Economic Collapse 101: What It Will Look Like, and How It May Start

It takes courage to face the bogeyman.

I bet many of the good folks in Great Falls, Montana, were more than a little worried earlier this month after a local television station there sent out an ominous message warning viewers that the dead were “rising from their graves and attacking the living.”

Hold on, hold on. Before you grab your shotgun and hunker down in the basement, consider this: It turns out Montana wasn’t ground zero for the dreaded Zombie Apocalypse.

Nope. It was just a hoax — thank God — perpetrated by some clever joker who managed to hack the station’s emergency alert system.

I know. But “The Night of the Living Dead” will have to wait.

Our Prosperity Is An Illusion

That being said, I do believe America is in for some tough times ahead. I still believe America is the greatest country on earth, but we’ve had it too good for too long and, as a result, our nation has become sadly complacent with its finances. So much so that I believe we’ve crossed the Rubicon.

Our government is now so massive, and its obligations — both present and future — are so large that, barring a remarkable and sudden change of attitude by our politicians, a systemic economic collapse is inevitable.

The US National Debt is currently more than $16 trillion. Unfortunately, the US currently owes, depending on who you believe, somewhere between $50 and $100 trillion more in unfunded liabilities for things like Social Security, Medicare and public employee pensions.

America has been able to run up these huge debts because it broke away from the gold standard in 1971. The gold standard imposed at least a modicum of fiscal responsibility and faith in the US dollar because the world’s central banks were allowed to exchange their greenbacks for the gold sitting in Fort Knox.

But once the gold standard was abandoned, our politicians were freed from the constraints that had previously forced them to be fiscally accountable. Pandora’s box was opened.

Since then, lawmakers have been borrowing an unlimited quantity of freshly-printed money to fund their spending sprees — courtesy of the Federal Reserve Bank — thereby eliminating the need to worry about tax hikes.

As you can see by the chart below, government spending — and the inherent money printing that is ultimately required to finance it — is now completely out of control; the National Debt is expected to reach $20 trillion by the end of this decade.

Of course, there’s no such thing as a free lunch. Every new dollar that is printed by the Fed increases the money supply, which in turn reduces the value of the dollars already existence — including the ones in your wallet and retirement account.

As you can see from the chart below, soon after the United States abandoned the gold standard in 1971 — and our politicians began to greatly expand the size and scope of the government — cumulative price increases embarked upon an exponential trajectory. Those price increases are the result of the declining purchasing power of the US dollar. In fact, the buck’s purchasing power has been decimated since 1971; so much so that today you would need $559 to buy something that cost $100 back then.

Source: Iacono Research

 

Clearly, abandoning the gold standard was a fiscally reckless decision, akin to giving a teenager a credit card without a credit limit. To illustrate, let’s first look at the current impacts of America’s spending addiction:

  • 2012 Federal revenue: $2,468,000,000,000
  • 2012 Federal budget: $3,820,000,000,000
  • 2012 New debt: $1,352,000,000,000
  • National debt: $16,350,000,000,000
  • Interest paid on National Debt in 2012: $220,000,000,000
  • Proposed 2013 sequestration spending cuts: $ 85,000,000,000

Next, let’s drop a whole bunch of zeros from those figures to make the federal government’s ledger look at least little more like a typical household’s finances:

  • 2012 Household income: $24,680
  • 2012 Household expenditures: $38,200
  • 2012 Credit card debt: $13,520
  • Outstanding balance on the credit card: $163,500
  • Annual interest on credit card debt: $2,200
  • Proposed 2013 spending cuts: $850

The figures reveal a dire situation. A financially responsible individual who found himself in a similar situation would drastically cut his spending while looking for ways to increase revenue.

Our politicians insist that’s exactly what they’re doing but, as you can see from the proposed spending cuts, they’re really just going through the motions, financing the nation’s obligations in the same way any financially irresponsible individual would — by taking on even more debt through the selling of US Treasury bonds.

It’s a practice that’s essentially no different than using a VISA card to pay the MasterCard bill.

The Illusion Is Unraveling

The problem is, using one credit card to pay another credit card bill only works for so long. As long as a debt addict can continue to find lenders who are willing to extend additional credit, the game can continue. But once the pool of lenders dries up, the game is over.

