Note from JWR:

Today we present a guest article from my mentor, Dr. Gary North. It was Gary that first inspired me to launch SurvivalBlog. I highly recommend subscribing to his free e-newsletter, Reality Check.

Delay and Pray: Why the FDIC is Broke, by Dr. Gary North

“If it ain’t broke, don’t fix it.” — Burt Lance

“If it is broke, don’t admit it before you absolutely must, and then blame it on events that no one could have foreseen.” — [Gary North’s] universal law of bureaucracy

Burt Lance was briefly the head of the Office of Management and Budget under Jimmy Carter. He was a Good Old Boy from the banking world of Georgia. A William Safire piece, “Broken Lance,” created enough bad publicity to persuade Lance to retire in September 1977. The article won Safire a Pulitzer Price.

Lance’s aphorism, taken from the South, has been with us ever since.

I made up the second aphorism. It is based on my 40+ years of studying government bureaucracies.

The FDIC adheres to the second rule with remarkable tenacity. It closes no banks until Friday afternoon. This ensures that there will not be a run on the bank.

BANK RUNS

A bank run today is not the old-fashioned kind that we see every Christmas season when we watch “It’s a Wonderful Life.” That was a pre-FDIC bank run. A bank run took place in the Great Depression when depositors, who had been promised payment in currency on demand, exercised their contractual rights. The banks were unable to fulfill their contractual obligations because they had loaned out the
deposits. The deposits were short-term. The loans were longer-term.

Longest of all for banks were home mortgages: five years with 50% down. Longest of all were home loans made by Building & Loans, what we called Savings & Loans until the crisis of the mid-1980’s forced them to become banks.

“Borrowed short and lent long.” That was Jimmy Stewart’s problem in the movie.

Potter ran a solvent bank. He had not made long-term loans. The bank could cash in his short-term loans and pay its depositors. It could meet its contractual obligations.

Wicked, mean Potter!

In contrast was the lovable George Bailey. His institution had made long-term loans. It stayed solvent during a bank run only because (1) Bailey gave up his $2,000 honeymoon [savings] money (about $20,000 in today’s money); and (2) the bank run ended at 6 p.m. The bank run did not start up again the next day. That wasn’t the work of Clarence, the wingless angel. That was the work of Frank Capra’s screenwriters.

Over 6,000 small banks went bankrupt, 1930-33. The FDIC was created in 1934 to prevent that kind of bank run. Its presence calmed depositors, who knew that a government- chartered institution insured their accounts.

The FDIC eliminated the old-fashioned bank run. It replaced it with the modern bank run. This is the type of run we see every Friday afternoon.

This run does not involve depositors going to a suspect bank’s ATM and pulling out currency. No one uses that much currency in conventional markets — only in black markets, Latino men on the street corner markets, and gun shows.

Instead, they send a bank wire draft to make a deposit in a different bank. Or they write a check to a different bank and open an account.

When the money is deducted from the first bank, this reduced its liabilities. This must be balanced by an equal reduction of its assets. But a bank that is in trouble has illiquid assets. It must sell these at a loss. The net worth of the bank falls. The capitalized value of the bank falls. By law, the FDIC must intervene to shut down the bank when the solvency of the bank is threatened.

This law is not being obeyed. Why not?

“If it is broke, don’t admit it before you absolutely must, and then blame it on events that no one could have foreseen.”

Why does the FDIC wait until Friday afternoon to announce that a bank has been closed by the FDIC. To make the transfer of ownership legal by Monday morning, when it opens for business. “Under new management” means “you don’t have to send your money elsewhere.” This reduces fear.

If the FDIC closed a bank on Monday, before it had lined up a buyer, there would be a run on the bank all week. Depositors would shift their funds elsewhere. The FDIC would still be left holding the bag. The bag would have lots more IOUs to depositors by the end of the week. It is a bag filled with red ink.

The FDIC is liable for the deposits. The more pulled deposits, the lower the capitalized value of the bank. This means the FDIC is on the hook for more money. It wanted an outside bank to buy these liabilities and assets. If the liabilities must be covered by the FDIC, the FDIC must sell its assets.

It has less than $12 billion in assets remaining. It had $52.4 billion in 2007.

The following letter is posted on the FDIC’s web site. It is from an unidentified banker in Alabama. Here, we read the following:

If the public were to understand that the FDIC’s deposit insurance fund was at or near the point of depletion there would be a massive run on every bank in the country and the any remaining stability in the financial industry would be gone. This would likely result in the government having to take over more of these failed institutions and eventually having to guarantee all deposits thus resulting in a nationalized
banking system, which I 100% opposed.

