Monthly Archives: April 2018

Things Work Until They Don’t

By: Tom Chatham

As the world begins its next adventure in financial chaos and rolls over to expose its soft underbelly of lies and deceit that have been perpetrated on the public, those that see the truth have been warning the people once again. You can give people the truth but you cannot make them believe it. That is for them to come to grips with.

Trade wars are usually bad for all parties in the end but between the beginning and the end there can be some surprising developments. Human actions and delusions on the part of the public can produce strange results at times. All of our systems are based on trust. When that trust is lost, everything will come crashing down. Until then, things will go on.

If trade tariffs with China have the short term effect of creating American jobs, that could have a wealth effect by creating more disposable income in American pockets. That in turn can have a positive effect on the stock market and consumer confidence. Also, commodities are set to soar in price soon and this could carry the stock market up with it for a while.

Richard Russell once said he believed we would have a third leg in the current bull market before the bears take charge. He was right in the past and could be right again, only time will tell. This situation can not last long due to the enormous mal-investment built up in the system over many decades. A house of cards will eventually fall and the taller the house the longer and harder the fall will be.

One thing that could destroy the temporary high could be the destruction of the financial system due to loss of the reserve currency status and the replacement of the petrodollar system. If and when that happens things will not be looking good for America for a very long time. China is taking actions that could result in just that type of outcome. Their new silk road initiative and oil trading system utilizing Yuan to gold will eventually have serious consequences for Americas standard of living.

Total debts and derivatives in the world amount to 30-50 times of world GDP. The bulk of this is derivatives and when they fail they will become worthless. The 250 trillion or so in global debt will default when asset prices implode and interest rates explode. When the debt bubble explodes stocks could decline by as much as 95%. Interest rates could exceed the 20% rates we saw in the 1970’s.

In the last 100 years the value of major currencies have declined by 97-99 % relative to purchasing power in gold. The last 1-3% will follow very soon. When the financial system collapses due to losses from derivatives and stocks it will erase all of the savings, and retirement funds people were expecting to get at some future date. This will instantly impoverish the bulk of the population.

As the system collapses the banks will likely try to re-inflate assets by massive money printing which will only cause hyperinflation at some point. As hyperinflation kicks in the price of many assets like stocks, bonds, investment properties and art will likely collapse in real terms. Items like gold, silver and productive farmland will likely fare better.

Eventually deflation will carry all asset prices down as the world falls into a global depression, possibly for decades. All of these things will likely result in social unrest and wars as people become hungry and angry at a system they took for granted for so many years. The trust will be broken and people will look for something else to believe in.

One thing is for certain. People today believe anything but reality and that will catch up to them all very soon in a very painful way. Things work until they don’t. Our economy has been rolling along for decades on the stored wealth of previous generations but that is about to run out of steam very soon. When it does it will be a shock to all but a few. You can ignore reality but you cannot ignore the consequences of ignoring reality.

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Trade Wars With Silver Linings

By: Tom Chatham

The current trade war that is ramping up with China has many pitfalls but could have positive sides for Americans. The world cannot survive without American agricultural products, especially food. They may be able to replace most of it from somewhere else but not all.

The estimated loss of agricultural shipments to China is estimated at around 15-20 billion. This is small potatoes for a government spending 1.5 trillion a year on many questionable items. The U.S. government could do something to relieve the stress on American farmers and actually do something positive for Americans in the process.

The government could simply buy all of the excess farm products that would normally be shipped overseas and create a strategic food reserve for Americans. Anyone who has been keeping up with the food production over the years knows that we keep very little food stored for national emergencies anymore. We should have a food reserve similar to the oil reserve, just in case.

One of the positives for this type of investment is that unlike investing in wars or social projects we would actually be investing in something we could use or sell at a later time making the investment minimal in the grand scheme of things. Purchasing and storing these food reserves near large cities around the country would provide a strategic resource that could save many lives if the distribution system is ever disrupted for any reason such as fuel disruptions, cyber attacks or a grid down situation.

If we are going to spend billions of dollars a year for pet projects why not spend some of it on systems actually worth something to us. The world is not getting any safer and we need to have resources set aside for emergencies.

Removing these resources from the world market would have immediate and profound results. It would send a signal to the world that we do indeed have more than one arrow in our quiver and even in the face of massive deficits we are still relevant in the world.

The world cannot continue adding millions of people a year and expect to feed them all without the U.S. The U.S. has many natural resources and some of the best farmland in the world. We can survive the problems we face as a nation but the world cannot go on without our contributions.

We can get along without the electronic gadgets and trinkets we get from China but they cannot get along without our food. We need to use our resources in a smarter and more sustainable way to continue being relevant in the world. Simply printing our way to prosperity will no longer work. We need to provide real value in the world and our food supply is a valuable commodity. Our farmers are a strategic asset and a necessary one for our country to survive. We need to support them now so they can continue to support us in the future. If a trade war is the only way to solve our trade deficit then let them keep their trinkets and we will keep our food and we will see who is better off.