London Calling

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The other evening,
my wife called me from London, where she occasionally travels for
business. A bit tipsy from an evening on the town, she confided
that that the outing really wasn't very fun because one of her companions,
an economist, was an "idiot."

do you mean," I asked.

She replied,
in contemptuous tones, "Well, I asked him what he thought of
the paper gold market, and he didn't even know what I was talking

Moments of
grace in a marriage, those times when spouses are 100% aligned on
an important subject, are a beautiful thing. For years, my Japanese
born wife has viewed my American roots radicalism — distrust of
government and all that entails as is so richly documented here
on LRC — as a harmless eccentricity that, like a broken clock, is
sometimes right, like when I precipitately liquidated all of our
equities on March 15, 2000 and got in (and then out) of the real
estate bubble.

But as the
events of the past year, and especially the past month, have unfolded
as predicted by Austrian economists and the trajectories of empires,
she sees that the preparations we've made have left her and her
little brood in very good shape relative to the other inside-the-beltway
professionals with whom she works and gossips. This covers any scenario
from a mild recession to her and our son, both Japanese citizens,
dangling from a helicopter in a Japanese Self-Defense Force evacuation
of their nationals out of civil chaos here.

The preparations
we've made are nothing novel, but are a formula for weathering a
storm while continuing to participate in our normal lives so long
as the center is holding. Others may have a stomach for a bunker
in Montana, but that isn't really to our tastes.

We've based
our planning on the following lemmata:

  • The level
    of debt of the U.S. Government, consumers, corporations, etc.
    is so great it is impossible to pay back. When something is impossible,
    it means it will never happen. The scenario for debt reconciliation
    is a stew of repudiation, renegotiation, and a healthy dollop
    of fiat currency devaluation. There is no other path.
  • The middle
    class will be shorn of wealth in this debt crisis. While their
    aggregate wealth still remains large, their political power relative
    to that wealth is small. The mechanisms for confiscating middle
    class wealth are direct taxation, inflation, and fire sale purchase
    of their assets as they become increasingly distressed. For instance,
    the clear marker of the stock market bottom is when 401k's are
    being liquidated en masse.
  • In the short
    term, there will be widespread asset deflation and currency crisis,
    followed by a large-scale inflation that is the result of current
    government actions and decades of debt.
  • The government
    will become increasingly intrusive and rapacious in their pillaging
    of wealth using the powers recently granted and all the others
    they've aggregated in the various Wars on <insert overblown
    crisis name here>.
  • In inflation-adjusted
    terms, expect real estate values to return to something below
    where they stood in 1999 or so. Bubbles always end badly, below
    where they started.
  • The stresses
    of the financial crisis and other accumulated woes may well engender
    significant political realignment of the United States, up to
    an including fragmentation into independent units, as happened
    with the Soviet Union and all other empires. Frequently,
    this happens very quickly with little warning.

While some
of the above may be arguable, few would assert that these are extremely
fantastical propositions. The fundamental principle to be derived
from this is to protect your existing wealth as much as possible
from counter-party risk by the government while not doing anything

So here is
a checklist to consider:

  • Significant
    investment in gold/silver that is physically accessible. Ideally,
    you've bought this already, although time still remains.
  • Some ready
    cash for sweeping up some near term distressed asset classes —
    for example businesses/properties/collectibles. Gang, the day
    is coming to take that one time 10% 401k liquidation penalty,
    as opposed to the recurring inflation penalty, and head for greener
    pastures. In the coming days, maybe you'll find a nice Gibson
    for a pittance.
  • Mortgage
    certainly less than 50% LTV. No other debt, obviously.
  • Significant
    liquidity in a relatively stable foreign nation. We're fortunate
    to have Japan as a backstop, and, while it isn't really stable,
    I suppose we could always head out to my brother's ranch in Bolivia
    and tend cattle in a pinch. Passports, birth/marriage certificates,
    other records in proper order.
  • Skills that
    are individually marketable and portable. My wife is a CPA, I'm
    a software developer with the ability to produce original, patentable
    IP. In a pinch, I can also work on your car and house.
  • The usual
    short-term survival kit — I'm not an extremist on this, but a
    healthy pantry of canned goods and a good stock of the usual household/hygiene
    items are cheap and useable under any circumstances.
  • Firearms,
    and proficiency with them, is a part of a well-rounded individual
    willing to take responsibility for themselves and their families.
    If you can only have just one, get a Remington
    870 shotgun.
    If you'd like another, get a Beretta
    . If you still even need one more, get a Springfield

In other words,
be one of the few that actually does learn from history. The successful
strategy of Jews, Roma, and other peoples that have survived under
regimes that were prone to unpredictably turning on them is one
of portable skills, liquidity, and the readiness to pitch camp when
things get ugly but still maintain productive engagement in an economy
and society when it is peaceful and reasonable.

this is not a defeatist call to give up and withdraw, just a prescription
for getting through some looming unpleasantness. The Revolution
is clearly gaining steam and one should continue to work tirelessly
towards that end. I do because, although I'm preparing for my family
not to become serfs of the government and Wall Street, I'd prefer
that our society be a place where such a thing is not even possible,
unlike it is today. And, unfortunately in this case, when something
is possible, given enough time, it is a virtual certainty that it
will occur.

10, 2008

Jay Roberts
[send him mail] with
a variety of early stage technology startups. His wife and son regularly
let him out to play guitar with his jazz buddies.

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