In recent weeks I have put a pair of scenarios out for the denizens of pmbug.com (highly recommended!) to comment upon. Namely, exploring what kinds of conditions we could expect if things go badly. Let us stipulate (legalese for "let's just accept this as true") that SOME kind of bad ending is coming to us... Which is what I believe. But, do not ask me for trading advice or what company's stock to buy...!
The news on the "Credit Event" on Greek debt (the ISDA declaring that Greece's forcing BIG haircuts on may of their bonds IS reason to say that Greece is in default, so that CDSs will likely have to pay up, MANY details available at zerohedge.com) was the spark to get me to write this piece, as that is news that got little noticed today, but could have great implications.
EDIT / Sidebar: The ISDA (International Swaps and Derivatives Association, Inc.) issued the following FAQs re the Greek Credit Event: http://av.r.ftdata.co.uk/files/2012/03/Greek-Sovereign-CDS-Credit-Event-FAQs-03-09.pdf. See also: http://www.ftense.com/2012/02/greece-bailout-do-not-trigger-bomb.html. This is a rapidly developing story, which means this weekend will be another of "one of THOSE kinds of weekends again..."
I put out the below two scenarios of how this could all go down, of course there could be an ultimate way this could go down that is somewhere in between. If we were to limit the scenarios to JUST these two, I would say that the first one is more likely (call it 80%) and of course milder, while the second one less likely (20%) but much more devastating. I do not put a timeline on these. It/they could come soon, or much later.
1) "Great Depression v. 2"
Great Depression v. 2 ("GDv2") is my shorthand way of describing a crisis on the order of magnitude of the Depression in the 1930s. 25% unemployment. Crime rates up. No money. Dust Bowl. Poverty goes WAY UP. Bankruptcies and lost capital. Of course there would be many differences between the 1930s and "GDv2". I would expect INFLATION to to be a major factor for example in any GDv2.
GDv2 would claim lots of victims, almost everyone to some degree or other. There would be a small group of very well prepared people (perhaps the evil elites, ready to pounce on cheap values for example) that might absolutely benefit. But, I believe that most people, even the wealthy, would be hurt to varying degrees. "The winners would be those hurt the least."
Relative winners would include those who are (probably) not in debt, those who are diversified (including and especially owning physical gold), and those who have saved up a lot. And anyone not dependent on the "system" for financial aid (no need for a job, or have a job that would be in demand (mechanics, etc.) or otherwise do not need an income stream by working, but have passive but solid income coming in (landlords, etc.). Even relative winners would suffer from the stress of KNOWING family members or friends who would be in real trouble. They might know MANY such people in trouble, too many to help them out even if just a bit.
The ones who are the losers would really suffer. Not only would their income be hurt, but there would be less help available... Some will lose their jobs, others have pay & benefit cuts. Real estate is likely to go down (unless there is high inflation). There will be more desperation visible on the streets as we see homeless FAMILIES... Crime is likely to go up, as people will be more desperate and the municipalities will have fewer cops on the beat. More crime means more victims...
In our own case, my family and I would survive this one OK, barring being shot in robbery or other low probability events.
GDv2 would be very ugly, and this is the milder of the two I discuss.
TEOTWAWKI (The End Of The World As We Know It, let's shorten this one to "The End") I will define as being much worse than GDv2. The key difference between The End and GDv2 is the MASSIVE DIE-OFFS that would take place, whether just in this country (an EMP -- ElectroMagnetic Pulse from a nuclear blast just above the atmosphere above our country which then takes down the electric grid, and so on...) or possibly worldwide (nuclear war, BIG solar flare, peak oil / financial collapse).
This is the one that has people worried. That not just the easy life goes away, but that maybe each person's OWN life will end.
The End would feature massive starvation, chaos, plagues, extreme violence and other horrors well explored in "survival' novels (eg, One Second After, Forstchen) as well as blogs (survivalblog.com).
The End would be the end of everything as we know it. No electricity, no heating, no A/C, no flowing water. Criminal gangs and desperate hordes of people ravaging the landscapes like locusts.
Only the well-prepared and those who could put together strong local communities would be likely to just survive!
In our case, we would not survive for long. We cannot produce water or food. We do not live on a farm. I do not know how to repair old machinery. While we could trade for goods OK for a while, it is difficult to see how we (middle-aged) could possibly learn the skills and bear the burdens of a very hard life...
One "intermediate" case of the above would be the world as foreseen by John Kuntsler, the author of The Long Emergency, what life would be like after Peak Oil has come and hit us hard. Kunstler also conveniently writes a blog (kuntsler.com) in which each week he takes a peak at our plight and points the way down our long dark future. He foresees a near-end to modern air and automobile travel as the price of oil and gasoline race much, much higher. The country would return to a kind of Nineteenth Century / Amish existence. Kuntsler presents a very plausible future...
Other intermediate cases of course are also easy to imagine. A deflation (as in the 1930s) followed by a hyperinflation, yes, that would be very bad, that would financially destroy all but the very nimble (and perhaps the very rich).
A tyrannical government, whether as a product of a SHTF or a cause of it, is always a possibility.
Anyway you look at it, it is imperative that we all prepare as well as take whatever steps we as a people can do, perhaps the biggest SINGLE factor to stop a train-wreck is to STOP SPENDING SO MUCH MONEY! Whether our own money (leading us into debt) or our government spending... Alas, I do not see nearly enough political will to stop the spending...