Jan 042013
 
This online gun supply resource shows a steady stream of zeroed out inventories.

This online gun supply resource shows a steady stream of zeroed out inventories.

On December 14, 2012 – some three weeks ago – a crazed gunman killed 20 children and six adults at Sandy Hook Elementary School.

It is hard to say which happened most quickly immediately thereafter – calls for the banning of just about all firearms, or people rushing to buy guns and ammunition due to fears they might be banned.

The media (which is predominantly anti-gun) has been full of stories, almost every day since then, about soaring gun sales, and within a very few days of the start of the rush on guns, of soaring gun prices and disappearing inventory.

It is true there has been an uptick in gun sales.  And it is also true that most gun stores have sold almost every gun and spare magazine they have, as well as every round of ammunition.  It is also true that there are unknown leadtimes and backlogs for more guns, accessories and ammunition to get through the system and become available.

It is also true that prices of guns and ammunition have skyrocketed – more than doubled, sometimes more than tripled.

So what has this to do with prepping?  To answer that, we first need to correct the media misinformation so we truly understand the current situation.

Gun Sales Have NOT Skyrocketed

So, let’s pierce the illusion of an apparent ultra-humungous sudden surge in gun sales.  Fortunately, we can track what has happened to gun sales through the FBI NICS reporting data – this is the count of calls in to their instant check hotline.  All new guns have to be sold through gun dealers and the gun dealer has to get a NICS approval before completing the sale.

The NICS count isn’t exactly the same as the total number of guns sold in a month, because sometimes one call to NICS is for a purchase covering multiple firearms being sold to the same person at once.  On the other hand, sometimes one transaction requires two or more calls to NICS.  And some calls to NICS are for other reasons (some states do NICS checks as part of issuing concealed weapons permits).

But these various factors are more or less steady, so that one can more or less say with confidence ‘If the NICS calls are up, so too are gun sales’.  In general it seems that the monthly count of NICS calls is somewhat higher than the actual count of new guns sold.

You can see the FBI’s NICs stats here.  As you can see, the monthly NICS calls have been steadily increasing, and the yearly totals have been going up for the last ten years in a row.  More than twice as many NICS calls were made, and probably therefore, more than twice as many new guns were sold in 2012 as were sold in 2002.  Increasing gun sales is nothing new, it has been going on even prior to Obama winning his first term.

Now look at the numbers for December 2012.  2.78 million, up 39% on November 2012.

But – a 39% increase?  Excuse us for being underwhelmed, but that is all?  That’s sure not what you’d think from all the newspaper reports of mass panic and huge increases in guns being sold.  To read the media stories, you’d think that gun sales had increased ten fold or twenty fold.  But no – they didn’t even manage to double.

Furthermore, it is common for December sales to be up on November sales, anyway (hello, Christmas!).  Last year, December sales were 21% up on November’s sales for no specific reason at all, the year before they were up 17% and the year before they were up 15%.  So between 15 – 20% of the 39% increase was something everyone sort of expected might occur anyway – the actual extra and unexpected increase is maybe only 25%.

So what is this telling us – a mere 25% increase in gun sales, over and above what was more or less expected anyway, is enough to totally destroy the gun sales marketplace?  It seems that just about every new gun in the country has been sold, and gun prices have doubled and even tripled, with waiting lists and lead times now of an unknown duration but possibly months?  All because of this small increase in sales?

We can’t track sales of gun accessories or ammunition the same way, but we do know (because we, ahem, ordered some ourselves and have yet to get any sort of confirmation about when they’ll ship) that magazines have disappeared completely, and so too has ammunition.

That’s also an amazing thing – how many millions – probably billions – of bullets do you think were out there in retailers’ stores, in wholesale warehouses, and in factories?  They’ve all gone.  How many bullets a day are being made?  How many more are imported?  They all disappear faster than they come out of the machines.  Can’t the entire world’s extra ammunition manufacturing capacity keep up with US domestic demand at present?

This is the message for preppers, and it doesn’t apply only to guns.  These days, there is no ‘surge capacity’ in our supply chain.  The slightest blip in demand – or the slightest interruption in supply – and you suddenly find yourself stuck with the twin evils of shortages and panic buying, with the inevitable result that prices soar sky-high, encouraging more panic, more hoarding, and a total breakdown of the marketplace.

The Same Happens with Other Products/Situations Too

We see this every time a storm threatens gas supplies.  A region might have gas on hand good for 7 – 10 days of regular demand, perhaps, but as soon as a disruption is threatened, everyone rushes to fill their vehicles and any additional storage containers they have, emptying out the supply chain in a day or two.

Or – do you remember the Japanese nuclear power reactor radiation leaks after the earthquake and tsunami in March 2011?  Due to concerns about the radiation plume traveling across the Pacific and to the US, people rushed to buy Potassium Iodide tablets.  But you couldn’t find a Potassium Iodide tablet, anywhere in the US, remaining available for sale.  And the last few that did sell were going for ten (or more) times their earlier price, just a few weeks previously.

Lessons for Preppers

The message to us is simple.  These days, even mild disruptions to any supply chain can totally destroy the normal ‘rules’ of that product’s availability and pricing.  This is due to ‘just in time’ ordering and shipping/delivery, and a carefully projected future demand that is synchronized to production.

If that calculation gets out of alignment with the market, then drastic shortages will quickly result.  And it may take a long time for extra production to come on-stream to provide more product to meet the elevated demand.

These days, most things are produced in a complicated process with multiple dependencies.  For example, a new pistol isn’t built by only one company, with the company ordering in slabs of solid steel as their raw material and shipping out finished pistols after doing all the processes in-house.

Instead, a typical firearm manufacturer may do little more than assemble firearms from the finished parts which are ordered from a dozen different suppliers.  One company might specialize in barrels.  Another might do frames.  Another might provide some types of springs, and a fourth company might provide other springs.  A fifth company might provide screws, a sixth might provide some small castings, and a seventh might provide grips.  An eighth company might make the magazines, and a ninth company will print all the instruction manuals and materials, while a tenth company will make boxes/cases for the finished firearms.  An 11th company will provide oils and lubricants, and a 12th company will provide who knows what else.

And – wait, that’s not all.  Each of these providers of subassemblies and components are in turn dependent on their suppliers for sub-sub assemblies and other raw materials.  And so on, all the way back to the mining company that digs the iron ore out of the ground and the oil company that pumps the oil that ends up as plastic, and the forestry company that grows the trees that becomes paper.

You only need any one of these 12 or more suppliers to have a supply constraint with any of their, in turn, who knows how many more suppliers, and the ability to create a complete finished firearm fails.

You only need one of these many different suppliers to be working at maximum capacity to mean that the rate of final production of completed firearms is limited to the speed of the slowest of the suppliers.

We are talking through this particular example of firearms because it is timely and easily understood, and because we’re seeing the proof of it right now, in empty gun stores, and in used firearms now doubling and trebling in prices.

But the concepts are as true for just about any other manufactured good as they are for firearms.  The same constraints and restrictions and dependencies apply, and all the companies involved in just about any/all types of manufacturing are all working on the same concept of minimizing their inventories (both of raw materials and finished goods) and running their production lines at close to capacity (so as to get best return from their machinery investments).

Here’s another example – these days, we have super-computers that can design planes or cars or just about anything else for us.  They ‘model’ and simulate all sorts of different aspects of a design, and CAD/CAM processes have replaced huge big offices full of draftsmen.  Instead of needing to build a model, test it, then analyze the results, you can input some variables into the computer program and have it do it all theoretically instead.  The earlier process could take weeks or months for each test cycle, the computerized system can take a day or two.

And when a new product is ready for production, new robotic assembly lines can efficiently and quickly reprogram and retool for the new final product and make them with much less human labor or issues.

This is all true.  So can anyone tell me why designing a new car today takes as long as it ever has, and designing a new model airplane takes many years longer than it used to?

What We Need to Do as Preppers

Now I’m not feeling personally panicked at present.  Indeed, I’m thinking I might sell a few firearms and some boxes of ammunition right now!  But there are a lot of people who are feeling panicked.  Fortunately for us all, owning an extra firearm or two, and an extra case or two of ammunition, is not essential to our survival today.

But who’s to know what the next item that suddenly surges in popularity might not be?  The only thing we can be sure of is that if we don’t maintain a sufficient inventory of everything we need and might conceivably need, enough to tide us over whatever variation of Level 1, 2 or 3 situations (definition here) we wish to plan for, then we might find ourselves in a situation where the item we need is unavailable and can’t be purchased at any price from any source.

We sort of know that in a Level 3 situation, all the existing supplies of ‘stuff’ will get used up in some uncertain period of time.  But we are suggesting that the speed at which inventory of anything will disappear is very much faster than anyone might expect.

Remember that with the gun shortage at present, this is not because there have been any reductions in new gun manufacturing and importing.  Quite the opposite.  You can surely guess that every gun manufacturer in the world is working overtime at present to make and ship as many guns as possible to the US.  But even with the same or probably a higher rate of ongoing production, a modest blip in demand has destroyed the marketplace.

As preppers, we can’t rely on outside help, or on outside supplies and sources.  We have to plan for a future where what we have is what we have, and we can’t expect any resupply beyond that.

Dec 252012
 
What happens if your credit and debit cards stop working?

What happens if your credit and debit cards stop working?

The concept of a banking system failure is often thought of generically, together with other concepts such as, at the present, the ‘fiscal cliff’, and past things such as the S&L crisis, the mortgage crisis, over-paid greedy investment bankers, and other vague and hard to completely comprehend concepts that while clearly not good, generally have no immediate impact on us directly.

Yes, it is true that all of these issues represent downsides to our current financial system, but few of them are, of themselves, potentially catastrophic.  So let’s instead consider a risk which could indeed be catastrophic, and depending on its duration, could plunge the nation into a situation that might start at Level 1 but which could quickly become Level 2 (hopefully not reaching Level 3) (definitions here).

Think about this – what would happen if your credit and debit cards stopped working?  How much cash do you have in your pocket?  How would you get some more?

What would happen if the computers controlling the nation’s banking system were attacked and disabled?  With all banking records and processes now being computerized, there’s clearly the potential for disaster if the computers stop working, and who wants to be the first to say that would be impossible?

