Abundant Michael: 2012

Is survivorship bias getting in the way of your self improvement?

We study how to be more successful by looking at how great business people do things. Perhaps this is fatally flawed. We never see all the failures to see how they failed.

David McRaney in his article "Survivorship Bias"  says:
 

The Misconception: You should study the successful if you wish to become successful.

The Truth: When failure becomes invisible, the difference between failure and success may also become invisible.

The problem is that there can be common patterns how all the failed business have that you just don't see because they are never studied. In the article (which is a long read but worth it) he gives the example of WWII air force generals coming to top statisticians asking them where to add armor to bombers so fewer are shot down. The top brass got it totally wrong due to survivor bias in the data.

The military looked at the bombers that had returned from enemy territory. They recorded where those planes had taken the most damage. Over and over again, they saw the bullet holes tended to accumulate along the wings, around the tail gunner, and down the center of the body. Wings. Body. Tail gunner. Considering this information, where would you put the extra armor? Naturally, the commanders wanted to put the thicker protection where they could clearly see the most damage, where the holes clustered. But Wald said no, that would be precisely the wrong decision. Putting the armor there wouldn’t improve their chances at all.

The correct answer was to put armor where the surviving planes did not have holes because those are the places that the shot down planes had been hit in! Genius. Saved a lot of lives over the "obvious decision".

So where in your business life or personal improvement are you reading only about success stories? Following the "top ten ways Ms X succeeded" and trying to do those ten things in your life. Perhaps some study or thought on how the other 90% of folks failed and then avoiding those might be more useful....

Additional credit: I was tipped off to David's article by author Charles Hugh Smith who's blog is www.oftwominds.com and covers collapse, economics and future of society.

Details on Argentina 2013 AD, Roma 301 AD, UK/US 201x AD?

Interesting details on the situation in Argentina today below. I remember price and wage controls in England in the 70s during the high inflation we had then. And I have read about how Roman Emperor Diocletian issued an Edict on Maximum Prices in 301, one of the last Western Roman emperors, who was trying to control the inflation caused by debasing the currency by controlling prices. (http://en.wikipedia.org/wiki/Roman_currency#Debasement_of_the_currency ). I don't think they worked well in 301, 1971 or will in 2013.

Merchants either stopped producing goods, sold their goods illegally, or used barter. The Edict tended to disrupt trade and commerce, especially among merchants. It is safe to assume that a gray market economy evolved out of the edict at least between merchants.

 

Sometimes entire towns could no longer afford to produce trade goods. Because the Edict also set limits on wages, those who had fixed salaries (especially soldiers) found that their money was increasingly worthless as the artificial prices did not reflect actual costs.

 

As the fiscal situation in UK, US, much of rest of Europe and Japan is similar to Argentina a few years ago, or even the Roman Empire 1700 years ago, I think a similar outcome is likely. When governments consistently spend far more than they generate in taxes and fees then borrowing and/or money printing dramatically increase. At a certain point the lenders and people exchanging foreign currencies loose confidence in the government's ability to repay in real terms. Then interest rates, inflation and exchange rates increase a lot in a short period. The government react desperately with the only measures they have available - price controls, wage controls, pension adjustments, foreign exchange controls, capital controls, tax and fee increases, reductions in services. Most citizens loose 90% or more of their wealth in real terms.

Buenos Aires, Argentina 2013


Selling snake oil and issuing unbacked paper currency are not so different. They're both wildly successful ploys for the guys pulling the strings. And they're both complete scams that depend solely on the confidence of a willing, ignorant public.

But once the confidence begins to erode, the fraud unravels very, very quickly, and the perpetrators resort to desperate measures in order to keep the party going.

In the case of fiat currency, governments in terminal decline resort to a very limited, highly predictable playbook in which they try to control... everything... imposing capital controls, exchange controls, wage controls, price controls, trade controls, border controls, and sometimes even people controls.



These tactics have been used since the ancient Sumerians. This time is not different.



Today, Argentina presents the most clear-cut example. Here the 'mafiocracy' unites organized crime, big business, and politicians to plunder wealth from Argentine citizens. Just since 2010, President Cristina Fernandez has--

 
  • Nationalized private pensions, plundering the retirement savings of her people.
  • Increased tax rates across the board-- income, VAT, import duties, etc. as well as imposed a new wealth tax.
  • Inflated Argentina's money supply, printing currency with wanton abandon; M2 money supply has increased 215% in the past three years.
  • Driven the value and purchasing power of the currency down by 50%. Street-level inflation is now 30%+ per year.
  • Made a mockery of official statistics, comically understating the level of Argentine inflation and unemployment. She even began punishing economists for publishing private estimates of inflation that didn't jive with the government figures.
  • Taken over control of one industry after another, most notably the nationalization of Spanish oil firm YPF's Argentine assets.
  • Imposed export controls of agriculture products from beef to grains, forcing growers to sell at artificially lower domestic prices.
  • Imposed capital controls, reducing her citizens' capability to dump their poorly performing currency and hold gold, dollars, euros, or anything else.
  • Imposed a two month 'price freeze' on items in the supermarket, and encouraged retail consumers to rat out any grocer that doesn't abide by the government order.
  • Imposed controls over the media, most recently ordered an advertising ban in Argentine newspapers (weakening their financial position).



