3. don't expect what worked over the past 40 years (buy and hold) to work for thenext 40;
3a. for normies, the best risk-reward investment is probably being a landlord (credit rating arbitrage), but only if your areas has a decent economy and demographics. bonus if you can DIY home maintenance stuff
3b. precious metals, don'tbe surprised if we hit a deflationary crash (debt destruction) before the inflation kicks in. After Covid, I fully expect a good chance that owning bullion (in US and/or EU and/or CAN) might become illegal again in an extreme crisis.
3c. as for stocks: look to commodities: hydrocarbons, fertilizer, metal miners, timber owners. Also beneficiaries from a massive expansion of federal food aid: (walmart, pepsi)
If the stuff really hits the fan, gold and crypto bros. will be surprised at how easy it is to stop all US bullion and crypto transactions via an emergency decree.
totally possible that precious metals can only be used by permitted industrial users and no normie will forget the face of a guy who walked through the door and wanted to pay fo XYZ with a gold coin.
Like you say below, diversify. And don't listen to any "gurus" pushing any one asset.
Great question, Mike. I think being mentally prepared is just as important as any other kind — building emotional resilience, for example, so you can handle any potential turmoil without entering breakdown mode. How specifically a person does that is up to them, but for me it's trying to keep ahead of trends so I'm not blindsided.
As for other preparations, I'm trying to make myself as flexible as possible. That means creating options. I'm not building a bunker or buying ten years worth of beans (though that doesn't sound too bad). Simple things like diversifying your financials and income streams while minimizing costs helps a lot. I'm in a fortunate situation where I can work from anywhere, so that creates lots of options too.
It's an open question what's the best way forward, but the key is simply going forward and doing *something* rather than nothing. Knowledge without action just leads to anxiety, and that's no good for anyone. There's that old metaphor about worrying being like a rocking chair — it gives you something to do, but doesn't get you anywhere.
if they are smart and upper-tier white collars, no worries.
for the bottom 85%.....ChatGPT-like software and debt chaos (if/when it comes) will hammer white-collars like Volcker hammered the Rust Belt in the 70's-early 80's.
keep the following in mind:
1. have as little education debt as possible;
1a. be wary of an overly long-term military career, your Commander-in-Chief and DC might do something rash and send you on a fool's mission;
2. the "growth" industry will still be health care;
3. lots of trades and professions will not be touched by AI for decades (plumbers, public safety, linesmen, bureaucrats, etc.);
like the comment above, be mentally flexible, stay optimistic, but don't be a chump who sits on their hands....cuz the cavalry isn't going to ride over the hill to rescue you if times ever get really tough.
All valid concerns. If you're in the US, the three B's of beans, bullets, and bourbon are a good start. Listen to anyone from the former Yugoslavia and they'll say liquor was one of the most valuable commodities to trade. Batteries could be added to the B list too. We can make it five and add silver and gold Bullion. But really, being in charge of at least a few percent of your own calories is an excellent start. Chickens, tomatoes, veggies, whatever.
I hope you take this comment in the good-natured manor that it was intended. I’d be happy to continue it as a debate if you are open to it.
"Every single interest rate hike has led to a recession,” Yes, that is quite literally what they are intending to do. Well, technically, they are trying to make it harder for businesses to borrow money, so they won't be able to expand, and won't be able to hire more workers so that unemployment increases and those pesky workers will think twice about asking for a raise. For some reason that just happens to crash the darn economy.
You know what else always creates a recession? The government running a surplus.
"Modern Monetary Theory. It suggests that government debt in its own fiat currency never needs to be paid off as it can be rolled over in perpetuity with central banks no matter how big it is. It’s like having a credit card with no maximum limit even if you’re broke. How very kind of central banks to arrange such a system! Consequently, governments should not be afraid of rising debt according to the theory."
Not quite. Congress created the Fed, ultimately it is under congress's control. What MMT actually says is that the national debt is entirely the wrong way to think about government spending for countries that 'borrow' in their own currency.
"2. Monetize the debt, i.e. devalue the currency to make the debt worth less in real terms"
Let’s explore what you mean by this. I'm sure you agree that the US government (including fed and treasury) has the ability to create USD, right? So hypothetically, if the government decided it was no longer going to issue new Treasury Bonds and instead would make all payments above and beyond tax receipts with brand new USD, that would be monetizing the debt, right? But then "devalue the currency to make the debt worth less in real terms” is a bit confused. If we just monetized the debt, it doesn't exist anymore so it's not worth anything in real terms. I'm just going to assume you meant that monetizing the debt would be inflationary, something along the lines "with all those new dollars, dollars will be worth less” aka the quantity theory of money.
