This article has been contributed for your reading pleasure by Kevin at 20smoney.com.
The recent weeks in the stock market have shown many people who have believed the economic recovery lie that there are still major challenges facing the U.S. economy. The reality is that all of the problems that caused the recent economic crisis have not been fixed. In fact, many of these economics problems are even worse today.
For example, our over-leveraged society is now even more leveraged due to the massive increases in public debt that have taken place. Entities like Freddie Mac, Fannie Mae, AIG, and others should have been liquidated; instead new, precious capital has been allocated into these zombie institutions. The more capital we allocate towards the black holes of these institutions, the less capital can be allocated toward real production that will lead to sound economic growth. An increase in production and sound economic growth is the only path to a future with any glimmer of prosperity. Unfortunately, we’re pursuing the exact opposite of such a path.
Due to the enormous economic uncertainty that is still very real, I recommend a strategy of extreme financial defense. Your goal should be to preserve your wealth through any means possible. In addition to exercising extreme caution with the financial markets, I would even recommend viewing the FDIC insured banks with a skeptical eye.
You should do your own thorough analysis of the financial soundness of any bank that is keeping your money. If a real financial crisis were to hit, the already depleted FDIC would likely not be able to cover everything (and if they did, the dollars might not be worth anything anyway!).
In order to prepare for the possibility of a collapse of the financial system, you should keep some cash on your property. Just imagine if ATM machines are unavailable! I would recommend a few months worth of expenses in cash accessible and hidden at your property. Be sure to hide your cash very carefully in order to prevent theft. A small safe will not do, since thieves will simply steal the entire safe.
If you’re wondering why I would recommend hoarding cash after already mentioning the possibility of a worthless currency, I would definitely also encourage you to have some gold and silver coins hidden on your property. In a time of uncertainty, precious metals may be the only acceptable form of money.
To take your preparations one step further, I encourage you to embrace the Alpha Strategy which recommends investing in consumable goods that you will need in the future. By accumulating goods that you will need later, you have a nice stockpile of supplies should there be a disruption in the supply chain; furthermore, any capital allocated towards consumable goods is completely secure from financial market volatility and you don’t pay taxes on an increase in value of such goods.
Overall, the strategy is simple. You should prepare and be cautious regarding a very real possibility of financial chaos in this country. There are very large looming problems that are not being addressed. You should prepare for the worst and hope for the best. It is wise to be skeptical regarding the financial system, the markets and even your banks. Only you can protect your wealth.
Kevin owns and writes for 20smoney.com and SimpleFinancialFreedom.com. For further information on defensive financial actions, check out the Alpha Strategy.
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I understand this, yet I do not. Mac shows pictures of Arizona commercial properties being empty. Well if everyone is told to save and not spend anything, everything in this country but supermarkets will go under. I mean it seems obvious people need to spend to keep the wheels moving. If the people who actually have jobs stop spending too, they will be out of a job soon too. I mean recommending people save everything doesnt seem to make much sense to me.
(con’t. from abuve) example: “The economy is growing, and normally job creation would be strengthening. But the job market is weighed down by employers who remain slow to hire because consumers are not spending enough.”
http://finance.yahoo.com/news/Drop-in-jobless-rate-points-apf-315660824.html?x=0
So, your comments are to say that we should buy things to help the economy, not to buy things that we need. Â Whatever goes under from an increase in saving is a byproduct of a free functioning market economy. Â Eventually people will spend because they are in a sound financial position, and they will buy things that they need and/or want. Â This will create jobs in those areas.
Keeping out consumption based economy going just for the sake of keeping it going will prevent future prosperity and real economic growth. Â Yes a restructuring will be painful but the alternative will be much worse down the road.
Joe,
Part of the problem is the “excess” with which people have been living their lives. That is, over past couple of decades, especially these last ten years, people (and our country as a whole) have been living beyond their means due to the availability of cheap credit. Over the past 18 months or so, that credit has disappeared, and it continues to do so…as people had accumulated so much debt that it got to the point where they couldn’t pay it off. Thus, defaults started…so much so that banks are now much less willing to give loans – rightfully so perhaps because “we” have so much debt on our hands that we can’t afford to service them or pay them down as it is…AND it seems somewhat unlikely that Americans will stomache another round of bailouts…
So, yes – you do have a point. If people stop spending money altogether, the economy would completely freeze up. However, we can not spend the type of money that we have over the past decade. That is, we need to live within our means.
This is the big adjustment that we need to make…and it is happening right before your eyes. People no longer have, for example, the ridiculous home equity loans they once had to buy new luxury sedans, HD TVs, trips to Europe, etc.
