Erstwhile Urban Wanderer

December 29, 2008 – In change there is always opportunity, at least for those with the right attitude. In my case, preparing for the coming “collapse” has brought me full circle, and that’s a good thing.

By Dave Eriqat

Many of my posts on this blog are philosophical pieces, and while they often draw on my own experiences, they are not intended to be about me. This piece is about me, just to let you know.

The Idyllic Years

I grew up, like so many others, during that sweet spot of American history, the few decades between about 1950 and 1980, during which stability reigned, anyone who wanted a job could find one, a single wage earner could support a family, scarcity was not even a remote concern and economic problems were something other countries suffered. “Homelessness” first emerged as a social problem and a de-facto new socioeconomic class after 1980. Prior to that homeless people were referred to as bums, hobos and winos, the latter moniker reflecting the root cause of homelessness for many of them. It wasn’t until after 1980 that people started to become homeless in wide numbers, often for reasons uncorrelated with their own behavior.

Despite the regional wars around the planet (for which I feel ashamed of my country’s involvement) it was an idyllic era here in the United States. And like most of my peers, I indulged in and partook of that wonderful life. I traveled, partied, consumed, whored around, all the while carefree and blissfully ignorant. Well, that’s not entirely true. I was always studious as well, always reading, and regularly reading business and political magazines even in my early 20s. It may, in fact, have been my avid reading of business journals that planted the seed of knowledge deep in my brain that something was wrong with the economic model that began to emerge around 1980. I touched on one aspect of this new economic model in my recent post titled, The Myth Of The “Service Economy”, but there was even more that disturbed me, such as the increasing reliance on leverage to create the appearance of wealth, as opposed to the prior emphasis on actual production of goods to generate real wealth. As many people are now aware, excessive debt, which took root in the 1980s, is one of the chief causes of today’s economic meltdown.

Although I “lived it up” during this idyllic era and am undoubtedly the most profligate spender in my family, most others would consider me frugal! Given a choice between holding onto money or deriving some benefit from spending it, I usually choose the latter, but I’ve never been a “consumer” for the sake of consumption. I’ve never, for example, gone to a shopping mall and strolled around looking for something to buy. Whenever I’ve gone shopping it’s been to buy something specific I needed, or wanted. I also generally bought things that were useful, such as computers for my business, furniture, cookware, and so forth, and tried to buy things that could last forever. The truth is that I hate throwing things out, so the best way to avoid that is to buy things that won’t need to be thrown out.

Refurbishing And Innovating

As my means have diminished and my awareness of the coming changes has increased, I’ve returned to my roots and started refurbishing things rather than buying new things. Why, just this morning I spent half an hour repairing a thermometer that cost a mere one dollar! And this is the second time I’ve repaired this very thermometer! The first time I used contact cement to reattach the bulb to the scale. Unfortunately, the yellow color of the contact cement made the thermometer nearly impossible to read, especially for my old eyes.

$1 thermometer after second repair. Temperature has become such a sensitive issue with me that I have these scattered all over the house!

So this morning I scraped off all the contact cement and reattached the bulb using some clear tape, which works a whole lot better. Thus, I avoided generating another piece of trash – in fact, I’m not even putting out my trash can today, even though it’s trash day, because I have no trash this week – and I avoided making a trip to the store to buy a new thermometer and I avoided the expense, insignificant as it would be.

After repairing the thermometer I decided to clean my coffee roaster, which affords more than mere aesthetic benefit. When the parts are free of coffee residue the coffee beans circulate more freely and a more uniform roast is achieved. Unfortunately, while cleaning the roasting canister, shown below, it literally fell apart in my hands! Astonishingly, the glass and metal parts were held together with what appeared to be silicone rubber!

Coffee roasting canister after cleaning and repair

So I took it apart, scraped off the old adhesive, finished cleaning off the coffee residue, and then glued it back together with fresh silicone rubber. Instead of expending all that effort I could have called up the supplier and ordered a new part, and in the past I might have done just that. But today I’m willing to spend an hour and a half fixing something like this.

What I find interesting, and have noted before, is that refurbishing things is what I did as a child, out of necessity, because my parents weren’t the type to go out and replace things readily. So if something I owned broke, I had little choice but to fix it. Today I find myself reverting to that same behavior for much the same reason, although this time it’s me who’s refusing to buy a new replacement item.

In addition to refurbishing things, I’ve become more innovative in making use of materials I already have. For example, I had an old plastic map I wanted to hang on the wall. But instead of simply pinning it to the wall as I’ve been content to do in the past, I wanted to make it look nice, but at minimal cost. So using some wood scraps, glue and tacks I had lying around, plus $7.50 worth of fabric I purchased, I made a nice frame, as shown below.

Handmade fabric map frame

The end result looks quite nice (especially if you stand some distance away and squint your eyes!), much nicer than simply pinning the map to the wall. To put the minuscule cost in perspective, I have in times past paid as much as $1,600 for a frame for a really nice antique oil painting! I wouldn’t even consider that today. I wouldn’t have spent even $20 for a frame for this map. My self-imposed austerity forced me to be innovative, a skill that people will have to increasingly develop in the future.

Finally, whereas in the past I would have promptly purchased new tennis shoes once mine wore out, today I’m content and not the least bit embarrassed to just slap another layer of duct tape on them instead!

