Argentina has suffered through a series of military dictatorships and short-lived democratic governments, but economically speaking, for much of the twentieth century, the people had lives similar to first-world countries. Argentina in the nineteenth century attracted a flood of British capital and European immigrants. By 1913, it was one of the world's ten richest countries, ahead of France and Germany. But the country 's economic cycle peaked after World War II, and between 1976 and 1989, income per person shrank by more than 1% per year.6 Things turned around in 1991, as the government embarked on free-market reforms and restricted the money supply to the level of hard-currency reserves. Between 1991 and 1997, Argentina 's economy grew at an annual average rate of 6.1%, the highest in the region.

But then the country suffered a series of economic shocks and slipped into a grinding recession, which deepened in 1999. Compet.i.tive currency devaluation by neighbor and trading partner Brazil kneecapped Argentina's exports. In 2001, the government lost the elections. The International Monetary Fund came in to fix things. Its policies only made things worse. Millions of Argentineans became unemployed and poverty-stricken.

As the economy collapsed, the emergency was used as an excuse to implement policies that allowed billions of dollars to be swindled by foreign banks and corporations. Many of Argentina's a.s.sets and resources were plundered, and its financial system was used for laundering of drug money through Citibank, Credit Suisse, and J.P. Morgan, according to a report by the U.S. Senate Permanent Subcommittee on Investigations.7 If all this starts to sound eerily familiar to you, you're not alone in your thoughts. Many survivors of the Argentinean collapse note striking similarities between that country's early stages of trouble and the United States right now.

In 2001, it seemed that Argentinean society simply broke down. Wholesale looting started. A run on banks ended when the government froze bank deposits. Finally, spontaneous uprisings began, as people demanded the government resign. This wasn't just leftists and troublemakers; this was the middle cla.s.s and professionals on the march. The marches led to crackdowns including tear-gas, skull-cracking, and mounted policemen riding through crowds.

The people fought back. Chaos ensued. And all the while, Argentina's debt spiraled out of control. Hundreds of thousands of people lost their life's savings and half the population dropped below the poverty line.

In the countryside, an already hard life became tough. In the cities, it became a nightmare. Food ran out, the water wasn't safe, and a large number of people were kidnapped off the streets or shot dead over money or food. The police were overwhelmed by the rising tide of crime. Argentina couldn't afford fuel and the country was gripped by blackouts.

An Argentinean blogger, Fernando Aguirre, who writes under the pseudonym ferfal, relates his experience on his blog:Being in a city without light turned out to be depressing after a while. I spent my share of nights, alone, listening to the radio, eating canned food and cleaning my guns under the light of my LED head lamp. Then I got married, had a son, and found out that when you have loved ones around you, blackouts are not as bad. The point is that family helps morale in these situations.

A note on flashlights. Have two or three head LED lights. They are not expensive and are worth their weight in gold. A powerful flashlight is necessary, something like a big Maglite or better yet a SureFire, especially when you have to check your property for intruders. But for more mundane stuff like preparing food, going to the toilet or doing stuff around the house, the LED headlamp is priceless. Try washing the dishes on the dark while holding a 60 lumen flashlight on one hand and you'll know what I mean. LEDs also have the advantage of lasting for almost an entire week of continuous use and the light bulb lasts forever.

Rechargeable batteries are a must (get a solar powered battery charger) or else you'll end up broke if lights go out often. Have a healthy amount of spare quality batteries and try to standardize as much as you can.8 When the middle cla.s.s is scrounging for enough batteries to clean its guns by flashlight, you know things have gone to h.e.l.l in a handcart. We'll talk more about flashlights in Chapter 11.

For those Argentineans who stayed, life became a gamble. Many decided to get out. One expatriate, w.i.l.l.y Tovar, sat down with me to discuss his experiences.

w.i.l.l.y had been a journalist in Argentina. Newspapers were early victims of the economic troubles, and w.i.l.l.y counted himself lucky to land a job working in a think tank, writing an a.n.a.lysis of each day's events for private clients.

w.i.l.l.y had political contacts, and thanks to his job he was privy to more information than the average Argentinean. He came to the conclusion that the monetary peg of the Argentinean peso-one-to-one to the U.S. dollar-was unsustainable. "I realized that sooner or later, this would explode," he told me. "They just didn't have the money. I told my wife to go exchange all our pesos for dollars at the 1-to 1 exchange rate."