To make matters worse, much of manufacturing capacity in the U.S. has now gone overseas. So, a lot of the stuff that we buy actually pays wages for foreign workers…
…and those two items are just two bits of what I think is a rather complex problem.
In the end though, this adjustment is not going to be easy…and it’s not going to be quick.
Ok, I understand what you’re saying. But how do people save and then begin spending again if most people become unemployed (say due to people not spending)? How will things come back if everyone is unemeployed and broke?
That’s a good question, Joe.
Theoretically, I guess it starts with those people who do have money (and there will always be SOMEONE with money to spend…or at least something to barter).
Like I said above, you’re right – if every single person completely stopped spending money, everything would freeze…but someone will have money to spend (or gold or ammo to trade)…and those people need basic stuff…so they buy stuff…then that money spreads through the economy. So, I guess it starts there when you look at it the way you posed that question.
It is a damn good question though.
Let’s be clear about something though – the “easy money/credit” thing that we just went through nearly collapsed the system. It is unlikely that we will see another such cycle in our lifetime…and we SHOULD be hoping that we don’t see it again.
That being said, for all intents and purposes, “we” (i.e., the Fed) are pretty much trying to do the same thing yet again as we speak.
Here’s the answer, Joe, because in a manner of speaking, I anticipated the question long ago. Although my background is Real Estate and Finance I anticipated the present scenario years ago and own a gold (and silver) mine. So I will not be short of “hard cash” when TSHTF.
Most financial GURU’s recommend that a person save 10% of what they make by “paying” themselves first and living on the rest. Therefore, anyone with income should be able to save a little bit, even now. Obviously, you need SOME money in your checking account(s) to keep them open. What I have been doing for quite awhile now, is saving my loose change every day, and once every few months taking it down to Wal-Mart to the cash for coin machine. But thats just the pennies, nickels, and dimes. I keep the quarters, and I make a point to save those new gold-clad dollars. When the greenback is worth a dime, these things will be worth $10.00 a piece, just for the metal content. I have a couple thousand that I keep in a large plastic TIDE bottle, and I’m working on my second bottle. Guess you could say I am “laundering” my money. Metal money is real money, Joe.
OBTW, the vacant commercial in Phoenix/Scottsdale is something to behold, but it doesn’t compare to the vacant commercial in OKC and Houston in the late eighties.
Yo Zukadu ~
Please check out what these quarters and gold colored dollar coins are actually made of; they probably won’t be worth anything after the ca-ca hits the fan.
If you are looking a sound medium of exchange, please look into pre 1965 ‘trash’ (badly worn but still recognizable, no numismatic value) US silver coins; dimes, quarters, half dollars and silver dollars. You can buy them in bags of $1,000 face value and in smaller quantities through your local coin shop.
I would advise against credit/debit card purchases over the internet that are shipped to you; they leave an electronic trail straight to your front door.
Guns and popular calibers of ammunition will also be valuable as barter items. Outdoor World had name brand, semi-auto, .22 cal. rifles on sale recently for right around $100.
Don’t forget a water purification sysstem to go along with your storage food.
God Bless and good luck to you and your family.
On a personal note, I just picked up a $10 roll of Kennedy’s on my way home from the grocery store and scored:
1 x 1964
2 x 1967
shweeeeeeeeeet….
Last week I picked up 7 rolls and found
7 x 1964
2 x Ben Franklin Halves (this was a total surprise!)
8 x 1965- 1970….
Mo money!
It was crazy… my son was doing the date checking and every 3rd or 4th coin he was yellin at me about finding one.
I regularly find those 40%, but this is the first time I found more than one 1964 in a group of rolls I had picked up…. Probably won’t find anything for the next 100 rolls I get.
Note to roll searchers — Ask the bank to give you rolls that came in off the street or halves that are in their tills… Most of the stuff coming in on trucks is already filtered by the big armored car companies…..
Yo, MadMarkie …. Thanks for the response. I do know what these quarters and gold-CLAD dollars are made of, but since I have a supply of gold and silver for which I do not have to pay a premium, there is no point in my paying that premium to a coin dealer to obtain gold and silver. See? Mac has a great idea if you want silver without paying a premium.
Nevertheless, I believe that quarters, halfs, and gold-CLAD dollars will hold their purchasing power in the underground economy, after the greenback crumbles into dust, or the treasury/FED issues new RED, WHITE, & BLUE bank notes on a ten to one, or one hundred to one basis.Â
Instead of “bartering” with water, food, fuel, or ammo; or even chicken eggs and tomatos when the SHTF, ( you will need to eat the chickens and tomatos) use quarters and dollar coins. Metal money is, and will be, a medium of exchange that everyone understands, and it will hold its value over the long term and in the underground economy at TEOTWAWKI.Â
When the currency conversion comes for a greenback that is worthless, do you think the bank will give you the real value of your metal money? No way. They will take whatever “money” you give them and give you a “receipt” and a chip for the palm of your hand to buy and sell; with all transactions recorded electronically to your “account”. No Chip? No account. Too bad. No work, no pay, no eat. No rooms full of greenbacks for Narco Terrorists……..
