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US default as a risk to mitigate
Update: Thanks everyone for the continuing thought-provoking discussion. I intend to post my decision spreadsheet, and still am looking for suggestions on where to do so. It might come in handy come February. A discussion that I find interesting has branched off on the topic of technological progress versus Malthusian Crunch, and I started a new article on that over here.
I would like to kick off a discussion about optimal strategies to prepare for the event that the US government fails to raise the debt ceiling before the US Treasury Department's "extraordinary measures" are exhausted, which is estimated to happen sometime between October 17th and mid-November.
This is a risk *caused* by politics, but my goal is to talk about bracing against the event itself if it happens, not the underlying politics. If you want to debate Obama-care, who is at fault, or how likely a US default actually is, please start a separate discussion.
I consider this to be an indirect existential risk because if it kicks off a national or global recession, it will likely slow or halt research and philanthropic efforts at mitigating longer-term existential risks.
Since there are obvious associations between unemployment/poverty and crime, civil unrest, and poor health, a global recession is likely to be to some extent a personal existential risk to those living in the United States or countries that have trade links with the United States.
I notice that the markets do not seem to be anticipating a bad outcome. But I heard one analyst advance the theory that investors simply don't believe the government can (his words) "be that stupid". I imagine there is more than a touch of availability bias as well-- breaching the debt ceiling might, even for fund managers who harbor no illusions about the wisdom of politicians, be up there with science-fictional scenarios like asteroid impact, peak oil, grey goo, global warming, and terrorist attacks. Moreover, there may be a dangerous feedback loop as the politicians in turn watch the stock indexes and conclude that "the market says there is nothing to worry about".
So, I would like to hear what folks who are making contingency plans are doing. Especially people who have training or experience in economics and finance. What do you think the closest parallels in 20th/21st century history are for what the worst case scenario for a US government default would be like? Is there anything you would have done differently if you had known the date for the start of the 2008 recession with a +/- 2 week confidence interval, starting in two days? Or, if you did call it ahead of time, what are you glad you did?
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Comments (120)
If the markets don't seem to be anticipating a bad outcome but you do, buying options seems to be a straightfoward way to mitigate the risk that you face.
If you know any significant economic event happens buying options seems to be the right way to proceed.
I would however be very cautionus. There are people on Wallstreet who have significant inside information on what goes on in Washington. Effectively you are saying that you understand the city better then them. How likely do you think that's true?
Good point. I don't trust my meager finance skills to buy put options.
I was considering the less ambitious strategy of withdrawing whatever cash I have available in advance, defering discretionary purchases, and waiting it out. If there is a crash, I would thus avoid bank runs and would be able to use some of the cash to buy call options on some index-tracking ETFs. Or, you know, food and gas, depending on how bad it got.
I should really learn more about finance for next fiscal cliff.
I don't think that learning more about finance will put you into a position to be as good as people with a lot of inside information about Washington at understanding it.
I would guess that most of the information that you have about the fiscal cliff comes from the media. You are competing against people who are much better informed than you.
The banks might be irrational because they suffer from availability bias, but what do you think do you know that they haven't factored in their analysis that outweighs their huge information advantage of inside information?
Can you estimate the utility cost of that strategy if you prediction of a crash turns out wrong?
Perhaps, but I'd be wary about assuming that the average Wall Street figure with inside information on Washington is setting a good example for how to operate rationally on that information. The impression I get from the books I've read discussing the work of Wall Street insiders is that they are, on average, quite good at operating under "business as usual" conditions, but that those who are well calibrated for events outside of the norm are very much in the minority. Prior to the fact, we are probably not in a good position to identify who those well-calibrated people are.
Inconvenience. Risk of being robbed. That's all I can really think of. Why, am I overlooking something obvious?
Can you put a number on it? How much money would that kind of inconvenience be worth?
Maybe $50 tops?
Update. For a more ambitious strategy of storing purchasing power as silver bullion, it works out like this:
Spot price as of now, about $21.21
Spread: about $2.25
So if I bought for $21.21 + half the spread, I'd pay 22.36/oz, and sell (in the event of no default) for 20.11, so about a 10% loss on whatever I invested. Probably more, given the small volume I'd probably be buying. On the other hand, I'd need that 10% a lot less in the absence of a default than I would need the inflated purchasing power of that silver if a default did happen.
