A Question on the Economy
Michael,
I seem to remember you telling us that gas prices might plummet like this before the “big crash”. It was in a post or answer about inflation/deflation and TEOTWAWKI (The End of The World as We Know It). Do you remember that, and can you discuss it with us again now that it seems to be coming to pass?
Thanks
Thank you for your question. A brother here at the ranch brought this up just yesterday after I received your question, and I was already planning to write something about this subject, so here goes. My discussions and “what ifs” about the economy have taken place in many different places and in several different forums. I have discussed the idea of deflation/inflation with the group here on several occasions, and I had speculated that prices might plummet as a sign that a complete collapse was imminent. Of course I am not predicting anything. I am just speculating on what I see and warning people so they will know what to look for. I may be completely wrong, but my track record is pretty good. First, let me post what I wrote 17 ½ months ago about my opinion on the three forms that a collapse in Amerika might take:
“...there need be no catastrophic meltdown or huge eschaton type of event that many people are expecting. The end of things as we know it can happen with a whimper just as easily as with a bang. Things generally “wax worse and worse”, and for the most part this is the pattern set forth by Israel in the scriptures – though there were wars, invasions, destructions, etc., generally those things were events in a longer downward slide brought about by idolatry, syncretism, and worldliness. As for events concerning the EOAAWKI (end of amerika as we know it), I have kind of gathered my opinions into 3 likelihoods or scenarios that could very easily come to pass at any time. For preparedness reasons, I list these in order of how likely I believe they are to happen. Of course any combination of these three scenarios (or a thousand others) could also be what actually happens:
The internal collapse theory. Modeled on the collapse of the Soviet Union (although I think that that collapse was/is a planned deception). Amerika, embroiled in foreign wars it cannot win and with an economy and social system coming apart at the seams at home, suffers a catastrophic economic and social collapse. The dollar implodes, the credit system collapses, the housing and mortgage bubble bursts, fuel and other “necessities” become too expensive to afford. The banks call the loans, and then collapse themselves when foreign banks foreclose on US debt. Rampant unemployment, massive displacement of people, and general unrest ensues. Amerika balkanizes and breaks into a thousand pieces, many of them warring factions, and becomes like Europe in the dark ages. Here we see the rise and reinstatement of the temporal power of the Antichrist Pope over many of the resultant fiefdoms. The Vatican and the UN become the ubiquitous powers in the land. This is the main theory (with some combination with the others) that I use in my planned book The Last Pilgrims
The internal combustion theory. Internal strife, class and racial warfare, and general dissatisfaction result in Amerika coming apart at the seams. Economic riots and exploding crime and terrorism cause various secession and independence movements to proceed, most of which prove to be colossal failures and turn out to be twice as tyrannical than what they replaced. Amerika begins to resemble Central and South America with a dozen banana republics, run by misguided and violent “patriot” movements (socialist, fascist, anarchic), each believing that they are the heirs to the American Revolution.
The foreign invasion theory. Amerika, having alienated the rest of the world with her ham-fisted foreign policy, and weakened by her consumerist and debt-based economic policy, grows weaker and weaker. She is a paper tiger, and soon enough, her enemies (led by Russia and China) decide to teach her a lesson. The results of this (after the smoke clears) is similar to that in theories #1 and #2, only Amerika has now been robbed of her natural resources and energy facilities, which have either been destroyed during the war, or taken over by foreign interests” (Michael Bunker “Scatter Q&A”).
Ok, so those are the three main theories I have proposed, and as I said, I expect the first to be the principle one, which may or may not include all or some of the elements mentioned in options the other options. Now, as part of several other discussions, both online and offline, I have discussed why a deflationary period might precede a period of massive inflation, or... interestingly, how a collapse may just involve massive deflation with no real period of inflation.
Ok, so here is how it works. Gas prices skyrocketed over the last year. I have a post on BiblicalAgrarianism.com where there was an article in December of last year speculating wildly that Gas might hit $3.75 a gallon in 6 months. Many people dismissed that kind of talk as ridiculous. Well, in June and July of 2008, 6-7 months later, I paid over $4 a gallon for gasoline. There were many reasons for this price escalation:
Massive manipulation of the oil markets by the monied interests and by forces in the U.S. and other governments. Hundreds of billions were siphoned directly out of the economy in just a few months if you'll refer back to profit estimations made at the time.
Lot's of scared money was leaving the dollar (which was dropping) and was being invested in oil stocks, oil futures, etc. This drove the price of oil ever higher.
There were problems (mostly manipulated and purposeful) with refining capacity, so, in short, demand outstripped supply.
Ok, so as the price continued to rise, more and more speculative money was being thrown into oil stocks which compounded the price problem.
