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.
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.
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.
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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