Those Damn Government Workers

As the economy has declined over the past several years we’ve all become more aware of federal spending issues, and it has become fashionable to bash those lazy, can’t-be-fired, overpaid government employees. A study by the Heritage Foundation in 2010 and another by the Congressional Budget Office in 2012 both found that federal employees are paid more than those in the private sector.

Guess what: I’m a government civilian employee, a fed. Yes, one of the snakes out to crush the life out of you.

Don’t worry, I’m not a secret socialist, this is not to disagree with the fact that some feds as a whole are paid more, and you’ll never hear me calling for more government, just the opposite. The federal government is getting smaller now and much deeper cuts will come. This is to add some context that media summaries of the larger reports don’t stress enough.

I decided to work for the government because I wanted to be in a certain field where you pretty much must be either a fed, government contractor, or military, and I’ve been all of those things at one point or another. As a side note, before I was evil I was stupid. Back when I came into the federal workforce and the economy was good, many people felt those taking government jobs, or even going into the military with a commission, were idiots, a lot more could be made in the private sector. Times change.

This is longwinded but has a point. From a survivalist’s vantage, if you think collapse is immanent you may not care much what goes on with the government as long as it doesn’t affect you directly before that happens. Fair enough. I tend to see us as being in a slow collapse right now that could trigger a fast one unexpectedly and must eventually if nothing changes, but it could also drag on for many years or even decades. Though I think it unlikely, we as a country and civilization could somehow not collapse with enough dumb luck (our politicians sure aren’t going to fix what’s wrong).

If this slow collapse we’re in does take a long time to wind down to TEOTWAWKI, how and where we cut the government does actually matter. In part how we can defend ourselves, but also how the rest of the world deals with us – especially in trade – is due in no small part to our military power. The Department of Defense is 35% of the federal civilian workforce. Unfocused budged can easily hurting our national defense.

This could affect our access to energy, other imports, policies on exports, etc. that would in turn influence inflation/deflation, what goods we have, and of course jobs. Maintaining some global influence will be important as long as we’re in this slow collapse.

In the larger scheme of things, we could cut defense out of the budget entirely and in a few years mandated increases in Social Security, Medicare/Medicaid, and interest on the national debt would eat up that savings – and we’d not have a defense/military.

I’m not saying that because I’m in defense and trying to save my job. Being on the inside I can say yes we need to cut a lot but we’d better be damned careful where we do cut. We do have a lot of deadwood. There are people that are not productive, there are departments or divisions or offices that are redundant or of no real use. On the other side of that, we need to cut carefully and there are some dedicated folks who give it 110%.

Some of this anti-fed sentiment seemed to have fueled part of the rationale for a government shutdown in late 2011. The shutdown is an examples of something that sounds like a good idea but isn’t, unintended consequences. Yeah, let’s stick it to those government employees; give them a taste of furlough!

The problem is that government shutdowns end up costing the government more, even if federal employees aren’t paid for the time they’re off. I’m not saying this because I’m a fed, I’m saying this because it is in reality a lose-lose situation and I don’t want my tax dollars pissed away any more than the next guy.

Getting back to those reports and the public opinions they help drive. The studies control for years of experience, location, etc. One problem with this is that many of those in defense actually have occupations are not in the civilian workforce, but are comprised of highly educated employees. Many have security clearances and other specialized skills that just don’t translate that well.

That is the case with where I work, there is no good private sector comparison. We all have at least a four-year degree (most have advanced degrees), clearances, perhaps another language, and specialized experience and training. Where I work even the janitors have security clearances and get higher pay for it.

In this time of slow collapse the government is finally starting to downsize. Right now it’s mostly through attrition. Eventually it will be through axing entire departments, if we get that far if and before a fast/total collapse.

What can any of us do about it? Besides voting for candidates that we think will cut the budget with some thought and research, not a whole lot. But this doesn’t mean you’re helpless, you can add this to your list of indications and warnings that help you gauge where we’re at. Understanding they “why” can help you determine the “what” to do about it best for you. Sometimes that’s all we can do.

The cuts are coming for all of government and tougher times for everyone, but how it happens will probably matter. If we’re going to go down anyway, I’d rather not have the U.S. end up being China’s or even Russia’s bitch before it does.