The immediate problem would be that we’d all run out of cash.  How much cash does your family have in total?  How long would that last you – a couple of gas fill-ups, a few trips to the supermarket, and that’s probably much of it gone.

Maybe you think you could write a check.  But who will accept a check when the bank is unable to accept it, process it, and transfer the money from your account to someone else’s account.  Without their computer systems up, the bank won’t even know how much cash is in your account, so neither you nor someone you paid with a check could walk into your home bank branch and ask for it to be converted to cash while waiting.

So, at an immediate level, commerce would grind to a halt.

The Problem Extends All the Way and Back to You Again

Now, let’s think about the derivative levels.  It is one thing for you to run into difficulties when trying to buy $50 worth of gas or groceries.  But what happens when the gas station or supermarket then needs to place an order from their suppliers for $50,000 of product?  How do they pay for that?

This question repeats up the distribution chain, and then loops around right back to you.  Your employer somehow makes money by delivering a product or service to someone else.  When that someone else can’t pay your employer as they usually do, how can your employer in turn pay you the weekly/monthly wages/salary you normally get?

For that matter, even if they could pay you, how would they do that?  With a bank auto-transfer?  Not possible when the bank computers are down.  Maybe with a check?  That’s not going to do you much good either, is it!  Could you take your $3000 check to the gas station and say ‘take one tiny corner of my check to pay for a tank of gas’?

And what happens when the farmers don’t get paid for the crops and livestock, and can’t afford to then buy new seed, animals, food, fertilizer, and so on?

What happens when the oil refineries no longer have money to buy raw oil from the Middle East or wherever?  When we can’t even pay for natural gas from Canada?

Part of the problem is that our economy is essentially cashless these days; indeed, cash has become so obsolete that many financial institutions have stopped reporting on or analyzing the actual amount of currency in the economy.  This measure – referred to as M0 – has been an ever decreasing percentage of the total ‘virtual’ money that our economy uses – here’s an interesting chart showing the increasing discrepancy between M0 and broader definitions that include successively more and more virtual money.

global_money_supply_trend

The difference between M0 and all the other types of ‘money’ is that only M0 has a physical form – banknotes and coins.  The rest is nothing more than entries in computer systems, perhaps duplicated in the form of fancy ‘certificates of deposit’ and such like.

An outage of the banking system computers means an outage of the rest of this money, too.

Is This Likely or Unlikely?

So, how likely is it that the banking system could suffer a sudden catastrophic failure?  As a random event from nowhere, very unlikely.

But as an outcome of a skillfully designed and directed computer hacker attack – that is an appreciable risk.  Don’t just take our word for it.  Instead, consider this article which quotes US Defense Secretary Leon Panetta who says, in October, that foreign hackers have the potential to take down our nation’s power grid, financial networks, and transport systems.  He said that such an attack could ‘paralyze and shock the nation’, and further pointed to exploratory attacks against banks earlier in the year.  He terms this a potential ‘Cyber Pearl Harbor’.

His solution is, in part, to seek authorization to mount pre-emptive attacks against potential cyber-aggressors.  Maybe that is a good thing to be able to do, although we’re actually not too sure about that.  Most of the major cyber-terrorism sponsor countries (ie Russia, China, Iran, North Korea) are nuclear powers, and depending on what form our pre-emptive attacking might take, these nations could choose to respond in ways that could have even worse consequences than a cyber attack.

In addition, how do you pre-emptively attack when the source of the cyber-aggression isn’t a nation/state, but rather a shadowy group of individuals, possibly living in our very midst, or else distributed randomly throughout the rest of the free world.

Remember, there’s no such thing as distance when it comes to attacking computers on the internet.  It is as easy to take down a computer (electronically) from the next room as it is from the far side of the planet.  And – paradoxically – mounting a cyber-attack is a very low-tech process.  All the hacker/attacker needs is a simple laptop computer and a modem or internet connection.

So, much as Secretary Panetta might wish otherwise, the reality is that he most likely either won’t or can’t do anything to pre-emptively take-out cyber-aggressors prior to them in turn taking out our computer-based infrastructure.  And the only surefire defensive measure is to isolate the computer systems that are being attacked.  But that ‘cure’ is worse than the problem – isolating the computer systems means no more external sources of inputs and no more external outputs, either.  No more computing network.  No more banking system.

How to Prepare for a Banking System Failure

You might think that the obvious solution is to keep a large supply of cash on hand.  But that is not an adequate solution, because it only addresses one part of the problem.

Just because you can pay the gas station $50 for the tank of gas you need doesn’t mean that the gas station can in turn pay the refinery the $50,000 it needs to pay for its next shipment of gasoline.  The same at the supermarket, and everywhere else.

Rather than stock up on cash, your solution is better to stock up on goods, so that you can survive for an extended period without needing to spend money, in any form, on additional supplies.

You also need to assume your utilities will deteriorate in service – raw materials will be hard for the utilities to source, and if they can’t pay their employees, they’ll start to suffer absenteeism, made worse by the need for employees to start to focus full-time on their own immediate survival needs.  Similarly, the food and other essential supplies at your normal retail purchase points will become in gravely short supply or disappear entirely.

If the banking systems aren’t up and running again within a day, we’d view the situation as making it prudent and sensible to bug out entirely to your retreat.

Nov 272012
 

Preppers should approach the issue of investing from a different perspective.

A reader comment in reply to our article about not investing in gold made us realize that we need to consider not only what are not good investing strategies but also what truly are good investing strategies, from the perspective of the prudent prepper, and with an eye to an uncertain future.

First of all, a disclaimer.  We are not registered or licensed in any form to provide any sort of financial advice, and our own past record of investing has seen some colossal losses and mistakes.  As always, do your own prudent research and consider all perspectives before choosing where and how to invest your own funds.  Most of all, realize there truly is no such thing as a ‘guaranteed winning investment’.  If there was, everyone would rush to invest in it, and so the opportunity it represented would quickly disappear as the law of supply and demand resulted in the return this mythical investment offered diminishing down to the same as everything else.

One more disclaimer.  This applies any time anyone is suggesting you invest in anything, particularly if they are professional brokers or other forms of investment advisors/salesmen.  Ask the person who is recommending the investment exactly how much of their own money they have already invested in the same thing, and – quite reasonably – ask them why, if it is such a great deal, they are now sharing the opportunity to make money with you rather than secretly making the investment only themselves.  Also, ask to see a record of their past investing history.  Lots of people claim to be experts on financial matters, and if they are truly expert, then surely the proof of their expertise is obvious for us all to see, in their bank balance and overall net worth.

Investing Strategies in General

Let’s start off with some general comments about investing strategies – things for you to keep in mind when assessing all the different ways you can invest your money.

There is no such thing as a perfect investment, or a ‘best’ investment.  Your choice of what and how you invest depends on many things to do with your own personal situation, so that what is best for you is quite likely very different to what other people may feel to be best for them.

This means that anyone who tells you that something is a great investment without first taking the time to understand how you approach investing, and what your needs and concerns are, is clearly not someone who is sensitive to finding the best product for you, but rather someone who is more interested in simply selling whatever investment it is he is recommending.

Here is a far from complete – but still lengthy – list of factors to consider when evaluating investment alternatives.

  • Are you willing to accept a risk of losing some or all of your principal, or must you protect your principal at all costs?
  •  Are you a passive or active investor – are you willing to spend time participating in your investing and/or your investment?
  • Do you have any special skills that can help you to effectively manage an investment better than other people might?
  • Do you need to receive a monthly/annual income from your investment or is it acceptable to have nothing happen for years or decades before then cashing it in for a capital gain?
  • Do you want to make an investment as a one-time lump sum deal that you don’t have to pay anything further on, or are you comfortable buying an asset which will probably go up in value, but which has some associated ongoing costs of ownership?
  • Might you need to be able to get your money back from your investment at short notice, or are you happy with a relatively illiquid investment that might take a long time to cash out?
  • Might you need to cash in your investment in stages?  In other words, can your investment be a single thing that is either owned or sold in its entirety (like a piece of land) or something that you can sell in stages as and when required (like stocks and bonds)?
  • Do you have personal preferences that impact on the form of investment you will consider?  For example, some people choose to only invest in ‘green’ companies; others refuse to invest in arms-related companies, and so on.
  • What about tax implications – are you in a high or low tax bracket, and does the potential tax liability on your investment return make a significant difference?  A tax-free return on an investment is worth a great deal more to someone in the top tax bracket than to someone in the bottom tax bracket.
  • Do you have any special knowledge that can help you evaluate and invest in a less well-known opportunity?
  • Do you have any relevant circumstances that might cause an investment to provide you with other non-investment benefits as well as financial benefits?
  • Are you looking for short-term or medium term or longer term investments?
  • How much money do you have to invest?

Please keep these and any other factors that are important to you carefully in mind any time you consider any sort of investment.

Background and Assumptions Relevant to Prepper Style Investing

First, if you haven’t done so already, we recommend you read some of our articles in the section on economic issues after TSHTF.

To quickly summarize, we make several key points in these articles.  We predict that normal regular money will become much less valuable and will be less and less generally accepted, the more severe and extended the social disruption becomes.  So too will gold, silver, diamonds, rare art, collectibles, and most other current forms of storing abstract wealth.

You can’t eat or drink gold (or any of the other ‘valuable’ items such as those listed in the previous paragraph).  You can’t create or maintain shelter with such items.  The only things of value will be those things with intrinsic real value – those things essential to the preservation of life – shelter, water, food.

We see a new form of currency evolving to permit more convenient trading, and it will be a return to an asset backed currency rather than a ‘fiat’ currency such as our nation uses at present.  Furthermore, we suggest the type of asset backing will not be an artificial thing like gold, but rather will be the essential building block of everything we need and value in a Level 3 situation – energy.

So, what does that mean to us, today?  How can we best protect the assets/wealth/money we currently have, and how can we do the best we can to ensure our current things of value don’t lose their value if/when TSHTF but rather will keep their value or increase in value?

