By John Galt
October 26, 2008
The first section of this essay is a look into a possible future our society might encounter in the months, or perhaps weeks, ahead.
Mary Jo Schlumpunfunk (with all kudos to Glenn Beck) was driving home from work in the suddenly cold November air of her home town of Jeffersonville, Indiana. Mary Jo was sick and tired of listening to the depressing news about all the problems all those rich bankers and Wall Street types were having so instead of listening to the news station, she switched over to her favorite pop music station tuning out reality and enjoying the drive back to her humble apartment on the outskirts of town. Her neighbors greeted her with a friendly ‘hello’ as she walked up the steps and they asked her if her company was going to shut down or not next week for the holiday. Mary Jo paused with a puzzled look and said “We are open, even for Thanksgiving Day as far as I know.” They nodded and looked at her like she was crazy and then went inside out of the cold air of the night. Mary Jo’s position as the Assistant Manager at the local Kroger’s gave her the confidence that her job was secure because after all, people had to eat.
As the alarm went off at 3 a.m. Mary Jo did not even think about what was being broadcast and just hit the off switch on her clock so she could start getting ready for work. She turned her computer on as she passed by it on her way to the bathroom so she could get ready to relieve the night manager at five. Mary Jo returned to her computer after getting ready to log in and check her email only to receive a message on her browser that there was a connectivity issue. With that frustrating bit of news, she looked at the cable router and sure as heck, it was down again. The regular routine of having to dig an old cable bill out to call the idiots at Time Warner has long been replaced by having the tech support number on speed dial on her telephone and cell phone. When she picked her telephone up, it was dead with no dial tone or service of any kind. Then she grabbed her cell phone and called finally getting through only to get the message “We are aware of the current outage in all of our services and we are working diligently to restore service to all of our customers as soon as possible. At this time, all internet access is restricted to certain business accounts only and will be restored to residential customers as soon as we can.” With that cheery bit of good news, she grabbed her coffee and hopped into her car to go to the local combination gas station to grab some breakfast and gas on her way to work.
With a little bit of stunned disbelief she pulled into the pumps at the local Gas-N-Go where literally every pump but hers had a car sitting there and the inside of the store was packed with people. She dutifully popped the gas cap off and slid her debit card into the slot as her breath steamed up the morning air. The card reader displayed “INVALID CARD, PLEASE SEE CASHIER” in the tiny LCD display. With that she grabbed her keys and purse and huffed inside to the station now leaving her only forty minutes to get to work. The line at the poor cashier was murder with people yelling and screaming at the young lady demanding that she fix the problem immediately but she kept saying she couldn’t and was on the verge of tears. Mary Jo grabbed a bagel and a bag of chips the hopped into the line from hell. When it was her turn at the front she started to say “My card…” and was cut off by the young lady who blurted out “I know, I know, it does not work. It doesn’t matter what card, what bank, whatever but none of them are working and I don’t know why. I can only take cash now. Would you still like to buy gas at Pump 4 or not?” Mary Jo said “Sure give me $20 worth plus this stuff”, knowing full well that would leave her less than twenty bucks in her wallet after buying all the groceries and gas but she could get more food at work because after all, she worked in a grocery store.
After that encounter she turned the radio off in her car and headed off to work, listening to her favorite Johnny Cash CD. “The heck with all this idiocy” she thought to herself. Maybe work will be peaceful and we can get the Christmas food display moved to the front of the store to boost the sales. Mary Jo pulled into the parking lot expecting to see only the usual five or six cars that were normally there. Instead of a usual day, she would see what happens when the world is turned on its side, as the lot was full and there was a line of people standing in front of the ATM machine outside which had to be forty plus people deep. On a day like today, Mary Jo knew she would have to park in the back and sneak in through the receiving door just like it was the peak shopping season. After parking the car, she wolfed the bagel down while walking inside while trying to slurp down her coffee. Oh the shock she would see.
