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Take These Steps Today To Survive An International Crisis

Take These Steps Today To Survive An International Crisis.

Thursday, 20 March 2014 08:00 Brandon Smith

With the Crimea referendum passed and Russia ready to annex the region, the United States and the European Union have threatened sanctions. The full extent of these sanctions is not yet known, and announcements are pending for the end of March. If these measures are concrete, they will of course be followed inevitably by economic warfare, including a reduction of natural gas exports to the EU and the eventually full dump of the U.S. dollar by Russia and China. As I have discussed in recent articles, the result of these actions will be disastrous.

For those of us in the liberty movement, it is now impossible to ignore the potential threat to our economy. No longer can people claim that “perhaps” there will be a crisis someday, that perhaps “five or 10 years” down the road we will have to face the music. No, the threat is here now, and it is very real.

The loss of the dollar’s world reserve status will destroy the only thread holding up its value, namely, investor faith. There are only two possible outcomes from that point onward:

A) The U.S. will be forced to default because no nation will purchase our Treasury bonds and support our debt spending, causing the dollar’s value to implode.

B) The Fed will choose to restart and expand quantitative easing measures, confiscate pension funds, raid bank accounts or issue new taxes in order to keep the system afloat; this will also end in the eventual collapse of dollar value and hyperinflation.

The consequences will lead to an explosion in prices — first in commodities and necessities like petroleum, imported raw materials, food, electricity, etc. and then in all other goods and services. Austerity measures will be instituted by Federal and State governments. Cuts to social welfare programs, including food stamps, are probable. Civil infrastructure will suffer. The cost effectiveness of maintaining public utilities could become unrealistic. Anyone relying on such services may find themselves cut off for days, weeks or indefinitely. Public suffering will invariably rise, along with public crime.

If events like Hurricane Katrina in New Orleans are any indication, the Federal government’s response will be inadequate, to say the least. The Federal Emergency Management Agency clearly cannot be relied upon to provide food, shelter, medical care or protection for communities. In fact, in the aftermath of Hurricane Katrina, the Feds did far more harm than good, corralling people into camps where death was rampant and disarming outlying neighborhoods so that they could not defend themselves. Tens of millions of dollars in donated and Federally purchased necessities were never delivered to aid survivors. Trucks were turned away, and help from civilian sources was denied.

The point is, if you find yourself in the midst of a national or international catastrophe, you should assume that you will be on your own with whatever preparations you made beforehand. To assume otherwise would be foolish, given our government’s track record.

There are some people who will argue that during an international crisis, such as an economic war or a world war, there is no purpose to preparedness. They will argue that there is nothing an individual or family can do to weather the storm or fight back, because the scale of the threat would be “too great.” There is no place for such defeatism in the life of the liberty-minded. The scale of the threat is irrelevant, and only cowards give up a fight before it even begins. Survival and freedom require an unwavering conviction. Nihilists will fulfill their own prophecies, suffering a fate exactly as they imagine for the rest of us; living in fear, slavery, and obscurity.

That said, it is also important to acknowledge the truth that the majority of Americans today are utterly unready for a minor localized disaster, let alone a national or global crisis. This problem, though, could be easily remedied with a few simple beginning steps. I find that most people are not averse to the idea of preparedness, but many have trouble taking the first steps in the right direction. For longtime preparedness champions, the information listed here might seem like old-hat. However, I challenge each liberty movement member to approach at least one friend or family member who could benefit from the steps below. Prepping appears daunting to the uninitiated; show them how simple it can actually be.

Below is a list of goals that every liberty movement member and American can easily achieve starting today and continuing over the course of the next month. If enough citizens were to take the initiative to do these things, all threats — no matter how imposing — could be overcome.

Buy Three Months Of Food Stock

Food supply is the greatest Achilles’ heel of the American populace. Most homes store less than one week’s worth of food items at any given time. The average person needs between 2,000 and 3,000 calories per day to maintain sufficient energy for survival. It takes around four to six weeks for a person to die of starvation and malnutrition. In a collapse scenario, most deaths will likely occur within the first few months, either by weakness and illness, or by looting and violence. The idea is to at least get through this first catastrophic phase without becoming a villain, or falling victim to one. One person removed from starvation is one possible threat removed from the equation.

Three months of supply is not ideal by any means, but it will buy you precious time. Start with 2,000 calories per day per person. Bulk foods can be purchased cheaply (for now) and can at the very least provide sustenance during emergencies. A 20-pound bag of rice, for instance, can be had for less than $15 and provides about 30,000 calories, or 2,000 calories per day for 15 days for one person. Supplement with beans, canned vegetables and meats, honey for sugar, or freeze-dried goods, and you will be living more comfortably than 90 percent of the population.

Food stockpiling is one of the easiest and most vital measures a person could take. Yet, sadly, it is one of the last preparations on people’s minds.

Buy A Water Filter

Do not count on city water to remain functional. Even during a drawn-out economic downturn rather than an immediate crisis, there is a good chance that some utilities will be sporadic and unreliable. This means you will have to focus on rainwater collection, as well as water from unclean sources. Boiling the water will kill any bacteria, but it will not kill the taste of sediments and other materials floating around. A high-grade survival filter is the best way to get clean water that tastes good.

The average person needs about a gallon of water per day to remain healthy and hydrated. I highly recommend the Sawyer Mini Water Filter, which is a compact washable filter that can cleanse up to 100,000 gallons of water. It uses no moving parts, making it harder to break; and it costs only $20.

Buy A Small Solar Kit

Try going a week or two without electricity, and you may find how dismal life can truly be. The very absence of light at night reduces one’s productivity time drastically, and using fuel for lanterns is not practical in the long term. Solar power is truly the way to go for a grid-collapse scenario.

I’ve heard much whining about the cost of solar power, but small systems that will serve most electrical needs can be set up for less than $1,000. Two 100-watt panels, a power inverter, charge controller and four to six 12-volt deep-cycle batteries are enough to deal with most electrical needs in a survival situation; and all these items can be contained in a portable foot locker for minimal cost. New solar panels are much more effective in low-light conditions and winter weather as well, making solar a must-have prep item.

Store A Fuel Source

Twenty gallons of gasoline treated with fuel saver is not expensive to purchase today, but in the midst of hyperinflation, it may be impossible to obtain tomorrow. Kerosene is useful for heating and cooking. Propane can be stored for decades and runs numerous appliances. If you live in a forested area, dried wood can be had for free, and can keep you warm throughout the winter months (keep in mind the your local danger factor when using fire). It is vital to have a means to stay warm and fed during the most difficult seasonal changes, especially during a grid down scenario.

Find Alternative Shelter

There are no guarantees during a full-spectrum disaster. Having all your eggs in one basket is not only stupid, but unnecessary. Always have a plan B. That means scouting an alternative location for you and your family in the event that your current shelter comes under threat. This location should be far enough away from large population centers but still within a practical range for you to reach them. It should also have a nearby water source, and be defensible. Establishing supply caches near this site is imperative. Do not assume that you will be able to take all of your survival supplies with you from your home. Expect that surprises of a frighteningvariety will arise.