At the same time, we also need to protect our net worth in the present day world and economy, too.  Let’s never lose sight of the fact that while we’re preparing for an adverse future, it is not something we wish for, and indeed it is something we hope may never happen.  Our modern-day life as it currently is will always be better than anything we can recreate TSHTF and society collapses.  We need investments that will maintain or hold their value in the ‘normal’ world as well as investments that will maintain or hold their value in a Level 2/3 situation.

This means that the primary form of prepper type investing – investing in more goods and supplies that can double as trading goods in the future – while prudent in preparing for a Level 2/3 scenario, is not so good as a multi-purpose investment for the present day world.  Buying up bulk supplies of fuel or ammunition, while clearly beneficial WTSHTF, is not so useful if you need to cash them in next week.

Two Current Factors that Suggest an Investment Opportunity

We see two distinctive things in the country at present.  The first is the drop in property prices that has occurred in the last four or so years.  This was an unusual but not an unexpected thing.  It was a correction, returning property prices to something closer to their underlying sustainable rate of appreciation and value.

We don’t see the drop in property prices as now making the concept of investing in property a questionable concept.  If anything, we see it as validating the concept, and now that property prices have dropped back to where they perhaps should be, perhaps now is a good time to consider getting back into the property market.

The second factor is that interest rates are at all time lows.  They are unfortunately and ridiculously low if you are depositing/lending money, but they are excitingly low if you are borrowing money.  Now is not a good time to be saving money, but it surely is a great time to be borrowing money (assuming you have some way of productively using the money at the greater than 3.5% or thereabouts it will cost you to borrow it).

These factors apply whether the world continues as it is, or if it changes dramatically.  Indeed, let’s consider three more things.

Economic Impacts of a Level 2/3 Situation

What would occur if TSHTF and we find ourselves dumped into the middle of a Level 2/3 scenario?

First, what happens to any money that was sitting in a bank account?  That money has gone, hasn’t it.  You’ll probably not see it again – maybe you’ll never see it again, or maybe you’ll not see it again until after order has been restored.

Second, what about any money you’ve borrowed?  At the very least, there’ll probably be a freeze on the money you owe, and perhaps the business you owed the money to disappears entirely.  If nothing else, how will you make payments to the company that lent you the money?

Maybe, just like with money you had deposited somewhere, your debt will reappear at the end of the Level 2/3 situation, but that is at some uncertain point in the future rather than during the period of the crisis.

In addition, maybe there will be a period of inflation such that the value of your real estate increases, while the cost of the monthly payments decrease.

Now, for a third factor.  There will be a shift in the values of property.  All of a sudden, those fancy penthouse suites on the 35th floor of the downtown building won’t be quite so desirable when the elevators no longer work, and when the water pumps have stopped working too, meaning the closest tap water will be somewhere hopefully not too far from the building, and on the ground level.  Most of all, there’s nothing except tens of thousands of starving people all around, all with no forms of food production.

But the cheap farm land, remote from the big city – land you could buy up for a few thousand dollars an acre today; that will now become the most desirable type of land there is.  That will increase in value.  Now you mightn’t be able to sell it for dollars, but you for sure can trade it in some other way that would be advantageous to you in a Level 2 or 3 situation.  Maybe you’d not trade it in at all – maybe you’d rent it out to tenants who would work the land and pay you rent in the form of a share of the crops they grow.

Rural land is appreciating in value anyway, due to normal pressures and economic forces, and it is likely to expect that the combination of population growth and associated ever-increasing demands for food, exacerbated by land increasingly being taken out of ‘inventory’ due to environmental exclusions, and land being increasingly required in larger and larger amounts for agro-energy production, rural land prices – for land suitable for farming – will continue to increase.

A Warning About Rural Land Values

Although we’re very positive on the concept of rural land values, we also very much subscribe to the theory that there is a natural sustainable rate of value appreciation, and any time that values for anything get substantially ahead of that rate, there is the risk of a correction occurring in the future to drop values back down to where they should be on the timeline series.

This is part of what happened with housing prices over the last four or so years.  The rapid rises in prices during the five or more years previously were over-valuing property prices, and so, eventually, the correction occurred.  For some people it meant their property prices froze in value or dropped slightly, for others, it meant their property values dropped by half or even more.

Some farmlands, over the past few years, have undergone enormous increases in price; in part because of the growing demand for bio-fuel production and government subsidies that are driving that market unnaturally, and in part due to speculator action, buying up farmland not from a perspective of what makes economic sense in terms of the productive profit the land can generate, but rather from the perspective of hoping the land will go up still further in price.

If you do choose to buy farmland, make sure that its price is at a level that is sensible and realistic, related to the ability of the land to ‘pay for itself’ through normal farming activities.  If the land is overpriced – perhaps because it is expected to be annexed into a city, or by speculators hoping the prices will continue to rise irrationally, you are running a risk that the inevitable correction may occur while you are holding on to the land.  In addition, your ability to have the productive return from the land help you to pay for the costs of buying/owning the land will be greatly diminished.

So, we are saying that fair priced land is a good investment, but overpriced land is not sensible.  It is hard to disagree with that logic, isn’t it.  But be careful not to get swept up in ‘irrational exuberance’.

Any Crisis Will Have a Financial Dimension

No matter what sort of crisis might occur in the future, it almost certainly will involve some type of financial crisis – either as the thing which causes the crisis in the first place, or as an outcome of the crisis.

As we’ve discussed in other articles in our series on the Economy, a Level 2/3 crisis will probably see the banking system collapse.  The loss of electricity would kill ATMs, for a start, and as soon as backup power supplies failed, banks would lose access to their central mainframe databases, too.  How can you prove you have money in your bank account, if the bank’s computer system is down?  The simple reality is that you can’t prove this at all.  Even if you could somehow prove it (and don’t think a bank statement would help – the bank would worry that between the statement printing date and when you showed it, you had somehow cashed all the money out, or written out checks, or who knows what) how could the bank then give you cash and keep a record of it and update their systems.

Even if all this was possible, guess what?  The banks would all quickly run out of money.  These days, most of the ‘money’ in our society is not real paper money, but instead is represented by credit cards and other electronic forms.  If the electronic money forms failed, there wouldn’t be enough paper money to go around.

So when a crisis hits, you’ll pretty much be limited to the cash and assets you physically have with you.  You might have millions of dollars in bank accounts, and billions of dollars worth of shares, but none of that and not even all of that will buy you even a single cup of coffee until the banking system and stock exchanges re-open.

Who knows when banks might recover sufficiently to allow normal banking withdrawals to recommence, and who knows when stock exchanges will open their floors to trading again; and who also knows what value the shares in any company might then have.  Meanwhile, until those uncertain times, you may need to buy food and water, and to survive in general.

Our point here is a very simple one.  By all means have some of your savings and capital tied up in ‘abstract’ forms, but you need to realize that all non-tangible investments you have may become inaccessible and possibly meaningless and of no value during a crisis.

Considerations for the Prudent Prepping Investor

So, put all of the above together, and what do you have?  Clearly, after looking at all the different issues to consider, each person’s best investment strategy is likely to be different from each other person’s strategies.  There is no one obvious automatic ‘best’ scenario for everyone to slavishly follow.

Furthermore, it is one of the fundamental concepts of investing to not ‘put all your eggs in one basket’. For example, a normal person investing in the stock market would be well advised not to buy shares of just one company, but instead, to spread their money among several different companies.

Not only should you invest in more than one company, you should also invest in more than one industry.  Maybe some of your investment is in high-tech, but you should also have some investments in other sectors, whether it be health-care or energy companies or whatever other sectors you feel are suitable for you.  That way you are less affected if one particular company fails – although the balancing part of that equation is you also benefit less if one particular company becomes spectacularly successful.

Most people are happy to accept a lower rate of potential return as a fair trade-off in exchange for a much lower risk of losing some or most or even all of their investment.  You should be the same way.  Never risk any capital you can’t afford to completely lose.

We suggest that at least some portion of your overall total savings and capital be in ‘prepper-appropriate’ forms.  In other words, don’t have all your savings tied up in shares and bonds and other intangible forms – our expectation is that in a Level 2/3 situation, many companies will completely fail, causing their shares to become worthless, and we’re also not at all clear on how readily you’d be able to cash in bonds in the middle of a crisis.

Don’t invest all your money in physical assets that have little or no intrinsic value.  In other words, don’t invest in gold or other precious metals, don’t invest in artwork, or other types of ‘asset’ where the value of the object is unrelated to its productive value.  This also means not investing in ‘investment’ wine and whisky – in a crisis, your $10,000 bottle of whisky will be no more valuable than the next guy’s $10 bottle.

Don’t invest all your money in things that are only valuable and can only work if society continues to function normally.  Maybe you are investing in, for example, internet routing equipment (sure, a crazy thing to invest in, but this is an example, not a suggestion) – this would only  have value as long as the internet was still functioning.  Maybe you might own your own cell phone tower – again, this only has value as long as the cell phone networks are functioning.

The best form of tangible asset to own is agricultural land.  Although in the short-term, land prices may go down as well as up, in the long-term, land will almost always go up in value, both in good times and bad.  And in a crisis, your land immediately translates into a crisis-appropriate resource.  It provides you with somewhere to stay and live, and provides you with the base on which to become self-supporting.

We recommend you invest in productive and producing land.  If you invest in residential real-estate, what happens in a crisis when your tenants say ‘I’m sorry, we can’t afford to pay you rent any more’?  Maybe you evict the tenant, but who else will be able to pay you rent, instead?  And in a lawless scenario, an empty property is vulnerable to being looted and damaged – you’d almost want to pay your tenants for them to stay there as caretakers!

But land – if the present person farming it for you says ‘I can’t afford to pay you to keep renting your land from you’, you either say ‘That’s okay, I’ll take a share of the crops instead’ or you say ‘That’s okay, there are millions of other people who will work my land for me and share the proceeds with me instead’.

Summary

Put all this together, and what do you have?  You have a chance to borrow money at lower rates than probably any other time in your life, and you have a type of land/property that may continue to steadily appreciate, both in normal times and in extreme Level 2/3 situations.

If your financial situation can withstand it, we’d urge you to buy farmland.  And don’t just buy some empty land and ‘sit’ on it.  That means you’ll be paying land taxes each year, but not getting anything back.

