"I place economy among the first and most important republican virtues, and public debt as the greatest of the dangers to be feared. To preserve our independence, we must not let our rulers load us with perpetual debt." 

                             Thomas Jefferson

 
The Problem

    For the last few years, one word has been used to describe a variety of facets of the political scene-unsustainable.  No doubt focus group tested, we hear it and few of us even think about what it means.  Obviously, unsustainable means that the thing referred to cannot be sustained, it cannot continue.  This word has been used to describe government spending, entitlement programs and most often, our debt.  If we cannot sustain these things what does that mean?  If we currently borrow forty cents of every dollar we spend that means that, under current tax structure, in order to balance the budget we would need to cut all federal spending by forty percent!  All the people relying on the safety net, all the "shovel ready jobs", the 99 weeks of unemployment, earmarks, education, defense, all of it, cut nearly in half.  Entitlement programs themselves consume around forty percent of the budget.  What if the social security checks were cut in half or Medicare/Medicaid payments were cut?  Medicare spending continues to rise astronomically, baby boomers are retiring and revenues are decreasing.  To pay for all this, including the addition of new entitlements and stimulus, our debt has ballooned $5 trillion dollars ($5,000,000,000,000) just in the last four years.  We all know borrowing is not the way to get out of fiscal trouble but we continue to do it anyway, all empty protests to the contrary.
    During the 2010 election, President Obama continually used the analogy of the country/economy as a car the Republicans drove into a ditch.  This is the reality.  If our country is a car, both the Democrats and Republicans have driven it off a cliff and we are only waiting to hit the bottom.  The reality is that there is no way out of our fiscal conundrum without radically changing the way our society has operated over the last several decades.  Entitlements would need to be rapidly phased out, unnecessary programs and departments eliminated (start with all those created since 1960), defense will be reduced considerably, and that's just for starters.  We all know the political will for such drastic action is non-existent, even among the new conservative Republican politicians.  So let us first establish the facts that will support my contention that there is no avoiding the cliff at this point.  In fact, the wheels have already left the pavement.
    Our debt is now in the neighborhood of $14 trillion ($14,000,000,000,000) which is more than our entire gross domestic product.  That means that if Obama's father had his way and we taxed every person, business and corporation at 100%, we couldn't pay off the debt. By way of comparison, Greece passed the 100% mark in 2007.  There are few countries that carry more debt as a percentage of GDP than we do.  Italy and Japan are two of them.  Japan has been stagnating since the eighties.  Most European countries are cutting spending and debt because even the socialists there can see the "unsustainability" of their past spendthrift ways.  The US, on the other hand, is spending and borrowing at a breakneck pace.  If revenues are declining (your paycheck for example), spending more money is not going to improve the situation, it will lead to bankruptcy.  The United States, however, because of the dollar's position in the world, is still able to borrow and print the money it needs to feed its spending habit.  There is not a politician in Washington who doesn't think we will be running large deficits in the years ahead, borrowing more and adding to the debt.  It will not, it cannot, go on forever. 
"The U.S. Federal budget is on an unsustainable path....the scale of the nation's projected budgetary imbalances is now so large that the risk of severe adverse consequences must be taken very seriously. These consequences may well be far larger and occur more suddenly than analysts expect".  Robert Rubin 2007
      Interest on our debt now consumes six percent of the budget and that is at interest rates that are very low.  That will not last.  As we borrow more, which we are, the costs of that debt will increase.  The more we borrow, the riskier our debt will be and those that lend will begin demanding a higher interest rate.  If it doubles and doubles again, not a fanciful scenario considering China's rating agency just downgraded our AAA status and Moody's is threatening to do the same, interest will rapidly crowd out many other spending items in our budget.  In 2009, for example, interest on our debt cost us $381 billion dollars.  If that doubled, we would be looking at almost $800 billion, currently the size of the defense budget or 6% of the total economic output if the United States (GDP)!  That's about $2600 per year for every man, woman and child in this country.  Just to pay interest!
