Indeed, that’s why I find tips like “buy gold and silver” always a bit odd. Gold is either too valuable to use for day-to-day trade, even silver. You’d have to prove it is real gold (few people handle real gold anymore after all) and everyone would need to know what it is actually worth to consider it as “money”. At best it might be part of a barter system for more expensive things (cars, houses, cattle…).

You’re better off investing 500 $ in soap, toothbrushes, pocket knives, lighters, toilet paper, nails and other small, non-perisable, useful things that you can trade on daily base and which are needed by everyone if you want to prepare for a completely crashed economy. Simply look at what was valuable in Europe right after WW II.

I see from the comments that there are a lot of misunderstandings about the economy.

It bothers me to see people taking other peoples advice to invest in gold or foreign stocks. It also bothers me when people think wages go up when there is inflation.

You give some really good advice, but I would add one more thing…

Invest in yourself. Go back to school or put money into a business. Both of those will pay dividends in the future should you lose your job.

You know, if I could send a memo to everyone out there I would say this…

“Turn off the news and go back to work” The economy would recover in no time. ;-)

Cheers,
Jeremy

If you are a government and your debt is in your own currency you can simply create more currency out of nothing to pay for it. This is something the Fed is currently very busy doing to buy mortgages and try and get banks lending. The Obama stimulus package is also money creation, albeit one that should pay off long term.

Of course you can’t do this for free – creating money leads to inflation, but this is tempered by the fact that the US is a huge debtor nation. Foreign countries won’t stop lending to the US too quickly because their own investment and export dollars go down.

Eventually all the money creation will reach a tipping point and inflation will hit the US. Hopefully this won’t be catastrophic – the foreign holders of US debt should slowly scale back, rather than dump all their dollar investments wholesale. However as we have seen in the past months global markets don’t always respond rationally.

Buying investments in foreign currency could work out, but it is too volatile for me. So is gold. As everyone buys gold to simply hold it, its value is very sensitive to variations in supply and demand. I prefer to buy what is undervalued. This means stocks now valuations have dropped and TIPS because they are priced for fears of future deflation (which won’t happen because the delayed effect of the money creation). Of course diversification remains key.

I simply don’t buy any “going back to the land” doomsday scenario.

If you have land on which you can garden, it’s probably worth planting a garden, or at least making sure you know how. But if you don’t, the minute risk of all h-ll breaking loose probably doesn’t justify buying land just for that purpose.

Instead of “don’t be too proud,” I would say: Recognize that there is nothing shameful at all about ANY line of honest work. Why can’t the people who clean the toilets in your office building be proud of what they do? They’re doing a job that needs to be done. Don’t look down on them, and treat them as you’d like to be treated, so that if circumstances someday put you in their position, you might be treated with the same respect.

I wouldn’t worry about inflation, etc per se, but I would prepare yourself and be debt free with a good cushion in your savings account should you lose your job. Worrying isn’t going to do anything. Make a sensible plan and TAKE ACTION. I would defer any large purchases and try to lower expenses. Save as much money as you can!

If everyone put a little money into our consumer based economy the ball would get rolling in the right direction.

Sarah made an excellent point about fixed rate debt. If interest rates begin to move up, your fixed rate loan looks better and better.

a couple of other points:
if you’re worried about losing your income, making a large purchase like sustainable on-site energy (solar, wind) doesn’t make much sense. A savings account does.
Same principle with a large freezer — upfront cost plus the additional cost of running it. Take that cash and put it under your mattress if you’re really, really worried. Otherwise, bank it in an interest bearing account.

And possibly the best financial advice RIGHT NOW– refinance your home mortgage. Rates are extremely low — sub 5% for conforming loans. Lowering the amount on your single largest monthly expenditure can make a HUGE difference. Savings of hundreds dollars a month. Check it out. It’s true. Just make sure you get a fixed rate.

By the way, I changed houses two times in that 30 year period. The monthly payment on the last house was just under $800. As you can see, even this was a smaller percentage of my income than the monthly on the original house was. So, salary inflation was more than mortgage inflation.

(I was also insistent about keeping the subsequent houses within the mortgage term of the original house, so each subsequent mortgage was for a shorter period than the original. My goal was to avoid reaching retirement age with a mortgage hanging over my head.)

(I am now retired with a salary of zero and a mortgage payment of zero. So the percentage of my salary that goes to the mortgage is 0/0 which, I’m told, is undefined mathematically; but you could say it’s “vanishingly small”.)

I would encourage you all to read the book called “Dies the Fire” by E. Stirling, a pretty significant writer of alternative history fiction. In it, an Electro Magnetic Pulse (EMP) basically disrupts civilization as we know it. Some of you may find the set-up somewhat far fetched but I would encourage you to pay attention to the survivalist portion of the book. Most of us have gotten so far from our “conestoga wagon” roots that a melt down like you are speaking of would simply paralyze many, many people. It still amazes me what lengths people will go to when they cannot flip the switch and have their precious electricity…

But I also agree that we need to take a deep breath and don’t panic. The last thing we need is the “mob” mentality. Start thinking and making plans for you and yours, start laying in extra supplies as you can, building those relationships and updating your skills. Stay the conservative course and probably most importatnly, do what you can to distance yourself from the financial giants that are bound to fall, in other words get to debt free!

In the Netherlands, WWII ended in what became known as the ‘Hongerwinter’ (hunger winter). There was almost no food in cities (because there was no transportation) and rations were below 1000 calories per day. People from the cities went to farmers to beg or barter for bread and while some farmers would give it for free to those in need, others would sell: a big bag of potatoes for a gold watch… It’s a bad deal for the city person when you look at the dollar value, but since gold isn’t edible… it wasn’t such a good deal for the farmer either.

In desperate times, I doubt anyone would want to buy gold (it’s not very useful, after all), so it would be essentially worthless until everything recovered… Unless you’re sure you’ll have plenty of *everything*, it would be unwise to accept gold as payment for useful stuff.

Regarding comment #21: We did not think this could happen here, either. We will recover, and people had been predicting some set-backs, but nobody had foreseen this complete *collapse* of our economy.

Our interest rates are going up insanely (mortages are at over 20% in calculated “real value” interest), inflation is almost 20% (food and necessities of course included), unemployment is at an all time high (and a lot of companies are lowering salaries and/or hours) – etc etc. Our currency is worth about 50-60% what it was in September – you can imagine the effect this has on all imported goods (not to mention travel costs – but of course nobody is travelling out of the country now, since we can’t afford it)

One thing that has not been mentioned here, which was the main reason for the complete collapse of the banks, is that they expanded way too mcuh – their loans were at over 10 times our GDP ( I think is the correct term). They were given way too much freedom, the government didn’t pay close enough attention to what was going on and establishments supposed to supervise them didn’t perform.

Anyway – just wanted to enter my 2 cents