From the collapse of the Soviet Union to the sovereign debt disasters brewing in Europe, the fatigue and fear of their citizens is clearly evident in their weary eyes. With unemployment in Spain at 21% and much of Europe close to that same level, the outlook is troubling at best.
The situation in the United States has deteriorated and will continue to do so unless drastic action on our federal, state and local government deficits is taken.
As we fail to deal with our own boiling crisis, I am often asked "What will the disaster look like? and "What should I do for my family?"
Let's trace what happens during an economic collapse and then allow me to provide some guidance as to what you can do personally to avoid being swept away by the tidal wave of fear, anxiety and trepidation.
During the early stages of a nation collapsing economically, the debt of the nation swells almost uncontrollably. We, in the United States are already there.
From the burgeoning debt loads come the setting for collapse.
While the disaster can unfold in many ways, the course for the United States is already set in motion.
Inflation will increase. When inflation hits, citizens with limited financial resources become economic casualties first. These citizens are part of the beginnings of the downward spiral which ultimately leads to a depression.
In a misguided attempt to kick start the economy, our government will attempt another stimulus program which will fail. The parameters under which Fiscal Policy might work if you are so inclined to believe that it does have long been broken. Consequences of government actions are becoming unpredictable and are having unintended consequences.
The United States began the first phase of the stimulus program with the American Recovery and Reinvestment Act as well as the significant expansion of the unemployment compensation to pull us out of the recession. Both actions were the wrong actions at the wrong time.
When stimulus programs fail, our government will try to increase taxes or fees often in deceptive ways such as fuel taxes, oil drilling taxes, user fees or increased regulatory burdens. This demand to increase taxes is to help support the citizens who were the first economic casualties of the recession as well as to pay for the deficit.
Next the bond rating agencies will downgrade our debt. At that point, our interest rates will increase and further prolong the recession. It is this downgrading of the debt and potential inability to sell our debt on the open markets that will be our undoing.
Our deficits will skyrocket because of the increased interest costs and creditor forced reductions in spending will be enforced against us. The U. S. Congress will no longer establish our budget priorities. Our creditors will as is done is Greece today.
The depression follows.
What then should the individual do?
Personally we have many options and they are extremely straight forward. The actions to be taken are exactly the same action that government needs to take but will not.
First, know where you are financially. Know your income and expenses and balance your own budget.
Second, you must start to build your funds if you are able. By establishing some cash reserves, you are reducing the risk of you becoming one of the first casualties of the collapse.
Third, you should consider paying off all short term credit card debt and minimize the use of credit cards unless you have the financial resources to pay for your spending.
Fourth, I would recommend refinancing your home with a 30 year long term mortgage considering how low rates look know. If your home is "underwater" with debt already that may not be possible.
Fifth, build up credit availability if you have the discipline not to use it. If you do not have that discipline, adding credit availability is one of the worst things you can do.
Sixth, make certain you valuable to your employer. Stay current and productive. Many countries in Europe have 15% unemployment or more. Try not to become part of the "expendable" because you have let yourself stagnate.
Finally, help your family.
Surviving an economic collapse is possible. It will take 2 or more years for the U. S. to be in a full collapse. In interim get active politically, vote, and make government accountable, responsible and efficient to help prevent the disaster. I doubt Washington has gotten the message though! I hope you do. Your family is depending on it.
Frank Ryan, CPA specializes in corporate restructuring and lectures on ethics for the state CPA societies. Frank is a retired Colonel in the Marine Corps Reserve and served in Iraq and briefly in Afghanistan. He is on numerous boards of publicly traded and non-profit organizations. He can be reached at FRYAN1951@aol.com