If you’ve been paying attention to world economic events, with the collapse of the PIGS (Portugal, Italy, Greece, Spain) in the Euro market and the increasingly disturbing econonomic news here at home, you are acutely aware that something is wrong, very wrong. The government of the United States, in its wild-eyed, Cloward-Piven rush to bankruptcy is now accelerating the decline with a combination of callous cruelty and astonishing stupidity.
Our economy is buoyed only by continued borrowing from foreign sources, but those sources are beginning to dry up. China is now focusing on buying gold and Canadian bonds. So, where do we turn? The Japanese have usually been willing purchasers, and in fact, they largest sovereign holder of debt, ahead of China. However, this week’s shameful attack by Congress on one of their premier companies is reportedly already having a chilling effect on relations. Do we turn to Russia? No, they know where we are and where we’re headed. They’ve been there. The Middle East is already awash in our treasuries.
That leaves pretty much only the Fed and the American people. Again, we are hearing of the government making moves to move our savings in our 401K and IRA plans into “guaranteed periodic payments” programs administered by the federal government. The basis for the security of these funds? The full faith and credit of the United States of America. But even if they nationalized every single cent of private retirement funds, this would fund the government for only a couple of months.
Again, enter the Federal Reserve. They are now not so secretly feeding money to foreign banks in the form of currency swaps. In addition, they are monetizing the debt through a sophisticated shell game, with only massive inflation and collapse of the dollar as the final outcome.
How will the collapse play out? If my crystal ball were that good, I’d already be on a beach in a country that doesn’t have strong ties to the United States monetarily, sipping the largest mai-tai on record. But I can give you my best educated guess.
First, money must be enticed or forced out of the stock market into US Treasuries to continue to support the debt. Expect periodic plunges in the stock market to create a “flight to safety” of US backed instruments. These shakeups will be sharp and may already be starting. This is known as a “yellow-fever” attack. We’ve already seen a smaller version of this in gold and silver recently, but all that did was lead to buying opportunities for the largest investors such as George Soros and Goldman-Sachs to nearly double their holdings in gold. Expect these continued attacks on the market to force people into treasuries increasingly the second quarter of 2010.
Incidentally, one by-product of this push against the stock market will lead to a drop in corporate bond values. This will put further pressure on states and large pension plans. Insurance companies are also highly invested in corporate bonds, and this will affect them severely.
As the money is bled out of the markets, sights will be set on individual retirement accounts, especially funds not currently held in the stock market. You will be offered a government annuity program. This will initially be voluntary, but as the need for more liquidity by the Fed is felt, they will more than likely make the program mandatory.
In the end, these policies will fail. Gerald Celente and Bob Chapman, to name but two well-respected top economists, are seeing a collapse of the US dollar by year’s end, maybe 18 months at the outside, followed by a decline into full-blown depression.
So, what do YOU do?
You do what people have always done in the face of collapse of governments and currencies. You survive through your own efforts.
Here are some practical steps each person can take to prepare and mitigate the effects on their lives. They are arranged in a simple Maslowian heirarchy of needs so that no matter what your current situation is, can work your way up the ladder to full security.
Nothing matters unless you and your family are secure in your persons. This means obtaining and owning a means to protect your own well-being. Yes, I’m talking about firearms. It’s no accident that one area of the economy actually prospering right now is the sale of guns and ammunition. There is no need to go insane and purchase an arsenal worthy of your local guard unit, but each adult in the home should have access to a good quality pistol. “Girlie” guns of small caliber are not really useful for personal protection. Talk to your local gun store about what is suitable and affordable for your situation.
Having a gun imparts no security in and of itself. Knowing how to use one and having the resolve to do so is the final factor. If you bought a gun and think that just by pointing it at someone it will protect you, you are sadly mistaken. Go and take a proper gun safety and marksmanship course with an NRA certified instructor.
With the collapse of the financial markets, you can expect disruptions in supplies of food and essential items. Begin right now with putting away a few extra cans of food each time you go to the grocery store. If you are better off and have the means, you might consider longer-term survival foods that are freeze-dried and specially packaged. It really doesn’t matter what kind of food you stockpile, but make sure to put together nutritionally sound meals of meat, vegetables, starches, etc. If you go the canned goods route, and you have a large stockpile, rotate your stock, using the older cans and replenishing them for later use. How much is enough? I wish I could answer that, but any amount will be better than being caught with only a few cans in the pantry when the problems arise. For what it’s worth, many survival groups are saying the optimum is at least a six-month supply.
