Sunday, March 2, 2008

The Year Ahead

The Year Ahead

By Glen Allport [Edited] | 10 January 2008

Crisis = Danger + Opportunity
~ Chinese ideogram for "crisis"

Luck is what happens when preparation meets opportunity.
~ Seneca (5 BC— 65 AD)

2008 will be a year to remember. Big events are coming, and the notion that crisis brings opportunity will be sorely tested.

Tipping points are approaching in several interrelated areas. The most important areas of concern include:

  1. Financial/Economic Problems: Multiple financial system crashes are in progress or on the way. Will there be any ray of sunshine in the aftermath? For that matter, will we reach the aftermath in the coming year, or will these problems drag on, perhaps for decades?

  2. Politics And Government Action: Will 2008 be the last gasp for liberty or the start of a Great Unraveling for tyranny? Or neither?

  3. Food Shortages: will dire predictions from the 1960s and 1970s (not to mention Malthus) of mass famine finally come true— as now appears possible? Or will technology and the markets (or perhaps something else) save the day yet again?

  4. Environmental Damage: the jury is still out on global warming but the oceans may be dying and the rest of the planet isn't doing so well either. Will we respond appropriately and in time, and if not, how quickly and how severely will the problems worsen?

  5. Oil, Metals, And Other Natural Resources: Peak Oil (which some believe is a scam or an error) is quite real and probably a genuine threat [[even if you realize that Peak Oil is merely Peak CHEAP Oil: normxxx]]. Combine rapidly-depleting older oil fields with less oil being found, with the new finds mostly being deep-ocean or otherwise difficult to harvest, with more of the oil now harvested being lower-grade (including tar sands and shale oil, which require huge amounts of energy and water to extract and refine), and— here's the kicker— with dramatic growth in oil usage in China, India, and many other nations, and you have a supply and demand problem of potentially epic proportions. A similar situation is playing out for metals (yes, Peak Metal)— as with oil, the easy-to-harvest resources have already been harvested. We may thus be entering a new, broader Age of Scarcity. If so, how can we best respond?
[ Normxxx Here:  Gee; just in time for Global Warming to conveniently remove the ice covers from Antartica and Greenland and allow mining of those resources!  ]

Looking at these problems as a group, it doesn't feel like "opportunity" or "luck" ahead so much as "disaster." But the largest opportunities sometimes do arrive in the form of disasters or crises. For example, dramatically higher oil prices are once again fueling a boom in conservation, in alternative energy, and in solutions we might otherwise never have considered or even imagined. The coming year will bring plenty of problems to solve, and I look forward to seeing what I hope, but don't necessarily expect, will be creative and positive responses.

Financial And Economic Outlook

On the financial front, it appears that 2008 will be the Year of the Collapse.

Not everyone sees it that way; here is a conversation with several investment bankers, CEOs, and financial advisors who see 2008, for the most part, as a year of recovery in the markets. But others in the financial world are gravely worried. The London Telegraph ran a story on 12/27/2007 titled Crisis may make 1929 look a 'walk in the park'. The article includes chilling expert commentary:
All Commands

"Liquidity doesn't do anything in this situation," says Anna Schwartz, the doyenne of US monetarism and life-time student (with Milton Friedman) of the Great Depression. "It cannot deal with the underlying fear that lots of firms are going bankrupt. The banks and the hedge funds have not fully acknowledged who is in trouble. That is the critical issue," she adds.

Lenders are hoarding cash, shunning peers as if all were sub-prime lepers.
Spreads on three-month Euribor and Libor— the interbank rates used to price contracts and Club Med mortgages— are stuck at 80 basis points even after the latest monetary blitz [[about $600 BILLION so far: normxxx]]. The monetary screw has tightened by default. York professor Peter Spencer, chief economist for the ITEM Club, says the global authorities have just weeks to get this right, or trigger disaster. "The central banks are rapidly losing control."

