Survivors: A Novel of the Coming Collapse

2. Stocking Up

At that same time that Andy Laine was at the Haji-mart in Afghanistan, his brother Lars was 11,500 miles away, rolling a cart into a Sam’s Club store in Farmington, New Mexico. It was 6:52 a.m. in New Mexico and 5:22 p.m. in Zabul province, Afghanistan. Both men had the same thing on their minds: stocking up, in quantity and immediately. The Laine brothers shared a sense of urgency, realizing that there would likely be very few opportunities to stock up on things before mass currency inflation destroyed the value of their savings. The news outlets made it clear that things were falling apart quickly-very quickly.

The Sam’s Club store in Farmington, New Mexico, was about to open for the day. There was a large crowd of perhaps a hundred anxious shoppers, many waiting with their membership cards in hand, standing behind oversize shopping carts and flat cargo carts. Lars Laine eyed his wife, Lisbeth, who was seated on their cart, next to their six-year-old daughter Grace. Beth was thirty-four, with curly brown hair and hazel eyes. She was slightly overweight and had struggled all through their marriage to maintain her figure. As Grace was doodling in her coloring book, Beth was adding items to an already long shopping list. She stood up, leaned close to Lars, and spoke directly at the hearing aid in his good ear, “We’d better hit the canned-food section first, hon,” she suggested. He nodded and answered, “Roger that.” Beth smiled, gave him a peck on the cheek, and again sat on the cart to wait.

Lars glanced around, sizing up the crowd. The middle-aged woman standing next to him was staring at his left hand. Lars hated that. It was hurtful to him that people stared so much at the flesh-colored rubber prosthetic. They always seemed transfixed, as if the hand were some alien creature that had just landed on Earth. They stared at his left hand, or at the left side of his face, or alternated between them, staring at both, and it made him feel like a circus freak.

The reconstructive surgery on his left cheekbone-which had used a piece of one of his ribs-was less than perfect. Sometimes people he hadn’t met before or who hadn’t seen him in many years would approach him from the right side, smiling, and then he’d turn his head toward them and they’d suddenly look repulsed. “The Quasimodo effect” is what Lars called it.

One month earlier, on a street corner in Durango, Colorado-the nearest city with large department stores where Lars was shopping for a new refrigerator-a man who appeared to be in his seventies walked up to Lars, and asked simply, “Iraq?”

Lars answered, “Yes, sir.”

“I was in that little Dominican thing, and then I did a tour in Vietnam. I came back without a scratch.” The old man looked Lars in the eye and said firmly, “Thanks for your service, and for what it cost you. Welcome home.” He shook his hand and strode away. Laine’s eyes welled up a bit, but he didn’t cry. That one encounter made up for a whole lot of previous Quasimodo moments.

Finally, the roll-up door opened, and the crowd rushed in. Lars and Beth headed for the canned-food section and started stacking full cases on the cart. That was just the first cartload. They stacked the cart high on three successive trips into the store that morning.

The television news anchors had recently started calling the intensifying economic crisis “the Crunch.” The term soon stuck with the general public, becoming part of the general lexicon. Government spending was out of control. The credit market was in continuous turmoil. Meanwhile, bank runs and huge federal bailouts had become commonplace.

The debt and budget deficit had spiraled to stratospheric numbers. A Congressional Budget Office report stated that to pay just the interest on the national debt for the year, it would take 100 percent of the year’s individual income tax revenue, 100 percent of corporate and excise taxes, and 41 percent of Social Security payroll taxes. As the Crunch began, interest on the national debt was consuming 96 percent of government revenue.

The official national debt was over $6 trillion. The unofficial debt-which included “out-year” unfunded obligations such as entitlements, long-term bonds, and military pensions-topped $53 trillion. The debt accumulated at the rate of $9 billion a day, or $15,000 per second. The official national debt had ballooned to 120 percent of the gross domestic product and was compounding at the rate of 18 percent per year. The federal government was borrowing 193 percent of revenue for the year.

The president was nearing the end of his term in office. The stagnant economy, rising interest rates, and creeping inflation troubled him. Publicly, he beamed about having “beat the deficit.” Privately, he admitted that the low deficit figures came from moving increasingly large portions of federal funding “off budget.” Behind the accounting smoke and mirrors game, the real deficit was growing. Government spending at all levels equated to 45 percent of the gross domestic product.

