How an Economy Collapses… and How to Protect Yourself, Part 2

By: Paul_Mladjenovic

To recap the main point from Part one of this two-part essay series, I mentioned that the internal collapse of an economy occurs when it is overburdened by too much consumption (such as debt) and that the primary engine of this over-consumption is typically a government that has grown too big to sustain. The United States is definitely trending in that direction. I used my former country, Yugoslavia, as an example of what may occur.

The interesting thing about the economy collapse of the Soviet Union and Yugoslavia is that when the dust settled, both country’s land space was then made up of smaller nation states. The Soviet Union became Russia, Ukraine and so on. Yugoslavia became Croatia, Slovenia and so on. In the wake of an economic collapse, could the United States became a different configuation of two or more sovereign states?

Not every economic collapse unfolds as expected. The collapse of the Soviet Union was spectacular but much of the tumult was in Russia proper and the urban areas. The rural areas got through fairly well. What would happen in a collapse of the United States economy? Would there be strife and upheaval in major metropolitan areas?

There is plenty of speculation here along with events from our history that could provide clues about how people would behave. I personally do not fear the financial aspects of a collapse as much as I fear the social aspects. As I have written before, economic disintegration leads to social disintegration.

As I wrote in part one, an economic collapse is distinctly different from a currency collapse. In a currency collapse, the economy and its infrastructure could stay generally intact and in the aftermath could recover (with a new currency) relatively soon. Maybe not days or weeks but some type of normalcy could ensue in a matter of months.

In an economic collapse, the matter is much worse. The key is how soon production can recover from any disruptions that occurred. In addition, the big variable is how people will react when their routine and day-to-day needs (food, water, electricity, etc.) are severely disrupted. When many people are dependent, especially when you consider millions on public assistance, how will they act in the event that their subsidies are abruptly stopped? Greece and Egypt certainly provide us with unsettling examples.

When my former country, Yugoslavia, collapsed into oblivion in 1994, the result was chaos and civil war. Could such events happen in the United States?

Right now as I write this, some states in the US are already dangerously close to disintegration. States like California have been greatly mis-managed and the condition of some of their cities are very dubious. The United States economy is generally strong and diverse and you may not see a nationwide collapse (similar to how you didn’t see a nationwide collapse in the former Soviet Union) but you will definitely see pockets of dangerous upheaval in some parts.

I believe that no matter how the potential collapse unfolds, the best strategy to implement boils down to this to-do list:

1. Physical gold and silver bullion. Paper assets have risks attached to them. This is quite evident in recent years. Virtually any paper asset can go to “zero” value in frightening speed. Stocks, bonds, mutual funds, bank accounts and currencies could become worthless very quickly.

Precious metals in physical form do not have this “counter-party risk”. Consider diversifying away from paper assets by holding at least 5-10% of your assets in physical bullion form. Yes…gold and silver prices can fluctuate and can have some scary corrections but that is due to market buying and selling volatilty. Both metals have enduring value and they won’t go to zero.

2. On Stocks: only be long in stocks of companies that have proven and consistent profitability, pay dividends and sell goods and services that are considered “human need”. This includes food, water, energy etc. your common sense goes a long way in this pursuit and you should make it clear to your financial advisor. For more conservative investors, consider ETFs that specialize in the same categories.

3. Stay away from fixed-interest, long-term bonds regardless of whether they are corporate, treasury or municipal. Economic collapse or not, the danger of currency problems (such as the potential for inflation or even hyperinflation) is very real.

4. Self-sufficiency. Self-sufficiency is a good idea in good times and it is a great idea in bad times. If you are dependent on a third party (such as government assistance or pensions), it is very important to find out how solvent they are. But regardless of solvency, you will just be better off knowing that you can get by without relying on others. In a recent report, some 48 million people are dependent on food stamps. What happens when this service breaks down?

5. Find out about your town’s general well-being. Right now as you read this, there are literally hundreds of towns (thousands?) that are either considering or are already shrinking or eliminating essential services. There are towns that have closed their police departments and/or their fire departments. Decide what you will do in that town. Do you stay or move to a less-risky area?

6. Think safety. In the event of social disintegration, more crime will be the norm. How can you secure yourself, your family and your property?

7. Are you discussing possibilities with your neighbors, friends and others in your “support circle”. Family and friends will become essential when people need to help each other. It is time to build alliances.

8. Start a part-time business. At my site, www.RavingCapitalist.com, I tell my subscribers and readers that weath-building isn’t just investing your assets for growth and/or income (passive wealth-building), it is also about using your time, effort and talents to make money (active weatlth-building). In today’s economy I think that having a part-time business is an essential part of your over-all wealth-building action plan and financial security. It is a form of diversification along with your job or pension.

9. While you are at the site, get a free subscription to the ezine Prosperity Alert. In January subscribers will receive a free report on the best resources and strategies for self-sufficiency and wealth-preservation strategies.

It is far from a complete list but I think it is a good start. Fortunately, you and I have many venues both locally and on the internet to network, plan, prepare and to be informed. Right now self-sufficiency and survival topics are popular topics since many people do see the writing on the wall and more people see the unsettling trend more clearly.

The economy is definitely struggling and it could be years before any significant rebound. The growth of government (federal, state & local) in terms of size, scope and debt has been relentless and the burden will become unsustainable.

The answers to all the questions in this essay will come soon enough and we probably won’t like the answers. I will certainly keep monitoring and commenting on “the big picture” and keep providing more information to you…stay tuned!

The big question for you is ....”are you prepared?” Sure…there is a remote chance that nothing or very little will happen but what is likely to happen? It doesn’t hurt to be prepared.

Paul Mladjenovic is the author of “Stock Investing for Dummies” and his latest seminar “Cash in on the Commodities Super-Boom” is at his website RavingCapitalist.com. Video commentaries by Paul Mladjenovic on the precious metals, the economy & financial markets can also be found at PreciousMetalsInvesting.org .

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