Friday, January 19, 2007

The opposite of poor is not rich...

...it is self-sufficient. That's the observation of Jeremy Seabrook in _The No-Nonsense Guide to World Poverty_ (good book, btw). I think this is an important point, particularly because we're very vulnerable to the traditional measure of self-sufficiency (that is, cash) being devalued. We all know how shaky American currency is right now - we're being propped up economically by precisely the people that we're competing with. That makes for some interesting possible scenarios. Lester Brown details one, in which China, which is on the verge of some major grain shortfalls, may end up competing for the food we grow with us - and winning. Another possibility is currency collapse. My friend Les, from Tennessee, who has a much stronger grasp of how markets work than I ever will, once explained it as we import 80% (actually a bit more now) of the savings of *EVERYONE ELSE IN THE WORLD* to make up our deficit. That this situation is untenable, and probably can't last, is really no shock. Les suggests one watch the hedge fund markets, and on the day the economy crashes, go out and buy a couple of pairs of boots from China - because you won't see $75 boots again for a long, long, long time. More like $450. And when that comes up against our ability to buy oil...well...

Now most Americans have little or no savings, and those who do, many of whom are baby boomers like my parents planning to retire in a few years, are terribly vulnerable to an economic crisis. Everything is in the markets. If the markets are devalued, so is their future security.

Now I'm sure economists of all stripes will tell you I'm nuts, but if the opposite of poor is self-sufficient, it seems like there are some good and interesting ways to avoid being stripped if the currency collapses. Now maybe it will never happen, but then again, this falls in the category of things that can't hurt you anyway. So here are six things that (IMHO) will contribute to your security.

1. Stay out of debt. Get out of consumer debt, and pay down your mortgage ASAP. Stop buying stuff you can't afford, sell off extra things you don't need if necessary to pare down your debt. If you carry a mortgage, the more of your property you own, the less likely you are to be foreclosed upon and the more likely it is that banks will negotiate. If you have a huge home loan, consider either paying it down by selling something or buying a cheaper house. Or consider consolidating with family members. If you are considering making housing changes, I would do it soon - most of the people I've read doubt we've seen the bottom of the housing market, and negative equity could kick in quite quickly, making it impossible for people to move.

2. Don't need so much. Get good at repairing things, making do. Learn to avoid waste. Get good at stretching meals and mending clothes. Get over your anxieties about looking poor, and start cutting back everywhere you can. While there are essentials that everyone needs, no one can deprive you of your luxuries without your consenting to feel deprived.

3. Keep a reserve of both money and goods. Ideally, keep some of your money in something that isn't subject to rapid devaluations. I'm no expert on this one - some people say gold, some people say, silver, some people say foreign currencies or treasury bonds, some people say cash under the bed. Look around and research the options and make your own decisions - I don't really have a strong opinion on this one. What I do have a strong opinion on is this - that anything you buy now and reserve for later is probably going to help you economically. That includes a reserve of food, tools, clothing, basic goods, etc... So if you can do it without going into debt or stretching your reserves, I would strongly recommend a six month supply (at a minimum) of storable food, seeds and basic necessities, supplemented with a backup of other basic items - an extra pair of glasses, some extra blankets, boots, warm clothes, whatever you might need to replace within a few years. Worst comes to worst, and you are ahead of the game on your shopping.

4. Access to natural resources. Money is paper. It is often a nice kind of paper to have, but at its root, money depends on a stable economy. A really unstable economy often results in inflation, or deflation, or, if you'd rather, a lot of unpleasant crap where your money isn't worth much. On the other hand, the things that money mostly gets traded for are useful, even if you don't have money in many cases. Even if you can't sell your potatoes, you can eat them, and trade them to your neighbors. Maybe you don't have money, but you have trees, and other people need firewood. Even if you live in a city, grow some of your own food in pots. The soil in those pots may keep you together some day. You can cut out the middle person to some degree (they still don't take tax payments in chickens anywhere I know of) by simply producing the things that money is a substitute for - soil, a good mine, a forest...these are good things to have. Just don't waste or strip them - use them wisely and carefully.

5. A strong community and/or family (ideally both). Your tribe are the people you can pool resources with in hard times - the ones who will take you in if the bottom falls out from under you, or share what they have if things get difficult. A strong community means that the more vulnerable members - pregnant women, mothers of very young children, the elderly, the disabled, small children - can be secure and protected. A community is stronger than an individual or individual household. Make sure you have one, and that it will hold through hard times.