At the time, in 2001, Argentina was trapped in a downward economic spiral. President Fernando de la Rua tried one extraordinary measure after another, only to see them all fail. The derivatives markets saw his desperation as weakness and a ma.s.sive shorting of Argentine bonds ensued, followed by at least $40 billion in U.S. domestic capital flight.

w.i.l.l.y and his wife had a daughter, so he decided to get out. "I didn't want my daughter to live in what was coming," he says. He and his family moved to Miami. His only major a.s.set was his apartment, which he left a banking friend in charge of selling. "There were delays-but finally the sale went through for the equivalent of $32,000," w.i.l.l.y remembers. "My friend put the money in the bank, but there was a wait to transfer the money out of the country.

"Two days later, everything blew up. Our bank account-all bank accounts-were frozen. The President ran away," w.i.l.l.y says, and the government collapsed.

President de la Rua was actually forced to resign. Had the bank withdrawls continued, Argentina's entire banking system would have collapsed. As it was, ma.s.sive queues at every bank and a growing political crisis tipped Argentina into a state of panic. Food riots spread across the country and devolved into general looting. de la Rua tried to work with the army to hand out food, but the plan failed after it was blocked by his political enemies. The president tried one last time to form a coalition government and that failed, too.

He resigned, and because of widespread violence, he fled onboard an air force helicopter. The images of de la Rua's escape by helicopter were broadcast throughout the country.

The equivalent would be seeing Barack Obama flee Washington, an angry mob nipping at his heels. But that couldn't happen here . . . or could it?

Argentina's crisis eased when the country devalued its currency by 30% and defaulted on (and then renegotiated) its enormous foreign debts. The peso settled at about four to the U.S. dollar (it has since risen to about three to the dollar). w.i.l.l.y's $32,000 nest egg quickly turned into $8,000, which was how much he was able to get out of the country.

However, w.i.l.l.y's experience offers some important lessons:* He paid attention to economic and political developments, soaking up information like a sponge. He also questioned everything the government told him, and made his own informed decisions.

* When he realized that life in his country was going to change for the worse, perhaps forever, he developed an escape plan. The only thing of real importance to him was his family-he wasn't sentimental about physical things.

* The financial loss was devastating, but w.i.l.l.y didn't cry in his beer. He got on with life and got back on his feet.

Now, the former Argentinean journalist cleans pools in Florida. But he's okay with that. "My daughter will have a better life here, " he says. "If I go back to Argentina it will be for vacation, and I'll be sure to have a return ticket in my pocket."

A warning (maybe) for Americans is that Argentina's foreign debts at the time of the crisis, $141 billion, seem like child's play compared to the ma.s.sive debts that the United States has been racking up lately.

Argentina did recover. By 2003, four years after the deep recession started and two years after the breakdown in social order, the economy was growing again.

Argentina's economy grew at least 7% a year starting in 2003 through 2008, but slowed sharply in the last three months of 2008. And there are some parts of Argentinean life that have changed forever. Crime is epidemic, as is drug use and corruption.

"Corruption is so bad in Argentina, if you have money, you can commit murder and not go to jail," w.i.l.l.y says. "Whereas someone who steals a chicken goes to jail for life."

Lessons Learned from New Orleans and Argentina Disasters and emergencies bring out the best and the worst in people. The more you prepare ahead of time, the better your chances of coming out with a rep as one of the best. The less you prepare, the more likely you are to fall prey to one of the worst. There is no time to buy supplies after disaster strikes.

The police will be good for directing traffic and enforcing the law in the early stages of a disaster. But when the s**t really hits the fan, they'll be looking to protect their own families. Police lines will stretch thin and even disappear, leaving you to fall prey to looters and vigilantes.

