Tuesday, August 11, 2015

The Final Shakedown Will Be Uncontrolled


Never Have We Made So Many Chips!
Let the chips fall where they may is a figure of speech which means, "What happens happens" or "Let the imminent events unfold." This metaphoric term dates back to the 1800s and alludes to chopping wood,  "chips" refers to chips of wood. This phrase uses the image of a person chopping wood and letting the chips fly everywhere instead of trying to be neat and chop on one side so they'll fall in a pile. It implies the woodcutter should pay attention to the main task of cutting logs and not worry about small chips. It is often joined to a statement that one should do what is right, such as, "No matter what the consequences, I'm going, to tell the truth about what happened and let things and events unfold as they may.  

This phrase is sometimes thought to be a misquote of the phrase "Let the cards fall where they may" which refers to one's fortune being told by a tarot card reader. The card reader generally asks her client if he has any preference in how she would lay the cards out and this was the usual response. At any rate, the idiom meaning "let things happen the way they will" has not applied to, and may not be an option when it comes to our modern day economy. The ship has already sailed when it comes to a hands off approach because central banks across the world are so deeply involved in manipulating the markets they have become very distorted and no longer reflect reasonable values.

It has become abundantly clear that when it comes to the "economic chips" the powers that be have no intention of letting them fall where they may. However, several factors determine just how much influence can be applied to the how current economic policies unfold. Continuing with the metaphor of "falling chips." Things like the size of the chips, the rate or speed at which they fall, and the number of chips in the air may make them uncontrollable. My point is we could find ourselves up to our neck in chips in a blink of an eye and in the middle of an economic tsunami, all bets are off as to how successful efforts to stem a catastrophe might be. This means during the final stage of the global shakedown events will be uncontrolled and become very wild.

The world might soon witness a major shift in the value of one investment over another as investor seek firmer ground. Derivatives, currencies, plunging stock prices, air rushing out of a bond market bubble, how debts are structured, and the timing or direction from which problems arise are all factors that must be considered. We are constantly reminded that investing involves risk, including the possible risk of principal or capital. Foreign investing is subject to additional risk including currency fluctuations, but what many people don't realize is no matter what they invest in or how they choose to salt away their wealth or savings risk is always lurking. Values constantly change and the unfortunate situation of having your wealth in the wrong place at the wrong time can be devastating, the inability to access your funds can make the situation even more dire.

The economic overlords will and do have the power to change the rules, when this happens it generally is not to benefit you or me. During times of economic chaos, you can only hope you will not be the one thrown under the bus. With much of the world looking down a road paved in promises that are economically unsustainable, it is likely many will be broken. Pensions and other payments granted to us in our later years are the kinds of promises that are at risk of not materializing or being cut. If indexed to inflation this tie can swiftly be cut or broken and it will not be pretty when we see the buying power of these promises rapidly diminish.

How Will The Dominoes Fall?
Much of this revolves around the issue of debt a subject of great importance to both lenders and borrowers, and again timing can mean everything when determining whether a creditor will totally default or force a lender to suffer a major write-down of their expectations. Debt is generally set to be paid over time and a balloon payment coming due at a time when money is difficult to borrow can be the kiss of doom. Inflation or deflation, as well as a big shift in interest rates, will determine the true winners or losers in this brutal game. You can't get blood out of a turnip and chasing someone for years through a legal system at great cost often only adds insult to injury.

I contend the amount of money and free currency (able to move around and be deployed) actually standing or remaining after the next major economic meltdown begins will be the determining factor of whether inflation or deflation is indeed the flavor of the day. A person may think they are wealthy or have real wealth, but will they be able to tap into it and move it about? Often "paper wealth" is merely a promise of future value. Many people would be shocked at just how little in the way of tangible assets many very wealthy people own and to find much of the wealth people own is on paper, and this is full of risk. What is often missing or overlooked is tangible fully paid for items and things that are likely to hold their value and in the direct possession of the owner. People tend to avoid tangible assets in their control because they are often inconvenient or need to be insured.

Going forward we find the size of the chips, and the order in which they fall is both unpredictable and does matter in determining how an individual's wealth is affected. The story of the gold miner who labored for years then gave up and walked away set things up for the next young lad who started in to hit gold in days and strike it rich highlights that being right is not always enough, the value of tenacity should not be underestimated, and timing is crucial. The world has indeed become a giant casino and a game of chance, at stake, is just how much of our wealth we as individuals can protect. When we talk about contagion it is easy to imagine the dominoes falling, but have no doubt the direction they fall often determines which if any will remain standing. In my opinion, luck and caution will have a lot of impact on our individual fortunes as we move through the financially violent period before us. 


15 comments:

  1. One problem that I am having is that there is nobody giving sound advice on what to do. Oh sure there are people selling gold or books or survival food that have big advice but I am saying that we have savings in paper IRA type stuff and there seems to be no way to handle it other than convert to cash and take a penalty. I don't think there are any real winners other than the politicians who created the problem and who can escape with millions all at the same time blaming someone else. I hope to minimize damage somehow.

