House of Cards

TURNING and turning in the widening gyre
The falcon cannot hear the falconer;
Things fall apart; the centre cannot hold;
Mere anarchy is loosed upon the world,
The blood-dimmed tide is loosed, and everywhere
The ceremony of innocence is drowned;
The best lack all conviction, while the worst
Are full of passionate intensity....

from "The Second Coming", by William Butler Yeats


I'm pretty lucky--at least so far--to be living where I am. Canada, by virtue of having commodities to spare, has as of yet been largely shielded from most of the mess of the American economy. The housing market here has seen a bit of a slowdown, but it's still humming along. This is due in part to Canadians' reluctance to embrace such things as 40-year and zero-down mortgages. Both 'innovations' arrived here in 2006, some time after they had thoroughly infected the U.S. While some people bit, there hasn't been the same widespread enthusiasm. Our government recently announced that it will no longer insure mortgages with amortization periods longer than 35 years, and homeowners will be required to fork out five percent of the home's cost to be eligible for a mortgage. This policy is lamented in places like Vancouver, where housing prices are insane, but it's welcome just about everywhere else.

Debt up here is still something of a four-letter word...and while we don't save to the degree our parents and grandparents did, we still save a lot more than our friends to the south. Gas at $1.349 a litre (about $5.10 a gallon) has curtailed our driving habits somewhat, but not so as you'd notice: because distances in this country are so vast, we've always preferred smaller, more fuel-efficient cars.

That's not to say everything's rosy in Canada. The Ontario manufacturing sector is battered beyond belief, hemorrhaging jobs by the day. There are a myriad of factors at play here. One is the soaring dollar (which actually hasn't soared nearly so much as the U.S. dollar has tumbled). I used to fume that all these plant closings were a direct result of relying on a 60-cent dollar as a crutch, but I see now that's not exactly fair. There's little doubt the American economy is in the tank. The mainstream media are still a little hesitant to call it a recession: other sources are more shrill, claiming the economy's in a nosedive that's threatening to turn into a death spiral. Regardless, the United States, still our largest trading partner, is now in a position where it can afford only to import the stuff it absolutely has to: raw materials. It's a damn good thing we've got those in spades, because the Americans sure don't want anything to do with our finished products. Demand sinks and pulls jobs down with it.
Again I've lucked out here. I live in Canada's tech town, home to giants like Research In Motion and OpenText, along with scores of others. We're not immune to the manufacturing implosion (we've lost thousands of factory jobs over the last five years), but it's been more than offset by the booming technology industry. The local economy is running tickety-boo.
Outside my bubble, though, things are looking increasingly bleak.

I'll admit until last Friday I'd never heard of Fannie Mae and Freddie Mac. I still say they sound like somebody's grandparents, not companies that between them hold nearly half the American mortgage industry in their feeble, wrinkled old hands.
The Federal Reserve is apparently looking at bailing these two giants out. I'm not sure it can. We've seen the Fed try to prop up investment banks: look how well that turned out for Bear Stearns. IndyMac, America's third largest bank failed on Friday, singlehandly wiping out more than ten percent of the FDIC's reserve funds. The reason for the failure? Essentially, a bank living beyond its means by encouraging its customers to do the same. Mortgages were extended to people who had no businesses applying for them, let alone recieving them. This was all well and good while real estate prices kept rising: if somebody defaulted, their home was usually worth more than the amount owing on the mortgage, so the profits would roll in regardless. That is, until the inevitable downturn in prices set in.
(The economy runs, and has always run, in cycles. Why is it so many people who should know better seem to forget that?)
Banks aren't the only entities living on the knife's edge. There's increasing talk of America's Big Three automakers going bankrupt. The federal government would undoubtedly step in before that could happen--not least because the American auto industry maintains a powerful Washington lobby that, according to this linked article, started the U.S economy down the road that led to the whole economic charlie fox event in the first place. But again, look how well government intervention worked for Bear Stearns.

If companies as large as General Motors and Fannie Mae collapse, the reverberations will shake
the American economy like a magnitude 9.0 earthquake. The debris field will be considerable. I've tried to imagine the aftermath, but the dust and smoke obscure mental vision somewhat.

Disaster may be averted, somehow. Nevertheless it seems prudent to prepare for the worst, to earthquake-proof yourself and your family as much as is possible.

HOW TO SURVIVE A 9.0 ECONOMIC EARTHQUAKE

The key to survival in any earthquake is to fully adopt two principles that seem, at first glance, to be contradictory. You must be firmly rooted and you must be flexible.