If the FDIC posts a letter like this on its web site, then I conclude that the FDIC takes seriously this scenario.

The FDIC has a FAQ list on its site. The list does not include these questions, which I guess are not frequently asked:

How much money does the FDIC have in reserve?

How much money in commercial bank deposits does
this reserve base insure?

Where does the FDIC invest its assets?

Who insures these assets?

At the end of 2008, its annual report revealed that reserves were down to $17.2 billion (Fund balance — ending). That was down from $52.4 billion at the end of 2007.

Beginning in January 2009, 69 banks have failed. The list is here. [JWR Adds: Since Gary wrote this article last week, the tally of failed banks for 2009 has increased to 72.]

The general estimate is that the FDIC’s reserves are around $12 billion. They were at $13 billion in March. The ratio of FDIC reserves to banks assets covered was 0.27%, or 27 cents for every $100 in bank deposits.

The FDIC keeps its [so-called] reserves in short-term U.S. Treasury debt. So, every time it sells T-bills, the government must find a buyer, presumably in the private sector. The FDIC has access to money only by moving T-bills out of the government sector and into the private sector.

If there are no buyers, the Federal Reserve will buy the T-bills. So, the Federal Reserve System is the ultimate insurer of the banking system. How can it do this? By creating money out of nothing.

DELAYING THE ANNOUNCEMENT

The FDIC has an incentive to delay the announcement of another bank failure. If the bank can somehow dig its way out of its crisis, the FDIC conserves its reserves.

In March of 2009 Senator Dodd introduced a bill into the Senate, S. 541. If passed, it will grant the FDIC a $500 billion line of credit. It has not been debated in the Senate or the House. Why not? Publicity.

“If it is broke, don’t admit it before you absolutely must, and then blame it on events that no one could have foreseen.”

The FDIC is delaying the announcement of its takeover of three regional banks whose liabilities could deplete the FDIC’s reserves. Karl Denninger posted a revealing report on his site on August 2. It considered the situation facing these three banks. Two of them have reported negative Tier-1 Ratios. This means that they have a negative ratio of assets versus liabilities. They are legally bankrupt.

The third bank needs a $500 million infusion of private capital, plus another $500 million from the Federal government. If this bank goes under, it will be the sixth largest bank failure, by assets, in U.S. history.

It has $20 billion in assets. How much money might the FDIC be forced to raise by selling its own assets if this bank goes under? In the case of Florida’s BankUnited, which had $12.8 billion in assets, the FDIC had to pony up almost $5 billion. That was a loss of 40% of assets, Denninger points out. Yet the bank showed nothing like this loss until it was shut down. Neither did IndyMac.

The FDIC has not closed any of the three banks. By law, it must take Protective Corrective Action, Denninger says. It hasn’t.

These three banks are regional banks, not small local banks whose losses the FDIC can afford to absorb without much publicity on a Friday afternoon.

 

PAR FOR THE GOVERNMENT’S COURSE

Why did the other busted banks suffer such enormous percentage losses when the banks’ accountants revealed nothing like this? Denninger offers a cogent explanation.

An enormous number of banks are holding loans at or close to “par” that really aren’t. They’re holding mortgages at massively-inflated values, even on defaulted properties, and this is why you
are not seeing more foreclosure sales – that is, why inventory is being held back. If they sell it the accountants will force recognition of the loss, which will render them instantly insolvent, but so long as they “extend and pretend” they are marking these loans way, way above recovery value. The upshot of this is that these firms’ balance sheet claims on asset values are massively inflated, regulators know it, and
they’re intentionally ignoring it.

If this is true, which I think it is, then the continuing crisis in housing will pressure the banks even more. The suggestion that the crisis is over ignores the looming losses from defaults on re-sets of Alt-A mortgages and Option ARM mortgages. Over he next two years, they will rival the losses inflicted on lenders by subprime mortgages. The chart is here.

Denninger’s conclusion seems sensible to me.

The claim of banking sector health and “successful rescue by Treasury and The Fed” is in fact false. No such thing has occurred. What’s going on here is nothing more or less than intentional false claims of asset “valuation”, which is repeatedly exposed when the FDIC is finally forced to seize institutions, exposing the lies. Then, suddenly, 20, 30, even 40% losses on alleged “asset books” come out into the
light and the taxpayer eats them.

