Friday, February 13, 2009

What Does a Likely Collapse Scenarios Look Like?

The most likely short term collapse scenario that I can envision is similar to what was described in Lessons From Argentina's Economic Collapse (PDF). That would be a financial implosion so drastic that it basically either collapses central government or leaves central government so ineffective that it might as well not exist, at least in terms of providing services. The least likely short term collapse scenario that I can envision is global thermonuclear war. But saying it is the least likely doesn't mean you should ignore it. It simply means that an extraordinary number of conditions would have to line up in the short term for that to occur.

So let's talk about that financial implosion, which may be what is rolling around us right now. What would it look like? It would look like a long term deflationary or inflationary spiral, where wealth is sucked out of the middle class, and where financial ruin causes basic services to slowly fail. Infrastructure failures would not be immediate but would become progressively worse over time. Regions closest to the seats of power would most likely be the last to experience degradation of services, simply due to those in power opting to preserve those services closest to themselves. Regions furthest would experience degradation and eventual loss of services sooner.

Along the way you would see a collapse of the current economy. Part of that collapse would entail bankruptcies and foreclosures for many people, basically creating an entire new class of refugees inside the United States. What people are unwilling to face is that real unemployment levels in the United States could go beyond 20%. The real levels (recorded in Table A-12, column U-6 of the monthly employment report from the BLS) are already well into the teens. As of December 2008 the official number through the end of November was 7.2% but the real number (before "adjustments") was 13.5%. When the January numbers are announced, it will likely be even worse with no end in sight. So what you can count on in an economic collapse would be increasing numbers of the homeless. Update: The January numbers which now stand at 7.6% "adjusted" and 13.9% unadjusted.

However, one thing we can guess about the majority of homeless, is that they will congregate in shantytowns near urban areas. That's a historical trend that you can see over the last 100 years very clearly. Take a look at the shantytown photos of Central Park during the Great Depression or of other cities around the United States. Or examine shanty towns in third world nations. There is tremendous drive to be in or near cities since cities offer the highest probabilities of support services for the unemployed and homeless.

Another thing we can guess about a serious financial collapse scenario, based upon looking at recent financial collapses in other nations around the world, is at least a partial reversion to barter as a means of exchange. In a barter economy, money may hold less value than actual goods or services. This will be particularly true once serious inflation or hyperinflation kicks in but during a deflationary period, such as the current one, holding cash and dealing in cash (not credit) may be the best option. Another thing you will see arise is more black market activity, in order to escape heavy taxation. Barter, although it is supposed to be reported for taxation purposes, appears to rarely actually be reported. And cash transactions are also rarely reported, precisely because they are in cash and cannot easily be traced.

Also, because of the disruption of trade, you would likely find the availability of various goods and services to vary widely throughout the year. Facing high prices is one thing but facing a total inability to get certain goods when you need them could be life threatening.

A final key element you are likely to see in a financial collapse is a general increase in violence. This will come in three primary forms - increased random local violence, increased robbery and theft, and the possibility of very organized violence. An example of the latter is the level of organized violence taking place in Mexico's northern states due to its ongoing drug war. More Mexican police and soldiers have died in that war against criminal gangs than the US has lost in Iraq. Note that as of the date of my writing this article, the US has lost 4343 lives in Iraq, while Mexico lost 5612 lives in 2008 alone to its current drug war. Approximately 1 in 19000 Mexican citizens will die to the current drug war there, but since the drug war is mostly confined to the northern border states, the actual danger to citizens of the northern states is far higher than that national number implies.

This same sort of problem is likely to occur in the United States. Certain regions could become hotbeds of violence, either through the actions of organized crime or the actions of disgruntled citizens who choose to act against an unsupportive state.

Thus, my view of a "most likely" short term collapse scenario entails financial dislocation of possibly increasing levels,
economic instability, shortages of goods and services, and increasing levels of sporadic violence. Such a situation, like the one that Argentina faced, has a surreal quality to it - for much of the time things appear semi-normal, punctuated by serious breaks in which some other factor makes it clear that the situation is anything other than normal.

So what can someone do in response to this? I'll consider that question in another post, looking both at the ideal response and a minimal response.

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