FOFOA: Shake the Disease - Yet another great article which also comments on the Mish/Amerman debate

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Steve Netwriter
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Joined: 13/11/2008
As Daniel Amerman says, the United States has no choice now but to keep its dollar-denominated promises and obligations with the printing press. Perform in form, default in substance! But if the external world does not devalue the dollar, the US will be able to perform in form AND substance, through only the printing press, while the rest of the world ships us the goods and services we require to maintain our high standard of living.

This is the outcome Mish describes! Sure, he'll say it can't go on forever. But how long? I say no longer. It is done. D-U-N done! But the deflationists say it can continue at least 4 or 5 more years. Most of them believe it will be at least a decade before we see hyperinflation or a total collapse of the dollar.

Finally, here are three concepts to keep in mind as you wade through the barrage of conflicting information day in and day out.

1. Paradigm shifts happen very fast with a distinct element of surprise. As Richard Maybury says, sentiment can turn on a dime. And when it does, that which seems solid can crumble in an instant. For a scale example please see Bear Stearns and Lehman Brothers.

2. Natural paradigm shifts are preceded by a "head fake". In the moments before a tsunami, the water recedes. In the moments before hyperinflation, you will be faked out by pseudo-deflation or rigged stability. For an example please see Argentina and Zimbabwe...

3. Natural paradigm shift transitions, by design, surprise and financially destroy the vast majority while only the smallest minority gains greatly from them. Even some of the staunchest honest money advocates may find that things won't play out as they had expected. Can you imagine the crushing disappointment?

FOFOA quotes three charts.
This one which shows what happened in Argentina to consumer prices. First they dropped a little, and then exploded upwards.

This is what happened at the same time to the money supply in Argentina:

And finally, how the exchange rate between the Zimbabwe Dollar didn't change against the US Dollar for a full 2 years, when it then started a huge devaluation.

FOFOA also mentions this Chris Martenson article (his Chapter 20):

in which Chris makes a very good point about timing, impact and likelihood.

Here’s a slight refinement of this thinking that allows for more subtlety than “true or false.” Suppose that we revisit our spectrum for a financial crisis that spans from “it’s not too bad” all the way to “everything breaks down and stops working for awhile.” Let’s assume that everyone has a different assessment of how likely any particular outcome is.

We might find that one person assesses the chance as very low that anything too bad will happen, while another person holds a nearly opposite view. In one important respect, they hold the same view; they both hold the possibility of a bad outcome as being greater than zero. When an outcome has a potentially huge impact, a prudent adult may decide to react to that risk, even though it is not very probable.

As long as some risk exists in your mind, and as long as the potential costs of not taking action are outweighed by the costs of taking action, then it makes sense to take action. That’s the case for action.


The three dimensions that we will use to begin bucketing the various events and risks are time (that is, how near or urgent is the risk or event), impact (is this a big deal or a little deal?), and likelihood (which is the same as the probability of the event).


Next, I segment things by Impact and Likelihood. If you understand insurance, you already understand this next process. Think of fire insurance on a house. We don’t carry it because such an event is especially likely (it is not), but because the impact is so catastrophic. That is, a prudent person will combine impact and likelihood to come to the decision that purchasing fire insurance makes sense.

So here’s a way to do that for the other areas in your life. Suppose we construct a simple 2x2 chart, and on this axis we break the likelihood of the event into “High” and “Low” buckets, while on the other axis we split the impact into “High” and “Low” buckets.

So something that is both low impact and low likelihood is something that we should not ever spend any of our precious time or resources on. Things that fall here are just not worth worrying about.

Anything that is high impact and high likelihood is a slam-dunk. We always attend to these, and we do them first.

Things that are of high impact but low likelihood require more thought, but generally we would usually attend to most of the things in this box next. After that, we’d sometimes attend to things that are low impact but high likelihood, especially if they happen to have easy or quick remedies.

So this becomes the area where events fall that I attend to. How you happen to fill this in will depend on your age, financial means, family situation, and a host of other factors

This article is also recommended reading:

The Gulf Dinar – The New Oil-Standard Posted by Ivo Cerckel

In the real world, some people know that gold and oil are real wealth no matter what currency price is put on it.
It is the movement of gold in the hidden background that has kept oil at these low prices.
Oil must be billed at its correct “value” which must be reflected in FreeGold.

I said in my 09 September 2009 “Gulf dinar to be backed by gold hiding in oil”-post that the Gulf oil-wealth will back up the Gulf dinar, the Gulf Co-operation Council (GCC)’s single currency (1)

In my “Why use dollar for int’l trade? - former Malaysian PM”-post of 16 September 2009, I quoted former Malaysian prime minister Tun Dr Mahathir Mohamad as asking last week why the planet should continue to use the dollar in international trade and as saying that the new reserve currency, the new currency settling international trade, will have to be gold backed. (2)
Dr Mahathir is thereby departing from his earlier proposal to use the Islamic gold dinar in trade between countries.

Now I want to examine how the GCC’s gold and oil reserves backing the Gulf dinar will determine the dinar’s value.

People erroneously believe that the dollar has the power to buy oil, just like US president Barack Obama thinks that at this week’s G20 summit in Pittsburgh, he can safeguard “our” global financial system by enacting another batch of regulations.


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