Many of our readers are familiar with John Williams of Shadow Stats. We often refer to his economic analysis to get the real story about GDP growth, unemployment and most matters of government accounting.
In previous articles, we’ve discussed the threat of Hyperinflationary Depression – No Way of Avoiding Financial Armageddon and What is Money When the System Collapses?
Mr. Williams was recently interviewed by The Gold Report and the discussion revolved around the real possibility of hyperinflationary collapse of the US Dollar and an economists view of what the effects of such a collapse would be. If you haven’t read our previous articles, we’d recommend reading those now as they may provide some ideas, tips and strategies to help you whether the storm in the event that it does happen as Mr. Williams suggests it may.
The following excerpts are just snippets from an excellent interview that is worth your while to read in its entirety.
There’s strong evidence that we’re going to see an intensified downturn ahead, but it won’t become a great depression until a hyper-inflation kicks in. That is because hyper-inflation will be very disruptive to the normal flow of commerce and will take you to really low levels of activity that we haven’t seen probably in the history of the Republic.
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Again, if you start to see a great depreciation of the U.S. currency or a tremendous increase in lack of confidence in the soundness of the government’s fiscal condition, there is a problem. You mentioned Greece, for example. The sovereign solvency issues there are minuscule compared to what we have with the United States, which is the elephant in the bathtub. The markets know it’s there. The central bankers know it’s there. Again, with the downturn in the economy, all the issues are going to be brought to a head. As they come to a head, there will be that effort to dump the dollar. I would expect that, indeed, it will be decoupled from its reserve status, although it could follow after the fact as opposed to before the fact.
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Beyond income issues, the problem with the hyper-inflation is that very quickly the use of cash will cease. Let me contrast our circumstance here with a very popularly followed hyper-inflation case that’s now run its course in Zimbabwe. There you had probably the worst hyper-inflation that anyone’s ever seen. After devaluation upon devaluation, they successively lopped the zeros off the bills. If you took a $2 bill that they first issued back in the ’80s and then tried to come up with the equivalent of a $2 bill in the last form of the currency, it would be very difficult to do because it was so worthless. If you put a pile of those together to equal the original $2 bill, it would actually stretch from the earth to the Andromeda Galaxy. We’re talking light years. There are not enough trees on earth to print them. Yet the Zimbabwe economy survived and functioned. They had a lot of problems, but they operated. The reason they functioned was because they had a back-up system, which was a black market in U.S. dollars. People switched out of the Zimbabwe dollar to U.S. dollars. They could live with that. In the U.S., we don’t have a back-up system.
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In terms of preserving the purchasing power of your assets, the best thing I can think of is physical gold. That’s worked over the millennia. I’m not per se a gold bug. It just happens to be a circumstance in which it’s the cleanest asset around for that. You don’t need to put all your assets into gold, but hold some. Hold some silver. I’d look to get some assets out of the U.S. dollar and look to get some assets out of the U.S. When I say outside of the U.S. dollar, again, I look at the Canadian dollar, Australian dollar, Swiss franc in particular. I think they will tend to do particularly well, whereas the U.S. dollar is going to become effectively worthless.
As the dollar breaks down, you’ll also likely see disruptions in supply chains, including shipments of food to grocery stores. People should consider maintaining stockpiles of basic goods needed for living, much as they would for a natural disaster. I sit on the Hayward fault in California. I have a supply of goods and basic necessities in case something terrible happens-natural or man-made-that will carry me for a couple of months. It may take that long for a barter system to evolve, which I think is what you’re going to end up with; at least until a new currency system is reorganized and you get a government that’s able to bring its fiscal house into order. No currency system in the U.S. is going to work unless the fiscal conditions that drove it into oblivion are also addressed.
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I like physical gold and silver. I look to gold as a primary hedge. If you can come out of this holding gold, you’ll be in a position where you’ll be able to take advantage of some extraordinary investment opportunities that will follow.
It’s coming, and top (non-mainstream) economists are telling us to get ready.
Contrary to what we hear from Mr. Bernanke, Mr. Geithner, and Mr. Paul Krugman, the economy will not continue to grow indefinitely and we have not completely recovered yet. This is all part of a greater depressive trend in the economy and if Mr. Williams is right, the real numbers will show economic contraction in the latter part of 2010. What will the stock market and bond markets do once global investors and US debt buyers realize that the so-called recovery was nothing more than a mirage?
