Posts Tagged ‘TEOTWAWKI’

Five potential emergencies- climate crisis

Sunday, May 2nd, 2010

Today, we will talk about the last of the five potential emergencies- climate change. Now, we must stress that we are not scientists here and therefore, our opinions on climate change are one of an amateur.

With regards to climate change, our guess is that the minority do not believe that the earth is warming up. On the other hand, for those who believe that the earth is warming up, the debate is on whether global warming is caused by human activity or is due to a cyclical pattern of earth?s weather system. If the former is true, then the onus is on the world to adopt green technology and reduce fossil fuel usage (e.g. via ETS, carbon cap, etc). If the latter is true, the focus should be on adaptation by the human race.

For the rest of the article, let?s assume that the earth is warming up(regardless of whether it is caused by humans or nature). What will be the consequences then?

According to the April 6, 2007 UN climate panel study on global warming, damaged property and lost productivity caused by severe weather are expected to rise. Storms will be more severe, hurricanes, typhoons and cyclones will affect countries. For those who had been directly affected by floods and bush fires, it will be a mini-TEOTWAWKI scenario. Obviously, those with self-sufficiency and survival skills and stockpiles of supplies will do better than those without.

Droughts will also occur more often, which will worsen the depletion of underground aquifers, which supplies millions of people with water. It will also affect food production. As Sean Brodrick wrote in The Ultimate Suburban Survivalist Guide,

Looking ahead, global warming could lay waste to a wide arc of fertile, wheat-growing farmland stretching from Pakistan through Northern India and Npeal to Bangladesh.

As you can surmise by now, this arc of fertile land happens to be located at countries suffering from over-population. Elsewhere, he wrote,

Some scientists say that for each temperature rise of 1.8 degrees Fahrenheit (1 degree Celsius) above the historical average during the growing season, there is about a 10% decline in grain yields.

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The important thing you have to understand is that by looking at each of the five emergencies in isolation, they seem manageable. But as we alluded in Thinking tool: going beyond causes & effects with systems thinking, the reality is more complex than each one of them added together individually. Each of these five emergencies will feed of one another, into positive and negative feedback loops. That will compound, accentuate the effects and introduce unanticipated side-effects, which in turn will feed back into the existing problems.

An Achilles Heel of modern society- specialisation and division of labour

Tuesday, April 6th, 2010

Last month, in Hedging against currency crisis with electronic gold, we asked whether you are interested in reading articles with TEOTWAWKI (The End Of The World As We Know It) theme (i.e. survival skills/gears, self-sufficiency, guns, supplies stockpiles, e.t.c). This is the result of the reader poll:

  1. Almost 60% are interested.
  2. Almost 29% are indifferent
  3. Around 11% are not interested

Therefore, it seems that the majority wants to read more on the TEOTWAWKI theme. In future, if there is enough material on TEOTWAWKI, we may spin off those topics to another blog and linking to them from here. That way, we can keep stick to the theme in this blog for new visitors and at the same time, cater to our long-time loyal readers who are interested in the TEOTWAWKI theme.

But before we start the series on TEOTWAWKI, we must prepare the groundwork and establish the premise of this theme. If not, visitors may think that we are a bunch of extremist survival nuts. Our loyal readers will want to be assured that we are not becoming nut cases…

Firstly, we think it is important to start with the correct words to describe this theme. As you can see from our previous articles, incorrect words lead to wrong and fallacious thinking. For example, in Will governments be forced to exit from ?stimulus??, we railed against the economic jargon called “stimulus.” Therefore, as we write this article, it gradually dawned on us that TEOTWAWKI is probably the incorrect word (or rather, acronym) to use- it gives people the impression that we are a bunch of survival nut cases. Instead, we think the better word is “self-sufficiency.” This word nicely encapsulates the idea that we are driving at and is consistent with the general tenor of this blog.

Much of the prosperity and luxury that we enjoy today is possible only because of specialisation and division of labour. That is the opposite of self-sufficiency. As societies get more and more complex, the specialisation and division of labour becomes finer and finer. Consequently, we are all losing more and more of the basic skills that many of our forefathers will find trivial. As we expend more and more effort and energy in getting more and more skilled in our area of finer and finer specialisation, we ‘outsource’ more and more of our basic needs to other people who are specialised in those areas.

While specialisation and division of labour is vital for economic prosperity, there is an Achilles’ Heel- economies become more and more vulnerable to economic shocks. As we explained before in Overproduction or mis-configuration of production?,

This is the key insight from the Austrian School of economic thought. Over-production or over-investment is not the problem. Rather, the trouble lies in the mis-configuration of production and mal-investments.

As labour becomes more and more specialised and divided, it becomes harder and harder to reconfigure the misconfiguration of supply and demand for labour that is the result of economic shocks.

