Financial Survival

12The financial system of the United States is in the early stages of a complete meltdown and the vast majority of Americans are completely unprepared for it.  Have you come up with a plan for financial survival when TEOTWAWKI ("the end of the world as we know it") arrives?

Perhaps you think such talk is alarmist.  Well, before we discuss what you should do to prepare, let's take a look at the state of our financial system.

First of all, the total of U.S. bank failures in 2009 is now 25, which matches the number that failed throughout all of 2008.

Only three banks failed in all of 2007.

So, I hope you can see that this is NOT a good trend.

But perhaps you may think this is just a temporary trend.

After all, the U.S. economy has certainly hit bumps in the road before and recovered well enough.

Well, unfortunately this is not just the downside of a business cycle.  What we are facing is the complete unraveling of a financial system built on a mountain of debt.

The reality is that any major currency not backed by gold in the history of the world has eventually failed, and the actions currently being taken by the U.S government and the Federal Reserve are speeding up the day when the dollar will collapse as well.

monetary_baseSometimes words are not enough to describe a really bad situation. Hopefully the chart to the left will help all of you get an idea of what is happening to the dollar. This chart originally comes from the Federal Reserve itself. The chart shows the U.S. monetary base from 1960 until today. From 1960 until about 1980, the amount of currency in circulation was increasing, but it was fairly stable. From 1980 to the middle of this decade, the amount of currency in circulation just exploded, but the key to this chart is the end.

If you look at what is happening today, the amount of dollars in circulation is absolutely shooting through the roof. Now, a lot of this cash which the U.S. government and the Fed have injected into the economy has not gotten into the hands of the person on the street yet, so we are still experiencing the beginnings of a deflationary depression. But eventually all of the money they have injected will get out there into the general economy.

When that happens, there will be a whole lot more dollars in circulation than before but about the same number of goods and services. Do you know what happens when that situation exists?

Inflation.  Big, frightening, hair-curling inflation.

The reality is that because of what the U.S. government and the Fed are doing to the dollar, we are going to be facing rip-roaring inflation of a kind that Americans have never known.

And it will effect everyone.

For example, maybe you make good money now, but how far will your paycheck stretch when a loaf of bread costs ten dollars?

Perhaps you have spent decades sticking money in a bank account. Well, inflation acts like a massive tax. When you wake up and your bank account only buys half of what it could buy the year before, how will you feel?

There is no other way for this current economic situation to play out.

The U.S. government and the Fed decided to spend their way out of the current economic crisis by cranking up the debt spiral one more time and by devaluing the dollar.

So we will see massive inflation - it is just a matter of how soon it will hit and how bad it will be.

So what should you do?

#1) Get out of debt - As long as you are in debt you are a slave to the banks.  The interest they suck out of you will continue to dramatically diminish your ability to take care of your family.  Those who are free of financial entanglements will be in the best position for the times ahead.

#2) Reduce your expenses as much as possible - Sit down and evaluate where your money goes every month.  The truth is that almost everyone is spending money that they really don't need to spend.  If you can dramatically reduce your financial outflows each month, you will be able to weather a financial storm much more effectively.

#3) Get out of the stock market - Of course this would have done most of you a lot more good if you had gotten this advice last year.  Many of you probably have lost a lot of money.  Many of you may be hoping that the stock market will rebound.  It may rally a bit for a while, but it could still crash even further at any time.  Why gamble with what you still have left in such an unstable economic environment?

#4) Get out of 401Ks and other retirement plans - Besides the persistent rumors that the government is going to take over control of all retirement plans, the reality is that the vast majority of retirement plans are really bad investments right now.  The stock market has already devastated most retirement plans, and even if your retirement plan is able to grow a bit in the future, the reality is that the returns will be far, far outpaced by the rate of inflation.

#5) Don't rely on the banks - As we discussed in the beginning of the article, a lot of banks are failing.  Of course for now the government is insuring most deposits.  But will that continue if even more banks start to fail?  The reality is that the FDIC is basically insolvent right now, and so while banks are probably more secure than the stock market, the reality is that ultimately you are not going to be able to even rely on the security of the banks.  Always have a reserve of cash for emergencies.

#6) Gold and silver - These commodities will increase in value as the dollar collapses.  However, there is a limit to their utility.  When the economy really bottoms out, will people be willing to sell you the supplies that you desperately need even if you have gold and silver?  Maybe.

#7) Stock up on the essentials that you will need - The truth is that the most valuable items in an economic collapse will be essential commodities like food, water and emergency supplies.  If people are hungry, they aren't going to sell you their remaining food for any amount of money.  Make sure that you have stored up what you and your family will need for an extended period of time.

The truth is that you should buy what you are going to need during an emergency (food and supplies) right now while your dollars still have some value. Your dollars are never going to be more valuable than they are right now.

If you are trusting in a big bank account to be your security blanket in the future then you are going to be very disappointed as the dollar crumbles and your riches quickly fade.

A wise general once said that almost all battles are won ahead of time.  When the economy completely crashes, it is those who have a plan and are prepared that will come through things smoothly.

  • http://inthetrenches2009.blogspot.com Carol@inthetrenches

    Very thoughtful article. It goes farther than many I have read but my thoughts are that it is better to be over prepared than under. If you take an umbrella and it doesn’t rain what is the harm? Either way you won’t get wet. The current financial crisis can be our undoing or our rebuilding. As Americans become more aware, take wise self-suffiency steps, and quit looking for someone else to take care of their needs we will get through this just as our grandparents did and taught us their lessons if we are willing to listen.

    Glad to see your article on Monsanto. This is possibly the biggest silent killer we have going on now. One of the most important steps for any nation to survive is the ability for people to have their own food.