Saturday, March 9, 2013

Cash Stash and Emergency Supplies

Fernando,

I was changing the gas in my emergency generator today and thought of you (I asked you about generators several years ago before I purchased a 2800 W Yamaha with a pure sine wave inverter - very nice, very quite). 

At the bottom of page 217 you wrote, "Example: if the USD crashes and you decide to sell some PM's to buy a month's worth of supplies, do it quickly, sell the PM's or Euros or whatever other solid currency you have and use the dollars that same day or the following day at most"

I understand the concept. Get rid of the currency ASAP due to the inflation risk of a depreciating currency. Otherwise keep the investment in PM's or stronger currency.

My question is the timeline of the currency decline in Argentina. I assume, when the banks first closed, cash was king. I assume, if you had cash for that first week while the majority of people did not it was a blessing. But, for how long. Would it have been wiser to transfer the cash in the early stages, or even prior, of the decline into other hard assets such as food, or ???. (CURRENT EXAMPLE: In the USA if you haven't acquired your self-defense tools by now, you are too late to the party)

FYI - I read your book when it first came out and I have successfully prepared according to your suggestions. I have been truly blessed and have accumulated diversified assets over the years. QUESTION: Is having a substantial amount of cash on hand/home (6 months expenses plus) too much? Will having cash allow me to buy objects for a "deal" if the banks are not open for that first week, or is that not how it went down in Argentina? Did the value of money decline immediately? I already have reserve food. But was thinking that when this happens I would immediately take that money, go to the Grocery/Warehouse and stock up large. Once again I have prepared according to your recommendations in the book. I currently have everything else -PM's-Self Defense-4wd-BOL-Bibles-Water-Food. I am just wondering if I am placing too much value on having cash when it does fall apart.
Thanks for all of your insight,
Gerry

 Hi Gerry,

Having too much cash is a problem lots of people would love to have :-) ! But I do see your point.
How fast a currency loses value can be a matter of hours, even minutes. I’ve related many times how a couple months after the collapse, I was picking up some tools in the hardware store and the employees could be seen running around sticking new prices over the old ones, there wasn’t even time to remove the previous prices. By the time I picked up the drill I was buying, looked around for a couple minutes and made it to the cash register the drill had doubled in price. I complained, we went back to where I picked it and indeed the new price was there, but I peeled off a couple stickers and showed the price at which I had picked it up.

In the case of Argentina, with the December 2001 devaluation the peso went from 1 to 1  against the dollar to 1 to 1.4. A couple days later people where buying it on the street for an exchange rate of 1 to 2. You could buy at the “official” 1.4 at banks and sell at 1 to 2 on the street, making money with the “financial bicycle” as it was then called. Within days the official exchange went up to 1 USd to 2 Pesos to stop this. A month later the exchange rate was 1 to 3, two months later it was 1 to 3.6, spiked to 1 to 4 but then went down again and remained at 3 to 3.5 for several years until 2010 when it started going up again. Today the official exchange rate is 1 dollar to 5 pesos, but since buying dollars is officially banned you have to go to the black market where the price is 1 to 7 or 8.

Based on what I’ve read, yes, a currency can become completely worthless overnight, but that’s most often the case of very unstable economies like we’ve seen in Zimbabwe, for example. Don’t expect the dollar to lose most of its value overnight, it will be a much slower process, even spikes will be moderate and taking several days. 

Now, you mention food, guns and even your generator, which are pretty much mandatory in places where storms may leave you without power for weeks.
These are the things you need to have for preparedness and which are either impossible or hard to get with short notice should you ever need them in a hurry.
Generators will be sold out and fuel will be impossible to find when there’s a big storm, we saw this very recently with Sandy and we have seem similar events unfolding before during other natural disasters. In that case the money does you no good. You need the actual genny and enough jerry cans to get by for a week or two. Same thing goes for food, guns & ammo and medical supplies. 

 Yamaha EF2000iS 2,000 Watt 79cc OHV 4-Stroke Gas Powered Portable Inverter Generator (CARB Compliant)

Jerry Can - 20 liter

Today its hard or even impossible to find 9mm and 22LR among other calibers.  If you didn’t stock up back in the day, today you find ammo to be hard to find and expensive.  If the dollar crashes, you would see these products going up accordingly. The price of a Yamaha or Honda generator wont  stay the same for long, it will quickly go up in proportion to how much value the dollar lost and you will pay two or three times as much as you would have paid before. In that case, the cash you have in your pocket is “melting”, buying you less goods and services as times goes by, especially so for high value goods like guns, a generator or other items that involve significant use of imported components.

Still, as you note, yes you sometimes make nice deals during that kind of unstable times. While the currency is devaluating, at the same time there’s a shortage of cash to go around so you can use that as leverage to some extent, especially during the first weeks. After the first three or four weeks the dust settles and you lose some of the leverage even though cash always lands you some discounts. In this case yes, you are better off using the cash that is devaluating, stocking up on food, fuel, paying bills and generally using up the money before its worth even less.

Six months worth of expenses in cash is not a bad idea in my opinion. It would sure give you options if things ever get ugly fast, such as buying your way out of there if you chose to escape to a safer country. I like the idea of having enough money in cash to buy plane tickets for each family member, plus some money to get by, maybe rent a place to live as you get settled. Beyond six months you probably want something that is more “economic collapse proof”, so you’re looking at precious metals.  


My advice for everyone is, cover the basics of a month worth of food, water, and a gun for protection, then have a small cash stash for emergencies. Once you finish with your other preparation supplies, the ones you’re not likely to just go buy during emergencies, build up your savings further, with enough cash at home to get a plane ticket per person plus some more to get settled. 6 months worth of expenses in cash isn’t unreasonable if you can save up as much. You will sure find good use for it in a time of need one way or another. Beyond that we’re talking precious metals, and investments.

FerFAL

1 comment:

Anonymous said...

why not keep all that cash in PM's that are easily transferable to cash in pawn shops like junk silver or silver dollars? That way you retain the purchasing power.