Simpler Living

January 23, 2011

General / Returning to Localism

Surviving the Coming Economic Disaster


Some people are skeptical of the coming economic disaster.  I am not.  I don't know when it will happen, but all signs are pointing to some time soon.  Before I sketch out my solution to the problem, I'd like to briefly say why I think we the economy is headed to disaster.

We are Rapidly Devaluing Our Currency

The US government has been recklessly spending for decades.  Most people don't realize what a disaster this is for our economy.  When the government borrows money, that devalues every ounce of savings for everyone.  In addition, the added debt load makes it harder and harder to repay the debts.

We haven't seen the effects of this because we just borrow more money to pay back the money.  Or print more money to pay back the money.  But this doesn't last forever.  It has lasted longer than usual because of one fact - the US dollar is the world's reserve currency.  It is the standard used in international transactions, especially in oil.  Which leads us to our next point.

The World is No Longer Standardizing on the Dollar

We thought that our position as the standard currency was unbreakable, so we made dumb fiscal decisions.  But those fiscal decisions have caused several changes that will soon be felt:

If more nations follow in this trend, this spells trouble.  What happens when everyone dumps the US dollar?  Imagine if, overnight, everyone's salary was cut in half, or even quartered?  That's the impact of having the dollar dumped - it raises prices so that the buying power of your salary goes down to half or a quarter of what it was, almost instantly.

Not only that, the fed recently issued new rules that means that it can never run out of money.  

So, in short, I think that a currency crisis is coming soon.  But there's more: the US could easily also lose its AAA rating in the bond market. Rating services have said that if our interest payments rise to 18-20% of our federal spending, we will lose our AAA status, and that will probably happen somewhere between 2013 and 2020.  Then, why would anyone use us as a reserve currency?  This will lead to a massive dollar dump, plus the government will get higher interest rates for its loans, meaning that it will need to print more money to pay them back.  Thus, a vicious cycle in which the dollar goes more worthless every day.

How To Stop the Cycle

I have no hope that our government has the capacity to solve this crisis.  So the best wisdom I can come up with is to unplug from the system, so that when disaster strikes, you are not very impacted.  How does this work?  By going extremely local and small-scale.

  1. Enable small-scale commerce.  This is the only one that requires the government.  We need to remove all government regulations from microcommerce.  If a mom bakes an extra cake, she should be allowed to sell it to her neighbors (this is currently illegal without permits, a commercial kitchen, and thousands of dollars of investment). We need to wake up to the reality that the large-scale commerce of the US may come to a grinding halt, and, unless we have enabled small-scale commerce, we will be fully sunk.  The fact is, regulations are largely irrelevant for small-scale commerce.  Regulations are to help keep people who don't know each other from exploiting each other.  Such regulations are usually not needed when transactions are between individuals in the same community.
  2. Engage in small-scale commerce.  We all need to find little ways in which we can, as individuals, benefit each other.  This may wind up being the only employment we have for a while.
  3. Value Capital Assets over Money, Trinkets, or Consumables.  The money we have will probably be worthless.  However, capital assets - land, housing, and things which produce things, will be helpful.  I have a dehydrator, a grain mill, and a backyard which I have been improving to grow crops.  I wish I had an acre or two of land.  The next years, we need to stop spending money on stupid things, and focus our spending on capital assets.
  4. Store Food. We need to start being prepared so that if the food in the economy runs out, we can still get by.  
  5. Create Public Gardens.  We need to have in place plans at the local level for converting all the grasslands within our cities into public, community farmland.
  6. Imagine Yourself Unplugged.  Imagine that tomorrow, all public utilities are turned off.  Are you ready?  Do you have what you need?  I doubt they will be turned off, but they may be too expensive to use.  Do you have enough blankets for winter?  Do you have candles for light?  Do you have seeds to grow food?  Chickens for eggs?  How well can you manage when all the lights go out?

I hope that when it all hits the fan, that conditions will not be so dire.  In any case, if they are better than I fear, the preparations will still be of benefit, no matter what the outcome.  Being unplugged, local, and prepared is helpful in any situation, and helps hedge against economic problems.  But, if things get bad, you will wish that you had prepared yourself.

I am not fully prepared, but have been working towards it.