More on money from John Wilder.

We are looking at NZ at some form of currency failure. The official median house price is now over 1 million. When I married the ex, we bought a house for under 150k, and we sweated about the cost. I’m pretty certain the ex has done very little to the place (unlike Kea, who likes improving and renovating places) and it is now worth — well over 1 million. That is over 30 years. My parents bought their house 20 years ago for around 500 K and it is now worth around 2 million. My sister and her husband bought their house off the plans for about 1 million five years ago and it is now worth 2 million. Exponential growth like this is a sign of a bubble, and bubbles burst. Since most of the assets on NZ bank books are farms and residential property, this could get very brutal.

American investor Michael Burry, who shot to fame in the global financial crisis of a decade-and-a-half ago, on June 15 warned of the “greatest speculative bubble” in the history of stock markets. The head of hedge fund Scion Capital and also one of the most respected money managers on Wall Street rejoined the microblogging platform only recently to make a bold statement on Tuesday with hashtag #FlyingPigs360 which appeared to a reference to a famous saying in investing. 

The saying goes, “Bulls make money, bears make money, but pigs get slaughtered.” Burry’s latest tweet came after he repeatedly flagged that investors have grown more greedy and hence, shouldering risk as they are seeking unrealistic returns.

So some wisdom from Uncle John. Go read it there. He has pretty pictures.

Looking at all of history, though, I’d say what happens with money depends upon the kind of collapse we expect to see.  For the sake of simplicity, I’ll break collapses into three sizes.  Why these three sizes?  As of the time of writing I’m a bit thirsty, and the local convenience store only has three drink sizes.  Here they are:

Medium: The definition of a Medium failure includes monetary easing.  It could also include a default that may cause economic hardship, but doesn’t impact the government of the country or the ability of a country to issue its own currency.  This describes all of the defaults of the United States.

Large: This involves the complete destruction of a currency.  Common examples are Weimar Germany or modern-day Wakanda©  In both cases, the currency imploded as the major engineering problem of the day was how to print more money, faster (hint:  the Germans only printed on one side to double press production).  In Germany, the change led complete dissolution of society and a rebuilding under . . . well, Literally That One Guy Nobody Can Mention.  In Zimbabwe, it led to complete destruction of the currency and eventual loss of power for the guy who had been President for as long as Zimbabwe had been Zimbabwe.

Big Gulp®: This is the complete destruction of the economic as well as political system.  Rome, long laboring under a fiat currency, finally imploded and left behind a smoking crater that took hundreds of years to fill.  Thankfully, refills are only $0.29 with purchase of the official mug!

So what happens to an individual in one of these failures?

In a Medium Failure, you can keep your currency, if you like it, but what cost $100 a few years ago probably costs $1000 now.  Everybody adapts and you can generally go about your business, but you’re poorer and not at all happy, and it looks a lot like the Housing Bubble of the 2000’s.

In a Large Failure, ultimately the currency is toast.  Your money is gone.  But the country will restart the economy using either a new currency, or just by adopting an outside currency that’s moderated by someone marginally more adult than you.  Zimbabwe’s unofficial currency is the United States dollar, but there aren’t enough of them to go around, so many people use mobile currency that’s (more or less) run by cell phone companies.  When your cell phone company has a much better record of fiscal restraint than your government?  Yikes.

A Big Gulp© Failure is social collapse.  The biggest one in recent Western history is Rome.  The Roman Big Gulp® was so big that it spawned collapse after collapse in nation after nation as Rome shrank away from areas it could no longer afford to protect or govern. Great Britain is an example of the collapse.  After the last Roman Legion left people buried their money . . . and never dug it up.  Why?

The silver content of Roman coins in the late Empire consisted of waving a bit of silver over the top of the molten metal before a coin was made.  Rome had gone full fiat.  Roman coins, in the absence of Roman troops, were worthless.  Money itself was abandoned, and barter was the key, when local bandits and warlords didn’t just take what they wanted.

John Wilder

The question is what kind of failure. Because inflation is a default position for most governments because if you slowly inflate you can penalize savers, reward debtors. The government likes to run deficits, which means it is always in debt unless it prints enough money to cover the debt (yes, that is modern monetary theory and quantitative easing) however, though the government can came some things, they cannot game food or fuel. You need both. The current situation can’t continue. John Wilder, again. Scenario 3 is recession, scenario 5 is Weimer style hyper-inflation, and scenario 6 is country collapse.