Recognizing The Coming Collapse

Getting back to the collapse, it was around the year 2003 that I recognized that a housing bubble had formed. Having been badly burned a few years earlier when the stock market bubble burst (I recognized that bubble too, but trusted the “experts” and left my retirement money in mutual funds), I decided that I was not going to get burned again. So I spent most of the year 2003 searching the entire country for a cheap house to buy, one I could pay cash for. By that time I already recognized that our problems were deeper than a mere housing bubble and I was concerned about a number of things, including the economy as a whole, the security of my own job, and water and food issues. So I carefully selected a locale that had ample water supplies, a temperate climate and afforded me the option to grow my own food. And owning my house gave me great security in the event of losing my job. Interestingly, my fears about my job security were finally realized this year, and I’m now officially unemployed. Thank goodness I cut my living expenses in advance of my declining income instead of the other way around. It wasn’t until 2005 that I first heard the term “peak oil,” but as soon as I did I knew what it meant and immediately grasped its ramifications, and it vindicated my fears that had motivated me beginning in 2003.

Since becoming aware of peak oil in 2005 I’ve been operating more or less in “survival mode.” That’s not to say that I have panicked at all – I have not – but all my decisions are guided by thoughts about the future, particularly thoughts about basic survival. For instance, I now store bottled water – something I had never done before – and considerably more food than I did in the past. I also have several different means to keep the house warm, two of which are “off the grid,” meaning they are self-contained. I also have a plethora of tools for maintaining the house and garden and today view my own vegetable garden as an integral component of my food supply.

Another consequence of operating in “survival mode” is a change of attitude. Until recently I did not hesitate to spend money on something I wanted, such as a new computer. Today I’m far more circumspect about spending money, not because I’m hoarding money but because whatever I spend it on has to satisfy a need. I have imposed a new austerity on myself, satisfying needs and foregoing wants unless they are inexpensive, such as the occasional $5 DVD. The computer I’m composing this post on was purchased in 2002, practically an antique by computer standards.

Full Circle

I find that in a sense I’ve come full circle, to where I began life as a child. Back then I had no responsibilities, no job, no need to support myself, no dependents to support, nor any money. But I did have a house, a few possessions and food to eat, all provided by my parents, good health and an open-ended future ahead of me. Today I find myself in a similar position, though better off in several ways: I have a paid-for house, furnished with everything I could possibly need, food to eat, no job, enough money to live on for a little while, no debts, no responsibilities, good health and an open-ended future. Granted, that future will involve adversity and coping with change, but it also offers opportunity, especially to people who are in a position to be flexible and willing to adapt. In contrast to my childhood, however, I also possess knowledge, experience and wisdom. How many times have I dreamed about going back to my childhood, but retaining possession of my present knowledge, experience and wisdom? Well, I feel as if I have that opportunity right now, albeit with deeper crevasses sewn into my face.

Born Again

Planning for the “collapse” these past five years has utterly changed my life, for the better. It has weaned me off the consumerist model of living, taught me what’s important in life and what is not, learned me what is good and what mistakes to avoid, such as getting into debt. It has forced me to embrace austerity and scale down my expectations, which has taught me how to live a good life without consuming and spending. In a sense I feel as if I have been reborn, but with the wisdom and experience to “start over” and build a better life. I wish everyone could enjoy a similar awakening and renaissance in the coming years, although I know the sad reality is that most people will probably face an arduous struggle for which they are unprepared.

December 21, 2008 – In the 1980s, the United States embarked on a dubious experiment to transform itself from a “quaint” agrarian and manufacturing economy into a “service economy.” So how is that working out for us?

By Dave Eriqat

The very first time I heard the term “service economy,” way back in the 1980s, I scoffed. Even as economically illiterate as I was back then, the very notion of an economy not fundamentally based on manufacturing and agriculture seemed viscerally repugnant and intellectually dishonest. It just sounded unnatural, like men having babies. Over the intervening years, as I studied the economy, my revulsion to the notion of a service economy has only intensified.

I believe that many of the economic problems we’re seeing today – excessive debt, declining standard of living, homelessness, insolvency of everything and imminent depression – are the result of our embracing the fallacious service economy model during the past few decades.

Trends

Since peaking around the year 1950, the percentage of jobs in the U.S. devoted to producing goods has steadily declined, while wealth-consuming “service” jobs have picked up nearly all the slack. To my surprise, the share of jobs in government has increased only slightly, from 13.5% in 1950 to 16.1% in 2007. (Frankly, government seems a lot more obtrusive than that statistic suggests, probably because a lot of service jobs are quasi-government jobs, thanks to the privatization of many government functions.)

As shown in the chart below, “goods producing” jobs, about two-thirds of which are “manufacturing” jobs, have plummeted from 38.3% in 1950 to 16.1% in 2007. I find it an interesting coincidence that the shares of goods producing and government jobs are equal, at 16.1% each. In other words, exactly the same percentage of people are employed in government, consuming wealth, as are employed producing goods, generating wealth. Furthermore, 16.1% is another way of saying that one in six workers works for the government! Each of the other five workers are thus supporting one-fifth of a government worker, plus one-third of a social security recipient, for a total of about one-half of another person. I won’t discuss agricultural jobs here, except to assert that there has been a similar decline in the number of agricultural jobs, especially as family farms have vanished in favor of giant agricultural corporations.

U.S. job distribution as a percentage of all jobs (source: BLS)

The chart below depicts the “personal saving rate” in the U.S., which is basically income minus expenditures. The Bureau of Economic Analysis, the source for this data, presents two sets of figures, based on NIPA and FFA. I honestly don’t understand the difference between the two, but they both indicate more or less the same thing, which is a noticeable decline in the personal saving rate of Americans since about 1980.