If you hold fixed-rate debt (ie, mortgaged house), hedging against inflation is overkill. Just enjoy paying off your mortgage with inflated dollars.
Only if I'm still employed and the checks I get still clear.
Moreover, we're talking about a worst case scenario. There can be no overkill. I have to take every opportunity and exploit it to create greater opportunities until those I am responsible for are no longer in immediate danger (or at least the greatest risk to them again becomes old age, at which point my efforts no longer need to be split between the two problems).
So if I end up with surplus buying power, I should find something to invest in. I keep reminding myself that a recession can also be a great buying opportunity if you can manage it.
Another low probability risk would be a house fire, though a fireproof safe might be a good idea.
This rings true, but I instinctively play devil's advocate. You are essentially saying that the overall behavior of the market is driven by the decisions of a few insiders. The complementary scenario is that the market generally responds to widely available information, and that even though insiders can exploit this, there are not enough of them to actually drive the market. What observable features would you expect in a insider-dominated market versus an approximately-rational (boundedly-rational?) market?
Okay, some (anecdotal) evidence now in and it looks to be in support of... both models?
The insider-driven model you propose would predict that there would be a negligible reaction of the market to announcements of a deal trickling in this morning because the insiders would already know how it would go and would have traded accordingly. The non-insider-driven model would predict a rally after the deal was announced.
What we are seeing is W5000 (Wilshire 5000 index) closing last night at 18141, opening today at 18254, and rallying at just before 10am, when the first hints of the impending deal got on the news, to 18322 and staying roughly steady after that. S&P and NASDAQ behave similarly. So from last nights close to when this morning's rally tapered off it gained 181 points. Of them, 113 were gained in after-hours trading, presumably by insiders. The other 68 were gained in trading during the 10 minutes after the news first broke. So, if we do a naive estimate, 68/181 = 38% of the movement it attributable to traders with access to the same information you and I have. So if I'm interpreting this correctly, and if this one datapoint is a representative one (two huge ifs) then insiders do drive stock prices, but the influence of non-insiders is not negligible. That in turn implies that it is not hopeless to turn a profit trading ETFs.
Again, all this is on one datapoint and should not be taken at all seriously, but this might be a framework for how to actually test the insider theory on a larger dataset.
Also, this may imply that the insiders (at least the ones whose actions are observable in this time interval) did not have more than about 18 or so hours notice.
If there is an even earlier group of insiders, the data (try zooming out) might be consistent with one or more of the following from there not being sharp rallies earlier:
There are too few of them to stand out over the noise of the non-insiders
They did not get their insider information at the same time and no individual one of them was large or greedy enough to trigger a rally.
They had automated orders that would be triggered only under certain conditions.
I thought of one.
An insider-driven market anticipates legislation with major economic implications. A non-insider-driven market reacts to legislation with major economic implications. So if we see how the market acted during previous hotly contested congressional decisions, we should be able to infer if and to what extent it is insider-driven, and maybe even get some clues about what sectors most insiders are in, and what branches of government are feeding them information.
I think Goldman Sachs has both a lot of financial capital and good beltway inside information. The same goes for the other big banks.
Curious what you think of this post on discourse.net.
This one is actually rather fundamental to this subject. Deciding whether, to what degree and in what manner to hedge against a risk depends rather heavily on how likely that risk is.
I guess a thoughtful examination of probability is on topic.
What I wanted to avoid are smug dismissals of probability of default being so close to zero that it isn't worth worrying about.
Small risk, large consequences, half the probability density on the next thirty or so days, the rest smeared across at least a year (short-term debt-ceiling increases with a replay of the standoff every few months).
Too late to fundamentally restructure my finances, at the moment I'm looking at simply having some liquid cash and stocking up on store-able goods ahead of time on credit so I can make payments for them with devalued future dollars if a default happens or pay them off immediately if it doesn't.
There is no real short-term crisis. As an economist I think that the big risk is that U.S. government spending continues to greatly increase but long term growth rates stay low and in 20-30 years the U.S. faces a political crisis over not being able to fund promised retirement benefits for the elderly, and responds by significantly increasing tax rates which causes negative economic growth.
Yes.
Yes, but in that case we'll have huge problems much earlier than in 20-30 years. Japan's situation is pretty unique to Japan and I don't think US will be able to emulate it well.
I don't think a meltdown is inevitable as long as the Feds stop digging at some point. So far they've shown no signs of being able to do that.