Maybe you can build your retreat on part of the land you now own.  Maybe you can hire a farm manager to manage your farmland for you, or maybe you simply lease the land to someone to use to grow their preferred crops on.  You might be able to rent land for housing horses, for growing crops, or even for grazing cattle or growing trees.

It doesn’t really matter what type of land use your property is being used for, but it does matter that your new asset is not only slowly appreciating in value, but is also paying its way in the meantime through some type of productive use, with the income from the land’s use being used to cover the costs of owning the land (ie land taxes, and possibly property maintenance, both of dwellings and fences and other improvements on the property) and hopefully a good measure of the payments on the money you borrowed to pay for the land you bought.

If you don’t have enough cash to put a down-payment on a suitable piece of land, consider going into it as partners with other friends or family members.  The legal procedures to create a partnership or limited liability company or some other legal entity suitable to allow a number of people to make unequal contributions to the subsequent purchase(s) of land are fairly simple and inexpensive to create, and it is an easy thing to specify the formula for how much each investor will receive in proceeds from the land’s ownership and possible resale.

Another opportunity which might be appropriate for people considering investments in a wide range of different amounts would be to consider investing in the Code Green Community.  Even if we do say so ourselves, the underlying dynamics of this scenario are positive both for investors and for participants.

Oct 162012
 

Firearms and ammunition are one of three recommended investments that are sure to resonate with preppers.

Here’s an interesting article written for ‘ordinary people’ rather than preppers, and listing a number of alternate forms of investment for people who are skeptical about the long-term (and possibly even shorter term) validity of traditional types of investment (such as stocks/shares and bonds).

Number one on their list of alternate investments?  Guns and ammunition.  I was actually thinking about this as I walked the floor of a huge gun show in the Seattle area last weekend – used guns in particular hold their value very well.

Some guns I bought decades ago are definitely worth appreciably more these days – I’m not sure their appreciation has outstripped the rate of inflation, but tell me what else there is that you can buy and benefit from and still resell, years or decades later, for more than you paid for it originally.

Number three on the list is farm land.  This also speaks to the prepper mindset.  If (when!) you buy your retreat, get as much land with it as you can possibly afford.  This is one time when you shouldn’t hesitate to take on additional debt to cover the cost of the additional farmland, particularly if the land can be rented/leased out to a farmer or, for that matter, managed by yourself and your retreat community.

The ongoing ownership costs of the extra land you purchase will probably be balanced by the return you can somewhat passively generate from the land, and of course, if/when TSHTF, you’ll probably have your indebtedness wiped out by the massive disruptions to society and our economy.

Could we point out that this is part of the value/benefit of joining the Code Green Community – you’ll be buying into a substantial amount of land as well as a hardened secure retreat.

Number six on the list is timber.  This ties nicely into number three (land).  It is highly desirable that your retreat resource include plenty of timber – in a post-SHTF environment, wood will become invaluable as a lower tech source of energy and as a general purpose building material.

Number 11 is of passing historical interest, when it points out that in the earlier days of the US, whisky was used as a currency.  This is entirely in line with our projections for future currencies in a Level 3 type environment, where we predict that currencies will be things that have underlying value in them rather than abstractions of wealth (ie paper money) or traditionally expensive items but which have no underlying value-in-use (ie gold).

We do not agree with many of the recommendations in the article, either in general or from the specific perspective of preppers seeking investments not only for an ordinary/normal future, but for a potentially very changed future too.  Some of their recommendations have high risk factors associated with them, and others ignore the high transaction costs of buying and selling the items (for example, rare coins and stamps, both of which attract substantial transaction fees through dealers or auction houses to buy and sell).

But firearms, ammo, land and timber – two thumbs up for those recommendations.

Aug 232012
 

When your local community decides how to respond to TSHTF, make sure you are viewed as part of the solution, not part of the problem.

In our article about the most dangerous ‘fourth wave’ of threats against your retreat and its members after a societal collapse, we talk about the risk and problems you’ll encounter from regional ‘power groupings’ and gangs; some of which may be true lawless gangs, others of which may be groups of people cloaking themselves in the mantle of semi/pseudo legitimate authority.

Yes, you can resist such power groups, but we make the point that such resistance is likely to be more harmful to you than to them.  Wherever possible, you want to co-exist with such groups rather than to be in conflict with them.

There are some ways in which you can make yourself, your retreat, and your resources, an asset to some types of more realistic lawless gangs.  For sure, there will be some situations where you have no choice but to ‘fight fire with fire’ and resist with all means available to you when roving gangs of looters and marauders seek to take over your retreat.  But this is your last resort and least desirable strategy.

There is nothing much you can do about lawless gangs prior to WTSHTF.  But the other category of fourth wave risk/threat is one which you can take advance precautionary measures to minimize.  We are talking about the effects of semi-legitimate seeming groups who assert control over an area, using some thin legal basis for their actions – a legal basis doubtless enhanced by including the local judge and sheriff as part of their group.

Let’s come back to the scenario we posed in the earlier article where the local judge, mayor and sheriff turn up on your doorstep, themselves all ‘needy’ and demanding, under the authority of ‘law’ which they’ve granted to themselves, that you surrender your supplies of food and share your shelter with other locals.

Complying with their demands would destroy the viability of your retreat.  You’d lose the inventory of food that you had amassed, and all that would happen is the many other people would have their food needs met for a short time, then all of you would starve together.  Hardly a win-win outcome.  But not complying to their demands would see them return with a posse of equally hungry and heavily armed locals, using the authority of the law to evict you from your retreat, and possibly imprisoning you too (and that is assuming that a rougher form of ‘frontier justice’ hasn’t already taken hold of the region).  The local SWAT team would descend upon you with their automatic weapons, their armored vehicles, tear gas, and who knows what else.

What would you do?  Give in up front, or have your food taken from you by force and your retreat destroyed as part of the process?  The question is partly rhetorical, but also completely serious, because it is a situation you quite likely may face.

Fortunately, is a question that may have some possible answers – there may be a third option, beyond the two we’ve just mentioned.

The Third Option

What you want to do is when the three leaders appear on your doorstep, to be able to say ‘Good morning, John, Bill, Paul.  Great to see the three of you today.  You’re all looking good, which is surprising after the late night the four of us had yesterday.  That moonshine really does pack a kick, doesn’t it!  How are things going, and can we do anything more together to keep the town ticking over?’

In other words, you don’t want to passively hideaway and only encounter ‘the other side’ when it has become too late and they have already committed to a course of action, without any inputs from you as to what it may be.  You want to be part of the community and thought leadership, right from the get-go, so you can influence and shape what happens.  You don’t want to be seen as an impersonal ‘one of them’; you want to be thought of as ‘one of us’.  You want to be part of the solution, not part of the problem.

How to do this?  Rather than isolate yourself from your local community (something many preppers instinctively feel to be best ‘Opsec’), you want to integrate yourself into it.  You – or some member(s) of your group – need to be volunteer deputy sheriffs, volunteer firemen, volunteer paramedics.  Is there a local Civil Defense group?  Join it.  Become a leader of it.

Indeed, why limit yourself to being volunteers?  If some of your group have chosen to move permanently to your retreat, they can become fulltime members of local organizations and businesses.  Even become the barman at the local watering hole – sometimes people like that occupy a more key role in ‘thought leadership’ than do elected officials!  Teetotalers might find a similar opportunity at the local library.  If your community doesn’t have a local library, why not coordinate the creation of one.

You should belong to the local Chamber of Commerce or Rotary Club or Lions or whatever else.  Women can join local women’s groups.  Is there a sports team to belong to – or at least support?  Maybe coach little league baseball.  For the less physically active, how about a bridge club?  A local historical society or something else?

Join a church or other social group, and as broadly as possible, generally be a respected member of the community.  Maybe you don’t have a lot of money to throw around, but you can contribute your time and provide positive inputs into these essential parts of your community as well as simply money.

If resources allow, consider establishing a business in the community.  It may employ other members of the community, and provide helpful services to the community as a whole.  It needn’t be extraordinarily profitable, but if you have members of your group with time on their hands, this could be a good way of getting established in the community and even making a small return on the time you invest.

You need to be part of the community.  Get involved in local politics – indeed, if some of your fellow retreat members get involved in the Democratic side and some in the Republican side, you’ve covered your bets both ways.  Don’t think of this as being tricky or underhand – every large company in the country gives to both sides in election campaigns.  In reality it is our country’s approach to paying protection money, but in a different way and by a different name.  Consider running for elected office – although this risks polarizing your support, with some people now liking you and others disliking you.  However, in addition to such positions, maybe there are other public service roles you can take on – become an appointed member of the local arts commission (if there is one!) or some other committee or grouping.

You also want to consider deliberately ensuring you have some surplus resources, so that when pressed to do so, you can contribute some support without harming your own viability.  To contribute nothing would be a modern-day response similar to that which sparked the French Revolution when Marie Antoinette’s response to the starving people who complained of having no bread to eat was ‘Let them eat cake’.

A Stitch in Time Saves Nine

When you are integrated into the community, you’ll be plugged in to how the community responds to a societal collapse.  You’ll be able to be present at the meetings where people gather and discuss what they can do to ensure their safety and survival.

People are less likely to say ‘Let’s go take all Bill’s supplies’ if you (ie Bill) is present at the meeting.  Instead, you could stand up and volunteer ‘Look, I’m in as difficult a situation as everyone else, but I can probably spare some food; it won’t be much, but I’ll share all that I can’.

If you can be present when policy is being formulated and plans are being made, you’ll be better able to slightly shift and deflect the meeting’s focus from going after you and your resources, to instead seeing you as ‘part of them’ and also being in need of assistance.

It is always very much easier to influence policy in its earliest stages of being formulated.  But after policies have been established, they take on a rigidity and life of their own, and it becomes very much harder to then get them changed or cancelled.

If you’re hiding out in your retreat, you’re not able to help shape the policy positively.  But if you’re in town, attending the public meeting, and if the other people in the meeting vaguely know of you and understand you to be ‘one of us’ then you’re going to have a much greater chance of controlling the outcome.

If nothing else, you can switch the tables on the group – instead of having them deliver a fait accompli to you and have them tell you to go protest it to no-longer-existing appellate courts and distant authorities, you can at the meeting point out that the meeting’s authority to resolve whatever it is considering is questionable and uncertain, and it needs to get the approval of these higher authorities before it implements its actions.