U.S. personal saving rate (source: BEA)

Notice in the above chart, which spans roughly the same time interval as the jobs distribution chart above it, that there is a slight correlation between the saving rate and the number of goods producing jobs. There’s certainly a better correlation between those two figures than between anything else in the two charts. Of course, this makes intuitive sense to me. Goods producing jobs create real wealth, which can then fund savings. If the number of goods producing jobs declines, then so does our ability to save.

U.S. consumer credit as percentage of income (source: Federal Reserve)

As shown in the chart above, by the late 1970s consumer debt was leveling off. Yet we then observe a pronounced resumption of debt growth following the inception of the service economy in the 1980s. Either people developed an increased appetite for spending which could only be financed with debt, or their incomes failed to keep up with their expenses, or a little of both. In any case, the three charts above appear to show a close correlation between the decline of goods producing jobs, the decline of savings, and the growth of debt.

I’ve long harbored the nostalgic opinion that the year 1975 represented the peak of everything good in the United States: egalitarianism, civil liberties, individual affluence and industrial development. The saving rates shown in the chart above do suggest that the period between 1970 and 1980 was the final peak in the personal saving rate, suggesting the peak of individual affluence. And 1979 was the peak year for the number of goods producing jobs, a total of 24,997,000, of which 19,426,000 were manufacturing jobs, suggesting the peak of industrial development; it’s been downhill in both job categories ever since.

During the same period, from 1975 to the present, “inflation” has soared and everything from houses, to cars, to utilities and food has become steadily less affordable. But isn’t that just another way of saying that wages have not kept up with inflation? In other words, might it not be the case that our drift away from a goods producing economy toward a service economy has caused a decline in real wages? In addition, I believe that moral values and social harmony are partially linked to economic conditions. Clearly, crime is correlated with economic conditions, and I think other social values are as well, values like honesty, integrity, violence, and fairness. As our economy’s ability to generate real wealth has diminished, so too, it seems, has our devotion to these measures of civility.

In addition, whereas a large percentage of families in the 1970s could subsist on the wages of a single worker, today most families need two workers to support the family. In part that’s due to higher expectations: of bigger houses, fancier cars, more gadgets. But I think part of the reason two incomes are needed is that we’re simply not earning as much in real terms as we used to because we’ve exported much of our wealth-producing manufacturing infrastructure. I also believe that two-income households have exacerbated the decline in civility, for obvious reasons. I just read an article today titled, U.S. Teens Portrayed as Violent, Unethical. I can’t help but wonder if this would be the case if kids today were supervised by a stay-at-home parent, as kids were when I was a kid.

Economic Pyramid

My idea of a healthy, sustainable structure for an economy is best depicted by the diagram below. Although I did not depict government in this diagram (what subconscious thoughts does that reveal?), I think government ought to occupy no more than a small segment at or near the very top of the pyramid.

Ideal economic pyramid

Since the inception of the service economy, the U.S. has sought to export much of the base (the bottom three tiers shown above) of the pyramid to other countries in a shortsighted quest to increase profits by reducing labor costs. However, wealth flows from the base of the pyramid upward. Without the base, there is no wealth creation to support the top. In the early days of the service economy, culminating in the frothy dot-com bubble era of the late 1990s, the U.S. continued to receive the wealth generated by the “outsourced” bottom of the pyramid because it retained the expertise and intellectual property embodied by the top of the pyramid. Over time, however, as countries developed their own expertise and intellectual property, a new top of the pyramid has begun to form in those countries that earlier received its base.

Today the U.S. economy isn’t structured anything like my diagram above. The top three tiers of the U.S. economic pyramid are grotesquely bloated and the bottom three are emaciated. Consider, for example, that the U.S. has about one-twentieth of the world’s population but about one-half of the world’s lawyers!

For many years I’ve been preaching about the vital need to make manufacturing and agriculture the foundation of the economy, because the free wealth from the earth and the sun is the only true source of wealth. All other economic activities are paid for from this free wealth. I’ve always felt like an oddball because I’ve never been able to make people understand what I’m saying, nor have I ever encountered anyone else who shared these views of mine. So I was extraordinarily delighted the other day when I ran across an outstanding essay (perhaps his best ever) by Karl Denninger, titled, We’re All Madoff. For the first time ever I read someone else write the very words I’ve been mumbling to myself for years:

Money is in fact production; you gain it only three ways – by growing something, mining something or making something. That is, by producing a thing (whether it be a car, apples, a barrel of oil or software) that did not exist before. In the most-basic of terms, all money ultimately comes from the energy imparted upon the earth by the Sun. [My emphasis.]

The Physics Of Economics

Modern economic theory seems more akin to voodoo than science. Between the half-baked theories of insular academics and the obscene manipulation of the “official” economic statistics, it’s a wonder that we can make any sense of the economy at all.

This confusion is both unfortunate and unnecessary, however, because economics is fundamentally based on physics, particularly the first law of thermodynamics. One cannot get more energy out of a system than one puts into the system. In fact, given that no system is 100% efficient, one will surely get less energy out than one puts in. Consider an automobile engine. We put gasoline into it. That gasoline contains a certain amount of potential energy. But not all that potential energy finds its way to the tires of the automobile. The engine itself is not 100% efficient. Tremendous amounts of energy are lost as heat (that’s why engines need a cooling system). Additional energy is lost between the engine and the road. Now consider the human body as an engine. Its energy source is food. Food contains a certain amount of potential energy too, just like gasoline. And just like the automobile engine, the human body “loses” a certain amount of that potential energy in the form of heat (which is why we have a cooling system as well). The laws of physics make it impossible to get more “work” out of a human being than the amount of energy put in.

