Bankruptcy is an effective way of wiping out debt, and it can be an important tool in preparing for what some experts predict will be the next great depression. 

Thomas H. Kee Jr. is the president and CEO of Stock Traders DailyHe has accurately predicted market cycles in advance using his multi-tiered technical indicators since starting Stock Traders Daily in January 2000. 

On October 12, 2011, Mr. Kee wrote the following in the Wall Street Journal’s MarketWatch

The U.S. economy, and probably the global economy as a result, are headed towards a Greater Depression, and there is nothing anyone can do to stop it now . . . [T]he only saving grace may be China, but China seems to have gotten so far ahead of itself that eventually it too will fall. . . . [T]he only solid promoting market based stability has been the demand from BRIC [Brazil, Russia, India, and China] countries, mostly China, and if that pares back the result will devastate the global economy as we know it today. . . . Eventually there will be a material hit to these BRIC economies, and the fragile nature of mature economies will not be able to offset that weakness. [I]f China were to suddenly experience an uncontrolled decline in GDP, global stock markets would collapse, corporate earnings would crumble, the unemployment rate would skyrocket . . .

But China is in no danger of economic collapse, right?  Hmmm. 

 In the October 14, 2011 edition of The Wall Street Journal’s MarketWatch, Jonathan Burton wrote:

Worries are mounting that China’s high-speed economy will slow and what the world wants to know is, how much?  Data shows that China’s exports and imports are contracting, a likely result of Beijing’s efforts to shackle inflation. This suggests that the world’s second-largest economy may be a less-powerful growth engine going forward — and is even contributing to global weakness. . . . Critics say China’s task is complicated by an oversupply of real estate development and infrastructure projects, and a banking system exposed to a large swath of this questionable debt.  “The pieces are lining up for a hard landing,” said Vikram Mansharamani, author of “Boombustology: Spotting Financial Bubbles Before They Burst.” Policy makers in China, he added, are “stuck in a place between fighting inflation and an inevitable slowdown.” A China hard landing would be tougher on China’s suppliers than China itself, Mansharamani said. That prospect has already derailed investors in resource-rich Australia, Brazil and emerging Asian countries that furnish China with oil, copper, steel and other and commodities that have fueled the Chinese economic miracle. Not just the resource countries, but emerging-market stocks and currencies worldwide would feel the knock-on effect of a hard landing.

To add to that good news, here’s an interesting datum reported by David Pierson in the October 14, 2011 Los Angeles Times

Wenzhou, a city in southern Zhejiang province famed for its savvy, risk-taking merchants, is considered a bellwether for the health of small and medium-size private businesses in China.  But an engine of that remarkable success, a thriving underground banking system, has begun to fracture, exposing new fault lines in China’s economy.  Two heavily indebted Wenzhou entrepreneurs recently jumped to their deaths and nearly 100 business owners have fled their factories, leaving piles of unpaid loans behind, according to state media. . . . [P]ressure started to build late last year when the central government decided to hike interest rates and restrict bank lending over worries about inflation and a growing real estate bubble. That credit squeeze soon rippled through the informal market. Thousands of small Wenzhou companies have closed their doors for lack of funding, according to state media. . . . Wenzhou, a city of 9 million, is the largest source of private capital in China by some estimates. A wave of defaults could destabilize markets across the country.

Of course, China is a lot larger than Wenzhou, and the mainland Chinese are innovative.  Consider, for example, how many creative ways they’ve been able to incorporate lead and other toxic substances into consumer goods sold in the U.S.  All right, I admit that was a cheap shot.  But the fact still remains that if the Chinese economy takes a nose dive, the U.S. will be hit hard.  Why? 

Perhaps the most obvious effect will be for the Chinese to stop propping up the U.S. Government by buying U.S. debt.  

How much U.S. debt does China hold?  According to the U.S. Treasury Department, as of July 2011 China held $1,173,500,000,000.  Also according to the U.S. Treasury Department the national debt as of 1:40 p.m., today, October 14, 2011 was $14,833,241,000,000.  Granted that these numbers are subject to constant change, and that the July number was measured three months before the October number, these data mean that China holds about eight percent of the entire national debt.  You can see why the Chinese were none too pleased by the recent credit downgrade of U.S. debt. 

So what does this means to the average Joe, or Josephine?  If the economy tanks to the degree predicted by Mr. Kee, unemployment will skyrocket, and you might need to rely on savings.  

Therefore, if you have a lot of debt now, it might be prudent to wipe it out in bankruptcy before the storm, so you can start storing up money you would have been using to service the debt for that coming very rainy day.