Now we see prices dropping drastically. There can be several reasons for this, and some of it may be a combination of all the reasons:
Political manipulation leading up to the election. It has become quite common for politicians and power-brokers to pressure oil companies to drop prices prior to an election. Unsatisfied worldlings do not always act predictably when they are very angry.
Simultaneously, we are told that several new refineries and more refining capacity came online. Automobile usage decreased at the same time.
As prices dropped, the “scared money” from the markets began to try to figure out where they could put their money in order for it to be safe. Just as this was happening, the banking and mortgage crisis (that I talked about 17 months ago) hit. The stock market plummeted, everyone got scared. Most of the people who were speculating on oil stocks and futures pulled out. Hello price drop.
As the drops intensified, it became apparent that the whole fabric of the economy was coming unglued. This means that a whole new bunch of questions were coming up which made investing in oil and stocks even more speculative. What happens if the whole economy collapses and no one is buying gas (see point #5), or no one can afford to operate a vehicle? What happens if money becomes worthless? Some people have all this money from the boom times but now there is nowhere safe to put it.
As folks start feeling the crunch from all quarters, people stop buying, stop spending, limit their traveling. Some people sold their gas guzzlers when the price hit $4 a gallon. Some lost their jobs when their businesses could not operate with gas prices that high. Trucking companies went out of business in July and August because of $4 a gallon gas, and now are gone when the price is now $1.70. Now there are FAR fewer customers, and those customers that are left are not buying much gas.
Ok, so now what you have is a massive deflationary period. This could (and might) effect all of the economy. A bunch of businesses are sitting on really big inventories and people are not buying like they were. Everyone is a bit frightened and a lot of people just don't have any money. Others have money, but nowhere safe to put it... I mean, would you trust all of your retirement money or your other cash in a bank? How about in the stock market? How about under your mattress? If people are not spending, you have very few dollars chasing a whole lot of goods. Prices drop dramatically. This is price deflation.
Now, here is where I speculate. There are a couple of different ways this can go.
In one scenario this deflation period continues for a time, then escalates. The prices drop precipitously and businesses begin dumping inventories. At some point, prices will be so cheap that the collective conscience of the consumer system trips and everyone goes out on a buying binge. They begin to spend their money, not on trinkets and toys, but on goods they were not previously able to afford. This could mean automobiles, or it could mean food and supplies, or it could mean Ipods and plasma screen TVs. We don't know. When this happens, and shortly after it, we could hit a period of maximum scarcity. After this, there won't be much money out there, and there won't be many goods to buy. Prices may remain low, but there just isn't any money out there with which to buy things. When you were young, did you ever stare at the penny candy and really, really want some... but you didn't have a penny? In this scenario prices don't skyrocket because almost nobody has money. As business failures increase, this process accelerates until we reach a point where most people just do not have the ability to buy many products at all. Of course most businesses will go out of business, and even if prices stay low in the businesses that stick around, not many people will have money.
In another, more likely scenario, as the deflation period escalates, we hit the point of the buying binge, and this time the producers who are left try to keep up with the demand. Prices do indeed skyrocket as consumers compete for the products that slowly become available. In this scenario the government, which has gone deeper and deeper into debt in order to stave off the collapse, has continued printing money and is either using it in massive bailouts, or is giving it away (in massive social welfare spending and projects like in the New Deal - call it the Obama Shiny Newer Deal) in order to keep cash flowing. Sugar Daddy Obama gives everyone thousands of dollars in tax relief, even if they never paid taxes. Literally trillions of digital or printed dollars are pumped into the economy... The dollar collapses, foreign governments call in their debts, or just pull out of the dollar, and now it doesn't matter how much money you have, you can have wheelbarrows full of it, because you can't afford anything at all that does become available. In this scenario, you may get in line for bread that is priced at $100 a loaf, and you may have $300 in your pocket, but by the time you get to the front of the line the bread is now priced at $500 a loaf. This is what happened in Germany in the Weimar Republic in the early 1920's:
This young woman is burning German Marks because the paper burned longer than the wood you could buy with the money. This is what happened in the Mexican and Russian currency devaluations in my lifetime. In 1992 the Russian inflation rate hit 2520%. In Zimbabwe right now (2008), prices are doubling every 15.6 hours which equals an inflation rate of 12.95 QUADRILLION percent.
So, any or all of these scenarios are possible.
I have constantly said that I believe we will see an economic collapse as I mentioned before, and that this economic collapse could be the trigger event for any number of scenarios that might follow. None of us knows what will happen, and there is the possibility that the powers that be figure out how to plug all the holes and the system limps on for many more years. I don't know. In our community, we plan for the worst and hope for the best.
Many worldlings are seeing the collapse of gas prices as a great sign of the soon return of prosperity. I wouldn't bet on it.
Your servant in Christ Jesus,
Michael Bunker