Why is the cost of living going up?

With a little understanding of the forces in play, you will be well armed to make the right decisions regarding how to spend (or invest?) the spare money that you have.

So, where are the increases in living expenses coming from?

Energy and food:

Welcome to Peak Oil! The basis of the argument of Peak Oil is that at some time during the extraction of oil from the oil fields there comes a time where one reaches peak production. There is a finite limit to the volume you can repeatedly pump out in one day, and once that peak is reached, you are on a downward trend for that field. Further, as one removes the oil from an oilfield that is in decline, additional discoveries of oil-fields are required to keep up with the demand. In the last few years, worldwide Peak Oil has been on the cards, with many predicting that it would occur in a window period, ranging anywhere from 2000 to 2040. By all appearances, worldwide Peak Oil appears to have been in 2005, around May. Since May 2005, the worldwide conventional oil production peaked at around 73 million barrels per day, with the balance (about 13 million barrels per day) made up through unconventional means. Adding to the predicament we face is the fact that the major oil fields have all peaked: Ghawar in Saudi Arabia, Cantarell in Mexico,  Burgan in Kuwait; in fact most of the large oil fields have peaked with one exception, the Kashagan oil field in Kazakhstan, which was discovered in 2000. In this decade insufficient discoveries of oil fields have occurred to offset even the deficit in supply, never mind to grow the supply for increasing demand. Add in that the oil producing countries themselves have increased their own demand, and the stage is set for supply restrictions in the face of growing demand.

Peak Oil is not a new concept. In the mid 1950's a Shell geologist, Marion King Hubbert, predicted that the peak for the USA domestic production would occur sometime around 1970. During the initial stages of his disclosure he was ridiculed; history has proven him right, because the lower 48 states in the USA peaked around Jan 1971. From that date forward, the USA's oil production declined, to where it is now a significant net importer of oil. The USA uses about 21 million barrels of oil per day, and they import about 65-70% of that requirement.

The impact of worldwide Peak Oil will be significant, not only in the cost of fuel, but in the impact across the board for an entire economy that is predicated on oil, more so, on cheap oil.

In effect, the volume of oil we use today (86 million barrels per day, worldwide) is equivalent to 22 billion human slaves working around the clock (it is no accident that the abolition of slavery coincided with the ascendancy of the petroleum economy), and the growth of the Eastern nations will put increasing demand pressure on a diminishing supply. Can you say bull market? Further, the major issue we face is that most of our transport is powered by oil (and its derivatives), and because our economy is largely dependent on the transport (actually the cheap transport) allowed to us through our oil endowment, when our transport costs start climbing, the economy slows. That is the good news. The bad news is energy chauvinism. In the past the larger market makers in the oil world have been the International Oil Companies (IOC's). However, the actual contribution they make to world supply today is significantly less than that made by the National Oil Companies (NOC's - these are essentially organs of the state), and the NOC's will very likely, using the excuse of ‘strategic energy resources', limit the supply to the market. The impact that this will have will be huge, because the IOC's will in no way be able to compensate for the reduction of supply from the NOC's. In simple terms, the cards for fuel restrictions are on the table, and the drivers for price increases are very strongly existent.

Alternatives

There are alternatives on the table, and the large movements will be in the production of electricity. However , for transport there is no viable alternative to our current fuel. Yes, there are technical  replacements (hydrogen, ethanol, fuel cell, battery) but each has its own weakness in terms of filling the gap of liquid fuels. Yes, a combination would go far to replace a portion of our fuel requirement, but the replacement at cheap levels and the current volume used, is not possible.

Let's explore some of these alternatives:

Hydrogen: logistically difficult to transport (dangerous) and when created through electrolysis, is actually a net energy loser (it takes more energy to create (through electrolysis) a litre of hydrogen, than you obtain from that litre), and the source of hydrogen electrolysis must be from electricity. As it is, our electricity infrastructure is battling to keep up. How can we expect to add the load of electrolysis? (This seems to be a first world problem, not just South African.)