The night manager was sitting in the receiving area with his head in his hands sobbing like a baby. Mary Jo would not think this was unusual except he was a fifty-three year old man, and as an ex-Marine his will usually was emotionless, all business, and stalwart. “Mike, what is the matter, are you okay?” Mary Jo tried to ask as she approached him in an effort to comfort him. Mike replied “You should never have come here Mary, this is a disaster. Do you know how many times we have had to call Law Enforcement out here to restore order? Don’t you listen to the news or anything? This is a nightmare, an utter, disastrous nightmare.” Mary Jo noticed a half empty bottle of bourbon at his feet and that enraged her immediately. She snapped back “Get your self together mister. There is nothing that severe that justifies drinking on the job. You have a job to do and you need to get your damned butt on that floor out there right now!”
“Mary Jo,” Mike said in a soft spoken and measured manner, “you do not have a job. I do not have a job. Kroger’s does not have a job for us any longer. You need to go report to the new resource manager who is running the show here. We are just clerks in their eyes and you had best get used to it. The State of Indiana Resource Manager showed up at one o’clock in the morning. His name is Tom O’Donnell and he’ll remind you of his power every hour, on the hour. Our store has never been the same since.”
“Mike, you’re drunk. You need to get home and sober up. I’ll go meet Mr. O’Donnell and straighten this out now!” Mary Jo confidently stated as she slammed the doors of the docks open and walked out on to the floor. As she looked at the shoppers in the meat and deli section, her only reaction was to drop her full cup of coffee on the floor, creating a huge puddle of hot steaming java on the floor. She stomped up to the manager’s office in the front of the store only to be greeted by a deputy in the doorway who told her “Ma’am, only authorized personnel are allowed in that office.” She snapped her name badge off her bloused and put it in the deputy’s face and in an angry tone told him “I’ve been in this office longer than you’ve had your job son. Now let me into my office to meet with Mr. O’Donnell and find out what is going on in my damn store.”
As she walked into the office she closed the door and saw another deputy, this one armed with a shotgun, the resource manager and the store manager, Bill. Mary Jo looked at him sternly and spouted out “Why are there two men armed with assault rifles in my deli department?” Bill, looking tired, disturbed and frustrated already said “Mary Jo, please sit down. We have a lot to cover. Let me introduce you to our new boss, Tom O’Donnell from the State of Indiana Department of Resource Allocation.” Stunned and now silent, she fell back into a chair in the office as Mr. O’Donnell arose to shake her hand and said “Hello Mary Jo, I know this is going to be difficult, but I think we can all work well together. I assume you have not heard any news since you woke up early this morning?” Mary Jo in a soft voice said “No, I was listening to a music CD in my car. I noticed my debit card did not work and that is about the only thing that was unusual other than my internet being down, but that’s a regular problem now.”
When she was finished, the news was dropped on her. Mr. O’Donnell explained to her that 11:30 p.m. last night President Bush declared a banking holiday and shut down all civilian internet access and non-emergency telephone communications to insure a smooth transition while the cash rationing and bank consolidation programs were implemented nationwide. Mary Jo stuttered “why the internet, if you do not mind my asking?” He explained to her that it was to prevent an external internet based attack on the financial system and that the U.S. stock and bond markets would now be closed for thirty days until the new banking system could be implemented. Mr. O’Donnell then went into a detailed explanation that ATM machines would be reactivated at 6 a.m. sharp and that each individual will be limited to $50 per week, regardless of the number of bank accounts in their name. He went on further to highlight that all credit cards will be suspended for the same time period as the stock market to enable the banks to evaluate who would be allowed to own or utilize the cards in the future.
