I've begun stocking up on such things. I don't so much fear the looming collapse as I do the public reaction to it.

 

There's lots of inflation protection besides gold: buy TIPS, or an ETF of a basket of commodities,or large cap raw materials stocks that can pass the price increases on. Keep in mind that a lot of speculation has probably priced inflation into the typical inflation hedges already. "Most experts" that are predicting inflation are ignoring the bond market which is predicting somewhere around 2% inflation for 10 years. I'm inclined to believe it since while raw materials prices may go up it's unlikely wages will go up to compensate and start a spiral - instead it will kill the recovery and we'll be looking at deflation all over again.

 

I have to side against the gold bugs. We are in a deflationary spiral and no matter how much money is printed, it isn't getting loaned.
Inflation requires an upward wage/price spiral to get going and things are moving in the opposite direction.

Japan over the last decade is a good example to study.

Grossly high debt held by many governments will mean an increase in interest rates, and "hard currency"- that which is real money will start to regain life.

If you fear a total collapse- lead, water and food will prove to be worth far more than gold. Hedge your bets and watch the scramble to settle the massive debt. Bubbles always bust and this may be the biggest one we have ever seen.

YMMV and some settlement may occur during shipping.

What is coming next:


03/03/2010
Speculators Eye Next Prey
How Safe Is Britain's Proud Pound?
By Carsten Volkery in London


REUTERS
London's Canary Wharf district: Speculators have set their sights on the British pound.
First the euro, now the pound. Britain's currency is coming under massive pressure as speculators bet that the UK's national debt will soon get out of hand. Like Athens, London has its share of problems -- and the Brits don't have any euro zone partners to back them up.

Schadenfreude may be a German word, but it has never been a foreign concept in Great Britain -- particularly in recent months as the British watch the trials and tribulations of the European common currency, the euro. The budgetary and debt problems facing Greece, Portugal, Italy, Ireland and Spain have merely reinforced their conviction that staying out of the euro zone was the right decision. Unlike Berlin, London is not under pressure to come to the aid of Athens.


But speculators have not just taken aim at the euro in recent days. The British pound, too, has become a favored target -- showing Brits how vulnerable their own currency may actually be. At the beginning of the week, the pound slid to a 10-month low of just $1.4781. Since then, the pound has staged a mini-recovery, moving back above $1.50 on Wednesday. But market pressure on the British currency is not likely to disappear overnight.

Alarm on the Markets

The most immediate trigger for the recent currency swoon came in the form of political surveys which indicated that a Conservative victory in general elections (which will likely be held in early May) may not be a foregone conclusion. Markets were alarmed out of fear that a close election could make it difficult for parliament to pass a strict package of savings measures.

Such political concerns are temporary. Given the British electoral system, a Conservative victory remains likely -- nor is it clear that a minority government would be unable to cap spending.

More permanent, however, are the fundamental economic indicators that are becoming the pound's Achilles heels -- debt and budgetary problems that have fuelled the British currency's downward trend since October 2008.

The problems start with the size of the country's budget deficit. With a budget deficit of 13 percent of GDP this year -- Greece's is 12.7 percent -- Britain is by far the deficit champion of the G-20 states. Britain has so far avoided an Athens-style crisis primarily by virtue of the fact that its economy is much more flexible and competitive than Greece's. Furthermore, most still believe that the country is capable of shrinking its debt without outside help. Also, unlike Greece, which is facing the need to immediately refinance €20 billion in debt, most British debt won't come due until 14 years from now.

Losing their Patience

But international financiers are beginning to lose their patience. Since the beginning of the year, the share of foreign investors in British bonds has dropped from 35 percent to 29 percent. Returns on 10-year bonds, one measure of the risk associated with them, have climbed to above 4 percent -- almost a percentage point above the German benchmark. The number of short positions on the Chicago Mercantile Exchange betting on a further loss of pound value has spiked upwards recently. The numbers reflect the market's growing skepticism.