Buy One Semi-Automatic Rifle

At this point I really don’t care what model of rifle people purchase, as long as they have one, preferably in high capacity and semi-automatic. AR-15, AK-47, Saiga, SKS, M1A: just get one! Every American should be armed with a military-grade rifle. If you are not, you are not only negligent in your duty as a free citizen, but you are also at a distinct disadvantage against the kind of opponents you are likely to face in a collapse situation.

Buy 1,000 Rounds Of Ammunition

Again, this is by no means an ideal stockpile, but it is enough to get you through a couple rough patches if you train furiously. Cheap AK-47 ammo can be had for $5 for a box of 20 rounds. Get what you can while you can, because the prices are only going to skyrocket in the near term.

Approach One Friend Or Neighbor

Community is what will make the difference between life and death during a SHTF collapse. I challenge everyone in the liberty movement to find at least ONE other person to work with in the event of disaster. Lone-wolf operations may be strategically practical for short periods of time; but everyone needs rest, and everyone needs someone else to watch his back. Do not fall into the delusion that you will be able to handle everything on your own.

Learn One Barter Skill

Learn how to fix one vital thing or provide one vital service. Try emergency medical training, gunsmithing or metal working, as long as it is an ability that people will value. You have to be able to produce something that people want in order to sustain yourself beyond the point at which your survival stockpile runs out. Be sure that you are seen as indispensable to those around you.

Grow A Garden

Spring is upon us, and now is the perfect opportunity to grow your own food supply. If you have even a small yard, use that space to grow produce. Focus on high-protein and high-vitamin foods. Buy a dehydrator or canning supplies and save everything. Use heirloom seeds so that you can collect new seed from each crop to replant in the future. If every American had a garden in his backyard, I wouldn’t be half as worried about our survival as I am today.

Prepare Your Mind For Calamity

The most valuable resource you will ever have is your own mind. The information held within it and the speed at which you adapt will determine your survival, whether you have massive preparations or minimal preparations. Most people are not trained psychologically to handle severe stress, and this is why they die. Panic equals extinction. Calm readiness equals greater success.

The state of our financial system is one of perpetual tension. The structure is so weak that any catalyst or trigger event could send it tumbling into the abyss. Make no mistake; time is running out. We may witness a terrifying breakdown tomorrow, in a year, or if we are lucky, a little longer. The path, though, has been set and there is no turning back. All of the items above can be undertaken with minimal cash flow. If you receive a regular paycheck, you can establish a survival supply for yourself and your family. There are no excuses.

Take the steps above seriously. Set your goals for the next four weeks and see how many of them you can accomplish. Do what you can today, or curse yourself tomorrow. What’s it going to be?

 

 

 

You can contact Brandon Smith at:  brandon@alt-market.com

The Fed is Fighting the Wrong Battle Again… And Creating Yet Another Crisis | Zero Hedge

The Fed is Fighting the Wrong Battle Again… And Creating Yet Another Crisis | Zero Hedge.

A critical element for investors to consider is that the Fed is not forward thinking when it comes to monetary policy. Indeed, if we reflect on the last 15 years, we see that the Fed has been well behind the curve on everything.

First and foremost, recall that Alan Greenspan was concerned about deflation after the Tech Crash (this, in part is why he hired Ben Bernanke, who was considered an expert on the Great Depression).

Bernanke and Greenspan, both fearing deflation (Bernanke’s first speech at the Fed was titled “Deflation: Making Sure It Doesn’t Happen Here”), created one of the most extraordinary bouts of IN-flation the US has ever seen.

From 1999 to 2008, oil rose from $10 per barrel to over $140 per barrel. Does deflation look like it was the issue here?

Over the same time period, housing prices staged their biggest bubble in US history, rising over three standard deviations away from their historic relationship to incomes.

Here are food prices during the period in which Greenspan and then Bernanke saw deflation as the biggest threat to the US economy:

The message here is clear, the Greenspan/ Bernanke Fed was so far behind the economic curve, that it created one of the biggest inflationary bubbles in history in its quest to avoid deflation.

Indeed, by the time deflation did hit (in the epic crash of 2007-2008), the Fed was caught totally off guard. During this period, Bernanke repeatedly stating that the subprime bust was contained and that the overall spillage into the economy would be minimal.

Deflation reigned from late 2007 to early 2009 with the Fed effectively powerless to stop it. Then asset prices bottomed in the first half of 2009. From this point onward, generally speaking, prices have risen.

The Fed, however, continued to battle deflation in the post-2009 era, unveiling one extraordinary monetary policy after another. They’ve done this at a period in which stocks and oil have skyrocketed:

 

Home prices bottomed in 2011 and have since turned up as well (in some areas, prices now exceed their bubble peaks):

 

 

Which brings us to today. Inflation is once again rearing its head in the financial system with the cost of living rising swiftly in early 2014.

 

Rents, home prices, food prices, energy prices, you name it, they’re all rising.

 

And the Fed is once again behind the curve. Indeed, Janet Yellen and Bill Evans, two prominent members what is now the Yellen Fed (Bernanke stepped down in January), have both recently stated that inflation is too low. They’ve also emphasized that rates need to remain at or near ZERO for at least a year or two more.

 

Investors should take note of this. The Fed claims to be proactive, but its track record shows it to be way behind the curve with monetary policy for at least two decades. Barring some major development, there is little reason to believe the Yellen Fed will somehow be different (Yellen herself is a huge proponent of QE and the Fed’s other extraordinary monetary measures).

 

Which means… by the time the Fed moves to quash inflation, the latter will be a much, much bigger problem than it is today.

 

For a FREE Special Report on how to protect your portfolio from inflation, swing by

www.gainspainscapital.com

 

Best Regards

Phoenix Capital Research

The Fed is Fighting the Wrong Battle Again… And Creating Yet Another Crisis | Zero Hedge

The Fed is Fighting the Wrong Battle Again… And Creating Yet Another Crisis | Zero Hedge.

A critical element for investors to consider is that the Fed is not forward thinking when it comes to monetary policy. Indeed, if we reflect on the last 15 years, we see that the Fed has been well behind the curve on everything.

First and foremost, recall that Alan Greenspan was concerned about deflation after the Tech Crash (this, in part is why he hired Ben Bernanke, who was considered an expert on the Great Depression).

Bernanke and Greenspan, both fearing deflation (Bernanke’s first speech at the Fed was titled “Deflation: Making Sure It Doesn’t Happen Here”), created one of the most extraordinary bouts of IN-flation the US has ever seen.

From 1999 to 2008, oil rose from $10 per barrel to over $140 per barrel. Does deflation look like it was the issue here?

Over the same time period, housing prices staged their biggest bubble in US history, rising over three standard deviations away from their historic relationship to incomes.

Here are food prices during the period in which Greenspan and then Bernanke saw deflation as the biggest threat to the US economy:

The message here is clear, the Greenspan/ Bernanke Fed was so far behind the economic curve, that it created one of the biggest inflationary bubbles in history in its quest to avoid deflation.

Indeed, by the time deflation did hit (in the epic crash of 2007-2008), the Fed was caught totally off guard. During this period, Bernanke repeatedly stating that the subprime bust was contained and that the overall spillage into the economy would be minimal.

