miller, as we’re discussing it now, and the whole idea that the militia clause has a major effect in interpreting the operative clause is both overinclusive and underinclusive. I would have to agree with Justice Ginsburg that a machine gun is probably more related to the militia now than a pistol is. But that — that seems to me to be allowing the militia clause to make no sense out of the operative clause in present-day circumstances.”

Clearly, the Second Amendment secures both an individual right and a collective right. The NFA of 1934 and all subsequent Federal firearms laws should be struck down as unconstitutional!

Meet The Economic Collapse Family, by Will in Wyoming

In recent months, as he described America’s incipient economic peril, Jim Rawles has made references in SurvivalBlog.com to “The Mother of All Bailouts.” To illustrate the extent of the disaster that is awaiting us–I’d like to introduce you to the entire Economic Collapse Family’s cast of characters. This family is so large that I’ll use numerous analogies and, with apologies, some mixed metaphors. To include the full Dramatis Personae I’ll have to borrow from both The Addams Family, and The Munsters. My apologies to anyone that never saw these two TV shows from the 1960s. This will seem like gibberish to you. And if you hate allegorical pieces, just skip reading this. – Will in Wyoming

You are Pugsley Addams. (The American citizenry.) You are a content, pampered, over-fed child. You have indulging but perverse parents. They let you eat all the junk food you’d like (consumerism), and they let you watch as much television (the mass media) as you’d like, to keep you occupied. Their only demand is that you “do your chores” (pay taxes.) You live in a strange sprawling old mansion with extensive grounds and horse stables (America). The mansion doesn’t look like it has been painted or repaired in decades. (Crumbling infrastructure.) You are young and naive, so you don’t really understand all that is going on around you. But you have had a vaguely uneasy feeling for as long as you can remember. You certainly have a lot of strange relatives.

Your father, Gomez Addams, is a banker. (The Federal Reserve.) He always wears a dark suits and he keeps a pocketful of cigars (call loans) handy. Oddly, they are lit, even as he pulls them out of his pocket. On his time off, he likes to play with an elaborate electric toy train set (the economy) with you. It is one of those father and son bonding opportunities. He is always at the controls of the the train. (The train set was very expensive, so you can only watch.) Whenever he sees trouble ahead, instead of hitting the brakes, he takes a puff on his big cigar, and opens the throttle (liquidity) wide open. After all, he has always enjoyed seeing a nice train derailment. Gomez is madly in love with his wife. They are inseparable. (The Federal Reserve’s monopolistic cartel relationship with the US government.)

Your mother, Morticia Addams, is also known as the Mother of All Bailouts. She (the US government) is supported by her husband Gomez, the banker. She makes any problems go away by throwing money at them. Oddly, she always wears black (debt), but it matches her long black hair (the budget deficit). Morticia has a timeless beauty, but you wonder what potions she takes to maintain that beauty. Morticia’s hobby is growing carnivorous plants (stocks and stock mutual funds) that have insatiable appetites. She has an unlimited supply of cash because of her brother, Uncle Fester.

Uncle Fester (the US Treasury) is an inventor of sorts, always experimenting with new things up in the attic. Years ago has invented a nifty high speed printing press, on which he can produce as many $100 bills as he wants. He also has a spare set of plates to produce $100,000 bills.

Lurch. He is the lugubrious house butler (the police). Lurch is seven feet tall and very strong. He obeys the orders of your mother and father without question. Whenever there are any difficulties, you mother and father can ring a bell, and Lurch comes immediately to solve the problem. Whenever he enters the room, he asks in a very deep voice “You rang?”

Cousin Itt. (Social unrest.) Your mom and dad have always given Lurch instructions to keep Cousin Itt locked up in the basement. They’ve warned Lurch that whenever “Itt” gets loose, he starts breaking things. But luckily “Itt” rarely gets out, and for not very long. Without fail, Lurch catches Cousin Itt, and locks him up again. But a lot of your mom’s fine china gets broken each time. She gets angry, but she just takes some of the money from Uncle Fester’s printing press and buys new dishes from the store. You’ve notice that the new dishes are all marked “Made in China.”