So, even if a frank default happens later this month you predict only a modest recession?
If by default you mean that the U.S. doesn't pay T-bond holders, I would put the probably of this happening at below 10%. If it does happen it would have, to a first approximation, zero effect on the economy since everyone would anticipate that bond holders would eventually be fully compensated with interest.
I thought it's an all-or-nothing deal-- either they can pay all their debts or they cannot pay any of them. That there is no law putting priority one class of creditors over another, unlike a corporation where bond holders are paid first.
How would the market's anticipation of T-bond holders not being paid look, and at what point would it begin? Is the market currently showing signs of anticipating a delay in payments to bond-holders? How would we expect the market to react if its anticipations are miscalibrated?
For the U.S. federal government revenues greatly exceed interest on all debts, even with no additional borrowing. I've never heard of the "all-or-nothing deal" theory before.
Given how much money is at stake, and the depth of the financial market for T-bonds, and the fact that it is legal for congressional staffers to engage in insider trading, I'm sure that anticipations on this are very well calibrated.
I guess I meant, the treasury has no legal authority to decide which obligations are paid and which aren't.
http://www.businessinsider.com/can-the-treasury-prioritize-payments-if-the-debt-ceiling-is-breached-2013-10
Ah, now that would be useful information. Do you know if congressional staffers have to file some sort of disclosures when they make trades? If there's a site where such disclosures are published, that might be what's needed to infer what mix of actual and fake insanity we're dealing with here, and which way they're expecting things to go.
Part of the way they get paid is by providing info to hedge funds and then getting high paying jobs after they leave Congress with the hedge funds.
I called the 2008 US recession. Fortunately I was too lazy/risk-averse to do anything about it, as my plan was to move assets into Euros.
If you mean the risk is that US will not pay out US treasury bonds then the obvious hedge is to short sell US treasury bonds.
Heee-yal no!
Just because I disagree with the conventional wisdom that the US is too big to fail doesn't mean I actually believe that's a high probability.
I'm looking for strategies that are only slightly costly in the likely event of an 11th hour deal, but highly beneficial in the unlikely event of a default.
That's what options are for, no? Buy a bunch of put options for US treasuries. Whatever you paid for the options is "wasted", but you profit if they go down (in proportion to how much they fall by), and lose nothing more if they go up.
Hedge or don't hedge. Hedge a little or a lot. But if you want to hedge but have a "Heee-yal no!" response to the simplest hedging strategy suggests some inconsistency somewhere.
Again, to the extent that you believe that the risk is a small chance of not paying out US treasury bonds then the obvious hedge is to short sell said asset. You want it to be only slightly costly, which places limits on how much hedging you can do via this (or any other) method. Since the market value of US treasury bonds cannot increase significantly without becoming mathematically absurd this is not a risky move.
You can likely optimise beyond this approach but if the strategy seems drastically aversive rather than potentially inefficient then something is broken.
I must admit, I don't really understand bond pricing (which by itself probably means I'm not ready to be shorting them). I wouldn't short a stock unless I was very confident it would go down, because if I'm wrong there is no theoretical limit on my losses, unlike being wrong about a long position. If a default is averted, there could be a market rally, and people shorting index ETFs would get screwed for example. Does it work differently for bonds?
Notice that the thing you need to be very confident about is that it will not go up dramatically. Having a high probability of staying stable or only raising by a small amount isn't a problem.
Assume at some point you have reason to believe that you have information that the market does not and which creates a moderately small possibility of a stock dropping value dramatically. Also assume that you have a limited tolerance for risk. ie. You're willing to invest $10k based on the expected value calculation but would accept no chance of losing more than that. In that case you can short sell the stock and also buy call options at a higher valuation (or just use a 'stop order'). That way you gain when the price drops and lose when the price rises but the losses are limited to a predetermined maximum. You can then crudely visualise the payoffs as just similar to betting on a horse you think will win. You will probably lose a small predetermined amount but if the horse wins you win a lot.
There isn't a difference in how shorting works. There is a difference in what bonds and stocks are. Stocks are based on the value of a company, which can obviously go through the roof. A bond is a promise to pay a fixed amount of money over a specified time. The monetary value of an IOU for $10 + $1 interest paid over a week is never going to be greater than $11 now, that'd be really weird. Bonds can lose all their value catastrophically if the issuer loses credibility but they can never gain value above "Bond with the specified terms assuming unquestioned reliability of issuer".
