We're not going back to normal

I still hear people talk about the economy or their financial situation as if this were just a recession, and everything is now headed back toward normal. Friends are opening a new business, other friends are waiting until their house returns to its old value before selling, others blithely assume that their income will be higher in a few years. (Perhaps it will be, but not in real purchasing power.)

And when I hear people talk like this, even when they are speaking directly to me, I don't say anything about my views on the US economic situation. I don't point out that one in 5 American workers can't find a job and that most of the missing jobs are gone until after the dollar collapses, a situation known euphemistically as "structural unemployment." The word "structural" here means it's built into the system. If you offshore all production and manufacturing, "structural" or permanent unemployment is what you get. No fixing that until we hyperinflate the dollar into oblivion and we are forced to produce things domestically because we can no longer afford imports.

And no point mentioning that one in 4 children relies on food stamps to get enough to eat, suggesting we are a developing nation. Or that all the campgrounds within 100 miles of Los Angeles are filled with homeless people. If it's not on television it might as well not exist.

And I don't mention that next year we will have to borrow around $1.5 trillion to make up the budget shortfall, plus we'll have to "roll over" or re-borrow another $1.9 trillion because a slew of short-term loans must be repaid, and naturally, we don't have the money. If numbers or math are involved, nobody wants to hear it. But that's $2.4 trillion we'll need to borrow next year, which is godawful. That's over $9 billion we'll expect the rest of the world to give us every single business day. And if they don't? If they refuse? Then we print the money to cover our bills, and erode our currency, and thus erode the savings and assets of the middle class. Or, if we don't print it, we must make drastic cuts in government, and that would be very painful to the American people because government expenditures make up 36% of our GDP.

Almost the entirety of the GDP is consumer spending and government spending -- which is, in fact, normal for all nations -- but the problem here is that consumers are spending borrowed money and so is the government. Only... the borrowing is gradually coming to a halt as credit dries up.

We have two choices.

The first is, we simply allow the credit and loans to disappear, we let the "liquidity" dry up, and suffer the consequences. This results in economic collapse. Forget the term "deflation," as that does not get the idea across. The economy collapses. Commerce largely evaporates. The US defaults on its sovereign debt, as do virtually all US states and municipalities as well as many corporations.

The second is, we print enough brand-new money to keep the "liquidity" flowing, but that money has a rapidly shrinking real value. I mean, you can't just print new money out of nothing and expect it to maintain the same value as the old money. The value has to shrink. Which means prices have to go up in dollar terms. If this process gets out of control (which historically is likely) then the dollar collapses until it has no value at all, until it is useful only as toilet paper or kindling. Which means commerce largely evaporates and businesses close because nobody can deal with the lack of viable currency. This is probably worse than the first scenario, but it's what the US government will attempt. Politicians always hope -- and perhaps truly believe -- that they can maneuver just a bit of inflation, enough to ease the debt burdens and keep commerce alive, but not so much that they ruin the currency.

Either route is disastrous. But even if I said all this to most of my friends and acquaintances, almost none of them would do a thing to make preparations for such miserable scenarios. It's one thing to build a bomb shelter against nuclear war; we've never had a nuclear war. Or to buy potassium iodate tablets; we've never had a dirty bomb attack. Or to buy batteries and food and water before y2k; that was similarly unprecedented. Hyperinflation, however, is not only common, it is always and without exception the fate of a fiat currency. It is not a novel catastrophe. This is a routine human experience, and it's a hell of a bad experience. During the currency crisis in Argentina, middle class men would dress in suits to go out looking for work in the mornings, but by afternoon would be seen in alleys picking through trash for something to eat. Not only has this happened in many other nations, it has happened twice in our own nation.

But Americans, I think, are addicted to a feeling of normalcy. We like to be cheerful and positive, for one thing, and so we reject gloomy predictions. But we especially like to turn on the TV or go to the mall or the movies and be bathed in the sense that all is well, the world is still functioning, and the US is still the greatest nation on Earth. And that is why nobody will have any cash when the banks announce withdrawal limits or outright closures; that is why nobody will have food when distribution begins to break down; that is why nobody will have alternative forms of money such as gold, silver, or copper coins when the paper stuff begins to go haywire.

And Americans don't care a whit about history. We seem to believe that we have achieved the permanent utopia (with slight fluctuations) of the Technology Age, and that calamity is virtually impossible. The Experts know how to keep us safe, but in the unlikely event of a crisis, The Experts will take care of us. You know, like they did for the people of New Orleans.

We're clinging to the old normal as best we can, but it simply can't last.