Plan to Incorporate the Local Community Into Your Future Survival Activities

A danger is that if you offer the local community a conciliatory olive branch and give them some spare food and supplies, you are almost certainly not buying an undisturbed future, free from their ongoing requests (and demands) for more and more support.

Rather, you can be creating a dependency cycle.  You give them food and supplies which they passively accept and consume, then they come back to you for more.  During the extra time your food and supplies has given them, they’ve done nothing about creating any self-sufficiency, they’ve merely done what they’ve done all their lives to date – eaten the food that comes to them without giving any thought about where it came from, or how it was grown, or what they could do to create their own food in the future.

Adopting this strategy of appeasement will be no more successful to you than it was to Britain’s appeasing of Hitler prior to the eventual collapse of that policy that saw a much stronger Germany then embark on World War 2.  Appeasing will not buy you much time and will definitely not ensure your future survival and safety.

Instead of simply giving food and supplies with nothing in return, you should offer to exchange their labor for your support on a fair basis that is win-win.  Have a plan for how you can grow your farm production if you suddenly get a large growth of manpower.

If you say ‘Sure, I can help out; I’ll create jobs for the local people and pay you all in the food and energy we create together’ then you are a positive part of the solution, and you’ve shifted responsibility for caring for these people from yourself to themselves.  They no longer simply passively take from you under a banner of entitlement.  Instead, they work with and for you, and earn support directly proportional to their efforts.

People can no longer say ‘You should give us more (and more and more)’.  Instead, they can see, from their work each day, how much food and other resources they are creating, and their only remaining negotiation should be one about what percentage of the food and other resources they create is theirs to keep, and what percentage is yours.  As long as the net result to you is that your net personal productivity is at least as great if you are supervising other people compared to if you are doing the work yourself, you don’t really care too much if the split of food produced is 50/50 or even 90/10.

You have placed the responsibility for providing for themselves onto the people who are now working for and with you.

This is like the concept of ‘Give a man a fish and you feed him for a day, teach him how to fish and you feed him for a lifetime’.  Help the people in your community to fend for themselves and to become self-sufficient; either completely independently or integrated and coordinated with your own activities.

You will benefit from this too.  You’ve in effect helped these other people to become fellow survivors.  And the larger group of you is now united with a common shared goal of self-sufficient surviving.  You can also now spread your risk – by having two potato fields on opposite sides of town, maybe one might have a good yield and the other a poor yield, but you’re no longer now in an ‘all or nothing’ situation with only one potato field.  You can also diversify into more crops and activities.  This is definitely a win-win for you and everyone else.

Use the Collapse of Current Laws Positively

As we details in our article on urban drift, our society is now dominated by city dwellers.  Many of these city dwellers are affluent and influential, and they have very little comprehension of the ‘real world’ outside of the cities and what it takes to produce the food that conveniently appears – as if by magic – in their neighborhood supermarket.

For puzzling reasons that we really can’t guess at, these people have caused a growing number of laws to be passed, laws that restrict and interfere with the normal prudent use of our land and its resources.  Although the history of mankind and its evolution and advancement to date has been built on the concept of productively using the planet’s natural resources for our gain and benefit, these city-dwellers seek to turn that around.  Spotted owls and other obscure species that may or may not even be present are now considered more important than our own welfare.

We’re not allowed to drill for oil in places that people never visit, for fear of destroying the claimed natural beauty of such places.  Rational people would point out that who cares what a place may look like if no-one ever visits, and they might also point out that when carefully managed, oil drilling does not measurably harm the environment anyway, but these city dwellers are more emotional than rational.  They’d rather pay dollars more per gallon of imported gas than allow us to drill for our own.

They complain about power plants that burn fossil fuels and demand we shift to ‘renewable’ energy sources, but then they also demand that hydro-electric power stations – the ultimate in renewable energy sources, and which have been in place for 50+ years – now be destroyed because they interfere with fish migration patterns.

Okay, enough of such griping!  Our point is simply this.  Your ability to create a viable sustainable existence in the harsh reality of a Level 3 situation is constrained and compromised by laws passed by people who never had to suffer the impacts of the laws they passed, in a world that was much kinder and gentler.

In a Level 3 situation, maybe you can turn the sudden flexibility in lawmaking to your advantage.  Perhaps you could get a new law passed authorizing you to dam a nearby river, something that was formerly banned by various state environmental laws and regulations.  All of a sudden, you – and others around you – have sudden access to plentiful water, and maybe even the ability to build a small hydro-electric power plant as well.

Maybe you can get the city, county or state government to assert ownership over government lands and forests.  All of a sudden, there could be an instant timber industry, and a huge source of fuel for the community.

Maybe the zoning restrictions on your land can be lifted.

Do some dreaming based on the area you’re in, and the current opportunities and constraints, so that if a crisis occurs, you can lead public opinion with solutions that are more long-term and beneficial to all, rather than becoming a focus of a short-term temporary fix that simply involves taking everything you have.

Predicting the Future Social Evolution and Issues – Lessons from the Movies and History in General

People who don’t learn from the lessons of history are doomed to repeat them.  You don’t have the luxury to make mistakes, so you need to do all the learning you possibly can.

While it is true there has never been an event in history analogous to the sudden collapse of an advanced civilization, there have certainly been plenty of examples of new social systems wrestling with ideologies, corruption, the external elements, and so on and so forth.  Indeed, our own country has some relevant and moderately recent past to draw upon – the period from about 1850 through about 1900, primarily west of the Mississippi – what we look upon as our ‘Wild West’ era.

This was a period redolent with struggles between good and evil, between lawlessness and attempts to impose law and order, rapidly changing social values and culture clashes, fast wealth alongside poverty, hard times, and so on – many of the same things that we can expect to encounter in a future Level 3 situation.

It is common to turn to old books to learn how to grow food using ‘low tech’ methods; we should also turn to old books (ie history books) to learn about ‘low tech’ methods of social structure and order, and how to manage and govern pockets of civilization that are surrounded by modern-day ‘wild Indians’ and definitely modern-day gangsters and gunmen.

The actual reality of what the wild west was truly like is open to much debate – perhaps because if you could imagine it, then it probably happened somewhere at some time, so maybe everyone’s perceptions are right to some extent or another.  Whether accurate historically or not, the movie depictions of the wild west can have some interesting worked examples of potential social scenarios that might evolve in our own Level 3 situation, a situation not very different to the wild west of 150 years ago.

Think of some of the western movies you’ve seen with power struggles between wealthy ranchers, poor townsfolk, an under-manned local sheriff, an exploitive gang that allays itself variously with the shadier of the wealthy ranchers, out of county politicians who are either honorable but powerless, or dishonest and influential, and so on and so on.  There’s a lot to learn from and anticipate.

Remember also stories about how the villains end up running the town, electing themselves as mayor and sheriff.  Or about how the sheriff himself becomes corrupt.

If you have time, it also would be helpful to read some accurate history of the social evolution of the wild west, and in particular, how small towns formed to protect themselves against external threats from marauding bandits.

A Major Social Change

One of the great things about US society, and something very different to many other societies around the world, is that – currently – people can make money and become as wealthy as they like, while attracting little negative response from the people around them.  This is because, at present, we understand that the success and wealth of one person in no way detracts from the ability of other people to also succeed and become wealthy too.  If anything, the success and wealth of one person or company helps the people around them – they spend money in their local community, they create jobs, and so on.

But things will be very different in a Level 2/3 situation.  People who are poor will definitely resent people who are wealthy, and there will be a large push to force wealthy people to share their wealth on a much greater basis than that which is created by today’s graduated taxation systems.  This is because the people who are poor will be very poor, and will also be very aware of their massively reduced standard of living, having of course formerly been living in a much more comfortable situation.

They won’t feel they have the luxury to wait indefinitely until someone else’s wealth might trickle down and impact on their lives; they will want a restoration of their previous lifestyle as urgently quickly as possible.  Whether fair or not, whether rational or not, they will resent your success and your better lifestyle.

In other words, be discreet about your own standard of living.  Be like the people in some countries who have beaten up old doors and entry ways into their apartments, but luxurious inner interiors, carefully concealed, that can not be seen by chance from open doors or windows.

Summary

Like it or not, we all live in the society that surrounds us.  We can’t avoid it, and with each passing year and more constraints on personal privacy and more data collection, our ability to obscure our lives and insulate ourselves from the watchful society around us becomes more and more limited.

This is the reality.  We mightn’t like it, but we must accept it and plan our present and future lives within it.  Rather than either withdrawing from society or fighting against it (in the figurative rather than literal sense!) we need to become a part of it – both now and definitely in the future after TSHTF.

If we integrate ourselves positively into our local communities we can help shape and influence how the communities react and respond to the collapse of society and its support mechanisms.  We can guide them positively towards becoming self-sufficient, and we can minimize the risk of them using either pseudo-legal authority or just plain blunt brute force to take our supplies and resources from us.

We should make ourselves part of the solution, not part of the problem.  Everyone will benefit when we do that.

Aug 232012
 

The waves of refugees after TEOTWAWKI will be both heart-rending and dangerous.

Shortly after some type of disaster that disrupts the normal flow of food and energy into your nearby towns, people will be forced to leave their residences and fan out into the countryside, foraging for food (and subsequently shelter too).  That is obvious – if there is no food in the town/city, people can either stay where they are and die of thirst or starvation, or they can pro-actively start looking for food.

People will initially look for food on one of two different levels.  The first level is ‘looking for food nearby and returning back to one’s normal home to eat it and continue living’.  The second level is ‘abandoning one’s former residence and moving, as a refugee, towards wherever the possibility of ongoing survival may be greatest’.  A third and fourth type of food seeking will develop later into a crisis.

It is helpful to understand the differing types of contacts you’ll have, because each poses different challenges, problems, threats, and even opportunities, calling for different responses on your part.

And while we consider our four different waves to be more or less chronologically sequential, there will be some overlaps, with some people representing some waves either earlier than most others, or later than most others.

