I'm an avid hiker and camper. I won't pitch my tent in the Deflationist Camp. I do like to visit them though. Sit around the fire, drink coffee or a bit of red wine and listen to what they have to say.
Many bright people have pitched their tent in the Deflationist Camp. Many of these campers have some compelling deflationary points. Extremely compelling points, to wit:
- A 1 - 1.6 Quadrillion derivative Shadow Banking System that dwarfs every nations GDP combined
- This Shadow Banking System is imploding
- The US Dollar is a great looking horse, the best one in the entire glue factory, and even though it is dead it is getting stronger - must be the Rigor mortis
- Private Credit is contracting
- There is a growing trend in foreclosures, a new camp of homeowners now take their would be mortgage payments and spend them on consumer items
- Willy-Nilly Credit drove up the prices of houses, educations and you name it, now that there is less Willy-Nilly credit consumers won't be able to pay insane prices for houses, automobiles or educations and prices will contract
- M3
The trick to camping is preparation. Nothing is worse than getting to the campsite and realizing that you forgot to put something in your backpack. Line to hang the food at night, an electric fence, pepper spray or a gun to keep safe from bears. A seasoned camper can usually substitute matches for a magnifying glass, or boiling water from a stream for drinking can take care of the forgotten water filter/pump.
Leaves can, to some extent replace the roll of forgotten - well you know.
Personally I prefer preparation to Preparation H.
What I think the Deflation Campers neglected to put in their backpack is the possibility of a governmental, IMF, G-20 or G-Some Other Number imposed devaluation. I recently listened to one podcast while hiking. One of the smartest Deflation Campers was adamantly insisting that a devaluation could not happen for two reasons:
- All currencies are floating, they are not backed by anything so therefore they can NOT be devalued
- No matter how much they printed more credit was being destroyed than could be printed
And, in my opinion, this is the roll of missing toilet paper that MAY send them reaching into the medicine cabinet later.
In the 1980s Mexico had trouble after the 1970s Oil Crisis . Around 1982 it defaulted on it's external debt. On January 1, 1993 Mexico devalued it's floating currency by issuing a Nuevo Peso (N). They told their citizens that they could bring in 1,000 "old" and now suddenly very obsolete Pesos (MXPs) and get 1 Nuevo Peso.1
That is a massive devaluation on a floating currency. And they aren't the only country to have done this.
Holding dollars won't protect a hard core deflationist if the IMF issues a new global reserve currency or if the BRICs issue a "United Future World Currency". Our own government could do this. They could tell us that we can get 1 of the new bucks for $1,000.00 old and now obsolete US Dollars.
That would be a serious devaluation.
So no matter how much these intelligent campers speculate that gold will crash or fall (and I don't doubt that it will, or won't have some very serious pullbacks) I myself want some gold and silver in my backpack because a LOT can and likely will happen.
It's a jungle out there!
Countries have only a few options:
- They can do the Greece thing and experience riots and civil unrest.
- A few years ago they could have adopted tough fiscal policies and produced more and come up with a payment plan to pay off their debt.
- But now, with 109 trillion dollars in unfunded liabilities, 13 trillion in public debt, another 6 trillion in GSE debt the ONLY way 128 trillion of debt is getting settled is by a planned or unplanned devaluation or default --- and I suspect the later would be political suicide.
My faith in the 5Gs: G*(religious edit)d, Gold, Guns, Grub & The Government Will Screw It Up) remains strong. So does my advice to my fellow campers, no matter which camp they pitch their tent in they should pack for the unknown.
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