Wednesday, February 29, 2012

Why be prepared? econ 101

Barton M. Biggs is a money manager running Traxis Partners, a multi-billion dollar hedge fund based in New York City. He formerly held the title of "chief global strategist" for Morgan Stanley and was with that firm for 30 years.His influence could be seen when, in 1996, some traders were surprised that India funds suddenly became popular. "Barton Biggs is there, having a look around," one trader said. "Do you need to know more?"

Biggs is also author of the 2008 book Wealth, War and Wisdom (358 pages; Wiley; January 2008; ISBN 978-0-470-22307-9). In this book, Biggs has a gloomy outlook for the economic future, and suggests that investors take survivalist measures, such as looking into "polar cities" as safe refuges for future survivors of global warming. In the book, Biggs recommends that his readers should “assume the possibility of a breakdown of the civilized infrastructure.” He goes so far as to recommend planning adaptation strategies now and setting up survival retreats: “Your safe haven must be self-sufficient and capable of growing some kind of food,” Mr. Biggs writes. “It should be well-stocked with seed, fertilizer, canned food, wine, medicine, clothes, etc. Think Swiss Family Robinson. Even in America and Europe there could be moments of riot and rebellion when law and order temporarily completely breaks down.”[7]

I didn't write that. I copied it from Wikipedia. It can be found on numerous web sites including news sites and I included it because I thought it interesting (maybe a little scary) that a Wall Street-er would say it.  Although I don't think this will happen all at once I do think we are in for a "lifestyle correction" that will take place over time. How much time I don't know but given there is a learning curve to anything you need to learn the sooner you get to it the better.

 One of the biggest hurdles to being prepared is to know what it is you are preparing for. Whether it's peak oil, economic collapse, mother nature pitching a fit, or a pandemic.  I have to say it is pretty much impossible to convince anyone of something they don't want to believe. Until it happens.And I'm not saying the world is coming to an end in (pick a month)______ because that's kind of silly. What I am saying is change is inevitable. And being just a little bit prepared for that will make your life much easier and cost you nothing but a little time and fore thought. We have a tendency to believe that Kroger store will always be stocked and you will always be able to buy fuel (for car or home) but it hasn't always been that way and it hasn't been that long ago that it wasn't that way. We have been living in a sweet spot for enough years that our kids can't imagine things being different than it is right now. Being prepared also means knowing why something isn't working. What the circumstances are that lead up to it and the best way of coping with it......before it happens. The last post on this subject was about peak oil. Let's move on.

Economic collapse-For years we have been working up to what we call our current "economic recession". We have had them in the past starting with the first major US  panic of 1819 Followed by the  panic of 1837  and the panic of  1873 that triggered a severe international depression in the US and Europe. It was referred to as the great depression until the "Great Depression" of 1930's that we are more familiar with thanks to our exposure to relatives that actually lived through it. I suppose most of them are all old enough to be dead now so perhaps we will forget that hard won history and repeat it. The panic of 1873 is now referred to as the Long Depression.  That's not to say we hadn't experienced economic downturns before (in the late 1700's and early 1800's) but these were caused more from the Atlantic economy and foreign trade. (deep breath)