To illustrate this point further, consider this fact: 1% of the US population grows all of the food for all Americans (source: The Ultimate Suburban Survivalist Guide). We have no doubt this is the same for Australia too- that the tiny minority of the population supplies the entire population with food. So, what does the other 99% of the population do? As you would know the answer by now, the working proportion of the other 99% are specialised and divided into their own area of speciality, serving the rest of the population.

The crucial question to ask is this: what is the ‘glue’ that stick together all these specialised and divided labour into a system that we called the “economy?” The answer is: energy. As we wrote in Smart money in alternative energy?Part 1: current energy quandary,

The most important ingredient that drives the efficiencies, comforts, automation and wonders of today?s modern way of life is energy. The trains, cars, ships and aeroplanes that transport massive quantities of people and goods over vast distances quickly require energy in the form of fuel. The heavy machines that do heavy physical work far beyond the scope of human labour require energy too. The powerful computers that process and store vast amount of data and information as well as automate mental labour requires energy in the form of electricity. The heating in winter and cooling in summer of our abode requires energy too. Take energy away and our modern way of life will very much grind to a halt and bring us back to the hard life of our ancestors. In fact, contemporary life rests on the premise of abundant and cheap energy.

In the food example, for the 1% of the population to supply food to the other 99%, there must be a way to distribute them through vast distances. In Australia’s case, some of the final consumers of the food that it produces are overseas, separated by thousands of kilometres of oceans. Not only that, the production of inorganic fertilisers that gives modern agriculture the amazing yields requires a lot of energy. With today’s modern machines and equipment, the farmer today can do the job of multiple ancient farmers at much faster speed. This requires energy.

Now, assuming that energy prices will be getting more and more expensive in real terms in the long run (i.e. Peak Oil, secular rise of Chinese/Indian demand, e.t.c), what will this imply? The conclusion is clear: the real cost of many things that we take for granted today will increase- that includes the cost of food, which is one of our most basic need. With that, it implies that the division and specialisation of labour that underpin the modern way of life as we know it will be fading away. That does not mean we will all return to the stone ages. But it will mean that it will be getting more and more expensive to ‘outsource’ our basic needs to other specialised labour. That means, we will have to be more multi-skilled and self-sufficient, which is the way our forefathers were in the first place.

Should there be any Black Swans (e.g. geopolitical acts, natural disaster) that will disrupt the just-in-time supply of energy to our local area, our modern way of life will be disrupted instantly. If the disruption is too sudden and unexpected, and relief is not on its way quick enough, society can easily descend into chaos simply because the highly specialised and divided labour of today’s society will not have the basic self-sufficiency skills to adjust. Also, having the skills alone is not enough- without adequate stockpiles of essential supplies, all the skills and adaptability will not help much. Think about it: how many of us keep a stockpile of basic supplies that are essential to our daily needs? Many urban dwellers simply buy supplies from the nearest supermarket as the need arises. Should there be a severe disruption of energy and other basic services, many otherwise decent folks will have to resort to looting the supermarket just to survive. As we read The Ultimate Suburban Survivalist Guide, we learnt that during Hurricane Katrina in the United States, some decent folks looted the supermarkets in order to distribute supplies to their neighbourhoods.

In short, the specialised and divided labour of today carries an Achilles Heel. There is another Achilles Heel of modern society. Keep in tune!

Hedging against currency crisis with electronic gold

Thursday, March 18th, 2010

Back in January this year, we talked about protecting yourself against currency crisis in Protecting yourself against currency crisis. The basic idea of that article is that the time to prepare for such an eventuality is before TSHTF. Once it happens, it is too late.

For our Australian readers, this seems to be less of a worry because there is still an air of optimism (relatively) among the population. But for our American readers, the nagging feeling of fear and brooding seems to be permeating among the masses. As the author of this book, The Ultimate Suburban Survivalist Guide: The Smartest Money Moves to Prepare for Any Crisis, wrote in the introduction,

Do you have a pervasive sense of anxiety, as if our modern world is on thin ice? Do you have an uneasy feeling that Wall Street seems to be collapsing under the weight of bad debts and bad decisions- and dragging your job along with it? Or, maybe you feel our society is coming apart at the seams, and that our civilization could actually break down and collapse.

You are not alone. A lot of people are worried. In fact, there is a growing movement of people who are preparing for the end of the world as we know it (TEOTWAWKI).

That book is written in an American context. If you are an American reader, please let us know how true or accurate this is in the comments below.

Now, for this article, we will stick to the original point (currency crisis) and not venture to the theme of TEOTWAWKI (survival skills/gears, self-sufficiency, guns, supplies stockpiles, etc). We hazard a guess that the TEOTWAWKI theme is of more interest to our American readers than to our Australian readers. But if enough readers express their interests in TEOTWAWKI, we may do more research and write more about it. If not, let’s stick to the topic. (By the way, contrarians like Marc Faber are alluding to the TEOTWAWKI theme).