    Those are the things most people talk about when discussing our financial situation.  That would be like talking about your wages, expenses and credit card debt while ignoring your adjustable rate mortgage which is about to go up...a lot.  I'm talking about entitlement spending.  At the federal level we have Social Security, Medicare and Medicaid expenses which are currently over forty percent of the budget and are set to consume even more with our aging population and rapidly rising medical costs.  Due to the economic downturn and lower payroll taxes, Social Security will be paying out more in benefits than it takes in taxes within a year or two.  Medicare has been doing so for several years.  Because we haven't cut spending anywhere else and shifted money to cover the shortfall, that means we will be borrowing money to pay for these entitlements.  Demographics are working against us here.  When Social Security began there were over forty workers paying benefits to every retiree.  Today it is around three.  That is why it is fifteen percent of your paycheck.  As more Baby Boomers start receiving benefits, that ratio will drop even further.  Taxes will have to rise and benefits drop because currently, there are about $75 trillion dollars (low estimate) of unfunded liabilities (future promises of benefits), primarily for Social Security and Medicare/Medicaid.  Now add to that the liabilities incurred by backstopping Fannie Mae, Freddie Mack and some major banks.  We cannot afford it, we cannot pay it; there is no question about that. 
    The fourteen trillion dollar debt and seventy five to one hundred and twenty trillion dollars in unfunded liabilities are impossible to pay off through taxes.  Neither the American people, nor even the world economy, have enough money to cover the obligations we have assumed.  The fact is Social Security itself was a time bomb.  We should have known Medicare and Medicaid would lead us to bankruptcy when within a few years of their implementation their budgets had busted even the worst projections.  Any one with an ounce of common sense or real world experience would know that taking on exorbitant amounts of debt would eventually lead to lower credit ratings and interest costs that would become arduous.  If only one of these problems confronted us and we could muster the political will to constructively address it, we would stand  good chance of correcting our course.  However, with political leaders whose insight only encompasses a maintenance of power which relies on their ability to buy votes with the voter's own money and the compounding effect of debt and entitlements that have become a way of life in America, we are doomed to suffer the harshest of consequences.  The minor adjustments the Republicans in the house may propose, things like freezing government wages, raising the retirement age or even repealing Obamacare are too little too late.  There is not enough economic output to tax or politically viable cuts to make to avoid our economic catastrophe.  In fact, the dirty little secret is this.  There are only two ways out of our predicament.  One is to default on our debt, which is highly unlikely, although Treasury Secretary Geithner wrote this to congress on on January 6, 2011.  "I am writing in response to your request for an estimate by the Treasury Department of when the statutory debt limit will be reached, and for a description of the consequences of default by the United States.
Never in our history has Congress failed to increase the debt limit when necessary. Failure to raise the limit would precipitate a default by the United States. Default would effectively impose a significant and long-lasting tax on all Americans and all American businesses and could lead to the loss of millions of American jobs. Even a very short-term or limited default would have catastrophic economic consequences that would last for decades. Failure to increase the limit would be deeply irresponsible. For these reasons, I am requesting that Congress act to increase the limit early this year, well before the threat of default becomes imminent. Treasury would prefer not to have to engage again in any of these extraordinary measures [suspension of the issuance of certain types of government debt and government investment vehicles]. If we are forced to do so again, these measures could delay the date by which the limit is reached by several weeks. Once these steps have been taken, no remaining legal and prudent measures would be available to create additional headroom under the debt limit, and the United States would begin to default on its debt."
    The second is to inflate our currency to allow us to pay it back in dollars that have dropped in value.  Countries don't go bankrupt, they just inflate their currency.  It is bad for investors, bad for the citizens, bad for the country but it is the only way out for the people in power who have refused to seriously address the issues that caused the problem.
    That is all very bad, no question about it.  If that was all we were facing, we could expect rising taxes, even slower economic growth, reduced government benefits and a lower standard of living.  Unfortunately, we are not on a slow or moderate decline, our car is not slowly rolling into a ditch as it did in Japan  Allow me to stop there, because even that should be unacceptable to us.  We became the greatest nation on earth through our freedom and by continually trading that freedom for government benefits and oversight, we have reduced ourselves to a shell of what we were or what we could be.  But we are not talking about a slow decline like Japan, a lost decade or two of stagnation.  We are talking about a rapidly evolving catastrophe that hits hard and fast-when the car has sailed off the cliff and hits the bottom.  What makes our position so precarious?  Several things. 
