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1. I believe financial collapse is the most probable of all the potential threats that could trigger
TEOTWAWKI ( The End Of The World As We Know It). Many knowledgeable people
speculate that this is a real possibility for our country. They include former Army Intelligence
Officer James Rawles, Economist Jerry Robinson, CEO of Euro Pacific Capital Peter Schiff,
Author of Rich Dad Poor Dad Robert Kiyosaki, and Governor of Indiana Mitch Daniels. This
list could go on and on. Why are all of these people so concerned about our economy. There is
no one thing that threatens the demise of our financial system, rather it is a myriad of issues that
together create the environment for the perfect storm. In this series of posts on
PrepperRecon.com I will present my case and give you a short list of what you can do to get
prepared.
Most economists agree the number one threat that could initiate a financial collapse is the Public
Debt. The US national debt has just past $16,000,000,000,000.00. Our country's GDP was just
over 15Trillion last year according to the IMF. That means our national debt is 108% of the
value of all the goods and services produced in America. Argentina's debt was approximately
50% of GDP in 2001 when they experienced a financial collapse. Their total debt was roughly
100 Billion dollars. Spending at the pace of $3.88 billion a day, we spend that much in less than
a month.
How is this a problem? In the same way that credit score agencies look at your debt levels to
evaluate your credit score, ratings agencies have a similar process for countries. When your
ability to pay your debts become questionable, your interest rates go up on everything from car
loans to credit card rates. last year, we had a debate about the debt ceiling. During that time, our
countries credit rating went from AAA to AA. I would say AA is quite generous, I would also
say it will be short lived. We are now approaching the new debt ceiling of $16.394 Trillion and
will be having the same conversation that cost us our rating last time around.
Why are Treasury rates so low? Rates on 30 year treasuries are currently around 3%. That is
extremely low. Much of that can be accredited to fear in global financial markets. US Treasuries,
rightly or wrongly , are still considered the safest place to preserve ones capital. With the chaos
in the Euro Zone, the US dollar has the appearance of the prettiest ugly girl at the dance. Buyers
of US Debt also know that we will always be able to repay our debts because of our ability to
print money. If the Treasury runs dry , the Fed can step in and fire up the press. We have done
this in recent years through Quantitative Easing or QE. When there are too few buyers of US
debt, The Federal Reserve, which is not a federal agency nor do they possess any reserves, can
purchase the debt through creating money to be used to buy debt from the US Treasury or other
holders of US debt.
Why can't we keep up this scheme? With each new round of QE, more US dollars magically
come into existence to compete for goods and services that are not entering the economy quite so
magically. Therefore, we have more dollars to exchange for the same amount of goods and
services. Here is a simple illustration. Let us suppose we have an economy with nothing but 10
cheeseburgers and $10. Assuming all the cheeseburgers are for sale and no one is interested in
saving money since there is nothing else in the economy to buy, each burger is worth $1. Now,
the Fed steps in and prints $10 more dollars. We now have $20 and 10 burgers. Each burger is
now worth $2. The burgers have no more ability to satisfy you than they did at $1, so they are

2. not worth more. It is the dollar that is worth less. This is inflation. It works in favor of the
government as the borrow dollars that will buy 1 cheeseburger and pay back dollars that will
only buy half of a cheeseburger. They pay back with devalued dollars. This is also a tax on
savers as the money you save today will be worth less tomorrow. It is also a tax on purchasers of
US debt. As the inflation rises, so will interest rates as bond holders will not settle for an
investment that loses money.
If the 30 Treasury Bond pays 3% and inflation is 6%, you are losing 3%. The bond market will
not put up with this for long. At some point rates will rise above 6%. Let's say 7%, the ever so
magnanimous bond market will settle with a 1% profit after inflation. At our current debt ceiling
level of $16.394 trillion we will be paying$1.15 Trillion dollars per year in interest alone. Total
federal revenue is $2.73 trillion. 42% of our total revenue will be consumed by interest.
At this point it becomes obvious that we will never be able to pay our debts. No one will buy our
bonds, and the Fed is unable to print money at a pace that will sustain government spending. To
do so would create hyperinflation such as was experienced by the Weimar Republic in the post
WWI era. To devalue their war debts, The Weimar Republic printed money at record rates and
devalued their currency to the point that people used the currency for firewood. There is a story
of a woman taking a wheelbarrow full of money to by a loaf of bread. When she arrived at the
store, she left the money outside while she went in to get the bread. When she returned, the
money was still there but someone had stolen the wheelbarrow.
Financial collapse becomes a certainty at this point. Our economy will seize up. Massive cuts
will be enacted to all sectors of government spending. Entitlement programs will be slashed. The
recipients, many whom are in true need of the government assistance will go without, while
many others who have been trained to milk the system for generations will riot as they feel
cheated because they can't get what the government owes them. The blood in the streets will be
up to your ankles.
What can I do now to get ready for this? Cut all unnecessary spending, stock up your pantry and
diversify your savings into Dollars, Silver , and Gold. Remember this is only one possible
outcome. The complexities in financial markets can produce unpredictable outcomes. We may
just as well experience a depression type environment where cash is king depending on the steps
taken by the Federal Reserve. On PrepperRecon.com I have written a very comprehensive 7 Step
Preparedness Plan that will help you prepare for whatever. Please read it and take action now to
prepare for the coming storm.
Happy Prepping