Currency Collapse Explained Using Sexy Bikini Girl Graphs, Part II

Guest Post by John Wilder

“You’re the one that’s collapsing.  Been sitting at that contraption for twenty-two years.  It’s time you tried a girl.” – The Addams Family

It is related to the post.  I promise.  That makes it literature, so you have to like it.  It’s sophisticated and swanky.

This series of posts was inspired by a great e-mail from Ricky.  This is Part Two.  Part One can be found here (Big Swedish Coins, Italian Women Pole Vaulters, and the Future of Money, Part I).

Let’s – again – state the basic thesis in Ricky’s words:

“I’m right there with you that collapse is coming to our house of cards because of the way they were dealt.  But after all of the individual survival dramas play out, survival ultimately depends on a community rising from the ashes.  And the glue of a community is ultimately the deals made between its individuals.  And money is the encapsulation of those deals.

“So when the dust settles and the smoke clears and the phoenix rises from the ashes of the eagle’s nest, there’s gonna need to be a reset on money.  On what it is, and how it works.”

Last time we looked at the financial history of the United States up until the Civil War.  The first Civil War, not the next one (Civil War II Weather Report: Spicy Time Coming), I mean.

Just a few generations after the Revolutionary War, in the 1860’s, both halves of the United States defaulted on currency during the Civil War.  The North defaulted on gold redemption in 1863, and the South printed Confederate currency like they were trying to make the Founding Fathers look like that one sailor that stayed in his bunk reading the Bible when the Seventh Fleet hit Sydney.  My father-in-law swears that’s what he did, and no one with an Australian accent has shown up claiming to be The Mrs.’ long-lost sister.

Okay, after the Civil War, the United States is at least done with defaulting, right?  I mean, we started up the Federal Reserve Bank™ in 1913 to stop these sorts of shenanigans, so that must have worked?

No.  If the Federal Reserve ever pretended to have the mission of maintaining the stability of the dollar, it failed like one of Oprah’s diets.

Ricky sent this one.  It’s perfect, with the exception that it doesn’t contain girls wearing bikinis.  I think . . . we can do better.  I think . . . we can Make Economics Sexy Again!

See, fixed that for you, Ricky.  Graph is now 1000% better, unlike our currency.  You can see her toes are pointed down into the sand, which shows that the value of the dollar is lower.  Also, if I can point your attention to the years between 1950 and 1965 you can see what an amazing, um, time span that was.

In 1933, the United States had $4 billion in gold.  Sadly, it owed $22 billion in gold that it would have to pay off in just a four years.

Solution?

Make owning gold by your own citizens illegal, and make them hand it in on penalty of going to jail if they don’t.  After you’ve got those dollars, redefine the dollar so that it’s worth a lot less.  Presto!  You’ve stolen all the gold and then made the resulting “dollars” that your citizens have worth a lot less.  Then you can give your cheaper dollars to other governments in payment.  It’s like being Enron®, but with 100% less jail time, so it’s exactly like being a Kennedy.

So, yeah, I’d call that a default, too.

Finally in the 1970’s, the French decided that they could wake up from their wine and cigarette haze long enough to see that the United States was way short on the amount of gold necessary to pay all the debts that Johnson and Nixon created to get elected.

Defaulting on your currency is like a divorce:  once is a mistake, twice is a trend, and by the third time….maybe, just maybe, it’s you.  The French decided to be sneaky, and took all of their dollars, showed up at the bank, probably with a baguette under each arm, and requested gold.  The United States essentially said, “Umm, we didn’t think that you thought we were serious about that.  OMG, LOL!” and stopped giving anyone gold in exchange for their dollar.   My scoring:  yet another default.

Since August 15, 1971, the United States dollar is backed by our sterling record of fiscal responsibility, along with thousands of nuclear warheads.  As Pop Wilder always used to say, “You get farther with a kind word and a sophisticated professional military and thousands of nuclear warheads than you do with just a kind word.”

I would my own discovery, the John Wilder Rule of Sexy Economics™: “You get more attention with bikini girl economics graphs than with just economics graphs.”

As careful study of this graph will show, the glorious years of 1970 led to the bare times to follow and a sensitive employment time in the early 1980’s.  Unemployment never looked so good.

So, that’s a little bit about money along with some recent history.  Looking at all of history, though, I’d say what happens with money depends upon the kind of collapse we expect to see.  For the sake of simplicity, I’ll break collapses into three sizes.  Why these three sizes?  As of the time of writing I’m a bit thirsty, and the local convenience store only has three drink sizes.  Here they are:

• Medium: The definition of a Medium failure includes monetary easing.  It could also include a default that may cause economic hardship, but doesn’t impact the government of the country or the ability of a country to issue its own currency.  This describes all of the defaults of the United States.
• Large: This involves the complete destruction of a currency.  Common examples are Weimar Germany or modern-day Wakanda©  In both cases, the currency imploded as the major engineering problem of the day was how to print more money, faster (hint:  the Germans only printed on one side to double press production).  In Germany, the change led complete dissolution of society and a rebuilding under . . . well, Literally That One Guy Nobody Can Mention.  In Zimbabwe, it led to complete destruction of the currency and eventual loss of power for the guy who had been President for as long as Zimbabwe had been Zimbabwe.
• Big Gulp®: This is the complete destruction of the economic as well as political system.  Rome, long laboring under a fiat currency, finally imploded and left behind a smoking crater that took hundreds of years to fill.  Thankfully, refills are only $0.29 with purchase of the official mug!