We, all of us, stereotype people based on looks. The troublemakers in New Orleans came from many races, and from both the lower cla.s.s and the middle cla.s.s. Just because someone doesn't fit your profile of a bad guy doesn't mean they're safe-after all, Mr. Homan was lied to and locked up by the supposed good guys. Also, you may find fast friends and allies if you can look past skin color and find common ground.

The police can't tell the good guys from the bad guys, either. In the aftermath of Hurricane Katrina, New Orleans Chief of Police Eddie Compa.s.s ordered police and National Guard units to confiscate firearms from citizens who remained in the area. The Disaster Recovery Personal Protection Act of 2006, which prohibits the confiscation of legally possessed firearms during a disaster, has supposedly rectified this, but it has yet to be tested.

The vast majority of the violence in a crisis occurs inside cities. If you aren't hunkered down for the long term, get out of town!

Getting your finances in order is a priority and something you can do before disaster strikes. It's too late to do it afterward. You can start by spending less than you make, but there are many other things you can do. You'll find some ideas in this book.

We Are All One Bad Turn Away from a Crisis

The way things are going-what with floods, fires, global warming making both summer and winter storms more severe, economic crises, crazies with nukes, you name it-I think it's likely that you'll be caught up in your own crisis or disaster in your lifetime. And if you can't avoid disasters, the important thing is how you cope when they occur.

The real danger is that, as our government creaks under the weight of insurmountable debt, the U.S. empire crumbles, and society totters on the brink, we may see law and social services disappear for extended periods of time. I don't want to live through that, but the odds are increasing. For that reason alone, you must become resilient and self reliant.

In my own life, I've experienced a string of hurricanes that rattled the shutters like an oncoming freight train, sent tree limbs tumbling into my house, and knocked power out for weeks at a time. Getting through those times would have been much easier if I knew better then and was prepared the way I am now.

The Least You Can Do * Keep working flashlights and plenty of batteries handy.

* Know what's really important in your life and be prepared to walk away from material things in a crisis.

* Stay tuned in to the news-it's tough to know when the government is lying to you, but you've got to try and figure it out.

PART II.

MONEY-PERSONAL FINANCE, CASH, AND PRECIOUS METALS

CHAPTER 3.

Personal Finance How did you go bankrupt?

Two Ways. Gradually, and then suddenly.

-Ernest Hemingway, The Sun Also Rises In this chapter, we'll look at personal finance-how you can improve your finances to improve your odds in a regular economic downturn, a full-blown recession, and an economic collapse. I'll also show you what we can learn from financial crises of the past. I'll give you tips to get your financial house in order, including a 401(k) survival guide. And, I'll look at what careers may thrive in a post-collapse society.

But in order to learn how to move forward, it 's important to know how we got to where we are today.

A Big-Picture Look at the U.S. Economy-We' re So Screwed

You know about the housing bubble, and how its bursting has kneecapped the U.S. economy. And yes, the banks blew all our money on exotic derivatives that few people could understand (I sometimes wish they blew the money on exotic dancers-it would cost taxpayers a lot less dough, because you can't leverage strippers).

There's also the problem of state budgets-from Maine to California, states have seen their revenues dry up with the economy. According to the Center on Budget and Policy Priorities (CBPP), at least 48 states from Maine to California faced or are facing shortfalls in their budgets at least through 2010, and severe fiscal problems are highly likely to continue into the following year.

The CBPP posted this dire warning on its web site: "Combined budget gaps for the remainder of this fiscal year and state fiscal years 2010 and 2011 are estimated to total more than $350 billion."

Unlike the federal government, states cannot run deficits when the economy turns down; they must cut expenditures, raise taxes, or draw down reserve funds to balance their budgets. Reducing services and payrolls becomes urgently necessary. This, in turn, adds another twist to the vicious downward spiral in the fourth factor in a worsening economy: consumer spending.

