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If an economic collapse occurs, it would happen quickly. No one would predict it. The surprise factor is, itself, one of the causes of a collapse. The signs of imminent failure are difficult for most people to see.
Most recently, the U.S. economy almost collapsed on September 17, 2008. That's the day the Reserve Primary Fund broke the buck. Panicked investors withdrew a record $140 billion from money market accounts where businesses keep cash to fund day-to-day operations. If withdrawals had gone on for even a week, the entire economy would have halted. That meant trucks would stop rolling, grocery stores would run out of food, and businesses would shut down. That's how close the U.S. economy came to a real collapse, and how vulnerable it is to another one.
Fortunately, the Federal Reserve Chairman and U.S. Treasury Secretary noticed the signal and knew what it meant. Ben Bernanke was a Great Depression scholar. Hank Paulson was a Wall Street veteran. Their bailout plan supplied enough cash to prevent a total collapse. The 2008 financial crisis did plenty of damage, but it could have been much worse.
If you want to understand what life is like during a collapse, talk to people who lived through the Great Depression. The stock market collapsed on Black Thursday. By the following Tuesday, it was down 25%. Many investors lost their life savings that weekend. The Dow didn't recover until 1954.
By 1933, one out of four people were unemployed. Wages for those who still had jobs fell.
U.S. gross domestic product was cut in half. Thousands of farmers and other unemployed workers moved to California in search of work.
Most became homeless hobos or moved to “Hooverville" shantytowns.
What Would Happen in an Economic Collapse
If the economy collapses, you would lose access to credit. Banks would close. Demand would outstrip supply of food, gas, and other necessities. If the collapse affected local governments and utilities, then water and electricity would no longer be available. As people panic, they would revert to survival and self-defense modes. The economy would return to a traditional economy, where those who grow food barter for other services.
A U.S. economic collapse would create global panic. Demand for the dollar and U.S. Treasurys would plummet. Interest rates would skyrocket. Investors would rush to other currencies, such as the yuan, euro, or even gold. It would create not just inflation, but hyperinflation, as the dollar became dirt cheap.
How Close Are We to a Total Economic Collapse?
Any of the following seven scenarios could create an economic collapse.
If the U.S. dollar rapidly loses value, it would create hyperinflation.
A bank run could force banks to close or even go out of business, cutting off lending and even cash withdrawals.
The internet could become paralyzed with a super-virus, preventing emails and online transactions.
Terrorist attacks or a massive oil embargo could halt interstate trucking. Grocery stores would soon run out of food.
Widespread violence erupts across the nation. That could range from inner-city riots, a civil war, or a foreign military attack. It's possible that a combination of these events could overwhelm the government's ability to prevent or respond to a collapse.
In March 2019, the Federal Reserve warned that climate change could threaten the financial system.
Extreme weather caused by climate change is forcing farms, utilities, and other companies to declare bankruptcy. As those loans go under, it will damage banks' balance sheets just like subprime mortgages did during the financial crisis. A study by Pennsylvania State University predicted that extreme weather in North America will increase 50% by 2100.
It will cost the U.S. government $112 billion per year, according to the U.S. Government Accountability Office.
Natural disasters could cause a localized collapse. If Hurricane Irma had hit Miami, its damage would have been worse than Hurricane Katrina. If the 2019 polar vortex breakup had lasted weeks instead of days, cities would have shut down.
Munich Re, the world's largest reinsurance firm, blamed global warming for $24 billion of losses in the California wildfires.
It warned that insurance firms will have to raise premiums to cover rising costs from extreme weather. That could make insurance too expensive for most people.
Some believe the Federal Reserve, the president, or an international conspiracy are driving the United States toward economic ruin. If that's the case, the economy could collapse in as little as a week. The economy is run on confidence that debts will be repaid, food and gas will be available when you need it, and that you'll get paid for this week's work. If a large enough piece of that stops for even several days, it creates a chain reaction that leads to a rapid collapse.
Collapse Versus Crisis
Be very clear that an economic crisis is not the same as an economic collapse. As painful as it was, the 2008 financial crisis was not a collapse. Millions of people lost jobs and homes, but basic services were still provided.
