Re: PING: Some thoughts for Economist Olson [long]

On Feb 17, 10:59 am, "Mr. Jaggers" <lugburzman[at]yahoo[dot]com>
wrote:
For quite some time now, you have been making dire predictions about the
future of the economy, not only that of the U.S., but that of the entire
world.  I classify this as "problem finding."

Now I seek solutions to the problems, which I name "problem solving."
Perhaps you can be instrumental in this process as well.

1)  You (we) need to distinguish between our paper assets becoming
"worthless" and their becoming "worth less."  That they would become "worth
less" is understandable; an increase in the money supply, which is
contemplated by the government, will be inflationary, and continue, or
perhaps even accelerate, the decline in the value of paper assets, making
them "worth less" tomorrow than they were today.  We have certainly
experienced this over the course of our lives, and have learned to
compensate and adjust.  We have even had a couple of periods of fairly rapid
decline, and we obviously survived those.

But "worthless," the word I see you using, is an entirely different
situation.  That means that all the fiat money in the world would not buy a
piece of bubble gum, and all investments that consist of 0s and 1s in a
computer somewhere would be deleted and the hard drive wiped.  Each of us
would be reduced to the real estate and personal property at our immediate
disposal.  Even those would have no "value," other than what we could
exchange them, or barter them, for.  It would take a long time, I believe,
for any kind of stable system of exchange to become established.  How many
stuffed teddy bears, for example, equal a quart of milk?

2)  A situation that resulted in total worthlessness of all paper financial
instruments, as well as all the fiat coinage, would certainly wreak instant
hardship on anyone who did not have an alternative.  Those people will need
to eat today - and tomorrow, and the next day.  The numbers of the destitute
would increase rapidly and exponentially, and we could easily see half the
U.S. population desperate within just one short week.  We are not going to
have a stable society by any stretch of the imagination under such
circumstances.  We can talk about stockpiling firearms and ammunition to
deal with the occasional intruder upon our property, bent on stealing what
we have, but there are few of us who could hold off attack by a mob of, say,
even twenty-five persons.  Sure, we can blow away a few of them, but not all
of them.  We are talking ultimate desperation here, and such people will not
be deterred by the fall of a few of their compatriots.  Law enforcement,
which would have already been decimated by layoffs and retrenchment of
budgets, would be virtually powerless to protect the collective population.
Those who survived the day would live to face an even larger threat the
next.  And the next.  And the next.  This would even necessarily include the
CEOs and Rush Limbaugh.

3)  Of course, all this neglects the effects on world stability.  The worst
threat is some nuclear states and other entities, having even less to lose
than they do at present, would feel eminently justified in blowing away a
few million of their imagined enemies, "just because."  If and when this
happens, we can be absolutely certain that the world will be changed
bigtime, and permanently.  Everything will be assessed in its terms.  Petty
day-to-day concerns will also become "worthless" when compared to the Event.

3)  Faced with your doomsday scenario, which I have amplified and extended
in detail, how does an individual prepare himself for survival?  There are
only so many caves around, and those are mighty uncomfortable.  As you have
often counselled, precious metals are the key to survival.  But how much PM,
and in what form?  How would the exchange value of a 1946-D Roosevelt dime,
for example, be determined?  How would I get change for a $20 Liberty, and
in what form?  What about a silver bullion bar?  What good is that going to
do me?  Most of the population has long forgotten what the economy was like
under a hard money standard, and answers to these questions would be long
and hard in coming.

Mormons are known to have raw wheat stockpiled in 40 gallon containers in
their basements.  Some people stockpile tobacco, alcohol, firearms, and
ammunition, to be used as barter.  Even toilet paper has been suggested as
something that would skyrocket in exchange value.  Fresh water could
suddenly become liquid gold.  How much of any of that would guarantee
long-term survival?

4)  What should government(s) do more of, or less of, to prevent the
Ultimate Crisis?  Should it do anything at all?  Do we understand the
fallout that may ensue from the disappearance of GM, for instance, or a
second Great Depression?  Is your crystal ball really crystal clear, or is
yours, like those of everyone else, including big-name economists, rather
foggy at best?

5)  Finally, what are you yourself doing that will assure your own long-term
survival?  Buying a couple Roosies at a flea market and stashing them away,
which you reported in another post, is fine, but still, hardly even a finger
in the dike.

I await your thoughtful commentary.

James

Not being the addressee of this topic, I still read it with interest.
If I were to answer, perhaps this is the best I can do at the moment:
1. You mentioned a … need to distinguish between our paper assets
becoming "worthless" and their becoming "worth less."

My broad impression is that the ‘science’ of economics has some odd
features. Among them, it seems that when seeking to verify by
experiment a theory, the theory might be confirmed or rejected by
simply making a statement. For example, the observation that there is
a need to decide how the value of paper is behaving. An analysis that
sooths will if widely accepted help moderate any loss of value,
whereas an analysis that alarms might be sufficient to cause
speculation (or especially leveraged speculation) that leads to more
rapid weakening of the value.

Perhaps this is dancing around the question of a runaway inflation and
a worthless currency. That may be in the future somewhere and who
knows, our magnificent politicians may stumble onto that path. Even
so, it is at best a gleam in someone’s eye so far as I can see.

2 (& first 3). Having the world’s reserve currency become worthless
would have consequences, but perhaps not so severe as you suggest.
Long before degeneration into anarchy, folks would probably find a
work around and avoid the worst. The USA is pretty well run and its
people are underestimated by your scenario, I think. Pain would be
more felt in the US if the Euro or some other assumed the role of a
reserve currency, but the world could still avoid general nuclear
war. Also, the US is more nearly self-sufficient in labor, skills,
and natural resources than most countries; its pain would be real, but
limited.

(second)3. I think preparation for a general disaster of the scale you
outline is a bit too pessimistic. Some Mormons do advocate this and
Howard Ruff has written books on the subject (not bad advice if you
think you need it). I’m a skeptic. If things get so bad prayer might
be a better choice. Guns in the vicinity of a mob, is a very bad
approach.

Temporary interruptions of service are another matter. A full tank of
gas is usually a good idea. Some water and some money on hand in case
the credit cards or the ATM won’t work are good advice. Precious
metals have a role here but not precisely in a context like
Armageddon. They are of almost no use in case of general destruction
and are not nourishing, but somewhat heavy and need protection; they
are a useful hedge in more settled times against too rapid an
inflation or loss of confidence in the currency.

4. I have an opinion, but not a definite answer. My opinion is that
governments and assemblies of experts are inclined to make errors.
Economic panics arise from errors. My inclination is that governments
should try to do as little as possible to remedy panics. Their
actions are bound to take effect very late and the lateness may be
beyond their control and planning.

What has sometimes ended financial panics (besides financial prudence)
has been innovation (e.g., the advent of the railroad, radio, TV, the
automobile, air travel & etc.). Personally, I don’t see an innovative
solution on the horizon (perhaps nuclear power; or perhaps not?). I’d
love to hear a better solution.
.

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