...so there is a limited downside risk unlike shorting stocks?
And the upside is still (theoretically) the full price at the time you short it because it could in principle drop to zero if the debtor defaults? Is that correct?
Correct on both counts.
It is probably worthwhile to go through the list of sovereign defaults and see which ones appear to be similar and which individual risk mitigation measures were successful in retrospect.
Aha, finally found a replacement for InTrade for calibrating predictions of US economic/political events.
https://www.ipredict.co.nz/app.php?do=browse&cat=1112
I poked around that site previously, but it didn't seem to say anywhere whether US citizens were allowed to bet on it. Do you know?
Haven't tried signing up yet.
I never bet on Intrade anyway. I just looked there now and then to see how people who are more confident then me were betting.
Whew! It's over until February, and then we begin again.
I constructed a decision tree for whether or not to buy silver bullion, and sometime in the next few days I hope to clean it up and post it someplace for people to play with it and input their own estimates.
Can the Wiki handle XLS documents? Or is there some file repository that LW posts customarily link to?
As a general rule, holding dollar-denominated fixed rate debt is a great way to mitigate inflationary risks. Best source of that is a mortgage on real estate.
It will suck to be a bondholder or on a fixed income. It will suck to buy things from outside the US. It will suck to have a long commute or to travel lots (gas prices). Stocks will hurt, but not too bad. Real estate is solid. Fixed rate debt holders are laughing as the banks have to accept their wheelbarrow dollars.
Just the fact that people are now talking about the need to mitigate the risk of US default means that Treasuries are losing their status as the benchmark for the risk-free rate. Too late, too late...
If I were a rating agency, I would have bumped the US down more than one notch the last time this was threatened. The mere fact that we could talk about it with a straight face should have been very worrisome.
Well, S&P downgraded US debt the last time we went around that mulberry bush.
Bad things happened to S&P (and its owner McGraw Hill) after that.
Pointing out that the emperor is naked can be really bad for your health.
Cans of beans and ammo.
I'm guided by Popehat's Clark -- here, here, here, etc.
On a bit more serious note, how do you imagine default? What exactly, in technical detail, do you think will happen?
Beans, check.
Ammo, check.
Good to have around in general principle regardless of how the economy is doing at the moment. Store well, have intrinsic value, and are small enough to barter. I think of societal collapse as happening in stages:
Market infrastructure (banks, stock exchanges) still hobbling along in the midst of deep recession. Good time to have metals, short/liquidate stocks.
Market infrastructure crumbles. People starting to use precious metals. Good time to convert surplus precious metals into portable objects that are intrinsically useful and easy to trade. Or real estate if you can swing it.
Collapse of distribution networks means that certain goods are unavailable at any price in certain areas. Good time to already be stocked up on those goods, and ready to barter them, to expand purchasing power.
Find other people sympathetic to restoration. Use their help and whatever resources you've managed to secure in the previous steps to get the civilization ball rolling again.
...have you been around (as an intertubes-reading creature) in 1999? Beans and ammo were REALLY popular then. Among a certain kind of crowd, that is.
Sure. Beans and ammo were really popular among IT dudes like me who understood the kind of shit-storm that was brewing and was narrowly averted. Silver dollars were also popular, and I still have mine stacked up somewhere.
Now it's vanished down the memory hole except for occasional cameo appearances as an example of why you shouldn't pay attention to alarmists.
I drew a different lesson from the experience: not all dire predictions are self-fulfilling. Some are self-negating, and they look exactly like that one. I fondly hope all today's doomsday alarmism also turns out to be this "unfounded".
That's the trillion dollar question.
What bothers me is nobody is willing to even hypothesize. That's what screams availability bias to me: we don't know what will happen, so we'll just assume it either won't happen or it will be business as usual.
I don't even know what field (failure-ology? domino-tics?) I need to read in to actually make an informed guess, but the best guess with what little I do know (for a worst case scenario) is the following, in roughly chronological order:
Massive stock market crash
One or more ratings agencies downgrade the US from its AA rating.
Value of the dollar plummets, inflation ($100 is barely enough for even a cheap meal)
Run on the banks. The FDIC theoretically can still bail out failing banks by taking money from non-failing ones but who knows where there is a tipping point before they all fail (and presumably are all taken over by the FDIC). Even if they eventually manage to reopen them all, days or weeks pass before some people can access their accounts.
