Surviving a Financial Meltdown

seahorse · Expert Joined: Oct 15, 2004 Posts: 2018 Location: Arkansas

The US is on the verge of a complete financial meltdown of its banking system. The last time this happened was the Great Depression, and that was extremely painful.

For several good links and a quick overview of what's transpiring, check out these links:

Jim Cramer explains banking crisis

Mish Bond Insurer Default

Ticker Forum Discussion on Bond Insurer Default

Whitney article

On the Whitney article, pay attention to the section on banking.

As discussed in the above links, this financial meltdown is taking shape right now, and unless the Fed gov't acts to intervene, it seems impossible to stop. Unstopped, it will most likely blow up this year, and as the above articles explain, could easily happen quite soon, maybe days.

If it does unfold, it will happen very fast. In 2000, the Artgentina economy collapsed, and it happened virtually overnight, but literally took place in a few days.

PO topic Argentina Collapse

Argentina collapse

What does this mean for us? It means that there is a serious risk of a complete financial meltdown, massive unemployment, banks closing, almost unimaginable repercussions that one may have little or no time to prepare for.

What should one do? Its hard to assign a risk factor to this, but it is grave enough and immediate enough that one should do something now, not two days from now, bc if it happens, it will happen quickly and you want to be as prepared as possible now, not next week.

I rarely recommend one take any debt, but, I feel concerned enough about this that one should buy enough food for their family and have it on hand for at least six months, even if this means putting it on the credit card. If we get lucky and get a gov't hand out as they are proposing, pay off the food bill with that, but don't wait for the hand out before taking action, we may not have six months before this goes belly up. I hope we do, and I hope it doesn't happen, but I see enough warning signs at work (lawyer working on defaulting subdivisions) that when I read links like the above, I take it very seriously.

There is another thread which talks about what to do if the gov't gives us all some money. I suggested buying food. Here's my post as to why:

If you aren't worried about the credit crisis, the very fact that the gov't is getting ready to give every frickin one of us money for nothing should be a flashing red light, with sirens sounding. THIS IS A RED ALERT! There is no bigger sign of a crisis than the Romans throwing bread out to the citizens. TAKE ACTION NOW!

I personally always look for trigger points to make key decisions, the gov't throwing out money to prevent a crisis is one of them. A trigger point is that point in planning that if a pre-condition happens, you take a preplanned action. This is a trigger point. When the gov't passes out free money bc of a admitted financial crisis, you are an absolute fool if you don't take it seriously. This is not the tech bubble of 2001 (which was caused by overblown tech stock prices and didn't affect banks). This is a financial crisis where the world's largest banks may literally go bankrupt - this effects everyone!! The fact that experts worldwide reckon this as comparable to the Great Depression should be scary enough, and now that the gov't is discarding Adam Smith and literally giving money away for nothing to prevent a financial collapse from happening should scare the crap out of you. Take this seriously.

The gov't is getting ready to give everyone a bonus, who knows how much. Spend it wisely by investing in food. If you have credit card debts, car payments etc, do not use this money to pay on those regular bills, do not buy anything like a t.v. etc., do not take a vacation with it. Make this money work for you and BUY SOME FOOD! Especially if you have kids or anyone depending on you. This is a real opportunity to get ahead in the preparation game, use it wisely. Food is much more important than matches, solar, bullets, any other preparation. Food is the base level of survival, everything else is secondary! It is the reason why we work, EVERYTHING ELSE IS SECONDARY!

Buy food for the following reasons:

(1) I see people lose their jobs in the best of environments, and when they do, they don't have money to buy groceries! Don't let that happen to you. Most jobs will likely be in jeopardy over the next 2 years. Unless you are a gov't employee or working for a utility, a doctor or a nurse, your job security isn't very good. Buy food now, bc you may not have a monthly income to buy it later;

(2) Food prices are continually going up, call it stagflation or whatever. They will not be going down in the foreseeable future. Buy food now, bc food prices will never be cheaper. Buy it now while its available, at the best prices, and while you have a windfall to buy it;

(3) Even if you file for bankruptcy someday, they are not going to take the food in your pantry; its never happened. Food is not personal property which can be seized. Anything else you own can be seized. Buy food that you can keep and take it with you no matter what happens. You will not regret it.

(4) Even if you lose everything and were left in a tent city, if you have a sleeping bag and FOOD, you will be okay. If you have food, what money you do have coming in can be used to rebuild your life and buy other things. FOOD is security in the worse of times.

