Your excellent post about the possibility of simultaneous inflation and deflation got my head to spinning about ways to protect ourselves from a seemingly near-certain banking crisis. Such a scenario would certainly be a major headache for everyone, no matter how large their bank accounts, but it would be a huge problem for those of us who are in business for ourselves and need a constant cash flow through the banking system to pay payroll, expenses, taxes, etc. Therefore, I wondered if you and/or any of your readers had any suggestions for preparing for banking problems ahead of time, just like we do (and have done) with other areas of life. I find that one of the greatest benefits of your blog is that almost every post stirs me mentally and spiritually, to evaluate and re-evaluate my attitudes and actions when in comes to preparedness, and to pray over them for guidance. Perhaps others have been thinking likewise, especially when it comes to the banking crisis. I’ll start out with my own situation and suggestions, and hopefully others will build on them – or refute them if needed.
My situation is that our seasonal family business usually generates enough in the first 6-9 months of the year to support us for the remainder of the year. In the past, we have kept these funds liquid in our corporate bank account and used them for payroll and regular operating expenses each month as the year progresses. Now, however, I am concerned about a possible banking crises (bank runs, failures, limits on withdrawals, etc.) that is getting more press – even in the mainstream media. How can I best protect my assets, not lose what we’ve worked hard in the early part of the year and still have the money/cash/etc. available for use? I can vividly imagine a full-blown banking crisis like you mentioned in your article – and I shudder to realize that available funds we depend on could be “frozen” for a time (at best) or gone completely (at worst) in such a scenario.
I’ve thought of several options:
1. Spread the risk among several banks by opening other accounts, with each account holding a small amount of our total funds, so that if one bank fails, all our “eggs” would not break in one basket. This would be a bit cumbersome, but could work unless/until things got really bad across the board in the whole banking system.
2. Pull out more cash now and use petty cash to pay for things instead of checks and credit cards. This would be a paperwork nightmare to keep a lot of receipts and could be a security problem, but would certainly be liquid. However, would this also open us up to look like drug dealers or doing something shady?
3. Immediately purchase in bulk any items we would need for the future, prepay any bills for the year, and keep only enough money in the bank to pay large expenses. I like this idea since it would also beat inflation on basic goods we already need and use. We already have a one-year surplus of food and emergency supplies, etc., but perhaps we need more. However, this wouldn’t help meet payroll, taxes, etc., unless we had to start paying our employees in toilet paper and food stuffs!
4. Buy gold and/or silver now with the funds we have. Sell the same later in the year, as the funds are needed, and when the metals (hopefully) have risen compared to the dollar. I’m not sure how feasible this idea is. Would there be any advantage at all, or would my profit get eaten up in transaction/sales fees, etc.? Also, if there were a large scale banking crisis, how do we possibly exchange our gold and silver for FRNs (or whatever the currency may be)?
I can certainly see the wisdom in having supplies positioned in advance and thus be able to “hunker down” in place or at our retreat for a time. There are so many possibilities and variables! Perhaps a combination of all of these – and more – would be best. Well, that’s a start. Thanks for any light you may be able to shed on this. – Greg in North Carolina
JWR Replies: My advice is to use a combination of all of the options that you described, with the exception of option #2. In the coming years, as inflation kicks in, greenback cash will start to seem uncomfortably perishable. OBTW, I suspect that the “$10,000 in cash or equivalents” Federal tax reporting threshold will be frozen indefinitely, despite the unceasing march of inflation. Hence, more and more innocent people will come under undue scrutiny from the IRS.