Not a pleasant thought.

I was in Europe when Carter was President and began telling people I was a Canadian, eh? This could be more painful.

Roosevelt managed to keep the US in a depression until Pearl Harbor was bombed - but I was born too late to experience that. This could be just as painful.

Last year I tried to convince my wife to move to Japan - she kept her citizenship there at my urging, as I always wanted to keep an escape route if needed. Being opposed to all of my ideas, we are still in the USA. I am now working on Switzerland as we both like the country, if not the cold winters.

It may be some years before the summers here are enjoyable.

Splendid piece as always, Professor P!

Sounds just like my Fathers advise, Mom and Dad lived through the depression (as adults) and he ran a business. I took his advise.

But I don't understand. All the 'experts' on the TV are saying this will be 'over' by the 3rd quarter of 2009 'at the latest'!!!!

Mr. Herbert Hoover says now's the time to buy.
So let's have another cup of coffee and let's have another piece of pie!

Or for you youngsters...

Let's party like its 1999!

Warburton's "Debt and Delusion" called it perfectly.

Individuals can survive through limiting debt and maintaining liquidity. Of course, the gubmint wants you to spend and spend.
Redistribution of wealth, indeed.

Mr Practical,
Although i agree with your comment about the current crisis being predictable, I am puzzled about your dollar comment. It is, in my oprinion, de-leveraging and redemption (liquidation of non-dollar assets, to bring it back to the funding currency and pay off debt), that explains the recently relatively strong dollar ( and yen, another funding currency). Deflation itself should lead to faster diversification out of dollars by central banks, swf and others, as usd is relatively worse off compared to europe and asia because of its huge current account deficit. A dollar crisis as a result of having the biggest debtor nations currency as the reserve currency of the world, is the next big shoe to drop,IMHO!

I'm by no means a patriotic person, but where are your roots, Mr. Practical? What is your place? Following the money is no less useful to the future than following the government.
Money comes from usefulness which we make available to the future. It isn't an entity in itself, and governments and investors need to learn this right away. The population is learning very quickly that needs are more important than wants, as they shift out of their big houses ("investments" they were told) and soon, governments will be shifting out of the redistribution business because they won't be receiving any money to distribute.
The rich and the government puppets of theirs keep stepping on the accelerator, but they aren't getting off the bus to put gas back in the economy. That gas comes out of the ground, one way or another, either through labor, drilling, mining, manufacturing, or farming. It doesn't come from the sky or 'management' or 'efficiencies of scale'.
Turn the organization chart upside down for a while and see where the value really trickles out of.
If you had said that you moved to Japan to help their system by adding value to their businesses, that's a different story. Moving to CYA is just another failure to recognize macroeconomic reality. Put down some roots. Defend those roots and nourish them. Your action symbolizes what is wrong. It seems to me less like a solution to anything except your personal continued unnecessary comfort at the expense of the place which nurtured you. You're gonna die sometime, and you can't take it with you, so why not put some of it back where it really came from; your hometown.
Perhaps you are originally from Japan, and if so, I take it all back.

Au contraire, sir. The ultimate right of a human being is the right to 'vote with your feet'. Every single human has ancestors who did just that, over and over again. To move is to change, and to learn, and to grow.

i agree with you 100%. the disconnect is that you are not understanding my definition of deflation. deflation is the money supply shrinking by destroying debt; when you say "delevering" that is precisely what that is. the liquidation of dollar assets funded by yen is the reason for yen strength versus the dollar. i also agree that there will be a dollar crisis. i have mentioned hyperinflationary event that encompasses that. short term dollar strength as deflation is strong reversed by hyperinflationary event when deflation becomes too much for the government and the rich (lenders) to handle.

well since Mr. P is really a metaphor, and uses them to teach lessons, he really doesn't have an ATC. but what does patriotism have to do with letting the government gut your wealth year after year by debasing the currency? perhaps Mr. P can return once the currency is completely debased (which it will be) to mend the fences.

I'm far from brilliant, but I know well enough to find leadership in brilliant men. Thats why I read the 'ville. Here's someone else I respect...

"In the final analysis,
the last line of defense
in support of freedom and the Constitution
consists of the people themselves.
If the people want to be free,
if they want to lift themselves out from underneath a state apparatus that threatens their liberties, squanders their resources on needless wars, destroys the value of their dollar, and spews forth endless propaganda
about how indispensable it is
and how lost we would all be without it,
there is no force that can stop them."

