Y2K, Commodities and Hyperinflation

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Gonna ramble a bit here, but there is much to discuss.

What is sticking in my mind are some of the comments made to R. Reagan's GRACE COMMISION in the 1980's. The Commission members interviewed the leading financial experts and government finance personalities in many of the South American countries. When the Commision asked, "How long did it take your economy to go from a state of normalcy to hyperinflation?" the answer was, "One week".

"One week", think about it! We have just gone through an 18 year bull market for bonds and stocks. Commodity inflation has not been much of a problem during this period. In fact commodity prices have been remarkably stable in spite of record money creation by the Fed and the banking system. They have been stable dispite the fact there exists a massive and rapidly increasing amount of $US currency in circulation throughout the world. It even more remarkable that commodity prices have remained under control given the enormous float of counterfiet currency in circulation (estimated at between 10-20% of the total currency float).

The commodity complex has been a relatively unattractive investment compared to bonds and equities over the past 2 decades. The lack of investment/speculative interest can partially explain this lackluster performance as can the disinflationary policies of the last real central banker, Paul Volker. Manipulation is one other means of suppressing prices. The commodity complex has recently been showing signs of life while also giving us glimpses of a massive secret campaign to keep commodity prices in check. The best illustration is the blatant manipulation of the gold market. (please refer to www.lemetropolecafe.com for detail). Last week it was disclosed that in an attempt to keep the price of palladium in check (a price increase of any precious metal will spill over into the others) the US Government has liquidated virtually its entire stockpile of this very strategic metal. Now Russia remains virtually the lone supplier of palladium to the world market. Incredible!

No doubt the same powers are working overtime to keep the oil complex in check. It is a losing battle IMHO and this is being reflected in the bizzare behavior and statements being made by Richardson, Clinton and the rest. In fact, they have already lost the war (how do you fight a insoluble computer design error?) we just don't know it yet.

Indeed, I believe the Y2K problem will be the tripwire that releases the shackles from commodity prices and ushers us down the nasty and demoralizing road to hyperinflation. It will most likely start in the oil complex and rapidly spread to all other real commodites. This process should start within the next three weeks and keep going for years. Remember, it took the SA countries only 1 week to go from normalcy to hyperinflation.

Why? It is so simple. The lack of energy and a breakdown in the JIT process will severely impare our ability to create and process/refine new supplies of commodities. The exisiting stockpiles instantly become very very valuable as future deliveries are suspect. If your orginazation intends to remain in existance, it must stockpile all necessary supplies IMMEDIATELY. No choice in this matter! Add to this the incredible amounts of bank created funds and currency in circulation , what will stop this great price expolsion?

So as a civilization here we sit, going into the last year of the millenium largely ignorant and complacent about the economic ramifications of Y2K. We are in love with our grossly inflated paper assets and all the toys (SUV's etc.) they bring us. Things are so good, we cannot imagine bad times and we will not listen to any objective voices of caution. Technology has served us incredibly well and of course we humans have complete control over our high tech! - or do we? Boy are things going to change - and fast!

Likes: 1. gold coins 2. junk silver coins 3. 2-4 week deposits 4. Unhedge gold producers and junior golds 5. Commodity based companies

Dislikes: 1. bubble stocks (the whole high tech complex) 2. deposits and bonds with a maturity of greater than 1 month

More than anything else, I believe that liquidity is your friend.

"A commodity in hand is infinitely more valuable than a promise to deliver." Y2K mantra

-- Ishkabibble (ishman@home.com), December 25, 1999


Just in case you were wondering, Palladium is sometimes used as a component of "catalyst" used in catalytic crackers, which are not used to spread peanut butter on, but rather to refine oil into petroleum products.

Caveat Emptor.

-- Gordon (g_gecko_69@hotmail.com), December 25, 1999.

Gosh, I'm certain I'm sounding naive here, but wouldn't the fact that oil is going to be a problem impact the Big 3 car makers? Either they can't get all 10,000 parts or whatever in order to make a car, or no one is going to want to buy a car because there's no gas to run them. Sure, they could whip up some new type of alternate energy car, but whip up in automaker's terms means a 4-5 year retooling.

I mean, aren't these guys poised to be shut down by one Y2K effect or another? If they are shut down, lots-o-people are out of work. Same with most industries dependant on oil. Where are these out-of-work people going to get the money to buy hyperinflated goods? Sure, Uncle Sam can print more and more and throw the extra dough at a whole new set of industries to fix/by-pass the oil problem, but at some point something has to come crashing down, don't you think?

-- CD (cdokeefe@firstva.com), December 25, 1999.

Yes, the automakers are gonna have some big time problems. You are also correct to expect a recession or even a depression from Y2K. As well, the governments only response will be to create more "money".

