- Until The End Of The World

I had dinner Tuesday with a good friend – a titan of the energy trading business who I've known since those ancient days when we were on the JPMorgan commodities desk together. Commodity guys are a pessimistic bunch, and he’s as convinced as ever that the whole thing is going to go pear shaped. So he was making the argument that we (personally) need to come up with solutions today to address our needs of the future.

He was suggesting that he and I go in together on a tenant farm. We’ll buy a few hundred acres of central Pennsylvania or Virginia or the Carolinas, build a few small houses on one corner, and lease the rest out to a local farmer to make it productive. This is one of the better ideas I’ve heard for the ‘bolt hole’ as “the Derb” put it. But I don’t think it’s a genuinely workable plan.

Sure we can buy a farm, and maybe even find someone to farm it. But if things go the way he imagines and we have to flee suburbia for our lives, who’s to say our ‘tenant’ will give a hoot what we claim we own? More than likely he’ll meet us at the gates with a few dozen of his buddys and their father’s duck hunting guns to tell us to scram. But even if he didn’t, it’s tough to imagine he’ll continue to pay us for the privilege of performing the world’s one truly indispensable service.

I’m no farmer, and neither is my buddy. I know a fair amount about animal husbandry, and might make a middling rancher. But there isn’t a lot of very productive ranch land in the mid-Atlantic area. I can do carpentry, and can make a pretty clean weld – but these are hardly unique skills in rural America. I know a fair amount about gunsmithing too, but to do that right you need a well put together machine shop. So unless the need for commodity traders skyrockets after the collapse – I can’t see how being in a rural area where no one knows us will help us keep body and soul together.

Besides, the fact of the matter is, I’m not at all sure the world will end. There is that old joke about how Economists have successfully predicted 8 of the last 5 market crashes. Well I think we’re all expecting a failure of the west, when the west is actually much more durable than it seems. Our living standard will fall in the US – it’s hard to see how that can be avoided. And the people running our government are as fiscally and economically inept as any ever have been. They waste money at an astounding rate and all of that hurts us. But even that doesn’t mean we’re going over the waterfall.

Japan had a 9.5 earthquake followed by a Tsunami that left tens of thousands of dead and even more homeless. Quickly after that came a nuclear meltdown of unprecedented scope. When the earthquake hit, they already had a debt to GDP ratio of about 200%, and while their economy is not unaffected by all this, things have mostly continued on there, the same as usual. Some argue that this is as a result of the ‘special character’ of the Japanese people, but I don’t think so. I think the real issue is that Japan is a rich country, and the rich don’t riot. That overstates it just a little, but I think it gets the main point. Without a breakdown of civil society there is no collapse of the broader system.

The people that talk about our system falling apart (I think) are underestimating the kind of incentives there are in the world for keeping things going more or less as they are. The Saudis, the Swiss, the South Africans, the Koreans, the Swedes, the British, the Turkish and everyone else in the world all have more reasons to want the current system to continue than they do in having it fail. And at the end of the day that means that they’ll do what they must to support it – even when they don’t like it.

Make no mistake, the US financial system falling apart would be a complete global reboot. No institution would survive it untouched. But because that’s so, I’m convinced that it won’t happen until all those people with all their disparate interests, start to see a new system as having more promise for the future than the old one does. I don’t see that happening in the foreseeable future.

Barak Obama and his academic ilk say that they want to reshape America, but if it’s really true (I doubt that it is) then they’re the only ones. Winners outnumber losers under the current system, and the losers are the only ones who are ready to risk it all to see the system collapse. Open revolt can change that. But without a complete breakdown of civil society, there are more things supporting the current system than threatening to tear it down. Life will get worse in the coming years, and we’ll all get poorer. But the system won’t fall apart until it’s in the interest of enough people to have it do so.

I don’t think we’re approaching a waterfall anymore, I think it’s just the rapids. They’ll leave us all battered and broken, but we’ll survive it.