In recent months, the British have proudly pointed out the advantages of having their own currency in the midst of the crisis. Through the devaluation of the pound, exports have been made cheaper and investments in the country more attractive. The domestic economy has profited, too. Growth of around 1 percent is predicted for the first quarter of 2010 -- the first since 2008.

It has also enabled the Bank of England to intervene in grand style, holding down interest rates so that money is available cheaply to both the government and consumers. Attractive mortgage interest rates have also helped to revive the real estate market, which has in turn buoyed the general mood of the British.

Whitewashing the Crisis

The downside of these monetary policies, though, is that they conceal the true scope of the crisis. The most recent bonds issued by the British government were fully subscribed because the Bank of England purchased the majority of them. That may enable the government to finance its deficit under favorable conditions, but the move risks jeopardizing the trust of the markets.

Mass consumer debt in Britain is whitewashed in a similar manner. With an average personal debt of 170 percent of annual income, British households are even further indebted than the Americans. And interest rates kept artificially low by the Bank of England are still feeding this bubble. Sooner or later, a rise in interest rates is inevitable -- at which point domestic demand could take a nose dive.

If Britain had joined the euro zone when it was established, at least some of these excesses could have been prevented. The fiscal policy guidelines of the common currency would have ensured that. The average annual deficit of the euro-zone countries is currently only 6 percent. Great Britain also could have hid behind the reputation of more solid euro-zone members, just as the Greeks are now doing. As a relatively small country with its own currency, however, Britain is more vulnerable.

Currency Remains Weak

But in Britain, the opinion still prevails that the country is better off staying alone. Hope for a upswing is being nourished by a series of positive economic indicators. On Wednesday, the Markit Service Index, which measures the mood of British service providers, rose to its highest level in two years. It also helped to rally the pound again.

Still, the currency remains weak. And though it is unlikely at this point that the rating agencies will downgrade Britain's creditworthiness, the possibility cannot be ruled out. In May 2009, Standard and Poor's cut its view of British bonds from stable to "outlook negative." If Britain were to actually lose its AAA rating, it could have disastrous consequences for the pound. And there would be no holding the speculators back.

 

More like 20 years.

There is 1 big difference - in Japan, banks kept lending that money (and people kept on defaulting i.e. zombie companies/banks). Here the banks are not lending the money, and are being discouraged from doing so by the Fed paying interest on their balance. What does that mean? I dunno... but it's different.

Another difference is in employment - it was culturally hard for companies to shake off excess employees, meaning Japanese companies carried a lot of dead weight. Here most companies can and did shake off the extra production capacity very quickly and are in much better shape (save for a few banks we should all "fire" by moving our savings accounts to the local bank or credit union).

Also, jungle, in 2010 we're probably looking at a different party in congress than the one in the White House. Gridlock is as good as it can realistically get for Libertarians, so don't lose hope!

 

The last decade in Japan was much like the one before that, they have outsourced to China and other parts of Asia. They have almost zero immigration and a demographic that is rapidly going to the very old. Rather than shake off the excess, they merely exported it.

Unfortunately, like the US, they have one of the highest corporate tax rates in the world. This is a strong discouragement to investment and growth. High tax rates cause a brain drain and a money drain over the long term.

Hope. That has always been a very thin reed to lean on. I have found it more realistic to act without hope that some outside entity will save us. Gridlock is the status quo and we know what that has brought us to, not good enough. I don't suggest you lose hope, but I do suggest you act with the knowledge of what is happening and ignore the many failed promises. History is the best yardstick and history shows that crisis management is the common denominator. Try to get ahead of the curve.

The only real hope is that all of the communist countries have embraced capitalism, and we may just catch up to them someday.

 

Well said Jungle.

 

Thank you sir. Take a look at the date, been saying the same thing for months/years now. Reality can be a deceptive ***** for some of us.

 

What goes up will at some point come down.


Crabby ole Cpt.