No, I can’t say exactly when this will happen. But it’s coming, folks — and when it does, middle-class America’s way of life will undergo a catastrophic change that will dramatically drop their standard of living forever more.

Until recently, the United States’ profligate spending wasn’t much of an issue. For years, plenty of investors — both foreign and domestic — have willingly parked a portion of their money into the perceived safety of America’s bonds. But over the long march of time, the dollar’s standing has seriously deteriorated and, as a result, foreign nations are becoming increasingly reluctant to buy US Treasury bonds because, thanks to the Fed’s near-zero interest rate policy, the risks are no longer worth the reward.

Normally, depressed demand for bonds results in higher interest rates, but so far the Fed has managed to keep bond demand artificially inflated via their quantitative easing campaigns. And the Fed is keeping US Treasury bond rates as low as possible now because interest payments on the National Debt already consume roughly 10% of annual revenue. If US Treasury bond rates increased to merely 5%, America would be forking over one-third of its annual revenue just to satisfy the interest on its $16.5 trillion National Debt; it would also be increasing its annual deficit by more than $800 billion.

The Beginning of “the End”

Although they won’t admit it, the Fed backed itself into a corner with its reckless easy-money policy. They know that once the money-printing party stops, interest rates will have to rise — and then the bond market will almost certainly crash. If that happens, things are going to get very interesting. For example:

  • As bond rates rise, mortgage interest rates will naturally follow them upwards. And since higher mortgage rates ultimately result in higher house payments for a given size loan, it follows that home prices will have to drop in order to keep them affordable — and the decline could be devastating.
  • The cost of borrowing will also go up for everyone else including small businesses, corporations, and state and local governments.
  • The stock market should fall as higher interest rates hurt economic growth and hurt stocks’ value.

Once interest rates start rising, a vicious cycle can ensue as higher interest rates beget larger deficits, which in turn lead to still higher interest rates. As the debt piles up, and the faith in the US dollar continues to diminish, the US will eventually reach its day of reckoning. The US will then be faced with two very unpleasant choices for solving the crisis: print away the debt or default.

Default would lead to the loss of the US dollar’s standing as the world’s reserve currency which would, among other things, cause the price of imports to skyrocket. Consumers’ purchasing power would plummet, and the government would be forced to severely cut back on its spending since it would no longer be able to finance its deficits. However, this is politically untenable.

So the more-likely alternative is that the Fed will simply print away the debt. That would result in hyperinflation as the last vestiges of the dollar’s utility as a reliable store-of-wealth all but disappeared.

What Will Economic Collapse Look Like?

While I don’t expect a Zombie Apocalypse resulting from either scenario, temporary supply disruptions caused by market uncertainties will be inevitable — and that will lead to empty supermarket shelves, fuel shortages and, possibly, utility failures that will almost certainly result in civil unrest and increased crime in more densely populated areas.

The good news is a new (hopefully gold-backed) currency will be issued and society will slowly recover. Eventually. I’m hoping it will take no more than six months before the supply chain recovers enough to eliminate most shortages.

Thankfully, tangible assets won’t go up in smoke after the economy resets; your home, automobile, and other possessions will be unaffected.

More good news: Any long-term debt you hold in old US dollars will essentially be wiped out because you should be able to retire it with worthless currency. It’s why I no longer bother trying to pay down my mortgage early.

Even so, things will never be the same for most people.

Although it’s anybody’s guess, I believe Americans will be lucky if their post-collapse standard-of-living will be equivalent to half of what it is now; worst case, one-third. That ain’t so bad if you earn $1 million per year but, if my assumption is correct, and you earn $60,000 annually, then your post-collapse standard-of-living will be between $20,000 and $30,000 today.

The ensuing economic collapse won’t be the end of the world, but it’s going to be a wild ride. Next, I’ll share some tips on how to survive an economic collapse, and get out relatively unharmed.

Photo Credit: Koshy Koshy

Comments

    • 2

      Len Penzo says

      Oh they will … the big question is when. China has been quietly building its gold reserves for the past 5 years or so. I guarantee you prices will skyrocket if the Chinese announce a gold-backed currency and as a result the US dollar loses reserve status, or the petrodollar paradigm (where all oil is currently only traded in US dollars) is abandoned.

