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Is America Headed For Another Financial Crash?

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financial crash

As the markets continue to soar, and the government continues to print money, I can’t help but wonder: Is America headed for another financial crash? As you probably remember, we had one a few years ago that many of us were affected by. Watching the news during that time and seeing the protests on Wall Street it seemed that change was in the air. Overall, people started saving more and spending less. It was a positive trend that needed to become permanent. Today, the situation looks a little different. As a nation, we seem to be back to our spend happy, undisciplined ways.

My question is, how does this affect you and me? More importantly, if there is another financial crash, are you and your family prepared to weather a nationwide or worldwide financial crash?

Financial Crash Preparedness

 

I love reading about the period in American history known as the Great Depression. Studies indicate that during that time, Americans were living with a near 25% unemployment rate, and foreclosure rates, it’s reported, were anywhere from 25% to nearly 50%. Lines at soup kitchens were at an all-time high, and people who were “livin’ large” during the period known as the Roaring Twenties suddenly had to do a 180 and learn how to live on little or nothing.

I think what intrigues me most about that period in history is that virtually no one expected it. Most everyone thought that the lavish lifestyle of the Roaring Twenties would go on forever.

Reality Check

 

But the good times and prosperous nature of the Roaring Twenties didn’t go on forever, and the financial crash that began the Great Depression in 1929 lasted for over a decade, compounded by natural disasters such as long-term drought, which further depleted citizens not only of cash, but of the ability to grow food in much of the country.

Many families had to pack up and leave their drought-ridden areas with nothing but the clothes on their backs. In search of more fertile land, they left everything they knew hoping to find jobs or at least find an area where the soil was moist enough to grow food to eat. This was the tough reality that many people and families faced in the 1930s and 1940s.

Preparedness is Key

 

So, if America does experience another financial crash, are you prepared? Are you in a situation where you can live on half (or less) of your income if need be? Is your debt load manageable, and do you have a plan in place if things were to suddenly change for the worse financially?

The best defense against a financial crash is a good offense. Kill debt, have cash on hand, and work on creating multiple streams of income so that all of your income eggs aren’t in one basket. For instance, those owning rental properties, especially debt-free rental properties, during the Great Depression did well financially as those who lost their homes due to foreclosure looked for living quarters to rent.  Those with plenty of cash on hand also did well financially during the Depression, as they had the means to buy, at a fraction of their value, assets that those desperate for money were looking to sell.

A financial crash may or may not come to America’s shores, but every time I hear how well the markets are doing, and how people are making money hand over fist in their investments, I get a little bit nervous, and I wonder if we are doing enough to prepare for another “surprise attack” on America’s economy. Do yourself a favor and be prepared in your own world just in case history repeats itself, and a worse financial crash comes our way than we’ve seen in a long time. Markets rise and fall, and crashes come and go in any economy, but those crashes are much easier to weather for those families and individuals who’ve prepared themselves ahead of time to be in as solid a financial situation as possible.

 

Do you think America is headed for another financial crash? Have you ever had a “surprise attack” on your finances, such as an unexpected job layoff? Do you have a plan in place to weather financial downturns?

 

 

Photo courtesy of: Ethan Stock

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Laurie is a wife, mother to 4, and homesteader who blogs about personal finance, self-sufficiency and life in general over at The Frugal Farmer. Part witty, part introspective and part silly, her goal in blogging is to help others find their way to financial freedom, and to a simpler, more peaceful life.

24 Comments

  • My husband lost his job suddenly about 5 years ago and we had to do an emergency re-work of our budget. We were worried but it worked out to suddenly switch to one income and the part that helped the most was that we budgeted one month ahead so we had some financial cushion we could fall into and then catch back up.

    • Laurie says:

      Wow – good thing you had that cushion, Alice! I would imagine that things would’ve been a lot tougher without it. Glad it all turned out okay for you guys.

  • What you said at the end of the post is key: market crashes happen all of the time, the important thing is to be in the best financial situation possible.

    This is why I urge people to get out of debt. If you have a $400 monthly debt payment, you need to earn $400 more every month just to pay that debt. That’s close to $5K. If you get rid of that debt, you are suddenly living on $5K less per month while still earning the same wage as before.

    And in the unfortunate event you lose your job, it will be easier to get by on $400 less each month than trying to come up with an extra $400 each month.

    • Laurie says:

      Exactly, Jon! I don’t think people often think of it that way, though, counting the difference it would make in their ability to survive a crash based on their monthly payments. Thanks for pointing that out!

  • Thoughts like these freak me out every once in awhile, but I do my best to control what I can to make my financial situation solid and better. I’m on the same page as Jon in tackling debt as a key component of being prepared for an event like this.

    • Laurie says:

      Brittany, that’s the ticket: do what you can and don’t worry about the rest. Your own financial situation will largely determine how you’ll weather an economic collapse.

