While there is no strong indication that Y2K problems will go Mad Max, several thoughtful and intelligent GIs have exercised their imaginative powers about how people might deal with a situation in which they had to bug out. This speculation may also serve to remind some people that if they are personally preparing for a 10 and to shelter in place (in their family home), it is likely that they are making the wrong kind of preparations and wasting hard earned cash money that could be used to pay down debt (which may be a serious concern in a Y2K severe recession ala Mr. Decker). Admittedly, preparing well for an actual Mad Max would be extremely difficult at best for a community.

What, then, distinguishes the so-called misguided preparations for a Y2K 10 Scale disaster and preparations that would be useful in a recession-depression? To begin to get at this question, I'd like Mr. Decker to help us understand what he thinks would be required for a family or group of families to prepare now for a great depression. Assuming no power, water, or other failures, how should a family or group of families prepare for unemployment, a three quarters reduction of water, power, fuel, banking, telecommunications, groceries, etc. due to a cost that is unmatched by low or no earnings. What debt should these people try to eliminate, reduce, or save for and in what order of priority? What non-technoligical skills (that can be learned in the time remaining) should be learned? What tools would such skills require and how much of an investment would education and tools represent? How will they supplement their grocery store purchases, water usage (if for a lawn or a garden), power for lights and tools, and fuel for transportation and heating? I'm sure we can think of more questions along the way. Finally, assume they don't live smart, today.

I look forward to your answers.

Sincerely, Stan Faryna

-- Stan Faryna (info@giglobal.com), June 21, 1999

Answers

Must you encourage him Stan? Very well...hand us the Norman Rockwell scenerio.

-- Will continue (farming@home.com), June 21, 1999.

In order to understand what preparations to make for a depression, it is good to first understand the causes of a depression. Most simply, a depression starts when the money supply suffers a sharp contraction.

This happens when some item that has attracted a large amount of capital investment, or was used as collateral to secure a large amount of debt, suddenly plunges in market value. That is why speculative bubbles are so dangerous. When the market for the item collapses - whether it is land, stock certificates, bonds, or something else - the difference between what the last holder paid to buy it and the loss he takes when he liquidates his position is how much money has vanished from circulation.

It is hard for most Americans to grasp that money can vanish, let alone that it can vanish so rapidly. But it can. It also hard for them to grasp that, although the amount of *physical wealth* in the world has not been altered by the collapse of a market, that nevertheless such a collapse can lead to their impoverishment - even if they did not participate in the speculation. But again, it can. And if the ownership of the item was widespread enough, it will! Because *someone* owns the item, and all those *others* took a sharp loss. Such widespread losses do not stay put, but start to migrate throughout society.

Banks that lent money against the now-devalued item take big losses, or even close their doors. The ruined, or even just "damaged" folks cease to spend. It gets a lot harder for a business to earn a buck. It gets harder for a business to service its debts. Jobs are trimmed. Banks stop making loans. There is just a lot less money around, and what there is doesn't circulate very much.

A lot of Americans believe that this can't happen any more, because government will just print more money, start up inflation, and cure the depression. When a speculative bubble bursts that saw widespread public participation, there are too many losers, holding too many worthless assets that *can't be reinflated relative to everything else*. Let me drum on that a moment. You can print more money, but you can't reflate the bubble. The money *won't* go back into the market that crashed. The losers will still be net losers. The losses will remain real losses. However, the resulting inflation would punish banks even more, by devaluing the assets in their loan portfolios. That's why the Fed will refrain from it. They are, after all, bankers themselves.

The very best preps you can make for a depression are:

1) Be debt-free. Banks will be hurting. If you can't make payments, the bank won't "carry" you on their books. Cash would be at a premium, and as soon as your cash payments stop, it won't be long before the bank is looking to get its cash out of you the only way open to it - by foreclosing, liquidating your collateral for what it can get, and writing off the rest.

2) Have assets that you can turn directly into self-support. Without a job, you must live on your assets. For example, cash is an asset, so having savings is huge plus. Land is an asset. You can grow food on it. A house is an asset. It keeps you warm and dry. Skills are an asset. You can use them for your own benefit (like canning), or you can trade them with neighbors (trade a tree-felling for a year of haircuts). Tools are a great asset, if you have the skill to use them.

Just remember. No amount of hard times can make you stop being useful to yourself and others. If you can't make much money, you can still live on your other assets. But take steps that your house and property don't revert to the bank! It is the third best asset you have, after your brain and your two hands.

-- Brian McLaughlin (brianm@ims.com), June 21, 1999.

What the hell is this, some kind of straight man for a comedy routine? The questions are good ones, without question, but there are other people in the world who might have some opinions on this, too. Do you care to hear them, Stan, or are you only seeking enlightenment and guidance from The Master Troll himself?

Any pictures from that get-together in Washington, VA? Were you the little wooden guy on that older gentleman's knee?

-- King of Spain (madrid@aol.com), June 21, 1999.