Let’s talk about what might cause inflation. Since inflation is broadly when the price of common goods increases, I would say that inflation is when business increase prices. They may increase prices because their employees are demanding higher wages, or perhaps cost of raw materials goes up, the availability of raw materials goes down, or if they think they can get away with it without decreasing sales (certainly easier to do with a monopoly / oligopoly).
So, let's think this through with my hypothetical method to monetize the debt from above. So how is my hypothetical different than what happens now? Well rather than printing brand new USD the government needs to go, hat in hand, and beg the private sector for USD. If they would be so kind the government would promise to pay them back with interest, aka sell Treasury bonds, right? Sort of. We don't have to beg anyone, the fed auctions off treasury bonds to its Primary Dealers (a group of banks who are mandated by law to place a bid at these auctions). So basically, the only difference between my hypothetical and reality is that instead of creating new cash we create new treasury bonds, that we also have to pay interest on.
The reality is that cash and treasury bonds are treated practically the same by most institutions. So actually, monetizing the debt would just deprive the broader economy of the interest payments made on treasury bonds. I fail to see how this would be inflationary.
Which isn’t to say the government can spend as much as it wants consequence free. It can, however spend enough to employe all idle resources, especially the Human ones. And spending to increase the production of resources isn’t a bad idea either. That, is the main point of MMT.
Still don’t believe me? Here is an explanation using double entry book keeping.
I absolutely agree, which is why I think anyone reasonable in charge of China would simply wait until the Western economic system collapses. It's been kept on life support far longer than I imagined possible, but it's still a question of when and not if it goes. Ain't no money or chicks for free.
Wow super dope article 🔥🔥 I saw your post on Twitter and read this in its entirety.. scary stuff! How would you prepare ?
1. spend less;
2. borrow only on fixed terms;
3. don't expect what worked over the past 40 years (buy and hold) to work for thenext 40;
3a. for normies, the best risk-reward investment is probably being a landlord (credit rating arbitrage), but only if your areas has a decent economy and demographics. bonus if you can DIY home maintenance stuff
3b. precious metals, don'tbe surprised if we hit a deflationary crash (debt destruction) before the inflation kicks in. After Covid, I fully expect a good chance that owning bullion (in US and/or EU and/or CAN) might become illegal again in an extreme crisis.
3c. as for stocks: look to commodities: hydrocarbons, fertilizer, metal miners, timber owners. Also beneficiaries from a massive expansion of federal food aid: (walmart, pepsi)
Good summary
If the stuff really hits the fan, gold and crypto bros. will be surprised at how easy it is to stop all US bullion and crypto transactions via an emergency decree.
totally possible that precious metals can only be used by permitted industrial users and no normie will forget the face of a guy who walked through the door and wanted to pay fo XYZ with a gold coin.
Like you say below, diversify. And don't listen to any "gurus" pushing any one asset.
Great question, Mike. I think being mentally prepared is just as important as any other kind — building emotional resilience, for example, so you can handle any potential turmoil without entering breakdown mode. How specifically a person does that is up to them, but for me it's trying to keep ahead of trends so I'm not blindsided.
As for other preparations, I'm trying to make myself as flexible as possible. That means creating options. I'm not building a bunker or buying ten years worth of beans (though that doesn't sound too bad). Simple things like diversifying your financials and income streams while minimizing costs helps a lot. I'm in a fortunate situation where I can work from anywhere, so that creates lots of options too.
It's an open question what's the best way forward, but the key is simply going forward and doing *something* rather than nothing. Knowledge without action just leads to anxiety, and that's no good for anyone. There's that old metaphor about worrying being like a rocking chair — it gives you something to do, but doesn't get you anywhere.
What do you think? What would work for you?
if one has kids...
if they are smart and upper-tier white collars, no worries.
for the bottom 85%.....ChatGPT-like software and debt chaos (if/when it comes) will hammer white-collars like Volcker hammered the Rust Belt in the 70's-early 80's.
keep the following in mind:
1. have as little education debt as possible;
1a. be wary of an overly long-term military career, your Commander-in-Chief and DC might do something rash and send you on a fool's mission;
2. the "growth" industry will still be health care;
3. lots of trades and professions will not be touched by AI for decades (plumbers, public safety, linesmen, bureaucrats, etc.);
like the comment above, be mentally flexible, stay optimistic, but don't be a chump who sits on their hands....cuz the cavalry isn't going to ride over the hill to rescue you if times ever get really tough.