Deflation reigned from late 2007 to early 2009 with the Fed effectively powerless to stop it. Then asset prices bottomed in the first half of 2009. From this point onward, generally speaking, prices have risen.

The Fed, however, continued to battle deflation in the post-2009 era, unveiling one extraordinary monetary policy after another. They’ve done this at a period in which stocks and oil have skyrocketed:

 

Home prices bottomed in 2011 and have since turned up as well (in some areas, prices now exceed their bubble peaks):

 

 

Which brings us to today. Inflation is once again rearing its head in the financial system with the cost of living rising swiftly in early 2014.

 

Rents, home prices, food prices, energy prices, you name it, they’re all rising.

 

And the Fed is once again behind the curve. Indeed, Janet Yellen and Bill Evans, two prominent members what is now the Yellen Fed (Bernanke stepped down in January), have both recently stated that inflation is too low. They’ve also emphasized that rates need to remain at or near ZERO for at least a year or two more.

 

Investors should take note of this. The Fed claims to be proactive, but its track record shows it to be way behind the curve with monetary policy for at least two decades. Barring some major development, there is little reason to believe the Yellen Fed will somehow be different (Yellen herself is a huge proponent of QE and the Fed’s other extraordinary monetary measures).

 

Which means… by the time the Fed moves to quash inflation, the latter will be a much, much bigger problem than it is today.

 

For a FREE Special Report on how to protect your portfolio from inflation, swing by

www.gainspainscapital.com

 

Best Regards

Phoenix Capital Research

Game Changer: It Will Be Shocking for the Average American: "Your Cost of Living Will Quadruple"

Game Changer: It Will Be Shocking for the Average American: “Your Cost of Living Will Quadruple”.

Mac Slavo
March 9th, 2014
SHTFplan.com 

It’s no secret that the U.S. government is in serious fiscal trouble. So much so that our Treasury Secretary recently noted that should the debt ceiling fail to be increased, the fall-out would be “catastrophic” and last for generations.

Given that sobering report, consider that everything in America, from food to fuel, is subsidized in one way or another. Those subsidies are being paid with ever-increasing debt. It is inevitable that at some point the world’s reserve currency, the US dollar, will be wiped out. The trigger for such an event is irrelevant. What is relevant, is how average Americans will be affected when that day comes.

In recent months working Americans have seen their health care costs triple. But this is just the beginning. When America’s debt problems come to a head the subsidies will be removed, and that will lead to cost of living increases that will leave those who never saw it coming in a state of confusion and bewilderment with no way out.

Marin Katusa of Casey Research, who has met with business and political leaders in over one hundred countries and is one of the most successful contrarian investment analysts out there, has some thoughts on the matter.

It will be shocking for the average American… if the petro dollar dies and the U.S. loses its reserve currency status in the world there will be no middle class.

The middle class and the low class… wow… what a game changer. Your cost of living will quadruple.

In the following must-watch interview with the Sound Money Campaign, Marin outlines the reasons for why our cost of living is going through the roof, the effects of geo-politics on our future, and ways to insulate yourself from what’s coming.

(Watch at Youtube)

Imagine this… take a country like Croatia… the average worker with a university degree makes about 1200 Euros a month. He spends a third of that, after tax, on keeping his house warm and filling up his gas tank to get to work and get back from work.

In North America, we don’t make $1200 a month, and we don’t spend a third of our paycheck on keeping our house warm and driving to work… so, the cost of living… food will triple… heat, electricity, everything subsidized by the government will triple overnight… and it will only get worse even if you can get the services.

For the average citizen, they should be thinking, ‘I should store some gold here and there as insurance for all of this.’

Now, I don’t know when it will happen. But it will happen, because it’s happened to all currencies.

I don’t think the people of Rome thought that Rome would ever fall as an empire… but it did.

So, you have to be prepared and protect your family. That’s why you want leverage to things that have major upside when the dollar does collapse. And the best insurance for that is gold.

As Marin notes, the assets you hold should be such that they maintain or increase their value as the Petrol dollar crashes and America’s debt bubble bursts.

For those with retirement investments like 401k’s, IRA’s or cash, Marin suggests you look to healthy gold companies as insurance. Back in the Great Depression of the 1930′s, as stocks crashed and then stagnated, those with investments in gold mining companies were able to not only preserve wealth, but grow it.

Those who prefer to keep their assets in physical holdings should look to gold and silver bullion, as well as those items that will become difficult to obtain when prices sky rocket. These core physical assets might mean long-term food stores, land with productive capacity, and personal energy production facilities that may include wind, solar or hydro.

If there is one trend that has taken hold over the last decade it’s continued price rises for the basic necessities of modern life. Given that we are now in more debt as a nation and individuals than ever before, it’s not hard to see where this is headed.

If you need a mainstream forecast to confirm what’s going to happen, then we point you to the words of President Barack Obama, who several years ago stated unequivocally that, “electricity rates will necessarily skyrocket.” He should know, because his policies are a significant contribution to what’s going to happen in the very near future.

Look out below.

dollar-value

Game Changer: It Will Be Shocking for the Average American: “Your Cost of Living Will Quadruple”

Game Changer: It Will Be Shocking for the Average American: “Your Cost of Living Will Quadruple”.

Mac Slavo
March 9th, 2014
SHTFplan.com 

It’s no secret that the U.S. government is in serious fiscal trouble. So much so that our Treasury Secretary recently noted that should the debt ceiling fail to be increased, the fall-out would be “catastrophic” and last for generations.

Given that sobering report, consider that everything in America, from food to fuel, is subsidized in one way or another. Those subsidies are being paid with ever-increasing debt. It is inevitable that at some point the world’s reserve currency, the US dollar, will be wiped out. The trigger for such an event is irrelevant. What is relevant, is how average Americans will be affected when that day comes.

In recent months working Americans have seen their health care costs triple. But this is just the beginning. When America’s debt problems come to a head the subsidies will be removed, and that will lead to cost of living increases that will leave those who never saw it coming in a state of confusion and bewilderment with no way out.

Marin Katusa of Casey Research, who has met with business and political leaders in over one hundred countries and is one of the most successful contrarian investment analysts out there, has some thoughts on the matter.

It will be shocking for the average American… if the petro dollar dies and the U.S. loses its reserve currency status in the world there will be no middle class.

The middle class and the low class… wow… what a game changer. Your cost of living will quadruple.

In the following must-watch interview with the Sound Money Campaign, Marin outlines the reasons for why our cost of living is going through the roof, the effects of geo-politics on our future, and ways to insulate yourself from what’s coming.

(Watch at Youtube)

Imagine this… take a country like Croatia… the average worker with a university degree makes about 1200 Euros a month. He spends a third of that, after tax, on keeping his house warm and filling up his gas tank to get to work and get back from work.

In North America, we don’t make $1200 a month, and we don’t spend a third of our paycheck on keeping our house warm and driving to work… so, the cost of living… food will triple… heat, electricity, everything subsidized by the government will triple overnight… and it will only get worse even if you can get the services.

For the average citizen, they should be thinking, ‘I should store some gold here and there as insurance for all of this.’

Now, I don’t know when it will happen. But it will happen, because it’s happened to all currencies.

