My heart goes out to the people afflicted by the wildfires and related power outages in Southern California. Fortunately, power is usually restored quickly. But what if it wasn’t? An electromagnetic pulse (EMP) generated by a nuclear explosion can devastate a country’s electric grid, which could lead to chaos and casualties. And while we are finally talking about the significant threat of this type of attack, most of us don’t really know what, if anything, we should do to prepare.
When there is a massive failure of the power grid, think about everything that will be affected from phones to gas pumps to ATMs. Solar panels, personal computers, and most backup generators would also fail. Anything run by electricity comes to a halt in a second. Like our financial system.
What exactly is an EMP? In my simple terms, I compare it to a massive lightening strike with rapid bursts of electromagnetic energy that sends particles and electrons raining down towards the earth’s poles. On the way down, it lets off more newly created energy called electromagnetic radiation that basically shocks and destroys all the electrical device circuits within reach. Which, in the case of a nuclear explosion high over the U.S., could mean all of them.
If war breaks out on the Korean Peninsula, South Korea has plans for using graphite bombs to disable North Korea’s power systems in the opening hours of the war. North Korea’s unstable dictator, Kim Jong Un, could retaliate by setting off an EMP that would permanently disable power plants and most electronic devices in South Korea and Japan. Millions of people would be left in the darkness.
But in addition to darkness, here’s what else a finance guy like me immediately starts to think about. Given Japan’s massive debt level, (it’s the most indebted country in the world as noted in a Forbes article a couple days ago) we could see the greatest national default in the history of the world.
But the greatest danger is actually an attack on America. North Korea has demonstrated that it has the capacity to reach the United States with the Hwasong-15 missile. Don’t think that you’ll be safe just because you don’t live in a major city. A single well-placed warhead could set off an EMP powerful enough to bring down the power system in most of the United States.
What would you do? How would you buy the things that your family needed to survive after an EMP attack? Bitcoin would be as dead as your computer. The stock market and the banks would be closed. When I speak to investors around the country, I often say “I own a brick home and even though I know that if there’s a fire the brick structure won’t burn down completely, I wouldn’t go a day without fire insurance.”
So when it comes to thinking about EMPs and nuclear attacks and other black swan events that are unlikely but possible, I tell people that I make sure I have some buckets on my portfolio bucket list that are tangible and liquid and able to be used in a moment’s notice should I need to conduct commerce when there is no power. One asset I hold in my tangible asset bucket is precious metals. Gold has historically proven to be a good hedge against war, disaster, inflation, and default. Gerald Loeb put it best, “In the history of the world we find the record of savings really saved through buying gold … In the future history of America most of us will, in my opinion, learn this lesson too late.”
I don’t expect that these terrible events will happen, but I sleep easier by being prepared. That’s why I have a portion of my portfolio in precious metals and I have some readily available cash on hand. Dedicating even a small portion of your portfolio to precious metals is often enough to see your family through a crisis. I also see how gold could play a leading role in helping rebuild our nation’s financial system after an EMP attack.
If we are prepared, the darkness will not triumph over the light that has always shined bright in our great country.