Posted on 01/15/2021 10:20:17 AM PST by SeekAndFind
Dear Chuck,
Is America heading towards an economic collapse? If so, how do I prepare?
Worried Boomer
Dear Worried Boomer,
My view is we are headed towards another economic crisis with a low risk of an actual economic and/or currency collapse. In either scenario, there are ways to be prepared.
Economic Crisis vs. Collapse
An economic crisis is different from a collapse. America has worked through several in my lifetime: ‘70s stagflation, ‘81 recession, ‘89 savings and loan crisis, post-9/11 recession, ‘08 great financial crisis, and the 2020 coronavirus crisis we are in now. A collapse is brought on by a complex set of factors that must merge simultaneously but at its very core is a devastating interruption in economic output and/or a loss of confidence in a currency.
In an article for Investopedia, Sean Ross explains, “The root of any collapse stems from a lack of faith in the stability or usefulness of money to serve as an effective store of value or medium of exchange. As soon as users stop believing that a currency is useful, that currency is in trouble.”
The advantage America has is that no other nation has the vast diversification of economic output nor presents a viable alternative to the stability of the U.S. dollar….yet.
The two warning signs of a possible collapse are (1) high unemployment and (2) runaway inflation. Essentially, this is when there are not enough jobs for the economy to grow and too much worthless money being pumped into the economy.
Reasons the Dollar Could Collapse
1. High inflation combined with high debt. In 2008, the Fed printed trillions of dollars. In 2020, they printed more trillions. In The Counter-Revolution in Monetary Theory, Milton Friedman writes, “Printing more money, without a corresponding increase in the overall output value of the economy, necessarily decreases the currency’s value, with prices rising in response.”
2. Destabilizing events: think wars, pandemics, cyberattacks, terrorist attacks, uncontrolled printing; lack of confidence in the Federal Reserve, the President, or government at large.
3. Loss of confidence in the U.S. dollar. If foreign countries drop the U.S. dollar it could trigger a recession. Should China and Japan – who own the majority of our $6 trillion debt – drop their holdings, it could usher in a worldwide reset. This could usher in a digital alternative.
What Would Happen?
Panic would ensue because it would happen quickly. Demand for the dollar would drop dramatically along with U.S. Treasuries. Interest rates would increase. Hyperinflation would occur as investors would turn to other currencies. The dollar would decrease in value and prices would jump.
A collapse would be cataclysmic in the damage and disruption it would cause to not only our lives but to the rest of the world. Imagine how your life might be affected if banks and ATMs suddenly closed, you had no access to credit, there were limited supplies of groceries, gasoline, and other essentials, paired with an increase in civil unrest and crime. These scenarios would impact the postal service, transportation, education, health care, etc. Survival in this kind of environment for any length of time would be difficult.
We have many contemporary examples to learn from with varying degrees of damage: Germany, Argentina, Iceland, and Zimbabwe have all suffered a currency collapse. Of course, none of those nations have the size and stature of the U.S. dollar so a similar event in this country seems unimaginable, but it is not impossible.
How to Prepare?
1. Diversify your investments and income sources.
Solomon commented on this back in ancient times. In Ecclesiastes 11:2 he advises us to diversify into seven or eight differing assets while in Ecclesiastes 11:6 we are advised to have multiple sources of income.
Ask yourself if your career provides an essential service. If not, consider changing or getting certified in areas that would give you greater job security. This is important to remember when preparing your children for their future.
2. Get out of debt.
The Bible warns us repeatedly to avoid enslavement and compares debt to being like a slave. You can weather a crisis or a collapse with less stress and greater flexibility without debt.
3. Consider investing in hard assets or commodities.
Gold and Bitcoin represent an alternative to the U.S. dollar. When fear or volatility begins to rise, the price of these alternatives also rises. But these are not the only options to hedge against a crisis or collapse. Real estate, equipment, commodities, and precious metals are also favorable investments during a time of turbulence. There is not one single option that will always protect you; that is why diversification is essential.
Seat Belts, Not Parachutes
Brad McMillan at Forbes believes doomsayers are coming out of the woodwork. He says, “Volatility in a currency’s value does not mean the currency will collapse any more than a drop in Amazon’s share price means the company is going away.” In July, he said we would see a collapse coming long before it happens but did not believe it was coming soon.
I want the body of Christ to be prepared if and when a crisis/collapse occurs. In my new book,7 Gray Swans, Trends that Threaten Our Financial Future, I discuss the economic trends that concern me and the present challenges we face such as Universal Basic Income, Modern Monetary Theory, and a cashless society, among others.
Taking precautions now is like wearing a seatbelt in a fast-moving car or airplane. It makes sense. However, I do not believe it is time to look for the parachute!
