Economic Armageddon, the storm has arrived, and what to do for yourself.

galileoreloaded

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Wed Sep-17-08 02:18 PM
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Economic Armageddon, the storm has arrived, and what to do for yourself.

As I post here from the beach in Mexico, incidentally where I have VERY recently begun to emigrate myself and family to, I hope you will listen to an old hat in economics and investment banking.

I am watching the news and want to add a little clarity to the many posts asking what the hell is going on. I will try to put it in a nutshell.

First, the powers that be have no clue what to do, because they allowed the "system" to outpace their ability to understand it's complexity. This is evidenced by the deluge of corporate bail outs and well documented illegal acts by this FED and Treasury to plug the hole(s), and this astonishing admission by our own Harry Reid. When I say illegal, I don't mean constitutional, I mean breaking current Federal reserve act guidelines and established laws.

"Reid Says Congress Won't Act Because `No One Knows What to Do'

By James Rowley

Sept. 17 (Bloomberg) -- Congress is unlikely to pass new legislation to overhaul financial regulations this year ``because no one knows what to do,'' Senate Majority Leader Harry Reid told reporters today.

``We are in new territory, this is a different game,'' Reid said at a briefing in Washington. Neither Federal Reserve Chairman Ben Bernanke nor Treasury Secretary Henry Paulson ``know what to do but they are trying to come up with ideas,'' Reid said."

The reality is that our banking and finance system is completely insolvent, and the days you see the market UP, are the generally the day after the FED pumps in more inflated cash, and the money goes to work, suckering in normal folks to only pull that money off the table a day later. This is how they are covering the losses by utilizing the single strongest capital base, the American consumer.

As we evidence the Russian market collapse, and the 30-40% retractions in China and other Asian economies, a disturbing pattern emerges. I wont get into fund flows and "hot money", but be sure that most money that the pro's AREN'T WILLING TO LOSE is off the tables. That leaves the only people in the market to absorb the majority of losses. That's you. And every pension fund, mutual fund, etc. Oh, cant forget the "safe" money market funds. These will be wiped out in very short order, and in fact, money markets are already starting to halt redemptions.

Money market giant freezes redemptions
By Sam Mamudi
Last update: 5:19 p.m. EDT Sept. 16, 2008
Comments: 101
NEW YORK (MarketWatch) -- One of the first and largest money market funds has put a seven-day freeze on redemptions after the net asset value of its shares fell below $1.00,Primary Fund, a $62 billion fund managed by money market fund inventor The Reserve, said Tuesday afternoon that its $785 million holding of Lehman Brothers Holdings debt has been valued at zero. As of 4 p.m., the value of the fund's share is 97 cents. The Reserve said that redemption requests received before 3 p.m. Tuesday will be paid out at $1 a share.

Unfortunately, this will not end well for any of us, and if it was me, a physical cash position would be advisable for the next 2 years or so. Also, if you bought a house in the last 4 years, no one will think differently if you just stop paying. In fact, if you can save the rent or mortgage payment over that period, the recent talk of a renewel of RTC will probably allow you to buy your old house back at 30-40 cents on today's value. Credit cards??? Buy stuff. Stuff with value, not dinner out. Things like water filters, long term food storage, extra set of tires for a cheap paid off vehicle, a scooter that gets 90 MPG, prepay your water bill and electric bill for as long as you can. Subsistence will be the name of the game.

A note on security. Things will probably get very third world around Christmas, and most newly minted "wolves" won't be the poor of today, but the newly poor. Those unwilling to accept the massive decrease in their personal standard of living. These will be people that are used to making a good living and are not afraid of taking risks, especially if local officials can be "coaxed" into compliance by cold hard cash. Times like these give rise to organized crime, smuggling, and petty crime (home invasions, etc.)
Precautions should be taken, and alert observation will be very helpful.

This is where you say, "is this guy a kooky survivalist or something?" No, actually I grew up on a farm in the Midwest, but harsh reality makes one think about ALL preconceptions, and the blunt truth is that when seconds count, the police are minutes or half an hour away.

I will share more later, things are moving so quickly that I have to get back to my real job.