March 2008, - Obviously, we hope that major bank defaults do not happen but the recent events of Northern Rock in the UK and Bear Stearns in the US suggest that there is more rather than less trouble to come. It is hard to imagine that a credit crunch - such as we seem to be experiencing - will be confined to only a few banks. It is difficult to know absolutely what to suggest, but DON'T PANIC does seem to be the best advice.
If, as discussed on the How To Protect Yourself From A Banking Collapse page, the worst did happen, what would be the "5 Best Items To Have During A Banking Crisis"?
It goes without saying that nothing will do the job of cash as well as cash does. But this isn't quite as simple as may be thought, because what is actually required is cash that is outside of the banking system. That does not mean illegal, it just means that you have the notes and coins in the house rather than sat in a bank account.
Very few of us have a reasonable amount of money at home. It can be stolen or lost and in a bank it will hopefully be safer and earn interest. But should there be a major banking collapse, credit and debit cards may not work in stores and ATMs will likely be out of action.
The added bonus will be to your personal safety. In the event of a banking crisis, ATMs will have masses of people jockeying for position and large stores will be deluged by panic buyers.
All that panic buying will empty shelves in an instant. The survival instinct will take over and there will possibly be violence over small everyday items. The best way to avoid this would be to have enough to survive a few extra days or weeks already stored at home. Rice and pasta can be stored easily and will provide enough sustenance to see a family through a rough few days.
3. Alternatives to money
Low value silver coins which are easy to trade would be ideal. Junk coins with little more than scrap value would probably be the best idea. Why do this? What if a banking crisis were to cause the masses to no longer trust the value of money? Something that isn't money, but is of value would be great to have!
As a way of having money that can be accessed and should be safe, travellers cheques might be useful.
There is a good reason for suggesting silver rather than gold. In the hard money community, people tend to recommend gold as a store of wealth in case of an emergency. There are many reasons to agree with that sentiment.
However, in real terms, gold is just too precious to be actually useful. Can you imagine trying to buy your groceries or some basics and all you have is a 1oz $1,000+ coin to trade with? That is not very practical. Then imagine that there is a disaster of some sort and the value of cold has appreciated compared to paper money - a coin worth perhaps $3,000 per oz is totally impractical and more likely to cause problems than to solve them. People will be willing to use force to take it from you. In contrast a silver coin is much more likely to be useful.
4. Food for barter
the shelves of the local supermarket are empty, what will most people
need? Having some basic foodstuffs that can be traded for other things
that you and your family require would be very useful. Also remember to buy liquids. If things get bad, water will be vital.
5. Other items for barter
There are really two types of item that stand out as of more value than usual in such circumstances - alcohol and tobacco based products. Since a cigarette is a universal means of barter in every prison movie ever made, it seems reasonable to presume that they are great for barter on the outside too. Bottles of beer and / or small bottles of spirits also seem to be ideal types of alternative currency.
It should be noted that we are not suggesting that a banking collapse is imminent, only that the possibility of banking problems appears to currently be much higher than usual. We are also not suggesting that readers should withdraw their life savings at 9am tomorrow to prepare. We are merely suggesting that a little planning might help to avoid major pain and offering some suggestions as to how to go about this.
A Few Things You Can Bank On
Firstly, if it all goes wrong, there will be huge volatility in most asset markets. This means that prices of things like stocks and bonds will swing around quite a lot. Uncertainty creates price volatility (information here).
Warren Buffett has spoken for years about being willing to hold a position in a company if the stock market (information here) were closed for ten years. This is what he is trying to make investors think about.
Secondly, liquidity will be squeezed. This means that while you may be able to sell your assets, there are unlikely to be buyers lining up that are willing to pay the full market price. Yes you will probably be able to sell, but no, you are unlikely to get prices that are acceptable.
Thirdly, this presents an opportunity to the liquid and ready investor. When assets are cheap and funds or people are dumping them (usually because they have debts to cover) someone can be sat on the other side of the trade buying at advantageous prices. That could be you. It is not in our nature to want to buy when things are going wrong, but that is when the biggest opportunities occur as proved by many of the great value investors (information here).
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