Nevertheless, our economy is predicated upon the confused notion that human productivity can increase without bound. But what is “productivity”? It is output. Obviously, output cannot increase without bound, thanks to the laws of physics. So how is it that human productivity appears to increase? By overlooking all the other inputs, including energy, natural resources and machines, which themselves are made from resource inputs and human labor. The true equation for calculating human productivity is,

human output = human labor + energy + resources.

Obviously, the labor potential of a single human being is a constant, so the only way human output (productivity) can increase is by increasing the other inputs, that is, energy and resources. Even if productivity-enhancing machines are used to augment human labor, output can only be increased by increasing the energy and resource inputs.

But where do the energy and resource inputs come from? The earth and the sun! In other words, human labor alone does not generate wealth. Remove energy and resources from the equation above and we end up with this equation,

human output = human labor.

In other words, without the free wealth from the earth and the sun, human output will equal human labor. No wealth is created from human activity alone. To put it another way, if we’re all laboring to wash each others laundry, are we producing any wealth? No, that’s a zero-sum transfer of work; our labor alone is insufficient to create wealth.

Yet, this is precisely what is implied by the so-called service economy, which revolves around human labor and brain power alone. Clearly, such an economy cannot generate real wealth because it omits the only sources of wealth, which are energy and resources from the earth and sun. While we humans may arrogantly claim credit for creating wealth, the truth is that all we are doing is extracting wealth from the earth and sun and channeling it to serve us. We aren’t creating anything, nor can we. We are net consumers of wealth by virtue of the thermodynamic fact that we consume more energy than we output as work.

Lifecycle Of Wealth

It is, nevertheless, an observable fact that workers produce more “wealth” than they consume, otherwise companies could not stay in business. For instance, using dollars as a means to quantify wealth and productivity, a typical worker might produce $100,000 of output but be paid a salary of $40,000. Now, I hope I’ve made a good case above that the extra $60,000 of “wealth” produced by the worker didn’t come from the worker himself, but from the extra inputs of energy and natural resources. But where did the extra “wealth” go? To the owners of the means of production, and the government through taxation. In other words, workers are basically machines that process and channel free wealth from the earth and sun to the owners of the means of production and the government. Our entire economy revolves around this transfer mechanism, whether we’re talking about a simple mineral mine or a complex, globalized enterprise making iWidgets.

Free wealth is extracted from the earth and sun, a portion goes to the workers, the lion’s share goes to the owners of the means of production, and a share of both the workers’ and owners’ wealth goes to the government in the form of taxes. This is our economic system in a nutshell. Without the first step, the free wealth from the earth and sun, there can be no economy.

Conclusion

In my opinion the “service economy” has been an unmitigated economic disaster for the United States. It has impoverished our country, a fact that has been masked by the accumulation of unprecedented amounts of debt, which now threatens our standard of living, if not our economic survival. At the very least, a country that idolizes consumption ought to place as much emphasis on producing goods as it does on consuming them.

Instead we thought we could shift the burden of producing goods onto other countries and continue to enjoy the benefits of consuming them, while failing to understand that we were relinquishing our wealth-generating means in the process. As I said in my essay, Economic Warfare?, I don’t think it’s happenstance that China has sought to acquire the U.S.’s manufacturing base, even at the expense of subsidizing its exports to the U.S. through the purchase of U.S. debt. An astute observer cannot help but conclude that since manufacturing generates wealth, those who wish to be wealthy ought to acquire a manufacturing capability.

As we ruminate on how we’re going to dig ourselves out of the coming depression, we might want to consider restoring our productive capacity. But this time around, due to the limitations imposed by peak oil, we need to restore a productive capacity that is smaller in scale and more localized in scope.

December 17, 2008 – The “collapse” cometh. Proactive steps one can take to deal with it.

By Dave Eriqat

Where We Stand

Back in February of this year, in a post titled Paralyzed With Fear, I expressed my concerns about “total economic collapse” arriving “in a matter of months.” Well, it has begun. The theatrics that erupted this past September are only the beginning.

In some ways it appears we’re heading into a deflationary climate. Certainly houses, stocks, securities and commodities have declined in price. Debt is shrinking in some areas of the monetary system, creating the appearance of a money supply shrinkage, which is the very definition of deflation.

However, I think it’s only a matter of time before all this bailout activity boomerangs and abruptly turns into inflation, perhaps even hyperinflation. There’s little question that the U.S. Government is “printing money,” however discretely. Eventually, all that money is likely to spill into the pedestrian economy and show up as price inflation. In addition, the foreign appetite for U.S. debt is diminishing. Since we import so much of what we use on a daily basis and pay for it with debt, if the countries that we import such goods from have less confidence in our dollar and our debt, they are likely to either reduce shipments to us or demand higher prices for their goods (through the mechanism of currency exchange rates). Either way, prices of imported goods would rise. Regardless, in my own experience there has not been a noticeable decrease in the prices of anything I purchase regularly except gasoline, and I believe inexpensive gasoline is a temporary luxury. Other energy prices and food prices keep rising relentlessly. Every time I go to the grocery store at least one item is 10-15-20% higher that the last time I bought it. I especially dread going to the liquor store! Every time I go now, the item I buy is likewise 10-15-20% higher than the last time. Ouch, that really hurts! I’m gonna have to start up my own moonshine still.

Hyperinflation, while it sounds like just a bad case of inflation, is actually a different kettle of fish. Run of the mill inflation ensues from money supply expansion, which eventually shows up as higher prices, for houses, stocks or in the grocery store. Hyperinflation, on the other hand, ensues from human psychology, from a loss of confidence in the currency itself. During hyperinflation, the roles of the government and the currency users are reversed. During hyperinflation the currency users are in the driver’s seat, so to speak, and it’s the government that struggles in vain to keep up with ever declining confidence by printing more and more money, which of course begets additional loss of confidence.

