Advice for my grown-up sons

[Ludwig]

I can still remember my dad telling me in 1977 that there wouldn't be enough oil by the time I grew up...

I guess that's why I haven't grown up yet...

Yes, I remember in the 70s reading in children's books that oil was expected to run out by 2000. This was mentioned pretty casually and I thought, "Er, isn't that, like, a really massive problem?"

Then the year 2000 came and no one was talking about oil running out. I assumed they'd just found loads more of the stuff. Didn't occur to me that what I'd read as a child had been pretty accurate, give or take a few years, and the reason no one was talking about it was that no one had a solution.

[snow hope]

I clearly remember in 3rd form Georgraphy (1975) being told that oil would "run out" in 30 years - which equals 2005! What an accurate statement, assuming the Georgraphy teacher meant oil would Peak and then decline.

I also remember at the time thinking wow! What about cars and lorries and ....... and ......

[fifthcolumn]

FC, your decision was a very severe one, I hedge my bets more than you.

Maybe. I think I was hedging pretty well.
I had a decent vegetable garden and several fruit trees. I had enough tinned food to last a year. I have a good supply of rechargeable batteries. I have solar panels, tons of wind up stuff. I have enough stuff to open a survivalists shop.
And yet. I had a couple of run-in's with some teenagers and my next door neighbour had ten kids. I concluded that I could ride out a slow collapse.
A fast collapse, however, I'd be likely to become a target.
I concluded that the most likely effect of peak oil in the UK is hyperinflation and that counts as a fast collapse. In such a scenario I decided I was fncked no two ways about it.

But I sympathise very much with your position, it must have been a very difficult decision, personally I think I would have tried to move to a safer place in England first of all, but you know what is right for your situation.

Thank you, but I don't think there are any safe places in England unless you already own a farm out in the sticks. Things hit home when my wife pointed out that no matter how much preparation we do, we need to be billionaires with a private army etc to survive what I was expecting and that even though I made good money it probably wasn't enough to get by.
She was right. When the economy tanked I decided we had no choice and we just jumped ship.

When I first told my middle son (now at uni) about Peak Oil, a couple of months before his GCSEs, his response was "what is the point of studying any more" - which shocked me and taught me a lesson - I needed to ease back on the message!

That's exactly what happened to my boy who was in primary 4 at the time. He just stopped working at school and started acting up.
My little guy became a bit depressed. He became really excited when I told him we were going to move to Canada but I think the reality of life out here doesn't meet with his expectations.

My boys know the basics about Peak Oil, but I do not discuss it too often. As others have said they can see some things from my preparations - wood store, veg garden, insulation, hybrid car, interest in renewable energy, etc.

I've changed my message around: unless you are rich you depend on other people for our living and thus we're better off where we are.

I do think things will get bad FC. How bad? I have no real idea. But I think it appropriate to prepare for things being substantially different to normal. I think "normal" will not exist soon.

I agree with that assessment. Where I disagree is that I don't think every country is going to be equally badly off. Some will disintegrate, some will suffer long periods of hyperinflation and become failed states (I think this is the likely fate of the UK), others will suffer minimally and yet others will benefit.

My veg garden is my mitigation strategy for supermarket shelves going empty and I have some food stocks and a plan I can put in place as soon as TSHTF to substantially boost my food stock at very short notice.

I hope belfast isn't as violent as my own home town.
Good luck mate.

[stumuz]

become failed states (I think this is the likely fate of the UK)

Could you explain why you think the UK will become a failed state?

[fifthcolumn]

become failed states (I think this is the likely fate of the UK)

Could you explain why you think the UK will become a failed state?

Hyperinflation.

[stumuz]

become failed states (I think this is the likely fate of the UK)

Could you explain why you think the UK will become a failed state?

Hyperinflation.

As in 1930'S Germany?

[fifthcolumn]

Hyperinflation.

As in 1930'S Germany?

1920s Germany yes. The one and the same.

It's no longer a question of if, it's a question of when.
The government has already printed the money up and distributed it to the banks. The banks are currently sitting on it, but as soon as it makes it's way into the economy, inflation will take off like a rocket.
The economy is already tanked so tax revenue is down big time.
With inflation, people will stop paying their tax bills on time so the government will be forced to print more and more to pay the bills.
It's a vicious circle and will result in hyperinflation 1920s Weimar Germany style.

[RenewableCandy]

I thought that too, until I read about the massive amount of money that has recently disappeared from the system (in the form of write-offs and devaluation of shares, property etc) which apparently dwarfs the printing activities. Now I'm not so sure.

Do you happen to have seen any numbers for these? Any comments?

[mivona]

I have tried to raise my daughters (aged 14 and 18) to be multi-skilled, able to cook from scratch, able to raise and preserve food, taught them how to keep bees, but I do not want to frighten them. I don't know how the world will be and have no idea if I have what will be needed, but I have tried to give them what I hope will be an edge for survival.

I haven't had to frighten them, because they are perceptive and have their own concerns about the future. Children are amazingly resilient, and find their own path.

[fifthcolumn]

I thought that too, until I read about the massive amount of money that has recently disappeared from the system (in the form of write-offs and devaluation of shares, property etc) which apparently dwarfs the printing activities. Now I'm not so sure.

Do you happen to have seen any numbers for these? Any comments?

Up till now the government has printed about 200 billion pounds according to this.
http://www.bloomberg.com/apps/news?pid= ... gxCzc4X_lg

With the money multiplier effect, once the banks get that money out into the economy, that'll shoot up to somewhere north of 2000 billion.

