The Price of American Collapse

Hi! How’s everyone? Welcome back old friends, welcome new ones, and here’s little Snowy giving you a puppy hug to chase those Monday blues away.

Today we’re going to discuss the price of American collapse. 

Now, this is going to be a little scary. So don’t read it if you’re already freaked out. I mean that. Come back to it when you’re calm. It’ll be here. Apologies for the radio silence, by the way, I got waylaid by the flu (so I’m super backed up on emails, double apologies, here, have another Snowy hug, replies coming soon. Well, when my medicine kicks in :)

The price of American collapse. What it already is, how steep it's going to get, and what's at risk along the way. The point, as we’re going to explore, is for you not to pay it.

For many of you, this will mean a different approach to wealth, money, and finances. For many, conversations with your investment managers about restructuring your portfolios (fast, and by the way, if they're not discussing the below with you, you need to talk with me or another expert about rethinking your relationship with them). For many of you it’ll mean fundamentally different life and career choices. These are just some of the themes we’ve been exploring in sessions (and for those who are asking, here's how to book one.)

What do I mean by “the price of American collapse”? Let me put some of the concrete prices up-front for you, because in no way am I talking about something abstract or theoretical. This isn’t about intellectualizing, it’s about your life.

Let me make that concrete. What just happened in the stock market, for example? $5 trillion of value got vaporized. 

That’s $15,000 for every man, woman, and child in America. Already.

And we’re only seven weeks into this mess. So imagine two, three, four, five years more of this.

Now you see what I mean. That doesn’t mean that you’ve lost that much, by the way, it’s just a way to understand risk, what’s at stake, to have a kind of mental model of what we’re talking about.

These have been the most self-destructive fifty or so days in modern history. The price of what’s happening right now—which is already $15K per person, remember—is going to go way, way up, and it will include all the following:

—(Much) higher prices
—Higher interest rates
—(Significantly) more unemployment
—Lower incomes
—People (and businesses) falling behind on their debts
—All of which will probably at some point lead to something very much like the 2008 crash
—And that’ll be just a beginning 
—To worse, like the evisceration of safety nets like Social Security and Medicare and Medicaid
—Which will lead to a phase change in the level of stability and prosperity that only nations like Russia or very poor ones have seen in the post-war era, really.

A lot of people will be wiped out along the way. When I warn you not to Sink With the Ship, this is part of what I mean. Re-read the above and go ahead and ask yourself how the average person will fare along that path at each of those points.

I want you to understand that all this is real. It is already beginning to happen. That $15K is not in the least theoretical. And at each step of that chain, the question is: will the next domino topple? And how much will it cost you? 

Right now, it’s not looking good. I’m not saying all this happens tomorrow, so don’t imagine Hollywood disaster movies, but I am outlining some general principles and paths for you that unfold when this cycle ignites. So do understand the situation as it is.

American economists will quibble over what to “call” all this. Stagflation? Recession? Depression? In some sense, it doesn’t matter. America doesn’t have that many good economists left, and semantics here are besides the point. That point, or set of them, is this, and that is the part you must understand:

—This is a tectonic shift in the fundamentals of the economy and the social contract
—It is a permanent one, not a temporary one
—And Americans will pay the price.

I say that because right now, there appears to be a very, very limited general understanding of any of those points. I don’t feel that most Americans understand that they are going to pay the price, how real it is, how large it will be, or that it will be permanent.

Now let me explain all of that in a little more detail, to really give you context. The way I’d think about it is this.

America is becoming uninvestable, untrustable, and maybe even, at the end of all this, unlivable. 

Each of those matters, and the last one matters much more than most people think. Let’s go into a little detail.

America is Becoming Uninvestable

It’s not that American companies aren’t still innovative and powerful and so forth.

But it is that now America faces something we’ve only really seen in poor countries, or failed states like Russia. Political risk. That means the risk of political interference or whim or folly, which can affect entire industries, or maybe even the whole economy. Political risk in this sense is a “macro” risk, not a “micro” risk, which affects just a single company or bond or stock.