Cristina's policies here are leading to shortages in everything from food to fuel to electricity. Hardly a month goes by without major strikes and disruptions to public services. The purchasing power of their currency is diminishing rapidly. And most people are completely trapped.



Of course, there were a handful of people who saw the writing on the wall. They learned the important lesson never to trust their government. They moved their savings to stable foreign banks. They purchased property abroad. They bought gold and silver, and stored it overseas. They were prepared when the plundering began.



The developed West is rapidly heading down this path. Europe is beginning to impose capital controls, and the IMF has sanctioned them. The US is rapidly printing its currency into oblivion, and confidence is eroding quickly. Russia just purchased an historic amount of gold, choosing real assets over more US dollar reserves.



It would be foolish to think the same things can't happen in the West. And even if it never happens, would you be any worse off for taking some of these basic steps?

 

From http://www.sovereignman.com/finance/this-is-what-textbook-capital-controls-look-like-10813/

Risk, Asteroid, micromorts and the zeitgeist

I think that most people don't understand risks and probability and can either over or under react to news stories about risk. The recent anouncement of a an Asteroid Impact Risk in USA Causes New Zealand Real Estate Boom


Real Estate prices in parts of New Zealand are reaching atmospheric highs after authorities announced that the risk of Asteroid 1997 XF11 hitting Earth close to New York State on 28 October 2028. What if the risk was 1100:1? Would you seek shelter in another country?

 

This wikipedia article on micromorts  has a nice list of equally risky behavior and just breathing the pollution in a big city like NYC for 2 days is one micromort so living there for 120 days or 4 months is 60 micromorts just from the air. Let alone other risk factors such as traffic. The asteroid is currently rated at 1 in 1100 in 16 years time so that is approx 60 micromorts (1000000 / 1100 / 16).


I think the other factor going on here is a cultural zeitgeist that knows that the US Empire is in serious decline and there is a likelihood of several dangers in the US. The government-industrial-media complex's Matrix of control is falling apart and people know (at least on the subconscious level) that they are at risk from high inflation, great depression 2.0, food shortages, rising crime, police state/martial law, reduction/elimination of privacy, rising sea levels covering coastal cities.

5 More police and DHS drones

Local police and the national Dept of Homeland Security are using drones in 5 ways to spy on citizens acording to Wired article

  • Border patrol (Preditor)
  • 50-pound police helicopter drones (ShadowHawk)
  • tuna-shaped robot for ports and ships (BIOSwimmer)
  • Tunnel bot - waterproof, has a 500-foot tether cable and can travel at a rate of 30 feet per minute. A high-resolution camera can rotate in all directions, and the robot itself can squeeze through an opening as small as six inches in diameter. (Versatrax)
  • Police mini-helicopter four and a half pounds, speed 30 miles per hour (Draganflyer X6)

 

from http://www.wired.com/dangerroom/2013/02/dhs-drones/

A taste of future inflation, bank liquidation and currency devaluation?

A taste of things to come nearer to home?

  1. devaluation and inflation in Venezuela
  2. government caught faking inflation statistics in Argentina
  3. major bank liquidated in Ireland

Venezuelans  lost 40% of their savings value in this month's devaluation and are loosing 22% a year from inflation. Combined that means their money is halving each year - doesn't take many years of that to have no money left (Wiemar Germany  or Zimbabwe anyone?)

Annual inflation accelerated to 22.2 percent in January, the fastest pace in eight months, led by a jump in food prices. Prices climbed 3.3 percent in January after rising 3.5 percent in December.

Venezuela devalued its currency for the fifth time in nine years

from http://www.bloomberg.com/news/2013-02-08/venezuela-devalues-currency-from-33-to-6-30-bolivars-per-dollar.html
more analysis and graph at http://www.zerohedge.com/news/2013-02-08/venezuela-devalues-its-currency-32

and in related news the Argentine government has been faking the inflation statistics (this is also done in UK and US but Argentina is worst and got caught doing it) This is a clear sign, that the government is trying to combat the EFFECTS of inflation and not the ORIGINS (either because things are so bad they are out of their control or the government it self is cosing rampant inflation through money printing which it simply refuses to stop)and therefore is doomed to failure.


the International Monetary Fund (IMF) censured Argentina for issuing inaccurate economic data.
 