(5) If we get $600 or more gov't play money, you can buy a lot of food with this. Use every penny on food. A 50lb bag of rice is about $20, same for a 50lb bag of beans. Peanut butter, honey, canned goods, all will last a long time and are fairly cheap. Buy it and sock it away. Hold it for two years as a security, if nothing has happened by then, start eating it, no big deal.

(6) Food is the best investment right now, the only thing guaranteed to hold its value and, if the worse does happen, may be the only thing of value.

Do not waste this opportunity. If you don't have a store of food, get it now while you can! Don't waste this money by sending it to the credit card company or anyone else. Pay yourself with it by investing it in you, literally, and your family. You will not regret it.

The only thing you cannot do without in your life is food. This is a freebee, use it wisely.

If you already have food for six months, then make sure you have a good warm sleeping bag for you and all your immediate family. I picked up two today at a surplus store for $60 each. Sleeping bags are cheap, last a lifetime, and keep you warm even if you can't pay your utilities or are sleeping in some tent city bc you lose your job and your house. They are lightweight and easy to transport. They are your mobile shelter. If you don't have a good sleeping bag, I would also recommend getting one now, even if you have to buy it with a credit card.

This purpose of this thread is not to debate the credit crisis, but to discuss and share ideas as to what people can do right now to make their situation better should they lose their job, home, etc.

I would also recommend learning about your local food shelters, where they are located, local unemployment office, etc. Start educating yourself now by reading about local support services for the poor and physically finding out where they are located.

one_more_day · Tar Sands Joined: Aug 27, 2006 Posts: 72

Dammit seahorse...you're ruining my "gentle landing" security blanket. La, la, la, la, la...shoving head deeper into the sand...

OK, that won't work. I can't escape the reality. It's just that reality is a little bit doomerish for my taste right now.(' Sad

')
Sad

Koyaanisqatsi

Thanks for the kick in the butt, Seahorse.

mgcardin

I'm hearing you loud and clear, seahorse. I'm so far from being economically educated that it's almost laughable, but over the past four years I've become positively fascinated with our macroeconomic situation and have taken to watching and reading financial news (and also geopolitical and other, related stuff) with a positively voracious appetite. And last October I saw the stars line up just right and began to realize with a sinking feeling that a major meltdown, blowup, shitstorm (pick your metaphor) is almost certainly situated right in the January-through-May 2008 corridor.

After having already realized this, I saw John Michael Greer advising his readers at The Archdruid Report to shed speculative investments and keep extra food on hand in view of the imminent possibility of a major economic discontinuity. As you probably know, this is pretty strong stuff for Greer, who is one of the most prominent peak oilers forecasting the gradual decline scenario for industrial civilization as contrasted with the doomer/catastrophist expectation of rapid and catastrophic destruction.

Then I began to hear the snowballing cacophony of dire predictions emanating not only from the alternative news sources I regularly monitor but from the mainstream press as well.

Events in November, December, and the first half of January have continued to line up absolutely perfectly in support of my original hunch of something prominent, swift, and ugly happening in the very near term. Who knows, the new revelations about the problems with the bond insurers may be the final shoe to drop and the straw that broke the camel's back.

So this is all to say that I appreciate your warning. In my own world I've been doing some of the same thing. I work at a public school in a rural Midwestern American town, and last November I wrote a long letter to the school system's superintendent warning her that she ought to be aware of the economic storm that's shaping up since she's the literal and symbolic figurehead of one of the town's most prominent institutions. I've continued to update her about it periodically. I've also warned my principal, as well as friends, family, and a few of my students.

In terms of the overall "big picture," I really don't think there's such a thing as the "big one," as in, some single catastrophic event that will undo America or civilization in general. Well, okay, global nuclear war might do the trick, or a super plague. But short of these semi-science fictional possibilities, it's silly and counterproductive to make plans based on the idea of a one-time, once-and-for-all fall. That said, in practical reality it really looks like there's a serious economic emergency staring at us from the immediate future. As you've said, the announced stimulus plan from Bush and Co. is like a flashing red alarm light. Prudence dictates not just talking about the situation but making real preparations, and to me your focus on the centrality of food sounds pretty reasonable.

Good luck to all.
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Blog: The Teeming Brain
Band: Daemonyx
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Homesteader

Thanks for the post seahorse.

