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What to Do Before the Next Crash

Wednesday, October 12, 2011, 7:51 AM
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What to Do Before the Next Crash

Wednesday, October 12, 2011

Executive Summary

  • Are you prepared for a 'bank holiday'? (Hint: It's not nearly as fun as it sounds)
  • Smart wealth safety strategies
  • Securing the "big four" essentials: shelter, food, fuel, and water
  • The immense advantage of cultivating a healthy mindset
  • Why the steps before a crisis are so much more valuable than those taken afterwards

Part I - Big Trouble Brewing

If you have not yet read Part I, available free to all readers, please click here to read it first.

Part II - What to Do Before the Next Crash

What a Bank Holiday (Collapse) Means

If the next shock to the system is a sovereign debt default in Europe that spreads throughout the world banking system or perhaps a surprise that comes from China, we might expect a bank holiday. During such an event, the idea is that the banking system has to be shut down for some period of time in order to sort out whatever mess has interrupted its normal operations.

By this I mean that the banks are literally closed to normal commercial and retail traffic, and things like credit and debit cards, ATMs, and even checks are no longer useful for moving money or conducting transactions.

The key risk here is that by and large, the world runs on credit. Without that credit, things don't ship, and shortages will rapidly develop.

For example, major cities might keep a week's worth of chlorine on hand to treat municipal water supplies. The next week's shipment of chlorine requires that the credit system be up and running so that debits and credits can be recorded appropriately. Without chlorine treatment, water is no longer safe for drinking without boiling.

The same need for a functioning system of credit is true for food shipments, medical supply deliveries, and virtually every other item of daily importance. Unless the banking system is there as the middleman in an enormous proportion of these exchanges, many transactions will slow down considerably, if not cease entirely, until things get sorted out.

That's the risk. However, nobody really knows how big this danger really is, or how long things will take to get resolved, or even what sorts of disruptions may result, and this is why you find politicians bending over backwards in order to avoid finding out the hard way.

Remember Hank Paulson marching into Congress in October of 2008, closing the door, and ranting about martial law and social collapse? On one hand, we might be tempted to think of his act as a heavy-handed scare tactic to assure that his colleagues on Wall Street got a big, fat bailout. On the other hand, we should reserve some space for the idea that he might simply have peered into a banking abyss and gotten scared by what he saw. Perhaps it was a bit of both, but it is the latter idea that should give you pause, because if the Treasury Secretary has no idea how dangerous things are, it means the same uncertainty lurks in the hearts and minds of everybody else on some level, too. When your entire system of money runs on confidence, such doubts are more serious than you might at first appreciate.

A bank holiday, then, simply means that banks close for some period of time, ranging from a day to perhaps several months, limiting or precluding some range of transactions, and affecting only retail customers or impacting everybody. A bank holiday can fall anywhere between a minor inconvenience and a world-changing event.

 

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