Thing. Even more scary than Cousin Itt is the disembodied hand creature called “Thing”. (The US military, warfare.) Thing is powerful, and also breaks some china, but thankfully that is usually in other people’s houses.

Some of your cousins are The Munsters. They live in a big house of their own (much older than your family’s), that is called Europe. They drive a very stylish car. (The Munsters have a great sense of design and style.) Their daughter, Marilyn, is a real babe. She could get work as a model at a Paris fashion show. Her little brother is your cousin, Eddie Munster. He is cool and likes a lot of the same games and TV shows that you do. Their Grandpa (the European Central Bank) is a strange old man that is sort of like Uncle Fester. (He is also in inventor.)

Your mom once said that the Addams Family and the Munsters are very closely related. She mentioned something about some cousins marrying each other, but never gave you the details. The Munsters always seem to be getting in fights with their neighbors, so occasionally your family has to send Thing over to the Munster’s house and restore order.

Thankfully, circumstances are different in your neighborhood. For as long as you can remember, the Addams Family has had peaceful relations with all of your nearby neighbors (Mexico and Canada), mainly because they are all afraid of your dad’s creepy mansion and all of his money. Starting about 30 years ago, one of your neighbors sent a maid named Maria (uncontrolled American immigration) to help out with the chores at the Addams mansion. You realize that Maria has been having a lot of babies up in her room, but they are quiet, so nobody worries about them.

The Latest Episode:

Your dad dashes into the TV Room. You have been distracted there (with the newer, big screen television with all the extra channels), so you didn’t notice the changes in your dad’s toy train set up. Your dad excitedly tells you “Come to the parlor, son, to see the upgrades that I’ve made to the train!” Among other things, you see that he has switched from the old low-current transformer (precious metals backed currency) to a new, high-current transformer (fiat currency.) This new train set is swell. It isn’t just an old steam locomotive. This one is a shiny streamlined Zephyr. It is very fast. (The post-Greenspan low interest rate economic boom.) Uncle Fester helped design and build it. Instead of just an old fashioned derailment, your dad says that he has a dramatic ending planned, using the “The D Word.” He calls them derivatives, but you recognizes those bundles: They are bundled sticks of dynamite.

“Watch this, son!” The toy train goes speeding down the track, faster and faster. It is barely staying on the tracks. Your mother and Uncles Fester clap their hands in delight. Lurch just stands off to the side patiently, but he moans “Uggggghh” to himself and he rolls his eyes. The expression on his face reveals that he knows that there will soon be a big mess that he will have to clean up. The train passes over the trestle, and just at the precise moment, your dad shoves down the lever on the blasting machine, setting off “The D Word” in a tremendously loud explosion. Things go flying everywhere. Your ears are ringing. There are huge clouds of acrid smoke. Windows, china, light bulbs, and even the big screen television are broken. You father comments drolly: “I guess that I used a bit too much of the D Word.”

Cousin Itt hears the commotion and breaks out of the basement. Lurch chases after him, but Cousin Itt is wild and uncontrollable. He breaks a lot of china. Meanwhile, Maria’s children–it turns out there 27 of them (who knew?)–come running out of their room, shouting. They join Cousin Itt in an orgy of breaking china, tearing the copper wiring out of the walls, and eating up all of the food in the house. It is absolute pandemonium. Lurch can’t control the situation. Cousin Itt and Maria’s kids slip from his grasp and continue wrecking things. There are too many of them. Sadly, “Thing” is no help, because he is currently off working at some other’s peoples house, down the street (Iraq). All of the gadgets in the house seems to be broken beyond repair, except that you still hear Uncle Fester’s printing press running upstairs. (It is reassuring to know that something still works.)

Amidst this confusion, you hear your dad shout at your mom: “Call the Munsters for help!” Your mom objects. “But Gomez!”, she sobs, “The Munsters already have a first and second mortgage on the mansion. This time they’ll demand that we sign over the title o the house and they’ll take Uncle Fester’s printing press. They’ll even send their own maid, cook, and butler to run our house!” You don’t like the sound of that, because you know that the Munster’s butler has a big mean German Shepherd (the United Nations) and their maid Sharia (uncontrolled European immigration) is very scary and speaks a foreign language. You were told that she was originally from North Africa. (But, like Maria, your cousins hired Sharia because she works for practically nothing. And, coincidentally, you’ve heard that Sharia is also having a lot of kids.)

