Fiat Angst--Rejecting the System (FARTS)
Is this a happy Tuesday? Well… probably not, so let’s talk about other stuff.
Early in 2012, with gold soaring, and a key restriction lifted off my retirement account as I switched jobs, and with a severe case of fiat angst, we decided to reject the system and convert our fiat into precious metals (FARTS) (I love acronyms). So we withdrew it, paid fiat tax, paid a fiat penalty (about 20% total) and took the remaining fiat to the LCS. I had figured gold was headed higher shortly and would creep even higher in the days beyond. Wait, that shows my ignorance; gold doesn’t creep anywhere, it is fiat that changes in value. Well, you know what happened in April as gold approached 1700. A month later, I was 47% poorer, if I count wealth in fiat.
I was not happy, yet I did not despair, but I was feeling something. And “poorer?” Really? Was I poorer? No, I was more stable than ever and the angst was gone. Hmmm…
Today I see lots of negative emotion out there in the blogosphere from people who did as I did. They are frustrated at their loss, angry at those who said the system was collapsing imminently. Are they looking for someone to blame, even vindictively? But today, with some retrospective vision, and some soul-searching, I say they have the wrong perspective, that their negative feelings are founded upon a lie that “the system is fine,” that gold creeps and changes in value.
We are in the eye of the storm with the other wall approaching.
Perhaps my personal journey has been typical. My IRA lost 60% in 2008. I got conservative and moved it into a mortgage security fund AFTER the crisis where it earned a steady 6% per year and slowly, with steady contributions and meager interest, recovered most of my loss in 6 years. I started studying what went wrong and stumbled onto metals investing and found websites, this one included, that explained what was happening and pointed to a bleak future for the world economy.
In retrospect (and my retrospective vision is perfect, I might add), in retrospect, I should have doubled down with equities in 2008 like my retirement adviser suggested. I also should have bought those Citibank calls when the stock was priced at a dollar, my finger quivering over the mouse button, but I feared the small loss. None of us realized that QE and its wealth effect was on the way, that the Bernank would re-inflate those Fidelity equity funds beyond this financially ignorant slug’s wildest dreams. My boss, even financially sluggier than I, didn’t even pay attention to the crash. He stayed in his equity fund all the way through and is ready to retire now. “Highest praise to the Bernank!” he seemed to chant as he traipsed through the university halls. Meanwhile, I grumbled while slouching at my desk, staring at charts all day, reading financial blogs on the lookout for black swans. And I have seen lots of them: Silver default, Gold skyrocketing, Greece default, MFGlobal bankruptcy, Cyprus Bail-in, & and more recently, US Treasury dumping. But each has been shot down by Bernank & co. with metal control, multiple Greek bail-outs, a big cover-up, account theft, and the Belgian mystery buyer. And as can be clearly seen and proven by this image, there were more black swans I never knew about.
So how does that make me feel? How do I feel that my ovis aries friends have prospered since 2008 while I educated myself financially, then took aggressive action and have seen my wealth fall by about 50%. Well, I feel fine! Sure, I’d rather be right and rich today, profiting from an AG move of $35 to $600. But I feel fine because somewhere in all of the financial action I realized what Bernank & co understood all along, that 2008 was no game, it was not a simple crisis to be quickly solved and overcome. It was the game changer that teeter-tottered the future value of paper wealth to zero while the future value of commodities went the opposite direction. TARP, QE, LTRO, ZIRP, NIRP, bail-ins, have only served to keep the pre-2008 system appearing to be solvent, buying time for those who understand to unwind their leverage and transfer that risk to the financially ignorant.
So I see two distinct perspectives* out there:
1) that the central bankers have stabilized the financial system and found a way to continue the Keynesian government-economics for the foreseeable future. All is well, your funds are safe at Fidelity, the markets are driven by fundamentals (admittedly with some temporary headwinds and a few rogue traders), and these markets can be predictably traded with technical analysis.
2) that central bankers irreparably damaged their system in 2008 and currently have it on QE/ZIRP life-support that is losing its effectiveness. They know it full well and are negotiating behind the scenes to set up a new system (SDRs?) that will replace it when they pull the plug. All is not well, some weekend in the future bail-ins are a real possibility, and those who trade the market compete with algo-pirhanas.
Perhaps a third perspective is that the system is really collapsing or shifting, but until it does, metals and equities are tradable (for a disciplined trader).