Government starts bouncing checks to employees, contractors, veterans, social security recipients, etc. They, along with thousands of people who never realized they depended on something that depended on regular checks from the government, are now overdue on their rent/mortgage/bills.
Some employees continue working for IOUs, some stay home, hard to predict which federal services are operating where. State and local services still mostly functioning.
Massive wave of seizures and foreclosures by creditors who are themselves in a desperate financial crunch. At this point, it no longer matters whether or not the debt ceiling is raised, the chain reaction has started.
Bouncing checks and repos trigger riots and in the chaos various ethnic/political/religious grudges also get rekindled. Again, some areas hit harder than others. Probably not a good time to live in an urban slum.
With police over-extended, increase in violent crime and property crime.
With the dollar's lower purchasing power, it's even more expensive to import oil, which has a further inflationary effect on almost every consumer good sold in the US. Food is particularly hit because fertilizers are made with petrochemicals.
Economies of various other nations collapse, with similar results.
...and I don't know what happens next. Presumably at some point someone puts a bullet through your head and takes whatever you have left that's worth stealing. Alcor can't help you because they can't afford liquid nitrogen, nor the cost of transporting your remains to Arizona in the first place. The end.
Total time scale: about a year. Hopefully I'm wrong and hopefully other posters and point out where.
seizures and forclosures are inconsistent with cheap meals costing a hundred dollars due to inflation. It's one or the other - either there's not enough money getting pushed to debtors, or there's a surplus of money and debtors can pay their mortgage easily with inflationdollars.
There are two different mechanisms at work here. The inflation is due to a devalued dollar. The foreclosures are because you lose your job as a direct or indirect consequence of the recession.
If a cheap meal costs $100 instead of $5, then your $100k mortgage is backing a $2mil house, and you can borrow against your instant equity (even with no income or job).
The interest rates may suck on borrowing against your home equity, but it's better than losing your house.
The TEOTWAWKI scenario doesn't look likely. Do note two things:
The Treasury isn't prohibited from spending money or paying back the debt. It's prohibited from borrowing more. Effectively that's the same thing as saying that the Federal governement will have to run a balanced budget starting right now.
The Fed. The Fed can do whatever it wants and guess what it can do -- it can print money! Moreover, it can print money and give it to anyone it likes, for example banks (threatened by bank runs) or, probably, even the Treasury.
That a strange way to look at things. MIRI won't research FAI any slower through the federal funds shutdown. On the other hand military reserarchers who develop AI might be slowed down.
When it comes to research that poses an existential risk through nanotech, similar things are true. Government research produces a lot more existential risk than it solves.
Presumably you have some data to back this up?
What existential risks do the NIH, NASA, and CDC produce?
Lowtech Amish aren't engaging in activities that produce much existential risk. Most of the existential risk we face come as a result of technological progress.
When it comes to building nanobots, I think that something in which NASA is interested.
Various NIH projects are aimed at advancing bioengieering. If someone solve protein folding simulation it's possible that he can build a nanobot with it.
Various NIH research also makes it cheaper for people to machine for gene synthesis and build organisms that do have the possibility to mess up ecosystems.
The antrax attacks in the US were due to antrax from a US government lab. The CDC still has smallpox sample that it doesn't destroy.
But pointing to concret risks isn't the point. Breakthrough research tends to bring up things that you don't forcast.
...including forecasting whether it will occur in a corporate, charity, or government funded lab?
I don't think it makes sense to separate those two much. An advance in a government funded lab can lead to the idea being applied in corporate labs.
Okay, so we agree then? An across-the-board cut to federally funded research is not desirable?
On average I would expect application of research result raise existential risk, so no we don't agree there.
I haven't used the word desirable in this discussion at all. It's besides the point if you want to speak about the effects that things that you can't control have. It leads to a mindkilled arguments as soldiers mentality.
Good point-- I had started this discussion to explore personal/local preparedness strategies, and the effect the same crisis might have on NIH or on MIRI is indeed off-topic.
There more I think about this affair the stranger it becomes.
You have people discussing about raising the debt limit but nobody seems to propose simply getting rid of the debt limit. If people really think that the debt limit crisis is that bad, why don't they propose to get rid of the concept of the debt limit?
