One of the themes that constantly comes up on prepper forums is the likelihood of “Economic Collapse”. This seems to be viewed as almost inevitable by many preppers, due to the handling of the US economy by the government, or “banksters”, or aliens from Pluto, and implies a complete societal breakdown with riots, marauding hordes, and bankers being hung from lampposts (not recommended if you ever want a loan in the future). 😊 Furthermore, this collapse will not be the result of some other disaster type, e.g. if we are hit by an EMP, the economy will suffer, but it is unfair to call that scenario an “economic collapse”. It is an EMP, pure and simple. We’re talking about an economy that just blows up.
I have to admit that after 9/11, there isn’t much that I totally rule out as a possibility. After all, I did not foresee planes flying into office buildings. Nonetheless, I find the economic collapse scenario a bit of a stretch. In fact, I would argue that we had as close to an economic collapse in 2008 as we are likely to see for a generation or more. (See “Hidden in Plain Sight” by Peter Wallison for an understanding of the 2008 financial crisis.)
In order to really discuss this scenario, we need to answer a few questions:
- What counts as an economic collapse? If 2008 was an economic collapse, then obviously such a collapse can happen, because we just went through one. If by “economic collapse”, we mean a full societal breakdown, with some level of violence, say a scenario like “299 Days”, then 2008 can be written off as a recession, not a prepper SHTF event.
- Why would the economy spontaneously combust? With most business cycle events, causes can be seen after the fact, even if they aren’t predicted in advance. 2008 was caused by the government requiring the mortgage industry to make ever riskier loans to borrowers who could not afford them, until the housing finance system failed. Despite this error, and the huge losses inflicted, nobody starved. There were no riots or violence. We weathered it better than the Great Depression, which also had minimal violence, despite an absence of the “safety nets” now in place. What economic event would result in the sort of chaos seen by those predicting an “economic collapse”?
- What does it take to cause an economic event to devolve into societal chaos?
- Finally, what should we do to prepare for such an event?
Economic Collapse Defined
There is no accepted definition for the term “economic collapse”, but it is clear that in prepper circles the term means more than a mere recession or depression. It implies riots, looting, and extreme civil unrest. On the other hand, in the US we have had rioting due to inner city reactions to police shootings, socialist groups run amok, etc. without there being an immediate economic problem. Economic collapse and social chaos are not necessarily linked.
To distinguish an “economic collapse” from other scenarios, the economy should be falling due to economic factors only. For instance, Venezuela could be looked to as an example of an economic collapse, but Venezuela also has the problem of a socialist, or communist, regime that has morphed into dictatorship. Is the economy causing social unrest in Venezuela, or is communist dictatorship driving the economy downward? I would suggest the latter. As a result, to have an “economic collapse” we need to have both a severe economic downturn, happening without an apparent non-economic trigger, followed by societal chaos. In other words, economic collapse must be causal, not merely the result, of some other problem.
We have not had such a situation in recent US history.
Another example being tossed around recently is Puerto Rico, but the cause of Puerto Rico’s major ills is two hurricanes and a grid down situation. The government was bankrupt well ahead of time, with no obvious day to day effect, but having the grid down has resulted in day to day economic problems, e.g. ATMs not working. If we later get stories of social chaos, it would be fair to say they were caused by the Hurricanes and the grid being down, not by economic collapse.
Causes
Most of the folks worried about economic collapse start with a concern about out of control money creation and the dollar becoming worthless via inflation. The Weimar Republic after WWI is an example of this scenario. Could this happen here? Possibly, but what really happened in the Weimar Republic? (For a better understanding of Inflation, see my previous post on that topic.)
Germany lost WWI, had their infrastructure destroyed, and were ordered to pay massive reparations to the winners of WWI. In other words, WWI destroyed their economy, the economy didn’t just spontaneously combust. Want to avoid Germany’s experience? Don’t lose world wars. ☹
Examining many of the worst economic collapses in history will almost always leave one with some non-economic cause for the collapse. Economies don’t just fail for no reason. Economic activity is normal human activity.
Another Economic Collapse theory is that all of the dollars that are overseas, such as China’s holdings of US debt, suddenly come home all at once. The problem with this theory is the actual debt will come due at staggered maturities. China can’t simply say “Here’s your bond, pay up.” Because each bond has a maturity date. Let’s say the maturity date for a specific bond is 2025. That means China can present that bond for payment in 2025, not before. Furthermore, to pay for the bonds, we simply print dollars, so now dollars are overseas instead of bonds.
As for the dollars themselves, the only way for those to reenter the US is for the holder to buy something in the US. If too many foreign holders of US dollars tried to buy US goods at the same time the result would be a boom, not a bust. Prior to the US dollar being the dominant currency in the world the British Pound was the dominant currency. Remember the British economic collapse due to the Sterling losing its status? Neither do I. 😊
Another scenario involves the oil market abruptly switching from dollar settlements to some other currency, or multiple currencies. The idea is the dollars in circulation suddenly become worthless. In fact, those same dollars can be used for other goods, or to purchase things in the US, or elsewhere. Furthermore, if the event is recognized as a problem, the Federal Reserve can respond by adjusting the money supply.
