Wednesday, December 24, 2014
It's funny how some folks think of a financial collapse as if it's the end of the world. It's not.
When a currency fails the economy stops working. Now since most goods and services depend on a functioning financial arrangement that's a very bad thing indeed. However, it's not the end of the world.
In a way, a financial collapse is a weird thing. It's the failure of an idea as much as anything. Currency is only as good as people's faith in it. When no one thinks money has any value, it doesn't.
The weird thing is that there are still factories, workers, supplies, and all the other necessary things are still there. All that's missing is the financial arrangements that allow goods and services to be exchanged.
When the Soviet Union collapsed some factories did elaborate barter agreements to keep functioning. Barter works, but it's not nearly as smooth as a working currency. The workers were often paid in things like big chicken dinners, so at least they didn't starve.
Some countries struggled on when their currency collapsed because they were already using a lot of another country's currency. In the recent past many held onto American dollars for that purpose, but that might not be a good bet these days.
When an economy can't find a way around a failed currency, things go from bad to grim. High unemployment becomes no employment. Services fail, everything from water to lights to Police and Fire.
Many countries, including the United States, have experienced currency failure. It's not pretty. At the very least countries go through a depression. However, a country in depression, while suffering, still sort of mostly functions. Rarely does everything totally fall apart.
Of course, it's been a long long time since the United States has experienced such a financial failure. The world is a different place. We are dependent on a web of global systems working well. It could get interesting.