Australians must not repeat the mistakes of history if they wish to survive and thrive in the economic crisis that is coming as a result of record levels of domestic and global debt.
Australians who financially miscalculate how they allocate their capital and how much debt they carry could be subject to disastrous financial outcomes that carry lifelong irrecoverable consequences.
One interesting case study that Australians could examine is the famous Austrian Von Trapp family who were featured in the movie classic, The Sound of Music.
The Sound of Music, which premiered in 1965, continues to carry universal popularity across several generations of Australians, as the movie’s timeless musical performances and personal journey of the Von Trapp family encompassing love, love of country and escape from the Nazis are both entertaining and captivating.
However, the real story of the Von Trapp family was quite different from the movie’s depiction as the family’s actual musical journey was influenced by tragic adversity and hardship resulting from the financial decisions of Captain Georg Von Trapp.
In real life, Maria Augusta Kutschera first came into contact with the Von Trapp family in 1926 and married the Captain in 1927, which was prior to the Great Depression and 11 years before the Nazi takeover of Austria in 1938.
During the 1920s, the Von Trapp family lived a privileged aristocratic lifestyle as Captain Von Trapp’s first wife, Agathe (who died from scarlet fever in 1922) came from a very wealthy family.
However, the Von Trapp family became financially destitute when the family’s financial fortune, which was held in an Austrian Bank, was lost as part of a broader collapse of the Austrian banking system in 1931[1].
This critical event forced Maria, during the years of the depression, to take charge of the Von Trapp household by dramatically reducing the family’s standard of living which included slashing household expenditure and dismissing the estate’s servants.
In order to survive during this period, the Von Trapp family were forced to confine themselves to only a small section of their three-storey mansion thus allowing them to rent the remaining parts of the estate in order to generate rental income.
It is in this period that the musically inclined Maria and the Von Trapp children would commit to disciplined and gruelling singing training under the guidance of musical director and Catholic priest Franz Wesner. Over time, the children were transformed into a professional choir that won the praise of family friends and acquaintances.
It was this praise that led Maria to identifying that the family could generate income from the children singing publicly, even though ‘singing for money’ would face opposition from Captain Von Trapp as such an activity would conflict with his aristocratic values.
Yet financial necessity would dictate otherwise and the family would perform in the 1936 Salzburg music festival, win the competition and launch a successful singing career across Europe which included performing for European royalty and heads of state.
By the time of the 1938 Anschluss (annexation) of Austria, the Von Trapp family rose to the attention of the Nazis. Specifically, the Nazis:
requested that the Captain take up a command in the German Navy;
invited the Von Trapp family to perform at Hitler’s birthday celebration; and
offered the Von Trapp’s oldest son, Rupert (not Friedrich as portrayed in the movie) a medical position as a doctor at a prominent Vienna hospital.
Yet the Captain’s patriotic devotion to Austria as well as the Von Trapp’s deep religious commitment to Christianity would not allow them to participate, or associate themselves, with the Nazi regime.
Unfortunately, the only option left to the Von Trapps was to leave Austria.
However, unlike the movie’s depiction, the Von Trapp family never secretly escaped on foot from Austria into Switzerland but rather travelled by train to Italy, before travelling to the United States via London.
The Von Trapp family, never to return to Austria, travelled with only the bare necessities (as well as their performance clothes and musical instruments). With not much money to speak of, their ship voyage to America almost left the family penniless.
The lack of financial preparation, including holding tangible and recognisable forms of money, such as physical gold and silver bullion, would transform the Von Trapp family from wealthy aristocrats to exiled financially struggling refugees.
In subsequent years, the life of the Von Trapp family would be one of financial hardship and struggle until they were able to establish their singing career in America as the Von Trapp Family Singers. The family would eventually go their own ways after the death of Captain Von Trapp in 1946.
However, the morale of the real Von Trapp story, in light of the coming economic crisis, is twofold.
One, the life of the Von Trapp family need not have been so arduous.
Had Captain Von Trapp not placed most of the family’s wealth within the Austrian banking system prior to the Great Depression, the Von Trapp family would not have experienced financial destitution.
Moreover, had the Captain allocated a portion of the family’s wealth in physical gold and silver bullion outside of the banking system, he would have:
preserved part of the family’s wealth prior to and during the depression; and
been able to physically escape Austria with their wealth intact when they travelled to the United States.
Two, the lack of financial preparation ahead of an economic crisis can have profound lifelong damaging consequences.
Unfortunately for the Von Trapps, the family never financially recovered from the Captain’s misallocation of capital.
In light of the Von Trapp family journey, Australians should heed these lessons when assessing and preparing for possible future economic environments.
Record levels of domestic and global debt, systemic economic risk and financial complexity, coupled with the domestic Australian risk of:
bank failures (e.g. Lehman Brothers 2008);
bank bail-ins (i.e. deposit confiscation as per the Bank of Cyprus in 2012); and
reduced currency purchasing power via money printing, zero interest rates and quantitative easing (e.g. countries such as Venezuela, Argentina and Turkey)
dictate that contemporary Australian financial investment strategies should be reconsidered.
If history is any guide, excessive levels of trust in financial markets, an over allocation of capital in financial market products and the banking system, coupled with a simultaneous underappreciation as to the role and value of physical gold and silver during acute periods of economic distress can have catastrophic life changing consequences.
John Adams is the Chief Economist for As Good As Gold Australia
This article is the sole opinion of the author and does not constitute professional financial advice.
[1] Note that the major Austrian Bank Credit-Anstalt failed during this collapse of the Austrian banking system which was the catalyst for the Great Depression in Europe.
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