The Danger of Financial Chaos
Today please allow me to rant a bit. One of the potential emergency scenarios that I think we need to be prepared against is short-term (or longer) financial chaos. The world financial system is under extreme stress and efforts to control the chaos are proving ineffective.
- Japan is a fiscal disaster.
- The UK is a fiscal disaster.
- The EU is a fiscal disaster.
- The US is a fiscal disaster.
And each one of these is counting on selling their goods and services to all the others to jump-start their economic recoveries… But they are all sick at the same time, the result of out-of-control government size/spending and intrusion into private sector concerns.
Even China and the Far East low-cost manufacturing centers are poised to crash as demand slips for their manufactured goods. Because people are running out of money to spend on non-essentials and they don’t have their house as an ATM anymore, and their credit limits have been reduced to the amount of their current balances.
And the bankers around the world are busy shoveling their toxic worthless assets onto their respective taxpayers hoping no one will notice… Sovereign debt is exploding around the world (Australia seems to be one of the only fairly healthy countries)
The Myth of the Welfare State
The basic problem with many of the countries of the world… their governments have become WAY TOO BIG with too many non-essential workers, making way too much money for what they contribute, and with overly generous future promises of pension and medical plans. These governments have overspent in the past, they are overspending in the present, and they are committed to massive amounts of spending in the future.
To make matters worse, they have promised all of these things to their citizens as basic human rights (a decent retirement income, free healthcare, free transportation, etc) and it is going to be very ugly if they renege on these promises.
On the other hand, the people who are expected to continue to pay for all this without complaint (aka the next generation and their kids) are having a hard enough time taking care of their own familes without having to support two retired people at the same time. They cannot be counted on to continue to agree to more and more government.
I don’t profess to know what the end game will be in any country, or the timing. But it very well might get ugly. When people cannot find work, they can’t pay their bills and this reality can only be suspended through public assistance for so long.
(Look at Greece right now, their government is bankrupt and the workers are being asked to accept significant reductions in salary and benefits, with much more to come. In addition the private sector is being asked to withstand 40% more taxation. The result is RIOTs in the street, fires and some dead people on the sidewalk)
How to Balance a Budget
For a family that is living beyond its means, there are two options– cut spending to manageable levels or find a way to make more money. For a government, there are the same basic options with one caveat. The normal way for a government to raise more money is to raise taxes on the private sector (all taxes are on the private sector). When you raise taxes on the private sector two things happen- 1) economic growth is slowed whis ends up reducing revenue, and 2) black market/tax evasion becomes more prevalent…
So, raising tax rates is easy to do but increasing tax REVENUE is much more difficult. This is why tax rate reductions are often necessary to increase tax revenue because they spur growth and compliance. But politicians who have socialist tendencies hate business owners who are the engine of the economy so they are more interested in vilifying them for cheap political points than they are in working with them to create economic growth and good paying jobs.
Any fool can see that there is no way that we can possibly pay off on the promises of the Welfare State. Japan is about 30 years ahead of US in proving this, and the Europeans are about 20 years ahead. And the US has decided that just as this realization is becoming totally obvious now is the time to add even more promises with Obamacare. (It boggles the mind).
Being prepared to hunker down in your house, live off your supplies, defend yourself and stay low for a month or two is not crazy talk in my opinion. I call it Bugging In. This may be years away where you live, it may happen this year. Things can happen fast, a stock market plunge, a loss of confidence in banking leading to a run on banks leading to new regulations on withdrawals… these things all feed on each other.
I have just finished reading a book on the Argentinian financial collapse that I will comment more on in the future. It has changed my thinking on several aspects of emergency preparedness and I look forward to sharing those thoughts with you.
The Golden Goose Is Being Strangled
In most places in the world, the relationship between the private sector and the government has gotten out of whack. The government is the parasite that needs the private sector economy host to survive but they are strangling their host. They are killing the Golden Goose by demanding more and more from the poor goose. At some point, the goose tells his master “NO MORE” and either dies or quits producing golden eggs.
The book Atlas Shrugged by Ayn Rand is about this very act of the productive sector saying “Enough, we’ve had it, you can’t make us take risk and work harder and abide by your stupid rules, and we are tired of being vilified. We have enough saved to survive a while so we are going to take a long vacation. If you miss us and want to roll back some of your stupid laws and want to talk about working together give us a call. But you better mean it. Adios…”
You can force a man at the muzzle of a gun to physically work, but you cannot force him (or her) to use their mind. And human progress relies on the use of the mind.
Count on yourself, and little else.
And hope to be pleasantly surprised when you can make a food drive donation of canned goods to the local Food Shelter when nothing happens.