In July, the recently appointed chairman of the Federal Reserve Board had a private meeting with the president. The chairman pointed out the fact that even if Congress could balance the budget, the national debt would still grow inexorably due to compounding interest.

In Europe, international bankers began to vocally express their doubts that the U.S. government could continue to make its interest payments on the burgeoning debt. In mid-August, the chairman of the Deutsche Bundesbank made some off-the-record comments to a reporter from the Economist magazine. Within hours, his words flashed around the world via the Internet: “A full-scale default on U.S. Treasuries appears imminent.” His choice of the word “imminent” in the same sentence with the word “default” caused the value of the dollar to plummet on the international currency exchanges the next day. T-bill sales crashed simultaneously. Starting with the Japanese, foreign central banks and international monetary authorities began to dump their trillions of dollars in U.S. Treasuries. None of them wanted the now-risky T-bills or U.S. bonds. Within days, long-term U.S. Treasury paper was selling at twenty cents on the dollar.

Foreign investors began liquidating their U.S. paper assets: stocks, bonds, T-bills-virtually anything denominated in U.S. dollars. After some weak attempts to prop up the dollar, most of the European Union nations and Japan announced that they would no longer employ the U.S. dollar as a reserve currency.

The Federal Reserve began monetizing larger and larger portions of the debt. The Fed already owned $682 billion in Treasury debt, which was considered an asset for the purposes of expanding the money supply. In just a few days, Federal Reserve holdings in Treasury debt more than doubled. The presses were running around the clock printing currency. Soon after, the domestic inflation rate jumped to 16 percent in the third week of August. To the dismay of the Fed, the economy refused to bounce back. The balance of trade figures grew steadily worse. Leading economic indicators declined to a standstill.

Legislators in Washington, D.C., belatedly wanted to slash federal spending but were frustrated that they couldn’t touch most of it. The majority of the budget consisted of interest payments and various entitlement programs. Previous legislation had locked in these payments. Even worse, by law, many of these spending programs had automatic inflation escalators. So the federal budget continued to expand, primarily because of the interest burden on the federal debt. The interest payments grew tremendously as rates started to soar.

It soon took 85 percent interest rates to lure investors to six-month T-bills. The Treasury Department stopped auctioning longer-term paper entirely in late August. With inflation roaring, nobody wanted to lend Uncle Sam money for the long term. Jittery American investors increasingly distrusted the government, the stock market, and even the dollar itself. In September, new factory orders and new housing starts dropped off to levels that could not be properly measured. Corporations, large and small, began massive layoffs. The unemployment rate jumped from 12 percent to 20 percent in less than a month.

Then came the stock market crash in early October. The bull stock market had gone on years longer than expected, defying the traditional business cycle. Nearly everyone thought that they were riding an unstoppable wave. Just before the Crunch, the Dow Jones Industrial Average was selling at a phenomenal sixty-five times dividends-right back where it had been just before the dot-com bubble explosion. The market climbed to unrealistic heights, driven by unmitigated greed. Soon after the dollar’s collapse, however, the stock market was driven by fear.

Unlike in the previous crashes, this time the U.S. markets slumped gradually. This was due to circuit-breaker regulations on program trading, implemented after the 1987 Wall Street slump. Instead of dropping precipitously in the course of one day as it had in ’87, this time it took nineteen days to drop 7,550 points. This made the dot-com bubble burst in 2000 and the 2008 stock market meltdown both look insignificant.

The London and Tokyo markets were hit worse than the U.S. stock exchanges. The London market closed five days after the slump started. The Tokyo market, which was even more volatile, closed after only three days of record declines. Late in the second week of the stock market collapse, the domestic runs on U.S. banks began. The quiet international run on U.S. banks and the dollar had begun a month earlier. It took the citizenry in America that long to realize that the party was over.

The only investors who made profits in the Crunch were those who had invested in precious metals. Gold soared to $5,100 an ounce, with the other precious metals rising correspondingly. Even for these investors, their gains were only illusory paper profits. Anyone who was foolish enough to cash out of gold and into dollars after the run-up in prices would have soon lost everything. This was because the domestic value of the dollar collapsed completely just a few weeks later.

The dollar collapsed because of the long-standing promises of the FDIC. “All deposits insured to $100,000,” they had pledged. When the domestic bank runs began, the government had to make good on its word. The only way that it could do this was to print money-lots and lots of it. Since 1964, the currency had no backing with precious metals. Rumors suggested, and then news stories confirmed, that the government mints were converting some of their intaglio printing presses. Presses that had originally been designed to print one-dollar bills were converted to print fifty-and one-hundred-dollar bills. This made the public suspicious.