The golden clad Presidential dollars are worth shite… there isn’t any gold in them at all. Â They are mostly copper, with some manganese, zinc and nickel.
You can see exactly how much they are worth in terms of “metal” at the linksbelow.
http://www.coinflation.com/
http://www.coinflation.com/coins/2007-Presidential-Golden-Dollar-Value.html
Value, like beauty, is in the eye of the beholder, Patrick, and markets represent the meeting of the mind between buyer and seller. As a people, we are looking at a hyper-inflation that must result from the spending that has taken place and is continuing. The kind of inflation that hit Germany after WWII, or the Confederacy after the Civil War. Would you want to be holding Confederate Script in May, 1865? I think not. To avoid that I have made the investment that will stand the test of time, for ALL time; a gold and silver mine. So I am developing THAT instead of shopping centers like I used too. I realize that everyone can’t do that, but everyone can save their change. And if you are going to save your change, save your quarters, halfs, and gold-clad dollars.
The point here, Patrick, is that someday we may wake up to find that our greenback has little or NO value outside of the United States. The fact is the greenback MUST depreciate significantly if the United States is to become a manufacturing nation again, with jobs returning to the USA. Otherwise, with a strong dollar, we will be like Europe with chronic unemployment of more than 10%, while the capital that creates the manufacturing plants move to global locations of relative security and low wages. Wages that are relatively lower than wages in the United States. That relative value is evidenced by exchange rates. Even if jobs return to the US, wages, in real terms will be much lower, thus the standard of living for the “middle class” may be indistinguishable from the “working poor”. In effect “two Americas” to coin a phrase (pun intended): those who have and those who have not.
Let me give you a striking example: The SWEATSHIRT HYPERINFLATION INDEX (all rights reserved lol). Sweat shirts at Wal-Mart in all colors and up to size XL have increased in price from $5.00 last year, to $6.00 this year. Thats a 20% increase in one year. Hyper-Inflation is already upon us. Obama said in his State of The Union message that he wanted to increase exports 20% a year for the next five years. How do you think he is going to increase exports? The only way that can happen is if the value of the dollar continues to plummet, effectively lowering the cost for global consumers outside of the United States, and lowering the standard of living for those consumers INSIDE the US. That’s us!
I believe that when the SHTF the value of greenbacks will drop dramatically, making them virtually worthless, thus I hold some cash, my “bug out money” or “mad money” in metal money, and specifically in gold-clad dollars. When the SHTF both gold and silver will skyrocket. The problem with all gold coins is: how do you make change with a 1 oz gold coin if you want to buy a tank of gas? (I.E. Pieces of Eight?) Silver is better than gold in that regard, but if silver skyrockets too, as predicted, are you going to be able to make change for that? With whom? And how? All silver US coins are great if you want to pay a premium for them, or if you can have your kid sift through rolls of half dollars like Mac does. But I am satisfied that my family and my wealth is protected from disaster, and that I will be able, if necessary, to underwrite any purchases I need to make with the COIN of the realm. And I will sell what gold and silver I need to at prevailing prices, as I need too.
Throw your change in a jar at night, Patrick. Metal money is real money even if it is copper, zinc, nickel and manganese, clad in really, really thin gold. You’ll sleep better. 🙂
zukadu – I completely understand your points about the debasement or outright collapse of the US$ via hyperinflation, but with all due respect, you and others like you who think you’ll be able to take your gold, silver & “real money” to the grocery store or gas station and purchase food, fuel and necessities will find two very clear realities when you make that attempt: Â 1) there is NO food or fuel, as it will be gone within hours, and 2) bands of looters and gangs with automatic weapons and nothing to lose will relieve you of your gold & silver right before they relieve you of you life. Â That will be the reality of a hyperinflationary collapse.
The big problem in the world today is there is a hell of,and I mean a hell of a lot of pieces of paper out there that state that the holder has wealth.Paper not connected to a real assets like bonds, cash,bank statements, etc.
When the world takes it’s multi trillion dollar hair cut, the holders of precious metals and material objects will be the remaining holders  of wealth.
I have done what most of you have done to insure against a worst case scenario. I am now more prepared than 99% and probably  99.9% of the population is for a long term emergency.
