Our countries financial stability, government overspending, high taxes, and the national debt are major issues for many people. This is especially true for preppers and anyone involved in preparedness and self-sufficiency.
People have been talking about an economic collapse for decades, and we’ve had a couple of close calls in recent history, yet we always seem to pull through. With that being said, is an economic collapse in our future? Or is it something we worry too much about?
While it’s true that a full-blown Economic collapse that thrusts us into a Mad Max type situation is highly unlikely, an economic crisis is much more likely. Hyperinflation, a recession, a depression or a Venezuela type situation are very real possibilities.
SPP275 The Impending Economic Collapse
Our national debt is the number many people reach for to prove their point for a financial collapse. But truthfully that is only one piece of the puzzle, and the number isn’t as bad as you might think.
The United States GDP to Debt ratio is about 106% meaning the government is spending 6% more than we are producing. it’s also interesting that 6% of government spending goes to paying the interest alone on our 20 trillion dollar debt.
If we bring this down to a personal level we can see why this alone does not mean we are on the brink of a collapse. The average US household makes around $59,000 per year. For the average household to have the same 106% debt to income ratio, they’d need to be in debt $62,500.
Considering most people have a mortgage, student loans, personal loans, and credit card debt, that $62,500 number is less than what some people actually owe.
We owe about $200,000 on our home loan, does that mean we are on the brink of financial collapse? Not likely, but that could all change for a number of reasons.
Irresponsible Spending & the Unexpected
Even though I don’t think I am personally on the brink of financial collapse, that could all change with a job loss, medical emergencies or unexpected expenses. This is why a financial collapse (or crisis) on a national scale concerns me.
The GDP (Gross Domestic Product) is the way we measure a country’s economy. GDP is the total value of everything produced by all the people and companies in the country.
This means that the GDP is OUR money. The government is banking on the fact OUR economy is good enough to keep paying off THEIR debt and irresponsible spending.
Again on a personal level, we may be able to pay a monthly mortgage, but that get’s much tougher when we add in our other monthly and unexpected expenses.
When you add in expenses for children, unexpected repairs, unnecessary spending, and interest charges, paying the mortgage get’s a lot tougher. In the government these are social programs, natural disaster relief, frivolous spending, and unfunded liabilities.
In short, I don’t believe that our national debt alone means we are on the brink of a financial collapse, but it is a good indicator of how we are digging a hole that’s getting deeper and deeper. If the economy doesn’t stay status quo we are in big trouble.
Why the Debt Matters
I found an article that lists 10 reasons why regardless what some people say, the national debt does matter. The article states that the interest alone on the debt will rise to nearly 1 trillion dollars by 2028.
They also mention how rising debt could mean lower incomes, our ability to respond to a crisis gets hampered, being financially responsible give us a safety net.
Different Types of Collapse or Crisis
Banking Crisis: In 2008 we came very close to a financial disaster even though there was a massive “bail out”. To me this is like putting a band-aid on a bullet wound, and prolonging the inevitable.
Financial Bubble: Back in 1995 when the internet was in it’s infancy people were throwing money at any internet startup company. This lead to a fantastic economy until the bubble burst in March of 2000.
International Financial Crisis: With just about every country in the world being in debt, and with the global economy becoming more important everyday, a global crisis has become a possibility.
Depression & Recessions: Our economy is naturally inclined to rise and fall, but when that goes too far in either direction it can lead to bubbles, and then crashes.
How people will react
People become very unpredictable when faced with life threatening issues, especially when you consider the entitled mentality most Americans have.
This is because people have been trained to be dependent on government, and have the unrealistic expectation that the government is Superman. They think they will swoop in and save them.
In podcast episode 183 Lisa and I talked about how people become the X factor in any crisis situation. When peoples lives get turned upside down, most will have no idea what to do. When that happens, people become dangerous and unpredictable.
How Prepping Helps
When it comes to preparing for an economic collapse, there isn’t an exact list like there would be for a hurricane or a earthquake. Everything we do to become better prepared will help during an economic crisis.
In a recession or depression type situation food will be our main priority because that’s where most of our money goes. Investing in silver, getting out of debt and water storage are also important.
Final Thoughts…
I am no economist, and with so many moving parts to this puzzle it’s hard to say what will happen. But I do know that if I were to stop paying attention to my budget and start throwing money around I would be in big trouble.
If only I had a printing press…
1 Response to "The Impending Economic Collapse: Are Things Really That Bad?"
Good afternoon Dale and Lisa! Just got done listening to the new podcast. I really liked your thought process of where things are in the country in relation to an economic crisis and as usual how you guys covered the items. I understand what you said and that you in no way are trying to consider the debt as a non or small issue.
However I am struggling a bit with the National Debt displayed as a percentage of the GDP and here is where I am coming from. GPD is the total economy measured in one year. That is all consumer consumption, government investments, government spending, gross investments, etc. Basically all spending in our country from all citizens, the government and US companies. Of course the National Debt is the accumulative outstanding amount that the government spending minus the government revenue.
To use your example of bringing it home lets compare it to an HOA in a neighborhood. In this example lets say the HOA is spending more money than they are bringing in for swimming pool repairs, new tennis courts and landscaping upkeep. For this example lets say the spending is $50,000 for the year. The HOA is expected to bring in $40,000 from the neighborhood residents which leaves a deficit of $10,000. Now lets say this practice continues for 3 years and now the ‘debt’ is $30,000. The HOA could sell some ‘neighborhood bonds’ that will return 10% after three years to cover the bills for that year but remember in 3 years those bonds have to be paid with interest. The HOA is spending 20% more than they should be budgeted for each year which is accumulating interest over time.
Now lets say the GDP of the HOA neighborhood is $500,000. To compare the 3 year debt to the GDP would give us 6% (30,000 / 500,000). This is true that the debt of the HOA as compared to the Neighborhood GDP is 6% but is it relevant in the sense of evaluating the financials? At the end of 3 years the HOA debt is 60% compared to revenue of the HOA. I believe this is far more important to consider.
The 2019 budget is $4.407 trillion with expected revenue of $3.422 trillion which gives us a $985 billion deficit. This will be added to the National Debt of $21.621 trillion. The $985 billion deficit is 28.8% of the expected revenue for the year, or we can say spending is 128% of the expected revenue.
To sum it up I am saying that yes the national debt is 106% of the GDP. But in my comparison above I am saying that the comparison of spending versus revenue is a better way to evaluate the issue. 128.8% spending compared to revenue demonstrates that spending must be curtailed or revenue increased to cover the deficit.
Think of it this way. Lets pretend you and Lisa decided to buy a brand new Earth Roamer at $250,000 dollars and your income is the average $60,000 and you spend a total of $50,000 a year. Your payments for each year on a 10 year loan is
$25,000 (interest free because Lisa is such a nice person). You will be short $15,000 every year until it is paid off, accumulating a total debt of $150,000. But now lets say we want to compare it to all of your extended family’s income which is say $600,000 and total spending of the extended family including yours is now $615,000. The debt for one year is at 2.5% of the extended family’s income (GDP). What does this tell us? That you and your extended family is big enough that there will be raises, some will spend less and there is a decent chance that the extra money being spent by you will be covered. This is what I compare to a socialist or communist society and how I think these governments get into power.
I am very curious what your thoughts are?
Thanks for all that you guys do. This is how I keep my sanity!
Thanks again,
Robert