The Federal Reserve is printing trillions of dollars, and when it becomes apparent that the plans put forth by President Bush and President Obama have failed, we are going to be in serious trouble.
We are going to side with Mr. Williams on a coming hyperinflationary destruction of the US Dollar at some point in the near future (timeframe: +- 5 years), and we hope that Mr. Williams’ assessment of a brief period of disruption to commerce is accurate. Because if it is anything longer than that, then the shit will most certainly be hitting the fan in the style of The Day the Dollar Died or Patriots, and that will not be in any way pleasant, even for those of us who are ready for it.
Recommend Reading:
Hyperinflationary Depression – No Way of Avoiding Financial Armageddon
Mac,
Here’s one to keep an eye on.
http://www.zerohedge.com/article/top-recipient-political-cash-bp-and-goldman-sachs-barack-obama
If you ever wonder why this country is descending into chaos more each day look no further than Barack Obama and the payoffs he gets for undermining the citizens’ real interests.Â
what is your recommendation for money in an IRA that would probably not be safe in stocks or ETF’s?
I have all mine is U.S. treasury bonds.
If the US Dollar is being devalued, why would you consider Treasury Bills to be a good investment? That seems insane. It’s a popular idea, but the crowd is wrong, much like Tulip Mania was insane.
Your IRA can be put into Precious Metals. And, given there is legislation already written (not in effect yet) to control what you can invest your IRA into….the IRA should be held offshore.
Holding things offshore doesn’t change your tax status, but allows you to invest in whatever you want….whether that is stocks, bonds, T-bills, precious metals, etc..
This excerpt from ZeroHedge illustrates why hyperinflation is going to occur in the U.S. currency, and soon. Obama is using U.S. taxpayer  money to bail out entire European countries. Read on.
 From Senator Jim DeMint (R) South Carolina
“The International Monetary Fund board has approved a $40 billion bailout for Greece, almost one year after the Senate rejected my amendment to prohibit the IMF from using U.S. taxpayer money to bailout foreign countries.
Congress didn’t learn their lesson after the $700 billion failed bank bailout and let world leaders shake down U.S taxpayers for international bailout money at the G-20 conference in April 2009. G-20 Finance Ministers and Central Bank Governors asked the United States, the IMF’s largest contributor, for a whopping $108 billion to rescue bankers around the world and the Obama Administration quickly obliged.”
Looks like ‘hope and change’ applies to mis-mananged European countires and banks now.   With our tax money.  See entire article in the link below.Â
http://www.zerohedge.com/article/senator-jim-demint-us-taxpayers-are-helping-finance-greek-bailout
More and possiblly even bigger crime involving obama, goldman sachs, fannie maes franklin raines, al gore, The Carbon Credit exchange, and cap & trade. This is bigger by the tenth power than watergate yet NOTHING from the lamestream.
http://www.glennbeck.com/content/articles/article/198/40154/
Dr E, I don’t have an IRA, but it is my understanding that you can hold gold assets under the IRA umbrella in a “Precious Metals IRA” account.
Here’s a little How To document on it:
http://www.ehow.com/how_2075705_put-gold-ira.html
I am not 100% about this, so ask your IRA custodian, but according to the article above, your PM’s should be legal tender denominations (i.e. US American Eagle gold/silver, etc.). I have, however, seen non-legal tender bars such as the APMEX Kilo silver bars here:
http://www.apmex.com/Product/51412/IRA_Acceptable___KILO_999_Fine_Silver_Bars_APMEX.aspx
Also, have you considered any gold/PM stocks?
Again, not sure of the inner workings of an IRA here, but if you can do it, I’d consider looking into ETFs that hold precious metals miners, also known as EQUITY ETF’s (NOT ETF’s that trade derivative paper instruments).
My favorite ETF’s, which I hold shares of, include GDX (Gold Miners Index) and GDXJ (Junior Gold Miners Index). With these ETF’s, you will not be exposed to any single mining company, so if one goes under it will not hurt you too much. Each of those ETF’s holds 30+ of the most well known miners in their categories.