      • 3

        bob says

        If its only about risk and not about the morality and benefits to America of their supposed sacrifice then we should all thank taxi drivers and skate boarders for their service due to the risks associated with their professions. The US Military is just a very expensive social program that benefits both businesses and military families, but because they wear flags and sing anthems good people are tricked into believing its all done for their benefit.

        • 4

          Len Penzo says

          You’re still conflating two separate issues, bob. I can’t help you if you can’t recognize that.

          I’m curious about your animosity towards the military. National defense is one of the few Constitutionally authorized powers of the federal government. That being said, have we overstepped our bounds over the past few decades? Absolutely. Even so, spending has historically been around 5% of the GDP — a level at which it maintains to this day.

          The vast majority of the spending by our federal government — the spending that is REALLY bankrupting us — is on things NOT authorized by the Constitution: social entitlements and countless numbers of ridiculous government bureaucracies answerable to nobody, like the EPA.

          As for the budget: 19% goes to defense; 22% to social security; 21% to medicare and medicaid; and 12% to other safety net programs.

          http://www.cbpp.org/cms/?fa=view&id=1258

          I have news for you — without our large military, we wouldn’t be able to maintain the petrodollar. Without the petrodollar, we couldn’t have Obamacare and all of those other expensive social benefits from the federal government that the people keep voting themselves — the same ones that are now consuming 55% of the current budget.

          Instead of the men and women of our military, who have nothing to do with the mess we’re in, why not focus your derision at an electorate that keeps voting for federal politicians who promise them endless “free” bread and circuses?

    • 5

      Frank Love says

      Although the scenario this story paint’s, sounds great, many, many factors simply were glazed over.

      90,000,000 Not in the Work Force
      50,000,000 Food Stamp Recipients
      45,000,000 Americans Addicted to Drugs
      6,000,000 Unemployment Recipients
      5,000,000 Welfare Recipients

      I am leaving out 10,000,000’s of Millions Gang Members, Mafia’s Corrupt people etc…etc…

      From the beginning of the financial collapse 200,000,000 Americans will be Totally devastated by Day-5

      And it’ll get worse with each passing week

      FEMA was a No-Go in New Orleans during Katrina
      FEMA was virtually useless in Hurricane Sandy

      DHS has a “Recovery Plan” that involves 2,000,000,000 (2 Billion) Bullets and 3,000 MRAP Wheeled Tanks

      When the USD Collapses, the Global Economy will Collapse simultaneously.

      All of these things will create huge “Voids”. Void’s that will be filled by the greater force. This force is often “Not Civilian friendly”

      I have been the “Army of Occupation” several times. I have seen first hand the atrocities, that most people will not………survive.

      By the end of this coming Total Collapse, I expect upwards of 150,000,000 American will “Not Survive”.

      Another 100,000,000 American will be Permanently Disabled, Terminally ill, Too old to be effective in a recovery, etc…

      ***** PREPARE — NOW! *****

      Here is some of my 1st hand experience:
      Army – Tours:
      1990-1991 – IRAQ – Desert Storm
      1992-1993 – South Korea – DMZ
      1994-1995 – U.N. Mission in Haiti
      1996-1998 – IFOR/SFOR

      • 6

        Len Penzo says

        First off, thank you for your service to our country, Frank.

        Although I am fully aware of the other pitiful stats you mention, I remain optimistic that things won’t get that bad — at least not for too long. I do believe we will have relative chaos for a few weeks early on, but not forever. That would imply a total and permanent breakdown of society — and I just don’t buy it.

        If you are right, then God help us.

        • 7

          bob says

          Only in America is ignorance and stupidity no longer considered a vice. Point being, while talking about the coming collapse of America you thank someone for volunteering to fight in multiple overseas conflicts that played a large role in bankrupting this country. Now lets thank the bankers and politicians for their service.

          • 8

            Len Penzo says

            Really, bob? Really?

            You’re conflating Frank’s selfless and noble decision to put his life on the line and serve his country with despicable decisions being made by the politicians and bankers to bankrupt our nation (from the safety of their ivory towers, no less). Unbelievable.

