A lot has been happening in the financial world, but the news comes so fast I hardly know what to blog about.
Ireland, Greece, and Germany are guaranteeing all bank deposits, with no upper limits, while in the UK and the US the upper limits are being raised. This may sound good for the citizenry, but it indicates that bank runs are feared in these nations.
In the US, there is a lack of physical cash. If too many people start hoarding cash under the mattress, we could have a bottleneck during which physical cash can't be printed up fast enough. Sure, everyone has credit cards, but those are about to go the way of the home equity line: banks will soon begin canceling them. People will need real hard cash again, and there won't be enough. Moreover, banks have about 70 cents of cash on hand (mostly 0's and 1's, not paper) for every $100 their customers have deposited. I don't pretend to know what will happen when credit cards dry up... I don't. I can't imagine it. I guess the Fed will print new money as fast as it can and people will all be assigned debit cards in lieu of paper cash, but there are a lot of people who depend on credit to help them squeak by.
Iceland, which got heavily involved in international finance, is in a bad way. I mean a really bad way-- the UN better start drawing up plans for a food relief program.
Iceland is on the brink of collapse. Inflation and interest rates are raging upwards. The krona, Iceland's currency, is in freefall and is rated just above those of Zimbabwe and Turkmenistan. One of the country's three independent banks has been nationalised, another is asking customers for money, and the discredited government and officials from the central bank have been huddled behind closed doors for three days with still no sign of a plan. International banks won't send any more money and supplies of foreign currency are running out. [source]
They have had panic buying at grocery stores because there aren't going to be any more food imports, since no one will take Iceland's currency. People should watch what happens in Iceland, because this nightmare will happen one day in the United States. Thankfully, it is much easier to grow food in the US than in Iceland, but on the other hand we are heavily dependent on imported crude oil and we don't make any shoes or clothing. Economist John Williams, who runs the well-known and much-cited Shadow Stats website, has predicted that hyperinflation might hit the US as early as 2010. Mr. Williams defines "hyperinflation" as a time when what used to be the largest bill in circulation (the $100 bill, in our case) becomes "more useful as toilet paper" than as currency.
The EU banks turn out to be in even worse shape than US banks, unbelievably. They have massively more liabilities (loans to be repaid, depositors who need their funds back, etc) than they have capital. Germany's second largest real estate lender is going down, and the government is in emergency talks with other banks to try to salvage the situation. If they cannot save this major lender, it will cause large financial ripple effects in Germany.
That said, Germany is one of the healthiest of EU countries, fiscally speaking. France wants an EU bailout of many EU banks, and Germany (the main country with a lot of savings) is saying No. The southern nations (Spain, Italy, Greece) are not doing as well as northern ones, and Germany is refusing to funnel their own wealth into these poorer economies. I do not think the Eurozone will be able to stay intact as this financial disaster continues. Already, German citizens are hoarding Euros printed in Germany (there is some sort of number or symbol that indicates which country they were printed in). They do not trust any currency printed in Italy or Spain, even if they are, ostensibly, all Euros.
In other news, I went to a coin shop and asked about silver. The guy had two 5-ounce bars ($95 each) and two 10-ounce bars ($180 each). That was it! He was getting 20 or more calls per day asking about his available silver, including from Ohio. He had received several hundred silver bullion coins one day last week, and they sold out in just 90 minutes. All this silver was going for about $18/ounce, on days when the ostensible price of silver (the spot price) was around $11. You always pay a little bit more for minted silver (coins or bars), but not 64% more! The paper "spot" price just doesn't mean anything nowadays. It has disconnected from the real world and is an imaginary value. The same goes for gold. There are extreme shortages of both metals and it is very hard to obtain coins in either metal.
Never mind, though-- most people should, at this point, be buying long-term storable food, shoes and boots, clothes for their kids in the coming years... in other words, tangible goods. Other ideas, off the top of my head, include: camp stoves, rechargeable batteries, flashlights & LED lanterns, firewood (if applicable), very heavy blankets & sleeping bags, home insulation, Polartec hats, canning jars, a pressure cooker/canner, cases of cheap wine or whiskey, vegetable seeds, gardening implements, escapist fiction (try your library for cheap used novels), basic medicines, knitting / crocheting / sewing materials, a solar cell phone charger, a solar battery charger, and a wind-up radio.