You dad motions you outside. “Let’s have a talk, son.” The sun is setting. In the distance, your hear some nervous whinnying and stomping of the Four Horses out in the stable. Clearly, they have been agitated by the explosion and the continuing sounds of chaos in the house, and you wonder if they are going to get loose. Your dad sits you down and he nervously pulls out another lit cigar. Finally, the truth comes out. “Pugsley, it is time that I told you the truth: Your mother and I are are immortals. We’ve owned this mansion for more than 230 years. Nothing can ever kill us.” He goes on with some details, explaining that as their children have grown up, they just keep raising new ones, to do the chores. Your father also admits that this latest train wreck (economic depression) is one of many that he has orchestrated over the years. He begins proudly, “Son, some of my best train wrecks were in 1819, 1837, 1857 and 1929.” After a pause, he adds, more soberly, “Up until this last one, I’ve always used just the throttle and run the train off the tracks. But this time I made the mistake of using the D Word, and frankly I’m not sure if I can ever fix the train set.” Over in the house, you hear the sounds of Cousin Itt chasing chaos continuing. It is starting to get dark, and the lights in the house aren’t working. You realize will be a very long night, without television! – Will in Wyoming

Letter Re: More on the Emerging U.S. Grain Shortages

Jim:
I was told by a local LDS Bishop’s storehouse that the church is out of white wheat and will no longer be providing it because they buy it and it’s simply too expensive right now on the open market. The wait time for [hard] red [winter] wheat orders is 3-to-4 weeks. Another LDS cannery in Utah is also out of several items that they typically have on hand. Get your food storage while you can. – Junior

Odds ‘n Sods:

A friend of ours is an investment banking consultant. He is currently engaged is raising cash to help salvage an ailing hedge fund. He said that he predicts that the vast majority of US hedge funds will go under in the next year. “The pressure from margin calls and [individual investor] redemptions will be unstoppable.” Of the nation’s top 150 hedge funds, he said, “nearly all will cease to exist in their present form.” He added that there are perhaps 12 hedge funds that are not publicly traded that might be spared the ignominious demise of their brethren.

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Greenleaf [Idaho] residents prepared for almost any disaster. (A hat tip to Bret for sending us this.)

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Our correspondent in Brazil, “The Werewolf”, mentioned that the archives of Cooper’s Commentaries, (previously known as Gunsite Gossip) are still available for free download.

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The Canadian Jericho Ranger Lady sent this: Financial markets turmoil stirs economists’ memories of 1929 crash

Jim’s Quote of the Day:

“The moment the idea is admitted into society that property is not as sacred as the law of God, and that there is not a force of law and public justice to protect it, anarchy and tyranny commence. If ‘Thou shalt not covet’ and ‘Thou shalt not steal’ were not commandments from Heaven, they must be made inviolable precepts in every society before it can be civilized or made free.” – John Adams, A Defence of the Constitution of the United States Against the Attacks of M. Turgot, 1787

Note from JWR:

Our first post today is a guest editorial from economist John Mauldin, with permission from the author. John is the editor of the weekly Outside the Box e-newsletter. I highly recommend it. Subscriptions are free!

Guest Editorial: Honey, I Vaporized My Customers, by John Mauldin

By now, everyone knows that the subprime crisis started with non-existent lending standards which resulted in the large numbers of foreclosures we are seeing today. Those foreclosures will be rising throughout the year. We are not near anything like the top of the rising number of foreclosures. Ben Bernanke said last July that losses from the subprime would be in the $100 billion dollar range. True confession. I think I wrote six months earlier that it would be $200 billion. I point that out to make the point that I am an optimist by nature. The latest “bidding war” number for the amount of total losses is about $500 billion from Goldman Sachs, and a neat $1 trillion from uber-bear Nouriel Roubini.
Add in hundreds of billions from losses which are piling up in other credit markets and you can easily get to $1 trillion in losses which are going to have to be eaten by all sorts of financial institutions, without being all that pessimistic.