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    1. Many 401 k accounts require that you no longer be employed by the company holding the account in order to have access to the money. This is both to benefit the account as the larger the account collectively in the company the better the terms from the bank. But it is also an exit gate. You are stuck in there and cannot get out. Thats the most dangerous situation. And the cash keeps flowing into these accounts every payday and the money MUST be invested, even if its in a money market account. You can't take it out. If you quit as I did and liquidated the account and payed off the house and bought some PM you would be much better off unless you need the job. I work independently now and I prepared for this for three years. I am 59 1/2 now so no penalty.

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    2. a checkbook IRA allows you to invest your tax deferred savings into physical assets.

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    3. I have been putting my money in the three precious metals, gold, silver, and lead. When you add in non perishable food and living in the country, we will survive a lot better than the city folks. Form groups of like minded people and if possible move away from the cities.

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    4. The ONLY true measure of wealth is what you are worth when you have NO money...
      People are more afraid of losing a "penalty", than losing the entire amount...while what they are saving is already being spent on lobby groups that are intent on stealing all of it anyway.

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  2. The majority of people will be hurt by what is coming, I personally like tangible things of value that I have under control. I reserve the right to be wrong! Below are a few arguments supporting the idea of questioning wealth held in the form of promises.
    http://brucewilds.blogspot.com/2012/11/what-is-something-worth.html
    http://brucewilds.blogspot.com/2014/08/where-wealth-is-held.html
    http://brucewilds.blogspot.com/2015/01/relevant-value-trumps-inflation-or.html

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    1. We live on the fringe of the economy as every time there has been a recession the recovery doesn't quite reach us and things don't get back to where they were. The factories are gone, agriculture seems micromanaged and much of that is gone, we don't even have our own banks anymore. At times it feels like there was a war that we lost and I missed the whole thing. Once it was a big deal if a president lied to the people, it is a daily event now and nobody cares. If the economy is built on trust then there is very little that can save it at this point. Paper is not a good thing unless you are in the toilet.

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    2. Further thought during the day about your question has inspired a future post regarding the skill, the art, and the importance of negotiating. It is indeed an important skill to develop. When ever possible long term financial decisions should not be rushed or made in haste. Hopefully the post will be published in the next week. Thanks again for your comments.

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  3. Good article...I enjoyed it, the consensus is solidifying that the final shake out is no longer a case of if but when.
    You might enjoy this: http://awaken-longford.com/2015/07/30/i-believe-the-irish-public-have-shown-huge-restraint-in-the-face-of-all-this-hypocrisy-letter-to-the-irish-times/

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    1. Thanks for the link, most interesting. I have not been to Ireland since the so called "bailout" but I'm not surprised that it has generated some rather harsh feelings. Sadly, I'm afraid it is just the start.

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  4. Even if they "escaped with Millions" - - they would own fiat too, right?

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    1. Indeed, but millions of fiat is better than no fiat, and the reality is many people will be left with little or nothing. The world has seen this sort of thing play out before and it has generated sayings such as, "it is a cruel, cruel world!"

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  5. I'm holding almost everything in cash, savings, and cds. I'm terrified. I have a house, I could pay of my mortgage but what's the point of that if real estate drops in the basement and then I've just way overpaid? PMs are the most tangible yet they really aren't liquid and who knows what they will actually be worth when the chips settle? There really is no where to turn. I've checked for many many months now and all exits are blocked. Just store food and goods I guess. Btw, good call on the rules changing - note TPTB have already decided on bail-ins and wrote those rules in Nov. 2014 . I think they are planning on throwing everybody under the bus.

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  6. I enjoyed your piece. Yes, we are now seeing things come to what at last seems to be the point of no return. A lot thought it was 2008 but somehow we managed to postpone the day of reckoning. Maybe we dodge another bullet but there are plenty more rounds left. Precious metals currently look like the best form of insurance for the common man or woman. However the rules can be changed in an instant. There is no clear path or advice so the best we can do is to remain flexible so we are agile enough to adapt to rapidly changing conditions. That may mean different things to all of us. I think it is important to have ownership and quick easy access to all your assets and capital no matter what form they are in.

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    1. If you really think this economy is going to come apart. Expand your thought to what that means... Will the electric grid go down because those operating it have lost everything and aren't being paid in a currency that actually purchases them existence. Does the trucking industry shut down do to lack of fuel or bankruptcy? How far will this over leveraged debt ridden mess go and what will be actual outcomes? If you want a fairly recent example look at the collapse of the Soviet Union except maybe even worse.. And IF you think this way, where do you want to be when it happens? In a big metro area or a small town? On a city lot or in a rural area with water to grow food with? Maybe the PTB will pull another rabbit out of their magicians hat again and save the big institutions, including pension funds but what if they don't or can't? I'd say from what I read, the time to prepare for what is being predicted and thought out is sooner rather than later.. God helps those who help themselves even if in the end the meek do inherit the earth.

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