Thursday, April 29, 2010

Iceland-Volcanic Eruption-SHTF out of Nowhere‏

Hello Ferfal,

Judging by what's going today on between the earthquakes in China, Haiti, Tsunami and the volcano in Iceland. The mother of all SHTF scenerios could be caused by a natural disaster. This scenerio puts rich western countries economic resources on the brink of collapse and economic confidence is lost. As we already know it's unhealthy to sit around waiting for doomsday. My concern is a natural disaster that is enough to dislodge any economic recovery world wide and maybe enough to slide us into a panic or depression. We often talk in the context of currency devaluation or stock market decline but this threat has always existed.

I'm not talking about an extectintion level event neither (like a asteroid) of course we would not have anything to worry about because we will all be dead. How about a scenerio where the natural disaster has a low\mid\high casualty rate but the economic damage is enough to derail any recovery and\or put us in a position of a depression where the powers to be can no longer lie to us. Where life goes on like in Argentina but on a global scale.

Case in point. They are already comparing ecomonic damage done to the airline industry by the volcano to the 9/11 event. Not to mention when Eyjafjallajökull there is usually a follow-up eruption from a nearby volcano I'm sure we are in the early stages of calculating the economic damage. Britain is sending ships to pick up UK citizens.

In any of these scenerios the person not has not worked in 2 to 3 years or is currently on unemployment does not realize an event like this could make them descend into the economic abyss.

What is your take?



You’re talking about a generalized situation , 1st world countries falling to 3rd world status, mostly because they can’t recover after the natural disaster.
I think it’s a good supposition, a realistic one, of what would happen during such a worst case scenario.

When people talk about these things, I always fall back to Bolivia. If Bolivia still has electricity and running water (at least in some parts) then guys, we’re never going back to the 18th century. Bolivia is as bad as it could get.
Now that’s no picnic none the less. It would be a disaster for prosperous nations to fall to such a degree.

I think that what we preach here often still applies: 1) Be ready to face problems/disasters. 2) Know that in worst case scenarios, moving away form the State/Province in question or leaving the country or continent entirely is the best solution.

This applies to the situations you mention, and it would work for people in Chile after the quake.
In the case of Chile, you have your supplies to make it, water, food, and a gun for self defense, flashlights because of lack of power, a netbook/notebook to keep in touch if you find internet signal, and you get by during the first stages after the incident. Then when you organize things, you leave the are or better yet, the country for some time, hopefully relocate.



Anonymous said...

I guess I missed something, why is Bolivia a fall back example?

I saw a headline stating that after viewing the satilite photos the fallout ash wasn't a threat afterall and it was all for nothing, a waste.
If it's this bad on a false alarm, it seems obvious people will be on their own if things were to have really gotten bad.
As it was, it seems like it was similar to a power outage.

David said...

Ditto the notion that the best, safest solution to Big Trouble is to have the financial wherewithal to move someplace else.

As to natural disasters CAUSING economic meltdowns, this is NOT true. It sounds plausible and nearly all people cling to the "outside events" causality model of stock and economic movements, but it's simply not found in graphs of economic or financial history.

If you peruse the stock charts of any country with a stock market you'll find that you can't pick out a single natural disaster. Not an earthquake, not a tsunami, not a cyclone, nor for that matter can you pick out an assassination of a president. Even the events of 9/11/01 (seriously, look at a chart of the S&P 500 back to 1993 and cover up the dates--you can't find 9/11 on it and I'm looking right at it right now).

Economic and financial catastrophes are products of mass psychology. Mass psychology when optimistic fuels the booms which inevitably lead to busts when mass psychology rolls over from optimism to pessimism.

Anonymous said...

That bit about natural disasters not causing an economic meltdown, that's very interesting and I had not seen that take before, thanks for posting it.

A good rule of thumb might be:

What might move markets is a volcano which produces the devastation equivalent to WWII, anything less is a just blip.

But I'm not so sure about, "Economic and financial catastrophes are products of mass psychology. " unless of course a person were to consider The Fed Chairman's ability to flood the world with fiat dollars a product of mass psychology.

If The Fed flooded the world with fiat dollars and no one saw value in the paper and just ignored it The Fed chairman would have no power to do anything really. That's a product of mass psychology too I think perhaps.

Oh crap, here comes a tidal wave of mass psychology, run everyone!

David said...

Re: "holy crap,"
Interestingly enough WW II began during a second downwave in the stock market/economy and hit its most intense time near the low. War, like peace, is a product of social mood (mass psychology). Wars occur at or near a very specific point in the pattern of the stock market and coincide with lows. This is why people erroneously believe that war is good for stocks. Stocks bottom (as a measure of social mood), wars occur, and then the rest of the war tends to play out in the initial stages of the stock market rally (which would have occurred with or without the war).

Your comment about the Fed is actually true. Central banks are instituted when a society is getting so optimistic that they want to amplify the availability of credit to fuel their spending and speculation. This literally plants the seeds of later misery. By the time we reach nadir on this HUGE financial decline it has already been predicted (by Bob Prechter, the foremost analyst in this arena) that the Fed will probably be seized by Congress or shut down. People will rue the day they heard the words, "no money down, no payments for 12 months."

Loquisimo said...

IF, big IF, a volcano erupted that was enough to cool the earth by several degrees, the resulting drop off in food production would cause millions to starve in Africa and other places where they depend on cheap food aid, and likely cause spiraling food inflation in the first world, and with millions being in a precarious position as it is, we COULD see starvation in North America and Europe. Of course, this is all supposition, this volcano is just a little blip, albeit one that pointed up how fragile big systems can become.

We depend FAR too much on airplanes. When the air system in the US was shut down after 9-11, millions were stranded. There is really no passenger train service to speak of in the US, or intercity bus service. We are totally dependent on planes as mass movers. This is why putting all your eggs in one basket is dangerous. It doesn't have to be a volcano either-if Al Qaeda started using SAM missiles to shoot down planes in the US, chaos would ensue.