Moving from Economic to Societal Collapse
The next step in the Economic Collapse scenario assumes that the economic problem will result in massive rioting, looting, etc. The idea is that starving, desperate people will riot in order to feed themselves. We have had instances of rioting in our cities over the past few decades, generally brought about by racial tensions or political tensions, but never outside the inner cities.
In the 2008 financial crisis, we did see rioting, . . . in Greece. However, even in Greece, a mildly socialistic country with a funny alphabet, this could not be described as a “societal collapse”. Greece is still there on the Mediterranean, dickering with the EU about how to deal with country’s debt. In other words, the rioting did not lead to “collapse”.
With an Economic Collapse scenario, people are not suddenly in dire straits as with an EMP. Food still exists. Trucks still run. The lights are still on. Communications still work. The best modern-day example of societal collapse would be Venezuela, where socialism destroyed both the economy and the society. The Venezuelan experience simply is one more example of the problems with socialism or communism, not spontaneous combustion of an economy. In fact, it has taken the Venezuelan government 20 years to really screw things up, so that is hardly “spontaneous”. 😊 If you are concerned that the country will turn communist, then that is your concern, not “economic collapse”.
How to Prepare
If you are still worried about economic collapse, preparation is straightforward. Simply manage your finances conservatively, and prep as you would for disasters generally. A supply of food is good for any scenario, not just Economic Collapse. Conservative finances, such as keeping debt to a minimum, maintaining secure employment, etc. are also key to getting through tough economic times.
Summary
The economy is largely driven by events and government policies. It is more a result than a cause. An economic collapse, triggering societal collapse, is more likely to be a byproduct of some other event, like an EMP, or a switch to a socialist government, than something that occurs spontaneously on its own. The last recession has tended to make people think that economic collapse is easier to achieve than it actually is, due to a misunderstanding of the recession’s true cause, which was the government control, and mishandling of, the mortgage market.
On the other hand, prepping is all about preparing for Low Probability Events. The fact that an economic and societal collapse is unlikely, makes it the kind of event worth prepping for. Fortunately, preparation requires nothing that you wouldn’t do in preparing for other long running SHTF events. If you have prepared for other types of disasters, you are ready.
I stopped readng after the comment about planes flying into buildings.
Duh..
Where have you been for 16 years???
Paranoid Prepper was IN one of those buildings as it was hit by one of those airplanes, he is a survivor of the twin towers. That makes a pretty strong memory.
Hmmm I read that he didn’t foresee planes flying into buildings as in he had never thought of it. Well neither did I. To be honest I didn’t think ANY country would be crazy enough to attack US soil after What happened to japan. You might finish the article. he had a lot of good points.
Perhaps I should clarify: I didn’t foresee planes flying into buildings until it happened to me. 🙁
Nice, realistic, look at collapses. You’re right that any collapse is unlikely to look like it does in novels. Most readers want to read fast-paced tales of Mad Max wastelands and don’t have much patience for a slow collapse.
In reality, social “latency” slows things down. People tend to adjust and cope as long as they can.
The ‘trouble’ would be the failure of our current just-in-time economy to keep our largely dependent population fed and supplied. Books like “When Trucks Stop Running” outline the domino effect to the rest of the highly integrated economy if one major component fails quickly. Governments can manage localized sudden failures (Puerto Rico), even if not very quickly.
Odds are, there will always be some kind of economy. The collapse of our current economy would give rise to smaller local economies. People will still trade goods and services — just on a much more limited scale. That’s fine for small towns but huge cities have too many dependents and too little resources. Those city folk are likely to lose patience and need a lot of crowd control. Governments have proven that they can’t handle much at one time.
Prepping for “if the trucks stop coming” works for lots of different SHTF scenarios. Fear of Mad Max chaos sells better, however.
— Mic
I think you understand my point, but even with “When Trucks Stop Running” we get back to why did they stop running? That is your SHTF event, not the trucks themselves, and not the economy.
Your premise makes good sense. While most economic collapses throughout history can be traced to an underlying issue and the the “economy” itself we have never seen the TYPE of economy that we have now anywhere in history. The derivatives bubble is unprecedented. Should that bubble pop, it’s not just the U.S. banks but major banks around the world will all fail at the same time. Ask yourself this, where are most of your liquid assets right now? That’s the danger of an economic collapse. It’s not just the stock market taking a hit or one sector of the economy, it’s the way in which money moves throughout the system itself that fails. If that were to happen we could easily see the issues with Greece and Venezuela on our shores in short order. To compound the problem, we wouldn’t have a larger economy like the EU to bail us out while we “restructure” our debt. It’s simply game over.