I don’t think the people of Rome thought that Rome would ever fall as an empire… but it did.

So, you have to be prepared and protect your family. That’s why you want leverage to things that have major upside when the dollar does collapse. And the best insurance for that is gold.

As Marin notes, the assets you hold should be such that they maintain or increase their value as the Petrol dollar crashes and America’s debt bubble bursts.

For those with retirement investments like 401k’s, IRA’s or cash, Marin suggests you look to healthy gold companies as insurance. Back in the Great Depression of the 1930′s, as stocks crashed and then stagnated, those with investments in gold mining companies were able to not only preserve wealth, but grow it.

Those who prefer to keep their assets in physical holdings should look to gold and silver bullion, as well as those items that will become difficult to obtain when prices sky rocket. These core physical assets might mean long-term food stores, land with productive capacity, and personal energy production facilities that may include wind, solar or hydro.

If there is one trend that has taken hold over the last decade it’s continued price rises for the basic necessities of modern life. Given that we are now in more debt as a nation and individuals than ever before, it’s not hard to see where this is headed.

If you need a mainstream forecast to confirm what’s going to happen, then we point you to the words of President Barack Obama, who several years ago stated unequivocally that, “electricity rates will necessarily skyrocket.” He should know, because his policies are a significant contribution to what’s going to happen in the very near future.

Look out below.

dollar-value

“No inflation” Friday: the dollar has lost 83.3% against…

“No inflation” Friday: the dollar has lost 83.3% against….

No inflation?

March 7, 2014
Dallas, Texas

I needed a caffeine jolt late this morning after the long journey up from South America.

And while I’m generally averse to aspartame, high fructose corn syrup, and other government-sanctioned poisons, I did briefly consider a hit of Coca Cola as I walked past a vending machine on my way out of a grocery store.

Then I saw the price.

To give you some quick background, this was the same grocery store my mother used to shop at when I was a kid. And if I was really lucky, we’d stop for a can of coke on the way out– 25 cents back then.

Fast forward to today–. I’m a grown man of 35 now instead of a 9-year old kid. And while the store has changed hands a few times, there’s still vending machine near the entrance.

Same coke, same 12 ounces (though now in a plastic bottle instead of an aluminium can).

Price today? $1.50. [note, this is the vending machine price, not grocery store price.]

Put another way, $1 would have bought me 48 ounces of Coca Cola 26 years ago. Today that same dollar buys me just 8 ounces.

This means that the dollar has lost 83.3% of its value against Coca Cola over the past three decades, averaging roughly 6.6% inflation per year.

Some readers may remember the price of Coca Cola being just 5c back in the early 1950s (for a 6.5oz glass)… meaning the US dollar has lost 93.8% against Coca Cola over the past six decades.

Now, we are taught from the time we are children that ‘a little inflation is good…’

And when central bankers tell us they’re targeting an inflation rate of 2% to 3%, that certainly doesn’t seem so bad. 2% is practically just a rounding error. But bear in mind a few things–

1) An inflation rate of 2% is not price stability.

As Jim Rickards frequently points out, even with just 2% inflation, a currency loses over 75% of its value during an average lifespan. This can hardly be considered monetary stablilty.

And this practice of gradually plundering people’s purchasing power over time is incredibly deceitful.

2) Even if, they rarely meet their target.

As this case shows, 6.6% certainly ain’t 2%. The official statistics and research papers may say 2%. Reality is much different.

3) Wages often don’t keep up.

According to the US Labor Department, the median weekly wage back in 1988 was $382… or roughly 18,336 ounces of Coca Cola.

Today the median weekly wage is $831.40… or just 6,651.20 ounces.

So as measured in Coca Cola, the average wage in the Land of the Free has declined by 11,684 ounces per week– a 63.7% decline over the last three decades.

You can make a similar calculation denominated in Snickers bars, gallons of gas, etc.

If you have a big picture, long-term view, it’s clear that standard of living is falling.

Some readers may remember decades ago– a single parent could go out and, even with a blue collar job, comfortably support a growing family.

Today, dual income households struggle to keep their heads above water. This is the long-term plunder of inflation.

And just to give you a reminder of what things used to cost, I’ve pulled a page from the March 7, 1988 edition of the Bryan Times of Bryan, OH: 26-years ago today.

inflation federal reserve No inflation Friday: the dollar has lost 83.3% against...

You can scroll through the paper and note the prices:

25c for a dozen eggs. 69c for a loaf of bread. 49c for a pound of Chicken. A brand new Mustang LX for just $9203.

That’s the Federal Reserve for you. 100 years of monetary destruction and counting.

Global riot epidemic due to demise of cheap fossil fuels | Nafeez Ahmed | Environment | theguardian.com

Global riot epidemic due to demise of cheap fossil fuels | Nafeez Ahmed | Environment | theguardian.com.

From South America to South Asia, a new age of unrest is in full swing as industrial civilisation transitions to post-carbon reality
A pro-European protester swings a metal chain during riots in Kiev

A protester in Ukraine swings a metal chain during clashes – a taste of things to come? Photograph: Gleb Garanich/Reuters

If anyone had hoped that the Arab Spring and Occupy protests a few years back were one-off episodes that would soon give way to more stability, they have another thing coming. The hope was that ongoing economic recovery would return to pre-crash levels of growth, alleviating the grievances fueling the fires of civil unrest, stoked by years of recession.

But this hasn’t happened. And it won’t.

Instead the post-2008 crash era, including 2013 and early 2014, has seen a persistence and proliferation of civil unrest on a scale that has never been seen before in human history. This month alone has seen riots kick-off in VenezuelaBosniaUkraineIceland, and Thailand.

This is not a coincidence. The riots are of course rooted in common, regressive economic forces playing out across every continent of the planet – but those forces themselves are symptomatic of a deeper, protracted process of global system failure as we transition from the old industrial era of dirty fossil fuels, towards something else.

Even before the Arab Spring erupted in Tunisia in December 2010, analysts at the New England Complex Systems Institute warned of thedanger of civil unrest due to escalating food prices. If the Food & Agricultural Organisation (FAO) food price index rises above 210, they warned, it could trigger riots across large areas of the world.

Hunger games

The pattern is clear. Food price spikes in 2008 coincided with the eruption of social unrest in Tunisia, Egypt, Yemen, Somalia, Cameroon, Mozambique, Sudan, Haiti, and India, among others.

In 2011, the price spikes preceded social unrest across the Middle East and North Africa – Egypt, Syria, Iraq, Oman, Saudi Arabia, Bahrain, Libya, Uganda, Mauritania, Algeria, and so on.

Last year saw food prices reach their third highest year on record, corresponding to the latest outbreaks of street violence and protests in Argentina, Brazil, Bangladesh, China, Kyrgyzstan, Turkey and elsewhere.

Since about a decade ago, the FAO food price index has more than doubled from 91.1 in 2000 to an average of 209.8 in 2013. As Prof Yaneer Bar-Yam, founding president of the Complex Systems Institute, told Vice magazine last week:

“Our analysis says that 210 on the FAO index is the boiling point and we have been hovering there for the past 18 months… In some of the cases the link is more explicit, in others, given that we are at the boiling point, anything will trigger unrest.”

