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U.S. Economy Collapse

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Is the economy just rusting away?

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U.S. Economy Collapse

The U.S. economy nearly collapsed during the Depression.

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The economy came close to collapse in September 2008.

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What Is a U.S. Economy Collapse?:

A U.S. economic collapse is when when the economy no longer functions to provide the daily necessities. Any of the following scenarios could create an economic collapse. First, if the U.S. dollar rapidly loses value it would create hyperinflation. Second, a bank run could force banks to close or even go out of business, cutting off lending and even cash withdrawals. Third, the internet could become paralyzed with a super-virus, preventing emails and online transactions. Fourth, interstate trucking stops, thanks to parallel terrorist attacks or a massive oil embargo, and grocery stores would run out of food. In the worst case, the U.S. economy collapses due to widespread violence, like the Watts riots in the 60s, the Arab Spring uprisings in Egypt, or even a civil war.

When Was the U.S. Close to Economic Collapse?:

There were two times in modern U.S. history when the economy was close to collapse -- The Great Depression of 1929 and the 2008 financial crisis. During the Great Depression, at least 25% of the labor force lost their jobs. There was no Social Security or unemployment benefits, so they depended on soup lines to survive. Many families lost their farms thanks to the Dust Bowl, and packed all their belongings into trucks and headed to California. There, they lived in tent cities called Hoovervilles. Many others lost their life savings in the 1929 stock market crash, some even committing suicide as a result. Others couldn't get their money out of banks that closed on Friday, and opened on Monday to offer only ten cents on the dollar. It took a decade before the economy started functioning again.

The second time was recently, during the financial crisis. The U.S. was within weeks of economic collapse on September 17, 2008. That's the day that panicked investors withdrew a record $140 billion from money market accounts. This meant that banks were no longer lending to businesses, or each other, for even overnight loans. This short-term cash is what businesses rely on to fund day-to-day operations. If this panic had continued for even a week, trucks would stop rolling, grocery stores would run out of food, and businesses would shut down. For more, see September 2008 Run on Money Markets.

In this case, quick thinking by Ben Bernanke, Chairman of the U.S. Federal Reserve, and then Treasury Secretary Hank Paulson supplied the cash to keep banks afloat and stem the panic. Bernanke was an expert on the Great Depression, and happened to know exactly how to stem a run on the banks. Another person in his role might not have understood the situation, or known what to do. Paulson was a Wall Street veteran, and recognized what was happening in time to do something about it.

Most people don't realize how close the U.S. economy came to a real collapse -- or how vulnerable it is to another one.

If the U.S. Economy Collapses, What Will Happen?:

If the U.S. economy collapses, you will not have access to credit. Even cash will be devalued. This means high demand, and low supply, of food, gas and other necessities. If the collapse affects local governments and utilities, then water and electricity is no longer be available. As people panic, self-defense becomes more important. The economy quickly reverts to a traditional economy, where those who grow food barter for other services.

A U.S. economic collapse would create global panic. Demand for the dollar, and U.S. Treasuries, would plummet, sending interest rates skyrocketing. Investors would rush to other currencies, such as the yuan, euro, or even gold. This would create not just inflation, but hyperinflation as the dollar became dirt cheap.

How Can I Protect Myself from a U.S. Economy Collapse?:

It's difficult to completely protect yourself from a U.S. economic collapse because it can happen very quickly. In most catastrophes, people survive through their knowledge, wits and by helping each other out. Therefore, make sure you understand basic economic concepts so you can see warning signs of instability

Second, keep as many assets as liquid as possible, so you can withdraw them within a week, if needed. In addition to your regular job, make sure you have skills that are needed in a basic economy, such as farming, cooking or repair. Make sure your passport is current, and you know where you would go, in case you'd need to quickly leave the country. To be completely prepared, research target countries now and travel there on vacation so you are familiar with your destination.

Keep yourself in top physical shape, always a good idea anyway. Know basic survival skills, such as self-defense, foraging/hunting and farming. Practice now with camping trips. If you are really concerned, it might be best to move near a wildlife preserve in a temperate climate. That way, if a collapse occurs, you can live off the land in a relatively unpopulated area.

As for cash, it's almost pointless to have it in a real economic collapse because its value might be decimated. Gold isn't much help, either, because it's heavy to transport and fairly useless in a real survival situation. (You can't eat gold.) However, it would be good to have a stash of $20 bills and gold coins, just in case. During many crisis situations, these have been generally acceptable bribes when needed.

When Would the U.S. Economy Collapse?:

It's possible that a combination of events could overwhelm the government's ability to prevent or respond to a collapse. Others are convinced that the Federal Reserve, the President or an international conspiracy are driving the U.S. toward economic ruin. If that's the case, the economy can collapse in as little as a week. That's because it's basically run on confidence--that debts will be repaid, that food and gas will be available when you need it, that you'll get paid for this week's work. If a large enough piece of that stops for even several days, it creates a chain reaction that leads to a rapid collapse.

Will the U.S Economy Collapse?:

The U.S. economy is so large and resilient, it is highly unlikely that even these events could create a collapse. Hyperinflation is easily tamed by the Federal Reserve's contractionary monetary tools. The FDIC insures banks, and the Treasury can print all the money needed to make sure depositors get their funds. Homeland Security can address the cyber-threat. If not, eventually the economy can always return to how it functioned before the Internet. The Strategic Oil Reserves can be released to offset an oil embargo. The U.S. military can respond to a terrorist attack, transportation stoppage, or rioting/civil war. In other words, most Federal government programs are designed to prevent just such an economic collapse. (Article updated February 12, 2013)

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