And next time the anti-fed bashing begins, remember it’s not as black and white as some say. There are sometimes unintended consequences. Some feds are on your side.

U.S. Credit Rating Downgraded for First Time

Today the Standard and Poor’s (S&P) became the fist credit agency to downgrade America’s AAA credit rating to AA+.

Standard & Poor’s announced Friday night that it has downgraded the United States credit rating for the first time, dealing a huge symbolic blow to the world’s economic superpower in what was a sharply worded critique of the American political system.

Lowering the nation’s rating one-notch below AAA, the credit rating company said “political brinkmanship” in the debate over the debt had made the U.S. government’s ability to manage its finances “less stable, less effective and less predictable.”

This probably should have happened years ago, realistically. The credit agencies likely have had good reasons for delaying this, and I imagine there was some livley debate at the S&P before this decision was made. Jim Rawles of Survival Blog earlier this week (check the link for possible consequences) predicted other credit agencies would immediately follow any downgrades. However it they will delay;

Other credit rating agencies — Moody’s Investors Service and Fitch Ratings — have decided not to downgrade the United States credit rating. But they’ve warned that, if the economy deteriorates significantly or the government does not take additional steps to tame the debt, they could move to downgrade too.

Some of the possible consequences (more)?

U.S. Treasury securities, once undisputedly the safest investment in the world, are now rated lower than bonds issued by countries such as the United Kingdom, Germany, France or Canada.

The move is likely to raise borrowing costs eventually for the American government, companies and consumers.

Seems clear we’re on the downward slope with no realistic hope for actual recovery. There may be upticks, but nothing that has a chance to halt the slow collapse we’re in. As the son of Arsenius so aptly put it recently, we’re “circling the drain.”

Who Will Rescue America After Collapse?

Survival fiction often depicts other countries either coming to the aid of the U.S. after a collapse of some type, or coming to loot. Examples:

• One Second After (EMP scenario) – U.S. forces stationed abroad when the EMP occurred, with the help of European allies, begin helping U.S. east coast areas about a year after the event. Chinese forces take part of the U.S. west coast, Mexico takes some of the Southwest.
• Patriots (financial collapse) – The several European countries under UN auspices move in to pacify and take over America within a few years of collapse.

I’m not sure those scenarios are realistic but it’s extremely difficult to determine what would happen to the rest of world in the event of a complete U.S. collapse. There are both financial and security issues that make predictions fairly useless, in my opinion.

Financially, most of the world is tied to the U.S. through trade, aid, reserves, or all of the above. The image below is focused on U.S.-China trade but also depicts some of the global trade ties that would be disrupted should America collapse (click on image for full-size):

The breakdown of foreign trade is thought to have been a factor in the 1930s:

Many economists have argued that the sharp decline in international trade after 1930 helped to worsen the depression, especially for countries significantly dependent on foreign trade. Most historians and economists partly blame the American Smoot-Hawley Tariff Act (enacted June 17, 1930) for worsening the depression by seriously reducing international trade and causing retaliatory tariffs in other countries. While foreign trade was a small part of overall economic activity in the U.S. and was concentrated in a few businesses like farming, it was a much larger factor in many other countries.

China would take a huge hit in trade and their foreign reserves, mostly U.S. dollars, would become worthless. They would still have the bulk of their trade with other Asian countries and Europe, but the biggest players in both Asia and Europe would all take huge hits when their trade surpluses from the U.S. evaporate.

It’s possible those markets would find workarounds and normalize minus America; or, with many EU nations already teetering on the edge of insolvency, they could go over the tipping point and collapse as well, ushering in a second, hopefully much shorter, dark age.

I’m not trying to overinflate the importance of America in international trade and finance, but if the rest of the world can’t adjust quickly, they could have the same fate.

Another factor to consider is oil – the U.S. is the largest per capita consumer of oil and our de facto exit from the market would, at first, wreak havoc on the many oil producers (almost none of whom have refineries), but then would mean less competition for that resource on the world market. If Europe and Asia make it past our collapse, they may find they will have relatively cheap oil for a couple more decades.

Russia falls between Asia and Europe and has vast supplies of fossil fuels so does not need to worry about that. Disruptions in world markets following the American collapse will affect Russia, but that country may retain some of the existential but built-in resilience from it’s communist days.