But Bar-Yam’s analysis of the causes of the global food crisis don’t go deep enough – he focuses on the impact of farmland being used for biofuels, and excessive financial speculation on food commodities. But these factors barely scratch the surface.

It’s a gas

The recent cases illustrate not just an explicit link between civil unrest and an increasingly volatile global food system, but also the root of this problem in the increasing unsustainability of our chronic civilisational addiction to fossil fuels.

In Ukraine, previous food price shocks have impacted negatively on the country’s grain exports, contributing to intensifying urban poverty in particular. Accelerating levels of domestic inflation are underestimated inofficial statistics – Ukrainians spend on average as much as 75% on household bills, and more than half their incomes on necessities such as food and non-alcoholic drinks, and as75% on household bills. Similarly, for most of last year, Venezuela suffered from ongoing food shortagesdriven by policy mismanagement along with 17 year record-high inflation due mostly to rising food prices.

While dependence on increasingly expensive food imports plays a role here, at the heart of both countries is a deepening energy crisis. Ukraine is a net energy importer, having peaked in oil and gas production way back in 1976. Despite excitement about domestic shale potential, Ukraine’s oil production has declined by over 60% over the last twenty years driven by both geological challenges and dearth of investment.

Currently, about 80% of Ukraine’s oil, and 80% of its gas, is imported from Russia. But over half of Ukraine’s energy consumption is sustained by gas. Russian natural gas prices have nearly quadrupled since 2004. The rocketing energy prices underpin the inflation that is driving excruciating poverty rates for average Ukranians, exacerbating social, ethnic, political and class divisions.

The Ukrainian government’s recent decision to dramatically slash Russian gas imports will likely worsen this as alternative cheaper energy sources are in short supply. Hopes that domestic energy sources might save the day are slim – apart from the fact that shale cannot solve the prospect of expensive liquid fuels, nuclear will not help either. A leakedEuropean Bank for Reconstruction and Development (EBRD) reportreveals that proposals to loan 300 million Euros to renovate Ukraine’s ageing infrastructure of 15 state-owned nuclear reactors will gradually double already debilitating electricity prices by 2020.

“Socialism” or Soc-oil-ism?

In Venezuela, the story is familiar. Previously, the Oil and Gas Journal reported the country’s oil reserves were 99.4 billion barrels. As of 2011, this was revised upwards to a mammoth 211 billion barrels of proven oil reserves, and more recently by the US Geological Survey to a whopping 513 billion barrels. The massive boost came from the discovery of reserves of extra heavy oil in the Orinoco belt.

The huge associated costs of production and refining this heavy oil compared to cheaper conventional oil, however, mean the new finds have contributed little to Venezuela’s escalating energy and economic challenges. Venezuela’s oil production peaked around 1999, and has declined by a quarter since then. Its gas production peaked around 2001, and has declined by about a third.

Simultaneously, as domestic oil consumption has steadily increased – in fact almost doubling since 1990 – this has eaten further into declining production, resulting in net oil exports plummeting by nearly half since 1996. As oil represents 95% of export earnings and about half of budget revenues, this decline has massively reduced the scope to sustain government social programmes, including critical subsidies.

Looming pandemic?

These local conditions are being exacerbated by global structural realities. Record high global food prices impinge on these local conditions and push them over the edge. But the food price hikes, in turn, are symptomatic of a range of overlapping problems. Globalagriculture‘s excessive dependence on fossil fuel inputs means food prices are invariably linked to oil price spikes. Naturally, biofuels and food commodity speculation pushes prices up even further – elite financiers alone benefit from this while working people from middle to lower classes bear the brunt.

Of course, the elephant in the room is climate change. According to Japanese media, a leaked draft of the UN Intergovernmental Panel onClimate Change‘s (IPCC) second major report warned that while demand for food will rise by 14%, global crop production will drop by 2% per decade due to current levels of global warming, and wreak $1.45 trillion of economic damage by the end of the century. The scenario is based on a projected rise of 2.5 degrees Celsius.

This is likely to be a very conservative estimate. Considering that the current trajectory of industrial agriculture is already seeing yield plateausin major food basket regions, the interaction of environmental, energy, and economic crises suggests that business-as-usual won’t work.

The epidemic of global riots is symptomatic of global system failure – a civilisational form that has outlasted its usefulness. We need a new paradigm.

Unfortunately, simply taking to the streets isn’t the answer. What is needed is a meaningful vision for civilisational transition – backed up with people power and ethical consistence.

It’s time that governments, corporations and the public alike woke up to the fact that we are fast entering a new post-carbon era, and that the quicker we adapt to it, the far better our chances of successfully redefining a new form of civilisation – a new form of prosperity – that is capable of living in harmony with the Earth system.

But if we continue to make like ostriches, we’ll only have ourselves to blame when the epidemic becomes a pandemic at our doorsteps.

Dr Nafeez Ahmed is executive director of the Institute for Policy Research & Development and author of A User’s Guide to the Crisis of Civilisation: And How to Save It among other books. Follow him on Twitter @nafeezahmed

Global riot epidemic due to demise of cheap fossil fuels | Nafeez Ahmed | Environment | theguardian.com

Global riot epidemic due to demise of cheap fossil fuels | Nafeez Ahmed | Environment | theguardian.com.

From South America to South Asia, a new age of unrest is in full swing as industrial civilisation transitions to post-carbon reality
A pro-European protester swings a metal chain during riots in Kiev

A protester in Ukraine swings a metal chain during clashes – a taste of things to come? Photograph: Gleb Garanich/Reuters

If anyone had hoped that the Arab Spring and Occupy protests a few years back were one-off episodes that would soon give way to more stability, they have another thing coming. The hope was that ongoing economic recovery would return to pre-crash levels of growth, alleviating the grievances fueling the fires of civil unrest, stoked by years of recession.

But this hasn’t happened. And it won’t.

Instead the post-2008 crash era, including 2013 and early 2014, has seen a persistence and proliferation of civil unrest on a scale that has never been seen before in human history. This month alone has seen riots kick-off in VenezuelaBosniaUkraineIceland, and Thailand.

This is not a coincidence. The riots are of course rooted in common, regressive economic forces playing out across every continent of the planet – but those forces themselves are symptomatic of a deeper, protracted process of global system failure as we transition from the old industrial era of dirty fossil fuels, towards something else.

Even before the Arab Spring erupted in Tunisia in December 2010, analysts at the New England Complex Systems Institute warned of thedanger of civil unrest due to escalating food prices. If the Food & Agricultural Organisation (FAO) food price index rises above 210, they warned, it could trigger riots across large areas of the world.

Hunger games

The pattern is clear. Food price spikes in 2008 coincided with the eruption of social unrest in Tunisia, Egypt, Yemen, Somalia, Cameroon, Mozambique, Sudan, Haiti, and India, among others.

In 2011, the price spikes preceded social unrest across the Middle East and North Africa – Egypt, Syria, Iraq, Oman, Saudi Arabia, Bahrain, Libya, Uganda, Mauritania, Algeria, and so on.

Last year saw food prices reach their third highest year on record, corresponding to the latest outbreaks of street violence and protests in Argentina, Brazil, Bangladesh, China, Kyrgyzstan, Turkey and elsewhere.