So what happens to an individual in one of these failures?

In a Medium Failure, you can keep your currency, if you like it, but what cost $100 a few years ago probably costs $1000 now.  Everybody adapts and you can generally go about your business, but you’re poorer and not at all happy, and it looks a lot like the Housing Bubble of the 2000’s.  Another analogy: it’s like you were forced to spend way too much time with my ex-wife.

The Housing Bubble can be seen pretty clearly here.  Somewhere.  Keep looking.  You have my permission.

In a Large Failure, ultimately the currency is toast.  Your money is gone.  But the country will restart the economy using either a new currency, or just by adopting an outside currency that’s moderated by someone marginally more adult than you.  Zimbabwe’s unofficial currency is the United States dollar, but there aren’t enough of them to go around, so many people use mobile currency that’s (more or less) run by cell phone companies.  When your cell phone company has a much better record of fiscal restraint than your government?  Yikes.

A Big Gulp© Failure is social collapse.  The biggest one in recent Western history is Rome.  The Roman Big Gulp® was so big that it spawned collapse after collapse in nation after nation as Rome shrank away from areas it could no longer afford to protect or govern. Great Britain is an example of the collapse.  After the last Roman Legion left people buried their money . . . and never dug it up.  Why?

The silver content of Roman coins in the late Empire consisted of waving a bit of silver over the top of the molten metal before a coin was made.  Rome had gone full fiat.  Roman coins, in the absence of Roman troops, were worthless.  Money itself was abandoned, and barter was the key, when local bandits and warlords didn’t just take what they wanted.

You want a worthless currency?  This is how you get a worthless currency..

How do we get to these collapses, and how likely are they?

Medium Failure:  I think that there may be as high as a 70%-90% chance of a Medium Failure hitting the United States in the lifetime of the average reader.  The challenges we will face with medical care (More Budget Doom, The Rolling Stones, an End Date, and an Unlikely Version of Thunderstruck) and the possibility that the politicians won’t resist the lure of free money promised by Modern Monetary Theory (The Worst Economic Idea Since Socialism, Explained Using Bikini Girl Graphs).  Read the articles at the link.  They were written by a cool guy I know, but before he really focused on getting better.

As a reminder of how close this might be to happening, a penny costs about $0.02 to make, so to get your two cents worth only costs a penny now, and that’s after they took out all the copper.  The copper alone in an old (pre-1979) penny is nearly $0.02.  It would cost about $0.04 to make a copper penny today.  A nickel costs $0.06 to $0.08 to make.  A dollar in pre-1964 silver coins is worth $10.60 at the time of this writing, which tells you that we’ve really already failed at keeping the value of our money up.

Ricky points out some interesting alternatives to currency in some of the supporting links he sent.  Just like Zimbabwe leaned on cell phone providers to be less insane and more trustworthy than the government, Facebook® is betting that its new currency, named the libra (LINK) will be less insane than the dollar, and has the added bonus of having the word “bra” as part of its name.  Honestly, I would have thought that Facebook™ would have denominated its currency in selfies and named it the lookatme.

Student loan debt makes you feel like you can’t afford much clothing, and you’re between a rock and a hard place.  And very fit and tan and covered with oil.

Large Failure:  Large failures are big.  I mean, it’s in the name “Large.”  It generally comes after really horrible financial malfeasance for years.  Our current medical payment system (which is really bad) will, if not fixed, lead to a large failure.  Other notable large failures?  The start and end of the Soviet Union.  North Korea.  Nationalist China.  The country is still a country, and, with outside help and a new government, can, after a generation emerge from chaos.

I think there’s as high as a 40-50% chance this will happen within the lives of the average reader.

Big Gulp© Failure:  What would lead to a modern Big Gulp™-Level, end of Rome type event?  Nuclear war.  Running out of hydrocarbons.  Meteor impact on George Clooney’s ego.  Catastrophic disease.  Reuniting the Spice Girls®.  Regardless of the cause, I could easily see a failure of this magnitude ending 90% of the human lives on the planet.

Big Gulp® failures might last 1,000 years, since the last one lasted 500 years.  That means, since the time of Christ, Western Civilization was in a Big Gulp™ failure for 25% of the time.  Still – it only happened once.  I’d give a likelihood of 5-10% of this occurring within the lifespan of the average reader.  Pray some of the Spice Girls© have bad tickers.

Okay, these aren’t the Spice Girls™, but their ascending height from left to right is the perfect way to show that whatever lines are on this graph are going up from left to right.  I assume the thing going up is bad.

Checklist – Signs of a Currency Collapse:

1. Gasoline is priced in goats.
2. Bankers take cold pizza as mortgage payments.
3. You can pay off your medical school student loans with the change from buying a candy bar.
4. Bill Gates is bumming cash by cleaning windows of passing cars.
5. $100 bills are too cheap to use as notepaper.
6. Americans are caught sneaking into Honduras.
7. George Soros begins laying off politicians and selling some on E-Bay®.
8. The IRS starts giving a 25% discount for cash.
9. Your financial adviser will have helped you get to a small fortune, but only if you started with a large fortune.
10. You try to make a withdrawal at the bank and they tell you they have insufficient funds.

So, Ricky, there it is, Part I and Part II.  See you in Stockholm to pick up our Nobel Prize™!

Don’t forget to bikini wax.

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