Ethanol: the price of wheat across the world has never traded above $7 a bushel. Until the last trading year (Feb 2007 - Feb 2008), where it increased by over $7 a bushel. The demand for food around the world has grown considerably (our population has doubled since the 1950's, where it was around 3bn), and the addition of ethanol as a fuel will encourage many farmers to switch their lands to produce ethanol for fuel rather than food, in light of the fact that the subsidies make ‘ethanol' farming lucrative. Add into the fray that most fertilizers are manufactured from natural gas, and the gas is increasing in price, resulting in ever increasing food prices. That we are now in the process of building power plants that run off natural gas further adds fuel to the fire (excuse the obvious pun). Can you see the increasing demand for food, along with increasing costs, and potential supply reductions will very likely result in further food price increases? Can you see why ethanol is a non-starter? Essentially, ethanol production is tantamount to filling your vehicle's fuel tank with food. Do you want to eat or do you want to drive?

Three further aspects of ethanol bear mentioning:

EROEI: Energy Return On Energy Invested. Ethanol, when used as a fuel, releases less energy than it takes to produce. That deficit has to come from somewhere, and the fertilizer is the major source (yes the sun does provide a portion of the energy, but the significant contribution is via the nitrogen in the fertilizer). Ethanol is still essentially using fossil fuels.

Distribution: Ethanol is hygroscopic, meaning that it absorbs moisture. This makes it impossible to transport and store in the current pipeline/tank infrastructure used for oil products, due to the corrosive effects of oxidation (‘rusting').

Energy Density: Ethanol is about 70% as energy dense as petrol (measured by volume) meaning that you will use about 1.4 litres of ethanol to cover the same distance as 1 litre of petrol.

As you can see, Ethanol will not be able to replace the oil we use in terms of volume, besides the fact that we are making our food very expensive.

Fuel Cell: these function through the interaction of hydrogen, and oxygen and use platinum as a catalyst. The issue faced is that platinum is used during the process, and in order to retrofit our entire fleet of vehicles (worldwide) with fuel cells, we would need more platinum than the world has. And the current technology requires replacement of the catalyst at regular periods. Therein lies the problem. Yes, there is room for improvement; the problem is not just technological; rather it is technological scalability, limited by the volume of other required resources we have to use, both once-off during creation of the fuel cell, and repeatedly through the consumption of these resources during general use and maintenance.

Battery: Current battery technology is quite capable of delivering some tremendous power and stamina. I fly radio-controlled helicopters, and in the last few years, there have been massive gains in power density through the use of Lithium-Polymer technology, where a small battery weighing 180g can lift a 600 gram helicopter for some 6 minutes. However, the cost of the batteries rises exponentially with the size, and the energy density/capacity is not quite at the level of liquid fuels. This is a viable alternative, but batteries present a major problem: the large scale electricity demands required to charge these batteries. So, battery technology is nothing more than an energy conversion technology: the energy does not come from the battery, but the battery can store the energy. Again, we're back to where the energy will actually come from. And that is not even allowing for the volume of lithium and other chemicals\materials required to produce the cells.

In a nutshell, all of the alternatives are essentially energy converters. Batteries convert and store electrical energy as chemical energy; hydrogen converts electrical energy into chemical energy ready for burning; and ethanol, whilst it gains some energy from the sun, actually converts the hydrocarbon energy in natural gas, which is then used to create fertilizer, which then enters the ethanol via the biological processes, resulting in the starch or sugar base for use in ethanol production.

The oil we use is essentially millions of years of stored energy. Hydrocarbons do not convert energy from another source. The hydrocarbons are the energy source. That is the fundamental issue faced by all offered alternatives: they convert energy, and are not the energy source itself. And all of them are not a scalable solution, such that they can each only replace a small portion of the current energy usage through fossil fuels.

