What Is The Best Way To Prepare For A Downturn?
Readers suggest a topic around personal finance strategies. “Yesterday an angry troll chastised the arrogant HBB bloggers for wishing financial harm to the system. The point was that a recession or depression would hurt all of us and it would serve us right. First off, I disagree with this. Some people do very well during downturns. The key to success during hard times is the preparation that one has taken in advance.”
“What is the best way to prepare for a recession or even depression? Personally, I would say step number one is to treat debt like the ultimate evil. It would be nice to see what people think we terribly arrogant bloggers can do to ensure that the bad times are good to us.”
One replied, “I feel like in many ways preparing for a Depression is exactly what I’ve been doing recently. I’m not worried about the return on what capital I have as so much it’s return back to me. Given the 20% increase in my stock value over the last year, I think it’s getting close to time to bail on equities. What are other people doing?”
One has this plan, “I’ve got a shotgun, rifle, and a 4WD and a country boy can survive. Really, if the SHTF and it’s time to evacuate, I’ll play ‘row row row your boat, gently down the keys’ (to Cuba in a canoe - talk about reverse migration).”
One homeowner said, “I bailed out of stocks 2 yrs ago, have no debt, own my home and car outright, and have savings that will last me for 10 yrs. What else do I need to prepare for a severe downturn? (My hope is that a severe downturn won’t last too long so that I have enough cash to catch the stock mkt on an upswing.)”
One got into specifics, “I think that most on this blog realize that we are headed toward some financial ‘black hole’ (unchartered territory). Each has their own idea of how to protect themselves such as buying gold, t-bills, bonds, specific stocks, or bank CD’s.”
“Yes, I can buy gold now only to see it go down by liquidations sales of margin calls. I can put my money in CD’s only to find out that the FDIC protection is there but that it will take me 5 years to get my money back on an installment plan. Even payments on t-bills could be put in abeyance like withdrawals on the hedge funds downunder.”
“I hear some on this blog advocate buying gold funds that retain the hard metal. Do you really know what is in their vault? If you own the metal, if it is not in coinage you have to pay an assay fee; if you own the coinage you need to own coins that aren’t counterfeit, remember the Krugerrand.”
A reply, “Krugerrands trade quite freely on the open market and i’ve never seen a counterfeit. Gold in coin or bar form is an incredibly dense metal, not easy to counterfeit.”
To which was posted, “Then you haven’t done your homework. Sometime in the ’80’s or ’90’s they were counterfeiting Krugerrands.”
Another asked, “I’d like a discussion of where we should put the funds from an IRA or a 401K.”
One sees this, “Regardless of fiat currency or hard money, I think the things that will get one by in a depression scenario that is often painted around here are mobility and common sense. If you have some kind of skill you can trade work with people, and if you are willing to walk away and not look back you have vastly opened doors.”
“I know that I’m preparing myself to walk away from everything with just a laptop in my bag and the clothes on my back, not that I EVER want to have to, but it’s best to be prepared.”
Another sees this trend, “Farmland & a way to protect it. We might see more co-ops or communes of one type or another, where multiple families farm a piece of land & defend it together.”
“Other than that, flexibility & having skills (to trade) would be a good idea, absolutely.”
From Bloomberg. “Contagion from the allegedly self-contained implosion in the U.S. subprime mortgage market is drifting through the securities industry like mustard gas. It helped push the dollar to a record low yesterday, triggered the biggest deterioration in European corporate-bond risk in at least three years, and drove an index that tracks leveraged-buyout loans to a nine-month low.”
“The bigger unknown is whether the ripples will spread from financial markets into the broader economy, as stricter lending standards reduce the flow of cheap money that has been keeping global growth afloat.”
“‘The incremental risk aversion now evident in the financial markets seems to us to be a sign that the financial liquidity spigot is starting to tighten,’ said Richard Bernstein, chief investment strategist at Merrill Lynch & Co. in New York. ‘The childhood alliteration to remember how to turn a spigot is ‘righty-tighty, lefty-loosey.’ It’s now righty-tighty time for the financial markets.’”
get a gubbermint job and live off the sweat of your nieghbor
At least you’re consistent Flatt.
“A foolish consistency is the hobgoblin of little minds.”
But then in the interest of fairness, repetitio est mater estudiorum.
amarillo is “consistent flat”
you say that like it’s a bad thing…
If you figure high inflation will be part of the scenario, then being in debt may be to your advantage (pay it back with inflated $$). This assumes your income will inflate as well, I guess. If deflation (as with RE currently), then debt/leverage can kill you, figuratively speaking. I don’t have a crystal ball, but somehow I don’t expect a repeat of the 1930s (long, painful deflation). Right now, as RE deflates, other critical goods are inflating (food, medical care, education, etc.). Where to invest? Foreign stocks (play the falling dollar/stronger economies abroad)??