The First Wave

The first wave will start shortly after the social disruption occurs, initially as a trickle, and then successively greater and greater as more and more people run out of food and come to realize that the government won’t magically solve the problem that occurred.

It will only take a week or two before the first type of food-seeking necessarily ends, due to people running out of gas for their vehicles, and being reduced instead to only traveling and foraging as far as they can walk or bicycle (although, on flat terrain, fitter people could fairly easily cycle up to 50 miles out and then 50 miles back home again).

We predict that people in this ‘first wave’ won’t be very threatening, because they will be more in a hurry to cover as much ground as possible to find as much easy food as possible, rather than becoming fixated on specific potential targets.  Plus, the ‘kill or be killed’ reality of tough survival won’t yet have fully penetrated, and the region will have patches of remaining lawfulness alongside areas of growing anarchy.

Furthermore, these people are primarily seeking food only, not shelter.  They’ve not yet accepted that their city residences have become unviable and need to be abandoned.

Your tactic to resist problems from the first wave of food/shelter seekers will be to maintain a low profile, so most of such people pass you by, and to positively respond to people who do come visiting, encouraging them to go find easier targets/food sources elsewhere.

Of course, the further you are from the nearby towns and cities, the fewer the number of people who might stumble upon you.  But you’ll never be 100% guaranteed to be safely far from such itinerant scavengers.  Fortunately the danger they pose to your retreat at this early stage is low, so while your location choice will ideally not be right next to a freeway exit, a mere 10 miles from the city center, you don’t need to keep yourself hundreds of miles away from any and all population concentrations.

The Second Wave

As the first wave ends and is replaced by the second wave, people’s attitudes will be hardening, because their ability to travel far and wide is massively reduced.  They have probably used up most of their emergency food stores, and now, limited primarily by their ability to walk, any source of food becomes one they must take full advantage of.  They can no longer afford the luxury of leaving empty-handed, and their lack of mobility now reduces the number of places they can travel to in search of food.  They have to make the best of every possible opportunity.

The grim reality of the ‘eat or be eaten’ concept will also be one which the survivors can no longer ignore.

If these people come across your retreat, they are likely to be a stronger and more determined adversary than people in the first wave (and people in the second wave could well be the same people who visited more peaceably in the first wave, too).

Fortunately, most of these people in the second wave will still be nomadic and itinerant.  They’ll be traveling in the hope of finding a Shangri-La somewhere that is full of food, energy, and welcoming people keen to help them, and probably won’t yet be in the ‘looking for anywhere to settle’ mode that will come later.  They might hope for overnight shelter, but they’re not yet looking for a place to settle – or, if they are, they’re probably not yet realistic enough to appreciate the value of your retreat.

People will start abandoning their homes anytime after only a very few days of the crisis commencing and once they start to accept that no magic solutions are forthcoming.  This won’t only be due to the lack of food and lack of any future food supply, but may also be due to lack of water, lack of plumbing, and lack of energy in general.  A high-rise apartment with no water, no working elevators, and no lights or heating/cooling will quickly become uninhabitable, food or not.

The second wave will probably diminish after three or so weeks, because by that point, people will have either left the city, or died, or created some sort of semi-stable ongoing basis of existence in the city.

Your strategy during this exodus stage is to be located somewhere reasonably far from the main routes people are likely to travel along.  It is as important that you are off the likely refugee routes, whether you are 1 mile or 100 miles from the major population centers, because people will potentially be traveling long distances in their search for somewhere better to live.

People may fan out slightly from the main routes as they search for food en route, but they will generally follow the major arterial routes.

Major routes will tend to be well maintained highways, and generally we expect people will move to the coasts and south, rather than inland and to the north.  People will, either by reason or instinct, seek out warm climates and water/ocean.  The warm climate reduces their dependency on shelter and energy, and the ocean has the appeal of ‘free fish’ and also some type of instinctive deep-seated lure.

The Third Wave

The third wave will be refugees, the same as the second wave, but this time it will be people looking for somewhere to settle.

These will be people who are becoming more realistic in their expectations, and now rather than mindlessly going anywhere in the hope of finding (nonexistent) salvation, they are now looking for somewhere they can settle and survive for the medium or longer term.

Your appeal to these people is not just the food you have stored, but also your retreat as a whole, the under-way food cultivation, the energy creating resources you have, and everything else you have done to prepare yourselves for this future.

Some of these people will be seeking short-term easy solutions.  They’ll want to rob you of your food, your shelter, and everything else you have.  They have no concern for sustainability, they want to live for the moment, and when they’ve exhausted everything you have, they’ll move on to somewhere else.

Others of these people will be more realistic, but they’ll still want to displace you from your property and take it over.

There will also be a very few people who will be fair and honest and decent, and who will offer to work their way for and with you.  They’ll offer their labor and their skills, in return for your shelter and assistance – probably as a ‘package deal’ for themselves and their other family members.

It would be good if you had a way of responding positively to such people, because they may prove to be valuable additions to your small community.

The Fourth Wave

The fourth wave is very different from the other three.  It is longer lasting and more potentially impactful on your retreat and community.

Due to the importance of this fourth wave, we have devoted a separate article to it – The Fourth and Deadliest Wave of Refugees.  Please click the link to continue reading.

Aug 232012
 

A 13th century depiction of the red – second – horse and rider of the Apocalypse. The biblical prophecy of the four horsemen is eerily similar to how we see the four waves of refugees after TEOTWAWKI.

No-one really knows what to expect after TSHTF in an extended Level 2 or 3 situation, but it seems universally agreed that the starving masses will be forced to flee their city dwellings and do whatever it takes to survive, wherever they can find the opportunity and ability to do so.

It is helpful to look at the types of people who will come out from the cities as a series of different waves, each with different characteristics.  We’ve discussed the first three waves of refugees in this other article, and the good news is they will be relatively brief in duration and not necessarily ultimately threatening to the wellbeing of your own retreat community – indeed some people in the third wave could well become positive additions to your community.

In this part we wish to instead look at the last of these waves – the fourth wave.  And rather like the Four Horsemen of the Apocalypse, this is the most threatening and dangerous wave – not only by its nature, but also because it will be the longest lived of the four waves.  (Christians will be impressed at how closely all four waves can be viewed as having characteristics similar to the four horsemen described in Revelations.)

The first two waves were fairly simple and easily understood.  In the third wave, we saw how some members were threats but others could be valuable allies.  There is a similar dichotomy to the fourth wave, but in a very different sense, and their duality is part of their danger.

Both will be organized groups, and both will probably already have their own shelter and possibly even other food sources.  They probably don’t need your shelter, and they may not even need your food and other resources.  But, taking advantage of a collapse of law and order, they want to take it simply because they can, and because all around them, other people and groups are acting similarly, just like the looter who takes items from stores in a city riot, even if they are things of no value – they just take them for nihilistic reasons.

Organized Lawless Gangs

The first of these groups will be organized lawless gangs, seeking to dominate and rule their new expanded territory.  The might possibly seek ongoing tribute and ‘taxes’ from you in exchange for their ‘protection’.

Or maybe they’ll be less formal, and will simply be roaming around as an organized and maybe nomadic gang, taking and destroying as they go.

Gangs that seek to impose their own structure and what passes for their version of order may be groups you can negotiate with.  But groups who are little more than anarchistic looters will not be people you can negotiate or create win-win outcomes with.

When encountering the former, you need to shift their perception of you from being a one-way source of goodies they can seize from you, to instead being a two-way trading source and resource they can benefit from.  Maybe you can help them maintain some of their equipment.  Maybe you have medical resources.  Maybe you can trade with them – exchanging items they’ve plundered elsewhere and have no use for, and giving them in return food or other things they do need.

When encountering the latter, you are best advised to indicate to them that you are not an easy target, and any attempt to attack you would seriously weaken or destroy their own force, while leaving you relatively unharmed.  With most of the rest of the entire continent lying helpless at their feet, encourage them to go after easier targets.

This encouragement is best done in a ‘face saving’ manner.  If you challenge the gang leader’s authority, and the overall ‘machismo’ of the gang itself, they may have no social choice but to fight it out with you – and from their perspective, the lives of their junior gang members probably has much less value to the gang leaders than do the lives of your family and fellow community members to you.

We’re From the ‘Government’ and We’re Here to ‘Help’ You

The second of these groups may be more dangerous.  They will claim to be semi-official government groups, seeking to impose their definition of emergency martial law on the region they have assumed control of.

Sometimes their intentions may be honorable and well-meaning (even if dysfunctional and dangerous to you in the process), other times they may be as corrupt and despotic as the outlaw gangs, but cleverly seeking to wrap up their dictatorial actions with an ill deserved veneer of assumed legality.

Unfortunately, whether honorable or not, it is almost a certainty that these self-appointed groups of enforcers will be primarily tasked with taking stuff from you – either to keep for themselves, or to give to the unprepared other people in the region who have empowered these people to act for their benefit.

They may attempt to claim special emergency powers that suspend all your normal legal protections and constitutionally guaranteed rights, and if they have been sufficiently clever and sophisticated, they’ll have compliant judges ready to issue court orders authorizing things that should never be authorized.

If you don’t like it, they’ll say, you can go appeal, all the way to the US Supreme Court if you wish – this being in a scenario where the Supreme Court may have ceased to exist, and even if it did, it would be close to impossible for you to go there, and may take years for you to get a case heard and resolved.  Meantime, you will be told you must comply with what they tell you is a lawful order to surrender your food, to take in refugees, or in many other ways to destroy the viability of the retreat that you built, for yourself.

Some of the people in this fourth wave will be people you might choose to reluctantly ‘do business’ with.  If they are realistic and don’t seek to ‘kill the goose that lays the golden eggs’ and understand that only if your are prosperous can they take a levy or share of your prosperity, then all you’ve done is substituted one form of previous law, order, and taxation for another.  And whether the people imposing it on you are bona fide government officials, lawless gangsters, or ‘pretend’ government officials, the net result is the same, and you simply have to matter-of-factly strike the best win-win deal you can.

But if they ask too much, and leave you with too little, you have some real problems to face.

