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."
"What 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 about."
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 illegal.
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 L-5C 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 92. If you still even need one more, get a Springfield M1A.
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.
Furthermore, 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.
October 10, 2008