Given that the size of the UK economy is somewhere slightly less than 1.5 trillion we can more or less use the rule of thumb that there will be 2000 + 1.5 = 3.5 trillion pounds chasing 1.5 trillion pounds worth of goods and services at some point.

I make that to be a total inflationary impact of 233% if we do it all in a single year.
Over a three year period (the average for bouts of hyperinflation) that means we'll likely see cumulative price rises of about 33% per annum.

So if it happens this year your hypothetical 4 bits of chicken that now cost 7 quid will cost a tenner next year then 13 quid the year after then 17 quid the year after, all the while your income remains the same.

That level of hyperinflation is about bearable if it stops there.

Unfortunately, if the government prints more (and it likely will, given that tax revenues are plummeting) then it's going to get worse.
Also, since oil prices will be rising anyway even if the government printed nothing, they will be able to do some printing and blame it on energy prices so the finger is not pointed at them.

In any case, it's not looking good. The pound worth less than half it's value just as we need to start importing virtually all of our oil and gas at sky high prices?

This is the reason why I bolted.

[snow hope]

Is that analysis correct? Are we really likely to see inflation of 33%? Currently at about 2-3% for the last few years. Even during the crazy 70s, it was up around 15%. Not saying you are wrong FC, just wanting to understand the possibility more fully.

If I really thought inflation would hit those levels, I would take further mitigation actions very soon......

[fifthcolumn]

Is that analysis correct? Are we really likely to see inflation of 33%? Currently at about 2-3% for the last few years. Even during the crazy 70s, it was up around 15%. Not saying you are wrong FC, just wanting to understand the possibility more fully.

If I really thought inflation would hit those levels, I would take further mitigation actions very soon......

From the monetarist school that analysis is the worst possible case.
It assumes that all of the extra money supply will make it's way back into the real economy via the money multiplier and none of it will sit on the sidelines.

Right now, virtually all of it is sitting on the sidelines, so the question is:
how much is going to make it back into the real economy?

In past times, liquidity not quite on this scale has made it's way variously into the stock market, the bond market, the futures market, wars and the housing market (latterly). In all case, the assets rose massively.
In the 1970s after a similar pattern to today, all asset bubbles were exhausted and the excess liquidity made it's way into the real economy.
Unless they can pump up a renewables bubble and/or an electric cars bubble I don't see where else it can go. Ultimately it's going to end up somewhere. My personal take (and I'm no oracle though I have a very good understanding of economics) is that it will ultimately end up in the real economy exactly as it did in the 1970s.

Now bear in mind two other things:
If this economic funk continues, it's a cast iron guarantee that more will be printed, leaving the potential inflation pot even fuller, so as it builds the likelihood of higher than 33% inflation increases.

Secondly, there is a cast iron guarantee that the UK is going to be bidding for oil and gas on the open market from 2012 onwards so regardless if the numbers of pounds in circulation was static or not, real goods are going to become more expensive. i.e. there's going to be a mindset shift that real goods rather than paper goods are a better investment.

Putting all this together my gut tells me that we're looking at high inflation starting somewhere between next year and continuing for the rest of the decade until Britain is a broke banana republic in the rain or else a miracle is pulled out of the hat and Britain encounters something else it can generate large scale tax revenues from.

[Potemkin Villager]

So bringing this back on topic should I advise my children (15 & 18) not to get in to debt or to get in to as much debt as possible as fast as possible? A student loan maybe?

I keep being told the best way to achieve some chance of sustainability is
to keep out of debt, which I have largely managed to do, but the prospect of hyperinflation seems to make a nonesense of this.

This always assumes you cab manage to get in to debt.

[fifthcolumn]

So bringing this back on topic should I advise my children (15 & 18) not to get in to debt or to get in to as much debt as possible as fast as possible? A student loan maybe?

I keep being told the best way to achieve some chance of sustainability is
to keep out of debt, which I have largely managed to do, but the prospect of hyperinflation seems to make a nonesense of this.

This always assumes you cab manage to get in to debt.

I'll take a stab at answering this:

If deflation happens, going into debt means that it's more difficult to pay the debt back and that any debtors in this scenario are likely living through a collapsing economy with high unemployment. If they are made unemployed their likely only recourse would be bankruptcy or rescheduling of the loan if possible. The upside would be that a deflationary scenario is a better bet for the economy as a whole than hyperinflation, as a large section of the workforce would be better off and ultimately the economy would recover.

If hyperinflation happens, then debt would be wiped out but the downside is that unemployment would skyrocket even further than in deflation and almost everybody would be broke including those of the rich who didn't take steps. All savings in the hyperinflating currency would be wiped out.
In this scenario, borrowing heavily to buy a house whose debt is wiped out wouldn't help you if you can't get access to food. To those who think they would have access to land bought by mortgage, typically in such hyperinflationary scenarios, some pretext is found by government officials to confiscate land.

So what kind of savings?
In a hyperinflationary scenario (which typically lasts 2 to 5 years), stocks in blue chip companies, commodites (gold/silver/oil), foreign currencies and real savings (such as tinned food and items which could be sold) are the best form of savings.

Unless you already have land and enough clout to avoid confiscations.

Better hope it doesn't happen, however.

[snow hope]

Interesting analysis in this thread.

It seems to me that the decision to go the hyperinflation route has already been taken (QE) and the fact that it is being extended. I moved a chunk of my modest pension pot into an index linked fund some time ago (followed the Bank of England's pension investment trend as pointed out by Sunny Jim). I am very comfortable with this decision.

The question arises, that if we assume the hyper-inflation route is a given, what other mitigation strategies should be put in place?