Banks are being forced to reduce their loan and margin books in order to get the necessary capital required by regulatory authorities. Plus, credit is now more expensive as risk premiums rise from absurdly low levels in what more than one authority called a “new era of finance.” Turns out it was just normal old era greed.
It is not just the mortgage market. It is commercial mortgages, safe municipal bonds, credit card debt, student loans and a host of credit that is under fire and cannot find a buyer at what should be a realistic price.

We should not be surprised at the lack of liquidity in the credit markets. We have essentially vaporized 60% of the buyers of debt in the last six months. The various alphabet of SIVs, CLOs, CDO, ABS, CMBS, and their kin that were the real shadow banking system are either gone or on life support. It took decades to build these structures and it is not realistic to think we can replace them in six months. This is going to take some time.

And time is what the Fed has bought this week by offering to take AAA mortgage paper and swap it for T-bills. They will start with $200 billion on offer. Remember you read it here first that that number will be increased and increased again. From the markets initial euphoric response, you would think the problems have been solved and banks will once again start lending. Sadly, this is probably not true.

This is similar to the action by the bank regulators in 1980, when nearly every major bank had losses that were greater than their capital on Latin American loans which had defaulted. The Fed, with a wink and a nod, allowed the banks to carry these worthless loans on their books at full face value. It took six years before they started to actually write them down. But without that measure, every major bank in the US would have gone bankrupt. And technically, they were for several years. But the Fed action simply bought the banks time to re-liquefy. It was the right thing to do.

This week’s action by the Fed is essentially the same thing. It buys time. This 28 day auction will be around for a long time. If the banks had to write down the potential losses on their AAA Fannie Mae paper and other similar assets, it could have brought the banking system to its knees. Eventually, we will get a market clearing price for all this paper, but the key word here is eventually. We are going to see foreclosures and losses for another 18 months. It is going to take a long time to know exactly what the losses will be.

I think the losses on many of the various forms of debt have been marked down way too far by the various derivative markets. (I would hasten to add this does not include the subprime markets, as many of those assets are going to zero.) I doubt the loss in a lot of the debt paper will be nearly as much as the current credit default swaps prices indicate. For instance, some municipal bond debt is priced for 10-15% losses, when losses of less than 0.5% are normal. When there is a buyers strike, prices fall, and sometime to quite low levels. In the fullness of time, the price of these bonds will rise back to “normal” levels. There is a reason Bill Gross is buying municipal bonds by the train car load. Many are simply at the best prices we will see in my lifetime.
But if that debt is now on a bank’s capital books, they have to write it down to the latest mark-to-market. The Fed’s move simply allows the banks to move what will eventually (or maybe the better word is should eventually) be marked back to reasonable values. It avoids a crisis today.

The next crisis? I read a very chilling piece from Michael Lewitt this morning. He speculates on what if the rumors were true that Bear Stearns is basically bankrupt. Bear is in the “too big to fail” category. They are at the heart of the chain of Credit Default Swaps which run like fault lines throughout the world’s financial system. If Bear were allowed to collapse, it would simply cascade throughout the world so fast it would truly make the current level of the credit crisis seem small potatoes.

So, why can I be so sanguine? Because the regulators (the Fed and the SEC) would step in and whatever large bank was failing would be merged or bought very fast. Liquidity and assets would be provided. The Fed and the rest of the world’s central banks get that we are in a crisis. They will do what is necessary. Those of us sitting in the cheap seats in the back of the plane may not like it, as it will look like a bailout of the big guys who caused the problem, but you have to maintain the integrity of the system. A hedge fund here or there can go, but not one of the world’s premier banks.
I wrote the above paragraphs on Thursday, and sure enough, the NY Fed and JP Morgan stepped in to bail out Bear. This will not be the only time or bank. The regulators may have been asleep, but the depth of this crisis has awakened them.

But this is a boost for my contention that we will be in a Muddle Through Economy for a long time. This latest Fed actions simply draw out the time over which the market will correct. But that is a good thing, as a too swift, dead drop correction could spawn a very deep recession, destroying vast amounts of capital, which would take much longer to come out of.