Stan,

Prior to your opening post in this thread, I had not noticed any refererence to a "Y2K severe recession ala Mr. Decker", i.e. if Decker has expressed anything resembling a perception of the possibility of a "Y2K severe recession", I have not observed it. Quite aside from that, questions regarding differences in suitability of preparations for Y2K 10 scale disasters vs preparations for severe recessions (depressions) are, I believe, very important, and well worth consideration by those willing to take the time.

Brian has begun to address them; I would like to add some here, but my schedule will not permit me at this time to spend the time on it that I would like.

For openers, it is a subject worthy of a large book rather than a few posts on a web site. Indeed, as I imagine you are aware, numerous books have been written on various aspects of the subject, although I'm not aware of any that specifically addressed preparing for depressions as such.

I have to call it a night, but I hope to return to this thread tommorow.

Jerry

-- Jerry B (skeptic76@erols.com), June 21, 1999.

Having been out of work for a relatively long period (10 months), I can state from experience that it is certainly nice to know that you don't have to buy food to eat...that your food storage, garden, and other food resources will carry you through. Having little or no debt also helps, as does low housing costs.

Valuable skills also are helpful.

-- Mad Monk (madmonk@hawaiian.net), June 22, 1999.

I promise that this will be my last encouragement for Mr. Decker for some time. I don't know whether you will be happy or sad, but I'll be pulling back from the forum at the close of this thread. I will have someone repost my two threads (sometimes even with improvements) that I believe to be of some small help to newbies-- unless a moderator or their assistants send email asking politely that we cease and desist. Myself, I do admire your courage to face the fearsome possibilities, Will. And I enjoy your temper. God bless you and keep you continuing. Of course, I will honor my obligations to chat on about preparations if I can be of some use. I will also do what I can-- if there is need for my humble talents and ideas. My email remains info@giglobal.com. Of course, I plan to stop by every now and then, but I'll do my utmost not to bore you with long threads about depressions, disasters, etc.

My sabbatical (hopefully, it is a deserved sabatical) does not signal my lack of interest in Y2K. I continue to hold the opinion that potential Y2K problems are of such a threat that Y2K deserves our full attention. I'm not a programmer or a computer science guy on the front lines of this war, but what I do know with my own eyes and ears and what information others have shared with me... there is reason to take action, prepare as best I can, and do what good I can in the remaining time. I remember when I wrote my first post here and, especially, how I very seriously weighed whether to sign my message anonymously or with my real name and email. But if the stakes were big enough for me to take Y2K seriously and begin my own preps, then the stakes were big enough to risk and suffer the mockery that might follow from my posts. Now, I'm no Ed Yourdon, but we all might have something small to lose.

In fact, I have spent too much time on this forum (and enjoyed almost every minute)! There are many things yet for me to do... including helping more people to understand what may come and what they might do to prepare-- especially those that don't have a computer or internet access. I also have my preparations to complete: wood to chop, garden beds to prepare, green house to build, money to make (for the debt collectors), etc. There is also time needed to spend with family, getting in touch with people I haven't seen for years, and putting an end to long-held disagreements. Indeed, there is also time needed for spiritual exercises, devotions, and prayers. Perhaps, we haven't prayed hard enough for there to be no troubles on New Year's day or thereafter. At least, I could have prayed harder. I will pray harder with God's help. There is much to do. Even here, there is much to do.

I'm sure that all of you will need some time away too. There's so much to do and, yet, so little time. But I do hope that there will always be some people who will stay and maintain this beacon of hope. Certainly, this forum is a beacon of hope. Though some may mistake the jagged dangers illuminated in our searching light as doom and gloom, the searching light seeks out hope and will continue to seek out hope as the storm approaches. And this is also a good reason to take my time off from the forum now, rather than as the storm sets in. So, yes, I do plan to come back and make a pest of myself, again. I do also plan on keeping in touch with people and having more offline get togethers and meetings. When the time has come (if it comes) and there is need for me (and I didn't notice), most of you do know how to reach me. One if by land. Two if by sea. (grin) And three if it's TEOTWAWKI!

Sincerely, Stan Faryna

-- Stan Faryna (info@giglobal.com), June 22, 1999.

Brian,

I enjoyed your post. I have some questions for you too, but it is late now. Come back, tomorrow... and I'll do my best to ask an intelligent questions. Well, that's assuming I can ask intelligent questions with just a few hours of sleep. Better a few hours than none, I'll hazard.

Sincerely, Stan Faryna

-- Stan Faryna (info@giglobal.com), June 22, 1999.

King of Spain asked me:

"Do you care to hear them [other's answers to my questions], Stan, or are you only seeking enlightenment and guidance from The Master Troll himself?"

"Any pictures from that get-together in Washington, VA? Were you the little wooden guy on that older gentleman's knee?"

My answer is absolutely, yes, to your first question, King of Spain.

Sincerely, Stan Faryna

-- Stan Faryna (info@giglobal.com), June 22, 1999.