The banks are allowed to carry these dead and dying assets on their books at par value. This is par for the course — the government’s course.

[Like Denninger], I believe the FDIC is broke and knows it; that under the law they should have seized these three banks (and many dozens more, including some really big ones) some time ago, but doing so will force them to tap the Treasury “emergency” credit line. They’re well-aware that this could instill quite a bit of panic in the public (never mind Congress!); as such they, along with [the Office of Thrift Supervision] OTS and [Office of the Comptroller of the Currency] OCC are conspiring to (once again) hide the truth and pray for an economic recovery before they are forced to act as the law demanded months or even years ago!

This policy of delay and pray is pushing up the stock market. He pointed out that insider sales by corporate executives are higher today than an any time since late 2007. They know what is going on inside their own firms.

CONCLUSIONS

When banks refuse to sell empty foreclosed houses, the houses deteriorate. The bankers delay and pray, hoping the housing market will turn back up. They don’t want to list these properties as losses. They are allowed to delay such a listing until the properties are sold.

Empty houses deteriorate fast: weather, squatters, and vandals. This is why private property insurance firms revoke property damage insurance after 30 days of vacancy.

These capital losses are mounting, thereby lowering the value of the loans’ collateral. These are hidden losses. The lenders’ books do not record these losses.

The longer banks delay sales of foreclosed houses, the greater the capital losses for these banks.

The longer the FDIC refuses to close these banks and get these properties sold, the larger the losses the FDIC will suffer when it finally closes the banks.

The longer these empty houses are not sold, the longer this sword of Damocles hangs over the residential real estate market. This delays the recovery: too much inventory.

This “shadow inventory” is not reported to any official institution. No one knows how large it is nationally. All that investors know is that it is large, and it will get larger.

Delay and pray will fail. But no government official will lose his or her job when the day of reckoning comes.

Delay and pray will therefore continue.

“If it is broke, don’t admit it before you absolutely must, and then blame it on events that no one could have foreseen.”

Economics and Investing:

From GG:The FDIC is in Trouble. (Only 2/10ths of one cent in reserves left available for each dollar of deposits.)

Karen H. sent this: Recovery “not in sight” says BMW

Also from GG: U.K. Royal Mint Doubles Gold Output as Demand Swells

Greg C. found this one: Regulators close 3 banks in Florida, Oregon; total 72 “Bank failures have cascaded as the economy soured and loan losses soared, sapping billions of dollars out of the deposit insurance fund. It now stands at its lowest level since 1993, $13 billion as of the first quarter.”

Also from Karen H.: Crude Oil May Climb to $95 in Early 2010

Items from The Economatrix:

Job Horrors (The Mogambo Guru)

Obama Sends Stimulus Funds Overseas

Economist Says Recession is Over. (Don’t hold your breath.)

Cisco Cautious as Sales Fall 18% Predicting another drop in revenue

Banks Line Up for Second Round of TARP

Old Banks, New Lending Tricks

Rolling the Dice on AIG

Odds ‘n Sods:

Eric S. recommends the following story from PhysOrg.com: UK conservation agency launches plastic beehive

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From Karen H.: Wind Promises Blackouts as Obama Strains Grid with Renewables

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Federal Judges Order California to Release 43,000 Inmates. The streets of California may soon get a bit more mean.

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Mr. Cleans for Hire Tasked with Tidying Foreclosed Homes. (Thanks to Jeremy L. for the link.) OBTW ,SurvivalBlog readers should take note, and consider this a “growth” industry for the next decade. It fits with my recommendations of setting up a recession-proof small business for a second stream of income.

Two Letters Re: Advice on Storing Precious Metals

Sir,

Our prayers for you and your family continue daily.

My grandfather has six 12″x12″ square wooden posts on his farm house’s front porch. Each one has held various caches for over 55 years and no one has ever been aware. It was not until 20 years ago that I was painting the posts and felt the need to replace a split board that he let me in on the secret. By the way, if a cache needed changing, it was usually done every few year as the posts were scraped, primed and painted along with the porch.

For almost 16 years, our home has had PVC pipe caches inside our aluminum porch pillars/posts. Similar porch posts can be easily purchased at home supply centers or you can make them from wood like Pappy’s porch on the farm.

I realize this is not necessarily convenient for frequent changes in contents and they’re not perfectly secure from fire or tornadoes, but they have been effectively hidden from hundreds of people: family, strangers, etc. who have climbed, leaned, touched, and passed by them unaware, for years.

