How Can Localities Cope if the Dollar Crashes?

A “run on the dollar,” or any currency, for that matter, takes place when the currency is losing its value. This happens when a country’s debt becomes so great that there is danger of a major default–that is, large scale or even national bankruptcy. At that point, people whose wealth is in that currency, or in relatively liquid assets denominated in the currency, try to get rid of them as fast as they can. Today, that includes foreign countries like China or Russia that are holding large quantities of U.S. government bonds.

The U.S. currently is at risk. We see it in personal and business bankruptcies and foreclosures. One result can be a high rate of inflation in certain products like food or gasoline, even while asset prices, as with homes and stocks, are going down. The question is now whether the “recovery” that is underway can be sustained or will there be another crash like there was in late 2008 to early 2009.

Forecasters are projecting this recovery to last until June 2010 but are foreseeing slippage at that point. Investors at this time are still putting money into the stock market and getting out of dollars. By June, the U.S. government had better come up with a strategy for real economic growth–which means jobs–or we will likely see the “double-dip” recession many have predicted. Personally I see no way growth can be sustained unless the national debt burden shrinks. This can only be done through an orderly process of debt forgiveness, a resurgence of economic production, or a default that could be catastrophic.

Is there any way people and localities can protect themselves? The best way, in my opinion, is to put our resources, including our time and labor, into producing something of value in the real physical economy. Since most people’s largest asset is their homes, home maintenance and repair might work. It won’t make you rich, but it could put food on the table.

Speaking of food, growing it is another option. In many locations, there is a greater demand for locally-produced food than there are producers to meet that demand. In a couple of months it will be time to start planting this year’s garden. People could get together as a community and make plans for gardens big enough to sell the surplus at local outdoor markets. Buying and selling products at the local level can also become an economic engine to fuel the creation of a local currency.

A strategy of local food production can also address the problem that the era of cheap food in the U.S. is coming to an end. This is happening partly because a large portion of food prices consists of the cost of the fossil fuels used in growing, harvesting, and transporting the food to market. Gasoline prices are on the rise again. This will take food prices upward as well.

Local farming, by contrast, places food production close to the end consumer. Personal health also benefits from higher quality food and from getting outdoors and becoming more physically active.

As the national economy gets worse, it’s time for people to roll up their sleeves and get to work doing for themselves what big finance, big oil, and big government can no longer do.