Tariffs, trade wars, daily whiplash. One day it’s this, the next it’s that. What does that do? What it’s already doing is making it difficult if not nigh on impossible for companies to invest, hire, or plan. How can you do those things if you don’t know how much more it’s going to cost to make that widget tomorrow? Or if just making that widget is something that’s at the mercy of crackpots and lunatics?

But it’s not company investment that’s the real problem which nations falling into the abyss of political risk face. It is investment, writ large.

You see, at some point, given all this risk, and the lack of any good reason for it, at some point, the world will turn away. And stop investing in America. It’ll just stop making sense. Who knows what could happen to your money? If your capital can be vaporized by a team of anonymous goons, is that really somewhere responsible adults want to put it? As an example, would you buy American government bonds in that case? So why are so many of your money managers doing just that? 

You see my point a little bit. If it’s already $15K per person, two months in, how much higher is the price going to get? That is the central question you must be asking yourself. Because the lesson is: you not paying it.

We’re not there yet, investment reaching what’s called a “sudden stop,” but we’re getting there. Recently, we discussed “capital flight.” That’s a central idea in economics, that capital tends to flee risky economies and societies. Money, sure, but also talented people, companies, institutions, entire asset classes. 

What this level of risk is already doing is creating capital flight. When I said “$5 trillion got vaporized,” that doesn’t mean it just went up in smoke. It fled. It went to different places around the world, from Europe to Asia and beyond. 

Again, that’s $15,000 for every man, woman, and child in America. That level of capital flight is already here. So how much worse will it get?

By every indication, much worse. That’s because Trump and his guys genuinely seem to believe in this agenda of inflicting maximum pain. For no real reason the world can discern or understand. It’s sort of obvious to say that none of this is going to work. What good does it do to jack up prices? Americans pay the tariffs, hello. Who is this going to help, and how?

But this team really believes it. They’ve already said things like they don’t care if there’s a recession, or if there’s pain along the way, and so forth—to them, all of that’s perfectly acceptable, and maybe even a good thing.

That’s a very, very bad sign. I’ve been teaching many of you in sessions how to read these sorts of signs, and this is a Big One. Listen, take it seriously, don’t play the “don’t take it literally” game that so many foolish pundits teach you to play. They’re telling you exactly what they think and will do, and have been all along. In this case, they’re telling us that they’re just going to plow ahead with all this self-destructive folly, and damn the consequences.

But remember the dominos? That chain of events is the consequences. It won’t be what they think, because here we’re just taking about basic laws of economics. Think about the average household, already stretched to the limit, living paycheck to paycheck, after years of devastating inflation. Now prices go up again, forever. And the job market falls apart. How long is it until they begin to default on their credit cars, car loans, mortgages? And then the real fireworks begin, because when that happens, banks begin to fail.

So none of this is a joke. Sadly, like I said, America doesn’t have too many good economists left, so this isn’t being widely understood or talked about.

But you must understand it, so you don’t pay the price. In this case, of America quite possibly becoming uninvestable—which is where oligarchy ends up, go ahead and ask yourself who wants to "invest" in Russia—because if this chain of consequences ensues, the world is going to run away from the wave of destruction spreading across the US economy, and you don’t want to be caught in the middle of it, either.

So how does all that come to pass, and what can you do about it?

America's Becoming Untrustable

Economics isn’t really about “money.” It’s about “trust.” If nobody trusts our currency, stock, bond, doesn’t matter, then it’s worthless. So before everything comes trust.

And the way that the world’s smartest minds, it’s wisest investors, it’s most serious leaders and so forth, think about trust is sophisticated, but also simple.

Does this society have a set of institutions which guarantee some level of stability, in modern terms? So, for example, is there a functioning rule of law? Do people have safety nets? Is there a semblance of due process? Is democracy functional? Is it friendly or antagonistic?

If none of those things are true (and there’s a long list of such criteria, I’m just giving you a few examples, to help you think clearly), then investment tends to dry up. Because you can’t trust such a society, or its economy. 