The reason I’ve elaborated on the difference between ordinary inflation and hyperinflation is that I believe we could be facing either one in the future, despite the apparently looming deflation. I’ve already explained why inflation is likely, and is already evident in some areas, particularly food prices. Yet if our foreign creditors lose confidence in the U.S. Government and stop buying its Treasuries, how else will the U.S. Government finance its enormous deficits, now likely to surpass $1 trillion for a single year, except by “printing money”? Right now it’s doing a pretty good job of concealing its money printing activities with all these complex Fed-Treasury bailout mechanisms. That concealment is helping to maintain confidence in the currency, but should money printing become more transparent, confidence both abroad and at home could quickly erode, leading swiftly to hyperinflation. In past hyperinflationary episodes, the time between ordinary inflation and hyperinflation was measured in months, so it can erupt quickly and seemingly without warning.

What The Future Holds

Those of us who have been straining to see the future for the past few years have come to the conclusion that we are headed for some kind of “collapse.” Our economic system, based on perpetual exponential growth, simply cannot be maintained in a finite environment. While collapse nightmares depicted in movies such as The Road Warrior sometimes come to mind, that sort of collapse is more melodramatic than is likely, barring a devastating world war involving a nuclear exchange. (People often refer to this collapse scenario as the Mad Max scenario. But in the movie Mad Max, society was in the incipient stages of collapse – sort of where we are now – and pretty much functioned normally. The abjectly savage picture of collapse people tend to think of is really more like that depicted in the sequel movie, The Road Warrior.)

My vision of “collapse” is a slow, grinding decline in our standard of living. Little by little, abundance disappears, replaced by scarcity; comfort declines, replace by coping; systems become less reliable and instead of being annoyed when things don’t work, we are grateful when they work properly; and we become more self-reliant, an attitude that’s been absent from the minds of Americans for well over a hundred years. One of the things America is known for is intrepid individualism. That reality died in the nineteenth century, but it’s likely to make a comeback in the future, that is, if people want to survive.

I know that people are pinning their hopes on our newly elected messiah. Dream on. The best he has offered so far is turning 2.5 million Americans into slave laborers, in public works projects aimed at maintaining the existing failed economic model. Of course, I foresaw the use of slave labor in my essay titled The End of Civilization; I just didn’t think it would be proposed so soon! In addition, the recent financial bailouts, which were tendered despite being opposed by the public 100:1, should make it clear to everyone that the government is not on “our” side. Anyone depending on the government for their salvation is naive and likely to be sorely disappointed.

Those of us who are serious about not merely surviving, but thriving and building the future, need to be more proactive about determining our destinies. We need to take control of our own lives and become more self-sufficient. We also need to be a little bit selfish. Now, I don’t mean that we need to look only after ourselves and to hell with everybody else. I mean, we need to make our own existence secure first, and then reach out to help others. This is what I have done for myself, and I have made it clear to people that they are welcome to come live with me anytime they wish. If my own situation were not secure, I would not be in a position to extend such an invitation to others. So we need to focus first on what’s best for us, and then worry about others.

We especially need to be prepared for unexpected acute crises: bank holidays, food shortages, gasoline shortages, natural gas shortages, electricity outages, water outages, and so forth. I don’t think all these things are going to completely collapse, and certainly not all at once, but I do think these problems will all crop up from time to time, repeatedly and for increasingly long durations in the future. At the very least, people need to be prepared at least enough to get them through each acute crisis.

What about the financial future? Sorry, but I don’t think we’re ever going to return to what we’ve seen during the past 30 years or so: seemingly miraculous growth and asset appreciation without effort. Frankly, the “affluence” of the past 30 years or so has been a lie, a lie born of financial gimmickry and in defiance of the laws of physics. Such laws can be violated for a while, but they eventually reassert themselves, as they are doing right now.

I recently overheard a friend say, “I just hope the stock market goes back up.” He said it twice in a row, and the anguish in his tremulous voice was evident. I felt really sorry for him, but didn’t express my pessimistic views to him. He and his wife put their retirement nest egg into stock-based investments and are slowly drawing it down to pay for their living expenses. I suspect a lot of people are in that same position, and sad to say, I don’t think the stock market is going back up. It might be temporarily engineered back up to produce the illusion that things are getting “back to normal.” But even if the stock market goes back up it will likely be because the dollar has gone way down, meaning that everything else will be “up” too: food, energy, imported goods. If one’s stock portfolio that one is living on doubles, but so does everything else, what has been accomplished?

The same is true for housing – it’s not going back up. The fundamental problem with housing is that houses became too expensive. Traditionally, houses cost 2-3 times one’s gross annual income. Sounds cheap by recent standards, huh? In places like California people were buying houses costing 10 times their annual income! House prices must revert to the traditional 2-3 times income, and they will. So if the government’s efforts to reflate house prices are successful, then incomes will have to rise correspondingly to be able to afford the higher priced houses, and so will everything else. So what will have been accomplished by maintaining high house prices?

Employment is also going to be increasingly undependable. The recession-related soaring unemployment figures actually understate the reality of today’s employment picture. Thanks to government gerrymandering of the statistics, the unemployment rate it prefers to report is understated by about half. So where did all those jobs disappear to during the recently ended “good times”? They were exported to other countries and aren’t coming back. The recession-related unemployment merely adds to the misery, and it’s going to get worse too. And I don’t think those jobs will come back either, since they are mostly in unneeded “service” jobs. What we need in the future are production oriented jobs, but I don’t believe there’s much interest in creating such jobs in the upper echelons of government and business. So if such jobs are going to be created, we’re going to have to create them ourselves.