Going into the future the odds are greater that prices will rise than they will decline. One note on energy costs before we change tack. The major recipient of income from the sale of fuels is the government. As I write this (Feb 2008), here are the taxes you pay when you buy fuel (these figures are from the DME website: http://www.dme.gov.za/energy/price_elements_petrol08.stm):

Yes, the government makes R1.21 on every litre sold, while the supplier makes 39c, and the garage 60c. Never mind the Road Accident Fund and Customs and excise. So next time the fuel price rises, remember that the wholesaler has to pay income tax on his profits, as does the retailer, and even before those taxes are paid, the government is the greatest beneficiary on the price of a litre of fuel. And the government does not pay tax on the money it receives.

Back to where you spend your money:

We've covered energy quite broadly but briefly; broadly enough that should you want to start delving deeper for causes, you have ideas as to where to start looking.

Now onto inflation.

Inflation is not, contrary to current teaching, a rise in prices. Inflation is an increase in the money supply, and the result is a rise in prices. The policy of inflation control, and the primary goal of ‘the achievement and maintenance of price stability' of the South Africa Reserve Bank would be quite laughable if it wasn't so critical to everyone's lives. The very existence of the Reserve Bank is inflationary, because the concept of the central banking model is inflationary in nature. Let's look at that model a bit closer by asking a question: How do banks make money?

Answer: They borrow at a lower interest rate from the Reserve Bank, and take deposits, and loan that money out at a higher rate?

Nope. That's the traditional thinking. Here's how they really make money:

They take deposit and then because the banking law gives them the ability, they can loan out significantly more money. Let's say they have R1000 in deposits, and the required reserve ratio is 10%. That means they have to have 10% of all outstanding liabilities in cash. So when they receive R1000 from a depositor, they can then loan another R10 000. After all they now have 10% of their liabilities in cash, don't they? The law gives them the right to create that R9000 out of thin air, then charge interest on it. So, effectively the banks create money out of thin air, and then charge you interest on it. They hide behind the repo rate (which I'll explain next), but in reality the fractional reserve requirement (hence the name ‘Fractional Reserve Banking') actually allows them to create money out of thin air. Nope, no gold, no backing; money created out of thin air. Now you can understand why the government and the powers that be are terribly afraid of a ‘run' on a bank. The truth is that all banks that operate in this manner are functionally bankrupt (they are loaning more than they can accept as a loss), so if everyone who had deposits with the bank came asking for their money, the banks would not have sufficient cash on hand to fulfill their reserve requirements, meaning they would have to reduce their liabilities (call in loans) to re-establish the ratio. Now, with current legislation they cannot call in the loans if certain conditions are being met, one of those conditions being that the minimum payment is made.  And that is where the central banks (in our case the SARB) step in as the ‘lender of last resort'.  They bail out the bank if it gets into trouble. Good business and you can understand why the bankers work so hard to protect it!

The reserve ratio for SA is around 2.5%. Yup, that means banks can loan up to 40 times their on hand deposits. And charge interest on the invisible monies. (http://www.reservebank.co.za/internet/Publication.nsf/LADV/C1BE742CAC188F2642256B5E003F1524/$File/article218.pdf - last paragraph, pg 69 of the document, or page 8 of the pdf file.)

In the general flow of daily banking, some banks end up with cash shortages relative to their required ratios at the close of business. So they need to borrow money overnight from either the reserve bank or other banks to bolster their cash reserves. They ‘borrow' this money via the temporary sale of assets (mostly bonds), and they then pay interest on the funds. At some point in the future it is expected that the banks will return the funds and repurchase the assets from the lender, hence the term ‘repurchase rate'.  Thus the ‘repurchase rate' or ‘repo' rate (short for repossession, which is what happens when they ‘buy' their assets back from the lender), is the rate at which either banks or the SARB loan money to other banks, with assets as collateral. Upon analysis you'll see that it is nothing more than an exclusive pawn shop.

The important point about fractional reserve banking is that it is an engine for inflation, because as the money supply is increased, more cash will be lodged at banks. The reserve ratio then acts as a multiplier for the money supply, because the credit market supply is now increased through the reserve ratio.

When the SARB ‘prints' money it can actually print the cash (and no, our currency is not backed by gold, the convertability from currency to gold being suspended on December 28^th, 1932 (yup, 1932)) or it can create the money electronically.