            Apparently, you don’t see that.

            Talk about ignorance and stupidity.

      • 9

        harry says

        I am a awake american with a young daughter who just is trying to prepare for the shit thats coming our way! Should i pay my mortgage or just forget it and put that money on buying a pull behind camper and roll where i need to go? If you could give me some advice this patriot would appreciate it since i live in liberal hell whole in maryland but on eastern shore which is more farm country.

  1. 10

    Olivia says

    I appreciate your clear headed presentation about the effects of QE. Your example of a family budget mirroring the federal budget was particularly helpful. Price increases are something we cash only grocery shoppers notice all the time. According to BLS the average worker makes $45,230. We don’t make any where near $60,000 a year either, so I anticipate a very “wild ride”. I’m planning on adding to our raised beds this spring. Looking forward to your suggestions.

    • 11

      Len Penzo says

      If you believe the government’s numbers, Olivia, inflation is tame … tame they tell you! ;-)

      But the main gauge of inflation is constantly manipulated to hide inflation; in fact it actually excludes the things we depend on most to get by in our daily lives: food and energy! Why? Because they want to keep people in the dark with respect to the blatant theft they are foisting on everybody through inflation.

  2. 12

    Rick Kacel says

    Len, It seems that many people I know agree with you (and my wife and I) that there is an economic crash coming soon. But when I have tried to see what they a doing to plan for it, they all seem to shrug and ask what can you do? We have done a lot of thinking on this and have try to look ahead at what we are going to need to get through it. But it just seems to come up short and we still feel we are have more to do and quickly. So we look forward to your next posts. And I hope there is some good solid suggestions. I would almost like to start a blog on what people should be doing now to soften the impact of the certain economic collapse to come. Do you know of any blogs that are doing that? It seems like it is really needed. I bet a lot of people will offer suggestions to you. Thanks for your site. We love it. Nothing better than a clear thinking engineer.

    • 13

      Len Penzo says

      Rick, there are lots of great blogs out there that shine a light on the trouble with our financial system and how to protect yourself.

      Three of my favorites are:

      The Schiff Report – (YouTube.) There is a wealth of free information here from Peter. Schiff called the crash of 2008, and knows what he is talking about. He always gives lots of great advice, usually in easy to understand language.

      ZeroHedge — (Blog.) It’s one of my favorite financial sites. You occasionally have to separate a little noise from the main message, but that’s easy to do. It does a great job pointing out and explaining the folly of our financial system and the systemic problems that plague it. Sometimes it gets fairly technical, but stick with it, and you’ll learn. The comments are usually a riot too. (I often learn as much from many of ZH’s regular commenters as I do from the articles.)

      The Peter Schiff Radio Show — (Podcast.) There is a fee for Peter’s premium content, but you can listen for free on weekdays between 10 and noon.

      Of course, then there’s my blog. I am going to start covering this topic at least once or twice a month. There is a lot of info to mine, and I have things I want to share with you on this subject because I feel I owe it to my readers –especially since I have a personal finance blog. I would be remiss to NOT discuss it. (Even if it makes me look like a nut in some people’s eyes.) :-)

      • 14

        Kyle says

        Len
        I just stumbled upon your website last week and have read probably 75 articles. I have enjoyed all of them. Now I find out you are a Peter Schiff fan and I like you even more! You have gained another reader for sure!

        • 15

          Len Penzo says

          Awesome, Kyle! Thanks for reading. I love Peter Schiff too — er, like a brother. Lord knows for years now he has been trying to warn anyone who will listen that our massive government and the cost of supporting it is completely unsustainable, but our politicians refuse to listen.

    • 16

      Volfram says

      Get out of debt, stock up on barter goods(non-perishables, gold coins and jewelry, a lot of people including myself are fans of bullets, possibly some Bitcoin), make the acquaintance of or become someone who already has a long-term plan for self-sufficiency, with the eye on offering them some labor in exchange for housing and food.

      There’s no need to panic. Just prepare your Plan B, and then when it becomes necessary, enact it.

      • 17

        Len Penzo says

        I’m still not convinced about Bitcoin, Volfram. But my mind isn’t made up yet. I just need to think about it a, um, bit more (dang, no pun intended). I like all of your other suggestions!