In short, it will most likely be the worst of all worlds - rising commodity prices and falling investment "assets". In other words, your cost of living (essentials) is going to skyrocket while the wealth you accumulated in stocks, bonds and real estate will be decimated. Not very pretty - Indeed!

However, I will be happy to see those SUV's (and their stupid, inconsiderate, arrogant yuppie owners) off the roads and left sitting at the baliffs. :))

-- Ishkabibble (ishman@home.com), December 25, 1999.

>>However, I will be happy to see those SUV's (and their stupid, inconsiderate, arrogant yuppie owners) off the roads and left sitting at the baliffs. :))

I'll second that! Those stupid SUVs are so hard to see around. I'm still driving a little car, and I plan to continue driving it as long as I can afford the gas.

-- (littlecar@tightspot.com), December 25, 1999.


"However, I will be happy to see those SUV's (and their stupid, inconsiderate, arrogant yuppie owners) off the roads and left sitting at the baliffs. :))"

Your experience is very narrow. Frightening and narrow minded! I have an SUV and a 4 x 4 pickup. Have had these kind of cars & trucks since 1966; long before they were SUV's. Why? Because I can't get out for a significant period of the year without them. In the spring, when the ground begins to thaw, I sink to the axles in the road. That is the ROAD. Your preconceived ideas identify you as one who lives in a large city. The kind of person who will be most damaged by an oil shortage.

Best wishes,,,

-- Z1X4Y7 (Z1X4Y7@aol.com), December 25, 1999.


Sorry, I didn't intend to tar those in the country who need SUVs. I'm referring to the arrogant fools in the big cities. Indeed, I do hope the yuppie vehicles end up at the baliffs as I have had a multitude of bad experiences here in the big city with these fools.

-- Ishkabibble (ishman@home.com), December 25, 1999.

On a scale of 1 to 10 I judge Y2K to be an 11

-- Notforlong (Fsur439@aol.com), December 25, 1999.

Thanks Ishka for your most perceptive analysis.

For anyone who would like a blow by blow account about how hyperinflation could hit the dollar read the first two or three chapters of the "Patriots" book.

-- Andy (2000EOD@prodigy.net), December 25, 1999.

Andy...... this older man thoroughly enjoyed the book last spring. I would like to point out that in the story, the time line for the economic collapse of the u.s.a. was the fall of 2000. That is why the events next year will play to a suspenseful tune all year long.

-- Trying to think ahead (ggg@agreeing2.com), December 25, 1999.


I have to question what tangible worth gold, silver, and interests in commodities will be worth when TSHTF. I'm a 10 believer and feel that a single roll of toilet paper will be worth more in barter than a pound of gold. I can appreciate your advice provided some semblance of normal trade remains. My fear is that we will find black market and bartering systems to be perhaps the only way to obtain goods we can not produce for ourselves. In this position I think a case of Ivory soap would be a better investment!

--The Witch Doctor

-- Witch Doctor (bobmarley@hotmail.com), December 25, 1999.

I recently read on the Net that over the last 10 years gold has become the preferred vehicle for wealth transfer (aka laundering) for the illegal drug trade. Gold can be melted down into an endless variety of forms. Dollars they burn and attract too many questions. Indeed, the black market has already fully embraced gold.

Soap washes away.

Gold is eternal.

-- Ishkabibble (ishman@home.com), December 25, 1999.

Witch Doctor: Once a roll of toilet paper is used, it no longer exists and has no value. If it gets thoroughly soaked, it loses much of its value. If it catches on fire, it loses its value. Gold can never be used up and it is impervious to water and only changes its shape if melted by fire. It has a kind of eternal value. I will trade you a roll of toilet paper for an ounce of gold any day, under any social or economic conditions.

-- cody (cody@y2ksurvive.com), December 25, 1999.

Me too Cody, we all have "dung hands"...:o)

-- Andy (2000EOD@prodigy.net), December 25, 1999.

WIN!! Whip inflation now!

-- (jerryford@golfers.bunker), December 25, 1999.

There have been several instances of hyper-inflation which have been well described by historians; Andew Dickson White's "Fiat Money Inflation in France" comes to mind, as well as any number of descriptions of the hyper-infaltion in the Weimar Republic in Germany in 1923.

For someone to assert that an economy went from "a state of normalcy to hyperinflation" in one week suggests that, at very least, additional descriptive details would be appropriate to clarify what they have in mind, and to what extent, if any, it resembles what others may have in mind when referring to hyper-inflation.

There is not time, nor am I inclined, nor is this the proper forum, to present a treatise on the processes of inflation.

