Surviving a Government Debt Crisis

Introduction / The Greeks - Summer of 2015

The Greek government has been teetering on the brink for a while now, and we'll find out within the next few days what direction the country is going to head -- slash spending and take more bailout money or drive themselves further down the path of economic ruin.

First up, Greece is only a very small part of the world's economy (44th highest GDP), and investors have had a long period of advanced warning to pull money out or otherwise game plan for a government collapse. At this point, the risk of a Greek government default and subsequent troubles has been largely priced into the market. Thus, there is little risk of a Greek default triggering economic meltdowns across the world. Some bad days on the market, yes, but nothing apocalyptic.

It is, though, instructive to watch how events have led up to the current situation and watch how they will unfold in the next few weeks. Government defaults follow similar progression and if you know the signs and eventual progression, you can prepare for them that much better.

Rebuilding the emergency fund...

I've written about having an emergency fund/financial safety net in the past. We've been working on building up ours, and had made decent progress.

Over the past few months, we've been hit by more than a couple less-than-planned for expenses. Nothing abnormal - just a series of fairly large bills that we couldn't have foreseen this time last year.

By the end of the month, those less planned expenses will have pretty much wiped out a good chunk of our emergency fund.

While it sucks to see the fund significantly drained, it's been a blessing to have the reserves to handle these expenses. If not, we'd be forced to take out debt for stupid stuff, borrow money family, maybe raid some of the retirement fund. Stress and worry where the cash was going to come from.

We haven't had to do any of that. We've been able to financially handle the costs as they come in. It's been frustrating, because it's a challenge to put money away in the first place. It's meant vacations not taken, meals not eaten out, purchases not made and so on. You know the drill.

So, it is time to start replenishing the emergency fund.

In my opinion and experience, having some kind of emergency financial reserves set aside is one of the most prudent and practical real life preparations you can make. If you don't have 'em, start setting something aside. Large or small...be consistent and it can add up quickly.

Anyone else have their emergency fund come in handy recently?

Edited to add: Along similar lines - folks often forget the power of  contingency currency putting together bags, kits and so on. A handgun, a good blade and a couple thousand bucks can solve a lot of problems...

Goals for 2014

With a new year, it's a good time to look at the year ahead a figure out what the heck you want to accomplish over the next 365ish days.

I've done goals for the past several years, and while there are always several goals that do not happen or morph into others, it's good to have them as a starting point. Some of mine for 2013 as a starting point.

2013 goals that happened: buy a house, write a book, most of the acquisitions list (more on this later).

2013 goals that didn't happen: beef up on primitive skills and hunting, jujitsu classes, carbine course

The goals that didn't happen were largely due to our 6-month move and my role during that time. It screwed up my vacation time for much of the year and sidetracked those plans.

Big Goals
I've done long lists of goals in the past, but the laundry list tends to water down the important goals with less significant ones. There's also have a friggin' list that I have to refer back to periodically to even remember the goals you came up with in the beginning.

Building a Financial Safety Net, Part Deux: Storing the Wealth

In Part 1, we discussed a fairly simple methodology for figuring out how much money to set aside for a financial safety net/tough times fund. We also talked about how building up such a safety net can be a difficult, long term thing, but that it is vastly important.

Remember - it's not just about the apocalypse. Losing a job or having large, unexpected expenses are far more likely events and something that we need to be prepared for, too.

This time around, we're going to talk through what form to keep that safety net in. Stocks? Bonds? Bananas? Pennies? Cash under the mattress?

Since we're talking about a fund of money for uncertain and potentially disastrous times, we want to avoid investing it--no stocks, no bonds. They can and will lose value. Just your luck that you lose your job, crash your car and your safety net stock portfolio goes belly up on the same day. And in the wake of a major event, you'll likely have a hard time moving your shares of Apple or Netflix. Not a lot of demand for those in Bartertown, raggedy man.