Better than a safety deposit box so far and I personally know of no one else than Pappy with a longer, successful track record of hiding and accessing caches. Please withhold my name and email as I’m giving away a family secret after much prayer for the benefit of others. Sincerely, – S. in Ohio

Jim,
Here is an idea on another place to hide cash or coinage at home: Take an old coffee can or two and put your valuable in the bottom of the can, fill it about half way. Then, on top put in a bunch of old nuts and bolts and fill to the top. Put these cans on a work bench in the garage or utility room with similar cans. Most thieves will not even touch them or look twice at cans of “junk”. Then just hope your wife never decides to “clean out your junk!” – Rick V.

JWR Replies: Your comment underscores the importance of letting trusted family members know the location of keys, caches, and vault combinations. The large number of abandoned safe deposit boxes each year is indicative that too any people err toward too much secrecy within their families. Ditto for caches of cash found in walls or found in attics, often decades after someone passes away. And who knows how many hidden (but undisclosed) valuables have ended up in landfills.

Note from JWR:

Today we present another entry for Round 24 of the SurvivalBlog non-fiction writing contest.

First Prize: A.) A course certificate from onPoint Tactical. This certificate will be for the prize winner’s choice of three-day civilian courses. (Excluding those restricted for military or government teams.) Three day onPoint courses normally cost between $500 and $600, and B.) Two cases of Mountain House freeze dried assorted entrees, in #10 cans, courtesy of Ready Made Resources. (A $392 value.) and C.) A HAZARiD Decontamination Kit from Safecastle.com. (A $345 value.)

Second Prize: A “grab bag” of preparedness gear and books from Jim’s Amazing Secret Bunker of Redundant Redundancy (JASBORR) with a retail value of at least $350.

Third Prize: A copy of my “Rawles Gets You Ready” preparedness course, from Arbogast Publishing.

Round 24 ends on September 30th, so get busy writing and e-mail us your entry. Remember that articles that relate practical “how to” skills for survival have an advantage in the judging.

Underground Survival Shelter Construction and Security–Learn from My Mistakes, by B.B.

In the summer of 1995 I decided to build an underground multipurpose survival shelter. I purchased the book Nuclear War Survival Skills by Cresson H. Kearney and went to work. If you want to know about shelters and what it will be like living in one, then purchase his book. My brother helped me for a while with the construction, but I did the majority of the work alone and it took me two years to complete the project. Let me say up front that I’m an amateur who used a brilliant book to build a shelter. Along the way I made many mistakes and had some unanticipated problems. Hopefully if you decide to do something along these lines you can learn from my many mistakes.

I purchased used 40 foot x 12foot diameter and 20 foot x 8 foot [galvanized steel ] road culvert pipes. The 20 foot long culvert would be used as the entrance to the larger pipe. The first step of my project was to enclose the ends of the 40’ pipe. In the back I used heavy angle iron to frame the end then 2x12s to enclose it. Welding on galvanized metal was a problem for me so I also bolted the braces to the pipe. When I finished enclosing the end it didn’t look right so I placed black roofing felt over the 2x12s and covered it all with a layer of plywood, painted it and then tarred it. I cut a hole in the back at floor level and inserted a 12’’ plastic pipe into the hole and ran the pipe up to the top for airflow. In the front of the pipe I framed it in with angle iron and just used 2x12s. I used 2x12s so that my front solid core entrance door would be right.

I used metal channel iron to enclose the floor of the pipe. I cut the floor frame channels to the proper length so that the floor was about 8ft in height so that I could walk and not hit my head. I installed a plywood floor and placed 4 foot square inserts in the center that would pull up and out for easy access to the lower level. This lower level gives me 4 foot x 40 foot storage under the floor with 8 feet of headroom on top. Along the sides I used two 2x12s wide for bench seats the entire length of the pipe on both sides. This is more than enough seating and is not in the way when you walk around in the pipe. I don’t want to gloss over this part but it took about a year for me to complete the inside.

