The collapse of normalcy

You can’t spend much time on the web these days without running across an article warning about the coming collapse. Some suggest we are facing another banking crisis others a debt crisis or currency collapse.

Many on the left will respond that these people are simply peddling fear to try to get you to buy gold or a survival pack. While that may be true it doesn’t change the underlying fact that some really smart people are trying to warn us that there are bad times on the horizon.

I’ve been a big fan of history for years. I started reading history when I was in high school and it’s something I continue to enjoy to this day. What I believe is the most likely scenario is a collapse in the value of the dollar. This will be obvious to most as very high inflation at first. Then it may collapse to the point where money is worthless.

One thing I’ve learned however is that nothing is inevitable.In 1937 The United States fell into depression. This is referred to as a depression within a depression. One would have been hard pressed to find an economist or politician who thought that within two years the economy would be booming. But WWII started and by 1940 the economy was in fact humming along quite well.

After WWII many thought that returning soldiers would flood the job market and we would go right back into The Great Depression. That didn’t happen either. In hindsight it’s easy to see why. The United States came out of the war with our infrastructure in place and the world needed things made here to rebuild.

Despite this I still believe strongly that history tells us we are heading for another economic downturn and this one may be even worse than 2008.

If there is a currency collapse what will it mean for you and your family?
The first thing you will notice is a large surge in the price of gasoline. This will put stress on those who have lost their jobs or are living paycheck to paycheck.Then housing prices will fall. One of the components of the last housing market crash that is so often missed is the price of gas. Was it the cause? Of course not. But it did contribute to the precipitous fall in housing prices.

Notice the price of gas in 2006 to 2009.

Now look at housing prices.


When your energy costs rise rapidly you have less disposable income. If they rise high enough those on a tight budget start making choices about which bills to pay. When you can’t make the mortgage payments you either face foreclosure or you sell the house quickly to get out of it. When enough flood the supply of houses the price falls. When inflation spikes you will see this pattern duplicated.

The first thing to affect you and your family will be that the home equity you worked so hard to recover over the last few years will once again evaporate.
Only this time it will be even worse. Around the world it will be obvious that the United States has decided that it isn’t serious about reducing spending and debt. It will also become painfully obvious that maintaining the value of the dollar is not a priority. When the speculators step in the inflation will begin to grow exponentially.

Now add in 10 million or so more people competing for jobs if amnesty passes and legal immigration is increased. This will lower wages as prices are rising. This stagflation will make the 70’s under Jimmy Carter seem like the good old days.

Already more and more young people are forced to live with their parents well into their twenties. This will be compounded with seniors moving in with their children and a return to multi-generational homes out of economic necessity.

Who will get hit the hardest?
Everyone suffers when hyper-inflation hits. The hardest hit are those on a fixed income. Even at a low level of hyper-inflation like 24% you can see that those on social security would lose 2% of purchasing power every month. The adjustment is always based on the last year. So you may catch up in January, but by February you are once again losing ground.

Those with high incomes but low asset portfolios are also hit. They tend to try to maintain their high standard of living early in the game but quickly realize that they aren’t keeping up and the hole they have dug begins to expand rapidly. When they cut back on their spending the middle class is pinched even further.

The middle class always takes the brunt of the damage. Those who are able to keep their jobs see purchasing power and living standards rapidly erode. Their wages don’t keep pace with inflation and desperation sets in. Those who have lost their jobs find that the social safety net they have paid for over years is no longer available. Either that or there is so little left in relief that it isn’t enough to survive so they have to band together with other family members.

The normal life you have changes drastically
It is hard for us to imagine what is like to live with a currency collapse and massively high inflation. When we go grocery shopping most people go once a week and buy what they need. When you live with inflation over 20% (or 200%) you go to the store every day. You buy everything you can afford with the money you have made today. Tomorrow the price will surely rise and your wages will not keep pace.

How many of you are reading this on an Ipad? When the collapse comes you probably won’t. Tablets, cell phones, three flat screen televisions and gaming consoles will quickly disappear. You’ll realize quickly that these are not necessities. Going to the movies or out for dinner also go away.

Imagine the ripple effect that this will have on the economy. We live in a consumer based economy. You buy stuff you want but don’t need and a job is created to fulfill your order. There is nothing wrong with this if it makes you happy, but it doesn’t help feed you and it doesn’t get baby a new pair of shoes. Look around your settings right now. How much of the stuff laying around do you really need? Seems easy doesn’t it? Just stop buying that stuff and you’ll be fine. No you won’t. Because now ask yourself how many Americans did it take to build, deliver and sell that stuff?

