Rumors are always circulating about economic collapse. How the stoic philosopher Seneca would handle these predictions of calamity.
In this episode you’ll learn:
- How much cash and coins are there in circulation.
- How much private debt is outstanding and how has it grown over time.
- Is a credit collapse inevitable.
- A stoical view of wealth and risk.
- Five wealth lessons from Seneca the Younger
Letters From A Stoic by Seneca
To Big Too Fail by Andrew Ross Sorkin
Become a Better Investor With Our Investing Checklist
Become a Better Investor With Our Investing Checklist
Master successful investing with our Checklist and get expert weekly insights to help you build your wealth with confidence.
Prepare For But Don’t Anticipate Collapse
Panama City, Florida with a population of 37,000 has over 300 billboards within the city limits. That’s one billboard for every 123 residents. Fortunately, Panama placed a moratorium on billboards in 1999.
The most common billboard advertisement in Panama City is for attorneys seeking medical malpractice and personal injury clients. The second most common billboard advertisement is for seafood.
Billboards are very effective. That is why I am on a first name basis with the Gulf Coast’s leading medical malpractice attorneys, and why I was at Wendy’s to purchase a cod sandwich. The cod looked good on a billboard.
Cash, Credit and Cod
At Wendy’s, I held the door open for two elderly women. One was at least age ninety and the other must have been eighty or so. They both had beautiful silver hair pulled back into a bun.
I waited in line behind them, curious if they would order cod. The 90-year-old held a ten-dollar bill in both hands, waving it in front of her like a flag. When it was her turn she ordered a four-piece set of chicken nuggets. Her friend ordered a baked potato with bacon. She also paid cash.
The Wendy’s employee asked the 90-year-old for her name as part of the order taking process.
“Why do you need to know my name?” she asked, clearly unwilling to part with the information. The worker didn’t know how to respond so he just let it drop.
It turns out this Wendy’s restaurant instead of shouting order numbers when a customer’s food is ready calls everyone by name, and in a display of southern charm the employees add the prefix “Miss” when a woman is called—“Miss Marie”, “Miss Jane” and in the case of LaPriel and me, “Miss Wendy” as LaPriel is difficult to pronounce and using a pseudonym is more fun.
We paid for our order with a credit card. Wendy’s was willing to accept the credit card because they believe American Express will deposit the money in their account. American Express issued us a credit card because they trust we will pay them back the money we spent at Wendy’s.
The Wendy’s restaurant most likely has trade credit with their food suppliers, who believe the restaurant will pay them. It’s possible the owner of this particular Wendy’s franchise has a mortgage on the building that was packaged into a bond with other mortgages and sold to investors, who believe the restaurant owner will pay them back with interest.
The 90-year-old woman who didn’t trust Wendy’s with her name paid cash.
Cash was the topic of a video by Bill Bonner that a family member recently posted on Facebook. I had never heard of Bill, but I watched anyway.
A Fatal Economic Flaw?
Bill is really worried. He says there is a fatal flaw in the economic system that the U.S. government is spending trillions of dollars to contain. He believes we are past the point of no return, and that the entire system is a house of cards ready to collapse.
He believes the day is coming when we will be locked out of our own bank accounts. We will be unable to get cash from an ATM. He says this systemic shock will spread to the food supply and the gas network, leaving store shelves and highways empty due to a lack of food and fuel. There will be riots.
I listened to Bonner for eighty-five minutes because despite all these dire warnings it took him an hour to get to the part where he revealed the fatal flaw, and there wasn’t a slider to fast forward the video.
Bonner first wanted to emphasize how bad everything would be and how successful he has been at predicting past events and calamities, including the collapse of both the Soviet Union and the Japanese stock market.
And what is the fatal flaw in the economic system Bonner has detected that will lead to economic collapse?
More Credit Than Cash
There is more credit in the world than cash. Bonner estimates there is only $250 billion in paper currency and coins in circulation compared to $50 trillion in debts outstanding. So if the day comes when households and businesses want to be paid back in cold, hard cash instead of electronic digits then the economic system will grind to a halt because there won’t be enough physical money.
Bonner is correct. I wrote about this last year. I said when households and businesses lose faith in the institutions holding their money, they demand to hold it as physical coins and bills, or they convert those coins and bills to something they believe is a better store of value, such as gold.
This is what occurred during the Great Depression. Households and businesses hoarded their physical money and were afraid to part with it. The result was the value of money went up relative to the value of other goods and services, causing the prices of those goods and services to fall in a deflationary downward spiral.
Pockets of Independence
Bonner is prepared for this collapse, which he believes is inevitable, by maintaining an off-the-grid cattle ranch in Argentina. He calls it his bolt-hole, a place where he can run and hide when things get really bad.
We saw in 2008 what happens when trust dissipates and panic and fear take hold. This type of economic turmoil could happen again, which is why it is prudent to maintain some pockets of independence outside of the financial system including cash on hand and some food storage.
But just because something terrible can happen does not mean it will happen.
Seneca, the Stoic philosopher, wrote, “There are more things… likely to frighten us than there are to crush us; we suffer more often in imagination than in reality. Accordingly, some things torment us more than they ought; some torment us before they ought; and some torment us when they ought not torment us at all…No fear is so ruinous and so uncontrollable as panic fear.”
What is more productive and enjoyable? Hiding away in our bolt-holes, awaiting for calamities to strike or interacting with and trusting our neighbors and strangers. I am an optimist and believe the financial system will continue because we choose to trust one another.