April 27, 2017

Signs of (worse) Financial Turmoil

Image by Christian Ferrari
 

 

In the article I wrote last week ”What Does Civil Unrest Look Like and How Can You Stay Safe Near It?” reader JP  commented that:

“Warning signs I’ve thought of would be banks closing doors as soon as several people begin withdrawing all they have. My wife worked for a bank years ago(18 yrs) and I remember her telling me that they had trained them to prepare to shut and lock all doors when told by the manager to do so. Then proceed out the back door if its safe and go home. This situation would begin with multiple people wanting to withdraw all their money from the bank. If you knew someone that worked in a bank they might be able to give you a heads up.”

I replied with an anecdote (that I’ll share below) and both got me thinking about other financial warning signs and that some might come too late to do much good. I am an economic novice, but I am a student of history and have paid enough attention to the economy to feel comfortable pointing out signs to be aware of. I have mentioned many times that the overall economy is in bad shape, so these are not signs to look for general health. Rather these are things to look for which might hint that the economy is going to get even worse.

 

Defaulting Municipalities

I have touched on this in other articles but we are seeing more and more cities and counties filing for bankruptcy, which you can keep track of on the Municipal Bankruptcies Map. If your city or county government can’t pay its bills and defaults, the existing bills might be taken care of, but what about future expenditures? Hard decisions and cuts will need to be made that will affect everyone in the area of a defaulted municipality. Look at Greece, Spain and the United Kingdom for a peek of our future. Austerity measures will be enacted out of necessity either by forward looking municipalities or by whomever takes receivership of defaulted ones. In the countries I listed riots have followed these austerity measures, or even at the suggestion of them, will we see differently?

 

Falling Stock Market

I know very little about the stock market, but if you look at the big hits, there are often many small hits leading up to a nosedive. If the market slides for a few days and there are other signs, such as oil prices or rising unemployment, it might be prudent to move to something safer, at least until things level out.  If someone more familiar with the stock market has other warning signs please post them in the comment section.

 

Failing Banks

If there is talk of large banks failing, keep an eye out and don’t just expect there to be another bailout. In 2008, Iceland’s three largest commercial banks went into receivership over the course of one week and the banks were nationalized. This led to bank runs and nearly led to the entire country going bankrupt. I have seen reports where the value of their currency declined by 50% and their stock market declined by 90%. With the Weiss quarterly bank ratings you can have some idea of how your bank is doing. Granted, it’s only quarterly but it’s better than nothing.

 

Bank Runs

A bank run is a late sign that there is trouble. The anecdote I made to JP Scott’s comment was this:

“Thanks JP. You’re correct that those are both bad signs. A related note on banks; we pulled out a sum of cash a few years ago and were told that most branches only kept $5,000 at any one time. I think since people started using credit and debit cards so frequently, they scaled back the amount they keep on hand. Even if there was a bank run, there is a chance that not many people will get all their money on the spot.”

I say “on the spot” because your account is insured by the FDIC. I can’t say how long it might take to get your funds back. This is a very strong argument for keeping enough cash on hand to pay your bills and to purchase needed items for a couple of weeks to a month. Some banks may keep more cash on hand, but I know from firsthand experience that not all do.

This is also an argument against keeping emergency funds in a safe deposit box. Because banks are still training people the way they did JP’s wife, to lock the door, who knows when you’ll get access to that box?

 

So What Can Be Done When These Things Happen?

If you live in an area in risk of defaulting, you could move. Since this might not be possible or even prudent, planning is about the best you can do. Plan to see some services stop, as I mention in ”What We May See at the End of 2012 that is not related to the Mayans”. Cities, such as Oakland California, have had their Police Departments stop responding to certain crimes. In other cities there are some services that are being stopped or scaled back, such as turning off the street lights.

For the stock market, you can move your money into safer investments. You can also hold cash or invest in precious metals or land.

There isn’t much you can do about failing banks except be aware of them and that they may or may not be bailed out. Either way it causes pain, either now by letting them fail, or to future generations by having to bear the tax burden.  If you bank with a bank that is in trouble, moving your money could speed along their implosion, but not moving it could could slow you getting all of your funds back.

Bank runs, as I mentioned, are not going to ensure you get all of your savings. Most banks also have limits on daily withdraws from ATMs, so don’t plan on getting it all that way either.

I think the best plan is to continue to prepare and work toward having some cash tucked away, and be ready for unemployment and crime to go up as we see these warning signs.

 

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Comments

  1. Chris, JP – excellent insight into some of the many scenarios that could arise. Like many others, I’m hoping for some financial miracle to see us all through what could be calamitous for our society, country and locales on so many levels, from so many different directions.