So why all this long-winded gibberish? What am I leading up to? I’m trying to paint a picture of where things are going in order to convince people of what they should do today to prepare for tomorrow. The bottom line is that we’re not going back to anything we’ve known in the past. So we might as well start adapting for the future.

What To Do Now And During The Next Few Months

I don’t want to frighten anyone, nor do I like to encourage dishonorable behavior. Nevertheless, some of what I’m going to talk about below is both frightening and dishonorable. However, the situation we’re facing is one of basic survival.

I believe there is still a window of opportunity, perhaps up to one year in duration, for people to prepare for their own survival. Doing so will demand drastic changes, and few people will have the stomach to undertake these measures.

The most important elements for basic survival are shelter (including heat), food and water. Most Americans are insecure in all these areas. Many Americans live in a house they don’t own and can barely afford, and few have the means to feed themselves, other than by driving to the nearest grocery store or fast food restaurant. Living so precariously is fine in a stable, predictable environment, like the one we’ve enjoyed for the past few decades. But in the coming years, people who continue to live with their lives hanging by a thread of normalcy will find their very survival threatened. People must resume thinking in terms of basic survival first, and everything else second.

Housing

First and foremost is housing security. My advice to people is do whatever it takes to find yourself a house you can own without a mortgage. That alone will give you tremendous security. With a house like that all you need to pay for is property taxes and maintenance, most of which you can do yourself. And the cheaper the house, the more affordable it is to purchase, the cheaper it is to maintain and heat, and the lower the property taxes will be.

If you own a house that’s worth less than the mortgage, I’d stop making payments right now and let the bank begin foreclosure proceedings. (This is one of the dishonorable things I alluded to.) As I tried to convey above, house prices are not going back up anytime soon. It will be decades before you can pay down the mortgage to where it’s less than the house can be sold for, and in the meantime you’ll be throwing away most of your hard-earned money in the form of interest payments. If you lose your job while valiantly struggling to honor the mortgage commitment, then you’ll lose the house and all your payments anyway. In today’s climate, if you stop making mortgage payments there’s a good chance that the bank will not make an effort to evict you for a year or more. Lenders are overflowing with foreclosures; they don’t want any more. And leaving a house vacant is worse than leaving it occupied by a benevolent caretaker – you. Of course, some lenders might be hard nosed and foreclose and evict you immediately, but even then, the foreclosure process takes months, during which time you can live in the house for free. You have to use your own judgment as to whether or not you can get away with this tactic.

Needless to say, you should also cancel all unnecessary services: cable TV, cell phones, movie rental services, gym memberships, bottled water delivery, newspaper and magazine subscriptions, and so forth. Everything that’s not essential to survival should be eliminated and the savings applied more fruitfully.

Now, what benefit is living in the house for free? What should you do with all the money you’re saving on house payments? Save it up to purchase another house for cash. And don’t be shy about doing something radical, like moving to Detroit. This morning I found 371 listings in Detroit for 2-bedroom, 2-bath houses priced at $20,000 or less. Suppose you’re paying $2,000 per month on your present mortgage. A mere ten months of mortgage payments would buy you one of these houses free and clear! So if the lender on your present house allows you to live in it for a year for free, by the time you are forced to leave you could have purchased a replacement house.

Granted, Detroit has seen better days and is in the process of severe decay, but we’re talking about survival here. Which situation is more threatening to survival: living in a house you don’t own, paid for with an income from a tenuous job; or living in a house you do own, albeit surrounded by a city in a state of decay? If enough people did move back to declining areas under the circumstances I outlined, the decay could be arrested and the communities would be gradually revitalized.

One important consideration with regard to housing is heating it. As I said, I expect that heating issues will become more prevalent in the future. In a cold locale such as Detroit, one must consider seriously how they will keep warm if there is any sort of energy outage. For a few hundred dollars one can install a self-contained, ventless propane heater in a house. These can be fueled by an ordinary propane tank like you might use with an outdoor barbecue. While not ideal for primary home heating, in an emergency, these heaters can at least keep you from freezing to death. It’s cheap insurance. For a similar cost you can install a wood burning stove, again, as an emergency back up. Buy a small pile of wood to go with it and you have another way to keep warm. If you install a wood burning stove in one part of the house and a propane heater in another, you can use them simultaneously if necessary to keep the whole house warm. Some wood burning stoves have a flat top surface that’s designed to be used as a cooktop, which would enable you to cook as well as heat your house in the event of an electricity or natural gas outage.

In my house I have central heating (run by natural gas and electricity), electric room heaters (the oil-filled radiator kind), propane heaters and a wood burning stove. Part of what I’m trying to get across is the need to prepare for different kinds of crises. We’re not going to see just one kind of failure in the future; we’re going to see different failures crop up from time to time.

Employment and Savings

But what about one’s good job where they live now? Keep it. Just prepare for the possibility of losing it unexpectedly and position yourself beforehand to survive without it. For example, once you’ve saved enough money from your mortgage payments to buy that house elsewhere, do so and maybe send the rest of the family to live in it and get it set up. The primary earner with the good job can then remain in the old house awaiting foreclosure and/or job loss. Meanwhile, every excess dollar earned from the good job can be saved up to provide a cash cushion for the future.