If there’s no rule of law, for example, or just the shell of one, then how do you know, if you invest, that you’ll ever be able to….recoup your gains? If there’s an autocrat in charge of everything, and the rule of law is just a sham, then maybe he’ll just swoop in and demand his portion of your returns. Maybe he’ll wipe out your whole investment if he doesn’t like you. 

See what I mean? This is political risk, writ large

So trust is everything. There’s the mechanics of economies, interest rates, yields, etcetera, blah, blah. Those are very, very secondary. The smart money thinks first and always about trust.

What I’m teaching you is that right now, that sudden, catastrophic loss of trust is already costing Americans $15K per person. But the price is going to get much, much higher.

Because in this case, what’s happening is that America’s becoming untrustable. You can’t count on it anymore, even in the narrow sense above, which is just the capitalist one. Will it be today that another trade war is kicked off? Will the tariffs be hiked higher tomorrow? Which new ones will there be? Which industries will be pushed to breaking point? Which sectors will be torn apart by all this craziness? Is every industry just to be owned by a crony now?

So the smart money around the world is already looking on at all this in horror, and wondering how it can possibly take all this risk. The answer is very simple: it can’t. Nobody can take that level of risk. Imagine that you want to build a factory, like Trump wants. But then the question becomes: if you’re going to invest several billion, can you trust these guys not to wreck it, tamper with it, can you trust basic institutions to protect that investment? Hardly, and that’s why you don’t see many CEOs actually responding to these tariffs in the way that Trump wants.

Because you can’t abuse your way to trust. Trust is earned. In economics, just as it is in life. You can’t make people trust you, after all, and that is the part that this administration doesn’t understand. If you’re a CEO or the head of a large global investment fund, and your choices are: build a factory in America, because now there are tariffs, but you can’t really trust if you’ll ever get your investment back, or build one in Europe, Asia, wherever, what would you choose?

That is why investment is now “paralyzed,” as is the job market. The job market, after all, is a form of investment—in people. But when you can’t trust the system, institutions, leadership, any of it, then you can’t invest.

Now. This is an incredibly serious problem. This is what will raise the price of collapse far beyond the $15K per person it is now, to much, much higher levels, probably orders of magnitude higher. When the world can’t trust you, then of course your society must grow poorer, as it becomes isolated and walled off and capital dries up and flees. If this part of the sequence really kicks in, then that $15K per person will rise, and rise fast.

This is the price that you must not pay, and I’m trying to teach you how real it is, and what magnitudes it’s going to operate at. It’s not some kind of political game we’re playing here. These are real-world costs that people pay with real money, that they’re worked their whole lives for, and represent their futures, possibilities, chances. At this stage, that $15K begins to become hundreds of thousands or more, because at this point, if capital flees seriously, the markets begin to flatline and then melt down, all of which goes on to cause banking and debt crises.

Do you see how becoming uninvestable and becoming untrustable are linked? I’m not saying that by tomorrow, America will be broke. No Hollywood movie scenarios. Just reality, which says: as trust dries up, then so too must investment, and when investment dries up, that is when economies really begin to wither. And the people in them suffer terribly. The $15K now becomes much more, up to hundreds of thousands, by way of currency depreciation, inflation, stock market crashes, banking crises, and much more.

How many Americans can afford that? You see, at this level, already, plenty of people stretched to the edge are driven to insolvency. So you begin to see how serious this is.

Please understand: I’m trying to show you a spectrum. We’re already at one end, $15K, and the other end is what you must understand. I’m not saying, again, it unfolds overnight, but I am saying that this is the kind of spectrum that awaits if things continue on this path.

So what happens at the end of that cycle?

Will America Become Unlivable?

At the end of that cycle, societies tend to become unlivable. Would you want to live in, say, Russia? Most people I know wouldn’t. How about North Korea? Just pick any society that’s antagonistic and autocratic. Those societies tend to suffer similar fates, which go like this.

