Overconfidence in financial models will lead to ruin in coming collapse

When financial disaster struck in 1929, it was a surprise to everyone.

Sophisticated financial types were busy making money and they never thought the good times would end. Less-sophisticated investors — those who made a good living and invested prudently — were wiped out, even though their investments were exactly what financial planners had advised.

And those common people who just worked for a living — who had no investments but didn’t think jobs would fade away — were devastated. Millions of people suddenly had no reasonable way to support their families. The Great Depression had come to the U.S. and Europe.

Almost nobody saw it coming — and those who were doing what they thought was smart were all wiped out, even though they were following conventional wisdom.

You don’t want to hear this, but that’s going to happen again — almost certainly within our lifetimes — and it’s going to wipe out everybody who’s currently doing the prudent and “reasonable” thing with their money. Of course, that narrative isn’t good for the business of those who sell you investments, so they’re going to do everything in their power to convince you not to look behind the curtain.

There’s a very good chance that your retirement fund and your stocks are going to be close to worthless by the time you need the money to live on. As long as you assume that the economy will keep humming along — and financial markets will continue as they have for our lifetimes — you are going to be in jeopardy.

And your financial advisors — who have incredible confidence in their economic models — will be just as surprised at the collapse as you will be. But there will be nothing you can do about it by then.

This economy has been out of whack for years, screwed up by political decisions that keep putting off the day of reckoning. But it has to come. The federal government’s debt has grown to astronomical levels. (The debt is somewhere in the neighborhood of $21 trillion the last time I checked, but that number is so high that it seems meaningless. It’s more than $60,000 per person in the country — and you know as well as I do that at least half the people earn so little that they pay almost nothing toward the debt.)

We’re so accustomed to “normal” life and a “normal” economy that we don’t think about it. But the basic laws of reality and economics haven’t changed. Debt has to be paid, one way or another. The percentage of the U.S. budget that goes to pay interest on the debt will continue to go up. It’s politically impossible to cut spending and it’s almost impossible to increase taxes enough to make up the difference. The end result is going to be a political standoff when more voters demand that the government quit paying so much interest. Voters want goodies for themselves, not interest payments sent to others — especially foreign governments which hold much of the national debt.

When that political crisis hits, a populist movement will grow to demand a stop to paying interest and then to possibly repudiate the debt. When that happens, the U.S. government will lose the ability to borrow more, which will cripple government and cause a ripple of devastating effects in the private sector. Because current debt is so much bigger than was the case in 1929, this crash will be far worse.

We’re almost certainly heading for collapse. The only question is when. For individuals, there are only two questions.

The first is when is it coming? We don’t know. We can’t know. But it will come. Some crisis could start any day and begin a series of events that would cause the collapse. There are a number of credible scenarios that could play out. Or the day of reckoning might not be for 10 years or 20 years. That’s what makes it so deadly. It’s hard to plan for something when you can’t time it. If you keep investing as you are today — and then withdraw your money and put it into hard assets such as gold on the day before the crash — you could be saved. But nobody knows what the timing will be, so anything you decide is a game of financial chicken.

Second, how have you prepared for your financial future? If your answer has to do with stocks or government securities or any of the usual investments, those things will be worthless when bad times hit. You must have something of real value somewhere safe. Gold, silver or some hard asset in a safe place. (U.S. banks won’t be safe.)

It’s hard to know where will be safe. The people who sell you stocks and give you advice know one thing. They know how to get you to buy and sell things, continuing the stream of fees to pay them. They know nothing about dealing with a complete collapse, so their knowledge is useless. If anything, they are the worst people to listen to, because they have a vested interest in believing the prevailing patterns will continue forever.

Has any one of them ever been through a serious collapse? The period around 2008 was terrible. Black Monday in 1987 was bad, too. But nothing we’ve seen in our lifetimes which compares to 1929 — and I expect something far worse than that.

I expect collapse — financial collapse which will lead to political and social unrest.

All empires eventually fall. We don’t like to see the United States as an empire, but when you apply historical standards, the same thing will happen here that happened to the Roman Empire and the British Empire and all the rest. Countries will be at the top of the pecking order for a long time, but their end comes. Spain had its day on top. So did Britain and even Portugal. Many others did, most of whom you’ve never heard of.

But no empire lasts forever. It collapses. The former great power loses territory and wealth and influence. It becomes a shell of its former self. That is going to happen to this country. Someone else will take our place, politically and economically. China would be the obvious suspect, but some other Asian power might surprise us. When that happens, the period of collapse and shrinkage will be painful for Americans.

I expect people who have been accustomed to living in luxury to be unable to support themselves at all. I see a lot of suicides coming when people figure out they are broke and have no way of earning a living.

Do you want to prepare? Or would you rather just hope the day of reckoning waits until after you’re dead and gone? The debt bubble could keep expanding until you and I are dead, but we don’t know that. You and I might get lucky and never see it, but the collapse is coming. (And our children will deal with it in either case.)

The problem is that making money and protecting assets require different mindsets. You can’t do both at the same time.

I don’t know of any way to stop what’s coming. Any politician who claims to know a way out is lying to you — and most don’t even understand the problem well enough to talk about it. They’re too busy arguing over who said what today on Twitter. These petty people are listening to an ignorant populace — and they’re going to continue to make things worse, partly because they don’t understand what’s coming.

I’m not here to tell you how to fix things. I’m just warning you that it’s going to happen. If you don’t have a plan for how to protect your assets — out of the country in a safe place — you will lose your money when the collapse comes. And if you don’t have a plan about where you can go with your family when social unrest happens here, you might lose far more than wealth.

Plenty has been written about how to be prepared for a collapse. Much of it is complete nonsense. But everybody needs to have a rational plan for how to grow assets, then protect those assets from this collapse, and then how to protect his family’s safety when it happens.

We won’t solve this problem in a few hundred words. I’m not even trying. I just want to make you see that collapse is coming — and I want you to start thinking seriously about who to trust and how to be prepared for some dark days that lie ahead for us and for our children.

For now, just think about it.