Jerry,

I agree. The answers to these questions demand much. For my part, I will be patient and stay with you on this thread as long as you and the others continue in the attempt.

I look forward to your many replies.

Sincerely, Stan Faryna

-- Stan Faryna (info@giglobal.com), June 22, 1999.

Mad Monk,

If I ever get out to the Islands, I would very much enjoy visiting with you.

Sincerely, Stan Faryna

-- Stan Faryna (info@giglobal.com), June 22, 1999.

Short lists of some attributes of a Y2K 10 and of ordinary depressions:

In a Y2K 10 (infrastucture collapse): money quickly becomes worthless, as do virtually all paper assets as well as many physical assets; what trade occurs will be by barter; supply lines come to a halt and famine becomes "normal"; unemployment approaches 100%; worse than your worst nightmare.

In an ordinary depression: infrastructure and supply lines continue to function; many assets lose value, but money increases in value relative to other assests; many bankruptcies and substantial unemployment, but many jobs still exist; not a pretty picture, but most people can cope.

More tonight.

Jerry

-- Jerry B (skeptic76@erols.com), June 22, 1999.

>>Brian, I enjoyed your post. I have some questions for you too, but it is late now. Come back, tomorrow... and I'll do my best to ask an intelligent questions ...<<

We'll just have to wait and see if I have any intelligent answers.

-- Brian McLaughlin (brianm@ims.com), June 22, 1999.

Brian,

You wrote:

"Most simply, a depression starts when the money supply suffers a sharp contraction... This happens when some item that has attracted a large amount of capital investment, or was used as collateral to secure a large amount of debt, suddenly plunges in market value... When the market for the item collapses - whether it is land, stock certificates, bonds, or something else - the difference between what the last holder paid to buy it and the loss he takes when he liquidates his position is how much money has vanished from circulation."

Not an economist, I hope you don't mind if I ask a few questions that will clarify some things in my mind. In fact, I think you had even anticipated my first question. For example, you explain that if a market for an item collapses, money will vanish from circulation. Why does money go out of circulation? If valuations fall, the actual holdings of money (as opposed to the value of investments) are the same, right? Does this mean that people are putting it under their mattress instead of moving on to buy and sell in another market? Or is the reality that most people don't have significant physical holdings of money, they have broadly defined investments that can be impacted and devastated by wide spread losses across a variety of markets?

Sincerely, Stan Faryna

-- Stan Faryna (info@giglobal.com), June 22, 1999.

Jerry,

In your brief description of a Y2K 10, you explain that money would quickly become worthless. It is obvious that at a certain point, people would not want cash, they would want goods or services that will keep them alive. How long do you think it would take for people to come to a consensus that cash and non-precious metal coins were of no value to them? What indicators might signal that turning point-- in the absense of any news that things were going to stay bad or get fixed real soon? Would gold, silver, precious gems, etc. follow this devaluation as quickly or would a mythic and psychological value of precious metals and gems support their value until things were so bad that only essential goods and services would be of value to people?

Sincerely, Stan Faryna

-- Stan Faryna (info@giglobal.com), June 22, 1999.

Stan

Money goes "out of circulation" when you trade some of it for an asset. Like one of those Beany Babys that seem to be so trendy now. You can sell that rag doll now for around what you paid for it until everyone realizes that they are ugly and the manufacturer can make a billion of them out of old socks and dried peas. Then the cash value of the rag doll goes from $150 to $2.50 because the "fad" is over. Unless the beany baby is lined with mylar and also contains an oyxgen absorber. Then it's preps and you can sell it here. Really, out of circulation is the wrong way to put it. It's the value of your assets that goes down. Where yesterday you had $24,000 in collectables today you have a buck three-eighty in dolls. Hope that helps and if you happen to face a collection of ugly rag dolls make sure you don't have your...

-- eyes_open (best@wishes.net), June 22, 1999.

FREE STOCK OPTIONS?

Here is something interesting and almost on topic... since we may be discussing the stock market: an online shopping site, POPULARLINK.COM, is supposedly offering free stocks through the freeIPO.com web site. To bolster its category and initial offering, POPULARLINK.COM seems to be imitating Amazon.com's strategy of giving away stocks for free.

In this case, POPULARLINK.COM is supposedly giving away options to purchase 5 shares of stocks (after POPULARLINK files an IPO with the SEC) for every person and one extra per five friends who join (when they type in your correct e-mail address at the registration prompt). Check this out and mention my e-mail address if you sign up.

My email address is info@giglobal.com. You may want to send a notice about this to 5 of friends of yours too. I got my notice from an acquaintance who works in the World Bank group (which is why I looked over the offering and, then, registered for the free stock options. And if you think this is a bogus offering, please do let me know.

Check out the site at http://popularlinknet.hypermart.net/index2.html

Sign up for options at http://www.freeipo.com/popularlink/step1.html

Sincerely, Stan Faryna

-- Stan Faryna (info@giglobal.com), June 22, 1999.