There are many recent articles and commentaries with the same basic message, and some even more pessimistic< (see also here). For my part, I am surprised that the imbalances and deceptions of the world financial system have not brought us to a 1930’s-style depression— or something different but just as severe— before now. Investor and author Doug Casey calls what is coming The Greater Depression and however it plays out (hyperinflation, severe and prolonged stagflation, severe deflation, or something else), I expect the name will be appropriate. Significantly higher unemployment numbers combined with widespread underemployment, defaults on debt of every kind (from mortgages to credit cards to pensions to bonds to zillion-dollar derivatives), dramatically lower housing prices combined with higher prices for nearly everything else (real inflation levels of ten percent or more, and possibly much more) are in the cards for next year, or so I believe.

I discussed the economic situation in more detail previously in Money (October) and Destruction by Paradigm (March). Nothing magical has happened to solve the problems that were so apparent then; the train-wreck of our post-1913 financial system continues. Using "money" created from thin air and printed (mostly electronically now) as fast as corrupt banking and government authorities desire has never worked well for long and has always brought disaster in the end— see today's Zimbabwe, for example, or read about the German hyperinflation of the early 1920s or the John Law episode in 18th Century France. Central bankers and governments know perfectly well about the long-term destruction they are causing; there is a great deal of history on the subject to draw from. Central banks are designed to siphon wealth from the masses to the banks (and their owners) and to the corporations and government agencies (and hence to the actual people) favored by the power elite. That is the true purpose of central banks; nothing more, despite the various official excuses for such institutions. (Link is to a 11 min video; see also this 41 minute video from the Mises Institute).

Eventually, the central banking/fiat currency scheme collapses and millions are impoverished or worse. But then, the power elite has never been concerned about the masses; siphoning away wealth from the poor and the middle class is how the elite became wealthy in the first place; the elite are no more concerned about the masses than lions are concerned about gazelles. Some in the elite got rich by creating value in the market, but— here is the simple truth— getting rich is so much easier with government contracts (preferably no-bid) and especially with government-granted monopolies— the Federal Reserve being the ne plus ultra in this regard.

With nearly the entire world now suffering under such schemes (how many nations can you think of that do not have a central bank and a slowly [or rapidly!] collapsing fiat currency?), there is no reason to believe the present crisis will end well. There is always the chance that central bankers will be able to inflate one last bubble or drag out the deflating of this one without causing a full-on crash, but I wouldn't bet on it.

Snapshot forecast: Severe economic recession or worse, possibly much worse. Real estate crisis intensifies; prices drop further, financing is harder to get, the number of people whose finances allow for home ownership drops as unemployment mounts and inflation eats away at buying power even for those who still have jobs. Outright failure of several very large financial institutions (possibly averted with buy-outs, most likely from government sovereign funds or foreign corporations) along with bankruptcy of many sizable corporations. Currency controls, price controls, gold and other asset confiscation, and/or other authoritarian nonsense likely in response. Fifty percent chance for a downturn so dramatic that even the Old Media propaganda machine begins calling it a "depression." Americans will not handle truly hard times with the grace and dignity so many showed in the 1930s. If things get that bad, then riots due to food shortages and general conditions of widespread (and for many, sudden) poverty will begin in America and Bush will get a chance to make use of those Halliburton-built 'detention' centers along with the many such centers left over from FDR's incarceration of 120,000 Japanese-Americans during WWII.

Potential upside and opportunity: Today's economic pain is already helping to wake up the masses to the harm being done to them by governments, by corporatism, by central banks, and by fiat currencies. See the next section below for how this might, under the most optimistic of scenarios, lead us back from the brink— or at least point us in the right direction after we go over the brink. For example, few today think a gold-based currency is possible, but that is now slowly changing. Gold and silver were the basis of currency in America and much of the world for over a century (and were used as money for thousands of years before that) and worked far better than what we have today, for reasons that become obvious when you study economics. America's founders certainly understood economics, and thus Article 1, Section 10 of our Constitution requires that our money be only gold and silver, which means that today's fiat currency is literally illegal (any chance the perps will do jail time?) [[but see also, "Legal Tender Cases." In any event, all of today's paper money are Federal Reserve notes, which obligate the U.S. Government in no way.: normxxx]].

