government-caused financial hurricane?
“Prediction is very difficult, especially about the future.”Niels Bohr
It’s amazing how quickly circumstances can change. One day you are out riding the waves at your favorite surf break and the next, you are strictly forbidden from so much as leaving your home for any reason not deemed “essential”.
As alarming as this show of force was, what followed was even more jaw-dropping. 2.3 trillion dollars conjured up at breakneck speed by “our” elected officials while the unelected bureaucrats at the Federal Reserve promised unlimited QE (think of it as money creation). In just the last couple of months, the Fed has exploded its balance sheet by over 2.5 trillion, and apparently, this is just the beginning. As I write, Congress has approved another half a trillion dollars in spending, promising plenty more on the way.
In the face of all this, at first I was shell-shocked. Could they really be that dumb? Do they really believe debt doesn’t matter? That they can print unlimited amounts of money without consequence? Or, perhaps more likely, insiders see an opportunity to use the virus as a pretext to line their own pockets while sending $1,200 checks out to placate the peasants ordered to stay in their homes.
As an aside, my guess is when the dust settles we will see MORE wealth inequality which will predictably be blamed on “free markets” or “unfettered” capitalism. Of course, nothing could be further from the truth. The idea that we’ve had anything close to a free market is laughable to anyone who understands the principles of voluntaryism. Nevertheless, this tired narrative provides cover for the politically connected to set up another round of looting in the midst of the next crisis du jour, assuming the whole scheme doesn’t mercifully fall over on itself.
This got me thinking, something which I have an abundance of time for these days, about the last time I felt this type of outrage and concern for the future. Let’s take a little trip down memory lane.
It was September 2008. My 401k was cut in half. My stock options were worthless and the family trip they were going to pay for, canceled. I can still picture the surreal image of a somber George W. Bush announcing his bank bailout plan on prime time TV that brought it all home for me. It was an “oh shit” moment that kicked off a wild, multi-year personal journey of discovery in economics, history, politics, and philosophy. In fact, and I had almost forgotten this, it was this event that ultimately resulted in Holly and I moving to Puerto Rico, albeit via an unimaginably winding path.
Our concern at the time was that the crisis would eventually lead the most indebted nation in the history of the world to start breaking promises to a population increasingly dependent on it to put food on the table. Or perhaps, they would “keep” their promises by recklessly printing money, leading to runaway inflation. Neither option is good, and they would both result in human suffering on a scale difficult to fathom.
Given this bleak outlook, Holly and I then had to figure out what to do about it. Initially, we decided it best to reduce our dependence on the system and work on becoming as self-sufficient as possible.
Our attempt to be self-sufficient
Over the next couple of years, we completely transformed our backyard. We replaced the cedar trees with fruit trees, including figs, pomegranates, persimmons, and blackberry bushes. In addition, we built up a raised-bed square-foot garden that produced peppers, tomatoes, onions, lettuce, spinach, and cauliflower, among other veggies.
Around the same time, we put gutters on our house and connected them to rain barrels. We also captured the condensation from our air conditioner into a 27-gallon bin and used it to water our garden.
As satisfying as it was to produce some of our own food, it quickly became apparent that this was far from a “free lunch”. Getting our operation off the ground required an enormous investment in time and money, not to mention ongoing maintenance. Furthermore, the amount of fruit and veggies the hot, dry Texas dirt would yield didn’t go very far in actually sustaining a growing family of four.
This experience gave us a renewed appreciation for the division of labor. These days it seems all but forgotten, but we are ALL richer as a result of specialization and trade. By the end of 2011, we had let go of trying to be completely self-sufficient and instead, shifted our focus towards becoming more mobile.
Our goal of becoming more mobile
This change of direction was a very exciting time for us. The fun part of this process had Holly and I spending hours together, researching lifestyles in various promising locations across Latin America. Beautiful locations such as Uruguay, Chile, Brazil, Nicaragua, the Dominican Republic, and Panama. In June of 2012, Holly and I left the boys with my parents and visited the beautiful white sand beaches of the Dominican Republic.
The less glamorous side of this effort was figuring out how we were actually going to support ourselves financially. The first thing we did after getting back from the DR was to look for a house we could rent out. By September, we closed on our first, and only, rental house and had it rented out by October. (in hindsight, we should’ve bought at least one more) By the end of the year, we concluded that our New Year’s resolution for 2013 was to sell our house and move to Panama, primarily because of the Friendly Nations Visa.
All the while, we still hadn’t determined how we were going to pay the bills once I left my job. I had taken an interest in trading in the wake of the financial crisis but was disheartened to learn that there is no relief from capital gains taxes for US citizens, even if you move out of the country.
Then in March of 2013, I stumbled on an article that said billionaire hedge fund manager Henry Paulson was moving to Puerto Rico to take advantage of 0% capital gains tax rates. It turns out he wasn’t, but as I learned more and more about this “Act 22“, the more interested I became.
When I first mentioned the possibility of moving to Puerto Rico to Holly, she was incredulous. “Why would we want to move there?” “It’s still part of the United States and isn’t it dangerous?” Nevertheless, I convinced her that we should at least visit and keep an open mind. During our visit in September of 2013, she fell in love. Holly grew up in Hawaii and in many ways found the island reminded her of her childhood home.
The next two years were consumed with fixing up our house, selling it along with most of its contents, and saving up as much money as we possibly could. Finally, in June of 2015, I quit my job, we boarded a one-way flight to Puerto Rico and haven’t looked back.
Since we moved here, I’ve let my concerns fade into the background. We’ll be long gone by the time any of this matters, I reasoned. Besides, I’m much happier when optimistic.
Although I remain wildly optimistic for the long-term, I don’t want to bury my head in the sand concerning near-term risks. If the prospects of default or inflation were elevated in the wake of the global financial crisis, are they are not even more so now? Furthermore, if we do end up having to endure a disorderly default or currency crisis, can we in good faith claim there were no warning signs?
If you’re at all concerned, it makes sense to take steps to insulate yourself from what you view as the greatest dangers. Start a garden. Build connections with your neighbors. Develop your skills. Sell the stuff you don’t need. Save money. Not only in dollars but perhaps in gold and crypto-currencies as well. If you don’t take care of yourself and your family, you won’t be in a position to help others.
No one can predict the future, but what are your thoughts? Smooth sailing or bumpy seas? Are you doing anything to prepare? I would love to hear your thoughts.