Hurricane Katrina made believers out of many people in the United States and around the world. If there’s a big enough problem, the United States government can not solve it.

The unfolding global depression is rapidly turning into a problem that the United States government can not solve.

Congress is barreling towards gridlock over a stimulus package that even if passed seems to be utterly devoid of any real stimulus. There are many notable and worthy social programs in the package but rarely any economic stimulus segments that will put people to work or back to work in the United States and nothing that seems to be strong enough to turn the economy around or turn the tide of the financial collapse that grows daily.

In fact if anything the stimulus plan seems to be both a step in the wrong direction and an expensive one at that that might just waste the governments remaining financial ammunition.

This is why the US savings rate has gone from negative to 4.6% and why many economists expect that rate to double or even go into double digits. People are learning to hoard their money and in some cases they are doing that literally in cash. There comes a point where if you know that the banks are corrupt and incapable of managing their money and that the government is incapable of supporting those banks or helping them recover, then it doesn’t make sense to leave your money in the bank.

This was one of the lessons learned during the former Great Depression. True, it did make things worse for financial markets, but there is a big difference between helping financial markets survive when they are corrupted to the point of failure in all circumstances and your own personal survival or the survival of your family.

This is the thing that is causing Americans to save money and in some cases even saving money at the expense of paying their medical bills, their house payments, and their credit card debt.

Let’s face it if you don’t have 6 months of emergency funds on hand in the form of cash, you are not in a good position to survive a Katrina like economic disaster. If 99% of your earnings are going out the door to pay bills and monthly expenses, then you can not save up 6 months of emergency cash.

This catch 22 can only be canceled out by paying yourself first and paying your bills later. Sometime later, assuming the banks are still in business to receive your payments after you have protected yourself.

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This entry was posted on Monday, February 9th, 2009 at 8:01 pm and is filed under Emergency Funds. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.