  • Kathy says:

    The good news/bad news situation that exists in our country today opposed to during the 20s is that there are a lot of rules regarding how people invest in the stock market. Back then a lot of people invested on a margin. That is, they used the brokerage house’s money to buy more stock and when the price crashed, their loans became due…hence, the term margin call. The brokerages called in their money, which of course the investor didn’t have. Today there are some restrictions on this practice. Not outlawed but restricted a little more than then. The bad news is that special interest forces have so much power that the farmers in California are prohibited from watering their crops because environmentalists don’t want the water diverted from streams, rivers etc. due to other concerns (i.e. the snail darter example we always hear about). When perfectly good land for crops is not allowed to be used because more value is put on a fish instead of people, it spells disaster in the future if nothing changes. Back then, people did everything they could to grow their own food.

    I sincerely don’t mean to turn this comment into a political rant, but just mentioning differences between now and then. Being aware that it could happen again puts a person a step ahead in the preparedness realm.

    • Laurie says:

      Kathy, WELL said! It’s this truth that makes the dangers of economic collapse just as possible as it was in the twenties, even if it’s for different reasons. We need to be aware of these things, as you said, if we want to be able to prepare for them.

  • It’s not my area of expertise to predict and overall financial crash, but yes I was greatly affected in 2008 when I was laid off. I don’t necessarily prepare for the giant doom and gloom scenario, but I do for my own emergencies that might arise, like medical, car, etc. That being said a lot of my savings have been greatly affected by my dry months of work since July, so I’m going to do everything I can to replenish those funds as soon as (fingers crossed) work picks up.

  • As capitalism–particularly the Wall Street supervised US version–is inherently crash-prone, I think the answer to your post title is ‘yes.’ The trick is answering the question ‘when?’ 🙂

  • I’m a proponent of stocking up on basic food storage and other necessities in addition to having a cash emergency fund. You hope you never have to use it, but it’s a life saver if you do.

  • Money Beagle says:

    I don’t think it’s anything imminent that would lead us to a crash. Something unexpected could, or world economies elsewhere could drag us down, but I think we’re somewhat strong. Many have complained about the slow growth since we exited the recession, but I think that in the long term, the slow growth has allowed a more stable foundation to exist. Corporate profits are strong. If the economy slows, companies won’t have to automatically start firing everyone in sight just to stay afloat. That could make any slowdowns quite soft in the immediate future.

    • Laurie says:

      Thanks for sharing your thoughts, Money Beagle. What concerns me more than anything is the rising level of consumer and government debt. I fear that has the potential to bring us down real quick.

  • It makes me nervous too when people keep talking about how easy the money is to make in the market right now. I need to remind them that a correction is inevitable. Of course I don’t know when or what circumstance will warrant one but we won’t go straight up in this trajectory for the next 20 years, just not possible. I’ve been patiently waiting for a significant correction for a long time though so who knows.

  • I was thinking the same thing and when they announced this week the 3% down payment mortgage for first time home buyers I thought it won’t be long before that opens up to more than the initial audience and a repeat of 2007. I lost 24 years of 401K company match because it was all mandatory in company stock and if you were under age 50 you couldn’t move it. Well it evaporated when the new company that took over my company ended up tanking the stock. The CEO ended up a convicted felon and I lost $124K.

    • Laurie says:

      Oh dear, Tommy, that’s terrible!!!! As were many other of the situations of 2007 and following that. Hopefully we’ll be more prepared next time, and although you couldn’t have done anything to change losing your 401k, I’ll bet you see things differently now regarding investing. Best of luck to you, my friend.

  • Kurt’s right, it’s not a question of ‘if’, but rather a question of ‘when?’. I was made redundant in 2006, it left me with a little debt, but I thankfully paid back what I could and got the rest of the debt forgiven.

    Fast forward to now, we have a 6 months emergency fund in case my husband loses his job, and a mortgage that costs less than what we used to pay to rent a one room flat…

    We’re here in the uk, where our economy is also growing. But what happens in America affects us greatly… even our own prime minister is publicly warning of imminent danger. I think it is so important we, as a society, learn to manage our emotional connection to money. The love of money (greed), really is the root of all evil. We should think of it as a useful tool in or lives, to help us achieve our goals and dreams, rather than chase after it for the sole reason of acquiring more of it.

    • Laurie says:

      Wow, M, that is interesting that the PM is warning of imminent danger. And I couldn’t agree more about us needing to reign in our emotional connection to money – hopefully sooner rather than later.

  • Great post Laurie. Those of us in Ag lending have been concerned about this happening since there’s been such a turn in commodity prices in the last year. We went from all time high prices on corn and wheat, when farmers could afford to replace all their equipment and have tons of cash on hand to LOW prices this year. Now we have people who can’t service their debt and are having to fight hard to keep their operations afloat.

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