After I completed the construction of the pipe I was ready to bury it. To accomplish this I rented a 988 Cat[erpillar brand wheel loader with a excavation bucket] and dug a hole for the 40 foot long section. I then buried it to the proper height so the 8 foot piece would match the door and then buried the whole thing. The 20 foot x 8 foot piece extended out the end far enough to prevent the soil from burying the front door. From the bottom of the pipe to the top of the soil is about 22 feet. After burying everything the front didn’t look right. There wasn’t anyway to secure the entrance to the pipe so I then I built a 20×20 wooden shed on the end to secure the entrance. I placed the pipe west to east so the airflow would work and buried the pipe with about 10ft of earth on top of the main 40-foot pipe being sure to protect the plastic air pipe on the end. The book says you only need three feet of compacted earth to protect you from radiation but 10 feet works for temperature control. [JWR Adds: In my experience, only foot depth of clay or loam soil is required to take full advantage of the ambient ground temperature, at least outside of permafrost zones.] The temperature is constant summer and winter and it is pleasant inside. I checked the level of the ground for drainage and adjusted the drainage away from the entrance.

Alongside my buried pipe shelter I placed a Santa Fe Railroad boxcar for storage. This was the real deal and made of solid metal. I filled the boxcar with lots of stuff that could be used for barter or just be used to keep us comfortable. After loading the boxcar with stuff, as a precaution, I welded the two large solid metal doors shut. The doors slid sideways to open so I felt it wouldn’t take much to prevent them from opening.

After I finished construction, my pipe complex was 80ft long, with a storage boxcar alongside. There was water, food, bedding, clothes, everything I could think of that I might need, I stored in the pipe shelter. There is water close by and I also had 8 – 55 gallon. used white plastic Coca-Cola syrup barrels filled with water inside the pipe. When I open the entrance door and the 12’’ plastic air flow pipe you can feel the air flow but according to the book that isn’t enough air for [very] many people and the book tells you how to increase the airflow for more people. On the right side of the pipe there is electrical plugs for 12 volt DC power and 2 Heavy equipment 12 volt DC batteries for power. On the left side of the pipe is 120 volt AC power [conduit and outlets] to be plugged into a generator.

The boxcar was for extra, non-essential items. My family and I could go to my pipe shelter without bringing anything with us and stay there for at least one year.

Lessons I have learned:
My first and biggest mistake was in believing that my property was secure. There is no possible way to secure property if you aren’t there to secure it. I have 120 acres fenced in and the pipe location is out of sight of the main road. I thought the location was secure but it only took the druggies a couple of years to find it. Once the word got out what was there everything went down hill fast. Now the property is always being broken into and trashed. They will steal anything and everything and then trash the rest. I live in the city and the [unoccupied] pipe [shelter] is 200 miles away from my home in the country. The pipe is located in the middle of my land but it doesn’t matter. (Hindsight) When you use wood to enclose your shelter eventually the Prairie dogs and druggies will find a way into it. 4 Wheeler [ATV]s can go anywhere and they do. Not only did they break into my pipe [shelter] and destroy and steal everything, they used a bumper jack to attach to the bottom of my metal door on my boxcar, jack it out and steal everything they wanted. Then when they had everything worth something they burned the boxcar. The interior walls and floor of a boxcar are lined with heavy wood and burns real hot.

So here is where I am now: I had to rebuild the front of the entrance to the pipe. I originally had some windows in front of my pipe complex to help add a little illumination so I used crusher screen cloth to cover the windows and doors. After the druggies broke into the pipe they left it open and the prairie dogs ruined everything left inside. I have cleaned out everything in the pipe and threw it all away. Now the pipe is empty but at least it is still usable, but my boxcar is a burned-out shell and unusable.

If you want to have a place in the country to escape to Good luck. You have to be there to be able to protect it.
I also buried some plastic 55gal barrels with some extra #10 cans of food in them. They have been in the ground for about 10 yrs and I have learned another lesson. There is enough moisture in the barrels to rust through many of the #10 cans. The barrels didn’t leak water but many of the #10 cans still rusted through. If you want to do something like this dip your cans in wax and that will protect the metal #10 cans from rusting. You can buy lids for 55 gallon barrels that snap on to the top of the barrel. They are thin but if you place a piece of rolled plastic on top of the lid and then some ¾’’ plywood over the top of the barrels they will be fine. Mine were buried on end with about two feet of soil on top. You can bury 8 barrels with a single piece of plywood over them and have a lot of #10 cans of food safely stored in a cool temperature. 10 yrs. of storage isn’t a problem if you store wheat, rice and beans as you can fill in the gaps later with storage easer to get to.
I find that this type of storage in 55gal plastic barrels buried in the ground works for many different things.

[Some information on another topic deleted, for brevity. It will eventually be posted separately.]

I hope this information is helpful. – BB

JWR Adds: I’ve heard may similar tales about unoccupied retreats being ransacked. BB’s experience underscores the oft-repeated need to either:

1.) Live at your retreat year-round, or

2.) Have a retreat caretaker, or

3.) Have a trustworthy year-round resident neighbor that lives in a house with line of sight to your retreat buildings.