Canada and Mexico, both intimately tied tot he U.S. economy, likely would face the same fate. Neither help nor conquest would come from them.

U.S. international aid, while a relatively small part of the budget, is a lifeline for many third-world countries around the world – they likely will face at least a depression.

On the security front, the absence of the self-appointed world policeman leaves open the possibility for a lot of military action. In the Mideast, Iran, Egypt, and others may not feel constrained against Israel. Likewise, Israel will have no brakes on it’s ability to retaliate. For both Israel and Iran this could include nuclear weapons.

In Asia, China may feel it’s time to take Taiwan without the threat of the American 7th Fleet interfering, while North Korea could move to take South Korea (though the South would have a much better chance of taking the North). India and Pakistan may decide to settle old scores.

With so many financial and security issues at play, it is very difficult to predict what might actually happen. Would China invade the U.S. west coast? On one hand, they may have their hands full in Asia, assuming their economy survives. They may also face, initially, problems obtaining enough oil. China also lacks the ability to project power militarily, though they could press the then largely unused pacific merchant fleet into service for an invasion.

Europe could descent into chaos and anarchy, or they may pull through if lucky. Despite the depiction in Patriots, I don’t see a UN invasion in our future.

Worldwide chaos would also make regional and potentially world-wide nuclear war more possible and likely than ever before.

This has probably only muddied the waters – or maybe just cast the light on what’s already there. All we can do is prepare.

The Case for American Collapse

Last year a coworker and I had a conversation about the national debt and out of control congressional spending. He was skeptical when I suggested a second Great Depression could trigger a total collapse of the U.S. government, or the end of America as we know it. We didn’t have enough time to fully discuss the issue, and my distilled version – that increased complexity has made our civilization increasingly fragile – apparently wasn’t convincing enough. Probably a lot of survivalists or preppers have the same problem. Follow-on discussions over several months finally did convince him.

Objective
This is my attempt to explain the real possibility of a complete collapse of the U.S. caused by an event or events that disrupt systems to the point they cannot recover. The main focus is on how financial and resource issues could interact to do this, but other large-scale events – plague, massive natural disaster(s), terrorist attacks on infrastructure, and so on – could have the same effect.

For many it seems a real leap of logic to go from financial crisis to a total collapse and chaos. This is also an attempt to bridge that gap by providing some facts, context, and a narrative to explain how a perfect storm of problems is in America’s future.

Most people are aware of several of the issues that are in part setting the right conditions for a collapse since they are main stream news, but are not aware of a host of other issues or how they can interact with one another to greatly amplifying negative effects. Additionally most have not considered how the advances in technology over the past two decades that have made our lives easier, and our utter dependence on that technology, have made made us much more vulnerable.

This is not about a second Great Depression that simply lowers our standard of living, or an attack that destroys most of the U.S. or world (e.g. nuclear war, meteor), or destroys a critical part of the infrastructure in one fell swoop (e.g. EMP), that effectively results in a hard collapse.

Assumptions
Before getting into why a total collapse is possible, some assumptions that are widely accepted as factual.

• All empires end. Throughout history great powers have risen and fallen, so it is not unthinkable that the U.S. could also become a lesser power. This alone does not mean total collapse.
• The current U.S. national debt (84% of GNP as of 20 April 2010) and deficit spending are putting the value of the dollar at risk, and is placing the long-term financial health of the country into question. Current spending is unsustainable and will eventually force spending cuts, increased taxes, or both. Recent budgetary trimming by congress is a drop in the bucket.
• Demographics. America’s population is rapidly aging and Baby Boomers are beginning to retire, which will dramatically increase pressure on Social Security and public medical programs. This will also reduce the number taxpayers, further complicating budget issues.
• America’s infrastructure needs a major overhaul. Bridges, roads, rail, energy, dams, levees, drinking water systems, and more are in need of an estimated $2.2 trillion to be put in good condition.
• Competition for petroleum (e.g. China, India, and Europe) and the increased cost of extracting more difficult to reach fields will increase energy prices. Many of the world’s largest oil fields are in decline. The U.S. has the world’s largest deposits of coal, but our transportation is reliant upon oil (our cars don’t run on coal and our homes are not headed by coal), as the U.S. military recently noted. Oil is going to cost much, much more, there is no way around it.

These issues set the stage for the rest of the story.

