Lies, Damn Lies and Government Statistics

I recommend this excellent article from The Burning Platform that demonstrates how the media and government use statistics to distort the truth.  For example, the recent media coverage makes it sound like lower gas prices mean more money in our wallets.  Yet if you break down the statistics as they do in this article, you will see that the cost of food is “eating away” at those savings.  In 2014, prices for these food items rose as follows:

  • Butter – 22.5%
  • Meat – 12.7 %
  • Eggs – 10.7%

Costs for energy (gasoline, heating oil, propane and natural gas) dropped only 10.6 percent in 2014 while food costs grew 3.7 percent,so it may seem like you are coming out ahead.  But what do you spend more on, food or gasoline?  We spend several times more on groceries than we do on gasoline, so any savings we see at the pump is going right back out the door to pay the grocery bill.

One take-away is that the cost of cereal and grains did drop a little bit last year.  If you are planning to buy large quantities of wheat, rice, or other grains to put up in 5-gallon buckets for long term storage, this might be the time to do it.  Take some of that tax return and invest it in your future food security.

Inflation, Economic Unrest, and What you can do About it

Here are some articles on inflation and currency troubles that we, as preppers, can learn from.

In article one from Bloomberg, shoppers in Venezuela are finding it hard to find basics, including chicken and laundry detergent. The country is experiencing a 64% rate of annual inflation, and the plunging price of oil is limiting their access to foreign currency, causing further problems. This means the government cannot provide simple things like laundry detergent and toilet paper to its people because those goods are bought with dollars from other countries.

Newspaper headlines - financial crisis We also see that the “official” exchange rate is 6.3 bolivars to a U.S. dollar, but the black market rate is 30 times higher – 187 bolivars to the dollar.  This is a government that is sliding towards collapse.

Article two from the Wall Street Journal might appear to be similar to one, but is a little different. Women in Argentina cannot find tampon on the store shelves because there are not enough dollars available for importers to buy them from international manufacturers. An Argentine economist is quoted as saying “We gave ended up with a socialist system in which one bureaucrat decides what you can import or produce at which price and when.”

Other news reports state that supply and demand has driven the cost of tampons in Argentina to $30a box.

So, what can we learn from these articles?

First, all those lists and articles on what to store and what can be useful for barter were correct: Common, everyday items we take for granted are valuable in an economic collapse or a TEOTWAWKI situation. So stock your beans, bullets and bandages, but don’t forget soap, laundry and dish detergent, diapers, feminine hygiene products, toilet paper and other health and beauty items.

I can’t help but remember the scene from the Book of Eli in which the antagonist washes his wife’s hair using a tiny hotel-size bottle of shampoo they recovered. In the movie, this simple act that most of us do daily without a second thought is portrayed as a moving, major event.

Second, you need to know how to make these basics, how work around their absence, or how to live without them.

Fels-Naptha SoapFor example, you can make your own laundry detergent relatively easily. There are plenty or recipes and instructions the internet, including You Tube videos. All it really takes is some bars of Fels Naptha soap, Borax, and some washing soda (not to be confused with baking soda, even though it is made by Arm & Hammer), all of which are usually available from Walmart. You can stock these raw materials in your basement. There are also plenty of alternatives to disposable items, like cloth diapers. Prepare ahead of time and you will not be waiting in line at six different grocery stores like the woman in story one.

Third, governments and politicians of all parties lie to make themselves look better. Venezuela has figures no one believes about their currency exchange rate and we lie about the unemployment rate by changing the yard stick. Simply put: take everything the government says about the economy with a grain of salt.

Fourth, government intervention makes economic problems worse. Prices are determined by the natural law of supply and demand, and they float up or down based on a host of factors. Messing with the free market creates injustices and Man-made laws that seek to interfere actually force inequality into the marketplace and inevitably make the situation worse rather than better.

Let’s look at a simple example that is basic but sufficient for our needs: Imagine that the price of a dozen large eggs rises from $2 to $4 in a matter of weeks and the population is upset. Convinced that stores are over charging their customers, the government passes a law saying that you can only sell eggs at $2 a dozen. Does this result in more eggs on store shelves at lower prices? No. Why not? Because the store cannot buy them from farmers at a low enough price to make any money at $2 a dozen, so they stop selling them. Suddenly, instead of having to pay $4 a dozen for eggs, there are no eggs to be found and the price doubles again to $8 per dozen.