Stan,

You asked "Would gold, silver, precious gems, etc. follow this devaluation as quickly or would a mythic and psychological value of precious metals and gems support their value until things were so bad that only essential goods and services would be of value to people?"

Precious metals & gems would still maintain a certain value but would only be valuable to someone that was able to process them into a useful item. For a good idea of what is valuable in a Y2k 10 scenario, may I recommend the book "Wolf & Iron" by Gordon Dickinson. It was published in 1991 and is partly about the life of a peddler after society breaks down.

-- Cary Mc from Tx (Caretha@compuserve.com), June 22, 1999.

Stan....keep your eyes open and your ear to the ground. Your contributions have been invaluable and your soul shines! Please come back as often as possible, "All for one and one for all"!!

-- Will continue (farming@home.com), June 22, 1999.

>>Not an economist, I hope you don't mind if I ask a few questions that will clarify some things in my mind. In fact, I think you had even anticipated my first question. For example, you explain that if a market for an item collapses, money will vanish from circulation. Why does money go out of circulation? If valuations fall, the actual holdings of money (as opposed to the value of investments) are the same, right? Does this mean that people are putting it under their mattress instead of moving on to buy and sell in another market? Or is the reality that most people don't have significant physical holdings of money, they have broadly defined investments that can be impacted and devastated by wide spread losses across variety of markets? <<

Most money exists as entries on a balance sheet somewhere, rather than as cash. For example, I am sure that very little of your net worth is in the form of cash that you can hold in your hand. But, if the valuation of your home rose tomorrow to $5 million, because the market appeared to endorse that valuation, then you would have more money. You could bank on it, as they say.

One of the most important forms that money takes is as bank assets. Let's say a bank loans you $3 million, based on the collateral of your $5 million home. Not only can you go out and spend that $3 million, but the bank carries that loan on its books as an asset! By making that loan, the net worth of the bank also increases. Banks manufacture assets by giving money away.

Many people who are confronted with this fact consider it to be some sort of magic act, in that what has happened is that the future has been assigned a money value and been turned into an asset in present time. The future is represented by the interest payments you will make, further down the road.

If the bank has done its job properly, you were worthy of the credit, you will make the payments on time, and all is well. But, if the market for your house suddenly collapses, and the house is devalued to a mere $100,000, then one of two things happen:

- You successfully repay the $3 million loan and all is well.

- Or you throw the devalued house back onto the hands of the bank.

In the real world, the second happens more often than the first. In that case the bank recovers $100,000 from your collateral, but loses both the unpaid principal of the loan and the unpaid interest that it valued as an asset on its books. The net worth of the bank has taken a big hit and it has a lot less money to loan out or to pay its employess or stockholders.

Now, suppose you successfully repaid the $3 million loan with interest. Your own net worth has taken a huge loss. The next time you go to the bank to get a $3 million loan on your $100,000 house, they will laugh at you. You scale back your life accordingly. The businesses you shop at scale back accordingly. Their employees scale back accordingly.

This is how money vanishes.

It is especially pernicious when the item that experienced the bubble in valuation is something widely owned. The valuation is accepted as real and treated as a real asset. Owners of the asset feel wealthier, borrow more and spend more. The whole structure of the economy changes to accomodate the increase in the wealth represented by the valuation. Factories are built to supply the owners of the new wealth with more goods. Banks make decisions to loan money, based on the valuation of the item.

A bubble makes money - in the most literal sense. And a crash in valuation destroys money in just as literal a way. This money is just as real as cash in hand, but it may never have been converted into actual dollar bills at any time during the whole cycle of boom and crash. It just existed on a balance sheet somewhere.

Does this answer your question?

Incidentally, a bubble shouldn't be confused with inflation. Inflation can be seen in a more or less universal rise in prices. A bubble raises the price of one asset far out of proportion to all other assets. It is this aspect of a bubble that makes it so irresistible to investors. It looks this simple: you buy the asset, hold it a while, sell it, and you make a bigger profit than you could make buying anything else. More investors notice, enter the market, and provide the needed buyers to repeat the process. The item starts to attract a disproportionate share of investment money. A bonanza! A gold rush! We all make a big profit! Until the bubble bursts...

-- Brian McLaughlin (brianm@ims.com), June 22, 1999.

Cary,

How about a brief highlight of relevant ideas from Gordon Dickinson's book, "Wolf and Iron" (three or four paragraphs would be wonderful-- if you have the time)?

On Amazon's page for Dickinson's "Wolf and Iron", an anonymous reader writes:

"Dickson reveals deeply buried instincts and highly charged emotional relationships among individuals while spinning an exciting tale of adventure crossing North America. He uses the Wolf, a highly intelligent yet social animal to bring out the feelings of a man unsure of himself, yet capable of rapid learning under stressful conditions. The breathtaking adventure provides the backdrop for a man to learn about himself, through constant exposure to naturally occuring deadly situations. Dickson's unique capability to compare and contrast the fabric of human life through various human and animal companions is thought-provoking and challenges many assumptions we typically hold about ourselves."

http://www.amazon.com/exec/obidos/ASIN/0812533348/qid=930078502/sr=1-1 /002-1056109-1202057

Sincerely, Stan Faryna

-- Stan Faryna (info@giglobal.com), June 22, 1999.