Nope, we want most of our safety net in cash or close-to-cash forms. And, like usual, we want some diversity. Here are to options that I consider for the ol' financial reserve:

Questions around the Financial Safety Net

Had a few comments/questions around the financial reserve post that I wanted to address. The following basically sums up the concern's

I cannot imagine holding back a years worth of money in cash form, and would never advise anyone do that. 

Two points on this:

1. I would not advise anyone to have a year worth of expenses in cash on hand/cold hard currency, unless very specific circumstances dictated it. Diversification is a must, and we'll talk more about that in a future post. Some cash on hand, yes...but not all of it.


2. A year's worth of expenses is on the high end for the safety net, and a shorter time frame is more reasonable for most. Your individual circumstances and level of risk aversion/preference will play into whether 3 months, 6 months, 9 months, 12 months or even longer is what is right to you.

For the average household, 6 months is a good goal to work towards.

If your income is less stable, then you'll want to work towards the higher end. If your income is fairly certain, then a shorter length of safety net is probably fine.

What makes one person's income stream less stable and higher than another? A single source of income versus multiple sources of income  into your household. Stability of your role and employer. Stability of the industry you work in (healthcare versus construction, for example). That sort of thing.

An actor or entertainer, for example, likely has a very unstable income--they tend to get gigs and do well for a while, then have a dry spell they need to get through before they land the next job. A tenured college professor, on the other hand, likely has a pretty certain paycheck for the next couple of decades.

Building a Financial Safety Net, Part 1: Getting Started

Much of survivalism and a prepared lifestyle involves having ample reserves in place to weather the tough times. It's the case of the grasshopper and the ant - we are the ant, preparing for winter before it comes.

We focus on having food stored, stockpiles of ammo, spare parts and redundant gear, but far too often we ignore the financial side of things. Having a reserve of money for unexpected events and tough times is a wise, common-sense goal that virtually every financial expert recommends working towards.

Precious Metals Questions Answered

With gold and silver tanking, I've had a few questions come in that I thought I'd cover off on.

When TEOTWAWKI hits, gold and silver will be nothing more than useless shiny metals--why would I want those instead of more beans, bullets and bandaids?

Precious metals (PMs) are a hedge against currencies collapsing, which has happened far more often than all-out-end-of-the-world, blasted back to the stone age scenarios. So if the US dollar collapses and you have, say, $10,000, that $10,000 would suddenly become worthless. But, if you'd taken that $10,000 and bought gold and silver with it, your investment would be preserved and you could eventually convert it over to another currency when that came along, and then use that to buy whatever you needed.

The principle behind it is that fiat currencies have a strong tendency to eventually go belly up, while the relative value of gold and silver stay relatively stable on a barter basis. A chest full of gold and silver was worth a fortune 3,000 years ago and it's worth a fortune today. Good luck finding a fiat currency that can say that.

Of course, the barter value of gold and silver depends on having a functioning economy/society. If you're alone on an island or in a Mad Max/Walking Dead, every man for himself apocalypse, then indeed, they're not going to do you much good.

But, history has shown that, typically, currency/economic collapses are far more common and likely threats than zombies or alien invasions.

But, I'd add, that there are numerous areas to focus on before worrying about PMs--food, defense, reliable vehicle, emergency cash, etc.

What is the difference between junk silver (or gold) and coins like American Eagles and Canadian Maples?
Junk silver and gold are typically old coins--the most common being old US currency, which had varying degrees of silver in it prior to 1965. But, the term can also refer to old jewelry, silverware, and so on.

The upside to junk PMs is that you can often get them for close-to-spot prices, whereas coins like American Eagles carry a premium over spot prices.

The downside being that they can be harder to sell/trade when that time comes. You have to "know" a bit about PMs to know that, say, an old Morgan dollar is 90% silver and has just over 24 grams of silver in it. They don't say their weight and metals content on the coin.