Hope that helps.
IMHO,  ETF’s based on actual PM’s are too risky now with all the talk of “fake/ghost Gold” out there. You need to hold it in your hands, many are saying the ETF’s are based on non-exisitant PM’s.
ETF’s based on Mines should be ok as if it is proven that the PM’s backing ETF’s do not exist, the mines will be going into triple time.
http://news.coinupdate.com/largest-private-refinery-discovers-gold-plated-tungsten-bar-0171/
http://piggington.com/gld_etf_full_of_fake_gold
Mac and dr E,
Take a look at Sprott Asset Management in Canada. They allow you to invest in physical gold through their stock fund under the ticker symbol of PHYS:US.   Unlike the other gold ETF’s Sprott has all their holdings in physical gold not paper assets.  Do not put your money into any precious metal ETF’s that do not hold the physical bullion themselves.  The ETF’s that are backed by paper depend on 3rd parties to back up their paper and there is no guarantee whatsoever that the gold will be there when you go to sell your ETFs, which in that case they will simply refund you in cash.  Not a good prospect if the dollar is next to worthless. Â
The Sprott PHYS:US stock price is $11.58 USD and is up 5.36% today as of 12:00 noon U.S. central standard time.   The link below will allow you to do the usual diligence before you invest.
Good luck.
http://www.sprott.com/Default.aspx?uType=can
regarding IRA’s… I withdrew about 2/3 of mine even though I’m not old enough and have to pay the 10% penalty as well as the taxes. This because of my assessment of the risk of leaving it in there: counterparty risk due to banking & financial collapse, gov’t confiscation (not too likely, IMO), and just owning dollar-denominated paper assets. What’s left in the IRA is in SLV (a silver ETF), GDX (larger gold miners ETF), ABX (barrick gold), no cash.
We already live in the mountains on four acres with a natural spring. With the money I took out, I bought lots of storable food, gardening eqpt and seeds, a milk cow, another dog, a tractor, diesel fuel, oil and spare parts, a PV solar system w/batteries, a generator, several rifles, several handguns, a shotgun, many cases of ammo, reloading eqpt and material, tools, motion sensing lights, clothing and shoes, sewing stuff, medicine and first aid stuff, a Katadyn water filter (very important), and lots of other stuff.
My grandmother always said don’t throw water on a Greece fire. Now I see what she meant 🙂
SUGGESTION -be cautious investing in any modality that purchases and stores physical gold. the government has already looked at the massive value of gold held by these etf’s and other funds and is licking it’s chops at the prospects of seizing the gold and forcibly exchanging it for their fiat paper money.
REMEMBER – BE FOREWARNED –GOLD HAS BEEN CONFISCATED BEFORE AND IT WILL HAPPEN AGAIN…
Personally, I would recommend an account with Johnson Mathey.
I would encourage people to think through the counterparty risk in paper gold / ETFs … but if you’ve made all your preps as personofnocolor has (I am intensely jealous btw) and you still have cash to put somewhere, ETFs may not be a bad option. At some point the mattress will full, no? One additional caveat – keep an eye on the Australia miner’s tax, it has yet to fully play out in terms of impact. Australia’s production has declined (most have), but it’s still significant.
Well, I just thank God that I’m near the end of my life, rather than near the beginning. They probably won’t bother with taking me anywhere, but rather just shoot me down where they find me. Those who CAUSED this situation are now demanding that the nasty old people, who don’t undewrstand what it is to be a big politician need to be shown the power of the OWNERS.
It may be too late for them to be shown the power of the ‘nasty old people’. We need to take them OUT. I fear that the public screwl system has tought too many ‘nasty old people’ that government is the boss, and they (those taught)need to do what they are told.
as long as we print money and people take it youll be ok.15 trillion dollar debt or 30 trillion dollar debt whats the defference,our system is a joke anyway
i dont know how the system will collapse but the debt is kinda a joke we are already at a point there isnt enough money in the world to pay it off,so why even try to.
one thing that is a fact when people are scared they do not think straight and act very stupid,so just be prepared for anything,dont listen to people scaring you about the economy because our economy is a joke and has been 10 trillion dollars ago which been what back 5 yrs back.