One of the biggest potential catastrophes that face us today is the potential for a financial collapse. With the national debt now topping 18 trillion dollars and government spending out of control, there’s no wonder that many preppers are watching the financial pages every day, wondering when the end will come.
But I wonder if most of us have a realistic idea of what an economic collapse will mean.
To hear most people talk about it, a financial collapse will mean the end of the world as we know it. They seem to be expecting a breakdown of society, outright lawlessness, people starving to death and a total collapse of the infrastructure.
But that’s not really what’s going to happen. Our country has already been through one serious financial collapse in the Great Depression, and that didn’t put an end to our country. We went through a mini economic collapse in 2009 and that one didn’t destroy the country either.
Based upon past financial collapses, I think we can paint a fairly accurate picture of what the next financial collapse will look like. Not only do we have the model provided by our past financial collapses, but we can also look at what happened in Argentina, an industrialized nation that recently suffered not one but TWO major financial collapses.
I had the opportunity to interview a number of people who lived through Argentina’s financial collapse, which gave me the opportunity to gain a much better understanding of what a financial collapse will mean. Their information changed my understanding and gave me a much more accurate picture of what to expect.
What Makes a Financial Collapse
Financial collapses are always caused by governments. Every government which has ever existed has been greedy, always wanting more money, so that they can spend it on more programs. The problem is that there is only a limited pool of money available and government officials recognize that overtaxing the working public will eventually lead to mutiny.
There are two ways that these officials work around the risk of public opinion. The first is to create hidden taxes that people don’t see. That allows them to raise taxes, while counting on the public’s relative ignorance to protect themselves. The second is to increase the money pool.
Increasing the money pool used to require making coins smaller or mixing in a cheaper metal to “water down” the gold or silver used in making coins. But in today’s age of electronic banking, it’s much easier. All a government has to do is to release more money into the economy. This is called “quantitative easing” and our government has been doing it for years.
The problem is that the value of money is supposed to be based or anchored to some other physical entity. In times past, the value of the dollar was based on gold or silver. That’s why we had “gold certificates” and “silver certificates” rather than “federal reserve notes.” But today’s money is valued based upon a country’s Gross National Product (GNP). So, if money is released into the pool and the GNP doesn’t increase by a similar amount, the value of the money lessens.
That’s been happening for the last 100 years.
The value or buying power of a dollar today is equal to the value of two cents a century ago. Now, here’s the scary part. The only reason why the dollar has any value at all is that people around the world believe it does. When they stop believing that it has value, it’s value will plummet. That will bring about the next step of the economic collapse.
I say “next step,” because we’re really already in the first stage of an economic collapse, which is the gradual slide downwards, in economic terms, before falling off the cliff. We’re dangerously close to the edge of that cliff and nobody can see how close it actually is.
Signs of an Economic Collapse
There are two basic things to look for, which indicate that a country is in an actual economic collapse. They are high unemployment and hyperinflation.
When the United States was in the Great Depression, unemployment topped 25%. The same happened in Argentina, during their 1999 economic collapse.
While the “official” figures put U.S. unemployment at less than six percent, that’s only because the government is basing that figure on those who are actively receiving unemployment benefits. Once they can no longer receive unemployment, the government number crunchers say that they have “dropped out of the workforce.”
This is how we can have the official unemployment rate dropping, while the labor participation rate (percentage of adults who are working) is also dropping. Normally, for one to drop, the other has to rise.
There are many different opinions out there of what our actual unemployment rate is, but most are running around 14 percent or so. If you look at the current labor participation rate, that figure makes sense. If that’s true, and it looks like it is, then we’re well on the way towards an economic collapse.
On top of the problem of people being out of work, the government is creating a mentality in many people of not working. The great middle class work ethic which has largely driven this country’s financial growth is dying. We now have second and third generation welfare recipients who feel that there is no sense working, when they can stay at home and receive government handouts.
The other figure we need to be looking at is inflation.
According to the “official” statistics, inflation has been hovering around 1.5 percent per year. But, once again, the figures we’re receiving are being massaged. Specifically, the inflation figures the government is using are intentionally leaving out energy costs and food, the two areas which have had the highest rise in prices.
At the time of this writing, energy costs are down somewhat, at least gasoline costs are. However, that’s a temporary situation, caused by a price war that is being fomented by the Saudis. They’ve dropped the price of crude oil in an attempt to run American companies that are producing oil from shale out of business. Once they do that, you can be assured that prices will rise once again.
The inflation rate of food has been an average of 8 percent per year, not the 1.5 percent the government is telling us. Even at that rate we’re a long ways away from the hyperinflation that we can expect to have during an economic collapse.
Just to give you an idea of how bad that inflation can get, Argentina experienced 1589 percent inflation of consumer goods, especially food, in a two-year period.
The worst month in that period of time had inflation of 200 percent. In that same time period, those who were still working received only a 320 percent increase in their salary. They just had to make adjustments to make up for the difference.
What to Expect When We Go Over the Cliff
There are a number of things that we can expect to see happen when the collapse actually happens. The first is that we’ll see some of that hyperinflation that I was just talking about. Prices on everything will rise from day to day, sometimes even more than once in a day. This will cause people to stop buying things which are not essential, starting a domino effect.
