Lessons From Hurricane Katrina

Winter 2004. Home Depot. A sale on generators.

Who needs a generator in the winter in south Louisiana?

I grab one and start pushing it toward the check-out line.

“Really—a generator?” asks my wife at the time.

“Yes,” I reply. “Really, really.”

So, I whip out the American Express and moments later we are the proud owners of a device for which we have no immediate use.

The generator sits in a corner of our three-car garage.

Months go by. Dust collects.

I never touch the machine. No need to.

And then comes late-August 2005.

One of the most destructive storms in US history invades Louisiana—Hurricane Katrina. Sustained winds north of 50 miles per hour snap thin pines and other trees, ripping down power lines across the city.

And just like that, my dusty, on-sale generator took on a leading role in the Opdyke family. We had a way to power the TV, refrigerator, stove, and a portable air-conditioner to keep a few rooms cool in the stifling, sultry heat of post-hurricane Louisiana.

Now at this point in today’s dispatch, let me assure you that this is not a story about hurricanes or Louisiana or even my family.

It’s a story about preparation—even when you think there’s nothing to prepare for.

I had no clue Katrina would arrive eight or nine months after I bought that generator. I had no clue any hurricane would ever arrive. Though ‘canes are common along the Gulf Coast, years and decades can pass before a truly menacing storm rumbles ashore in Louisiana… and even then, they don’t always impact Baton Rouge.

But I knew hurricanes were a distinct possibility, and I knew from past experiences as a kid growing up in south Louisiana that hurricanes knock out power, and that living in an electricity-free house in a hot and humid south Louisiana summer is miserable. (If there is a hell, it’s not a blast furnace, it’s a never-ending south Louisiana summer without A/C.)

And, so, I prepared.

Which segues us into central bankers around the world who are clearly prepping for a Hurricane Katrina of money.

Many times, I’ve shared stories of central banks buying gold. But we’re now past the point of an interesting curiosity—the point where my ex-wife looks at me in Home Depot and says, “Really—a generator?”

We’ve reached the stage where central bankers are looking at a sandstorm just now blowing off the coast of northwest Africa, and they reflexively understand that this storm is going to blow up into one of the most devastating financial hurricanes in history.

We pause now for four headlines…

From Finbold, a website that reports on all things financial:

Losing faith in fiat? Central banks’ gold accumulation hits historic level

From Fortune:

China’s demand for gold is unstoppable as consumers, investors, and the central bank fuel a record-breaking price surge

From FXStreet, a website focused on currency trading:

            China is dumping US Treasuries and buying gold

From CNBC:

Costco selling as much as $200 million in gold bars monthly, Wells Fargo estimates

I ask this question of everyone who tells me gold is a dumb-money investment (and you’d be surprised how often I’m told that):

If gold is dumb-money, why are so many non-US central banks grabbing as much gold as they can?

My inquisitor always looks at me and fumbles for an answer that never arrives.

And that’s because there is no answer other than: Central banks are rightly worried about a rapid depressurization of the dollar.

At this point, we all know the reasons why such a risk exists… extreme US debt, exploding debt-servicing costs that now equal nearly 15% of the federal budget, a fundamentally fractured US political system, an economy propped up by deficit spending, a US Treasury Department that is finding it increasingly difficult to sell enough Treasuries to fund the government; and sticky inflation that has the Federal Reserve caught between a rock and wrecking ball.

I won’t go through those. If you’ve been reading Field Notes for longer than a minute, you already know those stories.

Instead, I am going to jump to the solution… and you already know this story, too.

Buy gold.

Seriously. At this point in the game, I can’t underscore this strong enough: Buy. Gold.

Gold is that Home Depot generator I bought in the winter of 2004.

When the lights metaphorically go out at home—and they will—gold is going to be the source of light in your life. Keeping the metaphor, it’s going to power your refrigerator and your stove, and it’s going to be the portable A/C that keeps some part of your financial house comfortable.

Central bankers are not stupid.

They have entire countries riding on their shoulders.

They look ahead to gauge what’s coming, and they prep for what they see on the horizon. And what so many central bankers see today is a dollar that has too many red flags, and a Western economic system that has—oh so ignorantly—bought into the claptrap of Modern Monetary Theory that effectively claims debt doesn’t matter when you possess the power of taxation and the printing press.

Alas, history is right this very moment writing a chapter entitled, “The Era of MMT Idiocy, or Why Smart People are Financial Morons.”

This era is destined to end in a calamity equal to or worse than the Great Depression.

Gold saved the dollar during the era.

It’s going to be a savior this time around as well.

So, go on and head to Home Depot and buy that generator now, before you need it.

Because you will need it.