Thoughts On PM’s And The Bartering Cycle

Precious Metals evoke strong reactions from many people. To some, they are our only chance for free trade and commerce; to others they are a fools game and will only serve to draw resources that could otherwise be used to a better end (you can’t eat silver…or so they say.)

My personal position is the same I take on most things; moderation and understanding the purpose. PM’s, which I will define for the sake of this blog as primarily gold and silver have a place in the well provisioned preppers toolbox. That position is waaaaaay down the line from food, shelter, water, security, and a host of other needs, BUT a place none-the-less.

I believe that the method in which the exchange of something for the goods and services from another is a cyclical proposition, going from one extreme to the lesser of extreme in a circular-pattern. This chart kind of sums up my theory:

* Sorry for the crappy MS Paint graphic….

During a collapse or recovery,  I believe that society will, in one fashion or another, and at varying speeds go through this cycle. Depending on the severity of the collapse will determine how far down the cycle local bartering actions will normalize and reverse. If a natural disaster, for example, knocks out the local grid, merchants may not accept the top cycle asset class (electronic) but still may accept promissory notes or fiat cash. If the emergency continues, promissory notes will be less and less accepted and will require more and more cash to conduct trade.

To describe and discuss each level:

  1. Electronic or no physical exchange: Credit cards, electronic bank transfers, etc.
    1. This is where we are now, quite a few people do not hold any other form of wampum other than their credit cards. This level is also the most fragile and requires the most support.
  2. Promissory notes: Checks, barter slips, etc.
    1. I admit I am at a cross-roads when it comes to this asset class (as I’m starting to call them) my dilemma is do I keep it in the cycle, and is the location placed appropriate? This type of barter item will probably come and go in different forms, at different times on the cycle. Perhaps they start as checks or “promise to pay” notes, and then quickly move into worthlessness?
  3. Fiat Currency: Physical notes or coins without “intrinsic value”
    1. Cash, money, moo-la… all backed by the full faith and credit of the government… The majority (of non-preppers) believe that dollars is money and CAN NOT lose value. It can and it has (Germany, Hungary, Argentina, Zimbabwe, etc.) and if our fiscal policies remain, it may happen here as well. BUT until that time comes, for most people cash is king and is the way business is done. After a collapse, I think that this asset class will try to hold on the hardest – while the cost of items increase and increase until someone is going to make a good living selling wheelbarrows. This is because it is unfathomable for most people to think that their greenbacks will soon have no value.
  4. Precious Metals: Minted coins minted with an underlying “intrinsic” value
    1. Ahhhhhh, PM’s the survivalist’s currency of choice. PM’s actually have no value any more than a fiat currency – they are valuable because other people say they are and there is a limited supply (being shiny helps too.) There is a reason as to why they do come into fashion after every currency collapse, and are the foundation of most modern currencies – it is because they hold the perfect combination of attributes that make a perfect bartering item:
      1. Small (concentrated wealth)
      2. Easily measurable
      3. Rare
      4. (Most) everyone else agrees on points i, ii, and  iii.
    2. Once we get to this point in the cycle, if this is not the bottom of the incident, I think we are going to fly right past it to the next few asset classes. PM’s will really shine during the recovery phase of the cycle. If you can hold on until then, you will be golden (pun intended.)
  5. Barter: Pure exchange of non-like items
    1. Not much more to say on this, the trade of my chickens for your bullets. Some people (I’m on the list) think that holding certain items strictly for barter is a good tactic; if you need the item, you have it, if you don’t, it’s available for trade. There are a dozen well-known lists floating around the internet on what makes good trade goods, so I won’t repeat them here.
  6. Anarchy: No trade is commencing
    1. The S has hit the big stinking fan, everyone is contemplating cannibalism, not if they want to trade their Mercury dimes for your loaf of bread. Hunker down and wait till bartering comes back.

I welcome your thoughts and comments.

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1 Response to Thoughts On PM’s And The Bartering Cycle

  1. Pingback: New and Noteworthy for Today, April 5, 2012 - Survival Blog With A Family Focus

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