Even a True Democratic Elected Government May Abrogate Your Rights

In particular, you know that even in the ‘best’ of our 50 states, the massive majority of the population is not nearly as well prepared as you are.  In the normal world, they might be wealthier than you and have more possessions, a fancier house, and who knows what else, but in the post-crisis world of a Level 2 or 3 event, their wealth and possessions become meaningless while yours become invaluable.

Any sort of democratic majority based government, especially one raised on the notion that the ‘wealthy’ are obliged to support the ‘poor’, and doubly especially where the lawmakers themselves are not prepared and are faced with their own pressing life or death challenges, won’t hesitate to urgently pass any needed laws to compel you to give everything you have to them.

This may well be unconstitutional and unlawful and illegal.  But who are you going to complain to, when the local mayor, the local sheriff, and the local judge all turn up on your doorstep together, themselves all starving, and demanding by their joint powers that you give them all your food?

We don’t have easy answers to offer you about these ‘fourth wave’ attackers.  But we can tell you that the fourth wave will be an ongoing thorn in your side, and you may find it increasingly difficult to tell between the ‘lawless gang’ fourth wave members and the ‘lawful posse’ fourth wave members.

Hiding from Fourth Wave Threats

Many preppers feel that an important part of their overall defensive strategy is to keep as low a profile as possible; to obscure the existence of their retreat, so as to avoid being noticed – both before and after the onset of some type of societal collapse.

Obscuring yourself prior to social collapse is getting harder and harder with every passing year.  The ‘information society’ is finding out more and more about us, and with the increasing tendency of government drones, spotting planes, and even satellites to survey vast areas of countryside, and to create extremely detailed ‘GIS’ databases of all the land and structures in a region, your retreat structure will surely be noticed and if not officially registered, sooner or later will cause the authorities to respond.

If you have an unauthorized structure that has not been permitted and which is not compliant with applicable zoning and health and other regulations and restrictions, you risk having it seized and destroyed.  You also risk civil and possibly criminal penalties, and being labeled as another crazy group of survivalist/supremacists.  You can imagine the headlines now – ‘Anti-government supremacists arrested, large weapons cache found on site’ and so on and so forth.  Remember that what we consider prudent, and what is indeed truly lawful, can – and will – be portrayed as evidence of crazy extremism by the news media and the authorities.

Because one of the fourth wave groups you may encounter will be some form of revived local government, it is inevitable that the ‘footprints’ you have created in developing your retreat will be uncovered.  Local health department approvals for your septic system.  Utility records for electricity or internet or cable services.  And so on and so on.  Indeed, one of the weaknesses of the generally sensible strategy of locating in an area with low population density is that you become more obvious by your presence than you would in a denser region.

You may delay your discovery, but you will not prevent it.  You need to have a more viable plan to ensure the safety and security of your retreat – fortunately, we have some suggestions on this point to share.

Becoming Part of the Solution, Not Part of the Problem

Your key strategy is to position yourself, your retreat, and your community, so it can create ‘win-win’ relationships with organized ‘fourth wave’ groups.

One of the key things about this fourth wave threat is that it is longer term.  Earlier waves of threats can be repulsed or ignored or in some other way worked around, but the fourth wave will be a longer term issue that must be resolved.

A confrontational approach risks failure on your part.  And any type of exchange of hostilities can be much more damaging to you than to your opponents.  Your opponents probably have either greater manpower to start with, and/or greater ability to recruit new members into their forces.  They are willing to accept some risk to their rank and file ‘foot soldiers’.

But you have a finite community of friends, family, and colleagues.  You can not dispassionately risk their lives in an encounter.  Remember also that with a loss of the sophisticated healthcare facilities we enjoy at present, even minor wounds become life threatening, and even if the wounds can be treated and resolved, they risk depleting your precious limited supplies of antibiotics and other medical resources.

There may be times when you must respond to force with force yourself; where the potential outcome associated with giving in to a fourth wave group is worse than the potential outcome of repulsing their attack, and in such cases you must be resolute in your defense of your retreat and its community.

But in general, you want to position yourselves so that you can find ways to co-exist on a win-win basis with these fourth wave groups.

How would you do that?  Please see our article on becoming part of the solution, rather than part of the problem, for a discussion on strategies to create win-win situations for you and the community you are close to.

Summary

After an initial period of grave social disruption, during which the first, second and third waves of refugees will occur, the rate of change will slow and some periods of semi-stable social arrangements will probably follow.

Invariably, regional leadership organizations will appear, and whether they are ostensibly benevolent or despotic, you need to position yourselves and your community so that it can co-exist on a win-win basis with these other (and possibly stronger) forces around it.

Aug 032012
 

You need to have a policy on accepting refugees. You’ll have way too many people seeking to join your community – how will you choose who to accept and reject?

Let’s say that TSHTF and we find ourselves deep into not just the brown stuff but an extended Level 2, possibly a Level 3 situation.  Fortunately, you have the supplies and the skills necessary to ensure the probable survival of you and the other members of your group.

So far, so good.

But what about the other people, everyone and everywhere else in the country?  They have neither the supplies nor the skills, and they are facing a high probability of failing to survive the upcoming winter (always assuming they don’t starve prior to then).

Okay, so you know that your small group of, let’s say, 20 people can’t possibly turn around and support the entire 300+ million people in the US.  Neither can you support the maybe 5 – 10 million people in your state, the 500,000 people in your county, or the 100,000 people in the nearest city, or the 2,000 people in the nearby small town.  Those are easy issues to agree upon.

Enough of the easy.  Let’s move on now to the hard – to the challenges you are most likely to confront and need to resolve.  Note that the scenarios below assume that your ‘community’ shares a number of communal resources – perhaps these would include living in the same retreat structure, sharing food communally rather than having individual stores of food, and sharing water and energy as well.  In such cases, what one person does obviously impacts on other members of the one community.

If your ‘community’ is more like a tiny village, with a cluster of separate dwellings for separate families, and each family being responsible for its own food, water, and energy, but the community as a whole coordinating defense and food production type matters, then clearly each family has much more flexibility as to how it manages its own situation.

Adding One More Community Member

What happens if say your spouse’s brother (or, for that matter, your own brother) turns up and asks to be admitted to your community?

Your spouse pleads with you to let him join you, and for sure, what you have for 20 people will also be fine for 21.  Your spouse even says ‘I’ll share my food with my brother’, although no-one seriously expects that is exactly how the food would be re-divided.  What do you do?  Welcome the guy in, or risk a major failure in your marriage and turn the guy away?

We’ll guess that most people will take the path of least resistance, and let their brother-in-law come join the community.  Going from 20 to 21 is no big deal, and certainly one more able-bodied participant can help with chores and security and general community dynamics.

When One Becomes Many

Next, we need to consider the implications of this.  If you’ve agreed that your spouse can allow your brother to join the community, does that mean that all 20 community members are equally allowed to invite one additional person in to the community?  It would be very hard to understand what type of community dynamic would allow some people the right to bring in additional community members, but not allow others the same right.

It goes without saying that while your community can almost certainly grow from 20 to 21, and would probably actually benefit from the extra person’s presence and participation, what about if the community grows from 20 to 40?  Is that feasible or not?  Your food will only last half as long.  You need twice as much water.  You have twice as much sewage to dispose of.  Your living spaces are now twice as crowded.  And so on.

Furthermore, what happens the next day when your spouse’s other brother turns up.  You’ve let one brother in, how can you refuse the other brother too?

Or what if your spouse’s brother (or of course, your own brother or anyone else’s brother) is married and has a wife?  And a child too?  Where do you draw the line?

Less Desirable Additions

What if, instead of the person being an able-bodied male who can work and positively contribute to the community, the person is instead an aged parent who can’t add any value to the community and who in fact needs support and care?  We could be totally off-base here, but we suspect you’d have an even greater battle with your spouse if you refused to allow their aged mother to come live with you than you would if you turned away their brother!

You should also consider people at the other end of life’s journey.  What about a young child – someone who again would be a net drain on the community’s resource for some years to come, and someone who needs to be cared for and schooled.

Or how about a regular adult but with disabilities, or special medical needs?

Choosing Between Too Many Applicants

What say five people present themselves and ask to join your community.  One is a weedy nerdy IT guy, the second is a beefy brawny farm manager, the third is a dentist, the fourth is an elderly infirm person, but who turns up in a truck fully loaded with enough food supplies to feed a dozen people for a year or more, and towing a 500 gallon tank of diesel, while the fifth is a beautiful blonde woman in her mid 20s, who formerly worked as a public relations representative.

Do you have some sort of skills inventory or rating system to evaluate and prioritize who you would and would not accept?  How about choosing between the empty-handed farm manager, who comes with no physical goods but lots of skill and knowledge and physical strength on the one hand, and the elderly infirm person who can’t contribute skills or physical work, but who has 500 gallons of diesel and twelve man years of food with him?

And what about the dentist?  Let’s say you have a community of 20 people, and the dentist says ‘I’ll provide dental care for all of you for free, but in return, I expect you to feed and shelter and support me’.  There are no other dentists in your group, and none that you know of within 100 miles of where you live.

Is the cost to the community of supporting the dentist sufficiently balanced by the benefit of having at least some basic level of dentistry resource?  If you had a community of 200 the answer would probably be yes, but what about for only 20?  Where do you draw the line?

What about a choice between the nerdy IT guy and the beautiful blonde?  Let’s say that your community currently has more men than women in it, and many of them (and possibly yourself too) are already drooling over the sight of the blonde.  If you had to choose only one of these two people, who would you choose?

The nerdy IT guy is intelligent and clever and offers to maintain your computer network, to write programs, and to help any way he can; and let’s give in to stereotypes and say, for the purpose of this scenario, that the blonde is rather vapid and not very down to earth or sensible.  Her idea of cooking involves being taken out for a meal by a man, or perhaps popping something in the microwave, her idea of gardening is to water the pot plant on her balcony, her idea of prepping is to have plenty of spare shoes in the closet, and she doesn’t really have any other skills of value to the community.

Another Variation

What say your community group refused to allow your spouse’s brother to join the community, and so he sets up a shack immediately next to your community building, and your spouse unofficially shares food and other supplies with him.  You confront your spouse, and s/he says defiantly ‘I am not taking your share of anything, I’m merely sharing my share with my brother, you can’t tell me how I use my things’.