6. The ability to live in the unofficial economy as well as the real economy. Only 1/4-1/3 of the total work human beings do is part of the "official" economy. That is, counted in GDP figures, taxed, included in discussion. Almost 3/4 of what human beings engage in operates in the unofficial economy - the biological economy, from which subsistence farmers, foresters, hunters, and gatherers obtain food, fiber and heat, the household economy, in which the work of domestic labor and childrearing is specifically not considered as "counting," the family economy in which members of biological or chosen families extend credit to one another and share resources, the criminal economy, where the Mafia, the guy who grows pot in his backyard and the Mom who pays the babysitter under the table operate, the barter economy where you trade goods for one another, and other permutations of the unofficial economy. This is where most of most human beings's real work goes on. And the less dependent we are on the "official" economy, and official jobs, the more secure we are. In practical terms this doesn't mean quitting your job, but it does mean having a skill set that will allow you to be, say, an handywoman or a home seamstress, a farmer or a childcare provider in the unofficial economy, able to subsist and earn a small amount of extra income through under-the-table or barter projects. Because no matter how few people are employed or how bad the economy is, the daily exchanges that are necessary for life will probably go on to some degree.

It isn't that nothing can destroy even the most self-sufficient and prepared person's preparations. That can happen in an instant. But by hedging your bets, we can make ourselves less vulnerable. We can retain our stake in the official economy, will still building our security and self-sufficience.

For those who have a hard time imagining that times could ever be that bad, or that hard, I strongly recommend two books. Timothy Egan's _The Worst Hard Time_ is an account of the people who stayed and endured the dustbowl. His account of the man-made disaster, the dust storms that lasted for days and the droughts that endured for years is both acute and compelling. His most important observation is that people did it, unknowingly, to themselves - the dust storms that went on for days, the death of virtually all the livestock on the prarie, children dying of dust-pneumonia, hunger, thirst, heat and drought. It is worth observing that right now the same areas are enduring an extended drought that has been called worse than the dustbowl. The other book is David Shannon's older work, _The Great Depression_ - it uses primary source material to describe the lead up to the depression and the collapse that follows. The descriptions of the housing boom and bust, and the hunger that went hand in hand with farmers unable to sell their food is both disturbing and evocative.

In almost every way, the people who endured the depression and the dust-bowl were vastly more self-sufficient than we were. And for those who survived, that, not their savings or their planning, were what enabled them to go on. It is also worth observing that in many ways, the thing that brought us out of the great depression was cheap energy. I don't think we should count on that happening again.

Sharon

11 comments:

Pat Meadows said...

Sharon, you wrote:

"If you carry a mortgage, the more of your property you own, the less likely you are to be foreclosed upon and the more likely it is that banks will negotiate."

Can you give some reasoning for this statement? I don't mean this to be a challenge, I'd just like to know the reasons behind it. (We have a lot of equity in our home and I would like your statement to be correct.)

Wouldn't the opposite be more likely? If the bank takes your home on which you owe very little, they gain a lot.

I think I'm confused. :)

Regards,
Pat Meadows

jewishfarmer said...

Pat, this is not an area of expertise - I'm stealing from other people who know more than I. But as I understand it, foreclosure in hard times is not something banks like to do, because they can almost never get rid of the property, and they then have to service the property themselves, taxes, pay legal fees, etc... In boom times, foreclosure on, say, farmland that can be turned into subdivisions, is profitable for them, but in hard times, when no one is buying property and a lot of people are struggling to pay the mortgage, foreclosure is a big loser for banks. They are often stuck with large inventories in a business that they are not really in, and no good way to unload them.

Foreclosure is also a loser for banks generally because with a mortgage, people are paying much more in total than their house is actually worth - so a 100K 30 year mortgage actually means you are paying 400K or so total. That's a cash cow for them - if they auction off property in foreclosure, they can never hope to get what they would by simply working with you to extend your payment schedule, or accomodating a few missed payments.

So they are most likely to foreclose where they have the most at risk, rather than where they might profit most. Does that make sense? Foreclosure becomes not an exercise in profit-making, but one in minimizing loss. So banks generally foreclose only when they have to, and mostly on people who have enormous mortgages and show little sign of being able to pay it off - that is, where hanging on is going to end up in the same result anyway. Whereas someone who has already paid them many tens or hundreds of thousands, and who owns most of their property now, is the last person they want to foreclose on - I suppose that they might have an incentive to foreclose on someone who is in their last few months of paying them off, but can't make payments, but if, say, you have 80K equity in a 100K house, in the long term, they can expect much more than 20K from you (in payments, that is), if they are willing to accomodate your short term problems, whereas in a tough market they'd have trouble unloading a 100K house (which is probably now worth less) for much more than 20 or 30K, and they'd lose money in taxes, legal fees, etc...

Now this might not be true if the housing crash happens unevenly, and you happen to live in a high value part of the country (I find it unlikely that that would be the case in your own situation, from what you say), while most of the rest of the nation is struggling - if, for example, say, because of gas shortages, sprawl areas become low in valuable and many people want to move to urban areas with public transport. In that case, if you lived in an urban center with good public transport, banks might foreclose early because of this. But generally speaking, they know they won't get milk by beating the cow.

I would add that as I said, I'm no expert, and if you are actually making life changes based on these assumptions I'd check with someone more knowledgeable than me.

Sharon

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