With overseas dollars being redeemed in large numbers and with the printing presses running day and night turning out fiat currency, hyperinflation was inevitable. Inflation jumped from 16 percent to 35 percent in three days. From there on, it climbed in spurts during the next few days: 62 percent, 110 percent, 315 percent, and then to an incredible 2,100 percent. The currency collapse was reminiscent of what had happened in Zimbabwe.

The value of the dollar began to be pegged hourly. It was the main topic of conversation. As the dollar withered in the blistering heat of hyperinflation, people rushed out to put their money into cars, furniture, appliances, tools, rare coins-anything tangible. This superheated the economy, creating a situation not unlike that in Germany’s Weimar Republic in the 1920s. More and more paper was chasing less and less product.

With a superheated economy, there was no way for the government to check the soaring inflation, aside from stopping the presses. This they could not do, however, because depositors were still flocking to the banks to withdraw all of their savings. The workers who still had jobs quickly caught on to the full implications of the mass inflation. They insisted on daily inflation indexing of their salaries, and in some cases even insisted on being paid daily.

Citizens on fixed incomes were wiped out financially by the hyperinflation within two weeks. These included pensioners, those on unemployment insurance, and welfare recipients. Few could afford to buy a can of beans when it cost $150. The riots started soon after inflation bolted past the 1,000 percent mark. Detroit, New York City, and Los Angeles were the first cities to see full-scale rioting and looting. Soon the riots engulfed most other large cities including Houston, San Antonio, Chicago, Phoenix, Philadelphia, San Jose, San Diego, Dallas, Indianapolis, and Memphis.

It was when the Dow Jones average had slumped its first 1,900 points that Lars Laine decided to stock up. But by then it was nearly too late. Gas cans had all been snapped up a week before. The shelves at the supermarkets were already being cleaned out. Unable to find extra batteries at department stores, Lars and Beth started looking elsewhere. They finally found some that had been overlooked at a Toys “R” Us store. They were able to find a few first-aid supplies, but those, too, were being rapidly depleted, along with everything else at the local CVS drugstore. The local gun shops had been completely cleaned out of inventory. There wasn’t a single gun or box of ammunition left for sale.

At night, after the stores closed, Lars and Beth stayed up late, ordering things like batteries, lightbulbs, Celox wound coagulant, mason jar lids, and gun cleaning equipment from Internet vendors and from individual sellers on eBay. They placed multiple orders, realizing that in the scarcity of the new market paradigm, at least half of these orders would never arrive.

To their dismay, they found that the Internet ammunition vendors had completely run out of ammunition and extra magazines. After much searching, Lars did manage to order a spare firing pin, a spare extractor, and a few stripper clips for the pair of Finnish-made M39 Mosin-Nagant rifles that he and his brother had inherited from their father.

As the local stores began to run out, there were fewer and fewer things that Lars and Lisbeth could buy. Beth suggested buying extra blue jeans and tube socks, to trade, but they found that the clothing store shelves had already been decimated. Realizing that their money was rapidly becoming worthless, they resorted to buying motion-sensor yard floodlights, plumbing parts, sheets of plywood, and two-by-four studs at the local building store, just as something that they could later barter. A week later, even those were unavailable. It was like a huge nationwide fire sale in progress. Everyone wanted out of dollars and into tangibles. But it soon became abundantly clear that there were too many dollars and too few useful tangibles available. Prices could only go one way: up.

The local banks were overwhelmed with cash withdrawals and soon got into the pattern of having their cash supply wiped out each morning, and then renewed each night, as local merchants made their deposits. Their transaction volume soared, but their deposit accounts quickly dwindled to below regulation levels. The queue of customers outside the bank each morning soon became the inspiration for jokes and jeering. “They have to print fresh money each night” became the standard joke.

Lars was thankful that he had a three-hundred-gallon aboveground tank of gasoline at the ranch, and that it was nearly full when the economic crisis set in. He added a padlock to it, but he was worried that someone might try to steal the gas at gunpoint.

Both in Bloomfield and the much larger city of Farmington just a few miles west, many of the retail businesses that remained open were cleaned out, leaving the owners with piles of increasingly worthless greenbacks. Eventually, even the local gift store ran out of inventory. People had become so desperate to get rid of their dollars that they traded them for New Mexico logo T-shirts and coffee mugs made for the tourist trade.