|Top Ten Tips on How to Prepare for the Depression
||[Jul. 15th, 2010|05:00 pm]
|[||Tags|||||collapse, credit, crisis, debt, deflation, depression, economics, economy, food, prepare, recession, security, unemployment||]|
There are those who believe 100% that an economic depression is close at hand, others who think there is some other probability of it happening, those who believe it is very unlikely but possible, and final those who deny that it could happen.
For everyone, there are useful things to know, whether or not one thinks that the probability of an economic depression is high. For those that think it is impossible, knowing what others are thinking about is quite helpful.
Top Ten Tips on How to Prepare for the Depression
Once one accepts or believes that there is a probability of a depression, it is reasonable to do a few things to prepare oneself and one's family for the challenges ahead. This is prudent in the same way that having homeowner's insurance is prudent. It is wise in the same way that preparing for an approaching hurricane is wise.
Below is a list of the top ten things to do in order to prepare for the Depression.
Minimize Expenses -- Losing wages or even one's job is devastating enough without then facing a mountain of bills that must be paid. The most essential bills are the ones that can be put off for the shortest amount of time. Some of the biggest concerns are: food, mortgage payment, property tax, heat, water, electricity, home insurance, gasoline, other transportation expenses, and medical insurance. By minimizing expenses, one sets oneself up for the possibility of less income.
Get Out of Debt -- Debt is an expense that stretches into the future and may be impossible to reduce. Some debts, such as those with credit cards, loans, and adjustable rate mortgages, can actually grow in the future; at the same time that the amount of income in one's family is shrinking. Getting out of such debt, in whatever ways possible, takes away much of the uncertainty about whether those debts can be serviced. While some debts vanish or can be erased, there are others that are sold to collection agencies. Being on a collector's list is generally seen as quite undesirable, and may be even more so in the future.
Be Food Secure -- In a depression, food from the store can become unaffordable, and sometimes, unavailable. Growing one's own food, not just a token garden producing a few tomatoes, but growing close to as much as is consumed by the household, is essential. If it impossible to be food secure where one lives, then one should look around for a place that one could move, where one could become food secure. Keep in mind that being part of one's community is a factor in being food secure. Having a very well stocked pantry is one aspect of food security. Knowing how to store or "put up" food is also critical.
Make Friends -- Tough times impact everyone, and very few are able to do everything for themselves. Having friends, many friends, close friends, trusting friends, this allows getting help from many places, and opportunities for helping and building social capital. Being safe also means being friends with one's neighbors. Working together, a group of people, particularly a large group of people, and overcome challenges that would be overwhelming or impossible.
Prepare Alternate Income Streams -- There are some expenses that one will not, or can not, eliminate. Many would very much like to keep living right where they are living. This means that enough income must come in to pay for home expenses. Consider what will others need to purchase during the depression. These are the same products that one would need to obtain for oneself. Which of these essential products might one provide to the community?
Hold Cash -- In depressions, people and businesses often refuse to accept checks, and certainly can not accept maxed out credit cards. Holding cash, real live physical coins and bills, provides real purchasing power for buying those essentials. Cash is more valuable than stocks, bonds, mutual funds, or practically any other non-tangible asset. During deflation, the same amount of cash often can buy more.
Be Skeptical of Banks -- Keep in mind that money in the bank is not the same as cash. A bank account is simply a liability of the bank to the account holder. No bank has even 10% of the cash in their vault compared to their debts to their account holders. Despite with the government might say, there is no realistic guarantee that cash will be in the bank drawers or ATMs when one requests it. There is no guarantee or that the bank (or even banking system) will be open. Also, keep in mind that banks have per-day withdrawal limits. Some banks and credit unions limit cash withdrawals to $10,000 per day, but most banks have much lower limits, perhaps as low as $500 per day. In any case, if one desires bills of certain denominations, banks may be completely unable or unwilling to oblige, especially on short notice.
Depressions are tough times, but they do not have to be quite as tough if one prepares in advance, and keeps their wits about them.
Footnote: Why the Depression is Happening
This article is not specifically about the "why" the depression might happen, or is happening. There are amble persons who have written about this on the Internet and elsewhere. For this author, a logical argument is most persuasive. For one's who are logical and/or mathematically minded, the following source may be quite compelling and convincing.
These two audio files, running nearly three hours together, were recorded in June 2010. The presenter is Mrs. Nicole Foss, a.k.a. Stoneleigh of "The Automatic Earth" blog, and formerly of "The Oil Drum" Canada. The two audio files above are most highly recommended. For those unfamiliar with "peak oil", skipping ahead to 16 min 30 sec might be appropriate.
In summary, why the depression is happening is because practically everyone, including businesses and public entities, rely on credit to pay the bills.
At the moment, the total available credit is shrinking. Available credit depends on debt being paid on time. Debt is simply credit after it is used. Currently, payments are not being made on time. Credit is contracting rapidly, much more quickly than other money is being created. This is a self reinforcing situation where the less credit there is, then the less debt is paid off, and then the less credit there is again. Credit is money, and what shrinking credit means, is less and less money, which leads to less total sales for businesses, which leads to wage cuts and job cuts, which only exacerbates the situation.
Links to What Others are Thinking on Preparing for the Depression
(Note: The author of the article above does not necessarily agree with all of the opinions or suggestions below. These links are provided as additional ideas regarding what will be helpful in preparing for the Depression.)