Lessons from Russian History for the Prepper Community (Part 2-of-3)
Guest Post: by Brad
Scenario #2: The Financial Crisis of 1998
The causes of the Russian financial crisis of 1998 are complex and varied. I do not purport to understand all of these factors fully, and the factors that I do understand I will not attempt to explain in detail. I will, however, attempt to summarize the causes of the crisis before describing the aftereffects.
Prior to the collapse, the Russian economy was being driven primarily by selling commodities on the foreign market, as well as borrowing on the foreign market. However, when the Asian crisis occurred and commodities prices were decimated, Russia had difficulty paying the interest on its debts. A question for you: does the thought of a market segment collapsing (*cough* real estate, government debt, entitlement programs, etc.), leaving said market in a spot where it is hard pressed to pay the interest on its debt, sound familiar at all to anyone? Anyone? Bueller? In any event, the Russian stock, bond, and currency markets collapsed in the early fall of 1998 as a result of investor fears that the government would devalue its currency, default on domestic debt, or both. Again, sound familiar to anyone? (QE? QE2? QE3?) Markets tumbled, as well as the value of the Ruble. The banks shuttered as there was a run on the banks as people tried to withdraw their money to buy tangibles before prices and inflation decimated the value of their fiat currency.
Literally in the span of one month the value of the Ruble as compared to the dollar had decreased by 2/3. Therefore, when people were finally able to access their money once the banks reopened, it would only buy 1/3 of what it would once buy. Can you imagine having $100 in the bank today, only to go tomorrow to try and withdraw it and find that the bank was closed, and when you do manage to finally withdraw your money, it is only worth $33? That is devastating.
Again, you may be asking “Okay, but what does this boring history lesson have to do with anything?” Here it is.
When (in my opinion it is “when” and not “if”) fiat currency loses its “value,” those holding said fiat currency to the exclusion of tangibles lose. And lose big.
During the Russian collapse many of the folks who had cash on hand foolishly and impulsively went out and spent it on things that they were brainwashed by the media into thinking were important to have. Things like watches, televisions, and other electronics. They foolishly thought that the government would provide the necessities like food and water for them. Therefore, they figured, they could buy “nice things” and the government would take care of the “mundane things” for them. Mundane things like food and water.
What they saw literally two days later would turn their world upside down. Within days of the collapse there were–without hyperbole–guards with machine guns guarding the food in grocery stores. Guarding the food at outdoor markets. Guarding the food at corner convenience stores. The food had been piled up in the middle of the floor and the guards encircled it. You had to show your cash to even be admitted entrance to the grocery store. And you either had to have cash that was not denominated in the now worthless Ruble, or you had to have A TON of Rubles. A ton. Think wheelbarrows. People began to grow hungry because there was not access to food. Fist fights in the streets began to break out over bread and sugar. Break-ins and thievery grew exponentially. Long lines were created if there was even so much as a whiff that a store had cooking oil. People began foraging in the woods for mushrooms and berries. Fishing was everyone’s new way to stay busy. A barter economy started up on the streets.
That is what post financial collapse Russia looked like. And it looked that way for several months. No food. People spending the overwhelming majority of their fiat currency to buy meager morsels of bread.
So, what’s the lesson here? I suppose there are a few. First, fiat currency systems are fragile and subject to systemic failures. Second, and as stressed above, stack your larders deep and tall. Third, if you do have cash on hand, don’t buy foolish things. Fourth, and perhaps most importantly in the context of the “Houston We Have A Problem” post, don’t be fooled: folks will fight for food. In Russia they do not have an armed populace; we in the USA, do. The fists I saw flying in Russia over a bag of mushrooms could easily be bullets here in the USA flying over a box of Uncle Ben’s Rice. Stay off the streets, practice OPSEC, and be prepared for violence because it will happen. I assure you it will. Finally, a financial collapse can happen suddenly and quickly and have ruinous effects in almost no time at all.
The Siege of Leningrad
The Kosovo War (1998 – 1999)