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Will the U.S. Economy Collapse And How to Survive If It Does

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A reader asks:

Your article about the affect of China on the U.S. economy made me think about the rumors that the U.S. economy will collapse due to the extremely large national debt. Do you think it is going to happen? and if yes, do you think it would be wise to keep my savings in yuan, expecting its appreciation when the U.S. will eventually suffer its biggest recession ever?

I don't think the U.S. economy will collapse anytime soon thanks to all the programs in place designed just to prevent that event. For specifics, see U.S. Economic Collapse.

I especially don't think the U.S. debt would quickly cause a collapse. That's because all the foreign lenders to the U.S. have a vested interest in keeping U.S. Treasuries at a low cost.  Therefore, the U.S. could possibly run a much higher debt-GDP-ratio than it does now and still not face economic collapse.

A more likely consequence of high U.S. debt is a slow deterioration of economic growth, and a gradual devaluation of the dollar. This is, in fact, what we've experienced. That's because more and more Federal spending is going toward interest payments instead of economic stimulus. Similarly, more and more dollars are flooding the market to sustain this debt through expansive monetary policy such as Quantitative Easing. This puts downward pressure on the dollar's value.

What It Means to You

Although there are lots of programs in place to prevent U.S. economic collapse, if these are overpowered, then a collapse could happen within a matter of weeks. That's because the economy is based on confidence. If a large enough piece is stopped, then it will all fall apart quickly. A perfect example is the run on money markets on September 17, 2008.

What should you do to prepare for such an unlikely, though devastating, event? First, follow economic news and indicators so you recognize the warning signals. Second, get portable -- keep some assets liquid, and your passport current, so you can leave quickly if needed. Third, make sure you have some  survival skills, such as hunting, growing food, and basic self-defense.  Fourth, stay in great physical shape.

As to your point about collecting yuan, it's better to be diversified. China's economy will suffer, thanks to its reliance on exports, if the U.S. economy collapses. In addition, the yuan is pegged to the dollar (and some other currencies), so if the dollar collapses, so will the yuan. Since the dollar is accepted throughout the world, it's better to have some $20 bills, some loose change in gold, and some currencies that are free-floating. 

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