Anything less than that cannot be relied on! There is some utility in motion-queued web cams, but there is no sure substitute for the Mark I Human Eyeball. I consider web cams just a good backup, and a means to capture images of would-be burglars and their vehicle license plate numbers.

If it is an underground shelter, then you might get away with a completely hidden entrance. Typically, this is done with a large scrap/junk pile. (Two of my consulting clients have done this, thusfar with several years of success.) Although it is labor intensive to remove, the “scrap pile camouflage” technique is fairly practical for a property that you visit only infrequently. But all it takes is just one untrustworthy person that knows about the shelter’s existence to make this approach ineffective. (The goblins will keep looking until the find the entrance.)

Given enough time, miscreants can reduce just about any obstacle to entry to an unoccupied and unobserved structure. They will come back with a cutting torch or even a backhoe, given enough time!

Economics and Investing:

Several readers sent this: About half of U.S. mortgages seen underwater by 2011

This was linked over at the Total Investor blog: China Warns Developed Nations of Inflation, Currency Threats

Straycat sent this one: Hunger Hits Detroit

Items from The Economatrix:

Cash for Clunkers Gets $2 Billion Refill

Job Losses Slow to 247,000; Jobless Rate Dips

AIG Reports 2Q Profits, First Since 2007s

Oil Rises Over $72 as Job Loss Slows

Fannie Mae Loses $15 Billion, Seeks $10.7 Billion in Aid After 2Q Loss The Mother of All Bailouts (MOAB) will not stop growing for at least a decade!

Mish Shedlock: Weekly Unemployment Claims Portend Disaster

Fed Laundering Money Through the Big Banks into the Stock Market

If You Hated Gasoline at $4 a Gallon, Imagine it at $20

Odds ‘n Sods:

What varmint is killing your chickens? Ellen F. suggested this informative predation web site.

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Slate conducts a thought experiment: The End of America 2009: How it will happen.

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In case you missed it when it aired in June, the US ABC television network’s “what if” documentary Earth 2100 has been posted to YouTube. Although it has plenty of Al Gore-style guilt-ridden “we ruined the environment” hand-wringing, it is still worth watching.

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Some rules of civilization (outside of a handful of cruel exceptions like the Ik tribesmen) are almost universal: Living in Tents, and by the Rules, Under a Bridge. (Thanks to “Ant” for the link.)

Jim’s Quote of the Day:

“How quiet, calm, and solemn, not at all like when I was running,” thought Prince Andrei, “not at like when we were running, shouting, and fighting; not at all like when the Frenchman and the artillerist, with angry and frightened faces, were pulling at the swab – it’s quite different the way the clouds creep across this lofty, infinite sky. How is it I haven’t seen this lofty sky before? And how happy I am that I’ve finally come to know it. Yes! everything is empty, everything is a deception, except this infinite sky. There is nothing, nothing except that. But there is not even that, there is nothing except silence, tranquility. And thank God!…” – Leo Tolstoy, War and Peace Volume 1, Part Three, Chapter XVII

Note from JWR:

Today we present another entry for Round 24 of the SurvivalBlog non-fiction writing contest.

First Prize: A.) A course certificate from onPoint Tactical. This certificate will be for the prize winner’s choice of three-day civilian courses. (Excluding those restricted for military or government teams.) Three day onPoint courses normally cost between $500 and $600, and B.) Two cases of Mountain House freeze dried assorted entrees, in #10 cans, courtesy of Ready Made Resources. (A $392 value.) and C.) A HAZARiD Decontamination Kit from Safecastle.com. (A $345 value)

Second Prize: A “grab bag” of preparedness gear and books from Jim’s Amazing Secret Bunker of Redundant Redundancy (JASBORR) with a retail value of at least $350.

Third Prize: A copy of my “Rawles Gets You Ready” preparedness course, from Arbogast Publishing.

Round 24 ends on September 30th, so get busy writing and e-mail us your entry. Remember that articles that relate practical “how to” skills for survival have an advantage in the judging.

Preparedness on a Very Tight Budget, by Shane M.