Chuck Bentley is CEO of Crown Financial Ministries, the largest Christian financial ministry in the world, founded by the late Larry Burkett. He is the host of a daily radio broadcast, My MoneyLife, featured on more than 1,000 Christian Music and Talk stations in the U.S., and author of his most recent book, Money Problems, Marriage Solutions
I agree with following Dave Ramsey’s advice. Get out of debt. Have a 6 month emergency fund.
I disagree with “buy guy/assets”. If you really think collapse is coming, you buy bullets, bandaids, and beans ... not gold bullion. You can trade ammo with survivors, and eat or share beans.
“and then pay it back”
Stagflation....no jobs
No pay back.. . .
First and foremost..... faith in God.
This ride on the good ship lollipop is temporary for all of us.
I believe we are headed for an economic crisis and I believed it even as I applauded much of the Trump presidency because he did nothing to rein in the out of control spending.
The problem with a crisis of debt for you and I is that it necessitates that we stop spending money and cut things out. The problem for our nation is that our leaders in both parties are ok with simply printing more money and kicking the can. That is when the real disaster will happen. They can do this now with few repercussions because of the status of the dollar, but when the world divest themselves of the dollar the real pain begins.
Press bimbos and pretentious men have already been told 'it's all Trump's fault' is the way the stories are to be written...
But it can be confiscated.😑
I usually don’t give financial advice, but if it were me I’d invest in real estate in nice desirable smaller towns, outside of big cities and massive population centers.
“Matthew to Revelation”
That would be one of the 5 “B’s”
Bible
Beans
Bullion
Bullets
Band Aids
or the 5 “G’s”
God
Guns
Ground
Grub
Gold
Yes, of course - it wasn't possible for me to cover all conceivable scenarios.
But if he could sell a bottle of booze for ten thousand worthless, post-inflation dollars, even a jobless person could easily pay off a tremendous amount of pre-inflation debt, provided he had a few barterable possessions.
Another poster above has alluded to further possibilities: In a wide-scale collapse, police authorities might be too busy with other matters to preside over repossessions / evictions... The lending entity itself might be so severely compromised that it wouldn't be able to mount a legal battle...
Remember how, during the 2008 housing crisis, many U.S. homeowners with mortgages were able to combat foreclosure because the paper trail had been so convoluted that it wasn't really possible to establish who, ultimately, the lending party had been?
Regards,
Hunter focuses on the D's D cups, Diamonds, Drugs,
Don't know what your "it" originally referred to - but if you were referring to real property: Homeowners in post-WWII W. Germany - many of whom had been entirely debt-free - were informed by govt. authorities that they now suddenly had a 25% mortgage on their homes, and that they would have to make mortgage payments to the State.
Nice way to raise revenue, huh?
Regards,
I’d go with quickly.
I’m talk about gold.
Cat. The other white meat.
Exactly. You can’t buy with gold. Ammunition and alcohol and medical supplies will be currency soon enough. Gold will make a great paperweight however.
People who’s first first response to SHTF is to buy gold aren’t gonna last long. Food, water, fuel, and ammunition will be vastly more valuable and useful.
I would rather try to hide gold than hide a 3-acre lot with a home on it.
Regards,
You folks are 3-5 moves behind. You need to start up a business in China, a government friendly one, you'll be way ahead of the curve.
Question sir! Can America borrow its way out of debt?
there are conditions and cautions, of course. IMHO, a collapse could first be deflationary - an immediate economic shock (ie. March 2020) means sky-high debts can’t be supported. A downward spiral will occur as there are fire sales on assets to pay debt. This is what people mean by “get out of debt.” If you don’t have a job, you don’t want the bank taking your over-leveraged house. Debt used to go on vacation is probably a bad idea!
But I absolutely believe the government and societal response will then be inflationary. Scarcity of goods, massive government regulation, and massive government money-printing. Above all, government is massively in debt - deflation would otherwise bankrupt it quickly. The best analogy I have seen is after the economic depression starting in 1929, by 1933, and especially into WWII, with massive debts from the New Deal and WWII, price-inflation went up strongly
So debt for assets that are productive and cash-positive is the best.
Brass and lead are better precious metals to invest in.
Now is the time to be buying what you need for the long haul while it's still available and our money is still worth something.
Anyone who has not prepped by now is going to be in a world of hurt.
Don't forget essentials like meds, toiletries, first aid stuff, cleaning supplies etc.
And don't forget salt. It's critical for survival, especially in hot weather. It keeps about forever. I use cleaned out pasta jars to store my salt it. Keeps it from caking and the lids don't corrode like canning jars lids do. Besides since canning jar lids have essentially disappeared from the market, nobody wants to be wasting them.
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