Brian,

I could not have expected a more thoughtful and thorough explanation. Thank you. I read it twice.

What markets currently seem to be bubbling? I've heard a lot about an over-valued stock market and an impending correction ranging from 20 to 40 percent over all. But I haven't heard or know about any other bubbles (real estate, etc.).

There seems to be a significant increase of stock market participants with this year's boom of cheaper online trading and day trading. What is the general buzz about the stock market today (in general and specific areas of the stockmarket)? Is there currently thought to be a disproportionate level of investment, leveraging, and high risk to precipitate an ordinary depression in the event of a correction? Who thinks this? What do they (or you) think will happen with a 20 percent correction? 30 percent correction? 40 percent correction? It seems that internet stocks overall went through a shake down of around 40% recently, yet there was confidence enough to get prices going up again... at least for a couple of days, last week.

If I remember correctly, Greenspan had recently expressed an apparent uncertainty with regard to the internet and electronic commerce as converged in a bubbling and new (and higher) ground at the same time. How does new and higher ground substantiate bubbling over-valuations into appropriate high valuations? Can a mud slide bring down new and higher ground and what kind of ground shaking would cause a mud slide?

Sincerely, Stan Faryna

-- Stan Faryna (info@giglobal.com), June 22, 1999.

In another thread, Dave writes about his plans to short the market:

"I currently am making modest plays against the market that include: (1) dumping mutual funds (no brainer and finished some time ago), (2) purchase of shares in a gold/silver holding company (trades as CEF), and (3) shorting the market employing the "Prudent Bear Fund" (listed as BEARX, but requires private purchase).

Question: Do any of you out there doing similar moves have an opinion about whether to clear out before "01/01/00" or after? Assuming something less than 9-10, the big bucks could be made after, but the inability to make transactions in a timely manner once the rollover (coaster) occurs has me a little spooked."

PJ replies (snipped version):

"Inordinent market moves due to leveraged playes will find many market participents insolvent. These participents may have taken the other side of your short contract. As there may be a significant number of defaults one may find that his shorts have been uncollectable due to defaults of those financial institutions holding your trade. Many of the money-center banks (Citicorp, Morgan, BA, BT,BB etc) would become bankrupt should they experience a market index fluctuation of 12% should that swing come in a very short timeframe. The leveraged positions that they hold are often 200 to 300% of working capital. In a disorderly market event these banks may find it impossible to offset there positions and soon find themselves insolvent. To quote one of my favorite buisnessmen of the market crash of 1929, Joe Kennedy, "only a sucker tries to squeeze the last dime out of a trade." Employ a short position but do not try to hold it for too long or you may be the one Joe Kennedy was talking about."

Would anyone like to comment on Dave's strategy and PJ's remarks? Also, could someone explain Shorts, how they work, how you buy them, and what kind of risks are involved?

Sincerely, Stan Faryna

-- Stan Faryna (info@giglobal.com), June 22, 1999.

Whatever happened to Mr. Decker? We're doing pretty good without him, but I would have enjoyed his comments. And what about King of Spain?

Sincerely, Stan Faryna

-- Stan Faryna (info@giglobal.com), June 22, 1999.

>>What markets currently seem to be bubbling? I've heard a lot about an over-valued stock market...<<

Bubbles are difficult to peg, partly because every bubble begins as simple investment strategy, often a good investment strategy, based on sound expectations that pay off for the initial investors. They tend to be based on optimistic projections of the future, and by their very success they seem to justify the faith of their investors. One tell-tale of a bubble is that, at some point, a large portion of the investors do not buy with the expectation of staying around long enough for that rosy promise of the future to develop, but only intend to stay long enough for the next buyer to come along who'll offer a higher price. They heard you could make a killing in a short time.

Internet stocks fit this profile to a tee.

The broader stock markets seem to me to be experiencing a bubble, too. But that is a matter of heated debate among economists and brokers. No one's opinion can really be trusted on this matter. Even mine.

I base my opinion on a variety of facts and some gut feelings. Many large cap stocks seem priced for perfection - or better! The global economy is far weaker than it was two years ago, but the US market indices are far above where they were two years ago. Investors in stocks have lost touch with what consitutes a reasonable historic return on investment. These sorts of facts show me that the market lost touch with the ground some time back and is walking on air, unbeknownst to most shareholders.

As for whether the US stock markets are dangerously leveraged I have only anecdotal evidence. Large investors always carefully conceal their leverage. But when I read in the newspaper about middle-class couples in my town who have taken an equity line of credit their house, and are using the proceeds to invest in mutual funds on the assumption that the rise in stocks will cover their 9% interest on the loan and still outperform bonds, then I worry.