So what is different about it this time? Events leading up to it. Some that I wont even mention for fear of  this  becoming a book. But let's start with the end of the Gold Standard.  This was  a fairly workable system until Nixon decided to get rid of the gold standard and just print money. This is called fiat currency  and is the system used in the US today. It works as long as other countries have confidence in the country producing it and the government is a responsible one.  In 1971 Nixon(R) had a choice to declare bankruptcy and tell the world we didn't have the gold to back up the debt we had run up after Vietnam or get rid of the gold standard in the United States. Bankruptcy would have been the responsible thing to do but not politically expedient. That was the year I graduated from school and I remember how impossible it was to get any kind of job. (It was also pretty hard to get gas for a car too.) He chose the later telling the world the US was going off the gold standard and our currency would be the standard of exchange worldwide and anyone wanting to trade oil had to do it in US dollars. Our GDP was huge and our oil reserves well stocked making the US look like a good alternative to the gold standard. So the rest of the world went along with it. They had confidence that we could pay our debts even though we were living beyond our means.  At that time the government started printing money and the whole mess just started rolling downhill. When Nixon left office our debt was about 35% of the GDP. Ford(R) took office and nine months into his presidency US involvement in Vietnam ended and he resided over the weakest economy since the Great Depression. Jimmy Carter(D) took office in 1977 during a time of international  Stagflation which persisted through out his term.  Regan(R) took office in 1980. He advocated reducing tax rates (for the wealthy of course) and depending on a concept called trickle-down_economics leaving the people worse off than before. He is also known for deregulation. Something we are still paying for in that corporations and banks have little or no government over site leaving them to pretty much do as they wish. The CEO's like this. Perhaps the best way to understand how regulation and deregulation  works is to read this link. Then in March of 2006 congress voted to raise the limit on our debt instead of raising taxes (on the wealthy?) and spending less. Not only does this sound familiar, it sounds a lot like someone with a credit card that just maxed it out. So what do we do?  Well we simply got the credit limit raised. As a result in 2009 our debt was closer to 90% of the GDP. George Bush Sr. (R) took office in 1989 after a successful career in the Navy, graduating from Yale, becoming a successful business man, and making his fortune in the oil business. He inherited huge deficits left over from the Reagan era and managed to piss off most of the Republican party by doing the right thing and trying to reduce the deficit. Republicans wanted to reduce government spending and the Democrats wanted to raise taxes.  He lasted one term. Sound familiar? Bill Clinton(D) took office in 1993 and ran for two terms. He presided over the longest period of peace time economic expansion in American history. He worked with George Bush Sr. to pass NAFTA (which had been crafted during Bushes presidency) signing it into law during his term and was involved in Barack Obama's campaign.The congressional budget office reported budget surpluses for 1998, 1999, and 2000 during the last 3 years of Clinton's presidency. Despite his scandal he left office with the highest end of office approval rating of any president since world war II. Since leaving office he has been highly rated in public opinion polls of U.S. presidents.

Then we have George W. Bush (R). What can I say. A lot I guess but I would need to write pages and pages so it would be best if you just follow the link and read for yourself. All I can say is the same thing I said to my sister during his campaign. If this man walked into my business with his resume I would definitely file it in the round file before he got out the door. I don't need a cheerleader or a baseball player. And I certainly don't need someone skilled at bankrupting businesses. I could say "how he ever got elected is beyond me" but I have my suspicions about that too. Now this should get some of you fired up I'm sure.
Under GW we got a tax cut for the wealthy, GDP grew at average rate of 2.5% (considerably below average), poverty rate peaked at 12.7%, and the national debt increased 100% from 5.6 trillion in 2000 to 11.3 in 2008. By the end of his presidency unemployment climbed to 7.2% and kept going. In December 2007 the U.S. entered the longest post WWII recession which included a housing market "correction", sub prime mortgage crisis, soaring oil prices, and a declining dollar. To aid the situation Bush signed a $170 billion economic package intended to improve the economy. (Maybe that was suppose to be trickle down economics) Many economist and world governments determined that the situation became the worst financial crises since the Great Depression. In November 2008 over 500,000 jobs had been lost, the largest loss of jobs in 34 years. By the end of 2008 2.6 million US jobs had been lost. I could go on but what's the point. You get the idea.

January 20th 2009. Barack Obama(D) took office. If it had been me I would have run screaming in the other direction rather than inherit that mess. But he didn't. Unfortunately the American people were looking for Superman. He isn't. It will take a lot of work and time to climb out of this mess and it will take even longer since he is now bucking the republican head winds. The question here is will he last long enough to actually make a difference? Will he win this next election and be able to say full speed ahead and damn the torpedoes. Let's get'er done? Well it took a while to get here and while 4 years isn't enough 8 years may at least put us back on track to get there. But what if it isn't. Are you prepared to ride it out? Are you independent enough to live on your own without the help of society basically? Do you own your home out right, have an independent source of income and a way to feed yourself?

What I am saying is learn to take care of yourself and work towards getting your community to come together to take care of each other. It hurts no one and makes you and those around you happier in their self sufficiency. The next couple post will be about peak water and food. Hopefully they wont be as long and maybe there will be some pictures? Stick with me here. We will eventually get to what we can or should do about it.

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