The government says inflation is below 11%, but economists say the real rate is double that.

Analysts have accused Argentina specifically of understating the rate of inflation since 2007 to keep interest rate payments on its debt low and to flatter the political regime.

Some economists think the annual inflation rate could rise as high as 30% this year.

from http://news.liveandinvestoverseas.com/Economy/argentina-freezes-supermarket-prices-for-two-months.html

and across the Irish sea a major bank is liquidated


The Irish government passed emergency legislation on Thursday to liquidate Anglo Irish Bank, one of Ireland’s largest financial institutions.

The legislation, which was signed into law after an all-night parliamentary session, came after negotiations with the European Central Bank over swapping so-called promissory notes, which were used to bail out the Irish lender in 2009, for long-term government bonds.

from http://news.liveandinvestoverseas.com/Economy/ireland-to-liquidate-anglo-irish-bank.html

How nano-drones are part of the Singularity

Drone tech is improving exponentially (a kind of Moore's law for drones). Twice as cheap and small and more powerful every year.

And the technology is not just for armies - local police departments are ordering 1000s of drones for civian survelance. Plus there is a big open source/hobbyist drone market. Any one on the planet who wants a drone can have one. Imagine the possibilities. Drones can carry cameras, microphones, wifi snoopers, explosives, chemicals, bio weapons, presents, lasers, smart AI computers, deliver packages for Amazon.com. Think where birds and insects can reach today without your noticing most of the time. Local area mapping, farmer field survey and pest control, crowd control, murder, blinding, stealing stuff, sport mom event multi camera view for the high school game, underwater exploration, police under water body searches, personalized package delivery to where you are. Then imagine a swarm of drones like a flock of birds or insects and what that might be able to do. How do you even defend against a swarm of cheap drones? You could kill hundreds and enough would get through to do the job.

And this is just one aspect of the future Singularity of tech, financial, political and social change that is occurring right now. And most people think the 2012 thing ended on 12/21/12 but really it is a multi year thing over maybe 40 years and 12/21/12 is just approx peak date for all the stuff going on.

There are also a lot of technology changes due to Moore's law for computer power doubling every 2 years and similar for many other technologies such as nanotech, DNA, space exploration, big data, medical, AI etc


Sure looks like a tech singularity to me! Plus all this energy shift and tech changes are causing old models of doing things that are bureaucratic such as government, education, big corporations, religions, financial, fiat currency with big debt, the nation state, agriculture, military, big airlines to not work well anymore And hence most (if not all) of these legacy organizations are going to collapse in the next few years. And be replaced (eventually) by a distributed network models of human interactions.

PS One last thought on drones - Imagine this size (or smaller) drone in the hands of the police or local gangs...

UK deploys toy-sized spy drones in Afghanistan

Published: 04 February, 2013, 12:32

PD-100 PRS (Image from proxdynamics.com)

PD-100 PRS (Image from proxdynamics.com)

British troops in Afghanistan are now using 10-centimeter-long 16-gram spy helicopters to survey Taliban firing spots. The UK Defense Ministry plans to buy 160 of the drones under a contract worth more than $31 million.

­The remote-controlled PD-100 PRS aircraft, dubbed the Black Hornet, is produced by Norwegian designer Prox Dynamics. The drone is a traditional single-rotor helicopter, scaled down to the size of a toy. British troops use the drones for reconnaissance missions, sending them ahead to inspect enemy positions.

Each drone is equipped with a tiny tillable camera, a GPS coordinate receiver and an onboard autopilot system complete with gyros, accelerometers and pressure sensors, which keeps it stable in flight against winds as strong as 10 knots, according to reviews. The tiny aircraft is agile enough to fly inside compounds, and is quiet enough not to attract unwanted attention. If detected, the drones are cheap enough to be considered expendable.

The auto-pilot either follows a preprogrammed flight plan or receives commands from a manual control station, which is about the size of a large smartphone. The drone's camera can feed compressed video or still images to an operator up to a kilometer away, and its rechargeable battery provides power for about 30 minutes of flight.

In addition to the drone and the controller, each system comes with a ground base station, which houses the operating system, main electronics, internal batteries and chargers. It also protects the drone while being transported. The weight of the entire kit is about a kilogram, easily portable in the field.

PD-100 PRS (Image from proxdynamics.com)
PD-100 PRS (Image from proxdynamics.com)

­Prox Dynamics started working on the nano-drone in 2008, and released a video of the first prototype in flight a year later. The manufacturer initially planned for it to be put to civilian use, to scout sites of natural or man-made disasters for survivors and provide intel to rescue teams. A marketable version of the Black Hornet was first presented at the Counter Terrorist Expo in London in April 2012.