This is a high enough price that a black market in eggs is created. An enterprising guy we’ll call Joe sees that he can make a killing selling eggs for $8 a dozen, if only he can buy them for $4. He goes to Bob, a grocery store manager, and offers to buy all the eggs he has at $4 a dozen.

Angry at having to sell eggs at a loss, Bob decides it selling to Joe worth the risk, but he wants $5 a dozen. After all, he needs to recoup his losses after selling eggs for only $2, so he takes Joe up on his offer, but insist on $5 per dozen. Joe agrees.

Let’s say that Bob’s store gets a delivery of 1,000 cartons of eggs. To keep the government off their back, they sell 200 cartons in the store at $2 each, and then they put up a sign that says “Sold Out – No more eggs today.” 700 dozen eggs are sold to Joe at $5 per dozen and disappear out the back door only to be sold off the back of Joes’ truck for $8 or more per dozen to desperate people who cannot find eggs in the store. The remaining 100 dozen are given to employees as part of their pay and to keep them from reporting Bob to the pricing police. A few are traded to butchers and other vendors in return for meat, and some are probably given to the inspectors and government officials as bribes. At the end of the day, Bob is not losing money, Joe is making money, and the consumer got screwed. Again.

In the end, by trying to artificially control the price of eggs, the government has contributed to a doubling of the price, making things worse for the consumer. And just as people in Argentina are buying up all the tampons (thereby making a small shortage into a severe one) or people in the U.S. are buying up all the .22LR ammunition as soon as it hits the shelf, they market is knocked out of kilter and may take years to settle back down to a natural state.

Finally, we have story three from NBC News, which predicts that the rapid rise of food prices here in the U.S. will continue. Beef in 2015 will be about twice the cost it was in 2009 and for many families is considered a “luxury” item. Story four says the money consumers are saving thanks to lower gas prices is being consumed by rising grocery store prices.

To a certain extent, you can combat rising food prices by buying in bulk, eating more beans and rice, eating out less, and by cooking from scratch instead of buying prepared foods. But when the cost of meat and eggs keeps going up, you either need to cut back or spend more.

One option many preppers choose is to grow their own. Chickens provide eggs and occasional meat. With three does and a buck, rabbits can provide meat for one or two meals of good lean meat a week. Goats can provide milk and occasional meat. Hunting and trapping is another option, especially for those who live in more rural areas.

A final lesson: Keep preparing. We may not be Russia, Venezuela or Argentina, but we have seen double digit inflation in my lifetime, and the depression was less than a century ago. Economic collapse may or may not lie ahead, but even a bubble bursting can cause lasting economic damage if you lose your job, your house, or your savings.

Russian Inflation Soars Above 10 Percent

This article in Bloomberg is a perfect example of the type of inflation we mention in our prior post.  Here’s an excerpt:

The rout of the ruble, the world’s worst-performing currency in the past three months, is raising the price of imported goods. Price growth, compounded by the effect of a ban on imports of some foods imposed by President Vladimir Putin in retaliation for the sanctions the U.S. and its allies enacted over Russia’s policy in Ukraine, has raced past a revised central-bank forecast of 10.1 percent.

Now keep in mind, if the Russian government is admitting they have 10.4 percent inflation, how high must ire really be?  Twice that?  Three times?

And while the government predicts it will start dropping after the next quarter, there is no explanation of why it would drop.  Such comments are wishful thinking or perhaps attempts not to alarm the populace or the markets.  Since they are measuring year-over-year, even a one-time rise in prices would persist for a year, if not quarter-over-quarter.

Not a good time to be a consumer in Russia.

As Ruble Falls, Russia Plays with Fire

When your currency drops 20 percent in a single day, you might be experiencing a currency collapse.

When you raise the interest rate you pay for deposits from 10% to 17% overnight, you might be getting desperate.

When your currency buys only a third of what it could purchase on the world market a year ago, you might be experiencing inflation.

When suppliers from other countries re-price the goods they sell in your country every few days, you know your currency is in freefall.

When the rich transfer their funds into dollars or Euros and the middle class seek out ATMs that dispense dollars and Euros, you know that not only is your currency is experiencing severe problems, but your people’s faith in your government is diminishing.

When people line up to buy cars, appliances, and other hard goods, it is because they lack faith that the money in their bank accounts will retain it’s in the future, you know it’s going to get worse before it gets better.

This 5,000 Ruble note is worth less than $900.

This 5,000 Ruble note is currently worth less than $90.