Other past financial crises seemed like a collapse at the time, but are barely remembered now. Here are some these past economic crunches:
1970s Stagflation – The OPEC oil embargo and President Richard Nixon’s abolishment of the gold standard triggered double-digit inflation. The government responded to this economic downturn by freezing wages and labor rates to curb inflation. The result was a high unemployment rate.
Businesses, hampered by low prices, could not afford to keep workers at unprofitable wage rates.
1981 Recession – The Fed raised interest rates to end the double-digit inflation. That created the worst recession since the Great Depression. President Ronald Reagan had to cut taxes and increase government spending to end it.
1989 Savings and Loan Crisis – One thousand banks closed after illegal real estate investments turned sour. Charles Keating and the other S&L bankers had used bank depositor’s funds. The consequent recession triggered an unemployment rate as high as 7.8%. The government was forced to bail out some banks to the tune of $126 billion, an addition to the U.S. national debt.
Recession after the 9/11 Attacks – Four terrorist attacks on September 11, 2001, sowed nationwide apprehension and prolonged the 2001 recession until 2003. America’s response, the War on Terror, added $2 trillion to the already burgeoning national debt.
2008 Financial Crisis – The early warning signs were rapidly falling housing prices and increasing mortgage defaults in 2006. Left untended, the resulting subprime mortgage crisis, which panicked investors and led to massive bank withdrawals, spread like wildfire across the financial community. The U.S. government had no choice but to bail out “too big to fail” banks and insurance companies, like Bear Stearns and AIG, or face both national and global financial catastrophes.
Will the U.S Economy Collapse?
The U.S. economy's size makes it resilient. It is highly unlikely that even these events could create a collapse. When necessary, the government can act quickly to avoid a total collapse.
The Federal Reserve can avoid a financial collapse with a few phone calls. For example, it can use its contractionary monetary tools to tame hyperinflation. The Federal Deposit Insurance Corporation insures banks. There is little chance of a banking collapse similar to that in the 1930s.
The president can release Strategic Oil Reserves to offset an oil embargo. Homeland Security can address a cyber threat.8 The U.S. military can respond to a terrorist attack, transportation stoppage, or rioting/civil war. In other words, most federal government programs are designed to prevent just such an economic collapse.
But these strategies won't protect against the widespread and pervasive crises caused by climate change. Rising sea levels, depletion of fish stocks, and extreme weather are just some of the effects. If nothing is done, the World Bank warned that temperatures will increase by 4 C if nothing is done.
That's when all the ice sheets in Greenland and West Antarctica would melt.
Sea levels would rise 33 feet, flooding every major coastal city. Once sea levels rise 10 feet, it would flood 12.3 million people. Seas would continue to rise by one foot per decade. That's too fast to allow humans to build anew. The damage would exceed $600 trillion, double the total wealth of everyone on the planet.
That would shrink the global economy by 20% from what it is today. That's worse than the worst year of the Great Depression.
How to Prepare for an Economic Collapse
Protecting yourself from a collapse is difficult. A catastrophic failure can happen without warning. In most crises, people survive through their knowledge, wits, and by helping each other.
Here are six steps you can take now to prepare for a potential collapse.
Make sure you understand basic economic concepts so you can see warning signs of instability. One of the first signs is a stock market crash. If it's bad enough, a market crash can cause a recession.
Keep as many assets as liquid as possible so that you can withdraw them within a week.
As for cash, it may not be useful in a total economic collapse because its value might be decimated.
Stockpiles of gold bullion may not help because they would be difficult to transport if you needed to move quickly. In a severe collapse, they may not be accepted as currency. But it would be good to have a stash of $20 bills and gold coins, just in case. During many crisis situations, these are commonly accepted as bribes.
In addition to your regular job, make sure you have skills that you'd need in a traditional economy, such as farming, cooking, or repair.
Make sure your passport is current in case you'd need to leave the country on short notice. Research target countries now and travel there on vacation, so you are familiar with your destination.
Keep yourself in top physical shape. Know basic survival skills, such as self-defense, foraging, hunting, and starting a fire. Practice now with camping trips. If you can, move near a wildlife preserve in a temperate climate. That way, if a collapse occurs, you can live off the land in a relatively unpopulated area.