After that bit of shocking news causing tears to well up in her eyes, Mary Jo then asked the obvious question, “So what is your position in all this?” O’Donnell knew this was coming and replied “Emergency food, gas and energy rationing has been declared nationwide. Every state officer or manager with a certain clearance level received training from FEMA and the Department of Treasury as to this possibility this past summer. Every American has to be guaranteed access to food and energy and those gas stations that do not have a military or state police unit there by now, will have one by 7 a.m. We have to insure safety and stability to prevent people from over-reacting as the Bush administration transitions over to the Obama administration in the next sixty days. I will be helping you with re-organizing your store into a more efficient model to deal with the foodstuff and merchandise purchase restrictions so the civilians will not freak out. Only forty customers will be allowed into the store at any given time and each customer will be handed a shopping list that they can abide by until the rationing program moves into full swing. Price controls are in full effect and we are in the process of working with your main offices to reprogram all computers to these limitations. We can accept cash today and hopefully the debit card system returns to normal in the next two hours. Sadly, we are rationing everything this cold winter, including electricity and most importantly, money.”
Mary Jo was speechless. She looked at her store manager and wanted to cry but couldn’t. “What do you need me to do?” was all she could say. Mr. O’Donnell explained that the entire Christmas display had to come down as well as any non-essential goods removed from the shelves. He handed her a file and said “At all times you will have an armed escort for your protection. I know these are your neighbors and regular customers but you never know when someone will go Waco on you.” As she opened the file, she realized the gravity of the situation. She had to remove the entire electronics and gift section. Christmas decorations and greeting cards had to be removed; alcohol shipped on a company truck to the new “State of Indiana Resource Distribution Center”; all drugs including over-the-counter moved into the pharmacy. It was a stunning bit of news. And she realized with the dread of the moment that this had been planned for months, perhaps years.
Mary Jo now realized why the headline on the Louisville newspaper said “Closed for Business” and announced the government program on the front page as well as a brief story about the midnight bankruptcy filing for the paper. She thought to herself “I guess America is now closed for business also” as she sauntered over towards the cashiers to comfort them and begin the process of re-organizing the store to the new Federal and state mandated standards.
“There You Go Again”
I know exactly what my readers are thinking; he goes on vacation for a week in a tropical paradise and comes back with a more depressing outlook than ever which means that
(a) the sailboat flipped over and he swam to shore only to discover his Crocs were not really waterproof
(b) it snowed unexpectedly causing the Iguanas and bartenders to go on strike
(c) the wife spent more time shopping and my debt load now exceeds that of twenty third world countries
(d) the author is in dire need of Xanax
Fortunately, the correct answer is (z) none of the above. With the time used to clear my head and enjoy what in most likely will be the final vacation my family enjoys this decade of any expense, it gave yours truly a chance to reflect on the course our nation is on and the solutions to the problems that are so numerous, so extensive and so dire that few people wish or are allowed to discuss them publicly.
The vacation was not spent totally in a void as I was able not only to see the satellites in orbit as they zoomed by among the stars, I was able to tune into Bubblevision and the other various news channels who spend more time focusing on make up and dresses than those minor issues like a financial collapse or the progress Iran is making constructing a viable atomic weapon. Thankfully the Vice-Presidential apparel debate has taken over the front page so that leaves us doomsayer bloggers who dutifully report in our opinion pieces a blank slate to comment on the insanity we are about to experience as if the short term fiasco already underway was not enough fun.
The fictional start to this entry is nothing more than that, a potential outcome based on the current situation inside the United States. The great nationalization has begun in earnest and as of the date of this writing, the government is now entertaining the idea of buying into the insurance industry even further because Lord knows the “good hands people” can’t survive by just picking the pockets of their customers and investing in hedge funds who buy subprime paper and Zimbabwe dollar futures.
Nationalization is not a joke however, and the American people are snoozing their way through the process, much like the Italians did in the early 1920’s as the march to Fascism was well under way. The United States, as I have joked sadly and often, is turning into the largest banana republic in the history of modern capitalism. You and I are witnessing banks being ordered to consolidate, ordered to issue loans, ordered to sell ownership stakes to the government and ordered to shut down under FDIC supervision where the bad part of their portfolios become a taxpayer problem but the deposits create larger and larger entities to maintain the “too big to fail” mantra.
