And now our gods are on their knees.

Capitalism was allegedly "five-hundred trades away from Armageddon" according to a pair of traders inside two large banks as hundreds of billions of sell orders stacked up in money market funds one morning not long ago. And Democracy was successfully thwarted as members of Congress in the U.S. collaborated with Wall Street to pass a massive bailout bill over the adamant opposition from a vast majority of their constituents. They gave a single man almost unchecked power to spend an incomprehensible amount of money while giving the citizenry only the promise that he has our best interests at heart. Worse still is the fact that the man chosen for the task was so clueless about what was happening with the financial system that he thought that everything was sound only a few months ago. Passing such an outrageous bill, even in a time of crisis, has to be one of the most anti-democratic as well as one of the stupidest things that I have ever witnessed from my government in my lifetime and the only thing that our representatives could say about it in their defense was that "we had to do something". I assume that asking someone other than a Bush administration insider or appointee about other possible solutions was out of the question? How about after the bill failed the first time? Without a doubt, the men and women who voted for the bill are cowards and incompetents and need to be removed from office as quickly as possible.

The oligarchy that Gouverneur Morris warned us about has seized control of the corridors of power, or at least they've made it obvious who has the power in our country, and they are working their hardest to transfer as much wealth as possible into their own hands while making it appear as though they are serving the best interests of the country. The housing bubble itself enabled a massive transfer of wealth from the masses to the rich as the rich made huge profits selling overvalued houses and handing out trillions of dollars in loans to people who won't be able to pay them back. Now those same people have enabled the transfer of those bad loans to the government while lowering their own tax burden so that they can keep milking the good loans while making the rest of us cover the losses on the bad. Worse still is that every effort is being made to keep people in their overpriced homes and making payments, regardless of whether it is better for them to simply walk away and let foreclosure occur. The oligarchy would rather see the masses sucked dry rather than made economically stable with a bailout, debt forgiveness, or other popular measure.

As Morris wrote, the rich will take advantage of the passions of the poor and use those instruments to oppress them. This they did with extreme effectiveness in the last decade, promising great wealth to anyone who invested heavily in a 401k or bought a home. And now that the final bubble has burst the masses are starting to wake up to the oppression of a massive debt burden, a plummeting stock market, a failing job market, expensive health care, and the onus of a deep recession, if not a full blown depression, looming before them. The rich also took advantage of the congress, using fear to ram a number of ridiculous bailout packages down the throats of clueless legislators. As the majority leader of the Senate remarked that no one knew what to do over five trillion in liabilities were added to the national balance sheet with trillions more undoubtedly on the way. The way our elected officials rolled over and let the rest of us get robbed made the $700 billion bailout bill seem like the financial version of the USA PATRIOT act. They abandoned their responsibilities and sold us up the river, surrendering their power to control the country's purse strings to a Wall Street insider whom we are supposed to entrust with fixing the banking system. The potential for the abuse of power here is so mind-numbingly far reaching that it is a real stretch of the imagination to keep believing that we still live in a democracy. The U.S. has appointed nothing short of a financial dictator with nearly three-quarters of a trillion dollars to spend as he will, with more hundreds of billions likely to be added to his account in future months, and who can pick and choose who he wants to bail out (his old friends at Goldman Sachs maybe?), who gets the shaft (old political enemies maybe?), and all with virtually no accountability. But at least we have the satisfaction of seeing Monetarist fundamentalists and free market apologists admitting that they have been following a false doctrine and embracing what they call "socialism". All this from a group of people who used to laugh at Soviet-style managed economies. Of course, it's not socialism if the masses get the shaft. What we're really talking about is an oligarchy, a form of government where the wealthy rule from behind the scenes, but at least we get to pick which servants of the rich run the country so we can pretend to still have a democracy.