On the other hand, coins like American Eagles, Canadian Maples and Krugerrand are more well known and have their weight and metals content printed right on the coin. You pay a premium for these coins up front--for example, a silver eagle will usually cost $5-$8 or so bucks above spot, but you will usually recoup that same premium when selling off a coin anyways.

Personally, I prefer the minted coins like Eagles and Maples, but both kinds of PMs have their place.

Gold or Silver?
I don't think silver or gold make a massive amount of difference. Silver seems to be a bit more volatile than gold, and it's also much less compact, but it also can be purchased in much smaller quantities. I tend to like gold because you can fit a massive amount of wealth in a small, easy to carry package, which is just cool.

What role do you think PMs play in survivalism?

I think a holding of PMs has a place in your financial preparations, similar to a supply of emergency cash. Exactly how much that might be will be up to your individual circumstances, lifestyle, etc. I'd pick a time period worth of expenses or enough $$$ worth to do a specific thing, and then work towards that. So, a month or 3 months worth of expenses, or enough $$$ worth of gold to relocate you halfway across the globe. The idea being that, even if the economy collapses, you'd still have the PMs and their intrinsic value in-hand in order to pay those expenses or buy that thing.

Beyond that rainy-day/economic collapse fund and you're getting into investing territory. PMs are going to be more desirable when you think the market is going to go bust or inflation is going to run wild, and less so when the market does well. I think they certainly have a place in everyone's savings/investment portfolio, but how much will depend on your circumstances, outlook and financial goals.

What's your outlook on the PM market?
Personally,  I've felt PM prices have been too high for the past several years. The 12-year upward trend has been well known and a lot of people have bought into PMs...heck, watch any of the cable news channels and you'll see a handful of commercials for investing in gold and silver. We've passed the height of the market a while back, and I sure hope a lot of folks did not dump their savings into $50/oz silver or $1800/oz gold.

I'm not particularly shocked that we're seeing the prices drop as much as we are...the timing is a bit odd, as most of the market's fundamental problems (weak economy, QE4ever) remain. And I didn't think we'd see it drop so dramatically over the space of 2 days...but a big correction is not a big surprise to me.

That said, I think the panic is pushing prices below where they should be. We'll see where the prices of these metals bottom out...that would be the time to buy in. We'll bottom out, see a rally and then have things stabilize, at least for a while. 

4/16: Edited to add, it looks like PMs are bouncing back today as bargain hunting sets in.

Gold & silver down...way down

Gold plunged $84 an ounce today, 5.38%, closing at $1477 an ounce. By percentage, silver is down even more, down over 6.5% at the close of the market. Both closed at their lowest point in the past two years.


The sell off is being blamed on a variety of factors, mostly boiling down to two big uns:

1. Cypress and other countries perhaps being forced to sell their gold reserves in order to receive the ECB bail out - read more here. This would dump several tons of gold onto the market, increasing supply and theoretically driving down demand.

2. As the general investing public is gradually perceiving markets to be recovering from the crash and the Fed is starting talk about easing off the money printing quantitative easing train, there's been a slow move away from precious metals. Today's slide started as a more moderate down turn but then triggered off automated sell positions as it descended down past $1525 and $1500. As these price levels were passed and more sales book, more gold was dumped onto the market, further driving down prices. 

So, at the end of the day, an ounce of gold is worth fewer USD at the end of today than it was this morning.

What action you'd take depends on your long term view of the economy. If you think we've turned the corner, the economy is stabilizing and that we'll see some good growth in the stock market, you may want to think about selling some PMs and parking that cash elsewhere.

On the other hand, if you feel like the future of the economy still looks grim and the recovery uncertain, this weekend might be a pretty good time to jump in and buy some discounted gold and silver.

What are your thoughts?

Cypress Bank Failures: A Lesson in Having Cash

So I haven't been following the Cypress meltdown closely, but did manage to read a news article today about the limited re-opening of some of the banks. They've imposed a 300 euro limit on cash withdrawals, and this is after a long while with their banking system essentially shut down.