Since about a decade ago, the FAO food price index has more than doubled from 91.1 in 2000 to an average of 209.8 in 2013. As Prof Yaneer Bar-Yam, founding president of the Complex Systems Institute, told Vice magazine last week:

“Our analysis says that 210 on the FAO index is the boiling point and we have been hovering there for the past 18 months… In some of the cases the link is more explicit, in others, given that we are at the boiling point, anything will trigger unrest.”

But Bar-Yam’s analysis of the causes of the global food crisis don’t go deep enough – he focuses on the impact of farmland being used for biofuels, and excessive financial speculation on food commodities. But these factors barely scratch the surface.

It’s a gas

The recent cases illustrate not just an explicit link between civil unrest and an increasingly volatile global food system, but also the root of this problem in the increasing unsustainability of our chronic civilisational addiction to fossil fuels.

In Ukraine, previous food price shocks have impacted negatively on the country’s grain exports, contributing to intensifying urban poverty in particular. Accelerating levels of domestic inflation are underestimated inofficial statistics – Ukrainians spend on average as much as 75% on household bills, and more than half their incomes on necessities such as food and non-alcoholic drinks, and as75% on household bills. Similarly, for most of last year, Venezuela suffered from ongoing food shortagesdriven by policy mismanagement along with 17 year record-high inflation due mostly to rising food prices.

While dependence on increasingly expensive food imports plays a role here, at the heart of both countries is a deepening energy crisis. Ukraine is a net energy importer, having peaked in oil and gas production way back in 1976. Despite excitement about domestic shale potential, Ukraine’s oil production has declined by over 60% over the last twenty years driven by both geological challenges and dearth of investment.

Currently, about 80% of Ukraine’s oil, and 80% of its gas, is imported from Russia. But over half of Ukraine’s energy consumption is sustained by gas. Russian natural gas prices have nearly quadrupled since 2004. The rocketing energy prices underpin the inflation that is driving excruciating poverty rates for average Ukranians, exacerbating social, ethnic, political and class divisions.

The Ukrainian government’s recent decision to dramatically slash Russian gas imports will likely worsen this as alternative cheaper energy sources are in short supply. Hopes that domestic energy sources might save the day are slim – apart from the fact that shale cannot solve the prospect of expensive liquid fuels, nuclear will not help either. A leakedEuropean Bank for Reconstruction and Development (EBRD) reportreveals that proposals to loan 300 million Euros to renovate Ukraine’s ageing infrastructure of 15 state-owned nuclear reactors will gradually double already debilitating electricity prices by 2020.

“Socialism” or Soc-oil-ism?

In Venezuela, the story is familiar. Previously, the Oil and Gas Journal reported the country’s oil reserves were 99.4 billion barrels. As of 2011, this was revised upwards to a mammoth 211 billion barrels of proven oil reserves, and more recently by the US Geological Survey to a whopping 513 billion barrels. The massive boost came from the discovery of reserves of extra heavy oil in the Orinoco belt.

The huge associated costs of production and refining this heavy oil compared to cheaper conventional oil, however, mean the new finds have contributed little to Venezuela’s escalating energy and economic challenges. Venezuela’s oil production peaked around 1999, and has declined by a quarter since then. Its gas production peaked around 2001, and has declined by about a third.

Simultaneously, as domestic oil consumption has steadily increased – in fact almost doubling since 1990 – this has eaten further into declining production, resulting in net oil exports plummeting by nearly half since 1996. As oil represents 95% of export earnings and about half of budget revenues, this decline has massively reduced the scope to sustain government social programmes, including critical subsidies.

Looming pandemic?

These local conditions are being exacerbated by global structural realities. Record high global food prices impinge on these local conditions and push them over the edge. But the food price hikes, in turn, are symptomatic of a range of overlapping problems. Globalagriculture‘s excessive dependence on fossil fuel inputs means food prices are invariably linked to oil price spikes. Naturally, biofuels and food commodity speculation pushes prices up even further – elite financiers alone benefit from this while working people from middle to lower classes bear the brunt.

Of course, the elephant in the room is climate change. According to Japanese media, a leaked draft of the UN Intergovernmental Panel onClimate Change‘s (IPCC) second major report warned that while demand for food will rise by 14%, global crop production will drop by 2% per decade due to current levels of global warming, and wreak $1.45 trillion of economic damage by the end of the century. The scenario is based on a projected rise of 2.5 degrees Celsius.

This is likely to be a very conservative estimate. Considering that the current trajectory of industrial agriculture is already seeing yield plateausin major food basket regions, the interaction of environmental, energy, and economic crises suggests that business-as-usual won’t work.

The epidemic of global riots is symptomatic of global system failure – a civilisational form that has outlasted its usefulness. We need a new paradigm.

Unfortunately, simply taking to the streets isn’t the answer. What is needed is a meaningful vision for civilisational transition – backed up with people power and ethical consistence.

It’s time that governments, corporations and the public alike woke up to the fact that we are fast entering a new post-carbon era, and that the quicker we adapt to it, the far better our chances of successfully redefining a new form of civilisation – a new form of prosperity – that is capable of living in harmony with the Earth system.

But if we continue to make like ostriches, we’ll only have ourselves to blame when the epidemic becomes a pandemic at our doorsteps.

Dr Nafeez Ahmed is executive director of the Institute for Policy Research & Development and author of A User’s Guide to the Crisis of Civilisation: And How to Save It among other books. Follow him on Twitter @nafeezahmed

The High Price of Delaying the Default – Thorsten Polleit – Mises Daily

The High Price of Delaying the Default – Thorsten Polleit – Mises Daily.

Mises Daily: Wednesday, February 26, 2014 by 

Credit is a wonderful tool that can help advance the division of labor, thereby increasing productivity and prosperity. The granting of credit enables savers to spread their income over time, as they prefer. By taking out loans, investors can implement productive spending plans that they would be unable to afford using their own resources.

The economically beneficial effects of credit can only come about, however, if the underlying credit and monetary system is solidly based on free-market principles. And here is a major problem for today’s economies: the prevailing credit and monetary regime is irreconcilable with the free market system.

At present, all major currencies in the world — be it the US dollar, the euro, the Japanese yen, or the Chinese renminbi — represent government sponsored unbacked paper, or, “fiat” monies. These monies have three characteristic features. First, central banks have a monopoly on money production. Second, money is created by bank lending — or “out of thin air” — without loans being backed by real savings. And third, money that is dematerialized, can be expanded in any quantity politically desired.

A fiat money regime suffers from a number of far-reaching economic and ethical flaws. It is inflationary, it inevitably causes waves of speculation, provokes bad investments and “boom-and-bust” cycles, and generally encourages an excessive built up of debt. And fiat money unjustifiably favors the few at the expense of the many: the early receivers of the new money benefit at the expense of those receiving the new money at a later point in time (“Cantillon Effect”).

One issue deserves particular attention: the burden of debt that accumulates over time in a fiat money regime will become unsustainable. The primary reason for this is that the act of creating credit and money out of thin air, accompanied by artificially suppressed interest rates, encourages poor investments: malinvestments that do not have the earning power to service the resulting rise in debt in full.