Governments do not produce anything. They have taxes as their source of income, and their expenditure is many and varied. In a nutshell, governments act as re-distribution agents, and for them to remain in power, they have to appease the majority of their voters. So when the powers in charge promise certain deliverables, they have to pay for those deliverable out of the income received from taxes.

Or do they?

Let's assume that the government has promised the delivery of houses. How do they pay for the houses? They could take the money from the income they have received as taxes, or they could simply ‘print' the money.  If there is nothing that exists to stop a government, through its Treasury department, and the central bank, simply creating money out of thin air, then they generally do. We are not a gold backed currency (in fact we haven't been since 1932), and the last major currency to remove itself from a gold backing, was the Swiss Franc, in 2000. The US Dollar has effectively not been gold backed since 1971, when Nixon refused to convert the French-held US Dollars to gold. And from that point forward gold no longer became a backing for the world's reserve currency. The corollary is that form that point forward there was no restriction on the volume of money that a government could produce.

A further aspect is that inflation is actually a tax. The government pays now for the houses, but the general population actually pays for it later via an increase in living costs, once the bad side of the inflation becomes apparent. So, inflation is a very clever tax, because it gives the appearance of increased wealth, whereas it is merely delaying the payment of a tax to the future, a tax that has been spent now.

The net result of the early part of an inflation is that there is an immediate increase in the ‘apparent wealth' in the country, and the stimulus offered by inflation in the early stages results in increases in asset values. The reason behind this is that whilst many have more income, they have not yet seen an increase in their living expenses, so the additional funds available go towards ‘investment'. Anyone noticed the recent property boom and the market boom? If the inflation rates (that is the rate of increase in the money supply) continue upwards, asset values will continue to rise, up to the point where the living costs start intruding rudely on the extra available cash. That is where we are now. (Mar 2008)

Essentially our government has two choices:

1. Stop inflating
2. Continue with ever-higher inflation.

Should they choose option 1 the results will be sharp, but mercifully short. The general market will decline, general prosperity will decline and there will be general hardship. Inflation will not go unpaid, because inflation is merely deferment of current payment to the future, for a lifestyle not afforded at the present.  Option 1 presents a painful outcome, but it will be over and done with relatively quickly (history shows this to be in the order of 1 to 2 years)

Option 2, unfortunately is the option most chosen throughout inflations past. This is a means of stopping the short sharp pain with more inflation. The problem with this scenario is that to get the same feeling that the initial inflation gave, requires ever more inflation, up to the point where the public realize that something is up, and they start divesting of the currency as soon as they receive it.  The eventual outcome is to have even more inflation, up to the point where the outcome is a collapse of the currency. At this point, the pain is more severe (usually proportional to the amount of inflation during the inflationary period), and the outcomes are worsened by government involvement in stopping the economic  healing process that needs to occur. They invoke all measure of stupidity, such as price and wage controls, and then capital controls. All eventually fail, with the net result that the holders of the currency lose out as the currency tends to worthlessness. What has in fact happened is that there has been a wealth transfer from the holders of the currency to the holders of the real assets (real assets are discussed later).

I believe that our government will fare no better than those in the historical majority, and they will increase the rate of inflation.  To further bolster this argument, the US Dollar is following a similar path (unofficial sources put the USD growth at around 15% pa - the official figures are no longer being reported, because it was ‘too expensive'- I kid you not), and we cannot afford to be strong in USD terms, because our export led economy will then suffer. Currencies around the world are in a competitive devaluation in order to not appear strong vs the US Dollar. So, the writing is on the wall: inflation will very likely be the order of the day. Put it this way: the probability of an increasing inflation is greater than the probability of the alternative.

Inflation and interest rates.

Early inflation results in a decrease in the interest rates, but later in the inflationary cycle, the interest rates rise dramatically. We are at the stage now where interest rates will most likely start increasing, and continue along that path for some time.

Should the ‘authorities' decide to reduce interest rates, the only means at their disposal is to inflate further.