Why did the banks close in the first place? Quick lesson--banks make money by lending out or investing the money deposited within them. Only a portion of the deposits are actually liquid and available for withdrawal at any time. If everyone decides they want to clear out their checking and savings account, the bank doesn't have enough cash on hand to pay out. Bank essentially goes insolvent and belly up. So, in fear of that happening to their entire banking system, the banks in Cypress closed their doors.

So the banking system was shut down, and is now re-opening on a limited basis. Meanwhile, society there is otherwise functional. And in fact, bills are still coming in, rent is still due and so on, and, with ATMs and teller windows closed, people are screwed.

So, just like food, guns and ammo, easy access to money can be knocked out of commission overnight. Even faster, actually.

Just another example of why it's wise to have a stash of cash on hand. A month worth of expenses is a good goal. Certainly count it as part of your emergency fund, but don't file it away in your savings account in order to earn that .05% interest rate. Keep it in cold, hard cash. Just in case.

Quick Thoughts on QE3

If you're wondering what the heck this QE3 mumbo jumbo is, here's my intro to the idea of quantitative easing and what it means at a high level. Written back in July, when QE3 was an uncertainty...but hey, if you were concerned about the Fed printing presses and sunk money into gold/silver you'd have got a pretty good little gain.

This new round of quantitative easing - QE3 - is a bit different from past rounds. This time, the Fed is buying mortgage backed securities (MBS), and there's no time horizon given...basically as long as they see fit to buy. 

An MBS is a different animal than a bond, which is basically government issue debt. An MBS is essentially purchasing the rights to principal and interest payments on a pool of mortgages - from everyday people. Yes, they send their payments to the bank, but the bank only takes a small part (servicing fee) and then the rest is forwarded on to the investors, who are technically the owners of the mortgage.

Now, when structured with good mortgages, investors can earn decent returns on an MBS for comparatively lower risk. When they are filled with crap mortgages, well, you have problems (see: 2008 collapse). 

So, this time around, the Fed is printing money to buy investments (MBS) instead of retiring .gov debt (bonds). It's not as bad...the investments should pay out and the .gov should earn some decent returns on its newly invented monies. 

The point behind the print & buy is to inject some liquidity into the market (indirectly force investment holders to re-invest) and help jump start the economy, specifically housing. The market was largely expecting QE3, which is why we saw a run up in August. There was a big bump the day of the announcement, and the market has been flat since. Of course, QE3 hasn't really started yet, so what/if further effect its has on the economy.

Of course, with the Fed printing out more imaginary money, the value of the dollar will suffer. The question is how much. The dollar index (a weighted index of various currencies vs. the USD) has fallen a point post-announcement, but 4 points since the rumors about QE3 started to gain momentum. The Consumer Price Index for August was up 0.6%, and that often lags behind the rest of the market - many price increases take some time to work their way downstream to the consumer.

We haven't seen any big bad moves yet, and I don't foresee any kind of world-ending hyperinflation here, guys and gals. Some moves, yes. Wheelbarrows of Benjamins to pay for a load a bread, no. 

But, keep an eye on things. Keep an eye on things as the program progresses, especially on how long the Fed keeps the program running. Don't expect the value of the dollar to do great things. If you've got a lot of 'em sitting around, think about investing them - wisely.

Will QE3 have positive effects on the economy? Let's hope so - because the Fed is rolling with it. Previous attempts haven't jump started the economy, so I don't have a ton of faith. But hey, I write a blog about the end of modern civilization...

Thoughts on the Free Market Post-Collapse

It will be the tendency of many post-collapse communities to revert to what essentially amounts to communism. We'll see things like:

• Seizure of private property and redistribution for the so called greater good
• Laws against hoarding, with stiff punishment for violations
• Spying by neighbors and reporting to community leaders
• Assignment of roles/responsibilities by the state

While such behavior may originate from good intentions of ensuring survival, it quickly devolves into tyranny, corruption and so on. Prepared individuals would fare exceptionally poorly, having their stockpiles confiscated or fighting it out with their neighbors and community members.

