I’m not convinced the current financial situation is as bad as all that, except presumably for people who had borrowed money to invest in stocks, or otherwise gone out on a limb. But it has gotten me thinking about how you would hedge your bets.

Start with the obvious: You hedge against your stock-market investments failing by keeping some money in a bank. To some extent you are protected against the bank failing by the FDIC, so you probably don’t need to keep a lot of cash around, unless you have really a lot of money. Still, a good usable store of value like owning a house is probably not a bad idea. But these are the small hedges, against merely ordinary economic events. How would you manage the risk of hyperinflation like 1920s Germany or modern Zimbabwe?

This gets tricky. The answer is basically to invest in commodities that can be used for barter. But they have to last for some time, so cigarettes – a traditional currency of last resort – are probably out; you can’t store them for years. Gold is better, being very durable indeed, but you might find it hard to lay hands on a large amount in tradeable form. To the extent you think the economy will continue to function, commodity certificates might work well – just roll your grain futures over every year or so. Or buy a corn silo and store several years’ supply.

Canned goods are another good idea, and also work as a hedge against Really Bad systematic breakdowns, nuclear-war style. For this sort of event you probably want some guns and ammunition as well. Don’t go overboard on the latest and greatest; whatever you buy must be rugged and easy to maintain. Great War-era rifles might be your best compromise, if you can find any. Shotguns are also quite simple, and can perhaps be reloaded with homemade black powder at a pinch.

But I was discussing hedges, not survivalism. Consider the following scenario: No nuclear war, but the economy slides into a multi-year Great Depression in which nobody buys iPods. (The horror…) For people in their teens to late thirties, keeping reasonably fit is a last-ditch hedge against this sort of thing; the US Army is going to be short of recruits for the foreseeable future, and the oldest profession is always in demand if you can stomach it. For those with a charismatic bent, the second-oldest profession, shaman, is also available; people turn to gods and spirits in hard times. You don’t need a formal religious education, just enough chutzpah to hang up a sign with ‘psychic’ and demand that your palm be crossed with silver.

You can grow a fair amount of your own vegetables if you have some land and some time; pigs can be fed on table scraps. These hedges require quite a bit of effort, unlike storing some gold in the basement – that just loses you interest. But if you’re inclined that way anyway, you could find yourself much better able than your neighbours to meet the Depression.



Filed under Economics, Random thoughts

2 responses to “Hedges

  1. Anders

    “Shotguns are also quite simple, and can perhaps be reloaded with homemade black powder at a pinch. ”
    That could work, but you would need percussion caps/primers and the equipment to load shells/cartridges.
    Investing in reloading-equipment, which is quite easy to learn how to use, could be worthwhile.

    But with a weakened central government I recommend forming a militia/falange and take control over local resources. Inventing your own sect could be helpful for this purpose, as people are a lot more cautious around religious fanatics than political fanatics.

  2. At a yardsale last week, I paid for some clothing but was able to barter the rest. Trading my clothing excess for someone else’s excess gave me some very good deals. Viva la barter economy!

    Oh, and this ( http://www.theonion.com/content/news/thousands_of_abandoned_foreclosed ) reminded me of one of your posts about the economy, albeit not one I can find at the moment.

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