“If you figure high inflation will be part of the scenario, then being in debt may be to your advantage (pay it back with inflated $$).”
And what happens if loans start getting called in? Can a bank do that under extraordinary circumstances? I think they can. You would need to pay off that debt right away.
I believe the best thing to have is tangible paid off assets. This would protect against hyper-inflation. The asset would increase in value, proportionally, to the currency.
But I also have a problem with the hyper-inflation argument. Inflation is high right now, much higher than the govt. numbers. But it is not high enough to force them to act. The dollar is tanking and if it continues to tank then we could see the hyper-inflation kick in. At that point the Fed would have to drastically raise rates. That would stem the dollar run and stem the tide of inflation. I believe this safety valve would have to be used if inflation goes too high.
Higher Fed rates will kill the economy. But that will be a temporary killing. If rates rise to defend the dollar then dollars will be much more valuable. We would have a weakening economy and a strengthening dollar. Debt would be disastrous. This would be a time when assets could be purchased at fire sale prices. Those savers might actually get rewarded after all of this madness.
Every few months we read about another miracle diet. Time has proven that the one way to lose weight is to exercise more and eat less. Every few months we read about miracle financial cures. Time has proven that the one way to be financially healthy is to work hard, live BELOW your means and save for the future (in the form of savings, home & other fixed assets). I think all of the speculation is interesting but this mess will prove once again that there was no magic elixir. Common sense, and living within your means, is the key to surviving this or any other disaster. Common sense is one commodity that is not trading on some index. Maybe because it is just so rare.
“Higher Fed rates will kill the economy. But that will be a temporary killing. If rates rise to defend the dollar then dollars will be much more valuable. We would have a weakening economy and a strengthening dollar. Debt would be disastrous. This would be a time when assets could be purchased at fire sale prices. Those savers might actually get rewarded after all of this madness.”
********
Since “Debt would be disastrous” and too many Americans have more than enough of it today, I’m becoming more convined of the notion that the Fed will not be raising rates.
For as much as stagflation was a drag on the economy in the 1970’s, a similar outcome from this mess (the war on savers) replete with some moderate wage inflation, would be far less damaging than the scenario you outline above.
Or at least that’s how I’m seeing it now.
Perhaps after a numer of years (three to five?) savers might finally be rewarded. Bernanke (if he’s still around) could eventually “Do the Volcker”, but the present situation requires the Fed do just what it is doing now - jawbone about possibly raising rates, praise a “decent enough” economy, and leave rates alone.
Which means they “Do Nothing” for the forseeable future and help to continue feeding a bubble in the equities markets.
“believe the best thing to have is tangible paid off assets. This would protect against hyper-inflation. The asset would increase in value, proportionally, to the currency”
Have paid up assets, in the form of of house with less than 7% of its value borrowed on, even discounting a 20% decrease in value(LA area), gold jewelry and coins, one paid up car and another with $6000 left on pmts, investments mostly in bonds, treasuries,little stock equity, $30,000 in other tradable/sellable household assets, and two pistols for home defense(I live in a half-ghetto hood section of LA).
Also have a bit of debt, which is less than 10 % of my total net worth. $7500 is credit cards , which i have been trying like hell to pay back. CC’ companies are crooks who will do everything possible to raise borrowing rates to maximun for any reason. I play them against each other by shifting from high rate to lower rate cards, even a one year 0% teaser OK as a temporary weapon. In the current economy where rates are adjusting upward on long rates and credit is tightening i can still obtain a ton of offers, though the rates do seem to be going up and mail offers seem to be getting less and less.
As far as getting ready for an econonic downturn/recession/depression, I have a pretty stable secure job in a company which is virtually recession-proof(enviromental testing lab contract driver), and have plenty of extra emergency water/food/a good guard dog, and am used to working in bad areas of LA so i am pretty street smart and know how to avoid being a casualty in a riot/disturbance. Best strategy- do not mix at all with the hood low-life: keep a low profile: avoid being over-friendly with strangers or any one in the streets: do not smile: keep aware of the surrounding hood: have instant cellular/home phone access to the PO/fire/ city services dept.: Keep a good-running car-truck at all times and a good cell phone: have AAA club to call instantly in case of a car breakdown especially in LA where 90 % of area is basically a crapped out hood and theves, gangs, lowlife abound.
Just my two cents in!
You forgot body armor.
savers wont be rewarded, investors will……think the Sage of Omaha buying a builder.
“Common sense, and living within your means, is the key to surviving this or any other disaster. Common sense is one commodity that is not trading on some index. Maybe because it is just so rare. ”
Agreed.