A Current example:

Utilising an understanding of the principles above, you can now see how Zimbabwe has managed to get itself into the current inflationary spiral. If money is needed to pay for goods and services, they simply print the money and pay. In spite of the fact that the Zimbabwean dollar has collapsed,  the irony is that the Zimbabwe stock exchange has shown the highest nominal growth worldwide. Zimbabwe's economic woes are a function of its stupid inflationary policies, which are simply a repeat of inflations past, most notably the inflation in the Weimar Republic in the early 1920's. What is even more important to note is how monetary policy supercedes anything else that happens in the economy, and everyone's wellbeing is dependent on sound monetary policy. It is in your best interest to understand the weakness in our current monetary policy, and how to protect against the maladies of inflation.

The USA was heading for the same problems in the late 1970's, and Paul Volcker's (chairman of the Federal Reserve - the USA's central bank) insistence of stopping the inflation in its tracks resulted in economic pain, and the short sharp rise in gold thereafter. The cessation of the inflation was the more painful option, but it was sharp and short. Shortly after the reduction of the inflation, gold came back down to more acceptable levels, being an indicator of inflation.

Today's trends:

Today's trends and ideas are vastly different. The teaching of inflation today is around the effects of inflation. Inflation is today defined in tertiary institution text books as ‘a sustained and significant increase in the general price level of goods and services' (this is a quote from the courseware for the ‘Advanced Post-Graduate Diploma in Financial Planning Law, Principles of Portfolio Planning and Management', taught by the University of the Free State, the only university accredited to teach the international qualification of the CFP - Certified Financial Planner), which is a confusion of cause with effect. Economics today is taught mostly from what is known as a Keynesian perspective (named after John Maynard Keynes), and there is a general perversion of the fundamentals, to the extent that very few economists have actually ventured outside of the academic teachings (read: Keynesian Economics) to review alternatives. For those whom are interested in an alternative to the Keynesian view, research the Austrian School of Thought, and Ludwig von Mises in particular.

Further, the trends of the central bankers today are such that inflation is the way forwards, mostly led by Ben Bernanke, who assigns the cause of Great Depression to insufficient money supply. Yes, the US Dollar was gold backed at the time, so it was a deflationary depression (a decrease in the money supply, meaning money becomes more valuable), which was largely caused by the policies of the Hoover and Roosevelt administrations. Thus, the aspect focused on is inflation, and deflation is probably to be avoided at all costs. (For an excellent, but tough read on the Great Depression, try "America's Great Depression", by Murray Rothbard.)

Financial Assets and Real Assets.

Financial Assets are those assets that are someone else's liability. Real Assets are those that have value by their very existence. In times of economic turmoil you want to minimize your exposure to financial assets, and maximize your exposure to real assets.

When times turn down, it is difficult to determine who has the ability to pay their debts and who doesn't. Therefore it becomes relatively more risky to own financial assets, because that asset is only such as long as the debtor (the person who owes you) is solvent. If that debtor becomes insolvent, you stand to lose your investment in that asset, and it quickly turns into a liability.

Real assets hold value intrinsically. They have value because someone needs or desires them, irrespective of their current financial situation, and whatever money they do have will be employed to obtaining those assets. Thus, commodities which will show an increasing demand due to fundamentals, and assets which have historically held value due to scarcity are those of choice. Gold, silver, oil, and energy commodities are those which will continue to rise. Further, investments towards fresh water provision will also show a marked increase. Yes, it is understood that most investments in commodities are actually speculation, but once sufficient research has been done to ensure that the commodities purchased will very likely show an increase in value, is that not investment? Is not the fine line between investment and speculation an understanding of the fundamentals, and the current market position one takes?

If you look at the currency of a country as a share in a company, whenever the country ‘prints' more money (inflates the currency), the net result is a dilution of the share held in that country. Remember that money is no more than a portable transfer of a promise to pay in goods and services, and if that portable unit is diluted by excessive printing of additional units, then the underlying claim you have on goods and services is diminished. What you want is to hold assets that cannot be diminished by simply printing more. Noticed how the price of gold (and silver) has increased 5 years straight (gold from $250 to $1000), and silver from $4 to $20? With the understanding you have of inflation, you can now understand why, and further, you can understand why further increases in these precious metals are on the cards.