All of these things have or are happening in Russia, right now, right this week. We get a chance to watch, over a period of days and months, as the Ruble goes from being with 3 cents, to 2 cents to a single penny. We get to watch as their economy goes from robust to recession. And we may get to see a bank run and to observe what capital controls the government institutes to prevent good money from fleeing a bad environment.

If you are at all worried about fiat currencies and what a financial collapse will look like, you can look at Russia and the Ruble as a learning experience. If you watch with your eyes open, you might be able to prepare for how things could look in the U.S. one day in the future when people finally realize that our dollars and debt is a Ponzi scheme. (Keep in mind, Russia only about 1/25th of the debt that the U.S. carries.)

Here are a few lessons we can learn from them and from this situation:

  1. If you are holding a failing currency, convert it into a stronger foreign currency or precious metals as early in the downward spiral as you can. If that isn’t possible, buy hard goods that 1) have a decent shelf life, 2) will retain their value, and 3) people will want or need if there are no stores open. This could be basics such as food and diapers. It could be items like alcohol and tobacco. It could be antibiotics and other drugs, both legal and illegal. It could be tools, guns and ammo. If the problem persists long enough, it could be things like nails, screws, batteries, generators, fuels, wood stoves, firewood, etc. If you have lots of money and enough warning, invest in real estate – especially farmland – which has proven to be a good hedge in previous periods of inflation.
  2. Keep alert for warning signs such as a sharp rise in interest rates. If the Fed raises rates half a point, no big deal. If they jump it up more than two points at one time, look for an exit strategy, quick.
  3. Beware of bank withdrawal limits. During a bank run, banks may limit how much money you can take out at a single time. Banks or governments may prevent you from wiring money out of the country. The government may declare bank holidays in which the banks to no open and you have no access to your money. So keep some money available in cash, just in case.

    One possible way around this is to have accounts at multiple banks, like a big-name bank, a regional bank and a local credit union. If you withdrawals are limited, at least you can make a limited withdrawal from three banks, rather than a single withdrawal from one. That will get you your money faster.

    In Russia, there are recently tales of people who line up at ATMs and use very card in their wallet to withdraw the maximum they can in Euros or Dollars.

  1. Don’t put in a safe deposit box anything you might need to survive during a period of currency collapse or inflation because you may not be able to get it out or the bank may insist on inspecting its contents. Instead, buy a safe and hide it in your home or rent a safe deposit box at a non-banking institution that is not subject to Federal banking laws.

A Frightening Future

Russian President Vladimir Putin is not an economist and he apparently does not listen to economists. While the Ruble may stabilize for a few days or weeks, their economy will likely go into free fall in 2015, and this could result in a death spiral of job losses, bank failures, and collapse of companies and institutions.  This could tip Russia over into another collapse.

Putin is a bully, a liar and a blamer. He lies to his citizens, he lies to the United Nations, he lies to the European Union, he lies the U.S., and he lies to the media, many of which simply parrot his words with no fact checking. Often, tied up within his lies, he blames someone else, like telling the media that Russia had nothing to do with shooting down the Malaysian Airlines jet over Ukraine, but that it was Ukrainian forces . Like saying Russia not involved in the conflict in the Ukraine, even when faced with evidence that many of the so-called “rebels” are actually Russian soldiers.

Russia still has  large army.

Russia still has large army.

And one day, the lies will come tumbling down, the blame will become laughable, and then all we will have left is a bully. A bully with a large military and nuclear weapons. And no one knows what Russia will do then.

If Russia is smart, Putin will be removed from power before this happens. If Russia is not smart, it will find itself at war. Putin may well start a war simply to distract his people and to give him an enemy to blame for their misfortunes. War will not help their economy, and it will further alienate Russia from the rest of the world. Putin may think to use it to build his popularity, but in doing so, he will be tearing down everything he has built in the past 15 years.

We can expect Russia will enter a significant recession in 2015 because the price of oil is unlikely to soar back to $100 in the next six or 12 months,. We can imagine that they might default on their debt or at least threaten to do so and bluster seeking better terms. We can imagine they will distract us with fighter jets, bombers and submarines. But no one knows what they will actually do. And, even more unfortunate, no one knows how the U.S. will react. And that makes this a dangerous situation.

Much of this is out of our hand as preppers. We can’t change policy decisions, but we can prepare. I urge you to do so.

Here’s a few articles to read up on:

Russia Risks Soviet-Style Collapse

Ruble Rout Means Capital Controls Could be in the Cards

This is What a Currency Collapse Looks Like

How’s Inflation Hitting Your Wallet?

