How much fiat to keep in emergency fund?

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Loud Noises
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How much fiat to keep in emergency fund?

This is partially inspired by a related question that was posted over on Main Street.  I have been unable to make up my mind on this and would appreciate some Turdite input.

I am currently building up my emergency funds (split between a "high interest" savings account and cash on hand.)  I have good reason to believe that I will need to rely on this cash approximately one year from now (summer 2013) due to circumstances that are likely inevitable.  I normally keep only 3 months worth of fiat for emergencies but was planning to extend to 6 months or farther.  Given our economic climate and all the variables in the next 12-18 months, I'm not sure how much I should be in true cash and how much of the new emergency fund should be additional PM purchases.  I know that no one has a crystal ball but what do you feel comfortable with?

3 months of FRN's?  6? 9-12?  Everything above and beyond the magic number is put immediately into physical PM.

Edited by admin on 11/08/2014 - 06:06
ratioarbitrage's picture
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@Loud Noises: what kind of fiat?

My personal take is that since fiat and gold are roughly equivalent in terms of ease of transportation, it does not make much difference, and that three months worth of paper is ample, particularly bearing in mind the vulnerability of that paper to (very rapid) inflation.

Having benefited from one or two salient and unpleasant experiences, I am a purist on counterparty risk.

The high interest savings account is a promise from the bank in question to give you the physical fiat that you will need. In the scenarios you are no doubt imagining I doubt the value of that promise will represent a very high percentage of the value of the relevant bundle of green paper.

More important and less pleasant is the important distinction between physical that is physically in your hands and ALL forms of promises. That includes promises to hold stocks of physical metal made by even the most trustworthy individuals or corporations outside your own country (let the reader understand). The reason for the latter proviso is that untrustworthy parties may surprisingly easily block the channel between you and the trustworthy individual. So your wealth, although physical, can still be rendered inaccessible or even misappropriated. In my opinion that risk is being inadequately discounted in precious metals circles.

This is only relevant in seriously disordered scenarios, but those are the scenarios I think you are considering. If you can't see it and weigh it, it may well ultimately end up being owned by someone else. If you can see it but a lot of other well-armed people also know of its existence, the same may ultimately apply.

Fred Hayek
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How much emergency fiat to keep?

I've been pondering this same question. 

I guess I don't think the larger amounts you cite, 12 months or 18 months are wise.  I think things have the potential to change too rapidly for that to be worthwhile.  Three months or six, if you can manage it seems more reasonable.   Maybe three months with another couple months converted into some silver that you will be willing to spend early on after a SHTF scenario rather than holding onto it like the rest of your stack.

If you hold onto a LOT of fiat, you've got worries of inflation and even straight out devaluation.  Back in 1959, France up and devalued the franc.  They devalued by a factor of . . 100!  No kidding.  So, one day you had, say, 10,000 francs and you could buy the best Mercedes from Germany.  Then next day, your money wasn't even a down payment on that car.  

Devaluation is possibility that I don't think has been talked about enough.  Once inflation starts galloping, it will be one option that TPTB will definitely consider.

But, you're right, IMO, to consider an emergency stash of fiat.  Look at the difficulties in the UK with the NatWest bank as described by our colleague, 47.   How do you do anything once bank holidays arrive, whether they're explicit or implicit like the NatWest debacle?  No bank access?  Plastic won't work?  You need to have some fiat.  I just don't think you should overdo it.


Being a policeman is only easy in a police state -- Touch of Evil(1957)

SushiSioux's picture
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2 years

if you know job loss is coming.   change your current operating expenditures immediately.  convert those savings to gold/silver.   

50/50 cash you dont need immediately into silver/gold

ING savings account for the rest.

the more you save the better.  

97guns's picture
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im in the camp of hold no

im in the camp of hold no paper and dumped 90% of my emergency fund to physical, i now keep 1/2 a month worth of expenses in fiat but have a steady income stream.

i have also closed down the 401k's and keep less than $500 in the bank.

my wealth is diversified into 3 hard asset classes real estate, physical metal and guns/ammo/knives, yes that is a class for me

Loud Noises
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Some good ideas here, thank you for your inputs!  I'm with 97guns on counting my steel and lead stores as assets also.  What I am thinking is that I feel comfortable holding 6 months of FRN's as my immediate emergency fund and I am willing to run the risks that exist with the USD with that amount, but not more.  All the extra along the way will go into my stack.  That means that even in a worst case scenario, I might need to convert some of my stack back to fiat in 2014... I'm confident that its value will be higher at that point.  Of course, I hope I don't need any of this.  But I like to plan for all scenarios.

Thanks for your thoughts, and feel free to add more.

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