Government bureaucrats have had over seventy years to improve upon the “New Deal” and insure that they can implement a Keynesian philosophy to prevent the meltdown we are witnessing. Unfortunately every enterprise the government has endeavored in over this time, they have butchered any and every attempt at running a private enterprise operation as a government entity. Despite this obvious fact, the government is seeking to expand the ability of various and yet unnamed agencies to acquire “investments” in various industries across the land. Worse yet, even as we sleep at night, the Federal Reserve (a private entity) and the Department of Treasury are devising new ways to react to the anticipated wave of bank failures which will accelerate in 2009.
While many are backing off of their original predictions, I stand by my recent statements that over 3000 banks will cease to exist either through a FDIC takeover or forced M&A action. This means the scenario described above is not out of the realm, nor too hard to imagine. Any direct takeover of the entire banking system via a holiday or other government action will require a large level of centralized control of not just banking operations but credit card, third party contracted bank related corporations, and telecommunication systems. This opens the door for more discrete acquisitions which might on the surface seem innocent enough but in reality might well have a darker intent.
It’s the Supply Chain, Stupid
The plight of Mary Jo being subordinated to a fictional “Department of Resource Allocation” may sound so far fetched and third worldesque as to cause many readers to have bypassed the true intent of this ranting and proceed back to the anticipated debut of the Sundance Channel’s Boy George Movie Marathon. In reality though, such plans do exist, are part of government planning on the Federal and State level and can be implemented in hours in much of the nation. The problem, as always, is the unpredictability of human beings and their reactions which determine the viability of any government based plan of action.
There is an understanding within our emergency operations community that the benefits of the J.I.T. supply chain are also a curse. The average community has only a three to five day supply of foodstuffs in the various grocery stores and regional distribution centers. The energy supply is in even worse shape due to the irregularities of our refinery production thanks to supply interruptions over the last six years.
Transportation companies would have to trust the government to insure payment and escort to keep stores stocked and functioning. The ruling party would have to insure that an orderly raw material and finished good flow is maintained just to keep peace and quiet in many communities. Obviously it is impossible to insure that food and supplies are equitably distributed so the military and any law enforcement entities would have to be employed to insure tranquility. The implementation of government J.I.T. controls is a given as the allocation of goods and services would shift from the supply demand model to that of a nation facing the real prospect of starvation on a large scale basis.
With such an enterprise under the control of various state and Federal bureaucrats, one can only anticipate the level of graft, corruption and outright theft involved. Add in the black market which would spring up overnight and you get the idea that the food and energy requirements for many major cities would not and could not be met, creating an entirely new regime of problems. These problems would sadly engender the necessity of deploying and enacting martial law on a regionalized basis to ensure the needy and middle class who were oblivious to the storm are taken care of. Let that sink in as President McCain or Obama is sworn in.
Rations, Rations, Everywhere
Imagine a banking crisis so severe that the real supply chain issue, money, gets rationed also! That is not a crazy proposition in the times we are in. Such an event could be triggered by a non-FNC Alert happening which hits in a smoke filled back room in Zurich or New York. Imagine a hedge fund failure of such magnitude it freezes the entire derivatives clearing system causing banks to beg governments world wide for a holiday to prevent an institutional and individual run on the existing cash on hand. We apparently have come very close to that event with the Lehman bankruptcy and good luck getting someone other than “a source” to speak openly about the dangers of this happening.
It is real and could occur at any time within the next one hundred and eighty days as there is that much instability in the banking system at this time.
The implications of such a seizing up of the cash flow are obvious. The governments of the world would have to act immediately because news of shortages and the inability to deliver are what create and trigger bank runs on a national basis. The United States would have to control the news, the events and the ability of everyone to transfer, use or withdraw monies immediately or risk the end of not just the system, but quite possibly the Constitution.