Our Achilles Heels
There are four primary areas of concern (the fourth, not included in the quote below, is communications):

Most people’s very lives depend on a fragile triad made up of the transportation network, power grid and finance system. All three of these systems depend on the other two and they are all three unbelievably fragile.

Transportation. The U.S. is heavily reliant on relatively cheap imported oil from which we obtain; gasoline, diesel (and heating oil), and to a lesser extent (except the military), jet fuel. I won’t get into Peak Oil theory, in part because you can find just as many arguments for as against and in the end the bottom line remains we really don’t know. The important thing here is that while there may be much oil out there (or not), the easily obtained oil is gone, what is left if is increasingly difficult to extract, and it is therefore becoming more expensive. Without near-term technological breakthroughs in the area of energy soon (unlikely), demand for oil will increase as the population grows. Then there are China and India (from 2007):

In unusually urgent tones, the International Energy Agency warned that demand for oil imports by China and India will almost quadruple by 2030 and could create a supply “crunch” as soon as 2015 if oil producers do not step up production, energy efficiency fails to improve and demand from the two countries is not dampened.

In the U.S., most of us drive to work. The vast majority of what we buy is delivered by ships, and then by trucks, that use diesel fuel. Many homes in the northeast heat with heating oil (essentially diesel). Use any products made of plastic, nylon, petrochemicals, etc.? All made from petroleum. Our military needs massive amounts of fuel to project power and is very concerned about what the future holds.

Besides fuel there is infrastructure. Roads and bridges in many areas of the U.S. are in exceedingly poor shape, “Large swaths of our infrastructure… have aged to the point of gross deterioration.” It won’t be inexpensive to repair. Asphalt is part oil (tar) itself, and concrete is also energy intensive to produce.

To recap, it doesn’t matter that there will be lot of oil left in the Earth – it will be increasingly difficult and therefore expensive to extract, and there will be much more competition for what is extracted. Innovation may increase efficiency of vehicles or there may be alternate sources of energy discovered; but that’s highly unlikely given results from current lines of research, and unlikely to occur when needed, probably the next decade or two. This will be a shock to our economy, but could also spark oil wars – both could be triggers for collapse. On top of all that our transportation infrastructure demands attention.

Electricity. The thing that makes modern life modern; electricity. Our grid is overworked and largely tied to the internet, so aside from increasing demand and crumbling infrastructure, it is increasingly vulnerable to cyber attacks.

Most power plants use coal to produce electricity. We have plenty of coal, but the system is dependent upon having the fuel and functioning infrastructure to get it there, the communications networks that control everything, and the financial network to pay for it all. As long as interruptions are short the system remains robust; if any one segment is delayed longer term, then other systems begin to fail.

Communications. In the past twenty to thirty years we have become much more dependent on communications technologies. Phone lines are now multiplexed and on fiber rather than a direct line to the old central office on the copper wires of the Ma Bell days (the line to your house likely is copper – to a nearby junction where it’s cut over to fiber and the network). If the power goes out for more than a few days, most phone lines won’t work.

Cell phones, GPS navigation, the internet have all created dependencies. Much of the public energy, communications, and finance sectors are controlled over the internet – if the net is down, service can be degraded or simply not be there. Most stores no longer maintain warehouses, but rely on just-in-time delivery, which saves money but increases vulnerability from disruptions in the other sectors.

Finance. How many of us get an actual paper paycheck these days? Or use cash for everything? Most financial transactions are dependent upon the internet and other dedicated communications networks to function. Besides requiring adequate communications, this of course requires electricity. Which requires reliable transportation and access to fuel.

Transportation, communications, electricity, and finance are all interdependent upon one another. The system is robust as long as interruptions in service are short.

Other Factors
Some may point to the Great Depression and note we got through that, we’ll get through tough times in the future. We made it through previous difficult recessions. They may note that the Wiemar Republic, Argentina, Zimbabwe, and the former Soviet Union made it through financial collapses and hard times.

Well the times have changed – the U.S. is not Argentina or the U.S.S.R. and our methods of recovering in the past is no longer viable, essentially via cheap oil and/or deficit spending (including through war). The systems outlined above require a steady supply of fuel, and each other.

