Like it or not, as of right now, the currency most accepted in your community is your government issued fiat currency like the USD$ or the Euro. It’s very likely that it won’t be that way for long, but for now, cash is the most liquid asset you can own and therefore the most important in a crisis.
Lets learn from what just happened in Cyprus. In March of 2013. Cypriot citizens went to bed one day feeling wealthy. The next day they woke up to discover their major banks are insolvent and, because of this, they had zero access to their savings – and this continued for about a week.
Imagine going to your local bank and finding an out of order sign on the ATM machine. Imagine going inside and having the teller say sorry, you’re not able to withdraw anything out of your checking or savings account until further notice. Nothing at all!
Millions of Cypriot citizens had to find a way to live on their pocket change, not knowing how long it was going to last.
When they finally did get access to their bank accounts again a week later, their relief quickly turned to panic when they realized that during those 7 desperate days, the government had confiscated up to 60% of their savings.
Even more disturbing are the capital controls and withdrawal limits that were imposed for months afterward. Cash withdrawals over €300 were not allowed. So even the money that the Cypriot government didn’t just outright steal still wasn’t back in the hands of their rightful owners – the honest, hardworking everyday citizens of Cyprus.
Imagine if this happened on a larger scale…
What if your bank shut for a month or two? Would you be prepared with cash on hand to continue to buy food and groceries while you waited for access to your savings?
Well, the fact is that this can and most likely will happen. In 2008, the world came to the brink of exactly that catastrophe with the Global Financial Crisis. Due to critically low levels of liquidity by most major banks and institutions, the slightest hiccup in the economy like a housing or stock market crash left many banks insolvent.
Thanks to a government bailout, these institutions lived to fight another day. However the sad news is two-fold.
1) Many of them are still hopelessly illiquid and the next hiccup could wipe them out again without a bailout.
2) Although you won’t hear this spoken about in the mainstream media, these massive bailouts significantly hurt the rest of the economy. This means the more you bailout, the more you hurt the economy and the more you have to bailout in the near future. Bailouts simply kick the can down the road, and hurt the foot that kicked it so badly, it can’t kick it as far next time.
That is one of the reasons why most sectors of the economy are not improving right now. In fact the only 2 sectors that anyone can point to that are improving are the ones currently or recently being bailed out. Via “quantitative easing” or QE3 the Fed was bailing out the housing and stock markets to the tune of $1 trillion dollars per year.
That recently stopped and as a result both have began to show signs of weakening.
That makes those two markets look good, but meanwhile the rest of the economy actually gets destroyed, making a genuine recovery even harder.
I point out this specific scenario, because European, Canadian, Australian and even US leaders have explained that this was a successful model and those respective governments have said that during a crisis they will do the same thing.
But there are lots of other reasons to have cash on hand. While I was in San Diego not too long ago, the entire electrical grid was shut down for nearly 12 hours. There were no ATM’s, No credit card facilities and no banks to get more cash. Everyone had to live on what was in their pockets and home at the time.
What if the blackout occurred for a few days longer? Perhaps due to an earthquake, hurricane or terrorist attack?
Time and time again we see people having to liquidate assets for pennies on the dollar in a crisis because they did not have enough emergency cash on hand.
For these reasons it is imperative you have at least some insurance against losing access to your bank accounts. And you know the best insurance… the free kind. It is not like you are earning 10% interest in your bank account these days?
It costs you nothing to take some money out and put it under the mattress at home. During an emergency the benefits are enormous and cost for taking this precaution is zero. And when those people who failed to prepare come knocking, you are in a position to either help them with some charity or buy up the assets they are liquidating for pennies and skyrocket your own personal wealth. Either way they are better off for your prudence.
So when it comes to protecting your wealth, to avoid falling victim to investor’s blind spot #1, it’s downright imperative that you securely store at least several thousand dollars in cash on your property now. Doing this could be one of the most important actions you can take.