    Number one is who holds all that debt.  Sure, a lot of it is in the Social Security "lock box" but there are several holders of our debt that should make us very nervous.  The first one that may come to mind is China, which owns $846 billion, followed by Japan at  $821 billion.  Oil Exporting countries like Saudi Arabia, Venezuela and Iran combine for another $223 billion.  Russia holds $130 billion.  In all over four trillion dollars of our debt is held by foreign countries and of that, about $1.2 trillion is held by countries "unfriendly" to us.  We all know that the borrower is servant to the lender and that our monetary policy has been making many of these "unfriendlies" rather upset of late.  In fact, right after quantitative easing was announced, China and Russia were among the loudest protestors.  They know that inflation benefits the borrower and hurts the lender because money is paid back in devalued currency.  They don't want to be left holding a bag of devalued treasuries as a result of our stupidity and they certainly don't want to be left with worthless paper if the currency collapses. Because no one wants to be the last one out, even a country with relatively small holdings could trigger a flight from US treasuries.  On the other hand, many of these countries resent our position in the world and would be happy to see us fall, and would be more than happy to step in to fill the void.  There are things these nations could do that would bring about an immediate collapse of our currency and hence, our entire economy.  The how will come later.  One other important fact that should be mentioned.  In 2004 almost all US treasuries were purchased by foreign investors.  In 2009 that figure had fallen to 20%, demonstrating that outside of the US treasuries are not the favored investment they once were.
    The other major holder of our debt that could become a problem are the Big Banks, the ones we have deemed "Too Big To Fail".  These banks currently have the best of both worlds.  They have the backstop of the US taxpayer to mitigate against any losses but can choose to do what they want otherwise.  In our current environment they have been purchasing treasuries.  Why? Because they are cooperating with the Fed to monazite our debt by way of stealth.  The Fed has been buying up toxic assets, again with fiat money.  In return for having these "problems" taken off their balance sheets, they must use the money to buy Treasuries.  But no one said they had to keep them.  Again, the how will come later.  There is also the fact that a lot of dollars (perhaps up to 70%) are held outside of the country.  If those foreign banks, companies or individuals suddenly panic and begin dumping those dollars and dollar denominated assets, the value of the dollar will plummet.
    Our trade deficit with China is another time bomb waiting to blow up.  During the president's recent trip to Asia, he called for China to stop "manipulating" it's currency.  Currently, China leaves the yuan pegged to the dollar and does not allow it to be traded.  This is one of the factors that lead to the large trade deficit we are currently running with China.  It is a situation that cannot last indefinitely.  Here is why.  In our global market, companies, particularly manufacturing companies, will go to the places where costs are lowest.  It is simple supply and demand.  American manufacturing still exists, it has simply relocated to China.  The jobs are still there, they are just not being filled by Americans.  With many professional services going to India, the jobs left to Americans are primarily service related, which are not exportable.  There are three causes of this situation.  US government policy that places undue costs and regulatory burdens on business while countries like China have invested in infrastructure and have bent over backwards to create a favorable business environment.  The second is unions and labor costs that keep manufacturing from being cost effective here which is a result of the third factor, simple market forces.
    Such a situation cannot last forever.  Normally, in a free market economy where currencies are not artificially manipulated, trade imbalances would be corrected automatically over time.  The yuan would rise in value and the dollar would fall until wages and the standard of living of the two countries become equal, or at least comparable.  That would be a severe downward adjustment for most Americans.  Two things keep that from happening.  The role of the dollar as a world currency and the yuan being pegged to the dollar and not being traded worldwide.  There have already been rumblings about a new reserve currency for several years.  In fact, China and Russia recently reached an agreement in which their trade would now be conducted in their national currencies, not in dollars.  The real immediate danger, however, would be the Chinese suddenly revaluing their currency.  The president called for it and as we continue to devalue our dollar, the Chinese will soon see it in their self interest to unpeg the yuan from a declining currency.  Before his recent visit the the US, China's president said that the dollar denominated system in the world was a "product of the past" and expressed strong concerns about US monetary policy and its impact on world markets.  Or they could decide to do it in response to a trade war or even a showdown over Korea or Taiwan.  Regardless of the trigger, it would be an overnight catastrophe in which all imports from China would skyrocket in price.  This would leave Americans scrambling to pay for previously cheap manufactured goods and our lack of a manufacturing base will leave us helpless to maintain the living standard we currently enjoy. 
