Are We Almost There Yet?
by Dr. Jeffrey Lewis, Silver-Coin-Investor Recently, I walked by our local Radio Shack. Strangely, my heart skipped a beat when I saw the generic clearance signs and the emptiness just beyond the glare and my reflection in the storefront glass. It was bizarre to see this fixture of my childhood almost – finally – gone. I had to walk in. One last lap through the familiar sections. I knew each section — all the wires and kits. I remember the catalogues. The homey feeling. The quirky salespeople. I suppose I hadn’t really needed Radio Shack for some time. And of course, I wasn’t alone. They turned to a high pressure sales force featuring Apple products and cell phones, next to low end brand name speakers and all manner of adapters and other equipment that was easier to shop for elsewhere. Where was everything? When did they announce the bankruptcy? Hadn’t they been going bankrupt for years? I thought out loud. Probably, this was long overdue. RadioShack, the institution, had quietly succumbed years before. As I walked by the empty shelves, I got to thinking about bottlenecks, and my childhood, and my lifespan which just so happens to be almost equivalent to the month of when the U.S. closed the gold window for good. Combined with the ongoing emergency monetary policy measures, and interest rates (the final visible frontier of intervention) largely negative, we also have a massive ballooning of political-financial mass media propagated hydrogen gas ready for any random spark. There is very little left in the way of real productive economic assets – from skills, labor, machinery, material goods, and commodities to production capacity, real savings, or surplus capital – against a backdrop of monumental ‘phantom wealth’ in the form of debt, credit, and derivatives. Consider the collapse from the this perspective: Not the overwhelming flow dollars – just the overwhelming scarcity of goods. The amount of notional derivatives and the dark sub terrain of unfunded liabilities add up to the $100’s of trillions compared with official (overstated) GDP. Add in the academically-derived and therefore blind consumer price index with the fact that spending is counted as production, and what lies hidden is a barren reality of scarcity that extends well beyond that of precious metals. And so it will all fill freeze over once again. A full stop credit crisis. One that will make the September 2008 “Lehman Brothers Collapse” look like a benign sideshow. Two economic-financial bottlenecks came to mind. No doubt you’ve heard about the cratering Baltic Dry Index and the ongoing dock delivery failures on the West Coast. These may turn out to be good indicators of the underlying health and stability of the economic system. Or they may just two out of the flock of Black Swans. All of this might appear deflationary on one hand, but however one chooses to define it; they are simply indications of stagnant or absent growth. But seeing RadioShack on its deathbed reminded me of an example how things might look in the short term after the collapse. From Wikipedia on the UK Truckers Strike at the turn of the century:
On 13 September 2000 the (British) government announced that 5% of normal fuel deliveries were made, however other reports indicated that only 3.8% amounting to 5,000,000 litres (1,100,000 imp gal; 1,300,000 US gal) compared with a normal daily sale of 131,000,000 litres (29,000,000 imp gal; 35,000,000 US gal). In Scotland only very limited supplies were being delivered for emergency use only. Three-quarters of petrol stations were reported to be without fuel.Some NHS trusts cancelled non-essential operations due to staff difficulties in reaching work and ambulances were only able to answer emergency calls in most parts of the UK. The National Blood Service reported that it was coping and blood supplies to hospitals were not under threat but said that there “were some significant problems in some parts of the country”. The government placed the National Health Service (NHS) on red alert. Supermarkets began rationing food due to difficulties in getting food deliveries through and there were reports of panic buying. Sainsbury’s warned that they would run out of food within days having seen a 50% increase in their sales over the previous two days; Tesco and Safeway stated that they were rationing some items. The Royal Mail also reported they didn’t have enough fuel supplies to maintain deliveries and that schools began to close. The government began deploying military tankers around the country and designated 2,000 petrol stations to receive supplies for essential services. Some deliveries commenced from the refineries and the police supplied escorts as required to ensure that tankers could move.
And therein lies the issue of scarcity. Food scarcity when the financial system, and its non-redundant credit channels, turn off. Naturally, because I tend to view these markets via silver-lined lens, the following comes to mind. We can never completely dissect the relationship between the commodity and investment demand. Fantasy prices require fantastic imagination. Think about this… What if the price of silver was already well over $100 – say it closed yesterday at $145.87? A price like that in conjunction with the macro-financial fragility and madness still seems low to me. The gap between a seemingly outrageous price and where we would go when it all finally breaks is in proportion to the ratio between real and artificial wealth mentioned above. That’s the main delta. The space between market reality and paper fantasy. That is the grand subsidy on this option. When we begin filling that gap is a mystery that lies somewhere deep within the power matrix of JPM – a nodal point (though not a permanent one) in the world monetary system.