There has to be something to fall back on. Everything is in the hands of the Fed and the banking system. If it goes kaput, what then? Hugo Salinas Price, interview with James Turk

As history has shown, when a country’s financial dominoes start to fall the markets collapse very quickly. There is no time for the average business person to consider changing banks or payment processing. When financial markets and banks go bad it often happens overnight and small business owners simply get shut out.

In August 1998, Russia experienced a severe financial crisis also known as the “ruble crisis”. While this collapse engulfed Russia, it caused a severe erosion of investor confidence and a chain-reaction which is now described as a run on the Central Bank.

On August 13, 1998, the Russian stock, bond, and currency markets collapsed as a result of investor fears that the government would devalue the ruble and/or default on its Sovereign debt. As prices plummeted, the stock market had to be closed for 35 minutes. Upon opening back up, across the board losses in the stock market had reached 65% of it’s value.

Here is a small sampling of the events which occurred in the first three weeks of the crisis. Keep in mind that the institutions listed here were some of the largest banks in Russia.

  • On Aug. 14, Imperial Bank and SBS-Agro stopped all payments.
  • On Aug. 17, the Russian government devalued the ruble, defaulted on domestic debt, and declared a moratorium on payment to foreign creditors.
  • On Aug. 25, Imperial Bank became the first bank after the crisis to have its license revoked.
  • On Aug. 28, SBS-Agro was brought under provisional administration and given a two-week bank holiday.
  • On Oct. 29, the Central Bank revoked Inkombank’s license
  • On Sept. 1, Tokobank’s license was revoked by the Central Bank and on Sept. 3rd Tokobank made a formal application for bankruptcy
  • On Sept. 3, SBS-Agro, Menatep, Inkombank, Promstroibank, Most-bank and Mosbisnesbank froze all private deposits.
  • On Sept. 4, Inkombank, the third largest bank in Russia, was placed under temporary Central Bank administration. When the bank finally collapsed in Oct. foreign creditors lost over $800 million US dollars

Because of the bank closures, the Russian crisis left millions of everyday business people without cashflow or the means to continue day to day operations. In September, barely one month later the ruble-to-US dollar exchange rate had bounced from around 7 rubles up to 21 rubles per US dollar. The Russian currency had lost two thirds of its value.

By the end of 1998, Russian inflation reached 84%. Prices for almost all local food items soared by almost 100%. The cost of imported goods quadrupled. At the start of the crisis, there were two big calling cards which started a chain reaction financial collapse.

  1. a severe erosion of investor confidence [loss of confidence]
  2. markets collapsed as a result of investor fears [fear]

Sound familiar? This kind of inflationary mess is now overtaking America. Food prices are on a steep rise, oil is now more than $112 a barrel and is projected to push gas prices to $5 dollars a gallon by summer. (Brent crude is $123 per barrel) Not to mention there are already 43 million Americans on monthly food stamps (14% of the US population).

These are some of the largest banks in America.

  • Bank of America
  • Wells Fargo Bank
  • Citibank
  • PNC Bank
  • U.S. Bank
  • TD Bank
  • SunTrust Bank
  • Branch Banking and Trust Company
  • Regions Bank
  • Capital One

If these banks begin to have serious problems based on the U.S. dollar failing. Here are some questions that Americans need to ask themselves.

  1. What would small business operators do if America’s financial institutions experienced the same type of crisis?
  2. What would locally owned stores turn to if the dollar began to drop in value overnight?
  3. How would small business operators survive if U.S. Treasury investors’ began to sell their paper and pull value out of U.S. dollars?
  4. Are you prepared to weather the storm?
  5. Will your small business survive if main stream banks this size began closing, even for a short period of time?

As they awake from an “easy credit coma”, Americans should consider learning some very important lessons from the very wise and tenacious Russian population.

Russia’s local economy bounced back from the 1998 financial crash with amazing speed. Their recovery can be partly credited to the fact that before the crash a large segment of Russia’s economy had been operating through barter systems and other non-monetary instruments of exchange.  This is not the case in America. Open cash markets, private barter systems and local barter currencies are almost non-existent in America. Local or regional trading is not a driving force or even a small part of American business. Everyday U.S. businesses rely almost exclusively on U.S. bank credit and credit processing services. In America, the credit card is king.

The Russian financial collapse had far less of an impact on local producers because those businesses and their local economies were not as heavily dependent on traditional banking and credit systems.

In addition to affecting small businesses, the outcome of this collapse left millions of everyday Russian citizens with no saving, no bank account and few ways to send or receive funds. In Russia, cash was now king.

Is it possible to use the Russian crisis as a model of what could happen in the United States?