    • 18

      josh says

      There are a ton of sites dedicated to “prepping” for what is to come. One of my favorites that helped me greatly when I started prepping is “preparing your family”
      http://preparingyourfamily.com/

      He has articles on every topic from food storage, to bee keeping, to gun stockpiling, to building a cabin in the woods. A lot of common sense info. His food storage advice is invaluable to someone who is just starting to realize the shelves will be empty sometime in our future.

  3. 19

    says

    I’m breathing better now that you’ve assured me there will be no zombie apocalypse. The cycle you discuss, I think, is well underway. We’re on the escalator down now and most people are pretty oblivious.

    • 20

      Len Penzo says

      Most folks are oblivious. Then there are those who are in denial — or think I am a nut. I’ve talked to several folks who don’t want to hear it; no matter how simply I try to explain things, they can’t conceive of a dollar collapse ever happening here in the United States. They just think we can continue to run up these debts and grow government for ever and ever with zero consequences.

        • 22

          Len Penzo says

          Yep. And that’s because certain leaders and politicians eventually get in charge who realize they can stay in power by simply making promises that require robbing the Treasury. But a currency backed by a sacrosanct gold standard would go a long way toward preventing those urges from ever being acted upon, Mindimoo.

  4. 23

    Peter says

    I found it interesting to read Debt: The first 5000 years, a good book on the history of debt, loans, and currency. One interesting point made in the book is that when the US went off of the gold standard in the 70s, we held large gold reserves, along with other well off nations. Poorer ones, on the other hand, held US bills, assuming they were as good as gold. The shift effectively inflated the value of our gold reserves, and deflated the value of poorer countries Dollar reserves.

    • 24

      Len Penzo says

      Exactly, Peter. The real coup, however, was the US convincing Saudi Arabia and then OPEC to agree to the petrodollar paradigm that requires all oil to be traded in only one currency: US dollars. That agreement greatly expanded the world’s demand for US dollars, and as a result — that is what has insulated us from the problems that all other nations encounter when running up massive debt.

  5. 27

    says

    I’d make one change to your treatise: Instead of blaming politicians, I’d blame the people responsible (US electorate) for putting the same people from the same parties with the same ideas (none) in the same jobs election after election.

    • 28

      says

      @KURT — I agree. Our politicians are a reflection of us, the people who vote and the companies that we support. And we’re so responsive to distracting hot-button issues that most people don’t cast votes related to the whole picture.

  6. 29

    Michael in SoCal says

    Great post Len.

    To take a quote from Ferris Bueller’s Day Off, “I weep for the future.”

    Looking forward to more reading on what options we have for softening the crash that’s surely heading our direction.

    • 30

      Len Penzo says

      I do too. If economic collapse is truly inevitable, I actually hope it will happen sooner rather than later and, especially, before my kids get out of school. That way I can shelter them somewhat from the storm and they can avoid the massive savings and nest egg losses that most unprepared Americans will surely be experiencing.

      Assuming there really is no way out from this, the sooner we reset, the sooner we can work on rebuilding and getting our economy back on track. But the piper has to first be paid, and it is going to hurt. A lot.

      Stay tuned, Michael.

  7. 31

    Georgia says

    Thank you for such interesting and informative articles. It’s much appreciated! I would like to get your opinion on something: since I was a kid (I’m 50ish) now, my father bought me savings bonds. They’re now worth about 70k (or more). I haven’t cashed them because of the “save, save, save” philosophy ingrained in me from having Depression-era parents. Of course these bonds will be worthless in an economic collapse. What is a good investment for a large amount of cash. I already own 2 rental houses and another house on acreage, so paying off a mortgage is a non-issue. Thanks!

    • 32

      Len Penzo says

      Hi, Georgia. I don’t give investment advice … however, if you read some of my recent posts you may be able to glean the type of investments you might want to consider.

      In general, useful, tangible assets are one way to protect yourself from economic collapse.

      Peter Schiff offers lots of advice on what you should do to protect yourself. Check out his websites I linked to in one of the earlier comments. He recommends things like investing in gold, silver, and investments overseas.

