I don’t read much in the way of international news, for a couple of reasons:
1. Homeschooling 4 kids and keeping a house up for a family of six keeps me plenty busy. When I finally do sit down to watch some TV, I want it to be funny. 🙂
2. The problems of the world weigh deeply on my heart, and aside from prayer, there’s not much I can do about them anyway. Our family helps where and when we can, but looking at all of the problems of the world feels a bit overwhelming to me.
That being said, I’ve been reading with interest the whole Cyprus story. Why? Because, IMHO, I fear that America is not that far removed from experiencing a similar situation. I know that many of you probably already know most of the story, but for those who don’t, I’ll give you a brief summary from a news clipping:
The tiny Mediterranean island of Cyprus is currently mulling over its few available options to stave off financial collapse after a week of battles with the EU Central Bank caught much of the world’s attention. Cyprus was in line for a €10 billion (euros) loan from Brussels, but the EU wouldn’t help without a €5.8 billion guarantee from the Cypriot government. And thus was born the bright idea of confiscating a portion of private savings from Cypriot depositors to fund the guarantee. Think something similar can’t happen here? Think again.
The original formula called for a one-time tax of 6.75 percent on savings between €20,000 and €100,000, and 9.9 percent on savings over €100,000, taken straight from bank accounts. Cypriot President Nicos Anastasiades and Central Bank Governor Panicos Demetriades both claim they were blackmailed into accepting this plan by the EU, the International Monetary Fund, and the European Commission.
Predictably, the plan set off a run on banks and ATMs as depositors scrambled to move their money out of the government’s reach; that forced bank closures. On Wednesday, however, the Cypriot parliament rejected the tax without a single vote in favor. Cyprus is now trying to rework the terms of the bailout while its banks remain shuttered.
Although the terms and reasons are different, this story bears a striking resemblance to the events leading up to the Great Depression. And I wonder, as America faces its own mess, with 16+ trillion dollars in national debt, and the average American household with at least one credit card having an average balance of nearly $16,000, when our day of reckoning will arrive.
So, if and when it does, what will that look like here in America? To get an idea, let’s first take a look at life in Cyprus these days:
The fact is, Cyprus has prospered for many years. Since I first visited the island in 1995, the economy has steadily grown. Property values doubled and tripled, banks were doling out loans like money grew on trees. Unlike in the U.S., you only needed a good guarantor to back you up. The Cyprus Stock Exchange was on the rise before the bubble burst. Many foreign companies invested in Cyprus due to its healthy financial sector. And many foreigners, a majority of them Russians, had decided to make Cyprus their home, depositing their money into local banks.
When the banks finally reopen in Cyprus, depositors will be withdrawing their money, with or without the levy. The public trust in the financial system has now been eroded.
But in the last year, the decline has been palpable. Cypriots were worried. Loans went into default. Shops were closing one after the other. Makarios Avenue, a major shopping strip in the capital, Nicosia, closed as more than 20 shops had hung “for rent” or “for sale” signs. What once was the top shopping hub for the entire island has now become a ghost town.
Yes, the coffee shops are still full in the afternoons, but the chatter and facial expressions have taken on an increasingly pessimistic tone. Coffee shop talk used to be about the latest trend in fashion, gossip about friends and political opinions. Now it’s more about which ATM is still dispensing cash, and when will the banks reopen, or even if business will still be taking credit cards after tomorrow.
As I drove around Nicosia the past week, I was surprised to see security guards next to the ATMs at several banks. It made me a bit nervous. Some branches had lines of people waiting to withdraw money from the machines. Those that did not have a line were obviously out of money.
As I read the above segment, I couldn’t help but see the similarities to America these days. Everyone is always talking about how terrible their money situations are. An article I found online tells us that:
Consumer spending in the U.S. rose in January even as incomes dropped by the most in 20 years, showing households were weathering the payroll-tax increase by socking away less money in the bank.
People are saving less than ever , yet seem to have no qualms about spending. We’re nowhere near out of the woods yet (read current foreclosure stats here), but still, as Grayson over at Debt RoundUp pointed out, Americans are happily going toward the delusional light, telling themselves that everything will be just fine.
SO, what could life in America look like if the dollar collapses? Here are some predictions on what we can expect:
1. Importing of fossil fuels and everything else could come to a grinding halt. No one will send anything to a country that may or may not have the money to pay them.
2. This will lead to an inability to have food imported, or even to transport food on our own soil, which will lead to skyrocketing food prices. Food prices could easily double or triple.
3. Consumer spending will slow dramatically or stop, leading to mass layoffs and the shutting down of companies.
4. Crime will rise. Who wouldn’t do whatever they needed to do to feed their family? You and I may resort to growing and preserving our own food, but many will simply take from others.
Americans are standing on a house of cards right now, and if and when collapse comes, it’s not going to be pretty, folks. Think L.A. riots gone national. SO, what can we do as individuals to protect ourselves and our families? Same old boring stuff that nobody wants to hear, I’m afraid:
1. Get out of debt. Pay your stuff off, NOW. Sell whatever you need to sell, do whatever you need to do. The less money you have to put out each month, the easier it will be for your family to survive during an economic collapse.
2. Stash some money away. Find a safe place to keep some cash on hand. A month’s worth of expenses, at least.
3. Have a plan. Start growing and preserving your own food. Or have a decent backup supply of food on hand. Have a place to go in case your neighborhood goes crazy. Make sure you’ve got an ample supply of medications and personal necessities on hand. Keep your gas tank at least half-full in case you’ve got to skidaddle in a hurry. If you have a plan in place NOW, you’ll be less likely to panic later, leading to wiser decisions.
In my heart of hearts, I hope this never happens to America. Call me a conspiracy theorist, an extremist, whatever you want, but anyone with an ounce of financial common sense knows that we can’t go on this way forever.