Long Term Thoughts and Short Term Actions

I don't read Claire Wolfe as much as she deserves to be read.  I stumbled across a bookmark to her today and found an interesting piece, "What Do You Think You'd Do In a Hyperinflation?"  Her setup is:

"I’m not talking about some post-apocalyptic George Romero scenario where starving urbanites are crawling through your windows in search of your stash of freeze-dried potato dices and fruit galaxy. I’m talking about getting along — as people did in Weimar Germany, Zimbabwe, and most other places when their currency went to toilet paper on them."

In both places, people fell back on other currencies and barter or an existing black market.  In Zimbabwe in particular, they fell back on US dollars.  In Weimar Republic, they used a variety of other exchange media as well as the dollar, but Germany wasn't the only place going through bad inflation at the time.  Austria is often overlooked, but was not much better.   The main difference between what we're facing and those places is that we won't have a stable reserve currency to fall back on.  That should make it worse here than it was there. 

It's almost 100% certain there won't be a Euro to fall back on - Greece is teetering closer to collapse and the survival of the entire EU shouldn't be taken for granted.  If the EU goes, there's really nothing else behind the Euro.  There's a link in that Business Insider story to an article in the UK Telegraph which lays out a good step-by-step look at what's likely to happen when (not if) Greece defaults. 


Think of this as the long term.  Perhaps. It may all go down later this summer or early next fall.  There's certainly a case to be made that some forces are trying to collapse the Western world - the EU then the US in rapid succession. 

Although, as I've said before, I believe all of the necessary conditions are in place for the collapse of the dollar.  Political things happen strangely slowly to my mind, but I work in a world where we worry about stray picoseconds of delay.  The slow pace of things gives us more time to prepare for a world of barter, and paying for lunch with a single 1964 quarter.  In the short term, shop sales on everything.  I won't recommend going into debt, but inflationary times are kind to debt, denominated in dollars.  If you get "cost of living" increases that inflate your pay, that old debt gets smaller. 


So what do we do to prepare?  Clive Maund, a commentator on markets who seems to do well, shows the technical plots that give support for the general press lately that the economy is going down again.  One of my interests is silver, so let me present his plot here:

Note that his prediction is for a rebound into the mid-$40 range through this month, but then to seriously correct down to the $30 level by August.  Given the "fall of a cliff" shape of the last correction, his slopes seem gentle. Regardless, it looks like we're in a bit of a buying opportunity now - with a chance for better buys in a month.  If you're on a regular buying program, just keep doing what you're doing. 

I agree with Maund's assessment that the big traders on Wall Street could be driving the big indexes (DJIA, S&P 500) to demand the next round of Quantitative Easing - QE3 - or whatever they're calling it this time.  For them, the Fed is giving them virtually free money to crank stocks up with.  "Money for Nothing" - Dire Straits had it wrong.  Don't be a rock musician.  Work for the Goldman Sachs.