Big business tells us that this is why we need more immigration. So that with lower wages they can maintain their profits and keep the cost of these things very low. Who do they think will buy their trinkets if the economy collapses?

The only ones that come though it are those with high debt and high assets. If you owe millions of dollars on an asset you may end up paying off your debt with cheaper dollars. Of course then the tax bills skyrocket and you end up losing the land or other hard asset. But these people often sell of things in chunks until the bottom is reached and then are poised better than most to take advantage of recovery.

The recovery is also often very slow. In cases like Weimar Germany the price of recovery is often just as bad as the crisis itself. Hyper inflation in Weimar Germany is the only reason Hitler was able to come to power. In times of great national crisis the demagogues are on every corner.

How can we stop this?
The first order of business is to get rid of the career politicians who don’t think we have a problem. These people need to be replaced with those who think much more long term. When Warren Harding and Calvin Coolidge were in the White House we were in a deflationary depression. Friedman and others have pointed out that this was in large part caused by bad monetary policy. Interest rates were raised and money was tight. Bernanke countered this recently with low interest rates and a much more aggressive policy of printing money which wouldn’t have been possible in the past.

Harding and Coolidge also lowered taxes and cut spending drastically. Thus the short lived depression was quickly corrected and the economy expanded.

It is my contention that Bernanke swung the pendulum to far in the other direction. Adding to this the Obama administration has raised taxes, spending and regulation.

To fix this we are going to have to eventually make some hard decisions about spending, taxes and regulation. What I find so frustrating is that our current congress and president can’t even agree to make the soft and easy cuts in discretionary spending. What this tells us is that today they don’t even acknowledge that we have a problem. It is simply business as usual.

Step 1
Lower regulation. The easiest and most efficient way to get the economy moving right now would be to get off the backs of business. A five year moratorium on any new regulation or taxes would let businesses know they have stability and certainty at least in one area.

Step 2
Repeal Obamacare entirely. Removing this burden would not only benefit business but the middle class as well. The system we had before wasn’t perfect, but it worked much better than the ACA.

Step 3
Lower capital gains taxes. This has historically spurred investment and revenue.

Step 4
The Fed should raise interest rates. Just a half a point or perhaps even as little as a 25 basis points. I know this sounds contrary but stay with me. This would do two things to help the economy. The first is that it would send a message that the United States is serious about maintaining the dollar. The second is that money from around the world would return in the form of investment.

Step 5
Cut spending. The notion that this government spending is helping is patently ridiculous. Cuts in discretionary spending would free up money for the private sector. Those who have government jobs in some of these departments are going to be cut anyway. Let us make the cuts rationally and pragmatically and then these people will have a chance to get a job in the private sector and contribute to real growth. If we don’t make these cuts they will be made for us in the collapse.

Step 6
Abolish the IRS and replace with the Fair tax. Those who have followed my campaign know that I favor the Liberty Amendments. These constitutional amendments proposed by Mark Levin are brilliantly conceived and would replace our antiquated tax system with a modern, balanced and workable solution that would fix the problem long term. The problem is that no one is pushing this hard enough. Hell I’ve listened to Levin more often over the last few months and I don’t hear him push them hard enough. Even if Levin himself gives up on these amendments I won’t. But I think right now we need to have something with momentum that will work to release the tax compliance burden. The Fair tax will do that and do it quickly.

Step 7
We need to stop the path to amnesty and lower legal immigration for a period of time. We can’t have the welcome mat out when our house is such a mess. Once we get our house in order and American citizens have jobs we can roll out the mat again and offer the privilege (not right) of living in this great country. We need to start deporting those who have come here illegally. This is especially true of those who are here committing violent crimes or just living off of the system. In all things we need to prioritize. President Obama thumps his chest for years about how he deports more illegals than Bush did. Then he loses focus or backs off when elections get close.

Step 8
We have to stop the motor of politics as usual. This means that every single one of us has to work to replace career politicians. These men and women are often good people and people of strong character. But right now we need the best. The best means that we need people who understand that we cannot continue with business as usual. We need people who understand the issues, who can place these issues in proper historical context and who have experience making tough decisions.

A final note
Am I yelling fire in a crowded theater? Yes. But I sure see an awful lot of smoke.

Eric Gurr primary challenger to John Boehner