Reply #16: Global vs. Local

[German-Lefty]

The world, national, and local economies tank...
In this case I don't think a local currency can help. You can expect the FED/Congress to try to give all kinds of fiscal and monetary stimulus at least if the condition is expected to be temporally. Let's say the OIL runs out. I don't know if it makes more sense building a fleet of sailboats to go fishing off Cape Cod or a bunch of windmills in Dakota. People and capital will move around the country to try to make the best of the situation.

One possible scenario is that people with whatever foreign currency was strongest would buy up land and capital in Cape Cod, at a sharp discount, and hope for better times - in other words, speculate. This of course would put the price of land and capital out of reach of the Codders.
Sure there would be some winners out there and they might be able to buy up property. Most of the property in Cape Cod is probably owned by locals. So when the property values rise, they get most of the benefit. There will be losers: people paying rent. Anyway that scenario doesn't make much sense in a recession unless Cape Cod is somehow special. It makes more sense in local decline. In such times it makes sense to just sell your house to a retiree and move somewhere with better prospects. The retiree's pension gets pumped into the local economy.

Another possible scenario is that the economic catastrophe is truly global, and there's no one to come in and buy up things on the cheap. In this case, we merely have to find a way to make the latent demand of the Codders realizable, as they certainly want things, but have no valuable money with which to buy them. They could use what Dollars they have, but as the dollar tanks, and prices rise, they'd wind up bleeding their dollars externally, on products that aren't available locally, and have little left for internal commerce.
Forget about money in this situation. If there's a fundamental problem in the global economy, the money supply is irrelevant the economy should slow down. Money doesn't/shouldn't have a large market value compared to the rest of the assets. In the US M0=1.4T$ and GDP=12T$ (a dollar is spent ~10 times a year) and capital is many times more than that. Money is just the hydraulic fluid in a giant machine. It's got to be there, but it's only a small bit of the machine.


In the long run Cape Cod's imports should equal exports (ignore investment). The problem with a single currency (or gold) is that if there's a local problem, the imports keep coming in for a while even though exports have stopped. The obvious break on that is the community running out of money (or gold or whatever) to buy imports. If this happens slowly, prices/salaries adjust to where local goods are way more competitive. I could see those prices not adjusting quickly and stably in a local recession, and then the markets not clearing.

I agree property taxes make the most sense for small communities. I like them in general, but all taxes hurt. It's questionable if you should raise taxes in such a recession to make up for lost local income. Instead you might try paying the public servants in CCC.