The only thing I have found somewhat impractical is to store more than about 6 months worth of food and fuel. So what i have decided is to hedge my rapidly devaluing paper wealth into commodities. That way  when the price of fuel and food skyrockets, my buying power will move in lockstep with it.
I really look at this situation we all are in as a permanent change to our lifestyles by this analogy: What makes (your occupation) worth paying you between 10 and 100 times more than a similar occupation in the BRIC countries? This is how I expect our standard of living will have to adjust to long term.
Patrick, thanks for the response. You are either new to this site or you haven’t read my other posts. I am probably one of the MOST prepared preppers in the country, having anticipated the direction we are now heading as a nation, DECADES ago. Look for my posts and you will receive a “how to” prepare education.
By accident, I started reading Cayce and Nostradamus as a kid, more than 40 years ago. I have watched as the predictions they made, long before that, have unfolded. I have listened to Bible prophecy with an open mind over the years and have seen that unfold over time. We are clearly in the “last days” and most Bible scholars have long been puzzled by the “abscence” of America in those days.
Now we know why.
The power of America is fading, its leadership is in chaos, its wealth has been transferred to others, and civilization has moved westwarded as predicted by Cayce more than seventy years ago, and a “hated people have been raised”.
“We are endowed by our Creator with certain inalienable rights” and unless America, collectively, gets down on its knees and returns to that Creator, we will not be able to “preserve the blessings of Liberty for ourselves and our posterity”. Instead, we will join Greece, Rome, England, France, Spain, and the Soviet Union in the dust bin of history;  as such gifts and blessings originate in Heaven with an all powerful, all merciful God, Who may impart them as He wills.
I really only disagree with one recommendation in this article. That is to hold at least a few months cash on hand in case the ATMs go down. The reason is simple.
Anywhere from approximately 1-7 banks are being closed/bought out every Friday of every week by the FDIC. This event goes unreported for the most part by the national and local news (unless it’s the local bank that was closed – LOL). Therefore this demonstrates a desire to keep Main Street unaware of the severity of the problem, and keep us limping along with a devalued currency until finally one day we can’t buy anything. I think the LAST thing they (Feds) want is a bank holiday where all the ATMs and banks close, for that will cause the meltdown virtually overnight and signal that TPTB have lost control. Clearly they are still in control.
I want to say that I originally bought into that recommendation back in Oct. of 2008 when a banking holiday looked probable. But since then, and several trillion dollars later, it appears that option of off the table. Besides, I have found myself dipping into that just to pay taxes and expenses that don’t ever seem to go down.
Some of you may disagree with this, but I don’t see a purpose in saving much cash, maybe $1,000 at most. Just not a few months worth. I think it’s far more important to have tangible goods including gold/silver because when the day comes when everyone realizes they must get some, well… good luck trying to get any for yourself.
How long do we have to stock up on food before the floor falls out?
Tony:  Take your pick. The Bible Code predicts the Pole Shift in 2015. Others believe the Pole Shift occurs in 2012 with the Cosmic Alignment. The Bible Code predicts the BIG ONE for LA in 2010, (in which case think Haiti Times Five) and who knows when Israel is going to destroy Iran, or vice versa with nuclear weapons?Â
Of course there is always the possibilty that an astroid, or meteor of significant size is bumped out of the Kneuniper belt, or a comet comes out of the Ort (sic) Cloud, in which case we might have weeks or months of warning. The last significant meteor to pass by the Earth, between the planet and our telecommunication satellites in space (a couple of months ago) was identified only eight days out. Can you sing the Beatles “Eight Days A Week” ? 🙂
All or any one of these physical events could be the final trigger to the collapse of a financial system house of cards already on the brink. Left to their own devices, the Banksters, who are not doing anything different than before, will probably implode the system to make us all serfs by the summer of 2011. According to Princeton Economics (whose founder is now in jail for crimes against the State) a consulting company that studies various cyclical wave theories, predicts the bottom of the present mess to be 2011. This may coincide with the bottom of the commercial real estate crash. Also, Citicorp has just decided to extend all defaulted mortgages another six months, which also moves us closer to 2011. Don’t believe that they are doing this because they care, their attorneys are probably up to their eyeballs in paperwork and the courts are jammed.
None of this considers that China will stop buying US Government securities any time soon, but then the Chinese are smart enough to hold off until we are really in the tank, after any of the above scenarios happen first and we are totally exposed. Then they we eat our financial lunch and we will be using Chinese currency as the world currency
So take your pick, Tony. Pick a date, any date. Its as good as the next one. The important thing is to develop a personal plan and begin implementing it NOW.
I am buying longterm food storage now.
Thanks for your insight.