Let me mention a few considerations that may register with some who may read this: much of what serves as "money" today consists of credit card balances and checks drawn on "lines of credit". If we experience major economic disruptions, banks will be very likely to tighten credit. Such credit tightening will have the effect of reducing the supply of credit based "money". Such a reduction of the supply of "money" would tend to be deflationary rather than inflationary.

In short, things may be somewhat more complicated than some folks may suggest.


-- Jerry B (skeptic76@erols.com), December 25, 1999.

All of you raise good points. It will be complicated, and it's hard to know which way to go.

I suggest a little of all - yet it's very dependent on what your situation is where YOU are. My thoughts have been to try and assess what really will be valuable and exchangable where I am.

I'm in a rural area. Food production capability, water, even a defendable and decent home, are what's really important here.

Toilet paper- yes - short term Gold - yes - longer term, after the dye-off occurs and whatever form of "tribal organization" arises.

The next biggest problem becomes defending whatever "assets" you obtain or have now.

The best scenario, would be to be able to be "hidden", as to your assets, avoiding the defense problem, and "blending in" until the newly formed hierarchy is established.

Beyond that, it's very hard to forsee.

-- Gregg (g.abbott@starting-point.com), December 26, 1999.

I agree with much of what has been said. Time/Place will determine what commodity is the most valuable. Early on, water and food will be king (add cigarettes and alcohol if you like). As time goes by, toilet paper, prescription drugs, T-shirts, boots/shoes, etc. will gain in value. All along the way, those with enough resources in these areas to be able to "share", will be able to barter for other goods. If I have more than enough buckets of beans and rice for my family, I will barter for your gold or silver coins. But I will be unlikely to trade for your new Mercedes. Once I have had time to grow and harvest fresh vegetables, I will not give you gold or silver coins for dried foods. It will largely be a matter of timing. Also, if I am in the country, I may not be willing to trade toilet tissue for fresh vegetables--but in the city, I may.

-- Lillian Allen Tatum (WineTopper@aol.com), December 26, 1999.

I didn't mean to just bust in. Got carried away reading all your excellent views. Hope it's okay if I join in.

-- Lillian Allen Tatum (WineTopper@aol.com), December 26, 1999.


Why not? I agree, its an excellent topic and a rather frightening notion.

-- Ishkabibble (ishman@home.com), December 26, 1999.

@whitch doctor As cody said, I am prepared to trade any amount of toilet paper for as much gold you are able to supply. Gold is gold and very little can replace it. To be sure you can store enough toilet paper as to be able to barter it in case of trouble but I wish you good luck for the warehousing. You are going to need a very big house. The worst that may happen if you try to pay with gold, is that it is worth to much and you will receive your change in worthless paper. This is why you should have silver coins together with your gold.

@JERRY B Your opinion to the contrary, I think the banks won't dare restrain the credit, short of causing riots or worse. So prepare yourself for hyperinflation. Anyhow this is my bet. Time will tell.

-- Reni Coda (rene.coda@sympatico.ca), December 26, 1999.

Though i agree there are several factors that normally affect the economy and the supply system in this country, I do not believe they will have much relevence in a severe shortage of neccesary commodities such as heating oil, gasoline, natural gas, food, and water, and medical supplies. The fact is the Just In Time supply system will be our worst enemy in the coming months. How much is a loaf of bread worth to someone who hasn't eaten in 4 or 5 days? $10, $100, $1000? Isn't that instant hyperinflation? Also what value is a share of GE stock if I am freezing to death? How many shares would you sell to stay warm? Is this not also hyperinflation? This is NOT science fiction. It is the reality of the Senates report on Y2K stating in no uncertain terms that the transportation sector was woefully lacking in their preperations for Y2K. This report was dated 2/26/99, and things have not changed that much.

-- Paul Michaud (preachp@ipa.net), December 26, 1999.

Ishabibble (ishman@home.com)

What junior golds are you recommending? Thanks.

-- TedWalker (walker2ted@yahoo.com), December 26, 1999.

Nevada would be the area I would concentrate on. Many attractive listings on the Vancouver exchange with significant assets in Nevada. Includes, Coral Gold - CLH, Claimstaker Resources - CLN, Great Basin Gold - GBG, Chapleau Resources - CHI, White Knight Resources - WKR. All trading the their 52 week lows right now. Best to do your own due diligance.

-- Ishkabibble (ishman@home.com), December 26, 1999.

Thanks Ishkabibble Regarding junior golds I stay a thousand miles from any stock traded on Vancouver stock exchange. I own some Campbell Resources traded on NYSE. Trying to find some with more upside potential. Anyone else have any suggestions on junior golds? Email me please.

-- Ted Walker (walker2ted@yahoo.com), December 27, 1999.

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