Governments are especially guilty of accumulating an excessive debt burden, greatly helped by central banks providing an inexhaustible supply of credit at artificially low costs. Politicians finance election promises with credit, and voters acquiesce because they expect to benefit from government’s “horn of plenty.” The ruling class and the class of the ruled are quite hopeful that they can defer repayment to future generations to sort out.

However, there comes a point in time when private investors are no longer willing to refinance maturing debt, let alone finance a further rise in indebtedness of banks, corporations, and governments. In such a situation, the paper money boom is doomed to collapse: rising concern about credit defaults is a deadly enemy to the fiat money regime. And once the flow of credit dries up, the boom turns into bust. This is exactly what was about to happen in many fiat currency areas around the world in 2008.

A fiat money bust can easily develop into a full-scale depression, meaning failing banks, corporations filing for bankruptcy, and even some governments going belly up. The economy contracts sharply, causing mass unemployment. Such a development will predictably be interpreted as an ordeal — rather than an economic adjustment made inevitable by the ravages of the preceding fiat money boom.

Everyone — those of the ruling class and those of the class of the ruled — will predictably want to escape disaster. Threatened with extreme economic hardship and political desperation, their eyes will turn to the central bank which, alas, can print all the money that is politically desired to keep overstretched borrowers liquid, first and foremost banks and governments.

Running the electronic printing press will be perceived as the policy of the least evil — a reaction that could be observed many times throughout the troubled history of unbacked paper money. Since the end of 2008, many central banks have successfully kept their commercial banks afloat by providing them with new credit at virtually zero interest rates.

This policy is actually meant to make banks churn out even more credit and fiat money. More credit and money, provided at record low interest rates, is seen as a remedy of the problems caused by an expansion of credit and money, provided at low interest rates, in the first place. This is hardly a confidence-inspiring route to take.

 

 

It was Ludwig von Mises who understood that a fiat money boom will, and actually must, ultimately end in a collapse of the economic system. The only open question would be whether such an outcome will be preceded by a debasement of the currency or not:

The boom cannot continue indefinitely. There are two alternatives. Either the banks continue the credit expansion without restriction and thus cause constantly mounting price increases and an ever-growing orgy of speculation, which, as in all other cases of unlimited inflation, ends in a “crack-up boom” and in a collapse of the money and credit system. Or the banks stop before this point is reached, voluntarily renounce further credit expansion and thus bring about the crisis. The depression follows in both instances.[1]

A monetary policy dedicated to averting credit defaults by all means would speak for a fairly tough scenario going forward: depression preceded by inflation. This is a scenario quite similar to what happened, for instance, in the fiat money inflation in eighteenth-century France.

According to Andrew Dickson White, France issued paper money

seeking a remedy for a comparatively small evil in an evil infinitely more dangerous. To cure a disease temporary in its character, a corrosive poison was administered, which ate out the vitals of French prosperity.

It progressed according to a law in social physics which we may call the “law of accelerating issue and depreciation.” It was comparatively easy to refrain from the first issue; it was exceedingly difficult to refrain from the second; to refrain from the third and with those following was practically impossible.

It brought … commerce and manufactures, the mercantile interest, the agricultural interest, to ruin. It brought on these the same destruction which would come to a Hollander opening the dykes of the sea to irrigate his garden in a dry summer.

It ended in the complete financial, moral and political prostration of France — a prostration from which only a Napoleon could raise it. [2]

Note: The views expressed in Daily Articles on Mises.org are not necessarily those of the Mises Institute.

Thorsten Polleit is chief economist of the precious-metals firm Degussa and co-founder of the investment boutiquePolleit & Riechert Investment Management LLP. He is honorary professor at the Frankfurt School of Finance & Management and associated scholar of the Mises Institute. He was awarded the 2012 O.P. Alford III Prize in Libertarian Scholarship. His website is www.Thorsten-Polleit.com. Send him a mail. See Thorsten Polleit’s article archives.

Notes

[1] Ludwig von Mises. Interventionism: An Economic Analysis. Irvington-on-Hudson, N.Y.: Foundation for Economic Education, 1998. P. 40.

[2] Andrew Dickson White. Fiat Money Inflation in France, How It Came, What It Brought, and How It Ended. D. Appleton-Century Company Inc., New York and London: D. Appleton-Century, 1933. S. 66.b

Cheap Gasoline: Why Venezuela Is Doomed To Collapse – Forbes

Cheap Gasoline: Why Venezuela Is Doomed To Collapse – Forbes.

Christopher HelmanChristopher HelmanForbes Staff

Riots in the streets. Killings of protesters. Shortages of consumer staples liketoilet paper and flour. Power outages. Confiscations of private property. Capital flight. Inflation running at more than 50%. The highest murder rate in the world.

The situation in Venezuela has grown so terrible that we could very well be witnessing the waning days of the Chavez-Maduro regime.

But don’t hold your breath. Despots propped up by revenues from natural resources have had a surprisingly robust track record over the past 100 years. Saddam Hussein survived through ruthlessness and handouts to Baath party loyalists. Khadafi perfected the same model in Libya. The Saudis and other Gulf sultanates and emirates have survived by paying off tribe members. Zimbabwe’s Robert Mugabe is still around thanks to his trade in blood diamonds.

In each case, the big boss keeps his head by paying off everyone who matters.

Hugo Chavez appeared to have the same kind of staying power. But with a difference. Rather than just focusing on lining the nests his generals and ministers and doers, Chavez, and Nicolas Maduro after him, found a different way to squander Venezuela’s great oil wealth. They could have created a mechanism by which the people of Venezuela could leverage oil wealth to finance investment and capital formation (like, say, Norway). Instead they’ve simply given it all away.

Indeed, it might not happen this month or this year, but Venezuela is ultimately doomed to collapse because of cheap gasoline.

Befitting Venezuela’s position as holder of the world’s biggest oil reserves, Chavez set the price of gasoline at the official equivalent of 5 U.S. cents per gallon. Using the more realistic black market exchange rate, a gallon of gas in Venezuela costs less than one penny. You can fill up an SUV for less than the price of a candy bar.

It’s one thing for a dictator to curry favor among his subjects by handing out cash. You can trade cash for goods today. You can save it up and buy something bigger tomorrow. And vitally, you can invest cash and create capital. Cash has unsurpassed option value.

But in Venezuela, cheap gasoline doesn’t. Sure, some enterprising Venezuelans would fill up their tanks, drive to Colombia, siphon it out and sell it for a profit. But most just take it for granted, like breathable air. You can’t trade it, can’t sell it, can’t store it up.

Over time, when a government continually gives its people a non-tradable subsidy, they will come to consider it a right, not a privilege. When that happens it will no longer occur to them to be thankful toward their generous president for the handout. When that take-it-for-granted moment occurs, the handout no longer retains any political capital for the ruler who presides over it. On the contrary, once the populous sees the subsidy as a right, it necessarily become a political liability for the leader — tying his hands and preventing the implementation of a more reasonable policy.

Grant people a right and they will thank you, for a little while. Try to take away that right and they will revolt. The last time Venezuela tried to hike gas prices, in 1989, there were riots in the streets.