Found this article “Inflation Watch: Is the $5 Bill The New $1 Bill?” by Tyler Durden over at ZeroHedge.com to be right on target.

His basic premise is that every thing that used to cost $1 is now $5.  I could not agree more! Here are just a few of my first-hand examples of inflation.  Feel free to share yours:

  • The average price for a pound of lean ground beef is now $5.28.  More if you want the healthier, grass-fed stuff.
  • Back when I was prepping for Y2K, you could buy four cans of Shop’n’Save vegetables for $1.  Today, just 15 years later, you would be lucky to get 4 cans for $5.  Even a can of soup or chili costs well over $1.
  • You might be able to eat a value meal for $5, but your average fast-food lunch is going to be more.
  • When I was a kid, my mom would drop me off at the barber shop to get a haircut while she went grocery shopping.  It was less than $5 with tip.  My last haircut: $30.

Ground Beef Hits All-Time High

This article is a nice little follow up to our earlier coverage of emerging inflation in the U.S.  Prices for ground beef have risen 81 percent in the past five years, and we predict the price will keep going up due to the beef shortage and rising inflationary pressures.

Canned Beef for Long term StorageThe U.S. herd of beef cattle has not been this small since the early 1950s,and you can bet there are a lot more fast food restaurants serving hamburgers today than there were then. The cold winter and deep snow killed some cattle, but the extreme drought conditions in Texas and parts of the west have been even worse for cattle.

Speaking of the beef shortage, our supplier for the Survival Cave long term canned foods has informed us that orders for their beef cans are taking an average of three weeks to ship because of supply chain issues.  If you were considering adding any of their canned beef to your long-term storage food program, we suggest you order soon.  It does not look like the supply of beef is going to loosen any time soon.

Ready for Inflation? Here it Comes

 

Ever since the Federal Reserve started qualitative easing, or QE, I have been wondering when it would cause inflation.   I think the answer is “right now!”

Thanks to the government changing the way in which they track inflation, I do not have any proof that inflation is starting, unless you count my grocery bill or the reports from Shadow Stats. Based on purely personal and anecdotal evidence, however, I believe we are starting to see early warning signs of rising inflation. Here are just a couple pieces of evidence:

  • According to this article from the Wall Street Journal, ground beef was 10.4% higher in May 2014 than it was a year ago. Pork chops went up 12.7%.
  • The same article argues that restaurants are not raising prices, but my experience is the opposite. A local burger place where I grab a basic meal every week or so, the cost of my standard fare has gone from $4.95 to $5.35 to $5.49, all in the space of a year. That’s a 10% increase.
  • And food is not the only thing increase. Electricity costs are higher than ever, according to this article.

Inflation, High inflation and Hyperinflation

We almost always have some inflation, but it is usually “under control,” meaning it is low. Governments prefer a little inflation because it means they can pay off old debts with money that is worth less than it was when they borrowed it.

Inflation Going UpHigh inflation is more dangerous. Experts consider an annual rate of inflation between 30 and 50 percent to be high. For the record, I consider that to be too freaking high, although rates in that realm have been seen recently in Venezuela and Argentina, (along with civil and political unrest and other troubles). In my opinion, anything over about 6 percent (as we count it now, or 12 percent if we still used the old government formula) will be painful enough to send the country into an economic tail spin. The Fed must agree with me, because they want to keep inflation at around 2 percent, maybe 3 percent at the outside.

What’s so bad about inflation? Well, inflation will drive up the cost of everything, including food, fuel, utilities, housing, and healthcare. This puts the squeeze on everyone who lives paycheck-to-paycheck or is on a fixed income. Even for those who are better off, there is less money to spend on discretionary items, leading to lower company earnings and a subsequent devaluation of the stock market. When costs go up, wages usually lag, meaning people will have less money to eat out or go on vacation. They hold off on buying new vehicles, repair the washer instead of buying a new one, and defer spending. This will lead to business closures, layoffs and rising unemployment. Consumer spending is the driving force of our economy. Without it, we will slide back into a recession.

Inflation will also make sustaining the $17 trillion U.S. debt much more expensive as the country’s borrowing costs rise and will result in higher taxes and a cut back of services. I see this as are largest threat as it could lead to the U.S. defaulting on its bills or using the Fed to create even more money out of thin air. In a high inflation scenario, the government could not tax or confiscate enough money to pay the interest on its past debts.