What your spouse says is half-true, but also half untrue, because your spouse is actually now taking larger meals so as to be able to then split them, and the other supplies that your spouse has given to his/her brother are now supplies that have been lost to the community, and while they might seem to be spare today, in a day, week, month or year, they might be essentially needed but no longer available.

What do you do?  Forbid your spouse to share ‘their’ food and ‘their’ other supplies?

Even More Extreme

So your spouse’s brother, and all of his family members too, have set up camp right next to your community retreat.  They are a constant nuisance and interference to the entire community, and, while you can’t prove it, you are fairly certain they are stealing food out of your vegetable gardens, and in other ways stealing your community’s supplies and resources, and by their presence, affecting the overall community morale.

You confront your brother-in-law and he refuses to back down.  He says to you ‘What are you going to do – kill me for doing what I have to do to survive?  You’ll never miss a few carrots and potatoes, and it makes the difference between me and my family living or dying.  Do you want us to die on your doorstep?’

So what do you do?  This isn’t just a stranger talking to you, it is your spouse’s brother and his family.  Or maybe your own brother/sister/whoever.

They make it clear to you that they’re not going to stop stealing your food unless you kill them.  Do you?

Other Scenarios

There are plenty of other scenarios that also impact upon the size of your community and the circumstances associated with how you might select additional or replacement members.  What say, for example, that you have 20 people who belong to your community, but only 15 have turned up at your shared retreat location.

How long do you hold their spaces, their share of everything, before you decide they’re not coming, and you then open up the spaces to other desirable community members?

Or what say part of your community is a family of four, but only three of the family successfully make it to the retreat.  Does the fourth space belong to the family, to assign/sell/trade any way they wish, or does it pass back and become community property?

What happens if a community member leaves (or dies) – does the share in the community pass on to his/her family, can he sell it as he wishes, or does it revert back and become a shared community item for the community as a whole to do with as it chooses?

The Need to Prepare Community Rules in Advance

What all these previous examples have done is try to illustrate some of the type of ‘what if’ situations your community will likely encounter.  You will probably have more people approaching your community on a non-violent basis, pleading with you to be allowed to join your community, than you will have violent attacks from marauders seeking to separate you from your supplies by force.

Each of these different people will come to you with a different set of pluses and minuses, and for a while you’ll feel like a kid in a candy store with so many different people, all potentially great additions to your community, seeking to join.  Whereas, just a week or two prior, when life was normal, people would sneer at you and spurn your suggestion they consider joining your community, but now, all of a sudden, so many people want to be your best friend forever.

You have two problems that you need to address in preparing some rules in advance.  The first problem is simply one of creating a framework to help you judge and evaluate, on a case by case basis, who you should and should not consider adding to your community after TSHTF.

The second problem is more subtle.  The larger your community starts off as being, the more divergent will be the people in it and their own views about how each scenario should be handled.  The rules you prepare are a way of codifying for the entire community what you’ll all collectively do and how you’ll respond.  It is essential that you get the rules 100% established and fully agreed to prior to any event.  If you have a code of procedures, then you can dispassionately evaluate each person’s request to join the community as and when they appear, without having to get involved in any individual personalities and issues between your existing community members.  Community members know what to expect and plan for in advance, and can anticipate how cases will be handled based on the rules as they have been promulgated.

If you don’t have the rules already established, then you get trapped in an expanding spiral of exceptions (albeit exceptions to no existing rules to start with) on the basis of ‘If Joe was allowed to invite in Peter, then I’m entitled to invite in someone too’ and ‘If your friend Bill and his family were allowed to come join, then my friend John and his family should be allowed to come too’, as well as ‘I can’t believe you’re not allowing me to have my dear old dad come join us, especially after I agreed you could bring your kid sister in’, and so on and so on, without limit, until the entire community collapses into some sort of internal civil war.

The solution to this is in two parts – the first is that all decisions need to follow pre-established guidelines so as to distance the individual people and personalities from the process and make it less personal.  The decision then becomes one of simply following the policy, rather than what you agree/disagree between yourselves each time.  It makes it fairer for all to have a consistent approach.

The second element is to make all decisions not clearly covered by the published rules as community consensus decisions, again to diffuse the personal nature of such decisions and to make them more as ‘body corporate’ type actions that, while possibly disappointing to some, aren’t taken as quite so strongly personal rejections/affronts.

Specific Guidelines for Evaluating Potential Extra Community Members

We’ll write a subsequent article with some specific considerations for you to keep in mind when deciding who you might allow to join your community after TSHTF.

Of course, prior to TSHTF, you also need to exercise a modicum of discretion as to who you allow to join your community, but while you are building your community during normal times, one of the greatest considerations will probably be to simply grow your community as much as possible due to the three benefits of strength in numbers, economy of scale, and diversification of risk.

Please see also our article suggesting how to accept new members into your community.

Jul 272012
 

In an EOTWAWKI (Level 2/3) situation, money will become of little value or use.

In the economic and real world as a whole, there are many factors that all contribute to the overall rate of inflation or deflation.  Fortunately, most of these different factors act in a manner that is easy to understand, and each factor can be either inflationary or deflationary.

For the purpose of understanding inflation, we can say that the price of things in general go up or down (ie inflate or deflate) based primarily on two simple factors.  The other issues that also influence inflation are not as directly impactful as these two primary factors.

The first factor is the supply of the thing.  The second factor is the amount of money available to buy the thing.

Let’s explain that with two simple examples.

An increase in supply of a product is deflationary (and a reduction is inflationary)

First, to explain the impact of the availability of the thing.  Let’s take a current example.  Cherries.  At the time of writing, we are in the peak of the cherry season – a short-lived season that only spans a few weeks in each region.

If you go to a local market today, you’ll find cherries on sale, perhaps for $2 – $3/pound (as is the case locally in our area).  Last week, they were $4/pound, and the week before, they were $5/pound.

Probably next week, the price will be up to $4/pound again, and the week after, the price will be $5/pound.

Now, those cherries cost exactly the same to the farmer.  If anything, the cherries in the peak of the season are the most expensive to the farmer, because he has to get in extra labor which is less skilled and unproductive, perhaps pay overtime, perhaps hire extra equipment and machinery.

The main reason that the cherries start off high, then drop in price, then increase again is due to the quantity of cherries available.  The more that are available, the lower the price of each one.  Increasing the quantity of a thing is deflationary, decreasing the quantity is inflationary.  This is even more pronounced of course with a perishable product such as fruit, but even things that can be stored for a long time prior to being sold are subject to the same effects.

So of course the same applies to other non-perishable things like motor cars and computers, but in these cases, there are other factors that we’ve chosen to ignore that have also created to the reduction in cost linked with the increasing supply of the products.  These are things like reducing costs to produce the goods due to increased automation and other economies of scale.

So, the more of a thing there is, the less each of them is worth.  The fewer of a thing there is, the more each of them is worth.

An increase in money supply is inflationary (and a reduction is deflationary)

The other factor is sort of hinted at by the first factor, when you think about it.  One way of looking at the situation in the first example is that if a farmer has one pound of cherries to sell, and if you have $10 to spend on cherries, then he can sell his pound to you for $10.  But if he has five pounds of cherries, he might still sell them to you, but at $2/lb rather than at $10/lb.

Now let’s switch our focus from the quantity of cherries to the quantity of money.  What happens if the farmer always has only 10 lbs of cherries to sell.  If you have $20 in your pocket to spend on cherries, you’ll buy his cherries for $20, right?  But if you have $30 in your pocket to spend on cherries, you’ll be willing to give him $30.  And if you only had $10, you’d only be able to give him $10 for his 10 lbs of cherries.

Let’s consider a real world example.  As we explain in this article, after World War 1 Germany found itself crippled with ‘repatriations’ – debts imposed on it by the victorious allies, forcing Germany to reimburse them for their costs of going to war with Germany. So what did Germany do?  It ‘cheated’.  It printed more and more and more money, and paid its debts with this newly printed money.

The effect of printing more and more money, at a time when the German economy stayed the same size (well, actually, it started to shrink) was inflationary.  Prices for everything increased – not due so much to changes in the supply of the goods, but rather due to ‘too much money’ being available.  Consider, for example, postage stamps.  There was no shortage of stamps at the post offices, but the cost to mail a letter went from less than 1 Deutschmark to millions of Deutschmarks.

In other words, the same thing applies to money as to the things it can buy.  The more money in the society/economy, the less each unit of money is worth.  The less money there is, the more each unit of money is worth.

The Relativity Between Money Supply and Items for Sale

Now to consider a derivative issue.  If the supply of a product increases, but at the same time, the amount of money in the economy increases too, then the two effects will more or less balance each other out.  Which brings us to a more complete understanding of how inflation occurs in a society or economy :  Overall inflation goes up or down depending on the relationship between the supply of money and the supply of things to purchase with the money.  Inflation can be increased or decreased by selectively adjusting the supply or either money or things to buy with it, or by adjusting both.

Will a Level 2/3 Situation Create Inflation or Deflation?

Now that you understand the underlying factors that impact on inflation, you can start to work this out for yourself.

The most impactful event in a Level 2/3 situation will be the shortage of things.  The most essential things will be in terribly short supply – things such as food and energy.

There may also be a shortage of ‘money’ – we use quotes in this case, because maybe regular cash – dollar bills and coins as we know them today – will become useless.  People might have great wealth on paper, but in terms of actual negotiable currency, what value is money in a bank if the bank has disappeared?

In this case, the availability or shortage of money is probably of less importance than the shortage of life’s essentials – food and energy.  When you’re faced with starvation, you’ll pay any amount to buy food.  When you’re shivering cold and desperate for some heat, you’ll pay any amount for energy.

The shortage of essential goods will unavoidably create inflation, although this inflation may be due to measure in traditional terms, due to a failure of the traditional money supply.

Implications for Preppers

We’ve said this before, but it is worth repeating.  Having spare money will be close to useless in a EOTWAWKI (Level 2/3) situation.  Having spare food, spare energy, and spare trading good will all be invaluable.

You are best advised to plan and prepare by building up supplies of ‘things’ rather than a supply of money.  The purchasing power of money will collapse in a Level 2/3 situation due to inflation, whereas the trade value of ‘things’ will skyrocket.