When planning for your personal needs, be sure to include first-aid items, sanitary needs, supplements, etc. Look through your home and think of everything you might use in a six-month period and try to get a six-month supply of those things.
Take a first-aid course, and invest in some good home medical references.
Eliminate Wasteful Personal Spending
The first order of business in getting yourself prepared for the coming collapse is to get your personal financial house in order. Immediately stop all unnecessary spending. Cut off those unwatched premium channels, cut back going out to eat, cut out your $100 per month latte habit, cut out anything that will not help you weather the coming storm.
This sounds simple and hard at the same time. And it is. If you find yourself at the end of each month wondering where all the money went, then take this simple step. Each day write down each and every dime you spend, even those 75-cent cokes in the vending machine. Everything must be taken into account. Do this consistently for 30 days. At the end of that month you’ll know exactly where all your money went. Then you will be in a position to reassess your priorities as to what is truly important to you and your family.
Dump Your Life Insurance
Well, not really. But if you have universal life, whole life, variable universal life, or any other type of life insurance other than pure term insurance, you are already violating the advice of all respected financial experts. All of these forms of life insurance entice you to purchase with the idea that they will build cash value over time. This is, in fact, one of the worst “investments” that can be made. Rates of return on most whole life policies are abyssmal. If you have universal life or some other “investment’ type life insurance, you will probably get a nasty surprise as to the real cash value of that life insurance just at the time you need it. These policies are good for one thing and one thing only, making your agent and his company a pile of money, off you.
As long as you are in good health and insurable, get rid of all of these “permanent” life insurance policies after you have had a proper term insurance policy issued in your name. Don’t cancel or cash out any life insurance until another one is in place. The month of double premiums is well worth the safety net against ending up uninsured due to unforeseen underwriting issues.
How much term insurance should you have? There are two methods. The simplest is 5 to 10 times annual gross income. The more sophisticated approach is a needs analysis conducted by an agent who has your best interests at heart.
(I can help you in this regard, please go to my company website and get in contact with me.)
EXCEPTION: If you have a small, $10,000 or $15,000 whole life policy for burial expenses, this is a good use of insurance and should probably be kept in place, especially if you are elderly or in declining health.
Once you have replaced your wastefully expensive life insurance plan, you may then cash out what cash value you have and use the additional monthly savings for your own survival plan.
Get Out of the Stock Market – Now
The time to be concerned with return ON principal is past, at least for now. Your main focus should be return OF principal. Look at whatever you currently have and ask yourself, “How much of this can I really afford to lose right now.” If you are like most people, your answer will probably be “none!”
Consider selling out your positions in the stock market if at all possible right now. The capital gains taxes are slated to go up quite a bit next year anyway unless the Bush tax cuts are extended. We already know what this Administration thinks about tax cuts. So you might as well begin preparing for a time that you’ll need to take gains and pay taxes anyway. If the market does, in fact, tank as most honest experts are predicting, you don’t want to be the last one out the door. Dollar denominated securities will be dramatically hit when the dollar begins the inexorable slide that is coming.
Dump Government Bonds
With the United States Government and at least 40 states teetering on the brink of bankruptcy, it should come as no surprise that one of the worst places to have money invested is in government bonds. This applies to all levels: federal, state, county, and city. If you have money invested in these bonds, it is probably seriously at risk. Consider taking these funds and moving them elsewhere.
Move to Precious Metals
Move your holdings into gold and silver, at least 50 percent weighted to precious metals. Some experts will tell you to buy coins, some will tell you to buy bullion. There are advantages to each. You can reach trusted expert at Swiss America by clicking here. Get the free educational kit and speak to an expert. Whatever you do, take delivery of your precious metals. Do not allow them to be held on account or in “gold dollars” in a brokerage account. Should the collapse be as severe as predicted, there is no guarantee that the ensuing chaos will not interfere with your ability to get your holdings into your hands.
Why gold? First demand is moving ahead of supply. So, the fundamentals are currently sound where demand is sure to be ahead of supply, ensuring a solid base underneath your holdings. Second, sovereign nations are buying gold in huge amounts. You don’t have to spend more than a few minutes with an internet search engine to find dozens of articles about India, China, Russia and others making record purchases of gold. Third, gold has always been an excellent store of value. Whether the price goes up due to an inflationary scenario or the price goes down due to a deflationary depression, that ounce of gold should continue to buy approximately the same amount of goods and services in each scenario. For example, an ounce of gold in 1933 would buy a very nice hand-made suit for a man. Guess what? It still does.