"I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs."

~ Thomas Jefferson
(1743— 1826), Letter to the Secretary of the Treasury Albert Gallatin (1802)

The collapse of the present corrupt, fantasy-land financial system will bring strong pressure to bear for a more realistic, workable, and fair system— for a system not rigged against the masses in favor of the elite— and that will require something other than pure fiat money. The monetary restraint of using gold (and perhaps silver) as money in place of fiat dollars would, by itself, make our current level of tyranny impossible to maintain [[but insure regular panics/depressions whenever inflation was being wrung out of the system, such as we had before the '30s: normxxx]]. By definition, using gold as money prevents the ongoing official counterfeiting of currency that makes your dollars worth less every year and which provides government with a tsunami of dollars to pay for Blackwater and Halliburton and military intervention overseas and the new billion-dollar biometric FBI database and a thousand other things that impoverish and tyrannize the people while enriching the elite. America spends more on its military than every other nation on Earth combined! Does that make America more secure, or does it just make the military-industrial complex more wealthy and powerful?

There is now, finally, talk even in the Old Media (at least when Ron Paul is being interviewed) about ending the Federal Reserve and abolishing the hated income tax and the IRS. That would have been unthinkable even a year ago, and the noisily-approaching financial collapse is a big reason why it is thinkable today. Those simple and obvious action items would, by themselves, be a huge step forward in real, on-the-ground freedom and would be a massive defeat for those who think it their right to 'think for' their fellow man.

A more limited and personally rewarding possible upside of the economic downturn or crash could be strong returns from investments in precious metals, scarce resources, and other such forms of real wealth. For relevant sources of information I suggest visiting,,, and similar contrarian, non-mainstream sites. Reading up on Austrian economic theory wouldn't hurt, either. Remember, however, that gold and other asset confiscation by government (including by America's own federal government**) has a long history. Once a government has impoverished its nation to a degree where it can no longer extract the levels of wealth it is used to getting from from current national income, the next step is to begin confiscating saved wealth on almost any pretext. Get those assets out of the country while you still can, and keep your gold in the form of relatively liquid assets such as mining stocks, ETF shares, and so on. Consider also taking delivery of the confirming paperwork, although where to store that is another problem: I don't believe even your safe deposit box will be safe; the banks are practically another arm of the government by now [[in 1933 when "gold hoarding" was made illegal, safety deposit boxes were 'sealed' and could only be opened under the watchful eye of a government inspector: normxxx]]. (Take the standard disclaimer to heart; do your own research and think for yourself. No one, including me, can be sure what the future will bring; timing and the prediction of discontinuous events ('accidents') especially are never finely predictable for things as complicated as the polity or economy).

Real estate will again be a good investment after it hits bottom, (but bottom may not be hit until after 2009 and, in any case, almost certainly hasn't happened yet). Nor are prices likely to rise again quickly, so returns may take years to materialize. Keep in mind the Japanese housing crash (nearly 20 years in duration so far...) and other examples that refute the "real estate always goes up" mantra.

Inflation Adjusted Home Price Appreciation: 1998-2006

Source: Office of Federal Housing Enterprise Oversight

United States Housing Bubble

US Housing Bust vs. Japan Housing Bust

Source: Japan Statistical Yearbook

Politics And Government Action

For decades, libertarians were the Trekkies of American politics: they were seen as silly, useless, nerdy, and on the fringe. But decades of espousing notions appealing to "limited government" and "greater personal freedom" activists are finally paying off. Today, with the dollar collapsing, with the housing bubble morphing into a foreclosure epidemic, with millions of well-paid American jobs having been outsourced to low-paid foreigners, with America's militaristic interventionism around the world provoking anti-American terrorism everywhere— costing trillions of dollars per decade that America doesn't have in the first place— with the head of the federal GAO touring the country to sound the alarm about America's impending bankruptcy, and with the Bill of Rights under assault by secret-police agencies and police-state legislation, Americans are at last opening up to libertarian ideas in increasing numbers.

