Start Saving Now

I am going to be a wet blanket in this post, but I am writing this because I do not want to see anyone I know caught unprepared when the economic turd hits the fan. We may be well prepared, but if our friends and family are not, our preparation will be largely for naught. Think of how many people you know and love, and then think of how hard it is going to be just to keep yourself afloat during the coming economic turmoil. Without any preparation, those people will all be coming to you for help. Feel a fire smoldering under your rear end yet?

If Peter Schiff, other bearish investors, and most of the Austrian School economists are right, the U.S. dollar is eventually (probably sooner rather than later) going to decline severely or even hyperinflate at the same time that the U.S. economy is suffering a severe recession. Many of them think this process could begin within the next few years. Now, I will admit that every age has its false prophets and hucksters, but that does not mean we should refuse to listen to every person who is concerned about impending disaster. Written history is full of disasters; they're not exactly rare. Schiff's and others' predictions are based on sound financial and economic reasoning. The U.S. is a nation based on debt and spending, devoid of a manufacturing base -- it cannot continue with its present standard of living. It will eventually decline to a living standard in line with its level of production, which is much lower than our current standard of living implies. On the individual level, we recognize that a person cannot long enjoy a lifestyle that exceeds his income. Just extrapolate that common sense to an entire country of people.

As Schiff says, "the federal government is the biggest subprime borrower of all, and it has committed the American taxpayer to the mother of all adjustable rate mortgages."

When the decline comes and the economy readjusts itself to reality, we will most likely have to face two unpleasant situations: (1) high unemployment and lower wages, and (2) sharply rising costs for the things we pay for.

Now for the real wet blanket part: Preparing for this requires (among other things) getting out of consumer debt and saving money. And not just saving a few cents here and there. Financial planners usually say the conservative approach is to have an emergency fund of at least three to six months' living expenses. ("Emergency," of course, meaning to be set aside and not spent on cars, TVs, vacations, or any other discretionary purchases.) After you've accumulated your emergency fund, you may want to consider putting any additional savings into non-dollar denominated assets like gold, silver, stable foreign currencies, and/or non-perishable goods. Staying away from dollars will provide some protection from the rising prices that are sure to result from the Fed's massive monetary inflation over the past several months. As prices rise, so will your non-dollar savings.

I didn't come up with the preceding advice myself -- it comes from Schiff and many other Austrian School economists. If you follow these "doom-and-gloomers'" advice and they turn out to be wrong, the worst that will happen is that you will have a lot of money in savings and be better off because of it. But if they turn out to be right, your savings will provide a crucial cushion when you need it most. The earlier you start saving, the better chance you will have to accumulate your non-dollar assets before their prices really start to climb. If that is what you plan to do, spread the word to the people who matter the most to you -- one by one. This is not about distributing a chain letter, writing your congressman, or protesting in a political rally. This is simply about protecting yourself and the people you care about from the financial hardship that is coming.

Again, sorry for the wet blanket post...