I see it several times a week: What gun should I get? How much ammo should I have? How big should my garden be? Should I get gold or silver? And on and on it goes, week after week. More and more people are becoming “aware,” and are seeking the advice of those of us who have “been there, done that.” There is so much great information out there to answer the plethora of those types of questions. Invariably, someone eventually asks, “how do I afford that?” There are other variations of this question as well, but it all boils down to the same thing in the end. Many of us, including myself, are not monetarily wealthy. Considering that most of the country is in debt, that means that many survivalists, especially those new to the subject, are in debt. With the sudden realizations smacking them about the head and chest, combined with the required urgency of the situation, people want to get the necessary preparations in short order, but are not sure how to do it with limited funds.

It can be done. Just like your 401(k) investments, it happens a little bit at a time. I do not know a single survivalist that just bought into the life with just one check from the checkbook. This is not a life you just buy into in a day. So rest assured that those of us who are well prepared did so over time, with trail and error, money, sweat, and bruised egos. You have an advantage that we did not have – the internet. You can learn from us, from our mistakes and our wisdom through the internet and gain valuable insight, hopefully without many monetary mistakes. Absorbing this knowledge is your first key to being able to “afford” preparations.

Beans, bullets, Band-Aids has been articulated many times and in many ways. Now, how do I afford it all? A budget and prioritizing are the answers. Did I just hear you moan? I am sorry, but you cannot do it without a budget and setting your priorities to pay down debt and acquire preparations. All other things go to the bottom of the list. I have never in my life made more than $40,000 in a year. Looking at my last 22 years of taxable income statements, it shows that my average yearly pay is just over $18,000 per year. This is not because I do not have the ability to earn much more, it is because I choose to live life and not be a slave to societal pressures to have a career. I have still managed to prepare with miniscule funds, debt, and a family by setting my priorities and keeping a strict budget.

So, how do I get started?

  1. Stop using credit cards and credit – forever!
  2. Stop frivolous spending immediately – no eating out, no movies, no cable, no manicures, no vacations, no guys’ night out, etc. Either you are serious about preparing, or you are a party-goer. Which is it?
  3. Establish an emergency fund, in cash of at least $1,000. This is not spending money. This is to cover an inevitable visit from Murphy, Sod, or Finagle.
  4. Document every dollar you spend to find out where your money is going.
  5. Create a budget that outlines your debts and expenses. This should be prioritized with Food, Water, Shelter, and Transportation at the top. These are the bills that get paid first. Other bills, debts, and expenses get laid out in order of importance. When you add up your bills and expenses, if the number is larger than your bring home paycheck, you need to get another job. If the number is smaller, this money is used for getting your preparations. If your total is equal to you take home pay, tighten you belt.
  6. Tighten you belt – go over your expenses and see where you can cut. Everyone has things they can cut. Eliminate anything that is not necessary. Shop for better deals on phone services, electricity, etc. Change the thermostat a few degrees, unplug appliances when not in use, shop at different stores, use coupons, purchase used, etc.

Now that you are started with properly managing your money, it is time to make lists for preparations. Food should be the first thing on the list, followed closely by defense (guns, ammo, and training) and medical supplies and training. Clothes, shoes, coats, etc. should also be on the list along with communications gear. There are plenty of other things to put on your lists, and much of it has been discussed on this blog. Now that you have your lists of things to get, research real costs of these items and document your findings.

What do I mean by real costs? In the business world, this is called total cost and is the actual cost of an item, shipping, storage, and upkeep of the item. You need to know all costs involved for every item on your lists. Fifty pounds of triple cleaned oats may cost you $12.50 from you local supplier, but to put it up long-term, you will need a bucket, mylar bag, and oxygen absorbers. You also need to know where you are going to store it, and any associated costs to keep it stored. Some items may require a climate-controlled environment for long-term sustainability and this cost may be separate from your home costs depending on your situation.

You can severely cut into the total cost of preparations by researching, pooling resources with other preppers, and working as a team to put up those preparations. You can get bulk discounts by purchasing case lots, pallet lots, and purchasing seconds. This goes not just for food, but also for guns, ammo, clothes, seeds, construction materials, etc. Write down the price quotes you get, the name of the business, the phone number, and with whom you spoke. After the first few calls, it will get easier and become enjoyable. If you have friends, break up the lists and put others in charge of researching a subject. A big thing to remember when researching your future purchases: businesses must sell products to stay in business, but you are not required to buy – most things are negotiable.