I would keep only enough cash in dollars to pay a couple of months of expenses and put the rest into precious metals. Although it’s difficult to obtain physical metal in small quantities today, GoldMoney is an excellent way to purchase precious metal in any quantity. In some respects, GoldMoney is better than physical metal in your possession because you don’t have to worry about it being stolen from your property or transporting it, the latter being an important consideration if you are planning to move your household to another city.

I would not keep all my dollars in the bank either. Even though our bank accounts are insured for up to $250,000 today (although one might ask, who’s insuring the insurer?), it’s still possible that we will witness a “banking holiday” in the not too distant future. Such a total bank closure, which could last as long as a couple of weeks, would prevent you from withdrawing money from the bank, using ATM machines, and perhaps using checks (the recipients might refuse them since they cannot be cashed) or even credit cards. At the very least it would be a good idea to keep enough cash on hand to cover a couple of weeks of expenses. By the way, in a prolonged electricity outage, electronic payment systems won’t work either, so cash would be handy during those types of emergencies too.

Once you do move to your new frugal house, you need to think about what you’re going to do for employment. The answer to that question depends in part on where you move. Obviously, you have to choose a form of employment suitable to the area you move to. In a rural area, perhaps a small farm can provide you with sufficient income to pay your bills. In an urban area, perhaps being a handyman can pay the bills. I’m presently thinking about making furniture in my own garage. Furniture is something people can use and which I can trade for things like food. But I’m not in a hurry to do something. The nice thing about having savings and a low cost of living is that it gives you options and time to consider them.

Another dishonorable tactic, intended to boost your savings is to stop paying your credit card bills. Credit cards are unsecured lines of credit. Typically the worst a credit card company can do is ruin your credit and harass you on the telephone. However, if your goal is to get out of debt and revert to a cash-based lifestyle that’s within your means, there is no more expedient way than to simply walk away from your debts. Incidental benefits of ruining your credit are that you will be a less tempting target for identity thieves and you will not be in a position to acquire new credit cards and resume those old credit-based habits.

If one follows the above advice regarding housing and savings, what will they have accomplished? They will have a fully paid for house over their heads, with only small annual property taxes to pay. Even the poorest paying job would provide enough income to scrape by. In addition, with their money safely tucked away in precious metals, they will be protected from volatile monetary changes, whether inflationary or deflationary, as it is in unstable climates that precious metals offer the greatest security.

Food and Water

What about food security? Many people are aware of how delicate our food distribution system is. It’s been said that grocery stores have only a few days worth of food on the shelves. In a crisis, with desperate people hoarding food, I think the time it would take to deplete those shelves would be even shorter. With food distribution critically dependent on incidentals like fuel and finance, even if there is no shortage of food, there may still be no food available in the stores. I expect that in the future we will occasionally see empty food store shelves.

Another aspect of food security is food quality. In our ceaseless quest for profits at any cost, we have steadily degraded the quality of our food, making it, in some cases, potentially harmful. Today’s widespread melamine contamination is a perfect example. But I have grave concerns about what genetically modified foods are doing to us as well. Recently I read something that really clicked in my mind. It’s titled GMO and Morgellons Disease, and as the title suggests, it hypothesizes on a link between Morgellons Disease and genetically modified foods. Given the bizarre nature of Morgellons and the equally bizarre nature of some genetic modifications made to food, I think this is a theory worth exploring. Morgellons aside, there is evidence of other health risks associated with genetically modified foods.

What to do? The simple solution is to grow one’s own food. Actually, it’s not that simple because we’ve strayed far from that ancient tradition and few people today know how to grow their own food. But we can relearn the practice. In fact, it ought to be one of the easiest things to do since life itself is so tenacious and so eager to reproduce. While searching for one’s sub-$20,000 dream house, they should try to find one with enough of a yard to grow food on. Several of the houses I referred to above had one-quarter acre lots, double the lot size of the typical modern suburban tract home, and large enough to grow quite a lot of food.

In addition to a nice plot of land, one needs the right seeds. To my surprise, actually not, since I have a rather cynical view of our lovely fascist system, the seeds one buys in the store are apparently engineered to be “terminator seeds.” That is, the seeds produced by the plants are incapable of reproducing. That’s not nature’s doing – nature created seeds specifically for the purpose of reproduction! No, this wicked, infertile invention is the product of man’s fertile imagination. So one has to expend a little more effort and expense to obtain heirloom seeds, seeds which work the way nature intended. Survivalist Seeds and Seed Savers Exchange are two places where one can obtain such seeds.

Now, growing one’s own food is not a panacea. Few people would be capable of producing all their own food, even if they had sufficient land for it. Think about the wide variety of foods you eat and then imagine growing all those. Anyway, the point is not to be totally self-sufficient, but resilient. The food distribution system is not likely to totally collapse, but suffer periodic interruptions.

People can grow different foods and trade them and I hope this becomes routine in the future. But there’s still the little matter of it taking several months for food to actually grow! And in most locales, food can only be grown during a portion of the year. What to do for food the rest of the year? For a relatively small investment in equipment, people can once again become practiced in the art of canning (actually, jarring seems more accurate). But even that’s not going to satisfy all our food needs. We’re still going to have to buy food.

It’s a good idea to have at least three months of food stored in the house. Again, in the future we’re going to see temporary shortages, perhaps of all foods or just specific foods like flour, sugar or oil. So stocking up these types of foods, which keep a long time is a prudent measure. Other foods that are good for relatively long term storage (up to a year) are canned beans, vegetables and fruits; whole grains like rice and oats; dried beans; powdered milk; dry cereal; dry pasta; nuts; dried fruits; coffee and tea. If you want to get fancy and you have the money, you can purchase freeze dried or specialty canned foods, which offer even more variety. Companies like eFoodsDirect sell such food. Even if an emergency doesn’t arise, buying food today and storing it will help you stay a step ahead of inflation. Unless there is significant food price deflation, which I think is highly unlikely, you cannot go wrong buying food and storing it. Just make sure you consume the food before it goes bad, and beware of the potential for insect infestation and take measures to prevent it.