    • 34

      Len Penzo says

      Unfortunately, Caesar, unless we get politicians in office who believe in a much smaller federal government — not a bigger one that is responsible for taking care of us from cradle to grave — I see little hope.

      Keep in mind, we don’t have to eliminate the debt. We just need to keep it at a manageable level. Economic growth is a great elixir for that — but we need the right policies in place to encourage an expanding economy. So far, that ain’t happening.

  8. 35

    says

    I don’t believe the Gold Standard is practical any more, since the global GDPs vastly exceed the world’s gold reserves. Sure, you could argue that inflation would have been held in check or that gold would be worth $10,000 per ounce if America was still on the gold standard. But, the reality is the world’s economies have grown too large to be limited by the amount of gold and other shiny metals that exist. We need a new global monetary standard that:

    1) Limits governments from printing money at will
    2) Discourages currency manipulation for exports
    3) Doesn’t limit growth and expansion of economies
    4) Works in the digital age of the future

    Disclosure: I’m not an economist. The depth of my experience comes from an economics class in community college. However, I am smart enough to realize most of our government economists are simply professional misleaders.

    • 36

      Len Penzo says

      Actually, Bret, the world’s collective GDP is irrelevant. What is stopping a nation from tying the printing of its currency to some proportion of gold on hand in the treasury vault — which would be audited annually?

      A new global monetary standard would be disastrous because, to be be effective, monetary policies must agree with a population’s values. The Euro is a perfect example of why one-world currency would never work: the work ethic and values of the Northern European states are at odds with those of the South.

      But I will argue that gold and silver meet all four of your criteria. :-)

      The only way a one-world currency will work is if there is a one-world government.

      • 37

        says

        Len,

        I’m definitely not for a global currency. I’m just for a global monetary standard. In other words, the central banks watch for currency manipulations and over-printing and adjust the exchange rates accordingly. There is no way I would want to share the same currency with countries that don’t want to work. That would be disasterous.

        Since our U.S. dollar is the current global standard, we need to be much more careful with our finances, so we don’t get bounced, like the pound.

  9. 38

    Spedie says

    Len Please explain the following statement..

    “More good news: Any long-term debt you hold in old US dollars will essentially be wiped out because you should be able to retire it with worthless currency. It’s why I no longer bother trying to pay down my mortgage early.”

    I am paying my mortgage off early (my only debt). Please explain why I could take that money and do better with gold/silver/emergency supplies now or in the immediate future in light of this statement.

    I am in a fixed rate loan. Would not the selfish bankers just convert the debt on my house to a new standard?

    I do not understand this.

    Spedie

    • 39

      Len Penzo says

      You should always do what you are most comfortable with, Spedie. As far as i am concerned, paying off the mortgage early is never a losing bet. I used to feel that way; I paid $100,000 in extra principal payments between 1997 and 2009. You can even check the archives for one of my old posts extolling the virtues of paying off the mortgage early! Then I reevaluated our government’s commitment to protecting our currency, saw that they had no interest in doing so, and reconsidered my position. That being said …

      In a high- or hyper-inflationary environment, the key will be staying employed. If they want to keep their employees, most employers will have no choice but to hand out big raises two or three times per year — of course, for the most part you may only be able to keep pace with cost of living as food and energy prices climb, but over time that fixed rate mortgage is quickly going to take up a smaller and smaller percentage of your income. So as long as you can manage to set aside some of that rising income to pay off your fixed-rate mortgage sooner, you’ll be able to pay off your loan fairly quickly and the banks will be the big losers.

      Can the bankers change the terms of the mortgage contract? I don’t see how they could, unless there was a clause in the contract that called for a conversion in the event of a dollar collapse.

      The fact that the lender failed to charge enough interest to account for hyperinflation is the risk they took when they handed out your fixed-rate loan! ;-)

      • 40

        josh says

        This is why it is wise to buy physical gold and silver now. Sell a small amount after hyperinflation hits and pay off the mortgage. Or wait until PM’s are in a bubble during an inflation crisis then sell the PM’s for physical real estate. This is Mike Maloney’s plan. Real estate prices should drop during an inflationary crisis.

    • 41

      says

      Spedie-

      Think about it like this…

      In 1950, $10,000 was a lot of money.
      In 2012, $10,000 is not a lot of money.