Great article.
Thank you for explaining the difference between suspense and surprise with examples. It was very clear!
"Prepare yourself accordingly"
Everyone I know who is aware of this has no idea how to prepare themselves accordingly.
Buy gold? Historically, they come and confiscate it
Silver?
Govt bonds - what about those national defaults?
Property is real but would bare land be a better option?
Helppppppppppp :)
All valid concerns. If you're in the US, the three B's of beans, bullets, and bourbon are a good start. Listen to anyone from the former Yugoslavia and they'll say liquor was one of the most valuable commodities to trade. Batteries could be added to the B list too. We can make it five and add silver and gold Bullion. But really, being in charge of at least a few percent of your own calories is an excellent start. Chickens, tomatoes, veggies, whatever.
I hope you take this comment in the good-natured manor that it was intended. I’d be happy to continue it as a debate if you are open to it.
"Every single interest rate hike has led to a recession,” Yes, that is quite literally what they are intending to do. Well, technically, they are trying to make it harder for businesses to borrow money, so they won't be able to expand, and won't be able to hire more workers so that unemployment increases and those pesky workers will think twice about asking for a raise. For some reason that just happens to crash the darn economy.
You know what else always creates a recession? The government running a surplus.
"Modern Monetary Theory. It suggests that government debt in its own fiat currency never needs to be paid off as it can be rolled over in perpetuity with central banks no matter how big it is. It’s like having a credit card with no maximum limit even if you’re broke. How very kind of central banks to arrange such a system! Consequently, governments should not be afraid of rising debt according to the theory."
Not quite. Congress created the Fed, ultimately it is under congress's control. What MMT actually says is that the national debt is entirely the wrong way to think about government spending for countries that 'borrow' in their own currency.
"2. Monetize the debt, i.e. devalue the currency to make the debt worth less in real terms"
Let’s explore what you mean by this. I'm sure you agree that the US government (including fed and treasury) has the ability to create USD, right? So hypothetically, if the government decided it was no longer going to issue new Treasury Bonds and instead would make all payments above and beyond tax receipts with brand new USD, that would be monetizing the debt, right? But then "devalue the currency to make the debt worth less in real terms” is a bit confused. If we just monetized the debt, it doesn't exist anymore so it's not worth anything in real terms. I'm just going to assume you meant that monetizing the debt would be inflationary, something along the lines "with all those new dollars, dollars will be worth less” aka the quantity theory of money.
Let’s talk about what might cause inflation. Since inflation is broadly when the price of common goods increases, I would say that inflation is when business increase prices. They may increase prices because their employees are demanding higher wages, or perhaps cost of raw materials goes up, the availability of raw materials goes down, or if they think they can get away with it without decreasing sales (certainly easier to do with a monopoly / oligopoly).
So, let's think this through with my hypothetical method to monetize the debt from above. So how is my hypothetical different than what happens now? Well rather than printing brand new USD the government needs to go, hat in hand, and beg the private sector for USD. If they would be so kind the government would promise to pay them back with interest, aka sell Treasury bonds, right? Sort of. We don't have to beg anyone, the fed auctions off treasury bonds to its Primary Dealers (a group of banks who are mandated by law to place a bid at these auctions). So basically, the only difference between my hypothetical and reality is that instead of creating new cash we create new treasury bonds, that we also have to pay interest on.
The reality is that cash and treasury bonds are treated practically the same by most institutions. So actually, monetizing the debt would just deprive the broader economy of the interest payments made on treasury bonds. I fail to see how this would be inflationary.
Which isn’t to say the government can spend as much as it wants consequence free. It can, however spend enough to employe all idle resources, especially the Human ones. And spending to increase the production of resources isn’t a bad idea either. That, is the main point of MMT.
Still don’t believe me? Here is an explanation using double entry book keeping.
https://www.profstevekeen.com/2020/09/06/one-mathematical-model-of-modern-monetary-operations/
"Ask Sri Lanka or Ghana what it feels like when you can’t service your debt anymore."
Because their debt is denominated in USD.
I absolutely agree, which is why I think anyone reasonable in charge of China would simply wait until the Western economic system collapses. It's been kept on life support far longer than I imagined possible, but it's still a question of when and not if it goes. Ain't no money or chicks for free.