The British Ministry of Defense announced last November that it was awarding Prox Dynamics a contract to supply the drones to its troops in Afghanistan. The initial contract is worth about $4 million, but will likely be expanded to more than $31 million.

When is return OF your money more important than the return ON your money?

Might be a good item to evaluate how well funded the bank or mutual fund you have is so you can increase the likelihood that you can get all your money back in the future (including allowing for the real inflation rate). Here in Ecuador where I am traveling right now two banks failed this month, and it is not clear when the depositors will get their money back or what percentage of their savings they will receive. In the Argentinian banking crisis of 2001 many middle class savers could not access their bank accounts for 5 months and lost 75% of the balances.

And if you have not diversified your investments into different banks, assets, currencies and other countries now would be a good time to do that to the extend you think prudent as "insurance" against future financial crisis.

Time to Focus on 'Return of Capital'

Reflections on the day after the election

I am more concerned with the return of my money than the return on my money.

- unknown (often attributed to Mark Twain or Will Rogers)

The U.S. Presidential race is now behind us. And this morning the world woke up and realized that all the issues the election postponed now lie before us.

In his victory speech, President Obama focused on moving 'forward':

Obama's re-election puts 'forward' to the test

"You elected us to focus on your jobs, not ours. And in the coming weeks and months, I am looking forward to reaching out and working with leaders of both parties to meet the challenges we can only solve together. Reducing our deficit. Reforming our tax code. Fixing our immigration system. Freeing ourselves from foreign oil. We've got more work to do."

 

That's not a bad list of several of the bigger challenges we face: perniciously high and persistent unemployment, trillion dollar annual deficits, a complex and unequal tax code, overdependence on fossil fuels (domestic as well as foreign, I would add), and population management. These are truly prodigious issues that our nation is struggling with, in many cases for decades without resolving.

 

But that list of woes is not near complete. Add to it our national over indebtedness and insolvency, our eroded manufacturing base, escalating costs of food/fuel/health care, our outdated infrastructure, our failing educational system, accelerating global depletion of and competition for key resources, an aging population, the most dramatic wealth gap in our country's history, and an unsustainable monetary system. For certain, there are also many other competing problems that can be further added to this 'worry list'.

 

The hard truth is that these problems are not going to be resolved in the next four years, irrespective of whoever won the election last night.

 

In fact, as Chris so often states, many of these are not problems; they are predicaments. Problems have solutions. Predicaments have only outcomes. Outcomes that need to be managed. And if you're jawboning about 'solving' a predicament (which our politicians have made a full-contact sport out of), you're wasting precious time.

 

So, the big question is: what approach exactly are we going to use to move 'forward' from here? From what we're seeing so far, the best I can tell is we are going to continue to throw money at these problems/predicaments until it's clear to all that won't work anymore.

 

The Bush and Obama administrations have seen exploding debt and deficit levels accompanied by staggering issuance of new money by the Federal Reserve. There is little to indicate that this policy is going to change as long as our economic malaise continues. In this way, the government is taking future wealth from our children's pockets.

 

And it seems increasingly clear that the government will take more of the current wealth from ours, too. Rather than take the pain of reigning in spending, government demonstrates, time and again, its preference to raise revenues via taxation.

 

PIMCO's Bill Gross predicts the same:

Gross: Fixing 'Cliff' Will Mean 'High, Higher' Taxes

A newly re-elected President Barack Obama will push for higher taxes -- including a dividend-tax hike that will cause a substantial drop in stocks, Pimco's Bill Gross told CNBC Wednesday.

 

Obama will get little time to enjoy his election victory Tuesday, as he will have to get to work quickly with Congress to avoid the nation's "fiscal cliff" of looming mandated tax increases and spending cuts.

 

One likely remedy for revenue-raising will be to take the current dividend tax rate of 15 percent and hike it five to 10 percentage points, said Gross, co-CEO at the firm that runs the largest bond fund in the world and has $1.8 trillion assets under management.

 

"Obama ran on a higher-tax agenda," Gross said during a "Squawk Box" interview. "Marginal income taxes go from 35 to 40 (percent), capital gains from 15 to 20, dividends from 15 to who knows what...so they could go high, high and higher."

 

Risk-averse investors prefer dividend stocks, which are common in pensions and mutual funds even though they've largely underperformed other market indexes over the past four years. Consequently, Gross said, higher dividend taxes would make those companies less attractive and thus take the stock market down 5 to 10 percent.

 

That's "the ultimate danger here for the stock market," he said. "Dividends are sheltered in 401(k)s, they're sheltered in pension funds. At the margins investors pay dividend tax rates. To the extent that you raise them from 15 to, say, 25 (percent), that implies in terms of equaling after tax rates another 5 to 10 percent down in terms of stock prices. We've been very spoiled for the last 10 years."

