Financial Literacy

Every few years, some country enters a financial crisis from government mismanagement (over spending) or a catastrophic natural disaster (hurricane, earthquake, flooding, etc.) Since these events occur periodically, we can examine what repeatedly takes place in order to adequately prepare for the future. In the last 10 years, there have been 5 financial crises that we can learn from: Greece, Argentina, Puerto Rico, Venezuela, and Brazil.

Capital Controls

1. The government closes the banks and stops or limits ATM withdrawal amounts per day. Preparation = hold a couple months’ worth of expenses in cash outside of a bank. If you don’t have cash and are forced to barter, be aware that you’ll only get around 10% of the item’s fair value. (Gold and silver coins hold the best value for bartered exchanges).
2. Government confiscates a percentage of bank deposits or financial accounts. Preparation = hold as little money in a bank as possible; have some kind of bank account in another country (that is stable and has rule of law).

Crime

1. Crime explodes when people have no money or food. Preparation = being able to defend your family and home with firearms (or at least batons, mace, or tactical knife), motion-sensor spotlights on your home, and a neighborhood security group.
2. Rioting, civil unrest, and increasing homelessness becomes normal. Preparation = stay very far away from marches or conflicts with authorities.

Emigration

There will be a flood of people leaving the country. The government will be overwhelmed with applications and will move very slow in issuing or renewing passports. Government corruption also increases at all levels. Preparation = always have a current passport to exit the country and a plan to get to a few of your top choices for your next destination.

Healthcare

Medical care plummets; operations and surgeries are cancelled. This gets worse over time. Preparation = don’t put off medical procedures; look into getting treatment overseas – some health insurance companies offer assistance for overseas procedures.

Shortages, Restrictions, or Limitations

Capital controls will stop and limit all economic activity, including imports. The result is all kinds of unexpected shortages and critical supplies are rationed. Preparation = since you cannot hoard everything, use rising prices as a signal that this is an item you may want to hoard. When the power went out in Puerto Rico, these items became very valuable overnight: backup generators, candles, water, and canned food. Meanwhile, inflation ravaged countries commonly have shortages in: milk, sugar, flour, rice, and cooking oil. This is after there are shortages in: toilet paper, meat, toys, and eggs.

Right after a crisis, what normal supplies can you no longer find on store shelves?

• Food (so you may want to acquire enough freeze-dried meals for a couple weeks’ worth of food, or just some extra canned goods)
• Hygiene (from the dollar store, get some soap, laundry detergent, hand sanitizer, toothpaste, q-tips, etc.)
• First aid (acquire first-aid kits, bandages, aspirin, and disinfectants)

Some people don’t think that could ever occur in the U.S. or first-world nations, but this has already occurred several times: The Great Depression of 1929; in 1971 (it was side-stepped by going off the gold standard); and in the fall of 2008 (the U.S. was hours away from closing down all the banks. But then the U.S. Federal Reserve decided to bail out the bankrupt banking system from real estate defaults by printing several trillion dollars). Some financial crises slowly arise over time, while natural disasters can strike without warning. Either way, you need to think about your family’s long-term future as things unfold, and it doesn’t hurt to think through some scenarios and do some advance preparation.

Current Issues:

1. This month, Turkey has begun a financial implosion from over spending. Their currency, the Lira, has lost 40% of its value in the last several weeks. It slightly rebounded when Qatar pledged to invest $15 billion in their economy (but that won’t be nearly enough for the various and continuing mis-management decisions from the government).
2. Since December 2017, Pakistan has devalued their currency, the Rupee, 3 times. And today they are in talks with the International Monetary Fund to keep them afloat.
3. The Turkey and Pakistan currency contagion is spreading as the Indian Rupee just touched an all-time low against the U.S. dollar.
4. These financial problems and currency devaluations don’t happen in a vacuum – foreign banks may hold debts in these currencies, foreign investors hold assets in these countries, many countries trade with these countries, and it adds financial instability to the world as the issues unfold.