Ron Paul
The Revolution: A Manifesto
2008

It's all about self reliance and fostering a system which supports AND protects it. The American Experiment continues. Ron Paul just gives guidence on it's reformation.

Thank you for the great advice. You were one of the early predictors of this great debt unwind.
I still say the government should be doing all it can to slow the deflation down. But rather than bailing everyone out it should be investing in the new required industries in the next 5 to 10 years.
Whenever I get I chance, I read a few reports on energy, from credible sources. These have included the Hirsch report and others.
For example I just read this 2007 phD thesis:
Robelius, F. 2007. Giant Oil Fields -The Highway to Oil. Giant Oil Fields and their Importance for Future Oil Production.

The conclusion:The giant oil field model is based on past annual production, URR and three different assumed decline rates. The results from the modeling of 333 giant fields are used in combination with the other forecasts in order to predict future oil production. Four different scenarios have been modeled and peak oil governed by the giant oil fields is a common result for the scenarios.
The worst case scenario shows a peak in 2008, while the best case
peaks in 2013 although at a higher production level. The production in the best case scenario increases more rapidly than a future demand growth of 1.4 per cent. Therefore the production can be adjusted to follow the demand growth, resulting in a postponed peak oil to 2018. Thus, global peak oil will occur in the ten year span between 2008 and 2018.

The IEA report states that the debt crisis is slowing down the investment in oil supply, moving the peak closer.

The Hirsch report states that a 5 year transition (liquid fuels only for transportation) is a catastrophe, while a 10 year transition is a crisis.

So the level of investment required to do this is staggering, not to mention the inflation generated.

Of course oil right now is falling and is less than $56.

Maybe you will wish to consider owning oil rather than Yen or dollars in the near future?

P.S. Toddo jokes about WWIII, but this in a huge problem (like a war). There still is plenty of oil in the ground, but it just won't be cheap.

Mr. Practical has been watching Suze, except she hasn't moved to Japan. Sounds an awful lot like common sense to me. Here's what it all means: Those of us who have behaved prudently (and our children) will get to pick up the pieces of this mess. We, too, will be worse off, but that is relative. I have always understood that the task at hand is to be still standing at the end. How you achieve that is up to you. Best wishes.

Title should've been. Typing too fast

There is a new writer on the scene who is saying what we all feel. She is honest and tells it like it is:

http://www.lewrockwell.com/orig8/hamilton6.html
http://www.lewrockwell.com/orig8/hamilton7.html
http://www.lewrockwell.com/orig8/hamilton8.html


I know you will like them. Pass them on.

Regarding: "what does patriotism have to do with letting the government gut your wealth year after year by debasing the currency?"

I try to be as politically active as possible, but have come to realize that there is not much I can do to change the situation. My last name after all is not Obama or McCain.
Which brings me to the value of Minyanville. The "Berries" will create policies, some good, some bad, and there is nothing we can do to change them. The only thing we can do, is to educate ourselves as much as possible, make informed decisions, and defend ourselves. Minyanville has discussed many strategies against deflation, inflation, etc. I personally would rather be informed, than get caught with my pants down.
I for one do not believe the government will take care of me.
I also believe that it is the right of the individual to do and go places, that makes themselves the happiest

“The chief duty of governments, in so far as they are coercive, is to restrain those who would interfere with the inalienable rights of the individual, among which are the right to life, the right to liberty, the right to the pursuit of happiness and the right to worship God according to the dictates of one's conscience.”
-William Jennings Bryan

“The evidence of the natural rights of expatriation, like that of our right to life, liberty, the use of our faculties, the pursuit of happiness, is not left to the feeble and sophistical”
-Thomas Jefferson


So keep up the good work Minyanville!

P.S. Japan officially went into recession yesterday. So all is not rosy there either

kids should not be bothering with stock clubs; they should become active and educated in politics/government. it's their money we are blowing.

Good article. The only I think I disagree is that it is the fault of the Fed. The "Fed" is after all appointed by our politicians.
Lesson:
Greenspanonomics = Friedmanonmics=Reaganomics=BUBBLEonmics.

Maybe. I think that's one good way to look at it: Mr P is the Schindler of our Gold; squirreling it out of the country until the fascists stop burning it up in Dubai.

Perhaps, though, if all of the Mr P's are leaving the country, then the disrespect for the sources of capital is the source of the problem?

