Thursday, December 17, 2009

Post SHTF currency

There’s a lot of guessing and theorizing about the “post SHTF” currency.
Fascinating as it may be, I believe its important to be rational, and set the record straight mostly to avoid people making wrong decisions and simply wasting money.

Other currencies: The most common thing to happen when a currency falls and looses value is to people to simply start using other well recognized ones. Mostly Euros and USD.
Many years ago I told readers that having a few Euros was a good idea so as to have eggs on both sides of the scale, since it was easy to see that if the Dollar lost value, the Euro would increase its own since they are both usually held against each other.
Those that listen back then today have 50% more purchasing power in those Euros .
Something similar but of course much worse happened here in Argentina after 2001. Everything that was ½ way expensive was measured in US dollars, not pesos. For that reason prices changed within hours and they still do, even though a bit less dramatically.
Most medium and big stores, even in fairs and markets, people will accept dollars and I’ve even see them accept Euros.
So lets suppose the dollar collapses ( no, don’t think it will) the Euro may become accepted more readily in USA. Yes I know most Americans don’t even know what an Euro looks like and the culture just doesn’t revolve around it. Guess what? You adapt when you don’t have a choice. You adapt or you fade away. Again, don’t think the dollar is about to collapse or anything, but it is losing against the Euro.
In no time a black market for whatever currency is getting accepted erupts with such force its impossible to control. Again, that happened here with the dollar. Officially there was a limit to how many dollars a person could buy, but on the streets the story was different and you could buy or sell thousands.
So, in most cases, when a currency falls, it gets unofficially replaced by another, stronger once. At least as a measure of things.

Precious Metals: They have historically kept their purchasing power through time which makes them a great way to protect your savings. Even if the price varies, it mostly goes along with inflation, to the true purchasing power mostly stays the same. There is a small variation like the one we are seeing now, where gold for example seems very expensive. Two reasons for that: 1) Inflation, official or unofficial, its there so precious metals seem more expensive 2) There’s a crisis going on, this offsets the price a bit since precious metals have historically been a shelter during crisis, this increases demand.

“What if there’s no demand for gold? Then its worth nothing at all!! JAJAJA!” Typical reality denier. The problem with that logic is pretty simple: That has never happened before in over 10.000 years of human history!
Goods & Services: Its true that seashells, coco beans and other products have been used as currency one time or another. Still, nothing ever came close to the worldwide and millenary acceptance of gold and silver.

Tools and other supplies: They have been traded a lot, but don’t fool yourself, they have been trade goods, not currency. Currency is a different deal. Don’t fool yourself into buying excessive amounts of tools hoping for a significant profit after an economic collapse. Just wont happen.
Salt for example has been used as currency, for long periods of time in some places of the world. It’s a good product and pretty resistant yet it can get ruined or contaminated in ways that it loses its attractiveness. Also, salt is pretty plentiful. Buy lots of it because its dirt cheap, has many uses and it’s an essential good, doesn’t go bad as long as its dry and you eventually use it. But I’d certainly wouldn’t buy it hoping it will be used as currency.

A survivalist classic but only on fiction.
The nice thing about ammo is that its actually useful, the bad thing about ammo is that its sensitive to humidity and only a nutcase would load a gun that may be used to save his life with ammo of uncertain origin and storage.
I can keep coins or even paper money in my pocket in a hot summer day, sweat all over it, its still money. If I have a handful of 9mm shells there, then buy something, goes to another sweaty pocket, then someone forgets it in the washing machine lie we often do with coins, get wet for whatever reason… I can simply clean it up and leave it all shiny, but that ammo will either ruin someone’s shot while hunting or worse, get someone killed.
Ammo is sensitive and must be kept stored properly.
I’ve shot 7,65 Argentino ammo from the 50’s in my Mauser. Some fired, some didn’t, you just never know until you pull the trigger.
Ammo going from one hand to another will become dangerously unreliable in a matter of weeks.
Its true that ammo has increased in price and that if you had cases of it, you can sell it for profit. Cases of ammo. Stored well. Ammo is not currency and will never be because it lacks the basic property actual currency needs.
Buy enough ammo for your needs, then buy some more for a rainy day, even buy extra for your grandkids if a government somehow restricts ammunition sales. Heck, buy ammo to fight a civil war if you think it will come to that. Do not buy ammo believing it will ever be currency. Better stick to precious metals in whatever for you like best.



EN said...

Great, and more to the point, usable, advice.

Anonymous said...

I hope you're right about silver. I have bought some silver. The dollar is going to cause pain all over the world. It would almost have to transition to the Amero quickly. Local dealers are few. Only 2 coin dealers within a 50 mile radius and 1 of those 2 is a ripoff. Buying Euros here is almost impossible and selling them is impossible. We are so dollar-centric, other forms of payment haven't entered the conciousness of people. We're headed into a life changing events for every person in the USSA. I can't even think about it. It's too depressing. Americans drive and eat. Take that away and the cries of anguish will be unbearable.

Ryan said...