Listen, I don’t mean to sound paranoid, but banks are giving mortgages out at 3.3% and inflation is at 6%, which means that banks will lose money every year as long as inflation is a thing.  How can they do this?  Volume!

No, I’m kidding.  The Fed® is giving them tons of money to lend cheaply to keep housing prices up.  When mortgage rates go up?  Then the housing bubble bursts.  So, we could end up in Scenario 3., 5., or 6. very, very quickly.

Gold and silver (in my NON FINANCIAL ADVISOR) opinion are awesome in most scenarios.  If it devolves past thepoint where order matters at all, then it comes down to weapons, political connections, preps, and sheer dumb luck.

John Wilder.

In the antipodes, we are already inflating, having shortages, and the economic activity we expected is not returning. Some things we have noticed.

  • There are a number of toys for sale. Sports cars, sported up Utes (pickup trucks), caravans, boats, holiday homes
  • The number of people buying coffee with their fuel has decreased markedly. Given that NZ has socialized caffeine addiction, this is significant.
  • The amount of service from salesmen on commission and the pressure you get has gone up. However, the wait time if you order directly from the retailer is weeks to months.
  • If you have to cancel accommodation — even one month ahead of time — you can’t get refunds. Ditto plane flights.
  • All mainstream media are sponsored by the government, which subsidizes journalism, to combat misinformation. Which is why we call the mainstream media reports Pravda.
The Taxpayer’s Union provides this.

Things are getting short of supply. This includes, in Australia, food. Coles is one of the big supermarket chains in Australia.

Coles has introduced new temporary purchasing limits on certain grocery items across all its supermarkets and online stores, except WA, as COVID-19 wreaks havoc on Australia’s critical food supply chain.

Shoppers have been warned to expect shortages at supermarkets throughout January.

In all states and territories, excluding Western Australia, a two pack limit is being applied to mince, chicken breasts, chicken thighs, and sausages.

XYZ news.

This does lead to one changing tactics. The principles of pirate finance remain, but one has to be quite careful about how you act on this.

  1. Have cash or near cash with you. Get into the habit of withdrawing the grocery and gas money each week and try to spend less than budgeted.
  2. Use alternative means of grocery shopping. Butchers, greengrocers, farmer’s markets.
  3. Be good at growing stuff.
  4. Have your money in at least two banks with two credit cards. Then don’t use one of them.
  5. Get precious metals. Right now silver is cheap. Get gold anyway.
  6. Do the numbers on any investment. You need to be making money after taxes and inflation are taken out of the equation. (An aside. In NZ you can’t claim mortgage expenses including on investment property and if you sell an investment property within 10 years of purchase you have to pay GST and income tax on any profit you make. Which is why there is a housing shortage. Mum and Dads have sold their rentals, paid down the mortgage on their home, and are waiting).
  7. Expect the government to try to confiscate or regulate all superannuation and bank based assets. Non bank associations, non cash assets are worth it, even if holding them costs you. Better to have 97% of your savings than zero.

The times are interesting. The elite are getting gold and farmland. Do what they say, not what they tell you to do.

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John Wilder
19 days ago

For a while, we thought of heading down to NZ – it seemed like a theoretical possibility. Maybe buy a little winery. It sounds like things are headed in the wrong direction, and quickly.

What do you see are the things that are leading to the big losses of freedom down in NZ and Australia? Why isn’t there more of a public pushback?

I think that is going to need a long blog post. Give me a few days

19 days ago

In addition to gold and silver, Bitcoin is the way. If you have a non custodial anonymous wallet or a cold storage device there is literally no way for anyone to take your Bitcoin. Also note that BTC is QAULITATIVELY different from all other ‘Cryptos’ which are not decentralized in any meaningful way and not optimized for anti-fragility.

20 days ago

I would also add: If you can get out of debt, by buying farmland with family or with others you can trust, do so. Avoid mortgages like the plague.

In the early stages of currency collapse, we may be sure that any loan that can be recalled, will be recalled. And in that case, woe to the debtors!

Yes, indeed hell yes. I know that landlords use mortgages to leverage and every farmer I know has a few million dollars of debt. Downsize and get out of it. Wait and invest when the sums make sense. They don’t right now.