By "firmly rooted" I do not necessarily mean tied to a place. Indeed, you may have to get the hell out of the way of the lifestyle failing all around you and relocate somewhere far away--possibly very quickly, too. But you must be thoroughly grounded in reality. Look behind the news: always ask what you're not being told. Assume, when the bad words actually get uttered on national television, that things are considerably worse than they're letting on. If you're religious, and have always counted on God to smooth over the rough patches, remember "God helps those who help themselves".
PAY ATTENTION. Keep a close eye on developments, even if they seem far away and unimportant to you personally. Remember that the global economy is interconnected: a butterfly fart in Beijing can result in an economic tornado closer to home. Also remember that in our 24/7 world, things can spiral up and out of control remarkably quickly.
READ. Read various perspectives on where the world is at and where it's going. Don't allow any one perspective to wholly dictate your response.
HOPE FOR THE BEST, PLAN FOR THE WORST. Don't expect the worst--that's a sure way to bring it on--but formulate a mental plan in case things go to hell in a hurry. Here's a good one from Jim Kunstler's archives, with my comments after each point. This is dated November 8, 2001.

-- Get out of the Sunbelt while you can. Places like Atlanta and Houston will be unlivable in a world of expensive air-conditioning and iffy gas.

How did he see this coming, I wonder? The price of oil in November, 2001, stood at less than $30/bbl. It's nearly quintupled since then.

-- Look for a traditional small town to live in, as close to the center as possible.

If things go really squirrelly, I'd suggest a small town that's good and far away from the nearest big city. Depending on how paranoid you are, you might actually consider two possible destinations, one no more than a single tank of gas away and another as far away as you can get. A city is only three days of supply disruption away from mass civil unrest. (And that's what I mean when I say you might have to up and move fast.)

-- Favor places where supplies of fresh water are relatively assured.

In other words, think like a pioneer. Discard the mindset that's crept into the Western urban way of life, that everything you need is stocked on a shelf someplace, waiting for you to come and buy it.

-- Do whatever you can to reduce your car dependency.

Don't count on the electric car to save us. At least, not until you start seeing Tesla Motors dealerships in your home town. Besides, you'll reap the health benefits of getting off your ass.

-- Those of you who think "country life" will be a refuge from difficult times ahead had better be prepared for farming or some other rural lifeway. The end of suburbia also implies the end of urban lives lived in the rural setting.

If things get bad enough, you might have to be responsible for your own food. Just on that off chance, you may wish to pick up a book such as John Seymour's The Self-Sufficient Life and How To Live It. You don't necessarily need to read everything in it right away (though it's a dense, fascinating read)...just remember where it is in case you have to grab it on the way out of the house. Incidentally, there are plans in here for limited self-sufficiency on as little as an acre, while five acres, carefully chosen, will support a large family.

-- Get out of debt.

That's important no matter what happens. Even if the economy rights itself and things somehow continue on as before, it would be wise to view the averted catastrophe as a warning sign.
Speaking as somebody who once had absolutely no concept of the value of a dollar, and who frittered away literally thousands of dollars on frivolous stupid crap most of which I didn't need, don't have anymore and in some cases can't even remember...debt is a four-letter word. It's a handicap that can become crippling in short order even without external factors like soaring interest rates and economic ruin.

-- Learn how to do some things that will make you useful to other people, and consider doing it at the scale of a small or home business.

Most people can't and wouldn't want to survive on their own. Even if you're one of the people that can and does want to, by definition, skills that are valuable to others will be valuable to yourself as well.

-- Become involved in public life and community activities. In the shitstorm of political recrimination to come, there will be a great need for reasonable citizens.

This ties back into paying attention to what's going on. Crises bring out the worst in people: you'll need to counter it with your best.

-- Learn to play a musical instrument. Produce your own entertainment (your brain will thank you).

Do you really need to watch the ritual humiliation of American Idol and Survivor? Does it really give you such great pleasure to "kill" a bunch of pixels that look like a human being? There's joy in the simple things. That's why they've been around so long.

The second principle key to surviving an economic earthquake is flexibility. Never mind Plan B: have at least the rudiments of Plans C through Z in your head, and be prepared to ditch any or all of them as circumstances warrant. In the short term, that means thinking about what you'd do if you suddenly lost your job. In the long term, consider the possibility (however remote it might seem) that you could lose your house and car.
If you've at least thought of these things, you probably won't freeze if and when decisive action is called for. You may never have to put any of these plans to the test...but then again, you might.