NYcityboy is right. We’ve lived below our means for years and find it quite rewarding. I’ve never felt deprived or felt like I was missing out on anything. Good food, good wine, good friends and family and lots of laughs. What more is there? I much prefer to see the savings in my bank account grow then spend our money on trinkets and dinners out. No debt and lots of savings is going to be the only way to survive this mess. We see our friends and some family members in debt over their head. I don’t see how they’ll survive this looming down turn.
I’d like to hear from my fellow bloggers on how they’re preserving their savings. Is is treasurys, CD or something else? We have all of our savings in CDs with a small portion in stocks. We prefer to stay away from the stock market as much as possible, we feel that it is to big a gamble. Any suggestions?
Dollar-denominated CD’s are a gamble that the dollar will retain value. Over time, this is pretty much guaranteed not to happen. Savings preservation requires a sound currency. Unfortunately, there aren’t many choices in that regard. Swiss francs are probably the safest “normal” currency. And then there is gold, of course.
if your not moving up in the biz, your movin out….thats the W-3 (married with working teens), 1099…
schedule D and E are for “previous bubble” bubble winners!
Assuming that the global monetary system is still afloat. How about this one? Total global monetary collapse, but the Central banks get together and agree on a new world currency for us in every country with a fixed value, (printed or minted by some central bank of course for the interest) and the game continues. Of course, this is assuming many things and if you throw in some kind of natural disaster with the associated displacement then it might be more problematic. For myself, I am looking at none of the above, I figure some gold some silver, and some trading bait ie; ammo, liquor, and some other things that might be in demand. Skills are going to be valuable also, but that will be contingent on physical ability to perform those skills. Remember the greatest winners in the gold rush is the merchants. It will all work out, just going to take some time to stabilize and the first six months to a year are going to chaotic in my view. When money means nothing then property rights will go right along with it. Holding and defending property will take cooperation of one sort or the other. Just my two cents.
Water instead of liquor?
Uptick, your priorities are really messed up.
tin foil hat….
cant keep um on the shelves
A few years ago we woke up to the clear cycles of history, and the probability of a Greater Depression here in the McUSA. We now have a farm, with horses to work the land, and many other animals and lots of crops. We have a computer lab, with plans for reusing that space and junking all the technology if/when the electrical grid/internet become unstable/unaffordable/non-existant.
Our biggest fear is people. People who are starving and cold will do anything. And we now are the most heavily armed, fattest, most heavily medicated, most superstitious, most illiterate industrialized nation on the planet. I think there is a fair chance that Americans will be slaughtering each other in the streets if their TV’s turn off and the grocery stores get empty.
But, if the gas stations stay open, the grocery store shelves stay full and the TeeVee stays on . . . I’ll bet Americans will blissfully kick back in their own lard pools and just let the fascism come on full bore.
This said: America is 6% of the worlds population, and consuming more than 50% of its resources. I love America and our children, but I love all children. Therefore we need to collapse, and . . . history and all the graphs of current data, show quite clearly we WILL.
Good luck to all of you. (And please, don’t turn the guns on your fellow Americans when it gets scary - violence only begats violence!)
When do you forecast this to happen? I have started to seriously think about moving to Canada or maybe even Alaska(lots of land for the amount of people)
Lots of the aforementioned braindead Americans up there too…the majority of them are there because they can’t make it anywhere else.
I can’t agree with that statement, as most of the Alaskans I know are just the opposite - they could make it wherever they wanted. Alaska isn’t an easy place to live - dire mosquitoes, winters with no sun, summers with no night, cold cold cold…
The most important issue in my mind when deciding where to possibly relocate is to find individuals that share most of the same ideas as you on many fronts. I don’t know much about Alaska but I did have a friend who moved to Sitka and most of the people she met were staunchly conservative and very Pro-Bush. Not exactly what I would have thought. You need to check the area very closely before deciding.
Susan, while I can appreciate your point of view, and I think it is great that you have a farm and a computer lab, however the opinion expressed about America is dead wrong. It is understandable, but I hope the posters here understand that many (not all, though) of our so-called “elites” (acutally scum) in the media, in politics and in corporations want us to feel about ourselves and our fellow Americans exactly as you have described us. Mission might be accomplished in your case, but not for me. I am neither medicated, lardy, illiterate or supersititious and neither are most of my friends. I do see some people such as you describe and more of them than in the past, but I believe they are STILL in the minority and mostly on the Jerry Springer Show and at WalMart. Thank God for the internet, because it is here that I realize American is NOT a reflection of what is seen on the dinosaur (or mainstream) media. The fact that we even have a blog here where people are talking about possible solutions shows great hope. That’s how it starts, by communicating with others of like mind. And we might think about having just a little bit of compassion for those who have been shoved so far into the mud that they are illiterate, lardy, superstitious and medicated. Not so much that we allow them to drag us under, but at least enough to understand that they have a very hard time in life. While it is a good idea not to have such people as friends, it behooves those of us who are able to do what we can about social conditions to ensure they have a shot at a better life.