The Property Market

This communication could not be complete without an analysis of the property market, and how property will perform in the future.

Property as an investment can be seen from two sides:

a.     The capital appreciation of the property
b.    The rental income of the property.

Viewing a property from the aspect of capital appreciation is actually speculation. You're hoping that the price rises, so that you can sell it at a profit. Ascertaining the rental income is investment, as you can determine from the outset if the property will yield a profit each month.

At the current market prices, rental income is not an option, because the costs exceed the income by some margin, leaving you with the hope, that even though the rental offsets some of the costs, that the prices rises enough for you to sell it for more than you paid.

Looking at the drivers for the property market, one has to allow for the fact that the majority of buyers will use credit. Three aspects drive the market:

1. The will or desire to buy the property. In short, sentiment.
2. The availability of the credit to buy the property.
3. The affordability of the credit.

For property prices to increase, all 3 aspects have to be in place. If one of them is not present, then the demand for property will be reduced. Looking at today's market, there is still some euphoria about the last few year's performance of the property market. Thus, the will is largely there, but waning (sentiment to property is now changing). (The performance was mostly a result of the inflationary policy since about 2000/1.)

The availability of credit has come under severe strain with the introduction of the NCA, and there are also tightening lending criteria worldwide, due to the recent credit issues. So, credit is more difficult to come by. So, credit is not so freely available.

As the interest rates have risen, (and will continue to do so into the future), alongside with the fact that the inflation is now pushing up prices of general living, the affordability of credit is getting ever lower.

Thus, two of the three drivers of the property market are in decline, and those drivers are both descending;  this means that the property market is not the place to be. In fact, there is significant risk of being saddled with a decreasing-value asset, such that the price the market will pay could be significantly less than the outstanding principal owed on the asset. From this perspective, one can identify property as a financial asset, one that holds much risk, and not too much potential gain.

Having said that, the property type that will probably show tremendous growth will be that of farmland. As food demand rises, and supply reduces, there will be great potential in productive farmlands. From this perspective, the farmland would be a real asset, not a financial asset. However, the experience and specialization required to run or own a farm is significant; that is the downside risk for the inexperienced purchaser of farm land.

What can you do?

So now that the bad news is there, what can you do to reduce or limit your exposure to the rising prices?

Pay packet:

The first thing you have to accept is that your pay-packet will not increase in line with inflation. The latent inflation is around the 25% mark, so once the actual inflation catches up with the latent inflation, you have to be in a position to cover your costs adequately.

(http://www.resbank.co.za/sarbdata/rates/newmrd.asp?type=MRDMA

 -review the M3 Money supply percentages)

Property:

Reduce your repayments to comfortable levels, and if possible, fix your interest rate for as low a rate, as long as possible. You could look to sell, and then rent as, for the forseable future, it probably makes better financial sense.  If you are an investor (not a home owner) in the property market, unless you are gaining a worthwhile return on your investment, and you can sustain a 30% reduction in the market value, divest yourself of the property, and move into real assets. Gold and silver are a good place to start.

Consumer Debt:

If you have managed to get yourself into significant consumer debt, (where more than 25% of your income is used to pay back that debt, including principal) your first priority is to get rid of that debt. You can consolidate that debt, but once consolidated, remember that it has not gone. You've just moved it.

If you cannot consolidate, get rid of the most expensive debt first. The expense of the debt is the interest rate you are paying. Get rid of the highest interest rate first. This is the most important step, because ensuring you have little or no consumer debt, will ensure that you have the best chance of dealing with the price rises on the horizon. As the interest rates rise, you will be largely immune to the direct increases.

Transport:

Transport costs will definitely be on the rise. The rises we are seeing now are both a function of the oil price worldwide, and our own inflationary policies. There is little you can do to reduce the price, but you can reduce your usage. Transport costs become a significant factor in holiday travel, and for the time being flying is a cheaper option for one or two people. However, in the future, rising fuel costs will see the majority of air-lines go bankrupt, and flying will be reserved exclusively for the wealthy.