    Because of the continually smoldering, and sometimes flaming, situation in the middle east, we tend to forget about it.  Due to our continually increasing dependence on oil from nations that hold a negative view of us as infidels and enemies coupled with the fact that energy demand from places like China and India guarantee a market for their product, anyone can see that we are in a very precarious situation.  If as a result of actual war, between Iran and Israel for example, or as a result of policy, higher prices agreed to by OPEC, a sharp rise in oil prices could trigger not only rapid inflation, but the flight to commodities and out of treasuries that would result in the collapse of the dollar.  There is also the unstable situation in Europe.  While Greece is the most obvious example of finical insolvency, Ireland, Portugal and Spain are also on the brink.
      Finally, there is the open admission that monatization of our debt is now the official policy of the Fed, and by extension, the United States.  To a world that has become skeptical of our ability to maintain the high levels of debt we are incurring, this move was met with actual protest.  Sales of treasuries to foreign investors have been falling over the last several years and recently China hinted it may buy even fewer.  If the treasury can't find buyers for its products to furnish our debt, how will we finance our exorbitant spending?  The Fed is the Treasury's lender of last resort.  When the Fed begins buying treasuries no one else will with money they print out of thin air, it is the last desperate attempt to maintain a system that is already over the edge.  On November 3 the Fed announced it was going to do just that to the tune of $600 billion dollars which is not the first, and will not be the last, attempt at so called "quantitative easing."  Ben Bernanke fears the consequences of deflation more that the collapse of the system brought on by hyperinflation. 
    Consider this quote from Alan Greenspan, former Fed chair, in 2002.  "Leveraging always carries with it the remote possibility of a chain reaction, a cascading sequence of defaults that will culminate in a financial implosion if it proceeds unchecked. Only a central bank, with its unlimited power to create money, can with a high probability thwart such a process before it becomes destructive. Hence, central banks have, of necessity, been drawn into becoming lenders of last resort.... Thus, central banks are led to provide what essentially amounts to catastrophic financial insurance coverage."  A "remote possibility" of "financial implosion" that can be thwarted with a "high probability" through its "unlimited power to create money"?  Does that give us any comfort?  Isn't it the exercise of the unlimited power to "create money" that caused the hyperinflation of Chile, Zimbabwe and the Weimar Republic, to name a few recent examples.
    It is time to define three terms that are important to our discussion-deflation, inflation and hyperinflation.  First, deflation, which is what Ben Bernanke and the Fed are so afraid of.  Deflation, being the opposite of inflation, in a decrease in prices and values.  This is what happened during the thirties.  People weren't spending money, prices went down, wages were suppressed, production fell, people were laid off, there were fewer people spending money and it went into a downward spiral bringing the economy to a halt.  In a deflationary cycle, money will be worth more, or prices will be lower, next week so people keep their money.
    Next there is inflation, which is a rise in prices and values over time.  Inflation is primarily due to increasing the money supply.  In fact, while we were tied to the gold standard and before the Federal Reserve was created, inflation was negligible for one hundred and fifty years.  In that case, any inflation was caused by a growing economy in which wages and production were up and values rose.  Today, inflation is directly caused by an increase in the money supply which is why the dollar has lost over ninety percent of its value over the last hundred years.  Incidentally, that is why we feel we must risk our savings in the stock market; so we can get a return that at least beats inflation instead of hiding our money under the mattress knowing that it will be worth the same when we need it as when we put it there.