For folks new to long term prepping here is a link to "Plan For Pandemic" that gives detailed information and analysis including some excellent information from a government planner in the state of Idaho:

http://tinyurl.com/ytjzu3

evilgenius

All of this and you still can't impeach a president for this level of incompetence!
_________________
"Hope encourages men to take risks; men in a strong position may follow her without ruin, if not without loss. But when they stake all that they have to the last coin (for she is a spendthrift), she reveals her real self in the hour of failure."

patience · Light Sweet Crude Joined: Jan 04, 2008 Posts: 1162

Here's rough priorities we are implementing.

1) Food, both stored, and garden plots and seeds/supplies, and canning needs. Medical needs are also here.
2) Water,fixing cistern, water collection, filters, stored drinking water, river over the hill, 4 year supply of filters, + city water.
3)Money, DUMP ALL PAPER INVESTMENTS. Get cash. Cut expenditures. No debts.
4) Energy, A) cut usage with bicycle, smaller car, insulation, solar electric, and B) stash firewood, gas, coal.
5) Shelter, do repairs, alternative heat/cooking.

That's a tall order for most of us, but I think that to the degree we can each do this, it will secure our future. I agree, don't waste time. DO IT NOW!

seahorse · Expert Joined: Oct 15, 2004 Posts: 2018 Location: Arkansas

Where do you find such large bags - Costco? Regular grocery stores don't seem to carry them?

I buy them at Sams. However, I'm sure other places sell them. Hopefully, others can post and let us know.

As for selling all stocks right now? Probably can't hurt. I'm not a stock or investment advisor, but having cash on hand is critical if there is going to be deflation and if there is a risk of banks closing. Further, having cash means having some "on hand" in case your bank closes.

Maybe someone is smart enough to pick stocks that will whether the storm, but your average person like me cannot. Thus, I would rather just have things like stocks converted to cash, draw some interest for the next few months and see what happens. Very conservative strategy, but worth it, even for those with 401k plans. You might consider keeping your 401K, but convert the assets to cash RIGHT NOW!

roccman

I am formally retracting my vote that went to the housing thread for "thread of the year" to THIS ONE!!

I know - it is 08, but the way things are likely to play out...we will not have polls this time next year.

Great post SH!!
_________________
"There must be a bogeyman; there always is, and it cannot be something as esoteric as "resource depletion." You can't go to war with that." Emersonbiggins

"... hope is a rotten-thighed whore" Niko Kazantzakis

We are going back to roccland - me

vision-master

A highly paid professional say's buy FOOD with that cash now? Yikes!

I got the lighting figured out (oil lamps) along with the guns/ ammo thing.

cavemandoom30

Ok, I'd appreciate some advice..
If I had money in an IRA, should that be pulled out, and put into what? Cash? gold? Or just supplies?
I assume that money in the bank should be withdrawn asapand , hopefully, converted to some other form?

patience · Light Sweet Crude Joined: Jan 04, 2008 Posts: 1162

I posted in the Bank Run thread, that I saw the possibility of a credit sieze-up, whereby, as banks are strapped for reserve cash, they will be forced to call in commercial lines of credit, performing loans of any kind, HELOCS, you-name-it, to stay solvent. In this digital age, that could happen at the speed of communications, as banks and financial entities do the domino thing. A matter of hours and minutes, not weeks.

It is conceivable to me that I could, in one day, find my local bank closed and locked by the FDIC, all my credit cards refused at a checkout because of the credit limits being capped, checks refused, and gas stations only accepting cash, because the credit transactions won't function. My wife's paycheck (direct deposit required by employer), would be stuck in limbo while the FDIC sorts out the banks, unavailable now, maybe lost in cyberspace forever. Then, I get a nasty bill in the mail/email, saying that all my credit card accounts are due and payable-"you have 30 days". Legal, or not, they would try it, FICO score being meaningless in a panic environment. Try and access your 401k in this scenario, or sell gold/silver to buy food. Keep those for later, if it ALL goes to hell.

That's a train wreck I choose to not participate in. Somewhere, I read today that the scuttlebutt from the FDIC is that they are hiring people madly, and expecting 300+ banks to fail in 2008. Another blog noted that according to Federal Reserve data, US banks are operating on all borrowed reserves, which means , insolvent. THAT"S why I want cash, as in FRN's, in my hot little hand. Or, in a mattress, whatever. And a well=stocked pantry. Enough to cover 6 to 12 months of expenses, while this mess gets sorted out by whomever.

