So what do you think will happen to the average person once this all breaks down? I know you half-jokingly said buy gold, but for real, are we just all sort of doomed to suffer?
Gold seemed to be a stand in for “invest in whatever will still have value post-collapse of the USD”. History says precious metals are decent at that but who’s to say NFTs aren’t the way of the future, or owl pellets, or Euros?
Feb 11, 2022·edited Feb 11, 2022Liked by James J. Heaney
If we just print money to keep rates low (option 1), inflation will get out of control and the value of assets and pay will decline, causing economic hardship.
Note that the Fed is already not allowing this to happen by announcing plans to raise rates this year.
If we bring the debt under control without defaulting (options 2-3), US government spending will be curtailed or taxes will be increased, and this will hurt whomever is paying the taxes or would have benefited from the spending.
Some version of this is definitely going to happen with Social Security by 2031 when the trust fund runs out. Either benefits will be reduced by 20-25% or taxes will be raised enough to cover the shortfall.
If we default on the debt (option 4), which as James said would actually be unconstitutional, that could jeopardize the very ability of the US government to borrow and bring about a major financial catastrophe. It's hard to say how bad it would be, but something on the scale of the Great Depression would certainly be plausible.
This is the worst path we could take, and the only reason to think we might take it is the same reason humanity might eventually nuke itself into oblivion - sometimes our leaders just fail us and make Very Bad Decisions with lasting consequences.
When this all breaks down, it seems reasonable to me to expect enormous economic pain. Great-Recession-level pain seems certain, Great-Depression-level pain feels like a tossup, and Economic-Crisis-of-the-Third-Century-level pain seems unlikely but not totally insane.
(SIDEBAR: The Roman Crisis of the Third Century was a huge multifaceted monster that greatly damaged the Roman empire in lots of ways, but one facet of it that ended up having a huge long-term impact was the economic crisis. Inflation led to a breakdown in currency, which made it very hard to sell goods across long distances and forced the return of a barter economy in many places. Imagine a world where we simply can't get any fruit anymore except what fruit is grown locally -- no more strawberries out of season, no more oranges at all -- because it's simply no longer economical to sell goods outside the immediate area. The Empire eventually recovered, after several decades, but it never *fully* rebuilt its internal trade networks after the destruction wrought by the Third Century. This helped lead to its collapse in the Fifth.)
So I guess that's a long way of saying "hope for a recession, expect a depression." We're not talking zombie apocalypse here. We won't be fleeing cannibals on The Road. The worst-case scenario is just a really, really bad economic crash.
And, yeah, there's probably no avoiding the suffering of a depression, especially not a depression where you have no clear idea when or how it will hit. If you want to protect your money, you want to put it into something that will still be valuable no matter what -- gold is traditional -- but then what if the price of gold crashes for other reasons? It's all just placing bets, and most people placing bets lose, so I tend to advise just riding things out.
I, at least, have made no adjustments to my retirement plan except (1) to assume higher-than-average inflation over the next 30-odd years (which doesn't really make all that much difference), (2) to expect I'll only get 50-75% of my promised Social Security benefits, and (3) to be robust enough to handle some future rough patches where I'm maybe not getting paid as much as I'm getting right now, or at all.
ADDENDUM: The pain of all this could be much less if we just balance the budget instead of allowing a debt default to swamp us, but, for the reasons I mentioned in the article, I simply don't expect that to ever happen.
Another interesting thing to me is what this means for "progress". It brings to mind our conversation about automated cars... There is a lot of infrastructure spending involved. Same with EVs. Progress, by itself, is costly. The cost of running our country is going up due to new tech... At least we won't have to drive in the apocalypse.
“Time’s arrow will see to that, if nothing else.” 😂😂
So what do you think will happen to the average person once this all breaks down? I know you half-jokingly said buy gold, but for real, are we just all sort of doomed to suffer?
Gold seemed to be a stand in for “invest in whatever will still have value post-collapse of the USD”. History says precious metals are decent at that but who’s to say NFTs aren’t the way of the future, or owl pellets, or Euros?
If we just print money to keep rates low (option 1), inflation will get out of control and the value of assets and pay will decline, causing economic hardship.
Note that the Fed is already not allowing this to happen by announcing plans to raise rates this year.
If we bring the debt under control without defaulting (options 2-3), US government spending will be curtailed or taxes will be increased, and this will hurt whomever is paying the taxes or would have benefited from the spending.
Some version of this is definitely going to happen with Social Security by 2031 when the trust fund runs out. Either benefits will be reduced by 20-25% or taxes will be raised enough to cover the shortfall.
If we default on the debt (option 4), which as James said would actually be unconstitutional, that could jeopardize the very ability of the US government to borrow and bring about a major financial catastrophe. It's hard to say how bad it would be, but something on the scale of the Great Depression would certainly be plausible.
This is the worst path we could take, and the only reason to think we might take it is the same reason humanity might eventually nuke itself into oblivion - sometimes our leaders just fail us and make Very Bad Decisions with lasting consequences.
Sorry for my slow reply! I was on vacation.
When this all breaks down, it seems reasonable to me to expect enormous economic pain. Great-Recession-level pain seems certain, Great-Depression-level pain feels like a tossup, and Economic-Crisis-of-the-Third-Century-level pain seems unlikely but not totally insane.
(SIDEBAR: The Roman Crisis of the Third Century was a huge multifaceted monster that greatly damaged the Roman empire in lots of ways, but one facet of it that ended up having a huge long-term impact was the economic crisis. Inflation led to a breakdown in currency, which made it very hard to sell goods across long distances and forced the return of a barter economy in many places. Imagine a world where we simply can't get any fruit anymore except what fruit is grown locally -- no more strawberries out of season, no more oranges at all -- because it's simply no longer economical to sell goods outside the immediate area. The Empire eventually recovered, after several decades, but it never *fully* rebuilt its internal trade networks after the destruction wrought by the Third Century. This helped lead to its collapse in the Fifth.)
So I guess that's a long way of saying "hope for a recession, expect a depression." We're not talking zombie apocalypse here. We won't be fleeing cannibals on The Road. The worst-case scenario is just a really, really bad economic crash.
And, yeah, there's probably no avoiding the suffering of a depression, especially not a depression where you have no clear idea when or how it will hit. If you want to protect your money, you want to put it into something that will still be valuable no matter what -- gold is traditional -- but then what if the price of gold crashes for other reasons? It's all just placing bets, and most people placing bets lose, so I tend to advise just riding things out.
I, at least, have made no adjustments to my retirement plan except (1) to assume higher-than-average inflation over the next 30-odd years (which doesn't really make all that much difference), (2) to expect I'll only get 50-75% of my promised Social Security benefits, and (3) to be robust enough to handle some future rough patches where I'm maybe not getting paid as much as I'm getting right now, or at all.
Do not, in any event, buy an NFT.
ADDENDUM: The pain of all this could be much less if we just balance the budget instead of allowing a debt default to swamp us, but, for the reasons I mentioned in the article, I simply don't expect that to ever happen.
Another interesting thing to me is what this means for "progress". It brings to mind our conversation about automated cars... There is a lot of infrastructure spending involved. Same with EVs. Progress, by itself, is costly. The cost of running our country is going up due to new tech... At least we won't have to drive in the apocalypse.
Thoughts on how the rise of wages, even for trivial jobs, is contributing to inflation? Both through legislation and corporate choices.