by Scott Causey, GWP Resource Correspondent
Just how bad does American business have to get before people finally start to get it? Hostess, the maker of the Twinkie, has filed for Chapter 7 liquidation in the fattest nation on Earth. Does anybody else see just a tad of irony in that? This was the second bankruptcy filing for the company in 5 years. It seems that the only thing fatter than the majority of the company’s customers, was there own balance sheet. Hostess has over $2 billion in unfunded pension liabilities to various union workers. Since the company just emerged from bankruptcy a few short years ago, let’s just put it mildly and say the Teamsters are not eager to grant concessions to the struggling Twinkie producer.
From 2004 till 2011, Hostess sales have declined 28%. Generally speaking, recessions hurt many consumer-brands companies, and Hostess was no exception. So while it has generally been the case in economic downturns in the past that raw material costs would plunge and take out some of the sting to these companies, sadly for fat ladies everywhere that like to sing, this has not been the case this time around. The main input costs for Hostess in the form of corn, sugar, and flour have simply skyrocketed at the exact same time pension obligations and interest expenses on debt were exploding. Further icing on the Twinkie cake comes after you learn that one of the main private equity players in this ongoing soap opera is Tim Collins. Collins foray into Hostess was partly enabled by his ties with the Democratic Party. His private equity firm wanted to explore deals with Union-involved companies that needed a turn-around strategy. Well I must say they got a turn….from the picket line to the unemployment line: 18,500 people laid off and the destruction of an iconic, if somewhat infamous, American brand.
If something cannot go on forever, then it simply won’t. This is a fundamental law of the universe. The mainstream news channels are abuzz with non-stop discussions on the so-called fiscal cliff that the nation faces. (Note to the sheeple: there is extreme irony in the fact that even the mainstream media uses the word “cliff”). It really is within your grasp to begin to understand just how dire things have become and why. On that note, please take the time to watch this short video and ask yourself just how free is the market that we all have the choice to participate in or not.
A medium of exchange is the most basic necessity for any group of people to have economic activity. If the buyer and the seller of any good or service don’t have the ability to come to terms with what a transaction will be settled in, then obviously, the transaction will not be possible at all. As more and more people begin to question the viability of a clearly broken economic model and fiat paper money regime, the mad search for good collateral will intensify. As much as I hate to admit it, the world will not simply stop. People will demand the exchange of goods and services no matter what economic and social apocalypse awaits us in the future of the unsustainable trends that should, by now, be obvious to most thinking people.
I’m sure that most, if not all, of you have watched the aftermath of Hurricane Sandy. Stop and ask yourselves why the chaos from people without power, fuel, and food hasn’t been even worse than it has been. Primarily, in my opinion, due to the fact that people are living and getting by under the assumption that help is on the way. That good people with good intentions, including within their own government agencies, will bring in the necessary support to restore order to the status quo.
What you need to understand, if you don’t already, is that these basic necessities of life are delivered within a paper-based monetary system that requires trust in the currency. If that trust evaporates, then the critical and fragile systems that allow modern life as we know it to exist in the first place very rapidly break down. The world or America itself simply does not have some magical storage vault of years worth of food and oil supplies for example. The entire global delivery system for these essentials is based on a “just in time” delivery schedule. You’re seeing that all over the Northeast in the aftermath of this storm, with millions of people standing in gas lines a la‘ the 1970’s. Commodity supply chains are far more susceptible to disruptions than most people have any idea of; droughts, floods, hurricanes, typhoons, tsunamis, earthquakes, and especially war. Natural and not-so-natural disasters have always disrupted supply chains.
At a certain point, we all become very numb to these happenings. After all, it’s the nightly news’ job to tell you what is wrong with the world, not what is right with it. That is the primary reason that the largest disaster many of us are likely to see in our lifetimes is simply going to annihilate those caught flat-footed by a global debt collapse and panic out of paper currencies. It is simply stunning to me that people ignore this as not only a possibility, but a certainty. Every central bank in the world is pursuing the same policy of “print until it gets better”. It’s essential that you understand that they know full well they are slowly (or potentially rapidly) killing the patient. That is of little concern to them. The retention of the power to retain control of the global money supply and continue to be the monetary system’s puppet masters is the only thing that matters.
As long as that flow is uninterrupted, the fountain that springs eternal wealth for the few is maintained. This allows policy to be controlled, media to be controlled, governments to be controlled, and people all the way down to the poorest bum to be controlled. As long as the populace continues to react to the Pavlovian responses of being “wealthier” by using a paper scoreboard, then true and lasting change is impossible. I challenge you to take the time to educate yourself about monetary regimes throughout history. Only through the lens of financial history will you begin to grasp just how fragile these systems have always been, and why this time will only be different in the total amount of blood spilled.
For the record, I am not negative for the sake of being negative. I take no pleasure from the suffering that is already occurring, or will occur in the future, as a result of these unstoppable trends. What is the most powerful thing to remember is that we all can take personal responsibility and see this economic system for what it is: Destined to collapse. I urge you to stand aside and not have your wealth retained within a system that serves others’ needs and wants and most certainly not your own. Electronic wealth (which is all paper money really is), is but one mouse click away from being someone else’s and not yours. Tax codes change in the blink of an eye. Imminent domain can legally steal your property and is subject to the same tax vigilantes. Dilution will simply continue in all paper assets because the monster must be fed and grow larger or the entire house burns to the ground. These are not arbitrary thoughts, but simply the realities within the current economic system.
So while this week’s newsletter did not dispense particulars on any segments of the commodity markets, I hope you’ll spend some time thinking about these concepts and how real they are. Do your own homework. Learn about the bankruptcy of MF Global. Learn about the history of paper currencies. Learn about the top tax rate in the United States from 1913-1945. Connect your own dots and start to put the pieces of the puzzle together. These are not your mother or your father’s markets. This is not a time to think inside the box. Acquire the skills necessary to survive a storm infinitely more powerful and destructive than Hurricane Sandy, and turn fiat into real wealth. The biggest positive we have at the moment is to know that these leaders are sowing the seeds of their own destruction. Central planning, we see you for what you are, and we will be happy to step aside while you fall flat on your face. I personally hope it jams a Twinkie in your gaping Keynesian blow-hole!
