Wednesday, May 1, 2013

The New Manna: A Zimbabwe Dollar - In God We Trust

Evil and Amalek don't play the game of life with logic and of course not with Torah wisdom; it's a game of odds and basic math patterns, based on sub-par algorithms. The article presented says doomsdayers [i.e. blogs about moshiach, etc.] are fear mongers who exploit the facts as he presents in his case. The hand that he tips actually says that the nature of evil is a gambler and a risk taker as long as the odds are good enough; lets call it socio-blackjack, with a cheesy Vegas dealer name Bazza at your service.

Their view is that Zimbabwe was simply under-managed, and with American brass it can be steered, righted, and brought back to prosperity; throw in a few wars for the cause [not WWIII standard as a doomsdayer would suggest] and soon we'll be back to decadence, which is a right that every American has [as per their indoctrination] while the nations abroad are sold [or told?] to endorse, worship, and push the agenda of America enjoying its eternal birthright [Esau anyone?].

There are two possible key issues here: either they lose, and welcome Moshiach, or they try to win, and, well, yes, Geulah will be extended - but the fiasco and charade that they put on display for public will be quite pathetic, as probably every prophecy in Tanach will now have an easy platform to inform the people of God's intentions. What do we say to this - have fun? Buckle up? oy vey.

By the way, I'm going on record as agreeing with him, as I think God wants this elongated as possible to allow for teshuvah, save lives, etc. as outlined by the Vilna Gaon - who says its like being decreed a big rock to crush you; only God has mercy and agrees to throw the rock on you, but only as sand pebbles - many of them - like American dollars will be.

The Geulah process has already begun in certain sectors, and this will allow people to get on board and gain merit, again, thanks to an elongated process. And at the end of the day, I think Hashem just wants in his heart that one day he should pay an Avreich in Kollel a  Billion dollar monthly check, just in principle the World must see that day, for fate must contain a sense of irony.

From all the doom and gloom about U.S. and European economics you would have thought the end of the financial world was nigh. In fact a lot of people are saying that right now. Want some good news? It is not going to happen. That is not to say I haven’t written a lot of gloomy economic stuff myself. Yet, to be honest, I’m over that now. The economic accident happened in 2007/2008. The developed world’s economy didn’t die. It is now recovering. It is only a start but we have entered a new era nonetheless.

The idea is, U.S. and Europe are on a binge of deficit spending and this has created a titanic overhead of sovereign debt that can’t be supported or repaid.

This is correct. But do not panic.

The conclusion of the doomsters is that consequently the economic world will implode and the globe will spin off its axis into outer darkness. Well, the bit about spinning out of the orbit of the sun is an exaggeration, but not by much.

The doomsters see a collapse of so called fiat money, i.e. money as we know it and an economic and social breakdown will follow. Gold and bullets are to be the only currency.

According to this line of prediction, we should all be rearing chickens in anticipation and ready to grow bean shoots in our closets for food. While you are at it, get some plans to create a stealth smokehouse. Forget zombies; the marauders of the future financial collapse are going to be real people.

Woe on us, prepare!

This prepper-view is nonsense. The view that fiat money is going to disappear is mad and silly. Fiat money is going nowhere, except down in value.

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Whatever the political and economic rights and wrongs of the matter, what happens next is as close to the doomsters fall of the Roman Empire part 2, as a roller coaster ride is to a plane crash.


It is infuriatingly simple. Let us say the U.S. government got to a state that it owed 120% of GDP in debt. The U.S. is not there yet but it will likely get there soon enough.

What happens next? The U.S. simply engineers a 7% rate of inflation, all other things being equal and in two Presidential cycles U.S. debt to GDP is roughly halved to the old sweet spot of 60% to GDP. Of course modelling that with all the possible variables is way more complicated than that, but you get the idea.

Halving the value of money does the trick of sorting out this whole sorry mess. Now that might sound horrendous but it is not.

So okay you are a doomster and you think the end is nigh and that gold is money. Well, gold has gone up roughly 10% a year compounded since the end of Bretton Woods in 1971. This implies an average compound rate of inflation of 10%; if you believe that gold is real, inviolate, hard money, which as a doomster you most definitely do.

The world didn’t end over those 40 years as money was devalued forty fold. The fiat system didn’t implode, in fact everyone got a lot richer, even though in the meantime 2.5 cents of gold became worth a dollar or put in gold standard terms, 2.5 cents in 1971 has been inflated to $1 today.

If the dollar got devalued in real terms at 10% a year, as we have enjoyed in gold terms on average for 42 straight years, a 120% debt to GDP would hit 60% in around 6 years. This is why it is not a good idea to panic and get doomy.

The key is to be positioned for the denouement of current economic rescue attempts. The solution is the dilution of debt, through the devaluation of money. The governments of the west will not run out of money. That’s impossible. What will happen to rebalance the debts of the U.S. and Europe is what we need to focus on.

In a nutshell, bonds are going to get monetised. Sovereign debt will be turned into cash. Operation twist has put a large proportion of that mountain of debt at the short end of maturities. The economy of the U.S. is going to get very liquid indeed. That is the one thought to hold.

If you believe the developed world is going to get into a tail spin, it won’t be that fiat money will disappear. Instead there will be much more of it about.

The question therefore is how to play the outcome of cash flooding everything.

You can do worse than look back to the seventies to see what happened and use that period as a model of what to do. The answer isn’t to prepare for Armageddon. It is to invest in inflation linked assets producing index linked yield.

So perhaps buying bits of mountain desert to rent out to terrified ‘preppers’ is the way to go, because not only will the property value and rent rise with real inflation, you’ll also be paid in gold.

Forsight in Klippah?


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