    Now we have heard that inflation is not a problem, that there is no inflation.  Anyone who has gone to the grocery store knows that's not true.  Just consider three commodities, oil, corn and cotton.  Cotton has hit an all time high and major retailers are already saying that clothing prices will be going up at least thirty percent.  Corn prices are also rapidly rising and this has a direct impact on food prices.  One reason for the rise in price is that we are putting so much corn right into our gas tanks, one third of all corn produced is turned into ethanol.  That makes the remaining corn used in food and food production more expensive.  Forty percent of the crop goes to feed livestock; cows, chickens and pigs.  As corn prices rise so will your meat prices.  Then there is corn syrup, used in so many products, and corn flour that is used in many others.  Worse than corn, however, is the impact of oil prices.  Most obvious is the oil used for transportation and heating.  As these costs go up, they squeeze consumers even more because they have to take money from other areas just to put gas in the car or oil in the heating oil tank.  Shippers will have to pass their higher costs along which will raise the price of everything.  That inflationary pressure is just the beginning, however.  Consider that the vast majority of packaging and all plastics are made from petroleum products.  Even medicines contain oil products.  All this upward pressure on prices of the things we use every day, things the government does not factor into inflation indexes, is happening right now.  Many Americans are already on the edge, living paycheck to paycheck, and a twenty or thirty percent increase in the grocery bill coupled with an extra fifty cents or a dollar more in gas costs will have a real negative impact on our lives.

      Finally, our last term, hyperinflation.  Hyperinflation is not inflation on steroids.  Inflation may be double digit or even one or two hundred percent, which is destructive but not catastrophic.  Hyperinflation is catastrophic because it is the actual destruction of the currency.  The dollar is not worth less but worthless.  The medium of exchange is destroyed.  With inflation all prices go up-food, energy, real estate, hard assets and equities.  With hyperinflation, necessities like food and energy skyrocket but assets like houses, cars, paper assets and the like plummet.  The reason for this is because people will do what they need to in order to supply their basic needs.  They will liquidate their stock portfolio to put gas in the car.  They will sell the second car to put food on the table.  No one will have money for down payments to think about buying real estate and credit will be non-existent.  The difference between inflation and hyperinflation, which is usually measured in upper three digits or more, is that with inflation the currency still has value, it value is simply falling.  With hyperinflation, people want out of the currency altogether as it becomes worthless.

The Trigger
    Barring a terrorist act or war, there are two ways hyperinflation could be triggered.  The first is the rejection of the dollar as the reserve currency of the world.  This has already begun.  Last fall there was a meeting of several leading natios and oil produceres that did not include the US.
Veteran Middle East report Robert Fisk reported on this in the Britain's Independent newspaper:
"In the most profound financial change in recent Middle East history, Gulf Arabs are planning - along with China, Russia, Japan and France - to end dollar dealings for oil, moving instead to a basket of currencies including the Japanese Yen, Chinese yuan, the euro, gold and a new, unified currency planned for nations in the Gulf Co-operation Council, including Saudi Arabia, Abu Dhabi, Kuwait and Qatar."
Fisk also interviewed a Chinese banker who said:
"These plans will change the face of international financial transactions. America and Britain must be very worried. You will know how worried by the thunder of denials this news will generate."
When this happens it will cause an immediate collapse of the dollar and skyrocketing import prices, particularly oil and Chinese manufactured goods.
    There are two ways hyperinflation could be triggered through the collapse of treasuries and, by extension, the dollar.  The first is external.  If China, for example, decided to stop buying treasuries altogether or if it, or other countries that may or may not have our best interests at heart, decide to start dumping treasuries and dollar assets, the Fed would be forced to buy every treasury they could in an attempt to support the system.  The second is as a result of the largely automated trading system we have in place.  A sudden rapid rise in commodities would trigger a selling off of treasuries in an attempt to catch a profit in a commodity, such as oil.  If such a situation arises right before a treasury auction, the Fed would move in to buy up the treasuries to ensure low yields.  This will encourage more treasury selling in the belief that they can be picked up cheaper in the near future.  However, this sell off will be interpreted as the possible burst of the treasury bubble (treasuries being the new toxic asset) and the Fed will buy up every treasury in sight.  Now the two stories come together.
    At this point, anyone who has treasuries-big banks or countries, will start dumping them.  This is because, as we have stated previously, US debt has been looking more and more like Greek debt and with the open monatization going on, no one wants to be the last one out.  There are two immediate results of this,  The government will now be paying its obligations with gobs of printed money because no one will finance its debt.  That money will lose value, fast.  Second, all the investors who sold their treasuries will be looking for a new safe place to put their money.  Individual countries may make different decisions but many will put it into commodities, the things we all need to make the world go around.  With all that money chasing limited items the law of supply and demand will dictate skyrocketing commodity prices.  Things like oil, food, textiles and precious metals will shoot through the roof.  This explains the trigger and like a gunshot, it will happen fast.  Once the event that pulls the trigger happens, all these previous actions will take place within a day, perhaps a few hours. 