Last night, California passed Proposition 30, which approved an increase in the income taxes for 'wealthy' Californians (those with income >$250K). Education is by far the state's top expenditure, yet it ranks at or near the bottom of the nation on most school performance ratings. But rather than tackle the difficult work of determining how to spend their existing budget more effectively, it's far easier for Sacramento to address shortfalls by increasing taxes. Which is why Governor Jerry Brown crafted and championed Prop 30. Pity the Californian taxpayer, who already suffers the highest state income taxes in the U.S.

 

This is likely a preview of what's to come in future years. As we bump (or slam) into the hard limits of our predicaments, our political leaders will throw greater amounts of our current and future wealth at them. Like a drowning man frantically reaching out for anything that can possibly keep him from going under, our federal and state governments will grab for sources of revenue with equal desperation as they drown under their debts.

 

The markets are certainly concerned today. The Dow is down over 330 points as I write this. We are entering the era of investing where the risks are increasingly disproportionate to the downside. The prudent investor should be much more concerned these days with return OF capital, versus return ON capital.

 

Though, more accurately, the priority should be return of purchasing power. It does no good to get your dollars back if they've been devalued in the interim.

The following steps have become 'no-brainers' at this point:

  • Find yourself a trustworthy financial adviser who will invest your paper capital with these risks in mind (we endorse several).
  • Own some gold and silver as insurance against a currency crisis.
  • Diversify into other hard assets if you're able to, particularly those with potential to produce primary wealth (timber, livestock, vegetables/grain, minerals, energy, etc.).
  • Assess your employment situation – how vulnerable is your income? Invest in ways to make yourself more valuable to your employer, add additional source(s) of income, and/or create your own business. 
  • Invest in increasing your personal resiliency (homestead investments, skill-building, physical & emotional health, and community)

Welcome to the future.


From http://www.peakprosperity.com/blog/79994/time-focus-return-capital

What will the news in 2100 be?

What will the news be in 2100? This article from The Futurist magazine has some interesting ideas based on current trends in science and society.

 

Here’s the News from 2100

 

By Karl Albrecht

Dateline: January 1, 2100

Futures experts are now more divided than ever about the fate of humanity, according to World Future Society president Timothy Mack, whose brain spoke to us from his jar in the Johns Hopkins Medical Lab.

“There are two schools of futurists,” Mack explained. “There are the ‘gee-whiz’ types, whose mantra is EGBOK: ‘Everything’s Going to Be OK.’ And then there are those whose slogan is WIDD: We’re in Deep Do-Do.’” Mack’s avatar shrugged its shoulders. “I don’t know who to believe.”

Elsewhere in the futures world, Cynthia Wagner, long-serving executive editor of the society’s magazine The Futurist, confirmed that she has had the text of every article and book about the future ever published embedded in her DNA. “I couldn’t decide about the Nostradamus stuff,” she said, “but I finally included that, too.”

Speaking at the Society’s 134th annual conference, held at the Ray Bradbury Center on Mars, World Future Society founder and leading thinker Ed Cornish appeared onstage in his specially outfitted brain-mobile. His address, titled “Is the Future Here Yet?” was greeted with thunderous applause signals from the 5,000 brains in attendance.

Meanwhile, technology futurist Ray Kurzweil expressed satisfaction that 24 countries have now abolished individual names. Hereafter, all babies will be named Chip, with the serial numbers of their microchips replacing their family names. Don Tapscott, whose sixty-fourth book is titled Are You a Digital Dodo? agreed. According to Tapscott, “Today’s kids are fully digitized. The older generation will be left behind if they can’t make the brain-to-chip transformation.”

In other tech news, Google announced that it now has the DNA sequence of every human being on the planet in its database.

In the world of social media, Mark Zuckerberg, ex-CEO of the now-defunct Facebook corporation, has filed for personal bankruptcy. “We’re still showing 16.2 billion users in our database,” he said. “But we discovered that only 104 of them are still active. There’s a terrorist cell in Iowa, a few dozen college students, and a group of senior citizens in Miami Beach.” Zuckerberg had applied for welfare support in California, only to find that it had been abolished by the last 10 Republican governors. “I guess I’ll have to find a job,” he said.

Returning to generational issues, the U.S. Defense Department’s Population Control Command reports increasing difficulty in performing its mission of tracking down and shooting over-aged people.

“We’ve been tracking this one old grandma for months,” said Colonel Bo Gritz. “She’s picked off three of my best men. It’ll probably cost more to wipe her out than to just let her keep on living. We’ll have to get her with a drone.”