    I suppose my biggest concern isn’t merely an initial collapse and the subsequent closure of financial institutions; nor even, the collapse of our economic system in general. Rather, it is the time period to follow. The inherent questions; such as, ‘will the dollar return as a usable currency?’, ‘how long is the dollar to be accepted and therefore still be useful if such a series of closures and/or financial institutions shutting down occurs?’, ‘at what point does one go “all in” and dispose of any and all remaining currency for whatever may be obtained (thus “sticking” someone else with what is worthless – or soon to be)?’.

    I’ve had the same basic questions as regards any form or medium of exchange – ranging from currencies, gold, silver and other non-immediately useful mechanisms for purchase. If our society should fall to the point that food, water, fuel, and the means to defend are paramount – no such means to exchange will exist other than barter. “I’ll trade you 6 bars of soap for 9 rolls of toilet paper” type of thing.

    In other words, what I see most necessary is not merely when to withdraw all possible funds from our individual institutions; rather, when to convert the last remaining symbols of exchange to things of real-world and life value. A person will be insolvent perhaps by today’s terms; but quite possibly ‘well-off’ in the long run if that last monetary reckoning is arrived at early enough.

    • Chris Ray says:

      I have a hunch that unless things go bad over night, there will be a time when cash is king before it is considered useless. People are so used to cash and credit being the only forms of currency, that even when the value of the dollar is shrinking, people will still take it for a time.

      I do think we will see an economic collapse of sorts, but what sort and for how long are the questions. If we do move to barter I think eventually precious metals will be a part of it. Not everyone wants your soap or beans, but they can take silver and buy what they do need.

  2. The problem is hyperinflation. By the time we have recognized an issue the value of the dollar will be so bad you will not be able to afford that $50 dollar loaf of bread. Imagine what gas and water will cost till its gone. And when that loaf of bread is $50 the only way its on the shelf is because the store is armed and securing it. All those that have nothing and have no problem stealing will kill to get it.
    My belief at the onset of economic collapse the dollar will end up worthless and only a few will know how to exchange precious metals. It will take a long while before folks will find it useful to use gold and silver. Lets say you really want my chicken for egg layer or dinner and all you have is a $1000 dollar gold coin. Unless you can break it apart or you are really hungry and want to trade it for a chicken I may not even have a use for it. Especially if I’m thirsty and wanted water or would trade a box of ammo. I can’t drink gold and can’t shoot game with it. After awhile it will work out, just not at first.

    • Chris Ray says:

      Hyperinflation is one option, but there are other scenarios that are just as likely. I agree that precious metals might not be useful right away, but they have been used in other economies such as in Argentina when it collapsed, and have been used for generations in countries like India for barter every day. I read an article last year that an farmer in India was saving his silver coins to barter for his seeds.

      As for the 1 ounce gold coin, you’re correct that it might be to large for most to make change, that is why I think fractional gold and silver should be a part of your preps as well.

  3. James Darnell says:

    new to the site enjoy reading your post, just a thought on saving for those times ahead do believe the dollar will crash. i have been saving nickels right now the nickel is the only coin to have not changed its metal content, the gov. will be doing this sometime in 2013 so no need to sort them as of now can be used possibly in the barter situation found it on another blog, hope you dont mind but it is survivalblog.com. keep up the good work. i tell others what i believe is happening, but only to a deaf ear. God bless

  4. Rick Pollard says:

    Pulling ones cash out of banks in increiments untill you reach a minium allowable level is the path that rasies less suspicion. Some banks have already started reducing the amount you can withdraw at one time. If you need to put it back because of emergency you can, but it gives you that instant reserve on hand; that is while the fiat paper is still traded.
    The discussion about exchanging dollars to gold is a extensive one, but Gold should be considered weath reserve for a future (hopefully) when things start to stabilze economicaly, and a form of currency is being again used universaly.
    Silver, because of its incremential value structure can be used for that last attempt at bartering. First bartering items should be goods for goods and skills for skills. Too many times I have heard that you can not eat precious metals, and that is true, but again they should be considered a wealth factor as a system comes to be used for general trade; but only if that system is based on real valuation of a gold / silver standard.
    Remember, Gold and Silver always have intrisic value and that value normally is set by those who already have huge reserves of the metals, so to me those are last ditch financial assets.

  5. Rick Pollard says:

    Please read this article and consider this as another sign on the times in the financial in- solvency of this nation. It is a large peice to this puzzle.

    http://www.garynorth.com/public/10235.cfm

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