Of course, communism and central planning isn't the only way, and history has shown that it is far from the most efficient way. History has shown the free market to be the most efficient way to operate, and I believe that would hold true even in the harsh conditions that would exists in a TEOTWAWKI world.

Junk Silver

There's a lot of interest around investing in precious metals (PMs) these days. I've talked about the pros/cons of PMs in the past--you can check out some of my thoughts by following the precious metals tag. While I am not a PM fanatic like some in the survival community, they do have their place, and even if you're not interested in socking some funds away in silver or gold, it doesn't hurt to know about 'em.

Why you need savings

After reading through Rawles' Survivors, I never thought I'd get my wife to pick up another prep/survival related book again. Luckily I married well, and she actually requested that we read Patriots a few days back. I think she's curious to see if it actually is better than the lousy Survivors (it is!).

Anyways, one thing that I noticed a few pages in is that the Grays (the protagonists) don't really have a savings account - their funds are depleted by paying some bills and taxes in advanced, maybe a couple thousand bucks - yet they have massive supplies of guns, ammo, precious metals, BOV, a well stocked retreat, etc. Of course, Rawles' TEOTWAWKI comes by way of hyper-inflation, so they may have just been wise enough to get out of dollars before they were worthless.

On the other hand, many others in the survival world speak very little of having any kind of savings beyond precious metals and preps. This is, I feel, a potentially dangerous and irresponsible message to send. You need savings!

An Emergency Fund is Essential
First off, having an emergency fund of cash is one of the best preps you can have. Cash is the solution for many of the real-life problems that we face, and not having a backup leaves you open to a variety of problems. I'd rank an emergency fund up there with just about any of the prep basics.

In good times, you may have to resort to debt to cover unexpected expenses/cash emergencies. Car breaks down? Need emergency dental work? Lose your job and need to pay rent? An emergency fund is recommended by pretty much any financial planners worth their spreadsheets.

We all have unexpected stuff happen and we want to be prepared for it -- that's what this is all about, right?

Yes, you can take precious metals on down to the local coin/pawn/jewelry shop and sell them off for cash if needs be. You can certainly keep some of your savings/emergency fund in precious metals, but there's a lot to be said for the immediacy of cold, hard cash on hand. And hey, under most disaster scenarios, precious metals buyers aren't going to be open for business and the credit card and ATM machines won't be working - cash is king.

We have an emergency fund that will cover all of our costs for about two months if we tightened up the budget sufficiently. We're working on adding to it slowly and surely. It is about 75% cash and 25% precious metals. We don't have a set amount that we're working towards.

Don't "Prep" Away Your Future
Secondly, we all need to save money, whether its for buying a car, a home or saving for retirement. And even if your cars and home are paid off in full, you should still be saving - your car will need replacing, your home will need repairing/updating and so on.

The retirement piece is a big one that many gloss over--I've heard people talk about clearing out the 401k or whatever and using it to buy preps. That's scary stuff. Don't do that! You can responsibly prepare for bad times without sacrificing your life/retirement savings. If TEOTWAWKI doesn't come and you manage to live to retirement age (likely scenarios!!!), then you will want to be able to retire or at least slow down.

Diversification
Third, we have something called diversification - basically avoiding putting all of your eggs in one basket. If you dump all your normal savings and investments in favor of preps and precious metals, you're essentially just betting on one eventuality - the end of the world. What happens if that eventuality never occurs? You've missed out on a lot of other opportunities and growth that could have happened elsewhere and potentially screwed over your financial future.

So, take a diversified approach to where you put your money. Yes, buy preps and increase your self sufficiency. But don't ignore other areas as well--retirement savings, investments and so on.

Anyways, I'm probably preaching to the choir here. Prep in moderation. An emergency fund is an important prep. Be responsible! Don't dedicate all of your resources to preparing for Armageddon. Plan for the future.