Not since The Great Depression has the economy taken as bad of a hit. We have yet to truely recover. While there are some indicators things are improving these are hope short lived when you see the massive amount of Foreign debt and domestic obligation our government has rung up in comparison to it’s income. For a household in the same situation the only what to move forward is to default on the debt and declare bankruptcy. However what happens if the government were to default? Does china move in to the country we pawned due to poor spending habits? Does the value of the dollar become worthless. This issue is something many books have been written on including one great book called End Game: The end of the debt supercycle and how it changes everything, which explores all the economic principles and chaos mathematics that back up the content of this article and that economic collapse is eminent. To cover this topic correctly we need to cover some definitions and concepts not everyone has stopped to think about.
What is Money?
Money since the beginning as a universal currency of barter. If you are in need of a milk and there is no money, you will have to barter your goods and services to either get the milk directly from someone with a cow, or indirectly trading multiple times to get goods needed by the person with the milk. This could be very time consuming. Ultimately what happened was people would start trading for the items that more people were interested in or the item that people with the most variety of goods were interested in. Eventually the ornate value of Gold and Silver became universal, one could guess this was because the rich had all their basic needs covered and were seeking luxuries and beauty, and would trade excess necessities for it. As belief in precious metals evolved coin money appeared. This is where precious metals would be turned into coins of uniform weight and those coins could be universally traded. This made trade easier. Eventually gold certificates Such as the US dollar were traded instead. The gold was safely put into the vaults, and everyone believed that $20 US was exchangeable for 1 ounce of gold. Today the relationship between gold and dollars is no longer direct and has been weakened by the removal of the gold standard. We are currently trading Fiat money that is nothing more then paper and people believing it’s worth gold though there is no guarantee of gold like gold certificates.
Today’s money is dependent on everyone believing in it’s value. As prices raise through inflation the belief in money weakens. While this can impact prices the general belief in money continues to exist and the world moves on. However eventually the supply of money exceeds the amount of goods available to buy. This drastically raises prices quickly and creates hyperinflation. In hyperinflation the price of good goes so high quickly that it could cost an entire month’s salary to buy bread. When this happens confidence in the money declines and people will act quickly to turn any money they have into durable goods. Fortunes in 401ks and IRAs will be worthless overnight. Your entire mortgage of say 200k will cost a weeks wages to pay off once adjusted for inflation. This quickly dries up available goods, and puts companies out of business. The book Patriots: A Novel of Survival in the Coming Collapse does a great job depicting how hyperinflation would be.
The key ingredient to an economic collapse is for the faith in the US Dollar to go away. The moment it loses it’s value your buying power goes away completely. Hyperinflation is simply a transient state as you move towards the final stage of collapse and a worthless dollar. If you were paying attention to the gun and ammo shortages of 2013 and how quickly it all dried up and went up in price you saw first hand what small scale hyperinflation looked like. It made you wonder if hyperinflation was already happening on a global scale? During this period people wouldn’t really trade ammo for money, only for other ammo or gun related items. Those who would trade for money were asking 5-20 times the normal cost of it. For instance .22lr ammo use to run $0.02 per round but was selling closer to $0.50 per round. All ammo on store shelves disappeared. Even 6 month later things haven’t returned to normal. 22LR ammo currently runs $0.14 per round and isn’t available on store shelves. This was a small taste for those who were in the know on hyperinflation.
Our Government Currently has a massive debt, to the public the number for that debt is $16.7 Trillion dollars at this time. That is actually a partial truth, the number is much higher. Those are hard debts, not looking at our countries obligations such as Medicare, Social Security, federal employee retirement benefits, accounts payable, and environmental/disposal liabilities, etc. When you factor that in the number is actually around $67.7 Trillion Dollars. These numbers don’t even factor in how Obamacare could impact our long term obligations and national debt. No problem! We can fix this, every individual no matter their income or employment status just needs to pay a one-time tax of $213,000 and we will have the debt paid off. In 2010 the government brought in $2.2 Trillion in revenue and spent $5.9 trillion, meaning it spent $3.7 trillion more then it earned. This sort of policy will ultimately fail. Making $35 Billion dollar spending cut and being happy about it is the equivalent of canceling Netflix, it really won’t make much difference. Other then congress can can say “we made cuts, see!”
How to Prepare for an Economic Collapse and Hyperinflation
- Buy durable goods — Instead of putting all your money away into a 401k retirement fund or playing the stock market, convert some or most of your money to food, water, firearms, ammo, gold, silver, and other useful good you would need to survive. It doesn’t mean you should save money and invest to make more, just you need to balance out the risk that tomorrow your portfolio could be worthless due to hyperinflation, and be constantly pulling it out.
- Homestead in the country — Live a life of self-sustainment and below your means.
- Build up your skills — Think of marketable skills in a collapsed economy. Stock broker would be a useless job in such a world. Producing food can be a vary valuable skill, but also being able to repair goods when there are no more being produced in china and sent over.
- Plan for Civil unrest and riots — this is almost a guaranteed scenario if the economy collapses so read my article on how to prepare for civil unrest.
Threats which could create Economic Collapse
- Government Debt out of control — The risk of default will downgrade the US dollar on exchange markets and reduce the buying power of the dollar. In the end this could trigger an economic collapse.
- Government printing money to cover debt obligations — In Germany pre-WW2 the government printed money as an extremely fast rate to pay their reparations for WW1, this lead to hyperinflation and at one point it cost 17 Trillion Marks to have the buying power of $1 US Dollar. Printing too much money makes the cost of goods rise drastically.
- People losing faith in the government or our money — With the decay of our constitutional rights and the weak US economy people losing faith in the dollar could seek other currencies such as gold or resort to the barter system if they fear the loss of value in the us dollar.
- Catastrophic War — With a war with Syria or North Korea likely if that brings a player like Russia or China into the fight a crippling blow to the us infrastructure could immediately cause people to abandon dollars for durable goods with no guarantee of more being available. Read my article on preparing for world war 3
Of all the major doomsday prepper scenarios out there economic collapse seems most likely. Our government will be challenged to earn it’s way out of the debt it is in with the globalization of the labor forces and loss of tax revenue. It doesn’t mean it’s impossible to avoid default or collapse it just ranks up there with finding a magic lamp and getting 3-wishes, however I think Aladdin used that possibility up. This is a scenario that is important for all preppers to plan for.
Great articles by other preppers
- It’s Here the Stealth Collapse of the American Economy by SHTFPlan.com