Is the economy appreciably worse than it was weeks or months ago? Not that I can see. There has been no calamity, no collapse. Just a one-day stock market drop when Trump threatened China with tariffs, a drop largely reversed the next business day. But the way the media is reacting to the government shutdown, you’d think the country was falling apart. Housing prices were falling and concerns about the dollar debasement existed well before the shutdown.
So why am I seeing YouTube videos and media coverage suggesting we could be looking at another 1929 scenario? Is it because we are in an AI bubble that might be like the dot-com bubble? Or is it the mainstream media’s gambit to support the Democrats by encouraging the population to worry about the government shutdown and its impact on the economy?
I’m not worried about the shutdown. The less money being spent in Washington, the better.
I’m also not worried about Trump’s threat to increase tariffs on China to 100 percent. When he negotiates, Trump always comes in with a high bid and then lets the other side talk him down. He did this to make a statement, telling China that he’s had enough. A compromise will be reached, assuming Xi hasn’t had a stroke, as some rumors have it. If not, Trump will do the financial equivalent of sending Tomahawks to Ukraine. He talks fast and loud but acts more slowly, giving the opposition time to rethink their plans. But he acts.
Economic Disruption
As frequent readers know, I think an economic collapse is inevitable; I just don’t think it will happen this week, this month, or even this year. It may not even happen during the Trump Administration, but I expect it will happen. Just not quite yet. But because I could be wrong, I am preparing for significant economic disruption.
As I have also said before, it’s a recession when your neighbor loses his job, but it’s a depression when you lose yours. One key to financial stability is to keep the cash flowing in a positive direction. Have one or more income streams, including a side gig. Have a skill or a product you can use in barter. Cut your debt if you can’t eliminate it, and buy hard assets.
I know this isn’t always easy, but put your phone down, work more, and spend less. Buy only what you need instead of what you want—like a used car instead of a new one. Cut up your credit cards if that is what it takes. It’s not easy—that’s why they call it work—it’s not relaxing, and it may not be fun, but over time, hard work can move the needle. At least, that’s how it worked for me. It took 20 years to climb out of debt, but once I got my head above water, it stayed there. And over time, the gains I made built upon each other. It takes patience, perseverance, and maybe a little of luck, but it can be done.
Devaluation of the U.S. Dollar
Intentionally or not (and I believe it is intentional) the government is devaluing the dollar. It has sunk 10 percent so far this year. The M2 money supply has increased 40 percent since COVID, which is why inflation seems higher than government statistics. 40 percent more dollars in circulation means each dollar has less buying power. That’s devaluation of the dollar, which we see as inflation in the cost of goods and services.
This is why the stock market keeps going up, because the value of the underlying company is being measured in dollars that are worth less than last quarter. It is also why gold is climbing, and why central banks and the wealthy are buying physical gold and silver. It is why Morgan Stanley now recommends a portfolio with 20 percent gold, 20 percent bonds and 60 percent stocks. They see the dollar being debased, and they are acting. We see inflation and we complain. Politicians hear the complaints, make loud promises and bold plans but do little to halt the flow. They need the inflation to keep the debt manageable.
Both sides of the aisle know this, but they both want to keep spending money to improve their odds of re-election. What they want to spend it on differs, and the Republicans may want to spend less, but the deficit and the debt keep rising regardless of who is in office.
We Look Good in Comparison
One reason the U.S. economy looks decent on the global stage is so many other economies look bad. We’re better off than Europe. China faces many economic challenges, from the collapse of property values to rising youth unemployment (yet they still keep buying gold). Russia is struggling to fight the war in Ukraine and build new weapons while its oil business is getting blown up and the populace can no longer afford gasoline. Yet they persevere. We will too. Our economy will outlast Russia’s and likely China’s, too. But that doesn’t mean it will be pretty.
But—and this is a big but—instead of a recession, where housing collapses, the GDP drops, and people make less money, I think we could see the opposite. I’m talking about inflation or hyperinflation. Where the value of the dollar keeps dropping, so real estate, gold, stocks, and maybe even bitcoin continue to see their numeric value increase. Not necessarily their inherent value, but their nominal value. Think of it as your paycheck and bank balance keep rising, but you inexplicably feel are worse off.