The general population has lost basic survival knowledge and skills since the Great Depression. Right now there are well over 300 million people in the U.S. Less that one percent are involved in farming (about two percent live on farms) and there are only about two million farms. In 1935 there were about 6.8 million farms for a population of 127 million. Currently about 81 percent of Americans live in urban areas. Almost all Americans rely on just-in-time delivery for most of what they consume, and most aren’t even aware of that.

Right now we don’t need more farmers since we are so much more efficient than in decades past. But this efficiency is the result of massive amounts of fossil fuels, fertilizers, irrigation, and of course reliance on electricity, communications, and transpiration.

There are a lot of lesser known issues in play related to farming. I won’t go into detail on all of these but check out the world-wide phosphate shortage and ground water depletion in the U.S. Both these will affect U.S. food production.

The Perfect Storm
Let’s put it all together – the baseline assumptions, technological vulnerabilities, and the end of cheap oil, combined with how the West and America function, and what that may mean for our civilization.

As our debt becomes insurmountable, the tax base of workers shrinks, those on the Social Security roles swell, and cheap energy is gone, America’s finical might of the past will be gone. We will not be able to afford keeping our infrastructure in good condition. Europe will face similar problems, while China and India will fee the pain from fuel prices. Unless an unexpected source of energy is found soon, this seems certain. There may be wars over energy, food, and water resources. There have always been wars over these things, but not with so many nuclear powers (and in decline). Basically the slow collapse scenario.

Here is where the interdependent areas of transportation, communications, energy, and finance begin to drag each other down. Significant degradation in any one area will create shock waves that affect the others. They must all function for any of them to function. This was not so in decades past, at least not to the level it is now.

Conclusions
Any one issue above is not enough to kill our civilization. But we’re not facing one of those issues, we’re facing most. Even if several are not as severe as portrayed, we’re looking at at least a slow collapse scenario, which would probably eventually trigger a total collapse. Perhaps I’ve not described this well enough; if so consider there are many obstacle to not collapsing and few routes away from that outcome.

Some people have the notion that they can do something about this. And the right people probably can, especially if then can discover a new power source or invent ways to overcome existing problems, before it’s too late. But I go back to locus of control; what can I realistically do to effect whether or not TEOTWAWKI will occur, or how it will unfold? Since I am not a politician, a scientist, or famous (as a platform for activism) and don’t plan on becoming any of those things, there is not much I can do beyond preparing and helping others to do the same.

I don’t believe a total collapse with a large die-off is inevitable, just possible or maybe probable if drastic changes don’t occur soon. I think we will see drastic changes, just not soon enough.

Investing in Silver Coins

Previously I wrote that I don’t believe precious metals (PM) will be worth much after TEOTWAWKI, but that they can serve as a hedge against inflation prior to that. I also recommended that a good foundation in defensive equipment (i.e. firearms and ammunition) and having ample food storage should come first. That’s all still my opinion.

For those ready to invest in PM, I think U.S. silver coins are a good place to start, both because silver is less expensive than gold, and because American coins are more easily recognizable (considering my small audience is primarily U.S., of course).

Along those lines there are two primary choices; pre-1965 coins and American Silver Eagles. The Silver Eagles are 99.93% silver, while U.S. coins (dollars, half dollars, quarters, and dimes) minted prior to 1965 are 90% silver and 10% copper. The coins I suggest are termed “junk silver” since they have no value to collectors beyond the value of silver content. Each Silver Eagle contains an ounce of silver, while each $1 face value of junk silver contains about 0.7735 troy ounces of silver (usually rounded to 0.715 due to wear).

Shopping around you’ll find there are a lot of choices. Sometimes it’s also a good idea to buy “bulk” silver, usually a roll or bag of coins at a slight discount. I’ve found the Silver Coin Melt Value Calculation tool at Coinflation very useful.

The best deals I’ve found: Franklin half-dollars for $7.59 at collectons.com. That’s currently $0.65 above the price of silver for one, or $1.30 for a face value $1 worth, while most Morgan and Peace silver dollars go for about $4 above their current silver value of $14.83. I’ve recently purchased many Franklins from collectons.com, and the coins are mostly in very good condition – much better than the Walking Liberty halves graded the same.

I’ve done a lot of searching, and that remains the best deal for now. If you buy over $150 in a purchase, shipping is free, something to consider if you find a nice price on a coin but have to pay tax or shipping.