England’s Queen Elizabeth, that country’s longest-serving monarch, attended memorial services for her grandson Prince William, who—like his father, Prince Charles—died of natural causes. Close family members, speaking on condition of anonymity, reported that the Prince’s last words were, “I was hoping to be king for a little while, at least.” The Queen’s physician refused to comment on the secret herbal preparation he’s reportedly been giving her for the past 60 years.

Turning now to political news, the U.S. Congress is putting the final touches on legislation that will legalize marriage between human beings and computers. Marriage between human beings of the same sex, however, remains illegal.

In the economic sector, the states of Alabama, Arkansas, Kentucky, Mississippi, Tennessee, and West Virginia have announced plans to merge into one state, to head off impending bankruptcy. This latest in a series of mergers brings the number of states to 17. Supported by a large infusion of cash from the Indian government, the new state will be named Bubbastan.

On the religion front, the Vatican announced today that it has formed a special council to investigate what it describes as “possibly overblown” charges of predatory sexual behavior by priests. The commission is on a fast track to deliver its findings by mid-2125.

In international news, the Chinese government confirmed that it’s in negotiations to buy Kansas. China’s spokesperson, Hu Mi, explained, “We need to guarantee a secure source of wheat and other food grains for our people.” Kansas Governor Randy Kunkel declined comment except to say, “I’ve always been fond of Chinese food.”

Turning to Wall Street, banking giant OneBank has completed its acquisition of the last remaining bank in the United States, giving it control over 400 million customers who have nowhere else to go for banking services, loans, mortgages, and credit cards. The Secretary of the Treasury, who was formerly the CEO of OneBank, announced the event, saying, “This action will streamline the nation’s financial services industry, eliminate destructive competition, and provide great services to banking customers.”

In entertainment news, reality star Miki Kardashian, granddaughter of the legendary Kim Kardashian, caused controversy at the annual TV awards festival by sending her detachable breasts instead of appearing in person. Her PR spokesperson replied to reporters’ questions with, “What’s the big problem? She had a schedule conflict. Those are the only parts people want to see anyway.”

Also on the entertainment scene, venerable comedienne Betty White has launched her latest show, Hot Sex for Hot Seniors, to air this fall. When asked by reporters how old the actress is, the show’s producer said, “God only knows. Cancel that. I think she’s older than God. But she’s still hot.”

About the author:

Karl Albrecht is a management consultant and author of more than 20 books on professional achievement, organizational performance, and business strategy, including Social Intelligence: The New Science of Success and Practical Intelligence: The Art and Science of Common Sense. Originally a physicist, and having served as a military intelligence officer and business executive, he now consults, lectures, and writes about whatever he thinks would be fun. Web site www.KarlAlbrecht.com.

Ahead of central bank gold run? How Germany and Venezuela are taking back their physical gold.

Interesting that Germany has been withdrawing hundreds of tons of foreign gold back to Germany. Like Venezuela did earlier this year but much larger and I had not heard about it until now. I got this from Weiss investment email I get.

I would certainly recommend holding some of your gold or silver physically, either in your own storage or in a non-bank overseas storage place. And I don't think gold ETFs are a good idea at this time due to counter party risk. I am on the fence about places like GoldMoney which seem to keep enough gold to cover their client's deposits.

Any thoughts on this topic?
Michael


Is a Central Bank Gold Run at Hand?

by Charles Goyette
Friday, November 2, 2012 at 7:30am

Charles Goyette

On learning that French gold was being held by the U.S. Federal Reserve, French President Charles de Gaulle is reported to have said, "I could hardly sleep easily with such an arrangement." So in 1965 he ordered French navy ships to cross the Atlantic to pick up $150 million in gold held in the Fed's New York vaults and deliver it to the Banque de France in Paris.

It was a prudent move by de Gaulle. And it was consistent with the advice I have long given: Do not leave your gold in the care of somebody else. Take physical possession of your gold.

De Gaulle realized the United States was running an international con. It had promised that holders of U.S. dollars would always be able to redeem them for gold at the official rate of $35 per ounce. But like someone writing bad checks, it was clear that the U.S. was printing more dollars than it could possibly redeem at that rate.

De Gaulle was ahead of the pack. But before long other nations figured out the same thing and began demanding gold for the dollars they held. Soon Washington began to hemorrhage gold as it faced demands to redeem tens of billions of its paper dollars.

It was nothing less than a run on the U.S. gold bank ...

On a single day in March 1971, 400 tons of gold were taken from the exchange mechanism, the London Gold Pool, forcing it to close. By August, President Nixon closed the gold window entirely, essentially defaulting on America's explicit promise of dollar convertibility.

