The best place to stand in an Earthquake?

Currency collapse, a place in the country or ‘just in case’.

You’re scared. The earth is moving, it shouldn’t.

Nothing feels right, this isn’t what is supposed to happen. Sure it’s a risk, you know it intellectually, but they don’t… JUST HAPPEN… right???

You rack your brain, where is the best place to stand in an earthquake?

Where do I go? Whats more safe was it under a table or in a doorway? Do I go outside or stay in? What options do I have? Is it too late?

On bubbles in the public balance sheet

It’s 2009, I’m a younger more idealistic version of myself and I’m sat in the lecture theater of a major City of London Law Firm.

I just listened to an entertaining and articulate gentleman discuss how he had just completed the bankruptcy and restructuring of the Icelandic Government.

A “country” going bankrupt, wow. That has to be big right? But the question that lingered with me ever since was…

“So what happens next?”

I can’t remember the exact words of the answer, but it was broadly along these lines.

“Well we’ve just had a big private sector bubble and we just moved all that onto the public balance sheet and issued public debt to pay it… So I guess we get a big government debt bubble next.”

I never really understood it at the time, but here we are a little over ten years later with a bubble in public debt.

I guess the word bubble can be a little controversial but we have rapidly expanding money supply, that’s currently starting to hockey stick on a graph with a scale that makes 2008 look like nothing happened – which is probably not a good thing!

As balance sheets expand off the back of record breaking inflationary monetary excess and public spending, we’re starting to see the shadows of inflation popping up all over.

It could be equities surging to quite ridiculous profit earning ratios, it could be the cost of Australian housing sky rocketing 16-25% on a year over year basis or just the price of a kilo of steak in IGA going from $30 to $45 (that one is a little personal).

The point today isn’t to argue whether we have inflation or bubbles but to point out that if we are in a bubble (choose your own probabilities for this) then given it’s a government debt bubble – what does that mean?

On earthquakes and currency collapse

Which brings us back to our figurative earthquake.

In this instance the earthquake is a somewhat predictable but extremely rare event that causes huge devastation.

You can’t quite believe it would happen to you.

If it did however, you would want to be prepared.

In this instance the particular worry is how do you deflate a bubble?

If it’s in houses, the government moves the housing debt onto it’s balance sheet, buys up toxic mortgage backed securities and writes off the debt – ala bail out 2009.

It it’s corporate debt, then the federal reserve breaks it’s mandate and enters the corporate debt market, buying up bonds and putting them on its balance sheet – ala bail out 2020.

If it’s a government debt bubble – which balance sheet bails this out?

This would usually play out one of two ways.

1) If you can’t issue your own currency, the value collapses against other assets and currencies wiping out the value of your economy and the life savings of your citizens.

2) If you can issue your own currency to pay the debt – you do this in escalating fashion (see Zimbabwe, Venezuela, Wiemar Republic) and then eventually people lose confidence, flee the currency and it collapses (see option 1).

This is the earthquake.

The best place to stand?

So you feel the ground begin to rumble (prices are going up).

You see the buildings begin to shake (other currencies collapsing around you – Cyprus, Venezuela, Lebanon, Turkey, Yemen).

So where to stand?

Ideally the best place to stand is quite simple – somewhere else.

As the world comes crashing down around you, how much would you love to be able to hop in a chopper and fly away?

To teleport to your place in the country somewhere else? A long way from the fault lines, you know just in case.

You don’t need to live there, it’s fun here after all, but it’s good to know its there in case.

This is bitcoin.

A parallel system, somewhere else.

Not built on debt but on scarce assets, a different bedrock without the fault lines.

A little place in Bitcoinville, just in case things go wrong.

The only thing to remember is that it might be a little overcrowded to get a place when everyone wants to move there 🙂