I have already posted about Derivatives here:
https://beansbulletsbandagesandyou.com/index.php/2017/11/08/preppernomics-107-derivatives-are-going-to-destroy-the-world-or-not/
Wow, having read through the other responses I’m obviously the odd man out here as I found nearly the entire article astonishing, and not in a good way. For anyone who ever bothered to read and/or study the day to day life in the Weimar Republic is – for you to just dismiss it out of hand is nothing short of incredulous.
To that point, I also found your quick dismissal of real life current day Venezuela to be mind boggling. Perhaps you might want to speak to some of the locals there who have been literally, not figuratively, but literally dumpster diving for survival for the last 2 years. Riots, gunfire, no go zones, drugs, prostitution, even women selling their hair across the border in Brazil – just for a meal. You pretty much skip right over those unimportant little details and leave the reader with the impression that an “economic collapse” is pretty much a non issue.
If the point of your article is merely that things don’t happen “overnight” I could not disagree – but please don’t insult your readers with a flippant “economic collapses rarely happen and if they do that are no big deal”.
You don’t have to go back to Weimar Germany, or the 107 other recorded socio-economic collapses since BC, just to be able to understand. But you should at least take a look around modern day events (Venezuela being the most blatant) before you put pen to paper and have people like me question everything else you write.
The point is what caused these hardships? The economy didn’t just fail, resulting in the hardships that followed. The economic dysfunction was in each case the result of some other problem, e.g. losing WWI, or converting to communism. To have a serious look at the issue of economic collapse, you need to distinguish between cause and effect. In most of these cases the economy was the effect, not the cause.
Your soul is different than your body and both are part of you. i don’t recommend you separate them. Likewise the market is part of the economy and the two shouldn’t be separated. The economy refers to the production, trade and consumption of goods and services and the market refers to the trading of those goods and services. If no goods or services are produced, there is nothing to trade and no economy or market.
Both soul and economy are concepts and have no physical form, The market has the physical form of people trading goods and services and the rate goods and services are traded determines the condittion of the economy.
Your definitions might be different as there are several. Please share them with us so we all can be on the same track. I could be mistaken and will appreciate if anyone can show me where I erred so I can correct it.
Markets are related to the economy, but the linkage isn’t rigid. Sometimes markets can drive the economy (2008 comes to mind when the mortgage market impacted the broader economy). Sometimes the economy can drive the markets and sometimes the two go their separate ways for an extended period. The original post is about the economy and does not touch on markets. Markets would be another topic.
Paranoid Prepper? You don’t seem to be too paranoid to me. I was looking to read a nice article concerning the endless wars of aggression against an ever changing enemy and trillions of dollars of Fiat currency being created out of thin air. Maybe the slow decline of an empire? I thought the collapse of the Lehman Brothers triggered the 2008 recession and the housing crisis was just a symptom? Didn’t the government (aka taxpayers) bail out the big banks then? Who bails out the taxpayers? I feel like I’m the paranoid one in this conversation. Are you working for the government?
Define what you refer to as economy and market. A definition states what can be included into the concept and what cannot. “Financial affairs: the production, trade and consumption of goods and services in the community as whole” is one definition of economy. A community can consist of two people or the whole world. There are others but this one fits the conditions you are referring to the best.
“Goods and services traded” is a definition of market. It can consist of two people trading in the wilderness or on a world scale.
Since trade is a requirement of the economy and the market is goods and services traded how can they be separate issues?
You mentioned the economic crash in Venezuela. it crashed because there was little goods and services to be traded and there still is. If a huge supply of goods and services were to enter the country, trade would resume and the economy would recover and thrive. That is if the government didn’t steal it all.
Please define your words and stop using vague generalizations It would add greatly to your credibility.
The reason I was in the World Trade Center when it was hit was because I worked in the financial district for 40 years, so I am not really concerned about my credibility in this area. For definitions, I suggest Wikipedia.
Venezuela is a resource rich country. They had a decent economy until the Chavez regime turned the country into a communist hellhole. This is an issue of cause and effect. The economic collapse in Venezuela was caused by the conversion to communism, not the other way around. It is backward to say that “it crashed because there was little goods and services to be traded” when the only reason there was any shortage was due to the communist takeover. Communism has led to shortages wherever it has been tried, and Venezuela has simply demonstrated that again..
Great article! Thanks for the reassurances on the Economy. One area not addressed in your article was how to deal with hipper inflation. I know the Germans used wheel barrels to go shopping; I have several wheel barrels; but NOT the money to fill them. I was a young newly married man during the Jimmy Carter inflationary times. Even those numbers were scary back then. We live on SS and a teacher pension that has no COLA. Hipper inflation would wipe us out all too soon. Please respond & congrats on your 1 year annv.