As for whether an inordinate amount of investment money is being directed into the stock market, I can tell you that my company offers a 401K plan. I am given the choice of putting money aside in eleven (!) different stocks-only mutual funds, two mixed stock-and-bond funds, and only one (!) fund that guarantees a particular interest rate - but the prospectus doesn't *require* it to invest in bonds to achieve that rate!!! I fear that, even in companies that offer broader choices, the allure of continued year-over-year 25% returns in stocks has drawn 401K money like a moth to a flame.

>> ...what kind of ground shaking would cause a mud slide?<<

A noticeable falling off of USA consumer spending would be number one on the list. But possibly any of these. A significant reallocation of assets into more defensive positions, due to Y2K concerns. Devaluation of the Chinese Yuan. Big losses at a US money-center bank, due to a large loan default in Latin America, or a sudden move in the currency markets. Almost anything that changes investor sentiment from greed to fear, really.

-- Brian McLaughlin (brianm@ims.com), June 22, 1999.

In another thread, Zach Anderson points us to a Gallop Poll conducted for the Board of governors of the Federal Reserve System, Federal Deposit Insurance Corporation, Office of the Comptroller of the Currency, and the Office of Thrift Supervision:

www.fdic.gov/banknews/fils/1999/Y2Ksurveyreport.pdf

According to Zach's and George's summary of the survey of 2,700 respondents:

26 percent of the 2,700 respondents "definitely will" get extra cash from their bank accounts

36 percent said they "probably will" do so.

62 percent are likely to get extra cash out of their bank accounts.

6 percent will get enough extra cash for "a long weekend"

12 percent will withdraw enough for a week

9 percent plan to get enough to last "several weeks."

19 percent percent said they plan to get cash to last a month or longer

14 percent said they likely will withdraw all their money from banks

51 percent plan to be on the lookout for possible Y2K-related errors

47 percent consider it likely that people will panic and withdraw ALL their funds prior to year's end

20 percent believe that the entire banking system will be forced to shut down on January 1, 2000 by computer problems

-

In a reply to Zach's post, A (A@AisA.com) writes:

If you look up the other threads, you will see that actual cash (Federal Reserve Notes [not legally notes] and coins [actually tokens]) ranges from maybe 1% to 2% (depending on how you count) of actual demand deposits (checking accounts, etc.) That means that only 1 or 2% of the people can get all their money out, or everyone will be able to get only 1 or 2% of their money out in cash. The money panic will start, and it will start, when a 'trigger point' is reached this autumn, where a critical number of people realize that 'emperor has no cash.'"

Anyone have comments about the Gallup Poll and/or corrections to A's remarks? What percentage of withdrawn deposits would make banks fail in general (individually)? What could the Feds do to keep a bank from going under? What have they done in the past? How many banks need to go under before there is so serious of a problem that problems migrate to the stock market, etc.?

Sincerely, Stan Faryna

-- Stan Faryna (info@giglobal.com), June 22, 1999.

The very best preps you can make for a depression...

Brian,

You recommended to be debt-free-- especially in one's attempts to keep one's house.

Is is worthwhile to imagine that a significant number of foreclosures (say 10% of all mortgaged homeowners) would spur urgent legislation to provide mortgage relief and extensions for late payments? How would that first 10% of non payments effect the health of banks and how would the banking system survive such legislation in the aftermath of significantly increasing late and/or non payments?

In an older thread, Ed Stevens writes...

"... if I can't meet the bank's demands... [and] I owe let's say 50K on my house and houses like mine already on the market can be had for 5 or 10K why would I want to meet the bank's demands. Especially if I had tucked away 10K in cash, silver or savings bonds. Who has the strong hand and how will it play out?"

Do you think Ed is on to something?

You also recommend having assets that you can turn directly into self-support: cash, land, skills, and tools. I wonder if there will be some difficulty in advertising and marketing skill sets if a lot of people are walking around with bill boards hanging around their neck. Perhaps, a pre-Y2K local barter and trade network could help match some people up. What do you think? Can something like this be set up?

Sincerely, Stan Faryna

-- Stan Faryna (info@giglobal.com), June 22, 1999.

Stan - just wanted to say thank you for you wonderful posts. You are truly a master at dialogue mediation (invented that phrase just for you!!!) (deep curtsey).

please don't stay away too long. I have been lurking awhile - and say very little. thanks again

justme

-- justme (finally@home.com), June 22, 1999.

In December, there was a thread, ADVANCE WARNING SIGNALS RECESSION, in which Ed Yourdon and others suggested various things that might (or might not) signal a recession or worse.

Ed wrote:

"There was an article in the NY Times business section, either Sunday or Monday (I don't remember now), suggesting that economists were somewhat concerned that they might not be able to read the signals associated with the current Asian financial crisis accurately enough to know what its impact will be on the US economy. The Y2K phenomenon is sufficiently unlike any previous event that I suspect that it will involve an entirely different set of signals."