Start a lift club to-and from work, and if possible, attempt to ascertain the effectiveness of working from home.

Limit all unnecessary transport, especially the short trips to and from the shops.

Living expenses:

Draw up a budget of your living expenses.  Add 50%, and if your income, at its present levels can cope, you'll probably be ok. If not, create another list of your current expenditure, and remove the luxury items from your purchases. Now add 60%. If you can cope at this level, then you should be ok.

These additional percentages are actually conservative. Rice has doubled this year (we're 4 months into 2008); wheat has gone from $7 to over $23 a bushel; oil has gone up 5 times its $20 price 5 years ago. The price of bread could quite feasibly hit over R30 per loaf. Fuel could quite feasibly hit R25 a litre.

Education:

Teach your kids the truth about consumer debt and inflation. Teach them the difference between value and price, and teach them that wealthy people buy things that make them wealthy, whilst poor people buy things that make them feel wealthy. Teach them that the most important aspect of an economy is stability, and that everything else in their life will be secondary to the health of the economy. And if they can have a good understanding of the economic principles, they will be ahead of the game.

Investment:

Buy gold and silver. Buy companies that are strong and produce the needed commodities:

Gold
Silver
Oil
Uranium
Fresh Water

Conclusion:

In conclusion, I'd like to say this: I'm not scare-mongering. I've been researching this subject of worldwide economics and geo-politics for 4 years. It doesn't sound like a lot, until I tell you that I've read over 130 books on the subject, and I read daily for several hours. Further, I listen to 5 hours of investment reports every week on my way into work, and I explore mostly the history of financial and economic events.  Personally I'd say that I've devoted about 2500 hours over the last 4 years to this area of study.

It is eerie how history does repeat itself, and the events we are going through today, whilst unique in their time-frame, have happened before in terms of the cause and effect relationships established. Once one has a good understanding of history, it is amazing how simple it becomes to predict, with a fair degree of accuracy, the probability of events occurring.

I have also involved myself in mainstream studies,  having just completed the Post Graduate Diploma in Financial Planning Law (the underpinning academic requirement for the CFP® - Certified Financial Planner), which has given me a very good understanding and working knowledge of our tax laws, pension and provident funds, corporate tax, personal tax and the legal environment within which finances operate.

I come to you with this information, knowing that it is not good news. Rather that you are informed, and when the events that are detailed above do come to pass, you are more prepared than the average person.

There is a paradigm shift underway, and in a nutshell, it could be called "The End of Consumerism". We are at one of those historical turning points, and if the events happen as described, we need to be prepared to deal with them. The turning point will take years, possibly decades to occur, and during the turning point, there will be much unrest and dislocation as people attempt to find their footing in their future based on their experiences of their past. That will surely prove economically fatal, as the past few decades have not prepared us for the changes ahead.

Fortunately, history is replete with such changes and turning points, and right now it is the only rule-book we have.  And this is not a South African phenomenon; it is worldwide.

Suggested reading:

Peak Oil:
Beyond Oil: the view from Hubbert's Peak                                              - Kenneth Deffeyes

Oil on the Brain                                                                                     - Lisa Margonelli

Twilight in the Desert                                                                             - Matthew Simmons

A thousand barrels a second                                                                 - Peter Tertzakian

Inflation and monetary policy, including history of same:
What has government done to our money?                                             - Murray Rothbard

Dying of Money                                                                                                - Jens O. Parsson

Gold Wars                                                                                            - Ferdinand Lips

The monetary elite vs gold's honest discipline                                        - Vincent Locascio

Empire of Debt                                                                                     - Bonner and Wiggin

Tax History:
For good and evil                                                                                  - Charles Adams

Fight, flight, fraud                                                                                 - Charles Adams

The Great Depression:
America's Great Depression                                                                   - Murray Rothbard     

Author: Dean Morris is a Moneyweb community member   

Source:

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