Unless you have your head in the sand or you’re busy watching Jersey Shore you know the instability the world is in right now.
I’m expecting an economic 9/11 to happen here in America. Could I be wrong? Sure, but I don’t think I am. Look around. Read between the lines. Something’s going on.
Of course, I don’t know when it’s gonna happen but for a lot of families it already has.
In these next couple of posts I’m gonna discuss how I’m financially, practically, physically, and spiritually preparing for economic hard times that seem to be just around the corner.
This post is how I am financially preparing for an economic 9/11 and will mainly discuss my opinion on the importance of being debt-free. But first a lousy lesson in economics:
Hyperinflation or Deflation?
From what I hear we’re either headed for hyperinflation or a deflationary depression.
World-renowned economists like Marc Faber and Nicole Foss can’t agree on which one will happen because in the end, both of these situations are dependent on human behavior and as we all know human behavior is totally unpredictable. Yay humans!
Still though, I’ve been trying my hardest to learn about both of these monetary phenomena because while both are horrible realities, they are different.
Hyperinflation is the more destructive of the two and is especially scary because it seems it can happen almost instantaneously. Before you know it, a loaf of bread is $12 and then continues to rise to $20, $30 and up and up never stopping. This will happen because the value of the dollar will be rendered worthless. But strangely in a hyperinflationary scenario, debts are essentially wiped out. So, if hyperinflation hit our country, having alternative food sources would still be wise but paying your debts would be the last thing on your mind (considering a loaf of bread could very well cost thousands of dollars).
If you have time, you can research hyperinflation in Germany’s Weimar Republic and Zimbabwe to learn more.
A deflationary depression, however is different; the price of goods and services drops. So, while inflation reduces the value of money over time, deflation increases the value of money over time. If you’re debt-free, you’ll essentially have a lot more purchasing power (if you can actually keep a job and if you can actually get your hands on cash, that is). But if you are indebted, you’re gonna be in a world of hurt. The payments you’ll have to make on your loans are going to “represent a larger amount of purchasing power than they did when the debt was first incurred” (Wikipedia). Deflation benefits savers with liquid assets but negatively impacts borrowers.
For some reason, I find myself agreeing with Nicole Foss and think we soon experience an economic deflationary depression.
Foss believes that hyperinflation will become a reality but only after we are so deep into a depression, that the effects of hyperinflation won’t really matter at that point. Add even more insult to injury, Foss believes the coming Depression will be worse than the Great Depression of the 30’s. Wayyy worse:
We have a very long way to fall, and the deleveraging process is likely to play out over several years. During this time we can expect to be mired in a worse depression than the 1930s, as the excesses that led to our current situation are far worse by every measure than were those of the Roaring Twenties. Unfortunately, we are much less prepared to face such an occurrence than were our grandparents. Our expectations are far higher, our knowledge and skill base is much less appropriate, we are far less self-sufficient and we have a structural dependency on cheap energy. This will be a very painful time.
How I’m Personally Preparing
While a hyperinflation scenario benefits debtors like myself, I am not taking the chance and ‘hoping’ that that scenario becomes reality.
Me and my husband are attacking our debt as fast as we can because if we experience a depression, which I think we will, ‘ your debt will be like a millstone around your neck.’ Its gonna bring you down during the worst possible time…
It’s been hell getting rid of our debt (especially on one income) but we have made great progress:
Since 2008, we’ve paid off $43k in consumer debt. In the beginning we weren’t very serious and I was ‘doing the budget.’ Since then my husband has taken over the finances and we have made great headway.
The $43k included car loans, credit cards, personal loans, my husband’s student loans and some of my student loans. We still have $18k left to pay on the rest of my student loans. We expect to have it all paid off in December 2012.
We’ve been on the Dave Ramsey Debt Snowball Plan and Envelope System. It’s worked wonders.
We also decided to get out from under our mortgage. We are trying to short-sell our house now and in the meantime we are renting it out.
Basically, we are living as frugally as possible, selling or donating things we don’t want or need.
We’ve attempted to create another stream of income in case the hubs loses his job but nothing has come to fruition yet.
After we are debt-free and have an emergency fund, we hope to save for a small homestead (that will be paid in full) where most of our needs are met in a self-sufficient manner.
Not sure how far we will get with this but the ultimate goal is to produce most our necessities ourselves (food, water, electricity, shelter, etc) so we can have cash for the things we cannot produce ourselves (shoes, tools, fabric, transportation, electronics, firearms etc.)
Once we’re debt-free we’d also like to invest in a typical diversified portfolio including gold and silver. I’m not too knowledgeable in this area but the hubs is so he’ll be spearheading this one.
Well, those are my plans for now. Do you have any?
And for some blurry lightheartedness (this is what we do every time we get a credit card offer):
Stay tuned for the next Economic 9/11 post: How I’m Physically Preparing
Photo Credit: Don Hankins