Preparing for Economic Collapse by Someone Who Has Been Through It

[highlander]

By Fernando “FerFAL” Aguirre
May 17, 2011

“How can I prepare for an economic collapse?” is one of the most common questions I get. It usually takes me a second to start to explain how complex such a question is. It’s like asking an auto mechanic, “Say, how do you build a car?” or asking a computer engineer, “What’s all that stuff inside my laptop?”
I do have some first-hand experience in this matter, though. The economy in my country, Argentina, has gone through various crises, but none as large as when the economy collapsed in 2001 after a decade of apparent prosperity. The currency devalued, and Argentina defaulted on its USD$132 billion debt, the largest default ever. The middle class took to the streets after bank accounts were frozen, and the president was forced to resign, escaping the presidential building in a helicopter.
What I’ll do is, provide five quick foundational steps, based on what I know, for you to follow so as to be better prepared if something like what happened in my country ever happens in yours.

http://www.shtfplan.com/emergency-pr...lapse_05172011

[highlander]

I hope I did this right. This is the first time I posted an article. Islander or Reesacat please edit as necessary.
I was researching preparedness and kept hoping to find someone who had actually witnessed a financial collapse. I found this and thought it was very helpful.

[Reesacat]

Excellent first post, highlander
I liked the article — I think because the author actually lived through the Argentine economic collapse his recommendations carry a lot of wisdom.

[Maurya]

Excellent article; however, this reminds me that the best way to get through a world where money has lost its worth is to start with lots of money to begin your preparation. Sort of like "the best way to get a small fortune is to start with a large fortune." The installation of a solar electric system in our yard would solve a multitude of problems. Excess cash still seems to be beneficial for those of us trying to become prepared.

[Aaltrude]

Probably the best alternative source of energy for a future with limited resources, if you have the option, is micro hydro. With this form of generation you can be almost constantly generating without the need for battery storage. The storage batteries have a limited lifespan as do solar panels. Solar energy is only available when the sun is shining and wind energy only when the wind is blowing.

[highlander]

My questions were along the lines of if you have an IRA (even a modest one) what is the best way to proceed? Do you cash it out? Do you put it in precious metals? If you cash it out and keep the cash in your mattress (or where ever) will the money be worth anything more than paper? Or should you buy silver dollars (or similar)? Should you pay off credit cards or should you use that money to stock up on emergency supplies? Should you use your limited resources to prepare to wait out the problems in your home or should you buy a tent, sleeping bags, etc. and be ready to hike? Are we better off leaving the country? If so, what are the best places to go and what are the best routes to get there? Will you have the money to put gas in your car and will there be electricity to do so? What's more important: stocking up on supplements or food if your resources are limited? (Personally I can go longer without food than I can without vitamin C but there needs to be a reasonable balance.) And all of this needs to be thought about before a collapse because the brain tends to shut down when taken by surprise.

That's what I want to know.

[Islander]

All good points, Highlander. Credit card is not an issue for me; I use it for all of my few wants/needs because it earns me frequent flyer miles, and pay off the balance every month. Companies hate people like me. My understanding is that paper money loses its value quickly in inflationary times, but gold (in coins) holds its value, but consult a financial advisor; I'm going to. My bank has one on retainer who will meet with you at no charge — something to look into.

In a climate crisis, as we see from Reesacat's experience, travel may be impossible: roads flooded, trees down, gas stations closed etc. Every family's different, but I have a community of friends here & think I'm better off staying where my food & water are.

Besides, the mice ate my tent & sleeping bag.... the folding cot, too.

[highlander]

A major problem is different catastrophes might require different responses. I'd like to be like a tennis player waiting for the serve -- crouched, revved, ready to go where I must even if that means staying put.

Are you not concerned that a financial advisor retained by a bank might not advise you according to his loyalties? (That's always my concern.) I would think that if taking all your money out of a bank is the best idea he might not tell you that.

[Islander]

Ha. All I have in his bank is my little checking account that ebbs and flows depending on the day of the month. I had two 401k types of thingies from my days of working in mental health, that were put into annuities. Had to badly damage one for roofing and grounds work, the other one's still intact, but there are penalties for early withdrawal. The annuities are with insurance company, not the bank.

[Maurya]

This little opinion piece is relevant only to those of us who are residents of the US. What to do with an IRA, 401k, or similar depends entirely upon whether one is under age 59 1/2 or is over age 59 1/2. If younger, then the penalties for early withdrawal are worse than just sitting around waiting for inflation or disaster to eat up the nest egg. The contents of the IRA can quite simply be direct transferred (not rolled over) into a new, safer investment vehicle. Getting one's IRA out of corporate equities and bonds might be a smart idea, in favor of some relatively safe bank savings account or money market fund.

Once the age of 59 1/2 has been reached, the nature of the process changes. One's annual IRS income tax situation must be taken into account, when withdrawing from the IRA. If one extracts all of the funds at one time, lots of the money just will be lost to increased taxes for the tax year in which the withdrawal takes place. If a planned amount is withdrawn from the IRA each year, with part of it being used for current living expenses and part of it being reinvested, this might be the better plan. Reinvesting could be in the purchase of gold, or seeds, or solar panels, or upgrading one's well pump, or anything the imagination can dream up.

One thought about gold: Someone has to be willing to accept the gold as a currency of exchange for goods and services. Currently, only money is almost universally accepted, not gold. A gold broker would be willing to trade gold for money, but always will take a cut for their troubles.

Paying off the credit cards or other debt would be prudent to accomplish as a first priority, before setting aside anything as investment for the future. I would not be able to add anything to what Islander has stated about this.

[Aaltrude]

One thought about gold: Someone has to be willing to accept the gold as a currency of exchange for goods and services. Currently, only money is almost universally accepted, not gold. A gold broker would be willing to trade gold for money, but always will take a cut for their troubles.

Gold and silver are recommended as a hedge against the possibility of hyperinflation which could happen in a major economic collapse. Any investment left in place would probably be lost completely. If the money is withdrawn and held as cash, it could drastically lose value. If held as gold or silver the idea is that you hold onto it until the monetary system has righted itself, which could be quite a few years, and then cash it in at the new post depression rate. It is a means of trying to make sure your assets hold their value rather than losing value. If using this strategy though, it is recommended that you hold your gold or silver in your own possession rather than in a depository where there is always the chance you could try claiming it only to find it does not exist.

In general gold and silver are not being recommended as usable currency during a depression period. The means we should be looking to for this are local economies, time banks and gift economies.

[highlander]

Paying off the credit cards or other debt would be prudent to accomplish as a first priority, before setting aside anything as investment for the future.

My concern is that suppose you owe $5000 (random) on credit cards, you pay off that $5k debt, the SHTF and you have no emergency supplies and a useless credit card because the system is broken. In my experience if you can't pay a credit card the worst they can do is file a judgement against you. (Screws up your credit but you don't lose your home or anything.)

[highlander]

In general gold and silver are not being recommended as usable currency during a depression period.

If the collapse were global people may abandon paper money and credit altogether. I guess it all depends upon the severity of the situation. I suspect barter would be the natural resort. Getting fuel will be a challenge. If someone could safely store large amounts of fuel (or find an alternative) they'd end up wealthy.