A few ago there was the discussion about coining a 1 trillion dollar coin. Again if the debt limit crisis is that bad, why doesn't the president coin the coin and get done with it?
If powerful people would really think that this is really bad, I would expect those two things to happen. What we are seeing is that Democracts want to argue that the Republicans are destroying the country. Some Republican seem to hope to get reduce Obamacare.
The NSA is probably happy that there a crisis that takes the public attention away from them. After all claiming that the Syrian government used chemical weapons only dominated the headlines for a short amount of time and there are still a bunch of unpublished documents.
The press profits from having news that interests their audience. It draws people in to get the latest news.
All those people who want to reign in federal spending have their field day, because the affair "proves" that it's important to reign in spending and that overspending is a "serious problem".
I makes it easier to corrupt all sorts of bureaucrats that now find themselves unexpectedly without a paycheck.
I wonder, next time control of the House changes, maybe they will try to do away with the debt ceiling. It's a fairly recent problem. I think getting rid of the debt ceiling without replacing it with some more effective limit on deficit spending would be dangerous, though. I suspect there would be enough Representatives left in the House who felt the same way that such a bill would not pass.
The president actually talked about the use of legal exploits in a speech he recently gave (he didn't talk about the trillion dollar coin specifically, but it would fall into the category he was addressing). He basically said that he "had plans" but they would face vigorous legal challenges, and would have almost as negative an impact as an actual default.
No, the same thing happened 17 years ago. There was even a time during the Bush government when Democrats didn't want to raise the debt limit and used it for political leverage.
This also suggests that everyone in the press follows the playbook of the president and doesn't get the idea of pushing the coin or a repeal of the debt deiling themselves.
So basically he said that he's doing all he can and that the Republicans are still really evil.
If you think that the debt limit is an important concept for limiting deficit spending, why do you think that it should always be increased?
Also, why aren't congressional budgets the tool of choice?
I never said that. I believe that screwing with it without an appreciation for the complexity of the system one is trying to improve upon can have dire consequences. And the purpose of this discussion is to see how to protect one's self from these consequences.
The debt limit is actually pretty ineffectual at limiting spending, and now we've again been reminded that it can be exploited. But unconditionally making debt-limit increases automatic would sent the wrong message to legislators and investors. I think a balanced budget amendment would be a much better alternative.
Because it's a redundant constraint. The budget already limits the debt, and that is the best mechanism for limiting it - it can actually take effect safely. The debt limit is a guillotine. If it ever does anything directly, we are screwed.
It's not a constraint -- it's a precommitment / beeminder-like device. It's purpose (at least nowadays) is to make borrowing more politically painful.
Then why shouldn't we get rid of the guillotine?
A few posts up:
As far as I can tell, no reason at all.
Maybe I should look into emigrating to Canada again...
[/not sure if I'm kidding or not]
If the sh*t hits the fan in the US, I don't see how Canada would remain unscathed. The question is where you can migrate your money, or more precisely, your purchasing power.
Canada's banks did pretty well in the 2008 crisis.
If another global crisis comes, it will certainly affect some places less than others. Depending on how bad it gets, I guess switching countries for a few years might be worth considering.
Germany might be a good bet - it weathered the 2008 crisis pretty well, is rapidly gaining financial power over other EU countries and isn't nearly as tied to the US as, say, the UK and China are. Everybody speaks English, too.
Do they? That's interesting. I have a short list of countries to flee to if the U.S. gets too objectionable ("objectionable" deliberately unspecified) for me, but requiring English as a ubiquitous language is a serious limitation. Adding to that list is nice.
With regard to a potential U.S. default, I have no special plans because I have no significant dollar-denominated assets to protect. I'm not that well versed in what the fallout would be like, but I'd think the most likely threat to me personally would be unemployment, and I'm not sure there's anything I can do about that except save money.
But I predict that the U.S. will not default -- at least not this time.
I do too, for what it's worth. I also predict that I will not die or become uninsurable during the coming year, but I pay my ALCOR dues nonetheless.
I suspect that this is all political theater, but in any ritual combat there the inherent risk that someone will miscalculate and things get real faster than anybody is prepared for.
Upvoted for the poignancy of the analogy.
It depends a bit where you go in Germany. If you want to spend your time in small towns German might be more important.
I live in Berlin and I know a bunch of people who live here that speak English but no German. They do quite well without German.
Physical location is harder to change than the location of your assets. Usually.