The collapse of the United States economy in 2007 and 2008 was catastrophic to the middle class and the poor. Although Wall Street and the Washington elite benefitted from the demise of the overall economy, the state of the U.S. isn’t bright, but rather it is quite bleak and will be difficult to adjust or thrive.
With an enormous national debt and budget deficit – surely to climb since interest rates are steadily increasing – and a Federal Reserve out of control, the average American is being squeezed out of existence. The unemployment rate is in reality in the low-20s, a dollar purchases a nickel’s worth and prices are the grocery store are going up and up.
Fortunately for Americans, humans are adaptable species. This means that after a bit of hard times, people adapt to the situation and attempt to make the best out of a horrid circumstance. In this economic collapse, there is a growing number of Americans who are beginning to adjust, whether it’s extreme couponing, moving into a smaller apartment or saving 20 percent of their income rather than the standard 10 percent (three percent is the average savings rate in the country).
Remember, governments are the ones that take a bad situation and make it even worse. Public institutions tend to have a reputation of legislating concepts that have been refuted by some great economists, such as Frederic Bastiat, Murray N. Rothbard, F.A. Hayek and Ludwig von Mises. This is why the American people should not depend on the president, their senator, congressman or mayor. Instead, Americans would prosper better if they just prepare for the worst and take measures into their own hands.
With that being said, here are 7 reasons why the economic collapse will be catastrophic for middle class Americans and what the solutions are.
1. No savings
Economic Collapse News reported this week that more than three-quarters of Americans are living paycheck-to-paycheck and a significant percentage of individuals do not have a sufficient amount of savings for three to six months or no savings at all.
With Americans living beyond their means for so long, maxing out their credit cards and not having increases in their wages, this poll that was released was not very surprising to many. When an emergency happens or someone in the household loses a job, they have no means of savings to fall back on.
Solution: start cutting back immediately, pay down your credit card debt right away and begin saving at least 10 percent of your paycheck. The economy is indeed bad – it’ll probably get even worse – and you may still enjoy a healthy middle class lifestyle, but that doesn’t mean you should still live like Donald Trump and save like Uncle Sam. (Be sure to check out our “25 ways to increase your savings to prepare should the economy totally collapse.”)
In total, American consumers are drowning in debt by $11.9 trillion. The average household has more than $15,000 in credit card debt, a mortgage debt of nearly $150,000 and students owe the government $32,054. Although these numbers are down by about one percent, it’s still not enough for the average American to lead a debt-free life.
Solution: similar to the suggestions above, Americans have to begin living within their means. Consumers have to stop buying the latest iPhones, going out to restaurants a few times a week and start living without all of your wants.
3. The decline of small businesses
Surprisingly, this issue was brought up during the 2012 presidential debate by former Massachusetts Governor and Republican nominee Mitt Romney. In September, the Hudson Institute discovered that the average number of startups and startup jobs have declined since the administration of President George H.W. Bush and levels have reached a record low throughout the tenure of President Obama.
“Entrepreneurship is down by a third these last four years,” said Tim Kane, Hudson Chief Economic and founder of the social networking firm StoryPoint, in a statement. “And the decline continued in 2010 and 2011, even after the economy started growing. Without startup job growth, there simply won’t be overall job growth in the United States.”
Solution: there are a wide range of policies that the government could institute and repeal to allow the entrepreneurial beast to remain supreme again. Some of the ideas could be to reduce the pages and pages and pages of red tape that make it quite difficult to start a business. Another concept is to lower taxes and the burdens that small businesses have to bear in order just to stay afloat.
One bill that should be repealed is the antitrust law that benefits big corporations and hurts the little guy. A book that should be read by those interested in this legislation is Dominick Armentano’s “Antitrust: The Case for Repeal.”
4. Government dependence
It made national headlines last summer when it was reported that more than 100 million Americans participate in at least one welfare program administered by the federal government. This is close to one-third of the entire U.S. population and nearly half of that number is on food stamps.
Solution: urge the federal government to cut back on its 80-something welfare programs, stop providing generous social safety nets and allow the American people to depend on themselves rather than their neighbor, some resident in Alabama or a bureaucrat.
It should be noted that the government is essentially bankrupt and it will have to cut back on welfare benefits anyway, especially with soaring interest rates that will balloon the debt payments made on the debt and budget deficit.
5. Survival kit
In case of an emergency, a lot of American households would experience devastation because of inadequate preparedness. It was discovered that 44 percent of Americans do not have a first-aid kit in the home, while 48 percent do not have any emergency supplies and more than half do not have a three-day supply of food and water.
What’s sad is that more than half of Americans think the government will come to their rescue in event of an emergency or disaster.
Solution: perhaps you might not think something devastating will happen, but things do happen and it’s always better to be prepared. Start gradually constructing a survival kit and buy a few additional perishable items during your trip to the grocery store. (See our article “12 ways to protect yourself from the economic collapse.”)
6. U.S. dollar
It is inevitable that the U.S. dollar will collapse. This has been warned by the very people who predicted this economic catastrophe in the first place, such as Ron Paul, Peter Schiff, Jim Rogers and many Austrian Economists. An extreme devaluation and destruction of the dollar will hurt the middle class, especially for those who do not have sufficient alternative or proper investments.
Solution: with fewer than 10 percent of Americans owning precious metals, now would be a perfect time to start buying gold, silver and other metals because these prices may never be seen again. If you want to refrain from acquiring bullion because you dislike goldbugs, accumulating other alternative forms of currency is still a step in the right direction.
7. National debt
As noted before, the interest rates are starting to climb, which means bad things for all levels of government and those consumers who heavily in debt. It is expected interest payments on the debt will surpass $1 trillion within the decade and some predictions suggest the U.S. will only be able to afford some entitlement programs and the interest payments if nothing is done right now to fix it.
Solution: the U.S. government only has a few options: make large cuts (not this sequester pittance), inflate the money supply even more, tax more than it is doing now, borrow more from China, Japan, Russia and elsewhere or declare bankruptcy. Other than that, there is nothing the American people or the government can do.