My question:

Will the economic impact of Y2K problems involve an entirely different set of signals?

Sincerely, Stan Faryna

-- Stan Faryna (info@giglobal.com), June 22, 1999.

Just me and Will Continue,

Thanks for the warm send-offs. Your kindnesses do make it hard for me to pack my bags. But I'll be back. Hopefully, I'll see more posts from you when I return, Just me. (smile)

Sincerely, Stan Faryna

-- Stan Faryna (info@giglobal.com), June 22, 1999.

Stan,

"How long do you think it would take for people to come to a consensus that cash and non-precious metal coins were of no value to them? What indicators might signal that turning point-- in the absense of any news that things were going to stay bad or get fixed real soon?"

In the absence of functioning supply lines, the stores of consumables would decrease rapidly. Each person would individually have to consider what could they buy with any cash offered to them by someone who wanted to buy some of their consumables. Different people would conclude at different times that past prices are not useful guidelines, especially as their own supplies diminish. Meanwhile, people who had cash, but not food, would quickly get desperate, and would bid up prices. Those who accepted cash would subsequently find that bidding process accelerating so that they could buy less than what they sold for the same amount of money. Some will learn faster than others, but without new supplies, the process will not take long.

"Would gold, silver, precious gems, etc. follow this devaluation as quickly or would a mythic and psychological value of precious metals and gems support their value until things were so bad that only essential goods and services would be of value to people?"

Again, it would vary from person to person, but the process would be somewhat like the process with cash, except the starting points would be more problematic. How much gold does one ask for a can of tuna fish when one has only 11 cans left? How much gold does one offer for a can of tuna fish when one is starving?

Some consumables may function as money, as long as there remain any to exchange.

Jerry

-- Jerry B (skeptic76@erols.com), June 22, 1999.

Stan,

"Also, could someone explain Shorts, how they work, how you buy them, and what kind of risks are involved?"

You short a stock by having your broker borrow the stock from someone who is long, put it in your account, and then sell it. Later, you buy the stock at the then going price, and replace the loan. Aside from interest (and fees) that you pay the broker, you make money if the price goes down, and you lose money if the price goes up.

There are some kinds of investments in which the most you can lose is what you paid up front; there are others in which you can lose more than that. I suggest that the latter kinds of investments be avoided by those who have neither substantial investment experience nor lots of money that they can afford to lose. Selling short is one of the latter, along with buying on margin, writing (originating) options contracts, and trading futures contracts. Non-margin, non-short buying and selling of stocks, as well as buying and selling options that were written (originated) by others, lets you lose only the amount of money you paid up front. This is not to suggest that one can only lose money in such trading, but I like to remind people that losing money is one of the possible outcomes, and should not be overlooked.

Jerry

-- Jerry B (skeptic76@erols.com), June 22, 1999.

Stan,

Continuing with the topic of differences in preparation for a Y2K 10 scale disaster and preparations that would be useful in a depression?

Preparing for a Y2K 10 scale disaster could include such things as: Getting out of town and moving to the boonies, possibly to a mild climate, near fresh running water, fertile ground, etc; stocking up on supplies both of consumables and preps for raising crops, and generally prepping for "self sufficiency". Investments in paper assests are NOT part of preparing for this scenario.

Preparing for an ordinary depression could include minimizing debt and maximizing savings, changing jobs to one that will seem likely to continue during a depression. Certain kinds of investments in paper assets may be worthwhile, but I'll come back to that in a later post.

Meanwhile, I have been using the phrase "ordinary depression" deliberately because I would like to distinguish between ordinary depressions and a possible (and I think likey) Y2K depression.

While different depressions have both similarities and differences with respect to each other, we are, shall I say, "on track" for a depression with or without Y2K problems. What will precipitate the next depression is open to question, but I suspect that Y2K is a likely answer.

In addition to the usual problems of depressions, a depression precipitated by Y2K problems would have the the extra wrinkle, or wrinkles, that in addition to bankruptcies resulting from rapid changes in relative valuations of assets, there will be bankruptcies of still highly valued assets due to technological malfunctions. (For the sake of brevity, I am using the word bankruptcy here to include any cessation of a business process other than simple loss of customers to competitors).

So in addition to preparations for ordinary depressions, preparations for a depression precipitated by Y2K problems may include stocking up on things that might seem likely to become particularly scarce but which you want to be sure to have on hand.

Jerry

-- Jerry B (skeptic76@erols.com), June 22, 1999.

Jerry,

Thank you for your thoughtful answers. I realize that some questions may have been a little redundant, but I think that the readers will have benefited from your and Brian's efforts to clarify these points for me. I also take it that you agree pretty much with what Brian has explained. Am I correct?

I have frequently encountered the humble opinion that preparations for technology failures would also serve them well in the event of a Y2K Depression. I would venture the same. Yet I continue to wonder where exactly the Y2K technology-problem preps can be distinguished from the Y2K depression preps. Obviously, you figured out where I have been going with this. However, I would still like to press on to the finer details-- if possible.