As people stop buying non-essential merchandise, it will cause many of the businesses who sell these products to go bankrupt. They will close, adding their employees to the rolls of the unemployed.
Next hit will be the businesses that make luxury goods. With people not buying those goods from the retailers, the factories will shut down as well.
Another financial travesty is that we will see another wave of people losing their homes, as they lose their jobs and are unable to make payments o their homes. They’ll also lose cars and other luxury items as they are unable to continue making payments on them.
People who have savings will see the value of their savings evaporate like a morning fog. Even those who had considerable retirement savings will suddenly find themselves fighting to survive, as their investments lose their value.
The people who will be the most affected by the financial collapse will be the middle class.
Many will find themselves suddenly poor, without an adequate explanation of what has happened. They will be angry and want to give voice to their anger.
We can expect the public to respond to the financial collapse in the classic manner of turning out to protest. Everyone will be blaming someone else for their problems and suffering; so they will turn out in droves to voice their unhappiness. These crowds will quickly turn to riots, with mob violence, vandalism and looting.
While the mob violence will continue for a while, people will abandon it because of their needs. Unable to find jobs, many will turn to petty crime, in order to feed themselves and their families. Desperate people do desperate things and the lack of income, coupled with rapidly rising food prices will make these people desperate. They will attack neighbors and friends, in order to find food for their families.
The streets will no longer be safe to walk on unarmed.
As I said above, the middle class will be the most affected. Essentially, the middle class will disappear in the dust of the collapse. Our country will consist of the wealthy and the poor, with the vast majority of the people becoming poor.
While the government will try to provide assistance to the poor, the vast increase in their numbers will make this almost impossible. Attempts to do so will merely drive inflation even higher, as the government waters down the value of the dollar even more. The assistance they provide won’t go as far, because of these rising prices.
Merchants won’t want to put their wares on the shelves of their stores, due to the high inflation rates. Keeping the merchandise and selling it later, when they can get more for it, will seem much more reasonable. On top of this, the closing of factories will cause shortages of all types.
Businesses will no longer want to sell on credit; as to do so would be to guarantee a loss.
Factories will stop selling to wholesalers on credit and wholesalers will stop selling to retailers on credit. Since most businesses depend upon credit for stocking their shelves, the lack of ability to buy on credit will make the shortages even worse, as they will have to pay cash for everything.
Food will be the worst hit. While there will still be food available, food prices will soar. An initial jump of 200% to 300% in food prices should be expected, with additional increases leading the pack on inflation.
Sickness & Disease
The people who lose their homes will need to live somewhere. As most of them won’t have jobs, they won’t be able to rent housing, so will start building shanty towns. Their lives will regress to that found in third world countries.
Lack of basic sanitation will make disease increase. Many viruses which are normally found only in impoverished countries will flourish in the unsanitary conditions. People will avoid the cost of going to the doctor, allowing disease to spread.
Medical services will become overloaded, dealing with this new wave of sickness. Many of those who do go to the hospital, seeking aid, will be for nothing more than malnutrition. Hospitals won’t be able to keep up with these people and their needs. The close proximity of so many diseased and healthy people will add to the spread of disease.
Many of the people who are affected by the collapse will have a serious change in their attitudes. Morality will go out the window as people try to come to grips with the situation and find a way to survive. There will be many who try to take whatever they can, in an effort to survive.
People will lose much of their concern for their fellow man as they enter into a survival mentality. This will be almost animalistic in its nature, justifying all types of atrocities under the cover of a need to survive.
Those who are desperate will do the most desperate things, just to keep themselves alive.
What Can You Do?
As you are reading this article, you are already 10 steps ahead of the “sheeple” who bury their heads in the sand and hope the government won’t mess things up even more.
However anything you can do to become more self-sufficient will be a huge advantage when this collapse comes.
Stockpile the basic necessities of life, especially water and survival food (meaning food that will store for a long time and ensure your survival). When food shortages come and when food prices skyrocket by 200% to 300%, the food you have stockpiled may be the only thing you are eating. Having that food could be the best financial investment you could make. It will be valuable and will help you to survive.
Debt will be one of the biggest problems many people face, causing them to lose their homes and much more. Therefore, getting out of debt is a major step towards providing for your family’s security.
Those who live in the country will have it easier than those who live in the city. Not only will there be fewer people around who are struggling and turn to violence, but being in the country makes it easier to raise your own food and be ready to face any financial difficulty.
Above all, it is important to have the right mindset. You should EXPECT the financial collapse to happen, because it will and many experts agree.
By preparing yourself for the worst, you will be prepared for anything.
About The Author
Lewis is the co-founder of PrepperZine.com, a survival and preparedness website with a manta of being “prepared to survive”. We cover all aspects of surviving a in a SHTF scenario and aim to help as many people as possible in their own journey to a more prepared lifestyle.
Lewis has been involved in preparedness for over 10 years; he loves to backpack through rough terrain, has served in the military and is the owner of a loyal English Cocker Spaniel.