I never thought I'd see this happen, but here it is: the 1988 Libertarian Party candidate for president is no longer just a 'fringe candidate' by most measures, including by demonstrated fund-raising ability, internet (and increasingly, traditional) polling, website hits, unofficial supporter websites, early caucus wins, and volunteer enthusiasm. What other candidate has his own (borrowed) blimp? How many other candidates in the field can raise over $6 million in a single day, without even asking for the money— only weeks after raising $4.3 million on another single day? What other candidate has supporters buying full-page ads in USA Today and the New York Times on his behalf? Why Dr. Ron Paul, of course.

The "Ron Paul Revolution" is clearly not about the man (worthy though he is) but instead about what he stands for: liberty itself. How could this radical idea get loose in the world again? The powers-that-be must be asking each other, "Didn't we put a permanent lid on that one?"

A lifetime of pro-'government' propaganda from 'government' schools (which teach you what to think— and never, never to think for yourself, despite all the contrary propaganda), from similarly biased media (addicted to status quo 'talking heads', for instant approval of the 'accepted/consensus' view, or obviously weird 'pundits', for instant ridicule of any other view)— from seemingly everywhere— has not been enough to completely hide the truth from millions of ordinary people who are now finally seeing through the lies behind their own impoverishment (and enslavement to the 'consumption = happiness' myth). Dr. Paul's campaign is educating millions more— about the Federal Reserve and fiat currency generally, about Constitutional restrictions on federal power (routinely ignored by Government and its agents), about America's violent, interventionist foreign policy— with 702 military installations in foreign countries— and its dire results both abroad and at home, about the "soft fascism" of lobbyists control of government and how it has (inadvertently?) contrived to impoverish us and lead us down the road to a police state, and about many other things.

[ Normxxx Here:  But as Chalmers Johnson has documented, the figure of 702 foreign military installations is certainly too low, for it does not include installations in Afghanistan, Iraq, Israel, Kosovo, Kuwait, Kyrgyzstan, Qatar, and Uzbekistan. Johnson estimates that an honest count would be closer to 1,000. See also Global U.S. Troop Deployment, 1950-2003  ]

Snapshot forecast: I am largely in agreement with Denmark-based Saxo Bank, which forecasts chaos in 2008. For example, on the economic side, they see oil going to 175 dollars per barrel. They see U.S. markets dropping a solid 25 percent and other markets having problems also; they expect the Chinese market to collapse by 40 percent.

Saxo has a surprisingly good track record (here are their predictions for 2007) but no one is right all the time.

The year ahead will be interesting indeed.


* On the adage of Crisis = Danger + Opportunity, the linked page points out the following in regards the Chinese symbols:

  1. Nevertheless, a crisis is still a dangerous state of affairs— regardless of the language.

  2. Crisis wei ji still means "a situation that has reached an extremely difficult or dangerous point".

  3. But, a dangerous situation can become an opportunity if wei ji becomes zhuan ji.

  4. Zhuan ji means "turn for the better". (Zhuan means "turn into" and ji means "opportunity". So zhuan ji means "turn into opportunity".)

  5. In this sense, the Chinese symbol crisis can mean "opportunity" in a time of "danger".

  6. Others also point out that using the Chinese characters for "crisis" to support the adage is not entirely sensible; see the related essay on Wikipedia for one example. The image file of the characters used above is a resized version of one used in the linked article (here it is again).

** To be more precise, in 1933, U.S. gold coins were "called in" and possessing more than $100 worth was made illegal, with stiff fines and jail terms for offenders. People got paper dollars for their gold, and gold jewelry and numismatic-grade coins were not affected. This particular mass violation of Constitutional rights in America was perpetrated by FDR, the same criminal who had all those Japanese-Americans, most of whom were U.S. citizens, forced into detention camps for the duration of World War II. That was blatant racism combined with raw tyranny (not to mention obdurate stupidity), yet the same people who today pounce on anyone who utters a remotely racial word are (in the main) somehow able to continue their hero-worship of Roosevelt.



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