Cheap gasoline is why the government of President Nicolas Maduro is doomed to collapse. He can’t raise gas prices meaningfully without setting off an even greater populist uprising than the one already wracking the capital. But without change, the Venezuelan economy and its state-run oil company Petroleos Venezuela (PDVSA) cannot last long.

Let’s work through the numbers to see how bad it is:

3bd6e10e2d322bc918e7bad254b169f2_10150

Pres. Maduro with PDVSA workers. (Credit: AP)

Venezuela produces about 2.5 million barrels of oil per day, about the same as Iraq.

About 800,000 barrels per day of gasoline and diesel is consumed domestically for which PDVSA doesn’t make a dime. That’s about 290 million barrels per year in subsidy oil.

What’s that cost PDVSA? Oil minister Rafael Ramirez has said that the breakeven cost to supply refined gasoline to the masses is $1.62 per gallon, or about $70 per barrel. But because Venezuela’s refineries can’t even make enough fuel to meet demand, PDVSA also has to import about 80,000 bpd of refined products (for which they must pay the far higher market price in excess of $2.50 per gallon). All told, the subsidized fuel costs PDVSA about $50 billion a year — that’s at least $25 billion a year in fuel subsidies plus another $20 billion or so in foregone revenue that PDVSA desperately needs to reinvest into its oil fields. Even a well managed company would have trouble climbing out of such a big hole.

Deducting that 800,000 bpd of domestic consumption from the 2.5 million bpd total leaves a subtotal of 1.7 million bpd that Venezuela can sell into the world market.

But we have more deductions. In order to finance fuel subsidies and other social spending, PDVSA has borrowed massively. According to PDVSA’s statements, its debt has increased from $15.5 billion in 2008 to $43 billion now. Venezuela’s biggest creditor is China, which has reportedly loaned the country $50 billion since 2007. China is not interested in getting Venezuelan bolivars; it insists on being paid back in oil — about 300,000 bpd worth of oil.

Paying China its oil knocks PDVSA’s saleable supply down to 1.4 million bpd.

We’re not done yet. Chavez was not just generous to his own people. In an effort to make friends with his neighbors, he forged a pact called Petrocaribe, through which PDVSA delivers deeply subsidized oil to the likes of Cuba, Jamaica, Haiti and Nicaragua. Though shipments at peak were more than 200,000 bpd, including 100,000 bpd to Cuba, there’sevidence that PDVSA has cut the volumes. No wonder, when the Dominican Republic has reportedly been paying back PDVSA in black beans. Cuba sends doctors and athletic trainers. (Jamaicaputs its PetroCaribe debt to Venezuela at $2.5 billion.)

As if that weren’t enough, PDVSA, through its U.S. refining arm Citgo has even donated more than $400 million worth of heating oil to poor people in the United States. That’s about 4 million barrels over nine years.

So all that largesse knocks off another 200,000 bpd or so, bringing PDVSA’s marketable supply down to 1.3 million bpd.

Over the course of a year, selling that 1.3 million bpd of oil brings in about $50 billion in hard currency (assuming about $100 per barrel). This contrasts with PDVSA’s reported revenues of $125 billion, most of which is not in dollars, but bolivars, of uncertain worth.

That $50 billion might seem like a tidy sum, but keep in mind that this represents more than 95% of Venezuela’s foreign earnings. And that’s not enough for a country of 40 million to live on.

Because no one in their right mind would want to exchange goods for bolivars, it’s out of this pile of greenbacks that Venezuela has to pay for all its imports as well as about $5 billion a year in dollar-denominated interest payments. Venezuela’s foreign currency reserves have plunged from $30 billion at the end of 2012 to about $20 billion today.

Newspapers have closed because they can’t import paper. Toyota has stoppedmaking cars because it can’t get dollars to import parts. Shortages of sugar, milk and butter are common. The CEO of Empresas Polar, a big food manufacturer, has rejected Maduro’s criticisms that his company is to blame for shortages, insisting that because the government holds all the country’s dollars he can’t get the hard currency he needs to import raw materials.

Venezuela’s official exchange rate stands at about 6 bolivar to the dollar. But on the black market one greenback will fetch 87 bolivars or more.

If you’re an entrepreneur or a business owner in Venezuela, you’re not likely to keep throwing good money after bad there, especially if you’re a retailer like Daka. Last November Maduro ordered soldiers to occupy Daka’s five stores and forced managers to sell electronics at lower prices. In some cases looters just helped themselves.

Reuters reported that Maduro was outraged at a store selling a washing machine for 54,000 bolivars — $8,600 at the official rate. That might seem high until you hear from a business owner: “Because they don’t allow me to buy dollars at the official rate of 6.3, I have to buy goods with black market dollars at about 60 bolivars, so how can I be expected to sell things at a loss? Can my children eat with that?” said the businessman, who asked Reuters not to identify him.

When the president of the country speaks to the merchant class saying, “The ones who have looted Venezuela are you, bourgeois parasites,” that’s a sign to any entrepreneur that it’s time to round up whatever dollars you can and get out.

Venezuela is more likely past the point where it can grow out of its problems. Oil production is believed to have fallen as much as 400,000 bpd in the past year due to natural decline rates from mature fields. PDVSA says it is on track to invest more than $20 billion in its operations this year — but are those official dollars or black market dollars? Western oil companies are wary about putting their capital into the fields, considering that Chavez has famously nationalized assets of ExxonMobil, ConocoPhillips , Harvest National Resources, Exterran and others. PDVSA says it owes oil company partners and contractors $15 billion.

Some partners, like Chevron CVX -1.68%, Repsol, Eni, Rosneft and Total, have pledged to invest in increasing production and even to extend more loans to PDVSA. But like China they want to get paid back in oil. Not much is likely to come of these ventures: 10,000 barrels here and 10,000 barrels there is not going solve the problem. What’s needed is a real plan. The analysts at oil consultancy WoodMackenzie tell me that Venezuela’s best bets for growing production lie in the ultra heavy oil deposits of the Orinoco Basin. There, to increase output by 1.5 million bpd will require investment of $100 billion to drill enough wells and build enough “upgraders” to take the heavy oil and transform it into something readily exportable. So far PDVSA hasn’t gotten any interest in this plan.

The oil is there, but the oil companies are in no hurry to get at it. They have plenty of opportunities to drill in the United States, and are looking forward to the first exploration contracts to be awarded in Mexico. They know someday Venezuela will again become a safe place to invest.

That day may be approaching. Venezuela’s credit default swaps are at five-year highs. According to Reuters, prices for some of its debt issues have fallen to 63 cents on the dollar. Some short term issues are yielding 20%. These are the kind of sovereign yields that presage defaults.

The sad thing for Venezuela is that (barring an explosive rise in oil prices) it’s hard to imagine the situation not getting worse before it gets better. In time the government will simply run out of the dollar reserves it needs to pay its debts and import goods. Trading partners will refuse to ship. Oil companies will refuse to invest. Those tankers of cheap PetroCaribe oil will stop arriving in Havana. Chavez’s daughters will be kicked out of their presidential party palace. And the people of Venezuela will some day be forced to pay more than a dollar to fill up their SUVs.

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