The upside? Gold is probably going to hit $1600 per ounce by summer. It may reach $2000 per ounce by year’s end. And if the government continues to act brazenly and the wheels come completely off, the sky may be the limit. The downside? You have to store it and protect it. But even if it does not appreciate as expected, it still will be a good store of wealth in a tangible asset that cannot be evaporated by the stroke of a pen somewhere.
Don’t Trust Banks
Banks are in serious trouble. In fact, well over 2000 banks are currently in serious trouble and are only a few bad events away from being taken over by the FDIC. And the FDIC is already in trouble, too. It is currently about $20 billion in the red. There is a $500 billion line of credit available to the FDIC through the Fed, but there is no guarantee that the Fed will loan the funds to keep the program solvent.
At best, keep no more than 90 days of your day to day financial needs in a US bank. Here’s why: Banks operate on a fractional reserve system. They generally operate on a 40 to 1 leveraged ratio. This means that they really only have 2.5 percent of deposits on hand. The rest is loaned out in mortgages, credit cards, lines of credit, and so forth.
What happens if a large number of people descend on a bank simultaneously for their deposits? This is called a “run on the bank.” It was memoralized forever in such classic films as “It’s A Wonderful Life” and “Mary Poppins.” The end result of a run on a bank is that the available cash is quickly depleted, leaving most depositors with nothing. When these runs are isolated events such as when an individual bank is taken over by the FDIC, there is a liquidity plan in place to have the necessary funds available.
A larger scale panic would not allow liquidity plans to be put into place. Perhaps the Fed could be counted on to provide cash from its many strategic stockpiles, but I would not count on it.
If you have large cash holdings in a bank, quietly without fanfare remove them and place them into precious metals as stated above or consider some of the strategies for higher net worth investors set forth below.
Incidentally, I recommend against large precious metals holdings in safety deposit boxes at banks. It is not tin-foil hat crazy to remember that the US government does have a history of confiscatory practices against precious metals in times of economic disaster. Also, should a bank find itself in serious trouble, you may not be able to get immediate access to your reserves. One of the other booming industries right now is home safes. Talk to a security expert about what might best suit your needs in this area.
If you are a higher net worth investor or are comfortable with your precious metals holdings, consider placing some of your funds into the debt instruments of the following nations:
- Canadian Dollar
- Swiss Franc
- Australian Dollar
- Norwegian Krone
Each of these nations is in sound financial condition, with a combination of good natural resources, fiscal sanity, manufacturing, and/or sound banking. Not only will your money be safe, it will draw at least a modest rate of return. It will also be relatively liquid in the event it is needed.
Gold and Silver Stocks
For those who have completed all the foregoing items and still have some additional net worth to work with, there will be investment opportunities in gold and silver mining and production stocks. These should be carefully selected with the aid of a qualified expert in this area. The companies should be located outside the United States, preferably in countries listed above or in countries with reduced political risk from the coming fallout of a collapse of the US Treasury.
The coming meltdown will truly try men’s souls. People will be under stress and many will be consumed with fear. Acts of desperation will probably be commonplace. If you have taken care of your needs, please consider having some reserve to help others. Be involved in your local church. In times of social upheaval, churches are a great source of calm and aid in a community. Please be civic minded as possible.
Also, because the coming collapse will probably occur after the elections of 2010 and before the elections of 2012 (and don’t discount the possibility that these elections might not take place if the collapse occurs sooner and is more severe than envisioned), we will need to have the best leaders in place. Work hard at every level of government to help put in place men and women of character. This is the one trait that will be the most essential during the hard times and the rebuilding effort to follow. These people should value human liberty, despise the government policies that got us into this mess in the first place, and have the courage of their convictions to do what is best for the people, not for self-interest or the enlargement of government power.
This crisis brings with it the opportunity to undo all the damage that nearly 100 years of progressive policies have wrought. We can and will emerge as a revitalized and reborn America, hopefully smarter and less trusting of government to solve problems we should have been solving for ourselves all along.
Disclaimer: This information is provided as a courtesy. No client relationship is created by the reading or dissemination of this article. Each individual situation is unique and should be discussed with appropriate experts in the fields of estate law, tax accountancy, investing, personal security, insurance and other professions. No warranties as to the accuracy of any of the information are made and reliance upon this information is purely at the risk of the reader. Projections and application of financial planning principles for a significant economic collapse based on the best guess of the author, but these types of events do not lend themselves to accurate prediction. In other words, we’re giving you our best analysis of the situation, but it is up to you to be responsible in the application of this information in your own personal life.