Protection For Your Assets and Your Family

         The United States is on track to surpass the critical 90% public Debt to GDP ratio within the next few years; however, the crisis may not begin until years later when the ratio is much higher. The timing is highly uncertain and depends on economic cycles, interest rates and events, many of which are unknown and/or unknowable.

      The crisis will begin abruptly at the Minsky Moment, after which nothing is the same. The Minsky Moment could be an event of seemingly little consequence like a routine Reuters or Bloomberg story that goes viral and, by the end of the day, the government no longer can borrow on acceptable terms and the crisis is upon us.

     Timing is crucial. Repositioning your assets too soon may mean many years of missing out on higher returns. Waiting too long has serious and obvious consequences. The best approach is to reposition assets gradually, beginning now and culminating as the debt ratio is around say 125%. Your actions can be phased such that early changes won’t be unduly penal if the timing proves wrong. There is one timing issue about which we can be fairly confident. After the Minsky Moment, the Fed will create money to keep the government running, but it soon will become apparent that this is a short term fix to buy time. Printing money can work for only about 6-18 months.

       I am confident about the final outcome but the timing is highly uncertain. For example, if the Fed keeps interest rates ultra low, the US may be able to survive a much higher debt ratio and postpone a full blown crisis for many more years.

The Spending Crisis Goes Thermonuclear

      After the Fed money printing is no longer effective and it becomes obvious no magic solutions exist, the crisis will be in full bloom. Treasury securities owned by banks, insurance companies, mutual funds and pensions will plummet in value like Venezuelan bonds, triggering a financial meltdown of epic proportion. Simultaneously, government must slash spending, including on Social Security, Medicare and pensions.

       There is but one certainty, i.e. all the excess debt must be purged. The only ways to accomplish this are through some combination of: (1) tax increases and spending cuts; (2) hyperinflation; (3) debt restructure and repudiation; and (4) financial repression. No matter how we purge the debt, it will require a generation (15-25 years) to accomplish and when the US crisis hits, it will plunge the entire planet into a period of darkness. Note: MLLG will publish a post in the next several weeks about financial repression.

Protecting Your Family

         Before the crisis begins, it is prudent to plan for civil unrest, breakdowns of law and order, interruptions in public services and financial/monetary chaos. I have faith in the American people that lawlessness will be limited, but given the volatile situation in our country, anything could happen. During the crisis we also will be highly vulnerable to foreign threats due to defense cutbacks. Even if you consider societal collapse or foreign aggression to be remote, it is judicious to take steps to protect your family.

        Caution dictates you do at least the following: (1) maintain a supply of gold and silver coins in small denominations; (2) have firearms and ammo; (3) stockpile water, available in 55 gallon drums; (4) keep a supply of non-perishable foodstuffs; and (5) have a supply of propane or a generator as well as batteries, flashlights and candles.

Part II Next Sunday

       The second and final part of this posting focuses on protecting your assets from the various perils that could happen during the worst of the spending crisis. And yes, it is possible to profit from the crisis and that will be addressed as well in Part II.