We’ve seen it happen before after natural disasters. First, people cling to the idea that civilization will protect them. They hit the ATM’s and withdraw the maximum amount of cash. They flood into grocery and hardware stores. At first they ring up carts full of food and supplies on a credit card. When the power goes out, they spend what little cash they have left.
A few days later, cash is still useful because people still believe in its power. A dollar isn’t yet considered just a slip of worthless paper. It still embodies confidence in everything that the dollar represents. However, since the paper itself lacks intrinsic value, as food supplies diminish, hyperinflation sets in. Yesterday’s $2 can of soup now sells for $5. Tomorrow it reaches $10. The value of the paper currency becomes less and less about what it can buy you now, in the crisis situation, and more and more about what it will buy when the disaster is over and you’re able to return to civilization.
But here’s the rub. What if there is no going back? What if this is the new normal? In that case, paper money quickly loses all but nostalgic value and gives way to a barter system.
Barter systems don’t emerge fully developed overnight. They’re based on perceived value and usefulness, both of which can change from day to day, especially in the early transitional period after a crisis. Certain things will always be useful; canned goods with no dents and original labels, reusable cloth diapers, and of course, bullets. Other things will have limited value. A freshly killed and butchered deer is great, but without refrigeration, week old rotting deer meat is useless. Thus, success in the new economy will hinge on finding a balance.