It’s Still Analog

The comments on the last post, already one of the all-time most viewed, have been intriguing.

It seems most people who commented have a binary view of the future.

While I was talking about a financial panic and forced de-levering, a lot of my readers jumped right into TEOTWAWKI (Apocalypse Right Now).  See my post on Pet Peeves to see why there won’t be plentiful 55-gallon drums with nice pieces of wood planking burning in them.

Read on to see why I only have a few percentage points of my investment money in gold, and that’s in stock in development-stage companies that will have big leverage to the price of gold once in production.  For comparison purposes, I have more than three times that much in development pharma companies that are in human testing stages.  (Have you thought about pharamceuticals as a potential store of portable wealth for the post-collapse?)

I think the biggest surprise to those who see the problems coming for our economy or our society (we’ll debate later the difference between them) is how long it takes to get here.

Reminds me of the Millerites, who believed even more fervently in their vision of the end of the earth after the chosen date came and passed.

If you want to see things as suddenly changing from one state to another, all you have to do is chart our progress on a planetary history chart.  Then we’ll be that little “blip” at the far right end of the graph.

To make a more relevant point, consider the “Doomsday Clock” that concerned scientists have been updating every year to express their opinion of how close we are to nuclear holocaust.  The answer is always that it’s eight minutes, or five, or two, before the horrors of midnight.

The reality is, except for a week or so in the beginning of Kennedy’s time in office, we never really get that close, because people take time to make decisions, or at least they take time to consider whether to follow through on life-ending decisions other people try to make for them.

There is one exception that’s actually the most important part of military basic training — the de-programming of our natural instinct to hesitate before taking irreversible actions like killing.

The new recruits get broken down psychologically to the point where they will follow orders from their immediate superiors without hesitation.  Naturally you can’t completely de-humanize most soldiers, and several developed country armed forces actually tell junior officers that part of their duty is to consider the “legality” of orders that might go past the boundaries of the Geneva Convention on War or other ethical standards.

But, since I was really talking about markets, and because we recently saw the machines run amok in the Flash Crash last May, let’s think about whether gold and ammo are really as important as some would say they are.  Bear in mind that they don’t pay interest, they cost money to store, and you can’t eat or drink them.   On that basis, your gold is just like your stocks — only if someone will give you money to buy food, or food directly is your gold anything other than pretty, heavy, lump of metal.

So we have a peculiar built-in assumption in all this — that things will get so bad that easily transported and widely distributed paper money will be worthless, yet people will still trade goods that give sustenance or survival in exchange for something (a lump of metal) that can’t.  In other words, they expect people to give up most of civilization, but not that part that attributes value by common agreement to something that has no inherent value.

In the 1990’s, I used to say the floor for gold was determined by its nice conductivity properties, so paladium or silver would help determine its value.  I still feel that way.

Frankly, if I had my choice about a basis for “wealth” I would take certificates we all agree are exchangeable for energy units, be they BTU’s, therms, MWatt hours or gallons of ethanol.  There have been intermarket swaps and exchanges for these various forms of energy for decades now.  There is a well-established market that allows you to trade your heavy sour crude at an appropriate discount for light sweet, and so on.

The part I like about it is the fact that biofuels exist (simplest being firewood) and sunlight and wind energy and can be collected and used on micro level.

In various forms, energy allows you to survive a freezing night, make fertilizer, move yourself and your family in a car, turn ground wheat into bread, or otherwise do things that add value to your life.  In the whole economy we have barrels of crude becoming very useful plastics, for example.  If all the currencies, and the precious metals, and ag commodities, etc. were re-calibrated as to value in terms of energy units, we’d have a currency system the pretty closely matches the size of our economy.  It could also grow over time as we develop new and more efficient sources and uses for energy.

No matter, though.  I think that anyone expecting a binary future will be disappointed.  History is only binary when you look back with perspective.  You can say “before or after Lehman Brothers,” but at the time we also had Freddie and Fannie taken over, and the misuse of taxpayer funds to prop up AIG and pay off their CDS counterparties with way too much money.  Lehman failed and AIG didn’t because Lehman came the day before AIG, and there simply weren’t enough people around to sort out the mess if AIG’s web of existing trades and commitments had been added to the pile of stuff to figure out.

At least that’s how I see it.

So, when we are faced with the next big financial crisis, the crisis itself and especially the reactions to it, may come rapidly, but they won’t come without transition.  It will be analog, not binary.  The results will be from among a near-infinite range of possible results, not an immediate shift to a Hollywood vision of life after the collapse.

And we won’t be standing around multiple barrels with planed boards burning in them.  I doubt also that we’ll all be living in fortress cabins in the woods shooting all comers.  More likely we’ll be trying to add to our capacity to grow our own food and using dollar bills, not gold coins, to transact.



3 Responses to It’s Still Analog

  1. cyn says:

    I am definitely with you on the capacity to grow one’s own food and I really think you should revisit the idea of the flower farm near Hana, add a few vegetables, fruit trees and you can trade with the fisherman. I’ll go manage it.

    I found a rose farm in Ecuador but the pesticide use turned me off. Us civilized folk only want roses to look one way, the way that hazardous to one’s health pesticides can provide them. I asked if there were less hazardous pesticides that could be used and if the roses could be grow organically, well, yes of course, more expensive and the roses would look less uniform, in other words not aesthetically pleasing to the civilized consumer.

    The civilized world’s tastes need altering.

    The reason I search for property near extinct volcanoes in tropical climes is that seeds can almost be tossed onto the ground and they will flourish. I grew up in Manhattan so what do I know about farming? Nada. I did have a salad garden when I went to U of H, it prospered and did well in spite of myself. Used to trade with a woman who lived in the mountains and gathered wild fruits the likes of which I had never seen. She wanted salad stuff or the yogurt I made or even once or twice toilet paper and sweet hawaiian bread from the market. Great trades.

    When I was up around 8000 ft in the Andes , avocados, grew next to roses that grew next to camomile that grew next to potatoes, tomatoes, limes, blackberries and fruits and vegetables I have no names for. All organic. Few pests seem to survive when everything planted is so healthy.

    Problem for me is noise. 3rd world countries are noisy. Parties go on all night, everything is celebrated, radios at full blast, dogs barking and everything echoes throughout the countryside that otherwise during the day appeared so idyllic.

    Maybe i just needed the adobe of the house to be thicker. I would have given up the gold for silence many a night.

    So maybe I need to go back to plan A. Hawaii.

    Thanks for all the thoughtful posts, as I am a hermit I don’t have access to interesting social discourse. Your use of analog and binary in the way that you used them above was novel to me. I liked it. Consider it now viral.

    • hhill51 says:

      I’m going to try to put a photo of the heirloom rose called Tausenshon I planted outside my kitchen window. It doesn’t need sprays. When it went into the ground, it looked like a 12 inch long bare twig.

      I’ve never tried adding a photo to a comment. Might work and might not. You can send your e-mail on the blowback page if it doesn’t work, and I’ll send along the photo. Here’s a link to that kind of rose at an heirloom rose garden in California.

  2. Bob Hallam says:

    I might be one of those people who you perceive as being “digital”. I agree with you that the collapse of the USD is analog, but the graph is exponential rather than linear. All of the critical “action” will happen over a relatively short span of time imo. I think that Chris Martensen’s “Chapter 4” of “Crash Course” illustrates what I am expecting.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s

%d bloggers like this: