Reserves

     If you’re acquainted with one or more preparationists – “preppers,” in our contemporary argot – you’re surely aware that they maintain a stockpile of goods they deem essential to survival and self-defense. Such stockpiles are not commonplace in the homes of persons unconcerned with the possibility of disaster. The prepper’s acknowledgement of such possibilities compels him to create and maintain one for himself and his loved ones. After all, should there be a disaster of the sort other citizens decline to consider, that stockpile could make the difference between life and death.

     The typical prepper and his otherwise-inclined neighbors differ in other ways, too. The neighbors reckon up their reserves by looking at their bank balances. The prepper, aware that should civilization’s bottom fall out, what we carelessly call money would be worthless, is more concerned with his stockpile. Indeed, depending on the intensity of his fears, he might not have more in the bank than is necessary to meet this week’s bills. The balance of what he earns goes to other uses, including building that stockpile higher, wider, and deeper.

     Context matters, of course. In normal times, when America is “open” and her magnificent productive and distributive systems are functioning normally, a fat bank balance is a pleasant thing. It holds out many options. In contrast, the prepper’s stockpile is fixed in application. He can’t convert it at will into, say, a Disneyland vacation. But the prepper is unlikely to value convertibility that much; it’s antithetical to the preparationist mindset.

     But should abnormal times arrive, the prepper will be ready. His neighbors’ bank balances will not avail them. In this there is a sermon applicable to our time.

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     One of the most significant changes of the past few decades has been the transition from commercial inventory management through the maintenance of a reserve-on-hand of components to a “just in time” approach in which the company trusts that it will be able to acquire what it needs when it needs it – essentially, an investment of faith in the American supply chain. This approach was made possible by a number of contemporaneous developments:

• High-speed communications;
• Flexible commercial transportation;
• Readily reconfigurable production systems.

     In the older America, today’s degree of commercial flexibility was unknown. Orders were placed by mail or phone, and moved slowly through several layers of planning. A supplier had to gauge its slow-and-costly-to-reconfigure production capacity against its ability to promise timely delivery. Transportation systems were more rigid than they are today. That America could not have supported the just-in-time approach. Companies had to keep a stock of components equal to their projected needs over an operational cycle with a monthly or quarterly period.

     But they had reserves. They could not be forced out of business by the surprise unavailability of a component. Today that sort of commercial collapse is far more possible. It’s happening throughout the American economy, owing to the Wuhan virus and the associated “lockdowns.”

     A crisis such as the Wuhan virus pandemic isn’t the only way the just-in-time approach could have been hobbled. A successful attack on our communication and computing systems would do it just as effectively. Severe impediments to our transportation networks would do it as well. But perhaps those horror stories should be saved for another campfire. Our current problems are bad enough.

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     In striking parallel to our transition from reserves to just-in-time, our financial system has transitioned from assets-based to debt-based. In effect, we’ve pyramided our economy – all of it, from our personal bank balances all the way up to the highest levels of corporate management and accounting – on faith in the ability and willingness of those who owe us something to make good on their debts in a timely fashion.

     Just as the typical private family is indebted to an amount equal to or greater than the value of its physical possessions, the very largest corporate concerns “own” very little of their substance, being indebted to various creditors for their liquidation value at least. At both the highest and the lowest levels, a significant interruption in the income stream would bring disaster. Mind you, America is not alone in this regard; virtually the whole of the First World has followed suit, even if some other nations haven’t gone just-in-time with the speed and wholeheartedness of American concerns.

     And what have we here? A hiatus of several weeks’ duration in the national economy! Essentially all income streams have been affected. Debts are going unserviced. Penalty charges are accumulating. Wipeout clauses are being invoked. Individuals, families, and institutions great and small are finding themselves at the edge of an abyss – and with no reserves to hand, those who slip over that edge might not be able to climb back up again.

     Some debts can be met from bank balances. But that doesn’t apply to physical needs: food, clothing, shelter, fuel, and the like. And as for those bank balances, none of them are bottomless. Even as the federal government borrows trillions and disburses them to relieve money-debt-based pressures, the sale of physical assets to meet financial obligations is accelerating. In this connection, keep an eye on the prices of the precious metals; it’s a barometer of fiscal health that always gives an accurate reading.

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     I was once known for prattling about “connectedness problems:” troubling matters that are too intimately connected to other matters to be redressed in isolation. Our current state of affairs is a giant connectedness problem: suspension of most industry and commerce, exhaustion of reserves, interrupted incomes, intensifying debt pressures, federal profligacy, deterioration of the dollar. The mess cannot be easily disentangled.

     We’ve been doing things the way we were because it was the easiest path to a fat return on our efforts. The hazards always seemed remote, like the prospect of an asteroid or comet hitting the Earth. The WuFlu pan[dem]ic has revealed our vulnerabilities to us in garish colors.

     If we come out of this with a recognizable resemblance to pre-WuFlu America, I expect that the preparationist ethic will gain more respect from more Americans. No, we won’t all fill our basements with survival supplies. But we will think more seriously about maintaining reserves of all kinds – and about the reduction of the debts that make us vulnerable. It would be well if the ethic were to penetrate corporate managements and boardrooms, too. Sadly, company bean-counters would likely squawk loudly enough to be heard on Pluto, as would a great many corporate executives whose vision gets blurry at the thought of a reduction in their beloved end-of-year bonuses. But those are problems for others to solve; I just write stuff.