—If they were once wealthy, they grow poor, and living standards plummet
—Investment flees, businesses shutter, unemployment rises, and institutions fail
—As they grow poor, there’s only one “choice” left, autocrats say: to finish off what’s left of public goods.

In America’s case, that means Social Security, Medicare, and Medicaid. Don’t freak out—I’m not saying these are going to be eliminated tomorrow.

But I am saying that in scenarios like this, this is how the cycle tends to end. Societies grow poorer, fast, as a result of making these terrible mistakes. And as stagflation, perma-recession, depression set in—again, the semantics don’t matter—autocrats tend to say that the only way to solve the problem is to finish off what safety nets are left. Because “now that we’re poor, we can’t afford them.”

That isn’t how economics works, by the way. Societies can always “afford” safety nets, because they create virtuous cycles, by way of employing large portions of society in productive, valuable, and long-term wealth creating work. 

But the point is that as that cycle accelerates, you can already see those cards being played on the table. They’re already talking about all the above.

And that’s going to make America unlivable. Even if they go that far—and again, don’t freak, I’m not saying it’ll happen tomorrow—and they reach some kind of compromise, saying that those who are aging and drawing on all those now can keep them, but tomorrow’s generations won’t have them, which is a probable place this might go, where does that leave society?

Very, very few people with the skills, talents, and means will want to live in such a society. Who’d want to live in a place where you could never retire, where you’d have no public healthcare as you aged, where there were no safety nets to protect you at your most vulnerable? That’d be an immense risk to take with your life.

And so if and when it comes to that, large numbers will have to leave America, and more to the point, large numbers of America’s most talented and visionary minds. Engineers, doctors, lawyers, architects, journalists, doesn’t matter really—the point is that if the only social contract on offer is, “you get old, you’re on your own, you die,” then it’s a pretty poor offer to make anyone who doesn’t have to take it. And it’s not the basis for a civilized society—a society like that can only have corrosive norms and be a soulless place, too.

Along the way, there’ll be multiple implosions, which of course will make America a very, very difficult place to be. Breakdowns in the rule of law, a corrosion of norms, hostility, ugliness, the economic wreckage we’ve discussed above. But those aren’t really the true deal-breaker. The point at which many people will say “Even if I want to, I can’t do this.”

When a society makes the fatal choice to really sever all the safety nets and public goods it once had, that is when it truly begins to become unlivable. At that point, its young and middle aged face a stark choice: should they remain, and take the colossal risk of aging in a society which offers them no social contract—and meanwhile face a kind of autocratic risk that eats away at their wealth, prosperity, and possibilities in the first place? Or should they seek brighter choices on different shores, if they can?

This is the price that many of America’s generations, it seems, will now have to face. And that price if, if you ask me, too high for any reasonable person, at least up to middle age, who has the means not to try and avoid it.

At this point, that $15K per person we’re already at rises to an astronomical degree. What does it cost you not to have five or ten years of life? How much is it worth to have healthcare and income as you age? Now we’re talking serious orders of magnitude per person. Good economists estimate a life-year is worth $200K or more, so here we’re talking millions.

So of course if you're elderly and settled in place, and have accumulated some wealth, I'm not saying "move," far from it. I'm just saying that for younger generations, it's a harder question. Because as collapse hardens, the price will steepen.

OK, that was a lot. Please understand my words. I love you guys and care about you. I’m not trying to scare you or frighten you. But I do want you to understand the point I’m trying to make.

All the above is the price of American collapse. Not in some kind of abstract intellectual way, but in a very real one. Whatever phase of life you’re in, the point is for you not to pay the price. 

You can do that in many ways, and those are personal to each set of circumstances. I’ve tried to give you some pointers above, and a way to think about all this clearly. If you want more advice, or just to chat, you’re most welcome to book a session with me, because I can only give you general principles here. 

This is the reality, my friends. Please think hard about the price of what is happening now, and how to protect yourself and your loved ones from it. I’m always here for you if you need me, just reach out.

Lots of love,

Umair (and Snowy!!)

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