But it is looking ever more likely that even the powers that be cannot save the system from itself and the complete collapse of the global financial system draws nearer with each passing day. To those who still don't believe that such a thing could happen and to those who feel that our leaders were misled into supporting a $700 billion dollar bailout package I can only say that this time around the cries of "wolf" are real. The "Masters of the Universe" have screwed up really, really bad this time and if you've been following the past editions of The Burning Blade then you have some idea of how it all happened. If it was just five or so trillion in potentially doomed mortgages and other loans that are at risk in the U.S. then the problem is painful to deal with but still manageable. Completely nationalizing the loans and adding that amount to the government's massive debt would surely drag the economy down, as it would in the many other nations with housing bursting housing bubbles, but the global financial system would remain solvent. The problem is that the loans were leveraged into massive bets on trades in markets world wide, most of which were insured by other institutions who were also massively leveraged themselves so that even larger profits could be made off of the mortgages. But now with the collateral for those trades going bad and with drastically fewer loans coming in to enable them to make more gambles to offset the failing ones the game is up and those massive bets need to be unwound. So how massive are these bets? Well, it's a little hard to believe when you see the numbers, but there are over sixty trillion dollars in outstanding credit default swaps and over one quadrillion (notional amount - so let's assume 10% of that is realistically on the line) in outstanding derivatives out there along with who knows what all else. So what that means is that we are not talking about a five trillion dollar problem, but one of over one-hundred sixty trillion dollars, and all of it thanks to deregulation, greed, and a conscious lack of oversight on the part of the central banks and governments in the U.S. and elsewhere. This problem is too big to solve and the powers that be are trying to prop up a failing system by keeping all the major players in the game no matter how much money they have to throw around or mergers they have to fund for fear that if the dominoes start to fall and all those trillions have to be written off that in the end there won't be a single bank or investment firm left standing. That so many institutions around the world are at risk is thanks to the globalization of the modern financial system which was intended to reduce risk by spreading it around but in the end allowed excessive risk taking and "moral hazard" to contaminate every market in the world. No one is immune. Thus the desperation and fear in the eyes of Hank Paulson and Ben Bernanke as they met with members of congress a short time ago. Their god, Monetarism, is failing them and things are falling apart faster than they can put them back together. We are most certainly facing the possibility of a total and complete collapse of the entire global economy.

Of course, I am not saying that in an effort to implore people to try and stop it from happening. To the contrary, I want it to happen. Not because I am an anarchist or suicidal or anything, but because I want to see a stable, well regulated financial system arise in its place and I don't see that happening until we clear away the debris of the rotted and hopelessly corrupt current system. I want to help to rebuild my nation when it falls, but I do not want to build a castle on quicksand.

I suppose that I could gloat, since I predicted that this was coming, and I could argue with some of you about whether the economy will bottom out soon and rebound or that things will not be as bad as I think they will be, but the point of trying to get at the truth is not to have bull sessions and argue about who is right and who is wrong but to use that knowledge to prepare oneself to deal with potential crises. So, to help you all out in this regard I'll lay out some possible scenarios and make a few recommendations about prudent courses of action.

Firstly, I don't expect the collapse to happen within the next few weeks or months although the way things have deteriorated recently it wouldn't surprise me if it did. Generally when things reach a crisis level the government begins to intervene with mild measures which grow more and more draconian as previous actions fail to correct the growing cascade of problems. The easiest of these brute force methods is to simply block certain financial transactions from occurring, such as shutting down the stock market if it goes down too far too fast (Russia did this twice in the last few weeks) and limiting the amount of money that people can withdraw from their banks and investments to prevent a classic run on the banks. Yes, they can and will prevent you from accessing your money when you want it. These measures help to keep banks and other institutions solvent, stopping them from losing capital due to investors selling their stock and depositors cashing out their accounts. Now, due to the fractional reserve system, banks do not have enough capital to pay off their depositors if they all wanted to withdraw their money at the same time. This is the case whether the banks are healthy or not and it works fine as long as the system is well regulated, the economy is functional, and fraudulent practices are not running rampant. People are told not to withdraw their money since that will always make things worse and can often create problems where there are none to begin with. However, in today's case I see no good reason to keep up our end of the bargain. We have been lied to and betrayed by those entrusted to handle our finances. And even with FDIC insuring your deposits you should realize that they only have around fifty billion dollars in reserves to insure around four trillion dollars in deposits. All it would take to wipe out the FDIC is for one major bank to go bankrupt. At that point, if your bank fails then you will have to get in line behind everyone else to get your money back from the government. That might take a while. But if you do decide to keep money in the bank, make sure that you have a recent statement of your account to show as proof that you are owed that money. But given the miniscule interest rates you're getting from your savings account, it doesn't matter so much whether you're keeping your money in the bank vault or under your mattress. Having a stash of bills at home will protect you from a wide variety of policies and calamities that can rob you of your savings, and if the economy were to recover, you won't have lost much in interest when you deposit that money back into your bank.