Warning Signs
My theory is that the price of gold and silver is rising not because of past inflation but in anticipation of future inflation. Thus, we should read their recent gains as a warning of what is coming, a prediction that one day your weekly grocery cart that cost $300 will jump to $321 the following week, $351 a month or two later, and more than twice that in a year. Because that has been the pace at which gold has been climbing over the past two months. And if that is not bad enough, silver has been climbing twice that fast over the same period.
This is why preppers should worry about the price of gold and silver even if they don’t own a single ounce; because the behavior of the gold and silver markets tells us to worry. Gold and silver are climbing in anticipation of the dollar declining. And when the dollar declines fast enough, it will power through inflation and we’ll see hyperinflation, and that will be worse than any recession.
History Lessons
There are two things we can look at from a historical perspective:
First, the U.S. has devalued its dollar before by changing how many dollars it cost to buy an ounce of gold. The U.S. did this in the 1930s and again in the 1970s. This ended when President Nixon decoupled gold from the dollar and let its value float. The good news is that the country and its populace survived. The bad news is we saw double-digit inflation in the 1970s and early 80s; our dollar has slid downhill ever since.
Second, there have been repeated devaluations of the currency since ancient Roman times, when emperors funded wars by putting less silver in their “silver” coins. Not long before Rome collapsed, there was just a thin wash of silver on a coin, and it would wear off with use. More recently, governments that have increased the money supply and reached a state of hyperinflation were forced to print fiat currency with values in the millions, billions, or even trillions. In Weimar Germany in 1923, they issued a 100 trillion mark note. In 2008, Zimbabwe issued a $100 trillion note.
So, what makes this time more likely to be like the second historical example? Because the market is in control rather than the government. It is one thing to declare gold is now worth $35 an ounce instead of $20.67. It is entirely different when the market is in charge. The dollar has already gotten to where it buys what a penny bought 90 years ago. Any further deterioration is just going to speed up its race to zero, which will trigger a financial collapse.
The Big Threat
My fear is not that there will be an economic collapse. My big fear is that a trade war or other economic attack will precede a shooting war. This combination will act as the straw that breaks the economy’s back and sends the country into an economic collapse. China has reacted so strongly to tariffs because they see them as a financial attack on their shaky economy. But there’s nothing stopping them from using a similar attack on us.
It would not surprise me if China one day initiated a range of minor economic activities that alone mean little but taken together work out to be a serious threat to our economic well-being. These disruptive attacks would be followed by cyberattacks targeting communications, banking, utilities, rail, the ports, and other core infrastructure. On the heels of the cyberattacks would be physical attacks from Chinese and Muslim sleeper cells in the U.S. and Europe, although China will deny any role in the attacks. When the government has its hands full trying to restore order and a semblance of calm, China will attack Taiwan while its North Korea allies attack South Korea, and perhaps Russia launches a ground attack on Finland and the Baltics while sending drones and missiles across Europe. A multi-layered threat like that would cause all sorts of disruption and chaos and might mute a U.S. and allied response to a Taiwan invasion.
Prepping for Economic Disruption
Most of my preps are in place, but I maintain a list of last-minute preps, things to buy when I think the sh*t is hitting or about to hit the fan. This includes foods that have a limited shelf life, say from a few days to six months including fresh vegetables, cheese, crackers, bread, etc. I am developing a similar but separate last-minute prep list for a financial collapse. So far, when I see signs of a financial collapse or rising inflation leading to hyperinflation, I plan to do the following:
- Empty our safe deposit box, because we won’t be able to access it during a banking holiday.
- Top off all the gasoline cans because gas will either be very expensive, difficult to find, or both.
- Fill any prescription medicines because these may grow scarce. Consider stocking up on our favorite OTC meds, especially those for colds and flu.
- Buy a spare CVT drive belt for the Polaris Ranger. (I should have one of these in any case.) Consider getting a spare battery as well.
- Order several loads of firewood to get ahead of the next wood-burning season.
After checking them off the list, I would turn to our normal last-minute preps. I would focus on buying canned meats, fruits and vegetables we don’t or can’t grow, such as corn and peaches. The big question is, will any of these items still be on the store shelves? I expect empty shelves will be another warning sign. The trick will be to get there before everyone else catches on.
But if not, that’s why we prep, so we will have food and other goods when they are not available. Last-minute preps may be a good idea, but they are a supplemental strategy, not our primary one.
