Why Do I Prepare?
I’ve had a lot of people ask me what exactly I’m preparing for. Hurricanes, earthquakes, pandemics, war? What am I so afraid of? There are many types of survivalists, but personally I am expecting an economic depression far worse than the Great Depression, a disaster that will literally be talked about for centuries. This is what motivated me to start prepping.
Why do I expect such a horrible depression to happen? First, you should know that I subscribe to the Austrian School of Economics, the only economic theory which has accurately predicted every economic downturn since before the Great Depression. It maintains that government intervention, taxation and deficits harm economies while free markets and minimal government lead to prosperity. If you understand Austrian economics and take at look at what’s happening in our country, it’s not hard to predict what’s going to happen. I’m no expert, but I’m going to lay out the basics as well as I can so that you will understand what’s coming.
The Federal Reserve (essentially the central bank of the United States) is the cause of all the booms and busts since 1913. In a truly capitalist country, the market would decide where to set interest rates (the rate at which banks borrow money). But the Fed insists on controlling interest rates. And when the Fed keeps them too low, the banks are able to borrow more money than they normally would. All this extra money gets spent and causes an unnatural boom and a misallocation of resources. This has happened many times before. Here is the story of three bubbles.
Part 1: There was a boom in the late 1990′s (mostly in tech stocks) because of the easy money made available by artificially low interest rates. When people realized how overvalued those stocks were, it led to a bust in 2000, and a major recession would have cured the problem and put the economy back on stable footing. Contrary to popular belief, recessions are the cure because they cause people to stop wasting their money and start saving again. The recession would have been very short. But George W. Bush didn’t want to inherit a recession, so he and the chairman of the Federal Reserve, Alan Greenspan, decided the Fed should lower interest rates even more. This delayed the major recession we needed, made the problem much worse, and led to…
Part 2: A boom in housing in the mid 2000′s. When people started defaulting on their mortgages and banks realized how overvalued houses were, it led to a bust in 2008, and a short depression would have fixed the problem (read about the Depression of 1920. The government did nothing and the economy recovered in 1 year). A short depression would have hurt a lot more than what we’re currently experiencing, but at least things would be back to normal by now. But Obama didn’t want to inherit a depression, so he and the new chairman of the Federal Reserve, Ben Bernanke, decided the Fed should lower interest rates to virtually zero. This delayed the depression, made the problem much much worse, and led to…
Part 3: A boom in government debt right now. This is because people believe US Treasuries are a safe haven. But when the inflation reaches severe levels and people realize how overvalued the dollar is, it will lead to a bust in 201?. At that point we will need to go through another Great Depression before the economy can recover. And this time, it will be so bad the Federal Reserve won’t be able to do anything about it because interest rates can’t get any lower.
What I’m trying to convey is how much worse things have to get before they can get better. To the same degree that 2008 was worse than 2000, so will the next bust will be worse than 2008. People say we’re in a recession now, but these are going to be considered the good ole days because right now the Fed is delaying the consequences of the problem.
The next Great Depression will not look the same as the last one because it will be an inflationary depression. When other countries (particularly China) and U.S. citizens lose confidence in the dollar, it will crash. Now I don’t know if we’ll have inflation like in Weimar Germany (although that will happen if the Fed keeps rates at 0 forever), but it will easily be a lot higher than in the 1970’s, so much so that they will probably impose price controls. Of course price controls don’t really solve the problem but instead create shortages, which means there might not be enough food to go around. Just how bad this depression will be is hard to say, but I’d argue that it will be much worse than the Great Depression and here’s why:
In 1929, the economy was starting from a much more stable place. 1) The country had lots of domestic savings, but today we are in massive debt. 2) We had lots of factories and the ability to produce things of value which gave us a trade surplus. Today we have the biggest trade deficit in history. 3) The government wasn’t such a huge drag on the economy. In fact, back then the government’s size in relation to the economy was quite small compared to what it is now. 4) Taxes weren’t nearly as high in 1929 as they are now. 5) Not nearly as many people were dependent on entitlements as now. Remember, at the beginning of the Great Depression, social security didn’t even exist. Now baby boomers who will be dependent on it are beginning to retire. Not to mention 40 million people on food stamps and the tens of millions on unemployment. 6) Many people knew how to grow their own food, mend old clothes, fix broken appliances, etc. Today, people are helpless when it comes to these sorts of things. The country actually had a solid foundation in 1929, and yet the economic problem we’re facing now is worse than the one they were facing back then.
Now I’m tempted to speculate about food riots, rampant crime, the loss of our freedoms, and how governments use major wars to distract people from the real problem. However, I can’t yet prove those things will actually happen. But everything else I’ve laid out here about the economy is fact. That’s why I prepare.