Probably most of us reading economic topics from the perspective here would hold to perspective 2 (or 3). And keeping that perspective is the key to managing the negative emotion, otherwise, we will become weary and be suckered back into a normalcy bias with anger for our perceived loss. We must set out a disciplined plan for the future and stick to it, not being moved by taunts that we are part of a sad cult. Yet, in our disciplined plans, we need built in flexibility, a recognition that the ground may shift beneath our feet, that this shifting ground may remain somewhat stable for a very long time, and avoid over-committing before it is time.
While the idea of flexibility should be clear, the idea of over-committing may not be. By this I mean that we are not over-committed as a “prepper” to the point that we lose our ability to earn a living or estrange our immediate family. Likewise, an attitude that says “I’ll get ready when the collapse gets here,” that attitude will not suffice either. As I have written elsewhere, I hold that the collapse will happen incrementally, but fairly fast. We are not likely to see a sudden collapse (though possible) with the sharpshooting skill the Bernank & Co have shown in in shooting down black swans.
I know people who may be overcommitted as a “prepper” to the point where it affects their current life. One person sticks with a job she dislikes. Why? Probably because … “What’s the point in changing jobs if things may collapse tomorrow?” Well, the point is that you need to maintain good health. This person has suffered through a plethora of uncomfortable health issues—all stress related. She has done far more to prep than I have and has been on the leading edge of that movement since it started. But her life has been tough as a result and she does not seem to be happy.
I changed jobs two years ago to alleviate stress due to psychopathic bosses. The stress of work was causing serious health problems. So I found less stressful, easier work, leaving the professorate at a large Mid-western university and taking a lower level teaching position out west where I literally only work half the hours I used to. I gave up 30% of my pay… but so far, it has been worth it.
Stacking is expensive (more so back in 2011), but preparing your life for the new economy doesn’t cost that much in terms of fiat. It may require a more stable job, changing where you live, adding on storage space to your current home, having a plan of self-defense, etc. But all these things cost far less than purchasing 20 ounces of Au or 2000 or AG. And while every ounce of AU & AG will be a blessing later, it may not be saleable for a while. But food and supplies? That’s a different matter altogether. Already, my food prepping is paying for itself. We are consuming our stored foods and restocking, eliminating things that just did not store so well or simply taste bad. The replacements cost more, but much of what we eat today was bought at 2011 prices. Inflation is real, now, and is part of that slow slide into the new economy.
In the meantime, we do our best to enjoy life. We take trips out of town, see relatives, vacation, and frugally have fun now. But we also try to increase our income (wife taking a new job) and create a life that works now. We will make the transition to the new economy as we need it to. As long as the fiat I earn will buy the goods I want, I will keep working, living, and trying to spend it wisely.
My forward looking retrospective vision says that if we bail out of the ship too early, we will have lost an opportunity to be even better able to manage in the new economy. It is certainly listing, but still stable. Keeping one foot in this economy, though it is sinking, and one foot in our “lifeboat” will be the best course of action. So get your lifeboat ready, stock it well, but keep it tied to the big ship (with a simple easy-to-untie knot). Let this economy continue to provide a good living as long as it can, illusory though it may be. Have fun with your family. But learn to garden. Go on vacations. But take vacations in places where you may wish to live. Why not purchase a second home, or even a lot to park a travel trailer? Why not build a security fence around your home in the city, or replace your hollow core front door with one made of solid oak? Live a life of moderation, enjoyment, and careful observation. What great foresight that will be if we have a collapse. What great foresight if we do not.
A life of moderation, insuring yourself for the future, and enjoying what you can now, will mitigate that negative emotion. Recognizing that metals are real money, that they are undervalued in fiat today, will disempower the lie that “fiat is money and metals are losing.” Yes, I have learned to wait for dips to purchase and wish I would have done that earlier. But each time we see a another “isolated, roguish, Barclay’s moment,” another Obama executive-order, another war, we can take comfort knowing we are correct in our views, that the new economy is approaching, that continuing to advance our career—or switch to a new one is wise, that anything we do to make the transition will be gratefully appreciated, and that one might even do some trading, if you are skilled and disciplined. As for me and my house, we’ll leave the trading to others and invest in the new future with metals, land, and the tools we may need to survive then. That is what will moderate my emotions and keep me holding to the plan.