For example, is there a point when the cash that paid for canned food would have been better used if put under the mattress and saved for hard times? Obviously, if you will be at risk of forclosure in January or sooner, the canned food may hardly be a comfort if you lose your home. Where does one find the mean between the extremes (if you are so inclined to discover it) or that perfect balancing where prudence and preparations are in harmony with each other? Will the pursuit of paper assets be worthwhile in the converging potential for a Y2K depression and Y2K infrastructure failures?

Finally, would a virtual online (or local and loose-knit) community of GIs provide reduced risks in either a Y2K depression scenario or a Mad Maxer? Would would the character of such a community or network be if it were to provide advantages in a Y2K or non-Y2K depression scenario? Do such social relationships pose greater challenges in the face of a depression due to the apparent lack of a common and intimidating threat to one's survival?

Sincerely, Stan Faryna

-- Stan Faryna (info@giglobal.com), June 22, 1999.

Stan,

Sorry for the delay. Brian wrote a nice post, although I must disagree with his underlying economic analysis. I will begin a new thread with an essay on this subject. It was good to meet you in Virginia. In a way, the trip brought a sense of closure to my time on this forum. I have personal and professional obligations that are likely to limit my reading and writing time. In addition, I continue to find the quality of the forum in decline. There are fewer of the Dave Walden's and Don Florence's. Pity.

Hope you enjoyed the Ramon Allones.

Regards,

-- Mr. Decker (kcdecker@worldnet.att.net), June 22, 1999.

Lots of opportunity for people to jump in and take on some of the tough questions, but I guess that a Y2K depression is not quite as interesting to folks as Mad Max. Still, the questions will remain and each of us may attempt to answer them quietly as we find the time.

Brian and Jerry,

Thank you for making my parting thread so interesting to me. I leave here having learned something new, and I am grateful to you both for your patience and efforts. Hopefully, other people learned something too. Yes, it's too bad that Mr. Decker didn't jump in. I am somewhat disappointed that he passed on the opportunity to discuss a topic with all due civility. (laughing) I will wonder what were his intentions!

Enough about Mr. Decker.

Bonzai! Bonzai! Bonzai!

And God bless you all.

Sincerely, an obscure doomer

-- Stan Faryna (info@giglobal.com), June 23, 1999.

Stan,

"I also take it that you agree pretty much with what Brian has explained. Am I correct?"

Keeping in mind that attempts briefly to discuss these topics involve oversimplification, and while I might prefer, for example, some other oversimplification of fractional reserve banking, I would say that Brian is doing an outstanding job.

"For example, is there a point when the cash that paid for canned food would have been better used if put under the mattress and saved for hard times?"

Yes! However (there always seem to be one or more howevers), the coordinates of that point are unknown at this time, and are likely to remain so until the dust settles. But, it is a very crucial question, because to the extent that we misguess the answer, our preparations will be that much less than optimal. Meanwhile, we get to have discussions, such as this, about it.

"Will the pursuit of paper assets be worthwhile in the converging potential for a Y2K depression and Y2K infrastructure failures?"

I think so, and expect to touch on that in a later post.

"Finally, would a virtual online (or local and loose-knit) community of GIs provide reduced risks in either a Y2K depression scenario or a Mad Maxer?" What "would the character of such a community or network be if it were to provide advantages in a Y2K or non-Y2K depression scenario? Do such social relationships pose greater challenges in the face of a depression due to the apparent lack of a common and intimidating threat to one's survival?"

Other than mentioning my assumption that it will probably be helpful for GIs to continue to communicate as circumstances permit, I'll simply say that you ask really hard questions. :-)

Jerry

-- Jerry B (skeptic76@erols.com), June 23, 1999.

Stan,

It appears that you just missed Decker's post.

As for "(snip), but I guess that a Y2K depression is not quite as interesting to folks as Mad Max", it is quite conceivable that the presence of the name Decker in the topic induced many simply to skip this thread.

Jerry

-- Jerry B (skeptic76@erols.com), June 23, 1999.

Jerry,

And I thought I was a selling point. (laughter) While my posts are extremely annoying to some, I have received many gracious emails thanking me. Unlike some doomsayers, I have written widely about preparation, self reliance, economic matters, the Leatherman "Wave," firearms, etc. Even my harsh critics acknowledge I have some abilty as a wordsmith. Unfortunately, my tendency to ask difficult questions and challenge "doomer" assumptions has made my reputation overshadow my writing. If you ask those who gathered in Virginia, you'll find I don't actually have horns on my head. I respond well to polite questions and enjoy a good laugh, especially when generated by Monty Python humor.

It's possible for a reasonable person to examine the Y2K evidence available... and decide modest preparation are quite adequate. As such, I fail the pessimist's litmus test... and will continue (no pun intended) to do so until the facts change.

Regards,

-- Mr. Decker (kcdecker@worldnet.att.net), June 23, 1999.