In an interview on PBS this past Tuesday, October 21, Nassim Nicholas Taleb the author of “The Black Swan” said quite bluntly that this was “I don’t know if we’re entering the most difficult period since — not since the Great Depression, since the American Revolution.” (http://www.pbs.org/newshour/bb/busin…man_10-21.html) The fact that he made that statement startled the interviewer, but it is not far from the truth. The allowance of a supply chain collapse is what will trigger the preventative action or “excuse” needed to allow the nations of the world to modify the methodology of their government functions and the system of finance currently in use.
The meeting that President Bush called for November 15, 2008 will indeed include the new President elect and that will create the format for the official transition and the future of our nation. Regardless of who is elected, with the ‘D’ or the ‘R’ after their name, you will have no vote, no say, no input as to the direction our nation will take regarding capitalism and the future of our currency. The new banking system and perhaps a consortium of powers, outside of the United Nations, will probably be created to oversee the management of a new type of Bretton Woods Treaty. Our nation will never be the same after this as credit will be restricted and offered to only the select few and the ratings criteria will be revised to prevent another meltdown like the one we are only about forty percent through the de-leveraging process at best at this time.
The flow of cash will be rationed, either in name via the fictional scenario above (currency controls via a bank holiday) or through the creation of alternate currency schemes. It must happen to separate the debt and instruments denominated in the weaker currencies from the new or approved nation’s currencies. This will put intense pressure on small businesses and individuals as credit will distributed at will via the government but commerce may have to be conducted using two types of currency; the old, rationed currency being used to pay employees and conduct business within the borders of the U.S. to pay off old obligations, and a new script approved and accepted by other nations for the purpose of trade or large obligations. The model for this idea was established with the collapse of the Soviet Union in the 1990’s and unfortunately we are on a similar path if corrective action is not taken soon. The same double standard could be applied to our current dollar to finally resolve the outstanding debt pyramids for which the U.S. banking system is still currently liable.
For the average citizen, the implications are obvious.
Universal Currencies Already Exist So Use Them
There is a misguided belief that a universal one world currency does not exist. That is patently false.
If you were to approach a dealer in precious metals or many banks in Europe or Asia, the Middle East or Honduras, etc. with a United States $20 gold piece, you could immediately convert that one coin into a substantial amount of the local fiat currency currently in use. The same applies for Swiss or British gold, American or Canadian silver, you name it.
There are many vendors in third world countries that will conduct business or barter with you as an individual by using these true universal currencies. To prepare for the upcoming scenario displayed in the fictional piece above, you had best not be too dependent on your local stock broker to rescue your hide nor the ability to withdraw monies from a money market fund. The solution is to have a universal currency ahead of your neighbors, but not to flaunt it so blatantly in the open that your family’s safety is at risk. Discretion will be the better part of valor in such a scenario. The basics of getting ready for something like the story above is far beyond three cans of tuna, a roll of duct tape and plastic sheeting as Hurricane Katrina demonstrated so well. It is the more likely scenario that you and your family will deal with and the only warning you will get will be the crash of the Belarus Securities Exchange (just an example) or the implementation of currency exchange limitations by various nations throughout the world to insure they can pay their dollar denominated debts back.
Thus why I fear the time is short and very soon you might wake up to a nightmare despite another Saturday morning Presidential address telling you that the “future is so bright you will have to wear shades” or some other such nonsense. Amazingly, there is some good news to this entire scenario if the system stabilizes and the current reflationary effort succeeds in creating the desired inflationary reaction the central banks of the world desire. By next spring some asset prices will start to skyrocket in price and the perceived growth in GDP will cause the stresses in world equity markets to subside, enabling the hedge funds and other unregulated instruments to liquidate without further damage to banks throughout the world.
You will recognize this success immediately in the spring of 2009; just by going grocery shopping. We’ll discuss what I feel will be America’s final bubble in the weeks to come…