The only paper invest ment we own is my wife's govt retirement account, not available for withdrawal, which we designated into Treasuries a while back.

And, I don't want to need to go deal with ill-tempered crowds at the grocery, gas station, pharmacy, or the one remaining bank that's open. I have a home business, farm repair shop, 30 miles from the big city, but my wife works in the city. The good part is, she works for the govt, and parks in a guarded lot.

I will need to be home, with the rest of the family, guarding the shop inventory, aided and abetted by the Rottweiller. And tending/guarding the garden and root cellar......

patience · Light Sweet Crude Joined: Jan 04, 2008 Posts: 1162

I don't have enough to invest in stocks, but if I did have, I'd put it in US Treasuries. I read that the yield of US Treasury bonds is dropping, that is, people are paying more for them, and they have a fixed payout, so the difference, or yield, is less. The investor forums call this a "flight to safety", and say it means that the smart money is already out of the markets, AND the banks. I don't know enough to speculate with money, nor to do any predicting with certainty. But, you don't have to know electronic theory to figure out that when you flip the switch, the light comes on, or not.....

CYA time, IMHO.

seahorse · Expert Joined: Oct 15, 2004 Posts: 2018 Location: Arkansas

Hi Caveman,

The risk of a financial meltdown is high. The warnings are there. They are very real. But, it hasn't happened yet. So the question becomes what prudent measures should a person do to prepare in case it manifests. You do have to keep working, before, during and after, that won't change. The goal here is to:

(1) Take measures that will preserve what assets you have. If you have stocks should one sell? I wouldn't go so far as to withdraw funds from an IRA and take the penalties. However, I would considering selling the stocks in the IRA but keeping it in the IRA and putting the money into something else like TIPS or a high interest money market account. The stock market has dropped 2000 points this month. So, when guys like Cramer says it could drop another couple thousand, its reasonable to assume he's right.

(2) Raise money - Raise money by selling stuff you don't need. Have a garage sell now and sell anything you don't need, that may have some value now, but may not have any value in a financial meltdown. Basically, sell stuff now before everyone else does the same thing because they are broke. I was talking to someone that says they have a collector car that they will sell if things get bad. If you wait until things get bad, the car will be worth a lot less, maybe nothing. So, you have to beat the herd. If you think you will sell it later, sell it now. Sell all old music CDs, books, clothes, furniture, anything you don' t need and sock the money away.

(3) Take money out of your bank? If we have a financial meltdown the likes that Cramer suggests, then many, many banks will close. Even with FDIC insurance, you will not be paid right away. I remember reading somewhere that many people during the S&L crisis waited, sometimes up to 2 years, to be paid. Most people can't wait that long. Bottom line is this - that money in the bank may be put on hold for awhile (even if its in a safety deposit box), so I do think its worth considering the option of having some cash on hand and buried in the back yard if that's what it takes. Further, its impossible to know which banks are safe. Who would have ever thought the large banks like Citibank would be in trouble, but they are. The smaller banks I'm dealing with appear to be in the same financially distressed boat, but you will never know it. They don't advertise it. I'm dealing with two that are on the FDIC watch list as troubled, but that's not public information. The only reason I know is I'm in a lawsuit with them and the documents were produced during discovery. So, all we know is we don't know, and don't think it can't happen to you.

The financial worse is not over yet. It is still impossible to predict a bottom. The housing bust is not over, has not bottomed, and now we are in the beginning of the commercial loan bust. We are far from over, and even at this early stage of a downturn, it appears the entire banking industry will meltdown and never see how low can go.

Chaparral

Gotta second what Seahorse says. We could be 48 hours from a 1000 point drop in the Dow although I think a small bounce is more likely for this coming week than armageddon, a full on crash can't be staved off for that much longer. I'd keep treasuries for now. There will be a massive run TOWARDS the 10 year and the value should skyrocket as the yield plunges.

I'd add that cash in USD (for those of us in the states) will be far preferable to gold or silver in the near term as the metals will crash along with all the other stocks and commodities. Most people recognize greenbacks more than K-rands and quarter eagles anyhow.

For the nonfinancials, I'd say don't forget the squirrels and other edible beasts in and around the neighborhood. A quiet powerful pellet gun would come in handy for all that. If you live in a dry area with no surface water handy, then it'd be a good idea to have plenty of water on hand. In a banking collapse, many will find themselves without jobs in short order and unable to pay the water bills. I wouldn't count on the kindness of any utility company to keep me in water.