If you have a 401k or other investment in the market it is a different story when it comes to the potential downside of withdrawal. Add an early withdrawal penalty of 10% to a major rally in the market of, say, 20% to 40% and you could end up costing yourself a lot. Then again, the market could turn down sharply and you could lose half of your nest egg or more. It might be worthwhile to diversify by cashing out a fair amount of your retirement account and investing it elsewhere, but with the prices of traditional good investments (stocks, real estate) falling like rocks you'll need to look elsewhere for assets that either hold their value or appreciate in difficult times. Gold and silver are the traditional "safe havens" when economies are going through major crises, especially if inflation or hyperinflation ensues. In many cases the government will run out of money and resort to funding its operations by printing up the cash it needs to pay people. This usually results in inflation and only temporarily solves the problem, inviting more money printing and more inflation. Inflation is bad if you have cash under the mattress, or savings in the bank, and it can be lethal for people on fixed incomes. Inflation is good for people who are in debt, but only if they see their wages going up, the prevention of which seems to be the only thing that the people in power have been successful at doing. Another potential problem is deflation, which can happen if the government steps aside and lets banks fail left and right without printing money to compensate for the loss in capital as the Federal Reserve did before the great depression. In this case the cash is king since there is so little of it and prices are forced downwards sharply since no one has any money. True that the prices of gold and silver will also come down during deflation, but they will still buy their equivalent in goods. But what I expect to see is stagflation, which is prices going up while wages and growth stay flat. This will be like a noose slowly tightening around everyone's necks as wave after wave of declining growth, reduced investment, job losses, and decreased spending ripple through the global economy. But whether we have inflation, deflation, or stagflation, gold and silver will hold their buying power when nothing else is. The trouble with buying gold or silver today is that the markets for those metals fluctuate so much on a day to day basis that picking the right time to buy is likely to give you a bad case of indigestion. Also, the market for precious metals is getting very crowded as of late and the U.S. treasury is running short of gold bullion coins so if you decide to buy it may be hard to find them in the amounts that you want. I recommend precious metals, mostly coins that you can hold in your possession, mainly because they are not paper and their value cannot suddenly drop to nothing, as any Zimbabwean or Argentinean will tell you about their former currencies. E-mail me if you need to find reputable dealers in the U.S.

The government has the power to do almost anything in a financial crisis and you shouldn't rule out confiscation as a possibility. In my mind the closer you have your money, in whatever form it is in, to your physical person the harder it is for the government to confiscate it. They might seize assets you have anywhere: bank accounts, 401k accounts, etc., giving you an IOU for them which they will pay back in devalued currency at some later date. Yes, that sounds criminal, but it's been done before. And they might make gold ownership illegal, as the U.S. did in 1933, forcing you to trade your gold for paper dollars and arresting you if they catch you trying to exchange gold for goods on the black market. And they might make use of the eminent domain power to seize real estate, making any investment potentially unsafe, save perhaps for the purchase of a representative or senator of course. Another possible move for a desperate government is the replacement of all dollars with a completely new currency, with the exchange rate for normal citizens being less than one to one. The government would justify all of these methods of what is essentially theft by stating, credibly, that they need the funds to pay for basic services and to keep foreign investors from pulling their money out of the country and making things even worse. As hopeless as this all might sound, the message is clear, diversify all your funds and don't rely on anyone, especially the government, to bail you out. Everyone will be hurting and things which are safe and reliable will come at a premium. And watch out for scams as con artists and desperate people will be everywhere.