Between your stored basic foods and home grown foods you should be able to get through temporary food crises in relative comfort. In addition, such foods are more healthful than packaged or restaurant foods, which people eat far too much of today.

And don’t forget water. The water infrastructure in the U.S. is pretty good, but it’s vulnerable to disruption, so it’s a good idea to have enough water to last several days. If you live near a body of fresh water, you might also want to obtain a good water filter or stock up some iodine tablets to decontaminate the water so it can be drunk. If you have the means to drill a well, that’s advisable too. Not only will that provide you with a vital back up source of water if the municipal supply is interrupted, but it also enables you to avoid man-made poisons like fluoride which are added to municipal supplies. Presently, water in America is inexpensive, but that too could change in the future, making a private well all the more desirable. In addition, one should give some thought to water collection systems and cisterns.

Healthcare

For many Americans today, “healthcare” means organized, hierarchical, drug-based, treatment-oriented medicine. I’m sure many people in the thrall of modern medicine feel they have no alternative, and unfortunately for them, the cost of their drugs alone precludes taking the advice I’ve given so far. I’m not going to alienate people or attempt to shatter their beliefs by telling them they are wrong. Each person must do what they feel is right for them.

Speaking for myself, the only way I’m ever going to take pharmaceuticals – short of being forcibly dosed – is for acute problems, such as antibiotics to treat an infection. I don’t even have aspirin in the house. (I kill pain the old fashioned way, with liberal amounts of alcohol!)

Before taking pharmaceuticals to treat a chronic illness, I’d explore every conceivable alternative, including exercise, dietary changes and alternative medicine. It is my belief – and I’m no doctor – that the vast majority of our health problems are lifestyle related. And I’ve heard people admit that they’re taking a medication to treat the side effects of another! OK, as soon as I found myself in that situation I’d ask myself very seriously if I needed the first medicine at all, rather than compound the poisoning of my system by taking the second.

Eating good food, not fast food, not processed frozen food, not restaurant food, not genetically modified food, but good, old fashioned food from one’s own backyard could probably do as much to remediate one’s disease as a handful of pharmaceutical pills. Add clean water (not polluted with fluoride), fresh air (not polluted with chemtrails), sunshine (yes, contrary to all the best advice from the medical establishment), exercise, rest and low stress, and we can be as healthy as we were designed to be. By the way, a low cost of living makes a huge contribution to reducing one’s stress and getting sufficient rest. In addition, a sufficiently low cost of living can permit one parent to stay at home, which does wonders for the mental health of the kids.

For acute problems, such as a broken limb, I’m not sure what to advise. It shouldn’t cost as much as it does to treat such a problem. It is expensive because the price is predicated on having a third party – the government or an insurance company – pay the bill. Again, speaking for myself, I would not be averse to having a “quack” who’s used the internet to learn how to set broken bones set mine! Another option might be to visit a hospital emergency room under an assumed name. (That advice is actually from an emergency room doctor I once had a conversation with.)

The best healthcare plan is prevention. People take better care of their cars than their bodies.

Conclusion

I sense that people are optimistic about the near future. They view the inauguration of the latest messiah with hope, as if there’s all that much one person can do to resist the laws of physics and mathematics. If people think the past three months have been harrowing, my reply is, they ain’t seen nothin’ yet. The year 2009 is shaping up to be even scarier than 2008.

There is still a small, but narrowing window of opportunity to act, to secure a measure of comfort for oneself and one’s family. But one must be willing to take bold, radical and formerly unimaginable steps. And such a mission should be undertaken with a principal goal of making oneself resilient enough to withstand a variety of potential problems. No one solution is going to work at all times. To be resilient, one needs to have multiple solutions available in their toolbox.

I think that those who sit back and assume that someone is going to take care of them will suffer more than those who take the initiative – right now – to look after themselves.

Disclaimer

I’m no financial advisor – I’m a computer programmer. Anyone foolish to take my advice should first make sure they understand the consequences of their actions. For instance, if one defaults on a credit card account, the creditor may be able to obtain a court judgment, which might entitle the creditor to garnish one’s wages. If one allows their mortgage to be foreclosed on, the lender might report any debt forgiven to the IRS as income. And my neighbor recently informed me that insurers won’t insure a house that has a wood burning stove. (I don’t have insurance anyway, so I don’t care.) Needless to say, before doing anything that might carry serious consequences, make sure you fully understand what you’re getting into.

Update – 09 January 2009

Things are getting scarier. This is an excellent, if frightening post, titled This Day of Reckoning, by Mike Ruppert, an exemplary excerpt being:

COMING TOPICS – Soon it will be necessary for me to look at topics which we’ve mentioned in passing. These include civil unrest, camps, emergency communications and preparedness as the threat of societal breakdown becomes imminent. It’s time to start doing that. [My emphasis.]

I think I’m going to go out and buy some more food! Consider that global shipping is down over 90% in the last few months, and that food is a principal good that is shipped. How long can the food distribution system avoid interruption in such a climate? I don’t know, but I doubt it’s an infinite length of time.

I really hate to be an alarmist, and I really don’t want to frighten anyone, least of all myself! Nevertheless, a little voice inside me is telling me that our way of life is about to change radically.