Great post, One quick comment is that gold and particularly silver are very volatile in terms of value (vs the dollar, euro, etc). I know all the stuff about inflation and all that but saying the price of gold or silver can change 25-30% a month. Not saying you shouldn't own some but just that they fluctuate wildly. Their virtue is that they can not be inflated and will never go to zero, not that your money will necessarily retain its value. For example someone who bought gold at its high around 1980 would have just recently been able to sell for a profit, before you figure in inflation.

I buy both gold and silver. Everybody should buy silver and most folks should have at least a bit of small gold. They should however look at it as insurance, not a 'safe place' for their money.

EN said...

Precious metals can only be measured against bread or some other stable commodity. If the price of a loaf of bread always equals X amount of silver by weight then the fiat money fluctuations don't make much difference.

Anonymous said...

FnFAL - I'd appreciate your ranking of "tangible assets" after one has what they think they need in gold and silver. A modest rental property in the right city - will always generate positive cash flow (without a mortgage) as long as someone is working and someone is paying rent. What would be next? What kind of smaller tangible assets as alternatives to "financial" assets like stocks, bonds and CD's?

Anonymous said...

I purchased US Silver eagles because: 1) they are readily identifiable, 2) they say .999 pure silver on their reverse 3) they are really hard to counterfeit (impeccable design), 3) Americans are familiar with the coin design (walking liberty design of half dollars in mid 1900s), 4) if the SHTF I believe they will be first used and accepted even over "junk" silver, 5) modest premium over silver bullion price and 6) they still retain some coin collector value as they are uncirculated condition.

Your thoughts?

Patrick said...

The most important point is that it is possible to extent a currency simply based on credit as long as a suitably diverse network of business people agree to participate. WIR Bank in Switzerland is a successful example, not to successful examples abound in the 2001 crisis. Money is just an informatic means of exchange, it doesn't have to a physically scarce item.

Don Williams said...

This is off topic --no need to post in this thread.

Thought I would give you a heads up regarding NY Times report about new medical findings re mental problems that can crop up in mid-old age due to repetitive concussions experienced while young from sports like boxing. Something to watch in sparring.
Looks like damage can occur but not be evident until a decade or so later.

See http://www.nytimes.com/2009/12/18/sports/hockey/18concussion.html?_r=1&hp

pompompom said...

Among others, a good tangible asset quality is it's mobility. Real estate is all but mobile, you can't move out with it. You can't hide it either, nor deny it's yours. Especially against government or big _legal_ predators. If the government decides to overtax your house, you are screwed. If your bank pushes you into foreclosure, ditto. And this risk is as high as violent home-jacking... if not higher!

Small assets = solar PV panels. Will be in high demand immediately after the next energy blackout. Bulky to store though but a smart oppportunist flash business.

FerFAL said...

No problem Don, I always appreacite good inof like the one you post. Very interesting and we'll be covering in a future post.
Thanks man


CapnRick said...

Thanks, FerFal... Posts like this is why we read your stuff. Over 95% of us have never actually been in a lights out situation, and therefore don't have the proper mindset that comes from actually living through one.

Keep up the good work, man and Merry Christmas to you and yours.

Suerte -CapnRick

dc.sunsets said...

1980: gold $847/oz
2001: gold $251/oz
2009: gold $1200/oz

Bottom line: 21 years of inflation and gold went DOWN in purchasing power 7-fold. Then it went up in purchasing power about 4-fold from 2001-2008 (calculator didn't have 2009 figures). Today, an oz of gold buys less than at the peak in 1980, and the period 1980 to 2009 was one of continuous inflation. Gold is NOT a reliable inflation hedge. When it's cheap it may go up and when it's getting lots of attention it may go down. Facile statements about gold holding its value are simply not supported by easily-accessed data. If you want gold coins, by all means buy them, but with the buzz around gold looking suspiciously like the buzz around oil at $147/bbl, it might be a good idea to look before you leap.

Anonymous said...

In this 'neck of the woods', ammunition and reloading supplies are already highly desirable and can used in barter, albeit, in limited circumstances. In a total collapse, it could be the next best thing to currency, yet a total collapse is very unlikely. Stored properly, it lasts for decades. Send me to a yard sale today, and I could trade cartridges for some other item. Hunters would gladly trade part of their catch for a box of the good stuff, and the SH has not even HTF. What happens when the ability to obtain cash though employment or otherwise really becomes difficult.

The usefulness of ammunition could very well vary from region to region. In these parts, *usefulness* will mean as much as a Fist Full of Dollars.


Anonymous said...

Re David's numbers on Gold -

No you can't pick a prior peak followed by a decline and the current rise, then draw inaccurate conclusions. Doesn't work that way unless you start by saying "Suppose you had bought gold in 1980 at the peak"...

Well, Duhhhhh!!!!!

Let's be realistic - if you want to talk about values in metals, consider something like the medium and long term results of buying one coin each month for 20 years.

Lastly, (DISCLAIMER - I'm no gold bug) there is no reason to presume that metals are at a peak at this time. None of the typical symptoms of a bubble are in place, and that gathering storm on the horizon of economics is headed this way.