Okay, back to currency crisis. There are two components to hedging yourself against currency crisis:

  1. Diversify your assets overseas.
  2. Prepare a cache of physical monetary assets (e.g. physical cash and physical gold/silver).

For the second component, our book How to buy and invest in physical gold and silver bullion would cover it very well. But for this article, we will look at the first component.

One of the ideas (and note, they are ideas- nothing in this blog should be taken as financial advice) that is floating around in our mind is electronic gold. We first touched on this idea two years ago in What is the future of silver?,

Today, we have a very powerful technology that can solve the convenience and sub-divisibility problem (see Properties of good money) associated with [using] gold [as] money- computers. All we need is a trusted central repository of gold (perhaps today?s central bank can change its institutional role for this purpose) and let computer systems keep track of ownership and transfer flow of gold money. In other words, the gold is physically kept in a secure central location while the finer sub-divisions and change of ownership of gold money is recorded as bookkeeping entries on computers. No physical movement of gold is necessary.

This passage was written to refute some of the views that gold can never ever function as money again because it will be physically inconvenient (or beyond imagination) to carry minuscule amount of physical gold as money to buy small items (e.g. bread).

Well, two things against this argument:

  1. In Zimbabwe, people were already used flakes of gold to buy bread (see the video at Rural Zimbabweans are desperately panning for gold powder to ward off starvation).
  2. The same problem of inconvenience existed two hundred years ago and that’s why mankind invented the use of warehouse receipts for gold as a proxy for money (the history of money is written in more detail in our book, How to buy and invest in physical gold and silver bullion). Warehouse receipts for gold are the precursor to the paper money we have today.

In this current age of information technology, this problem can be easily solved with electronic gold. In fact, there are quite a few electronic gold solutions currently implemented today. One of them is GoldMoney.com (which we disclose that we have an affiliate interest with them).

One very important thing to remember: the whole point of owning gold is to own an asset that is nobody’s liability (if you want to understanding the reasoning behind it, please read How to buy and invest in physical gold and silver bullion). That will eliminate most gold ETFs, gold futures, gold CFDs, etc because they are basically financial assets disguised as ‘gold’ as they exist as a liability in someone else’s balance sheet. As for other types of gold that you do not take physical possession for yourself (e.g. kept in vault storage on your behalf), you have to look at them on a case-by-case basis to ensure that

  1. You own the legal title to the gold (i.e. your gold is really yours and not belong to the liability column of someone else’s balance sheet), and
  2. Trust that they are able to physically deliver your gold to you on demand.

So, if you trust GoldMoney.com, then they fulfil these two criteria. But do not let us tell you who to trust or not to trust- seek advice, do research and decide for yourself.

When we first heard of GoldMoney.com, we imagine a world whereby gold becomes money and payments can be made back and forth electronically as conveniently as PayPal. If you have a full-holding account in GoldMoney.com, you can certainly do that with their patented technology. We don’t see why it can’t be done.

But we talked to those guys and found out something interesting. Apparently, most of their clients do not use GoldMoney.com as electronic gold money (as we imagined in our fantasy). In reality, most of them link their full-holding GoldMoney.com account with their bank accounts all over the world. Why would someone do that? Here is what we think (bear in mind, this is just our opinion)…

Remember, back in Protecting yourself against currency crisis, we wrote

Personally, we feel that the best way to protect you from a currency crisis is to leave the country before TSHTF.

If you believe that all paper fiat currencies will eventually depreciate significantly against gold, then it makes sense to hold gold. Let’s say you have a cache of physical gold and you decide to leave the country? That means you have to lug your physical gold to that country where there’s always a danger of loss in transit from bandits, thieves, corrupt officials, ship-wrecks, air-crash, etc. Or maybe the custom officers in both the source and destination country may not look in favour of anyone bringing in physical gold. Whatever the reason, you may not feel comfortable having so much valuables in your physical possession while you’re on transit to another country. For a big fat filthy rich person, it is physically too demanding to lug around his large stash of gold.

GoldMoney. The best way to buy gold & silver So, here come the folks at GoldMoney.com. Since you have already set up links between your full-holding GoldMoney.com account and the various overseas bank accounts all over the world, you do not have to worry about hauling physical gold around. (Of course, having some physical gold coins in your pocket will always be useful for things like paying for a space on a leaky boat to travel to that country- jokes aside, we mean it is not wise to completely do away with having some physical gold in your physical possession).

So, the next time you visit a foreign country, you may want to open a bank account over there!

Meanwhile, please vote on the poll below: