More warnings and caveats than normal.*
Yegor Gaidar had a good view of the collapse of the USSR and why the military didn’t step in as the outside world expected. The basic reason was that nobody knew how to manage the farmers so they would grow enough food. Without sufficient grain, government couldn’t feed the cities. Russia could not borrow more money internationally, as they produced nothing that was worth hard currency in international trade. Already at that time, small plots private agriculture was producing most of the food for private sale, too unCommunist for USSR Communists to grasp how to scale it, although Deng had shown them 10 years earlier.
Every country with a failing government presents the same problem, a replacement has to be able to feed everyone. If a replacement for the US government isn’t ready to pay SSI and other such programs to people who will be homeless and starve without them, nobody will allow them to take over, and few would want the problems.**
That is the factor protecting the current Status Quo, people’s Net Present Value of government is still positive. Only when the currency is so diluted that an SSI check has little value can our government be replaced.
So, ruling classes, who are aware of things like that, know they have a while longer to continue the kleptocracy. Like all of us, their question must be “How long?”
There is no way to predict timing of such events, it depends on everything in the economy, literally. However, it can only happen after investors stopping lending $ to the government. I think that will be soon, as it has long been obvious that the US will not be able to service the debt when interest rates begin to rise. When people realize that gold at 0% is a higher return than bonds at 3% because the bonds won’t be repaid and inflation is 10%, the government will need to print money to replace the amounts it is currently borrowing. That will rapidly increase. In 2014, 14% of spending was borrowed, but the national debt turns over every 4 to 5 years. Without borrowing, all of that will have to be created fiat electrons, meaning $5T per year in new currency to pay off maturing bonds***. The Fed’s various QE programs created .5 to 1T / year in new currency, which has resulted in approximately 10% rate of inflation in Shadowstat’s honest measures of the CPI. In 2013, the Fed purchased 70% of Treasuries sold, and it holds 40% of all treasuries.
It has long been true that gold at 0% is a higher return with less risk than US bonds at 3%. That understanding has been delayed by very massive propaganda, falsified statistics and very persistent and expensive manipulation of gold’s futures, paper gold. That is effectively a subsidy for the purchase of physical gold, so gold bullion and bullion coins have been in short supply of late.
What happens to interest rates as the Fed creates $?
I must admit, I do not understand anything about any of this. It has long been true that gold at 0% … You really have to keep repeating that to yourself because MSM frames everything as ‘normal investing environment’, whereas I see the world as 1929 to the power of Dunning-Kruger. No previous time had so much of the world so tightly integrated financially, in trade and via manufacturing supply chains. Money must move for goods to move, our financial systems are leveraged 37-1 and based on sovereign bonds, 60% of which will go broke and embodied in a dozen or so banks around the world that are judged to be too big to fail with executives moving in and out of government so often they should be considered one organization.
Nobody can have a clue what will happen when the cascade of failures begins. Far worse, governments have large bureaucracies that are designed to monitor all of this and to deal with problems. In the US, the Fed is one, FEMA another. Having them help has been a disaster itself.
You can’t do anything about any of that, it is the earthslide happening because the earth was uplifted by plate techtonics and the rains came. You can’t avoid the effects, your world will change and none can have any idea how.
But that does not prevent individuals from beginning to step outside of the gov’s umbrella, nor from getting ahead of dealing with no income, no food, no shelter. Really, you should think about that. When the USSR went through this, people had been given their apartments, so most had a place to live. However, many were forced to sell in order to eat. They were forced to sell everything, couldn’t afford medicine, … Russia still has a very high crime rate and high death rate, life is a misery for many.
It not only can happen here, I think it is quite likely that it will, judging purely from system dynamics. These were not systems designed to be fail safe and extensively tested under current conditions. Thus, they will fail.
*First, the usual warnings about propaganda. I have them everywhere because people are obviously not careful enough to prevent bloggers from injecting thoughts into their minds that work for the benefit of banksters, government, armies, neocons, … not your individual interest. We know that because most people obviously have opinions that do not benefit them about almost everything.
Not my opinions, of course, I am a good guy, very honest, solid, carefully-supported opinions consistent with all views of reality. Handsome too, Really, you can trust me.
Second, I am not an economist, and know enough to grasp some of the many ways that any real economist could critique my analysis. When economists can predict future economic measures as well as weathermen can predict the weather 5 days in the future, I will take such critiques seriously. Until then, I consider economists just another variety of adviser, people who live on selling their advice, not trading on their own advice. I consider myself just as impressive as the average economist I have met, which is all that counts in the world of giving advice. Note: I don’t sell advice, I write programs.
A note to myself : Why do pension funds still have paper of any kind? I cannot make that make sense. It is the question that started this line of thought. Another such : How do you hedge in a world of hidden linkages? How do you know financial instruments are indeed independent, and that the institutions trading them will be there when the hedge is needed? Risk has not been eliminated, merely hidden and concentrated.
**Added later : there are people who would want the problems, because problems of that magnitude are a source of very great power. They get support because patronage and because men in such power structures in such times have no shortage of willing women.
If you are not exercising your mind down those very terrible possible paths, you still don’t understand that WWII resulted from the best thinking of the best minds in diplomacy and intellectual life, and was executed by the best minds in the military world. The German General Staff, for example, masters of planning and logistics, agreed to an invasion their own calculations said they could not support far into Russia because of the state of the railroads. Stalin intended to invade German first. England thought they could bluff, or something. Nobody in Europe had a good understanding of the meaning of events in their lives. You can do no better.
***That will be hot money, anxious to be converted to hard, undepreciating something quickly before it is further diluted by the following created fiat. Also, the world’s financial scammers, Central Bankers + banksters + politicians buying power with the proceeds, have been creative in delaying the inevitable, who knows if they can do it again? They don’t, which we know because there is no technology that allows control of open, evolving, complex systems.
Added later: The long version of the above by Chris Martenson.