U.S. Economy Collapse: What Will Happen, How to Prepare

Your Survival Guide to an Economic Collapse

If the economy collapses, there won't even be food in the grocery store. Photo: andiepantz/Getty Images

When a U.S. economic collapse occurs, it will happen quickly. No one will predict it. That's because the signs of imminent collapse are difficult to see.

For example, the U.S. economy nearly collapsed on September 17, 2008. That's the day panicked investors withdrew a record $140 billion from money market accounts.  That's where businesses keep the cash to fund day-to-day operations. If withdrawals had gone on for even a week, the entire economy would have halted.

That meant 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.

Fortunately, the Federal Reserve Chairman and Treasury Secretary noticed the signal and knew what it meant. Ben Bernanke was an expert on the Great Depression, and Hank Paulson was a Wall Street veteran. Their bailout plan supplied enough cash to stop the panic. For more, see 2008 financial crisis.

Another example occurred during The Great Depression. On Thursday, October, the 1929 stock market crash began. By Tuesday, the market had lost 25%. Many investors lost their life savings that weekend. The Dow didn't recover until 1954. That's how close the U.S. economy came to a real collapse, and how vulnerable it is to another one.

What Will Happen If the US Economy Collapses?

If the U.S. economy collapses, you will not have access to credit.

Banks will close. That means high demand, and low supply, of food, gas and other necessities. If the collapse affects local governments and utilities, then water and electricity will 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.  Interest rates would skyrocket Investors would rush to other currencies, such as the yuan, euro, or even gold. It would create not just inflation, but hyperinflation as the dollar became dirt cheap.

When Would the U.S. Economy Collapse?

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 could be stopped, thanks to parallel terrorist attacks or a massive oil embargo. Grocery stores would soon run out of food.  The worst case would be widespread violence, like the Watts riots in the 1960s, a civil war, or a foreign military attack.It's possible that a combination of events could overwhelm the government's ability to prevent or respond to a collapse.

Others believe 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 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's size makes it resilient. It is highly unlikely that even these events could create a collapse. The Federal Reserve's contractionary monetary tools can tame hyperinflation.  The FDIC insures banks, and the Treasury can print all the money needed to make sure depositors get their funds. Homeland Security can address a 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. 

How to Prepare for a 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. For more, see What Not to Do in a Stock Market Crash.

Second, keep as many assets as liquid as possible, so you can withdraw them within a week. In addition to your regular job, make sure you have skills that you'd need in a traditional 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. Know basic survival skills, such as self-defense, foraging, hunting, and farming. Practice now with camping trips. If you can, 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 acceptable bribes when needed. 

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