Budget-wise I would recommend cutting back to the bone. Pay off high interest loans like credit cards but keep the low interest loans where they are, provided that you can pay them. If you have a place to live free and clear then you are going to be doing better than a whole lot of people if and when the collapse happens. You might also want to invest in a small amount of "survival" gear. Now, I'm not talking about enough food and water to hole up in your basement for a couple of years, but having the ability to ride out a week or more if a major breakdown occurs (such as a power outage lasting for days, the police walking off their jobs due to their salaries not being paid, all banks, credit cards, etc, shut down for a week as a new currency is put in place) is a good idea. And for self-defense I recommend getting a good shotgun and learning how to use it. Handguns are expensive, hard to hit your target with, and people don't always fall down when you shoot them with one contrary to what you see on TV and in the movies. A shotgun, on the other hand, is much easier to handle and far more lethal, and you can sometimes survive a confrontation just by racking it as the sound alone tends to make people run away very quickly. But please, if you buy a gun, learn how to keep it and use it legally and safely and don't shoot anyone unless your life is in danger. Life is not a video game. If you screw up, you can end up dead or spending the rest of your life in jail.

Long term I foresee something similar to the 1930s depression. All governments will become quite fascist, as they did during that period, regardless of who is elected to lead them. The leader will only determine the flavor of fascism. I expect to see soup lines, public works projects, unemployment, and a lot of sad and angry faces no matter what policies are put in place. And if I am right about the distribution of wealth being a major factor in economic health then it will take a long time for the economy to come around. The rich simply will not part with their money easily and they have a powerful influence over the government. Forced redistribution of wealth may result in a coup and political turmoil will likely break out in many parts of the world as the suffering grows and spreads. There are no easy answers to these problems, so don't believe anyone who says that our problems can be solved if we just did one or two simple things. Even wealth redistribution needs to be done in a fair manner and the power of the free market, a regulated free market that is, must be unleashed before true recovery can occur. The global economy is distorted and dysfunctional and a lot needs to be changed before it will go back to working properly again. Even if a leader knows exactly what he or she is doing, the transformation will not be quick and easy.

So how does one prepare for global chaos? There's no simple answer and you'll each have to find your own paths, but the better that you prepare yourselves financially, physically, and mentally, the better off that you'll be. Get your books in order and diversify your money. Make your commitment to having a healthy body and diet stick this time. And prepare yourself for living with a lot less than you expected. Reach out to community organizations which will help everyone spread the burdens and which will come together to help each other in times of need. Understand that the big party is over and that it is time to rediscover the side of yourself that enjoys simple pleasures and working hard. It won't be the end of the world, it's just the end of the world as you know it. The sooner that you accept that things are going to be different, the sooner that you can make adjustments and live a satisfying life. Take it from someone who survived cancer and slogged through years of chronic fatigue syndrome. Don't be afraid to chuck your ego, lower your standards, and tone down your goals. Now, I didn't say stop fighting. Always fight. And in the coming times you'll need to work hard to find the strength to stand up for yourself and others. But come to grips with the fact that your victories will be more modest and your rewards less spectacular. You'll be the better for it if you do.

Speaking of chronic fatigue, it appears as though my current treatment, which is improving my overall health, is going to push back any work on "Food for the Gods" probably to 2009. Part of that is due to my personal desire to get better which makes me opt for a more aggressive approach to treatment. I'm basically forcing my body to fight the illness as hard as it can, which puts a heavy load on me both physically and mentally, but I really want to be out of the woods before the wheels completely come off of the economy. In the back of my mind I fear my doctor going out of business before I'm done getting better and then what would I do? In any event, I've written up an especially long newsletter for you in the meantime. Enjoy.

A big ‘Hello’ to anyone receiving the Burning Blade for the first time. This is the Fireaxe newsletter.