Letter Re: Forever Postage Stamps as an Inflation Hedge

Sir;
You have written favorably of the US Postal Service Liberty Bell (“Forever”) stamps. Short history: The US Post Office Department was reorganized and became the US Postal Service effective July 1971. Employees of the Post Office then became employees of the Postal Service, but saw no changes in their paychecks. They looked the same.

More recently, the Postal Service has likely accumulated significant cash from selling the “Forever” series. The government’s pledge is that the stamps will henceforth be honored as postage without supplement……no more adding one or two cent stamps’ postage (or more) to the already purchased forever stamps.

However, whether the stamps would retain value, as “forever” status should the US economy plunge is untested. As we anticipate a crisis when we would doubt the value of Federal Reserve Notes, why would we stock up on “forever” stamps? Couldn’t the Postal Service be “repatriated” back into the US Post Office or into another government entity, and the already issued “Forever” stamps be then no longer honored? Or at a minimum the public be required to again add supplemental postage? These pre-purchased “Forevers” could just end up being a loan or a donation to the US Government. – KA

JWR Replies: While I hardly consider them an investment, I do consider Forever stamps a good inflation hedge. The vagaries of government edicts are impossible to predict. It is indeed possible that an Orwellian decree will issue forth from the District of Columbia, stating that “the word forever no longer means forever.” This is just a risk that anyone holding Forever stamps will have to take. I think that it is more likely that at some point in the inflationary future the USPS will simply mandate that postage stamps can only be used one at a time, for postage, rather than allowing them to continue to be cashed in or applied to other transactions–such as purchasing USPS money orders, or recharging postal meters. Congress might also someday make secondary bulk sales or barter of un-cancelled postage stamps illegal.

For now, however, I still consider Forever stamps a good inflation hedge. OBTW, I was recently told by my local postal clerk that regulations have changed, and henceforth I cannot pre-pay the rental on my post office box for more than one year in advance. This will of course leave me vulnerable to rental rate increases. But presumably, I can set aside a stack of Forever stamp booklets that I can use for future post office box renewals. There is more than one way to skin a cat.

Parenthetically, I should mention that I still gratefully accept donations of Forever stamps, in lieu of 10 Cent Challenge contributions. My mail forwarding address is still:

James Wesley Rawles
P.O. Box 303
Moyie Springs, Idaho 83845

Note: We live at an isolated ranch. The address above is just a mail forwarding address. We maintain this intermediate address to ensure our privacy. Our mail and packages are picked up and forwarded to us roughly twice a month, by a very trustworthy friend. Be advised that there may be as much as 20 day delay before I receive your mail. Thanks for your patience, and many thanks for your support of SurvivalBlog!

Odds ‘n Sods:

J. Ross sent us some serious Gloom und Doom: Fed Heads Back to the Well, Will It Run Dry?

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Trevor flagged this piece at WND: Fed abandons dollar in new round of rate cuts–Reacts to fall of investment giant Bear Stearns, Carlyle Capital Corp.

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Mark recommended the rifle muzzle brakes made by OPS. We have had the muzzles of all of our .30 caliber bolt actions threaded 1/2-28. That is the same thread used on many flash hiders (such as AR-15, M4 and AR-10.) Our preferred flash hider is the Vortex Model 3068, made by Smith Enterprise. You can keep a muzzle brake installed in the present day, and switch to a flash hider if and when times get inimical. Have your rifles threaded and keep both devices handy. The later Vortex flash hiders are also compatible with the SEI Direct Connect sound suppressors, if you don’t mind all the paperwork and expense associated with a Class 3 transfer. ($200 Federal Transfer tax, in the US.) Safety Note: If you own any .30 caliber rifles, be absolutely sure that you have all of your muzzle brakes and flash hiders drilled for proper clearance of .30 caliber bullets. If you were to attach an unmodified .22 caliber Vortex to a .30 caliber rifle, it could cause a tragic accident!

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SF in Hawaii suggested a great article on desert expeditions that should be required reading for anyone that expects to ever do any off-road driving, even in temperate climates.