So, how did I do it? Using all of the above, I started by allotting $10 per weekly trip to the grocery store to get canned goods. These were put away for emergencies. Other money was saved until I had enough to purchase an item at the top of my list (i.e. a rifle), and then the process started over. Later, I learned that I needed to set a budget for my weekly grocery trip and make a list for that as well. Since I was keeping track of every dollar I spent, I noticed that my weekly shopping trip expenditures were erratic, fluctuating between $90 and $190 per week plus my $10 preps. So, I made a list for the week’s groceries and set a [weekly] budget of $125. The first few months of this were hard. I had to make concessions, purchase lesser cuts of meat, off-brands, or simply cut certain things altogether. After a year of doing it this way, we were spending less than $75 per week to feed a family of four. What do you think we do with the extra money we were spending at the grocery store? That’s right, it buys more preps every week.

I sold my full sized four-door truck with payments, which freed up $430 per month, and paid cash for an early 1990s model beater S-10 Blazer. Is it as nice as my truck was? Not even close. Does it get me where I need to go? Absolutely. What do you think I did with the extra $430 per month? Right again, I bought more preps. Every time we pay off a debt, the money we were paying towards it gets put towards another debt, until it is paid off. Then all of that money goes to the next debt and so on, until suddenly, no more debt. Every extra dollar we got, paid for a prep or went to a debt.

I also save the required money and purchase exactly what I want, not something to get me by. Always buy what you want. Never purchase something that you think you want or something inferior. I see others do this all the time. This is the best way to waste your money. I see others with slim budgets purchase a Mosin Nagant and a tin of ammo, simply because they wanted to have something, when they really wanted a M1A or an AR-15. If I want an expensive rifle, or high quality tent, I stay patient and save the required amount of money and get exactly what I want. I learned this lesson the hard way, so you shouldn’t have to.

If you were as prepared as you thought you could be, and TEOTWAWKI came to pass, you would do everything in your power to properly manage your resources and hopefully ride out the storm. You would document all of you food, guns, ammo, and supplies. You would make plans on how best to utilize what you had, disseminate those plans to your family (and friends) and make certain that those plans were followed. Well, TEOTWAWKI has not come to pass, but all of the ingredients required to survive are the same ingredients needed to prepare to survive. Document what you have in monetary means, make plans to best utilize those means, disseminate those plans to your family, and make sure everyone sticks to the plan. Before you know it, you will be well stocked and supplied.

 

Two Letters Re: Advice on Storing Precious Metals–Are Safe Deposit Boxes Safe?

Hello Jim,
I think the problem with the links readers sent you about how and where to hide precious metals, cash, etc., miss the most important point–it’s not the hiding place itself, but how inaccessible or well-concealed the hiding place is. Given enough time, anyone who knows what kind of faux storage containers to look for (e.g., a can of soup) will naturally check there first. Unless items are stashed away in your bug-out location, burglars will typically want to get in and out of a house as quickly as possible.My recommendation would be to not only install a floor safe in [a dry] basement or in a corner of the house, but to also make that spot as inaccessible as possible under normal circumstances. Install the safe in the far back corner of the basement, then stack as much clutter as possible on top of the spot–what thief worth his trade is going to waste his time moving dozens of boxes of Christmas ornaments, old clothes, books and furniture to see if there might be a safe underneath everything? In the meantime, small stashes of precious metals and other valuables can be hidden in various unlikely spots around the house [for use] until the home’s residents get a chance to go down and move all the clutter to access the safe. It might sound like way more work than it’s worth for some people, but it’s a lot easier than trying to replenish stuff that should’ve been hidden in such a place to begin with. – Chad S.

James,
I really appreciate your blog and the info. God bless you for it. Regarding the articles that you mention and link “Seven Secret Places to Hide Cash in Your Home“; I don’t believe [this article] is completely sound advice.

First, now that the information is out in the open, on the public Internet, none of those options are still valid as protection against thieves. Granted, probably not many actually surf those type of blogs. However, with thieves something like that travel by word of mouth very rapidly. In fact, a close friend of mine who is a corrections officer at Federal penitentiary refers to the institution as a” college for bad guys”.

Secondly, none of the seven options offer protection against fire. Additionally, insurance companies do not cover cash losses on their policies.

What are some viable options? Personally, I use a heavy fire-proof gun safe, that contains a smaller water-proof and fire-proof safe inside it for my important papers, cash, and gold coins. With that combination, I have several hours of fire-protection. Another option I’m considering is burying some cash in a sealed in ziploc bags inside a PVC container somewhere outside where it is unlikely to be accidentally discovered by digging.

Just my initial thoughts. Again, I really appreciate the information and your efforts. May God bless you and your family. In Christ, – S.R. in Kentucky