Living in a Hyperinflationary Period
    Our basic commodities will rise fifty to one hundred percent that first day and up to three hundred percent in a week.  That means oil will go from under one hundred to two hundred dollars in a day and to four or five hundred dollars in a week.  If gas was over four dollars a gallon when oil hit one hundred and fifty dollars a barrel, we are now looking at gas at eight to fifteen dollars a gallon within a week or so.  Food prices are already going up and will rise just as quickly as people spend their rapidly devaluing dollars on their necessities-food, gas and heating oil and other necessities.  This will empty out the stores in short order.  Just think about what happens when there is a snowstorm or hurricane forecast.  Multiply that panic by one thousand times.  Again, keep in mind that this happens fast.  This is what Freidrich Kessler wrote about hyperinflation in the Weimar Republic.  "It was horrible!  Horrible!  Like lightning it hit.  No one was prepared.  You cannot imagine the rapidity with which the whole thing happened.  The shelves in the grocery stores were empty.  You could buy nothing with your paper money."
    Interestingly enough, this will create a shortage of actual paper dollars.  While we talk about the "printing of money," much of the money the Fed creates is just numbers in our electronic banking system.  There are only several hundred billion dollars of actual cash in the US, the remainder being held outside the country.  This being the case, the banks and ATMs will be emptied quickly but the shortage of cash will not increase the value of the dollar because its value is determined by the imports it can buy from around the world, so it will continue to fall.  Electronic commerce will also be unable to keep up with the rapidly changing prices as hyperinflation takes hold.  Think of how we dealt with Y2K.  Electronic commerce will not be able to adjust and with no immediate medium of exchange, commerce will come to a halt.  Other countries that suffered hyperinflation, like Zimbabwe or Chile, had an underground economy that used dollars to pick up the slack.  We don't have that situation.
    As the Fed tries to keep up and prints or electronically adds dollars to the system in an attempt to inject liquidity, people will be dumping anything they can't eat, put into their gas tank or use to heat their home.  That includes stocks, bonds, IRAs, 401Ks and the like.  This will cause a collapse of the stock market.  In fact, if we have a collapse similar to 1929, the Dow would fall below 1500 points.  The value of other hard assets will also collapse.  Real estate prices will plummet because when people are worried about their next meal, they are not buying real estate.  Car values will drop as people try to sell their extra cars for necessities.  Other items like collectibles, yard sale items and luxury items will be worthless.
    This will create a rather grim situation in our country where so many are dependent on government for their basic needs, a number that is growing every month, particularly in our current economic situation.  When the ATM does not spit out cash when the government money access card is inserted or the cash that comes out won't buy a days worth of food, much less a month's worth, there will be panic.  When people cannot afford the gas to get to work if gas can even be found, people are going to panic.  If you don't think there will be rioting in the cities, you are sorely mistaken.  The government dependent people in America are no different than those in Greece, France or England.  The Pentagon is already "war gaming" for the possibility of the societal breakdown resulting from severe economic upheaval.  Our thin veneer of  a civilization based on materialism, isolated individuals, and relativism will rapidly deteriorate when people are actually hungry.
    What will the government do?  Because most politicians and bureaucrats have no idea how economies operate and don't accept the fact that government is the actual cause of the problem, they will do what they always do-the wrong thing.  The Fed will be powerless.  If treasuries become the new toxic asset, interest rates have been ineffective for some time in bringing about economic recovery and the creation of money is exacerbating the problem, what is left?  The Federal government will attempt wage and price controls, which have never worked.  Will they put soldiers on the streets?  In some places, probably, but there are not enough of them.  Will they print even more money?  Sure.  Will they seek to take total control over the economy by rationing necessities?  Most likely. 