Germany Demands Accountability

Like France, Germany has had bitter national experience with the hyperinflation of fiat currency. It should not be surprising if both nations are sensitive bellwethers when funny money business is afoot. Now we are beginning to learn about steps Germany has been taking consistent with troubling questions today about the world's central banks and the gold entrusted to their vaults.

In the (U.K.) Telegraph, Ambrose Evans-Pritchard reports a German court has ordered an inquiry into gold purportedly held for Germany in London, Paris, and New York:

The German Court of Auditors told legislators in a redacted report that the gold had "never been verified physically" and ordered the Bundesbank to secure access to the storage sites.

It called for repatriation of 150 tons over the next three years to test the quality and weight of the gold bars. It said Frankfurt has no register of numbered gold bars.

The report also claimed that the Bundesbank had slashed its holdings in London from 1,440 tons to 500 tons in 2000 and 2001, allegedly because storage costs were too high. The metal was flown to Frankfurt by air freight.

It may be that an audit will prove all of Germany's gold in foreign central banks can be accounted for. It may have been that France's gold would have been safe for decades in the hands of the Federal Reserve. But an environment like ours, toxic with monetary risk, demands good stewardship.

What Have Central Banks
Done with the People's Gold?

Recently I wrote an article questioning whether or not central banks have the gold they say they do. Even if the bullion is in inventory, there are pressing questions about who may hold actual title to the gold, whether it has been loaned, pledged, swapped, or sold.

The Telegraph alludes to the issue of title as well, reporting the German court's action "follows claims by the German civic campaign group 'Bring Back our Gold' and its U.S. allies in the Gold Anti-Trust Committee that official data cannot be trusted. They allege central banks have loaned out or 'sold short' much of their gold."

Asking if gold bars are actually in place is a question of inventory. Questions about title are issues that should be answered by a thorough audit. But there remain equally justifiable concerns about the authenticity of the gold held by central banks, and other depositories for that matter.

Another concerning topic is fake gold. It is by no means a marginal issue, but one that is serious enough that this year, for the first time, some of the U.S. gold held by the New York Fed has been subjected to being drilled for assay samples to test for purity. No results have been released.

Closing Thoughts

Those who showed up after August 15, 1971 with U.S. dollars they hoped to exchange for gold were too late. But de Gaulle knew there was something fishy about U.S. monetary practices well before Nixon defaulted on America's gold promises. In today's troubled environment, Germany is acting like its monetary senses are tingling.

There are warning signs aplenty for Americans that monetary conditions are growing more fragile by the day and that the fiat dollar will not last. It would be nice to know that at least the people's gold assets are secure.

In any case, remember this lesson:

Do not leave your gold in the care of somebody else.
Take physical possession of your gold.

For your Freedom and Prosperity,

Charles

How soveign collapse cascades down the supply chain to you

A skydiving student asked his instructor, "How long do I have to open my parachute?" The instructor replied, "The rest of your life." Preparing for collapse you have just as long!

 

This article The Joy of National Default by collapsologist Dmitry Orlov explain why sovereign debt may appear impossible for years then happen overnight, and the business, political and social collapses that may follow a financial one.

 

Sovereign debt default is not some sort of spring shower that passes and then the sun comes out again. If Korowicz is right (Trade-Off: Financial System Supply-Chain Cross-Contagion )—and he appears to have done his homework—then at some point what is now still a gradual process will lead to a sudden, irreversible, catastrophic disruption of daily life. (And looking at the reports coming out of Greece and Spain, imagining such a scenario no longer requires much of an imagination.) Korowicz does not have a lot to offer when it comes to practical adaptations to survive such a systemic breakdown, beyond stating the obvious, which I will repeat: “Initially the most exposed would be those with little cash at hand, low home inventories, mobility restrictions and weak family and community ties.” In other words, be prepared, and do your best to give yourself a chance.

 

Korowicz carefully goes through the process by which financial failure causes an instant breakdown in commerce. Cargos have to be financed. This is done by banks on opposite sides of the planet that are willing to grant and to honor letters of credit, which are paid once the cargo is landed. If letters of credit cannot be obtained, cargo does not move. In a crisis, banks mistrust each other, and denying letters of credit is one of the easiest ways for them to decrease their exposure to counterparty risk (the chance that the buyer's bank, which drew up the letter of credit, won't be able to make the payment). In turn, missing shipments mean empty supermarket shelves within days, idled production at factories due to missing components, standstills at construction sites and maintenance operations, hospitals running out of drugs and supplies and so on.

 

Within a week, local fuel inventories are depleted and transportation is disrupted. Modern manufacturing and distribution networks rely on a global supply chain and very thin, just-in-time inventories. High-tech manufacturing is most easily disrupted, because key components have just one or two suppliers, and little or no possibility for substitution. Experience of various disruptions (Japanese tsunami in 2011, Eyjafjallajökull volcano eruption in 2010) shows that the impact of a disruption does not scale linearly with its length but accelerates—and recovery takes disproportionately longer. Within a month or so the electric grid collapses due to lack of supplies and maintenance; it is probably at this point that recovery becomes impossible.