Hyperinflation is generally considered to be an inflationary rate in excess of 50 percent per month, which is the equivalent of 12,875 percent per year. I’m no expert, but I think they set the bar too high. Anything over 50 percent a year is frighteningly high and will probably spiral out of control.

To put this in perspective, think of a burger that costs $5. At 100 percent inflation, that burger will cost $10 in one year. In inflation like Germany experienced in 1922, where prices doubled an average of once every 28 hours, that $5 burger would cost $10 the next day, $20 the day after, and about $160 at the end of the week. Now imagine that your hourly range remains unchanged and you see the extent of the problem…

What is usually the cause of hyperinflation? According to Wikipedia, it is nearly always “caused by government budget deficits financed by money creation.” Hmm. Sound familiar?

By the way, the Wikipedia entry has lots of interesting historical information on hyperinflation and if you are worried about this, it’s probably worth a read.

Inflation Devalues MoneyBy the time hyperinflation hits, it’s really too late to do anything about it. It is too late for individuals to prepare, and too late for governments to change their ways. It’s already a crisis that is spiraling out of control and the hole will quickly be so deep you cannot climb out of it. The best you can do is to hunker down and try to get through it alive. Expect bank runs early on and ineffective rules to prevent them. Expect soaring prices and price controls that achieve nothing but cause shortages. Expect that government programs will not keep up with inflation and everyone on food stamps, welfare, social security and a pension will be unable to afford food. Expect protests and civil unrest. In short, be prepared for a massive collapse of the financial situation and everything that relies on it, including our society.

Warning Signs

  • If you see the price of something you buy regularly (whether it be a gallon of milk, cup of coffee, or a Diet Coke) start to cost more every few months, you are probably living in inflationary times. When you see it increase weekly, it’s too late to do anything about it.
  • When the price of gasoline hits new highs, over and over again, and the price never dips, you are probably living in inflationary times. When it costs more to fill up the tank than you paid for the car, it’s too late to do anything about it.
  • When the Fed raises interest rates by 1 percent or more outside of a regularly scheduled meeting, you might be living in inflationary times. When the interest rate for a 30-year mortgage is over 10 or 15 percent, it’s too late to do anything about it.
  • When you can no longer afford your normal beer and have to buy a case of that cheaper brand, you may be living in inflationary times. When a single bottle costs as much as a case used to, it’s too late to do anything about it.
  • If you start to see lots of news coverage about inflation, you may be living in inflationary times. If they start to describe it as “soaring” and then move on to “galloping,” it might be time to clean out your bank account, buy some supplies, and head for your retreat.

 How to Protect Yourself

During high or hyperinflation, you do not want to hang on to your cash; you want to spend it as soon as it hits your account. You are better off liquidating your savings account and buying hard assets that will retain their value.

If you have cash on hand and you start to see those warning signs, consider converting it into goods that you 1) will eventually need, consumer or use, or 2) can easily sell or barter, such as: canned food, dried food, over-the-counter medications, alcohol, cigarettes, diapers, guns, ammunition, tools, etc. (And note that all of these items would be useful in a survival situation.)

If you really don’t need that much canned food, then buy gold or silver. I personally recommend “junk silver” or American Eagles. (We’ll do a post on this subject in the future.) Just remember: You can’t eat gold.

You can also preserve your spending power or “wealth” by buying and holding real estate (especially farm land and single-family homes), high-end jewelry or precious stones, fully-automatic firearms, and other assets that can be sold after the crisis is over for “new dollars” or whatever currency is being used. If you are mega rich, invest in artwork; if you can’t cash it in, at least you can enjoy looking at it.

Once inflation kicks in, don’t lend money to anyone and spend your cash on hard goods as soon as you get it.

If you can, transfer your funds into a more stable currency, such as one backed by gold or commodities. (This is much harder than it used to be.) Usually, the U.S. Dollar is the currency in which people living in countries with high inflation wish to invest, so we’ll have to look at the Canadian dollar or the Australian dollar. I expect currencies tied to our and from countries that have large investments in U.S. debt and/or depend on us for an export market will suffer along with us. This includes the European Union and China.

Take advantage of the inflation by paying down any debt you had from before inflation hits. If you have a mortgage or school loans, wait until inflation has been high for a while and it will be very easy to pay them off.

Take steps to protect yourself from a societal collapse. If you plan to bug out, leave before things collapse. Read Captain Dave’s Survival Guide or some of our recommended books for more information on how to prepare.