Consumer spending accounts for about 70% of total economic activity, so it's bad news that 2008 and 2009 saw consumer spending contract. This trend is probably going to become more p.r.o.nounced moving forward because consumers have a lot of debt to unwind. An average unwinding of debt would suck about $300 billion out of the economy.

The debt of households has climbed much faster than their net worth in the last 50 years, according to data compiled by the Federal Reserve.

Four rounds of debt reduction took place during that period, and they lasted for about 10 quarters on average. That means we have a long, long way to go.

Americans are becoming savers just at the time when the government wants them to go out and spend. While I applaud the return to individual responsibility, this is really going to put the brakes on any government-led scheme to jump-start the economy.

Keep in mind that the personal savings rate dropped from 9% in the 1980s to just 0.6% from 2005 to 2007. By May of 2009 the personal savings rate had rebounded to 6.9%-a huge increase in a short period of time. That was a gigantic hit to consumer spending.

I think we have a long way to go in our economic downturn. In fact, the global economy in early 2009 was worse by some metrics than the global economy in 1930.

That's not to say we couldn't see a recovery-one that may last for months. In the Great Depression, it looked like the worst was over in 1933, as the plunge paused and the economy improved. Many people breathed a sigh of relief, only to see the Depression continue in this country until around 1939 (in some countries, it lasted longer). (See Figure 3.1).

Figure 3.1 Industrial Production Index Source: St. Louis Fed.

That's not to say we're in another economic event that will play out just like the Great Depression. While that seems to be the furthest that most Americans' memories can reach back, there have been financial panics that were just as bad. Two of them-in 1837 and 1873-were worse than the Great Depression by some metrics.

In fact, there are some eerie similarities between today's downturn and the panic of 1873-real estate speculation causes a ma.s.sive market collapse, the failure of leading bankers, and a currency crisis-that make me think it may be more of a blueprint for the coming decade than the Great Depression.

It Was Bad in the United States, But in Europe . . .

Here in the United States, the Panic of 1873 actually started in 1869; it just took a few years to get to the really bad part. It was a combination of railroad speculation, a run on physical gold, and brand- name bank and brokerage houses failing.

Across the pond, in Europe, it was much worse. And it gave one of the world's most legendary capitalists the chance to make a fortune for himself and his friends.

I'm talking about Baron Nathan Mayer Rothschild. Rothschild was a respected French investor who became the stuff of legend during the financial crisis.

It was a terrible time. A building boom ended with a mortgage bubble bursting. This was followed by a swoon in the prices of many industrial commodities. There was even an energy crisis of sorts-an outbreak of equine influenza (horse flu) saw many forms of transportation temporarily grind to a halt.

Europe fought the Franco-Prussian War, which ended in defeat for France. Emperor Napoleon III was captured, and the French government collapsed. The economic woes combined with military defeat allowed socialists to seize control of the French capital. Paris was turned upside down, and mobs ruled.

And that's when Rothschild told his clients it was time to buy. The story goes that a panic -stricken investor turned up at Rothschild 's office and exclaimed, "You advise me to buy securities now? NOW?! The streets of Paris run with blood."

Rothschild, calm as ever, answered, "My dear friend, if the streets of Paris were not running with blood, do you think you would be able to buy at the present prices?"

There is a second part to Rothschild's quote-one that is perhaps even more impressive: Buy when there's blood in the streets, even if the blood is your own.

Rothschild proved to be quite prescient. French bankers were able to fund a counter-revolution. And the investments that Rothschild and his friends made doubled in value, and then went higher!

While many U.S. banks failed in the Panic of 1873, we got off lightly compared to Europe. The global depression lasted until 1879. And the end result was that the center of gravity for the world's credit shifted from Europe to the United States.

Rothschild's lesson for us is that investors can do very well in a panic, but only if they have a strong stomach for pain and a very long (many-years- long) time frame.

And this time around, the world's financial center of gravity may be shifting again-to Asia. Yes, our economy is huge compared to China's. I'm not saying this shift will happen overnight. I'm saying that we may be at the start of a process that will see the sun dim on the U.S. economy and the U.S. dollar.

Are Things Bad? Yes!