      It’s much easier to pay off $10,000 now versus if you paid it off in 1950’s dollars.

      If there’s one thing that inflation benefits, it’s people (or governments) with a lot of debt.

    • 44

      Len Penzo says

      Here are the figures from 1950-80, Lance — direct from my spreadsheet. As you can see, the debt was very stable until 1967. Then the Vietnam War and LBJ’s War on Poverty began to strain the US’s ability to stick to the gold standard. By 1971, US spending forced Nixon to abandon the gold standard.

      Debt $B Year

      0.257 1950
      0.255 1951
      0.259 1952
      0.266 1953
      0.271 1954
      0.274 1955
      0.272 1956
      0.270 1957
      0.276 1958
      0.284 1959
      0.286 1960
      0.288 1961
      0.298 1962
      0.305 1963
      0.311 1964
      0.317 1965
      0.319 1966
      0.326 1967
      0.347 1968
      0.353 1969
      0.370 1970
      0.398 1971
      0.427 1972
      0.458 1973
      0.475 1974
      0.533 1975
      0.620 1976
      0.699 1977
      0.771 1978
      0.826 1979
      0.907 1980

  10. 46

    says

    In our household, we have quite a hard time to heat our New England home. Oil prices are being inflated month after month. I don’t see any end to it this winter season.

    Prices at the gas station have increased as well. The national average is reaching the $4 mark.

  11. 47

    KIM says

    I suppose we all look like nuts. There are those that are socking all their cash into strong, reliable dividend payers, those that are paying off their mortgages, those that are hoarding cash, those that are building up a physical gold supply, those that are arming themselves with seeds and guns…. (oh, and those that are still buying lattes and Gucci, but they don’t read Len because they need time to get their nails done).

    Minus the seeds and guns–I’ve been doing it all. It’s been difficult to navigate, given the naysayers that are celebrating in the current stock market highs. They are the real nuts! I like tangible things that I own outright best. Yes, paying off the mortgage is dumb knowing that it will cost a pittance soon enough. But, it’s the security of owning it and not caring that the value will most likely crash again before hyperinflation can save it. I have pretty good job security but I am trying to attain iron fortified “brick house” with metal bars security if I can help it, with or without my current employment. I’ve been paid very well for a long time and thankfully had the wherewithal to be able to save most of it. My cash and hard asset hoard will cover a good amount of time (factoring in estimated hellish inflation). My 2 properties will do me well after the storm. What I do know is that when all is said and done, it can only get better. Our government will finally have to abide by the principals our forefathers intended and set forth.

    • 49

      Len Penzo says

      Ultimately, you have to make your own decisions, Joe. It all depends on whether you are looking to preserve your wealth or chase returns. Of course, precious metals will protect the purchasing power of the wealth you have already earned. I do not look at silver and gold as an investment; as far as I am concerned you DON’T buy precious metals to earn returns. If you’re looking for returns, that is a bit more complicated but there are plenty of options, some of them more creative — if not less conventional — than others. A lot of financial gurus who I respect recommend looking at overseas investments.

  12. 50

    says

    Len, I have seen exactly what you are describing and your picture is fairly accurate. This is pretty much what happened in Central and Eastern Europe in the early 90s. My Dad had saved money for an apartment for me – within a year this was enough for three ice-creams (and from a street vendor at that). About a year ago, I wrote an article on TMP where I said that it is time people stop fixating on their debt but to start worrying about their saving – while you are right that debt gets wiped out the same happens to savings.

    I have also been think about surviving this kind of catastrophic event; honestly, given that we should expect a reversion to barter economy at least fro some time, I have absolutely no idea whether and how someone like me will survive – the time when poets and story tellers stood on street corners and got coins for their gift is long gone. Better be off to brush up on some more practical skills.

    • 51

      Len Penzo says

      Yeah, it will all get wiped out. Savings and debt. Unfortunately, in the end it is the debtors who will end up being rewarded and the responsible people who have scrimped, saved, and sacrificed and lived within our means in order to build up our savings who end up the biggest losers.

      When and if economic collapse finally happens, there will be a lot of justifiably angry people out there looking for “those responsible” after they realize they’ve been robbed of their life’s savings.