Just thinkin' and wonderin' 's all

Mr. P could stand for Mr. Philosophical as well as Mr. Practical.

If patriotism is defined as all of us salmon swimming upstream (government regulations, public debt, and taxation), to spawn in order for our progeny to continue the process, and then die from exhaustion on a river bank, I think the practical approach is to swim somewhere else – and not just be somebody's fish.

The philosophical metaphor would be Atlas shrugging.

The real solution is political but that die has been cast - at least for the next few years.

And what about when you run to the end of the Earth and there is no more 'there' to run to?
Competition isn't all it's cracked up to be. We need more cooperation between those who have and those who work to provide for the haves. When the wealth is less protected but the sources of wealth are strong (savings, soil, communities), then there will be less fluctuation. The amplification of 'free' markets and 'insurance' has put the system into runaway oscillation already.
We need to turn it off, reinstall the filters, and start it up again.

True,

If my calculations are right $10.5T and 300 million people is
$35,000 per man woman and child. This is staggering.

But the financial education is also necessary, as when this deflation
is over with, there will be inflation (oil, baby boomers benefits). Not to mention the real possibility of it hitting even sooner, if as you suggest the elite want to stop the deflation, or not enough people will want to buy our debt next year.
These situations would require knowing when to shift from deflation to inflationary protection. And how to apply that protection.

Plus most people (especially the very young) probably don't understand they owe $35,000 and need to pay the interest on it every year.

So what you are predicting is that gold is going to go way up when that big shoe drops, right?

So let me see if I understand. There are "those who have and those who work to provide for the haves". You can tell on which side you are I work so I don't have or I have so I don't work. And if I have (implicitly I don't work) and I move out of the country I am unpatriotic. The manifesto of the comunist party has never been clearer.

Yes!! I never been a big gold bug, but when the world is looking for diversification from the dollar and other fiat currencies, gold is the alternative. As soon as hedge funds are done de-leveraging and selling positions for redemptions (including their gold pos), it will be time for gold to shine again. Watch risk aversion trade (lower equities and other risky assets) without gold participating. Yen strenght and dollar weakness against the european currencies and gold going higher is what one should watch for.

I wish you would leave

A straight-forward and well-reasoned article. Two questions:

1) What SPECIFIC actions by the Fed or the Treasury will ring the alarm for us that deflation now risks turning soon into hyper-inflation? Many people say, when they “print money”, but I am a bird watcher—what does the canary in the mine look like? What is its size, shape, color and song? I don't expect to see a man dressed like Uncle Sam in Times Square running a photo-copy machine loaded with $100 bills, but some people in the government will start doing something and we will have fair warning—but doing what?.

2) What can people do to prevent the fear building around the world from turning into trade wars, witch hunts, wacko political movements, dictatorships, and ultimately, war? (All of these things happened in the 1920s and 1930s)

By the way, I agree with treating debt payment in the present environment as a great investment, since one can not easily find tax-free rates of returns at the rate of interest on most debt, especially at such low (essentially, zero) risk. I would add that carrying debt has an additional risk factor that should be added to the nominal interest rate—failure to pay debt will result in default or substitution debt rates of interest that are much higher, even assuming that replacement debt can be found. Therefore, a 4% nominal debt in this environment would actually be higher than 4% when those risks are added, and paying off the underlying debt would be worth more than a 4% return to the debtor. In worst cases, failure to pay debt would result in a family suffering the Humpty Dumpty effect.

Thank you very much. Bill

eventually yes, if governments insist on current actions.

1. the fed has indicated its willingness to hyperinflate by action paying interest on deposits at fed. shows they are willing to expand balance sheet indefinitely. also fed and treasury now seemed joined at the hip, a necessary condition of monetization. i believe the variable will be as/if treasury rates begin to rise as the economy still sinks the govt will feel complelled to monetize debt: print dollars to buy public u.s. debt.

2. i don't know.

I forgot to add in some new spending:

+$1T for CDS resolution, soon
+$2T-$3T for energy, over next few years

Of course this spending might not come fast enough to halt the deflation (or be able to have a quick enough influence) to halt the deflation. Then the monetization we have been speaking of will certainly have to happen, to a great enough extent.

Either way national debt will soon be:

$13.5T-$14.5T or $45,000 to $48,000 per man woman and child

Then things can finally get better, with weak growth and inflation (only way to pay this debt off, and higher oil prices in 1-3 years, or less)