Imagine U.S. small business owners, which rely exclusively on banks to process daily payments, have been forced to close because there is no way to process incoming customer credit payments. Imagine that if the banks closed, even for a short time, the following services would be unavailable:

  • depositing daily operating funds
  • provide a financial platform
    • for the processing of incoming receipts
    • payments to vendors-landlords-utility companies
    • restocking the inventory of store shelves
    • paying employees

Without the bank’s credit cards how would a small business stay afloat? How could anyone continue to operate?

This ficticious situation is similar to what Russian business owners faced in early 1999.

In putting forth crisis solutions for U.S. small business, it is important to remember that at least some customers will be paying cash for their purchases. An obvious solution would be for the local businesses to remain open accepting only cash. With a little luck and some major downsizing it may be possible for the store may stay in business using only cash. However, very few American businesses will be able to stay alive accepting only cash payments.

Isn’t PayPal a good alternative? Couldn’t businesses survive by accepting PayPal?

NO

An absolute requirement for the proper operation of a PayPal account is that all incoming funds and all outgoing funds flow through the bank or the banks credit card. There is no such thing as a prepaid PayPal card hanging on a shelf in the supermarket which can be purchased for cash. It has never been possible to deposit or withdraw cash through the PayPal system as the terms of service require that all funds flow in and out through existing bank products.

The bank which must be used with PayPal is the same U.S. bank which just closed and is now blocking your business cashflow. It is impossible with PayPal to even open an account without a bank account or verified bank credit card.

Lastly, for practical everyday use it should be noted that it is impossible to pay the utility bill, buy groceries or spend PayPal on medical care. PayPal is not an option.

Consequently, all other online banking and all U.S. online payment systems that require direct bank payments and withdrawals through bank products are not acceptable.  With no functional bank account, the U.S. small business owner has no access to those online payment systems.

What happened in Russia?

Take a closer look at how the Russian’s survived and prospered.

The first rule for most Russians was DO NOT USE THE BANKS—NEW OR OLD—DO NOT USE THE BANKS. Since large Russian banks had mishandled their customer’s money in early 1999, everyday working people and small businesses no longer trusted the banks.

In 1998 a group of Russian software designers were completing a new version of online banking software. As the banks collapsed they quickly adopted their software to meet the new local demand for everyday non-bank payments. WebMoney Transfer was created. (http://www.wmtransfer.com ) Webmoney is online payment platform which does not require account holders to have a bank account or credit card. Cash deposits can be made in a variety of methods to fund several types of Webmoney online purses. Today, Webmoney is the largest and most powerful e-money service in Russia. As there are many other people outside of Russia and businesses around the globe without proper banking services, WebMoney Transfer is now also the largest digital currency in the world.

As Webmoney emerged, all of the everyday citizens who now did not trust banks quickly adapted to this very convenient and inexpensive way to store, send or receive funds. Several other popular Russian Internet payment systems have emerged from that time period, however, only Webmoney Transfer is the only one which has managed to expand and become a global leader.

Anyone can easily sign up for an account over the Internet, from anywhere in the world and the business operates 24/7. It’s free, it’s fast and users can immediately begin using the account to send and receive payments. For Russian small business operators, WebMoney even provides printed documentation (in Russian) detailing how a local business can integrate the payment platform into everyday operations.

As the popularity of this service grew around Moscow, small financial business “exchanges” began opening in and around the city which provided ancillary financial services that came to replaced most everyday banking transactions. (In America these locations might be compared to check cashing stores) As long as a customer possessed proper Russian identification, anyone could visit a local exchange and using cash deposit funds or withdraw cash from a digital Webmoney account. No bank needed. No credit or ATM card needed. The software even has a credit purse for borrowing and loaning of digital units online. This would be very convenient for everyday U.S. small business.

WebMoney is a private company offering a software platform for digital currency payments. It is an independent non-bank Russian solution for both citizens and everyday financial business. Without a bank or credit card, any small business can easily accept payments or transfer and spend digital money. Webmoney could easily become a solution for American businesses and citizens lacking a bank account and/or credit faculties.

Because of the massive ever expanding U.S. debt problem

  • many banks may soon close
  • the U.S. dollar may lose much of it’s purchasing power
  • the prices of everyday goods will rise as goods disappear from store shelves
  • some U.S. financial markets may collapse
  • many people may lose their savings and their homes

Take a look at the headlines from this month. Moody said today that it would consider downgrading its triple-A rating for US Treasury Bonds if Washington continues to pile up record deficits. In just the past few months both CFOs for Wells Fargo and Bank of America have resigned for “personal reasons”.

What will Americans turn to for everyday business payments when banks become the enemy?

Everyday financial solutions are available using private non-bank digital currency and digital gold currency. The Internet provides a wide variety of non-bank digital currency payment solutions which are small business friendly. Everyday citizens with an Internet connection don’t need a bank account to create a thriving local or global company.

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