      The good news is, those who prepare, can still come out fairly well. More on this later…

      • 52

        josh says

        An interesting fact.
        After the collapse in the Soviet Union many people were able to py off there mortgages just as you describe.
        However, most people were so poor and so in need by the end of the collapse that they took out new loans on the houses in order to get by.
        The trick is to store up enough now to be self suficient as possible, food, household items etc . . . as well as gold and silver. When the dust settles it might be possible to be better off then you were in the beginning. But it takes a lot of prepping.

  13. 56

    says

    Awesome article. I agree with most of what you said, and I wish more financial blogs talked about this. It is obvious the US cannot dig their way out of this hole.

    The only thing is I don’t think we can count on a currency collapse to erase or pay off our debt. The powers that be are way too smart to allow that happen. I doubt they will allow millions of debtors to pay off their debt with de-valuated currency.

    In Mexico when their currency was devalued they simply made everyone turn in their peso’s right away, and re-issued new currency that was worth 10% of the old. You could not pay off your debt with the old currency, only with the new. I could see the US doing this.

    Hopefully things don’t get that bad, but it never hurts to prepare. Very well written article. Thanks so much.

    • 57

      Len Penzo says

      Thanks, Melinda. With all due respect, let me just say that the US is not Mexico. I’m certain that if the US government is allowed to pay off its debts via hyperinflation and currency collapse, then the citizens will be allowed to as well. I am confident the rule of law will ultimately prevail — one way or another. Unless there is a “currency collapse” clause in the mortgage terms, the lenders will not be allowed to change the terms of a binding contract. :-)

  14. 58

    Steven Quinlan says

    Well that was a little terrifying.

    Now I desperately want to see what the UK version is like

  15. 59

    says

    Great post. I think this will happen sometime in the future. It’s already happening all across western europe with the almost economic collapse of EU. The fact is the Fed is too powerful. Giving a group of individuals the power to print money is too dangerous for anybody. That immense power can corrupt anybody and we are going to start to see consequences in our society. But, I hope you are wrong. The question is how do we prepare?

  16. 60

    says

    I agree with many of your points, as someone who believes in paying cash and in austerity, I believe something has to give and the federal debt can’t go on forever.

    But in order for this scenario to play out I think the US creditors have to stop lending to us. The only way we have been able to get away with this huge debt is because of our creditors who can’t find other places to place their money, it seems.

    If for example China and Japan (our biggest creditors) keep giving us money, our government will continue to spend it. Will they stop the flow? and if they do stop lending, who will buy their goods?

    I do believe we need to fix out debt dependency though.

    • 61

      Len Penzo says

      Sylvia, compared to what it used to buy, China is now buying far fewer treasuries from the US. Japan has recently upped its buys, but overall, more and more Treasuries are being bought up by the Fed to pick up the slack left by waning foreign interest.

      • 62

        says

        You’re right. To support your point even further, China’s impending real estate bubble will eventually burst making it more likely that the Chinese government will redeem our bonds, not buy more.

        Just saw the 60 minutes piece on China’s huge real estate troubles.

  17. 63

    Paul N says

    Hi Len

    Thanks so much for answering my question. This is well thought out and detailed. I’m really looking forward to part 2.
    I too like listening to Mr. Schiff. If you can’t subscribe to his show, he has an app which has selections of his best moments. I do believe he needs to change the way he argues his points with other economists. I feel he would be taken more seriously if he showed more humility when he debates with others. Sometimes it looks like he is trying but slips into almost schoolyard like arguments which dilutes the points he is trying to make . It is the difference between him being good and exceptionally good. Patience Peter !

    Maybe you could also explain who gets/benefits from the interest payments on the national debt in part 2? I googled it found one interesting explanation but still not 100% sure. The government pays itself interest? Also other holders of their treasuries?

    Thanks again!

  18. 64

    Mary Ann says

    Where are the tips for making the economic collapse bearable? You mentioned you would have them this week…
    Thanks. Love your blog…

    • 65

      Len Penzo says

      Hi Mary Ann, I know. I’m running a bit behind schedule. Sorry for the delay. They’ll be posted on Monday, March 11.

Trackbacks

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>