 

But even before that point the contagion will start to feed on itself. The region of negative feedback where homeostasis is maintained is surrounded by regions of positive feedback where the system is driven further and further from equilibrium. For example, “The financial system... would not just be collapsing because of unsustainable levels of debt-to-income, but because that income would be collapsing as production halted and its future prospects turned dire.” (p. 69) Nor would the economy of goods and services be spared similar degenerative processes: “One would expect a massive reorientation away from discretionary consumption towards primary needs—food, essential energy, medicine and communication.” (p. 62) As a result, many businesses would fail, further depressing demand, while maintenance would be deferred to the point where much of the infrastructure becomes non-functional.

 

[you only have to visit or read about Argentina's current situation to see where we are headed]

 

Much of that infrastructure is designed for a growing economy as well, and will become a millstone around our necks: in a shrinking economy, the fixed costs of existing critical infrastructure give rise to negative economies of scale, making extensive infrastructure unaffordable at any level. The global aspect of the global economy would be perhaps the fastest to disappear: citing the evolutionary economist Paul Seabright, Korowicz writes: “Trust between unrelated strangers outside their own tribal grouping cannot be taken for granted.” (p. 23) Trust between strangers builds up slowly but is lost rapidly. In a shrinking economy, “taking care of one's own” becomes more important than maintaining a trust relationship with strangers across the world.

 

The opposite viewpoint can be, and is expounded by Korowicz and others, but has the drawback of being rather highly intellectual and abstract, offering little that is experiential or intuitive. This makes the exposition less than optimally effective for many people. Most people look out the window and see cars driving around and people going in and out of banks and shops and offices. But to really understand what underpins the stability of this scheme we have to be able to see, with our mind's eye, a dynamic system that can maintain homeostatic equilibrium and recover from shocks when all of its parameters remain within a certain range.

 

Let's try a simple metaphor. Suppose you are sitting in the kitchen. On a saucer in the middle of the kitchen table is a pretty blue marble. You are in an earthquake zone. As tremors hit, the marble rolls around the saucer, but it never rolls out of the saucer. This is a dynamic system within its stability range. But then a bigger shock hits, a chunk falls out of the ceiling and smashes the saucer, the marble skitters off the table, rolls through the gap under the door, down the stairs, down the street, and falls into a storm drain. In other words, the system takes small shocks in stride, but big shocks destroy it completely. Where the dividing line between small and big shocks runs—nobody really knows, but that doesn't matter provided we know that the shocks are only going to get bigger. And we do know that.

 
Now let's tackle a bigger dynamic system: global finance. At this point in time, all of the highly developed economies are 1. very highly indebted and 2. are either shrinking or not growing. This is not a stable situation: “Because credit is charged at interest, credit expansion is required to service previously issued credit. In order for the issued credit-money to retain its value relative to goods and services in the economy, GDP must increase commensurate with credit-money expansion.” (p. 33) The end result of this process is national default. At this time, the fact that Greece is in some stage of national default is no longer controversial. Nor does it appear likely that the problems of Spain, Italy or Ireland can be sorted out.
 

Nor is it likely that growth will resume. First, there is the problem with natural resources, oil foremost among them. It is too expensive to allow growth, and it can't get any cheaper because the remaining marginal resources are, well, marginal—deep water, tar sands, shale oil and other dregs—and are expensive to produce. Second, there is a problem with levels of debt: too high a level of debt chokes off economic growth. Third, we are at a point now where it is not possible to stimulate growth: the latest figures are that it takes a 2.3-fold increase in debt to produce one unit of GDP growth. We have achieved diminishing returns with regard to growth: we need to dig a bigger hole in which to put all this debt, and are willing to go deeper into debt to do it, but no matter how fast we dig, the debt just keeps piling up next to the hole. The politicians still talk about growth, but it's a race to nowhere.

 

At 78 pages of scholarly, somewhat jargon-laden prose, Trade-Off: Financial System Supply-Chain Cross-Contagion by David Korowicz is not quick reading, nor is it light reading, but it is important reading. It puts a lot of definition to the concept of cascaded failure, in which financial collapse inexorably leads to political and economic collapse with no possibilities for arresting this process or even altering its course. This may seem like a terribly pessimistic message, and, indeed, it is hard to imagine that it would provoke a cheerful reaction in any sane person. But for those who feel that it is important to understand what is unfolding, Korowicz offers a large dose of realism. Still, a fair warning is called for: “Abandon all optimism all ye who enter here!”

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