How Bad is “Bad?”


Last week’s front page was light and whimsical; this week we’re back to the grind about this economy. Okay, okay; we accept that we’re in for a long, deep recession. We acknowledge that greed and our penchant for instant self-gratification on every level, from consumers to the banking system, to the government, got us here. We’re cutting back and repenting of our credit sins just as fast as we can cut up our cards . . .

…so, it’s going to turn around soon, right? Surely we’ve seen the bottom? After all, the lessons of the Great Depression weren’t lost on us; policies and practices got put into place to avoid real suffering, right?

Well no. Consider the following:


  • Home foreclosures have artificially slowed down because of government intervention, but homeowners in trouble still aren’t making payments, and already half of the renegotiated loans are in default.

  • Our national debt, at over $10 trillion, is approaching 350% of Gross Domestic Product. GDP is the total monetary value of goods and services produced by the country in a year. That works out to almost $35K for every man, woman and child, not counting the interest.

  • Our country’s major creditors, like China, are getting nervous about lending us any more money.

  • Remember the Baby Boomers, born from 1946 to 1964? They’ve been putting money into the Social Security system, but the government’s been borrowing all of that, too. This year, the first lot of them entered retirement age. And there aren’t enough younger workers to keep this Ponzi scheme going.

  • No slouches in the debt department ourselves, our consumer liability now exceeds $2.5 trillion, which averages out to $9K per household.

In other words, we’re entering into this crisis already beyond broke, and the rest of the world is no longer in the mood to keep funding our excesses.

What can the government do?

  • Confiscate wealth from its citizens. You probably think that unlikely, but it’s already happened. In 1933, FDR declared private holdings of most gold illegal, so he exchanged their metal for the “equivalent” of paper money. As soon as the gold was in government hands, the price, which had been held artificially low, soared to its proper dollar level, effectively taking money out of the pockets of former gold owners.

  • Impose higher taxes and “fees” which are really taxes. This’ll get really creative, no doubt, so consider the entertainment value as you fork over more of your paycheck.

  • Print money. With the touch of a computer button, the Fed can “magically” create billions. Now that the dollar, like many other currencies in the world, is a fiat currency, its only value is in the minds of its holders. It’s paper backed by nothing. With an increase in the money supply, look for inflation. This is a good article on the history of fiat currencies.

Simpleton Solutions is all about doing something, not nothing, so the purpose of telling the facts is not to bum you out. It’s to warn, so that you can make some moves now, which will help in the days to come:

  • Get out of variable interest rate debt! The debt will rise in keeping with inflation, but your paycheck will not.

  • After getting out from under your credit cards, put money into solid things that retain value. Some ideas:

    • Stockpile non-perishable food.

    • Precious metals do historically retain their value in uncertain times, though there’s no guarantee the government won’t take gold back again.

    • I’m loathe to admit this, but weapons for protection aren’t a bad idea. Hopefully, civil society will continue even in the face of hardship, but we just saw Walmart shoppers crush a guy because he stood between them and a sale.

    • Grow a vegetable garden.

    • Learn useful skills and get the tools to go with them, like mechanics, medical knowledge, carpentry, tool sharpening, etc.

    • Buying land would be a logical choice, but I’m leery of the property taxes.


I hate to sound so alarmist, but wouldn’t you rather be over-prepared than otherwise?