“Only one-third of Americans say that they have a basic family emergency plan – fewer than made the same claim a year ago. This alarming lack of preparedness is practically a disaster in itself.”

– American Red Cross Survey, July 2004

Unpreparedness 101

The tragedy of Katrina has touched every American’s heart. The outpouring of donations, housing, health care, etc., once again demonstrates that what makes America great, as DeTocqueville once said, is that America is good.

The suffering in New Orleans reminds us all just how vulnerable we are to disasters that may seem like only a remote possibility. It also reveals two major types of responses during any crisis: 1) Prepared – with a plan and resources or 2) Unprepared – without a plan or resources. Bottom-up self-reliance, not top-down government-dependence, as I discussed last week, and gratefully, most of you voiced your agreement via dozens of e-mails.

Eighty-five percent of the New Orleans citizens – almost a million people – followed an evacuation plan and made it to a safe place. But the other 15 percent either decided to stay or were unable to leave once the levee broke and flood waters were rising.

Today, Katrina victims are still in desperate need of healing from life disruption, economic damage, family loss, and physical and emotional trauma. Thankfully an army of compassionate Americans have come to the rescue – led by local, national and international private charities and churches – in addition to the $51 billion in government assistance Congress just approved.

Natural disasters like Hurricane Katrina can often serve as a “wake-up call” so that we might be more prepared for the next disaster. Lessons must be learned now about the importance of assessing our level of preparedness for a natural disaster, a terrorist attack or a financial crisis. The key is getting the right plan in place beforehand and then taking decisive action.

I believe the greatest national risk in the wake of Katrina is financial. Few Americans are prepared for any financial disruption or a dramatic shift in asset values. Prepare we must, or face the consequences of our procrastination.

Economic storm to follow Katrina

The trickle down economic costs of Hurricane Katrina have yet to be felt. The cost of interrupted economic activity tops $100 million a day and will top $100 to $200 billion, according to most experts. Here are some of the major financial risks facing all Americans:

  • Oil – a spike in already-high energy costs tops the list of financial risks. Especially given that oil prices are unlikely to return to the $30 level of early 2004 … $65 a barrel oil and $3.00 gas may subside in the weeks ahead, but they remain our weakest economic link.

  • Unleaded gasoline now averages $2.86 a gallon nationwide. An increase of about 15 cents in less than a week, costing consumers an additional $57 million a day. Now get ready for sticker price shock from winter petroleum-related products.

  • Hurricane Katrina will slow down U.S. economic growth. Forecasts for U.S. economic growth in the fourth quarter have dropped from 3.5 percent, on an annualized basis, to 2.5 percent.

  • Fed rate hikes as a result of inflationary fears from the impact of Katrina. The Fed must take the long view on the inflationary risks to the economy as gas prices hover near historic highs.

  • Debt crisis dead ahead: The huge U.S. current account deficit is expected to reach $665 billion this year, or 6.3 percent of GDP in 2005, 7 percent in 2006, and 8 percent of GDP in 2008. Now add a budget deficit of over $400 billion and that’s a trillion in new red in this year alone! On a personal level, national saving rates are at or near zero. If housing deflates, watch out below!

  • U.S. dollar weakness may accelerate in 2006. Devaluing the dollar is the free market’s way of correcting the U.S. trade deficit. The result is a declining dollar, leading to higher interest rates and higher inflation, further squeezing consumer spending and/or saving.

  • Ongoing U.S. terrorist threats and other natural disasters. This week came news of al-Qaida’s plan for a series of terrorist strikes in October 2005 targeting American interests, which is said to be coordinated by Osama bin Laden and Abu Musab al-Zarqawi. Christopher Brown, with the Hudson Institute warns of the strategic opening that the hurricane aftermath offers jihadists.

How to prepare financially

Being prepared for any financial disaster takes some careful planning. Given the potential risks of a rising cost of living (inflation), a falling dollar, and our unsustainable debt levels, now is the time to “keep your powder dry” as they say. But how?

Asset Diversification! A portfolio must include some cash and tangible assets which offer protection, privacy, return and liquidity – all compelling reasons for owning gold!

Remember, during a crisis there are only two types of people – prepared and unprepared. We know that terrorists are targeting our economy. Don’t be caught unprepared! But a financial crisis offers both opportunity and danger. My goal is to help you discover how to be prepared for opportunity … and to steer clear of danger.

Here is what each family should do to be ready for any emergency. The U.S. Department of Homeland Security and the American Red Cross urge all Americans to take four simple steps to become better prepared for emergencies:

  1. Put together a kit of emergency supplies that will allow you and your family to survive for at least three days in the event an emergency happens.

  2. Make a plan. Plan in advance what you and your family will do in an emergency.

  3. Be Informed. Learn more about different threats that could affect your community and appropriate responses to them.

  4. Get involved. After preparing yourself and your family for possible emergencies, take the next step: Get training in first aid and emergency response and get involved in preparing your community.

Go to www.ready.gov and www.redcross.org/preparedness for a complete list of recommended supplies, information and templates to help you put together a plan, and more information about natural disasters and potential terrorist threats. Visit www.citizencorps.gov or www.redcross.org/preparedness to find out about training and volunteer opportunities through your local Citizen Corps Council or American Red Cross Chapter.

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