    As bad as all this sounds, it will not last forever.  Chances are, this period will only last for two or three years, which will make for a horrible couple of years but it is not the end.  At least it will not be if we refuse to let it be.  What kind of America we have after this decade is through will depend on us-we the people.  It has been the destruction of capitalism and the massive growth of government that has gotten us into this situation.  We have made promises we cannot pay for and have given up individual freedom and control of over our lives for control centralized in Washington and even non-government agencies like the Federal Reserve. Once that behemoth falls, what rises in its place will be our decision.  We can cry for more government intervention and our government will be happy to oblige us.  This will result in the complete destruction of any vestiges of liberty and freedom we have.  We will have complete government control in ways that current technology makes possible, control Hitler and Stalin could have only dreamed of.  Or, we can choose to accept the fact the government is the problem and individual freedom and responsibility is the answer.  Then we will return to the values and principles that made this country great and made us the honorable, virtuous and prosperous people we have been and can be.  We will reestablish family and community as the primary, and only, source of social solutions and relegate government to specific and narrowly defined responsibilities.  The choice is ours.

What We Can Do
         
    The first thing you can do is prepare.  Fear and panic result from two things, lack of knowledge and lack of preparation.  If you've made it this far, you have increased your knowledge and I would encourage you to learn even more.  We need to fight our "normalcy bias" which is the belief that things will go on as they have forever.  In fact, the stable situation in which we find ourselves is rather unique in history and in the world as it currently exists.  Supermarkets full of cheap food of infinite variety, a stable political and social system, the technology that has become an integral part of our life, inexpensive energy, it is all normal to us but also based on a tenuous set of factors to make it work.  We can enjoy it but we cannot assume it will go on forever based on our government's actions.  You need to do what you can to prepare for when our current "normal" comes to an end.  Think of the abrupt changes you will need to be prepared for.  You need something valuable to use as a medium of exchange.  You need an alternate supply of important commodities.  You need to protect yourself and your family from those who have not prepared and are panicked.  You may need alternate arrangements for transportation.  These are your immediate concerns.
    Let's look at them one at a time.  When dollars are worthless or non existent, you need another medium of exchange.  This will take two forms.  Traditionally, precious metals and gemstones have provided this.  This means silver, gold and diamonds or other valuable gems.  Gold may be out of reach for many but silver is still affordable and some believe it may actually increase in value faster than gold.  The family jewelry may also be used here.  The other method of exchange is the adoption of the barter system.  If you have a skill that will be necessary even in hard times, you can barter your labor.  If you have accumulated scarce commodities over time, those can also be used.  For example, if you have several extra cans of coffee or bottles of alcohol or even chocolate, perhaps, these can be traded for perishable items like milk, eggs and meat.
    That brings us to the second area of preparation.  There are three things we need to survive, food, water and shelter.  Making sure you have a supply of the first two and a place to store it is crucial.  An important thing to keep in mind is that a hyperinflationary situation will not last forever, probably only two or three years, and there will be some commodities available even in a time of scarcity.  This is not like preparing to survive a nuclear war.  Man will always find a way to survive and, where possible, prosper.  This may involve the underground economy for a while.  The key here is to create a situation in which you are as independent as possible, where you do not have to rely on such arrangements.  This means storing non-perishable food items and medicines.  Make sure you have a variety of items and don't just store cans but basic cooking ingredients like flour and sugar.  Learn how to cook basic staples like bread.  Learn first aid.  If your locale is conducive to it, learn how to fish, hunt and gather to supplement your stored provisions.  Learn how to be independent and take care of yourself and your family.  Outside of your basic needs, consider making purchases that will be necessary over the next year or two.  Buy clothes for the kids now for when they outgrow their current wardrobe.  Perform necessary maintenance on your car, appliances and home.  This will ensure that limited resources will be applied to absolutely necessary areas and not neglected ones.
    This brings us to number three, you need to be willing and able to protect your family and community.  This goes beyond storing guns and ammunition.  Don't neglect that, however.  If you don't own a firearm or two, buy one now and learn how to use it.  Make sure you have enough ammunition to last a while.  This is not only for protection but also for provision, i.e. hunting.  If you live in a city of any size, particularly one that has a lot of government dependents in it, make arrangements with family or friends who live elsewhere.  Cities will not be safe when the food rioting starts.  Don't think it won't happen.  If people riot over court decisions or sports victories, there will certainly be violent protest when the store shelves are empty and no money is coming out of the ATM.  If you refuse to leave or live in a suburban or rural neighborhood, now is the time to coordinate with your neighbors.  Start with a neighborhood watch and build that group into an organization that will protect lives and property if necessary.  This type of organization will also be necessary to meet the needs of the community through the pooling of resources, be they actual commodities or skills such as health care, mechanics or construction, that will be crucial in maintaining a basic sense of civilization. 
    Finally, speaking of coordination, perhaps the greatest need will be in the area of transportation.  Our ability to get around is dependent on our cars, planes, trains, buses and boats, all of which depend on gas and gas will be scarce because early on people will rush out and fill their cars and any container they have before the price goes up even more.  With fuel scarce and prohibitively expensive, our distribution network for all commodities will grind to a halt.  Therefore getting around will be difficult and will require community coordination.  Carpools for work and shopping will be a necessity.  Although few of us have the ability to store large quantities of gasoline, the pooling of any stored gas will need to be coordinated within the community.  I would like to say this about community organization.  The key will be voluntary cooperation based on individual respect and responsibility.  We cannot force people to give up their property or to cooperate but we are also under no obligation to help those who do not assist the community.  Forced property redistribution is what got us into this mess and we cannot resort to those methods to get us through these difficult times.
    There will be several other lifestyle changes necessary during this time.  Socialism encourages us to ignore family responsibilities because the government has stepped in to take care of the young and old among us.  That will not be the case when the Social Security checks won't cover a can of dog food and the schools are unable to function as babysitters for future government automatons.  Extended families will need to live together and share resources, just like they did in the "old days".  The elderly especially will need to rely on others when the lie that is Social Security is exposed and they are left without sustenance.  Even those who provided for their own retirement will see government policy wipe away their savings.  It goes without saying that many of the luxuries of modern society will be unaffordable for a while.  Cable or satellite TV, cell phones, all our various distractions, will be cut out of our budgets when we need what we have just to feed ourselves.  Electricity will become very expensive and conservation will be necessary.  A generator or alternative energy system will help here.
    If we are prepared, we will weather this catastrophe and may even come out the other side more prosperous.  The wealthy of today who have their assets in paper will find all their wealth evaporate.  When people are hungry, the valuable assets of today, particularly real estate, will be dirt cheap.  If you are prepared with hard currency or barter items, investments can be made.  Stocks will be at the bottom, having lost ninety percent or more of their value.  Investing in solid blue chip companies, ones that actually manufacture things people need, will be a great possibility.  Remember, hyperinflation will not last forever, people need a medium of exchange and an order to society.  Just when things are looking the worst, that is when it will get better.

Conclusion
    This is the key.  Our system will collapse, it is unsustainable in its current form.  If we know about it and prepare, we will be OK.  If it doesn't happen, you will have extra food for emergencies, you may have learned a new skill and connected with your neighbors.  You have lost nothing.  I can hope I'm wrong but the number of voices warning of just such an event has grown considerably over the last few months and years.  The most important thing to remember through the whole mess is that it was a mess caused by government, too much government.  If we look to the people who caused the problems to solve them, we will lose our freedom completely because they will be more than happy to completely enslave us if we continue to demonstrate our willingness to trade the last vestiges of our liberty for security.  The temptation may be great, and our conditioning may seem to require our demands of government, but we must resist.  If we finally realize as a nation that the founders had it right, that a small, limited government that allows people to pursue their happiness as they see fit with minimal intrusion is the best system, things will change for the better.  When people are responsible for themselves and allowed to contract with others in freedom without interference we will prosper.  When individuals are allowed to make individual choices in their retirement, health care, safety and economic mobility they will find what works best for them instead of being forced into the one size fits all government straightjacket.  If we are the ones who are prepared and demonstrate leadership during the crisis and we hold onto the founder's vision we will have the opportunity to restore this country to its previous glory in which every man and woman can pursue their dreams and prosper in liberty as in no other nation on earth. 
"Government is not reason, it is not eloquence, it is force; like fire a troublesome servant and a fearfulsome master.  Never for a moment should it be left to irresponsible action."  George Washington
Our country is about to be consumed by the wildfire our reckless and oppressive government has initiated.  It is up to us to ensure that our liberty endures the flames and emerges tried, tested and purified.
           

This article is adapted from a seminar presented at the Weat Side Community Center in MD on January 19, 2011