I don’t disagree that if chaos descends, the state of New Orleans after Katrina is a good model to study and preparation for such an event is always a good idea. In such an event, being able to protect oneself and one’s friends is important. There were people in New Orleans who did so and the gov tried to disarm them.
We can learn to consume less and consume more wisely, I see it happening. The example has to be set by those of us with the intelligence to do so. We are not going to get the masses to go along with this by displaying contempt for them. However, we can get them to go along by making it “the thing to do”.
I cannot reconcile the comment that you “love America, but it needs to collapse”. It’s like saying you love a family member, but they need to be tortured. I love America with all my heart and want to see it survive, it is worth it to me. The country needs correction, no doubt. It deserves better leaders and they’re out there. Find them and support them. Get to know the good folks in your community, they’re the ones who will be watching your back if TSHTF.
Very well stated!
Palmy, you are right on. A hide-out, protect me and mine, and everyone else be damned mentality is a self-fulfilling prophecy. I don’t live in an urban area, but the people I meet everyday are generally good-hearted and capable. I have been surprised many times at the basic generosity of people. I know there are many exceptions in the urban areas where gangs and such exist, but I haven’t witnessed it firsthand. I’ve never been robbed and my philosophy is generally, if somebody needs something I have badly enough to steal it, they can have it (with some exceptions, like my dogs and my ride).
I just purchased a new pickup and a nice used self-contained camper and plan to weather out the storm camping in places I love in Utah and Colorado and writing. If things get really bad (Depression), I’ll move back to the family ranch and live there, but I pray every day our country corrects and returns to the values that made us a great country. We all need to return to the basics. If people weren’t so removed from the natural world and we still had extended families, we wouldn’t be using shopping and drugs to try to opiate ourselves. For anyone interested, I recommend a book by Chellis Glendenning called “My Name is Chellis and I’m Recovering from Western Civilization.”
Sounds like a great plan. I like your attitude. Enjoy yourself.
As far as preparation goes, it’s a highly individualized thing. Most of the time, city folk tend to get on my nerves, I prefer a little more space. I have a hard time with it during good times, i can’t imagine how I could stand it during bad ones. I don’t think they are bad people though, and I have been one myself, they are largely just misguided and confused. The bad times that are coming won’t be the end of the world just uncomfortable for awhile. People in general will be greatly humbled and this will be a good thing. If you currently enjoy living in the city you should stay, and if you enjoy a more rural life then that’s where you belong. People shouldn’t let circumstances change who they are, rather they should realize who they are before any of the craziness starts.
IVe said here before, Palmetto IS my dad…..comforting knowing wqe have such differing opinions on certain matters, IMMIGRATION for one, but when it comes to the money, we are on the same page,
humans are not “consumers” “immigrants’ “savers”…. they are brothers and sisters, moms and dads, and friends.
During the Great Depression there was a hugh population migration to rural/farm communities, because there is food there to eat. people in rural areas weathered the depression better than people in the big cities.
This is exactly what my grandparents did. Both sets were newlyweds at the time of the Depression. They moved out of L.A. along with their siblings and parents. Everyone pitched in and they bought orchards.
Unless you were in the Dust Bowl states…….
“During the Great Depression…”
During the Great Depression the jobless were those with marginal skills who were already positioned near the bottom of the economic totem pole. People who had real skills who kept the drinking water safe, kept the electricity on, worked in the hospitals, etc., had to reign in the easy spending, but little else changed for them. Now if you’re the type without any formal training or education, and you park your car on the front lawn beneath your bedroom window then you probably have something to worry about.
My most recent read on the subject was, “Ten Lost Years”, 1929-1939, Memories of the Canadians Who Survived the Depression, Written by Barry Broadfoot. In fact, it was recommended by someone here on this blog.
Sounds like Britney Spears has had it.
RE: A few years ago we woke up to the clear cycles of history, and the probability of a Greater Depression here in the McUSA. We now have a farm, with horses to work the land, and many other animals and lots of crops.
You are in the best shape to weather any storm. Every book I ever read about surviving the Great Depression spoke of a general retreat from areas of massive unemployment and instability to “Uncle Ed’s and Aunt Tilly’s farm in the country, where everybody lived in the grand farmhouse and pitched in to establish a complete self-sufficient lifestyle accommodative to an extended family until better times came around.
Unfortunately, it is the rare individual who owns or has a relative/friend who owns a farm today.
When those Teamster driven food trucks stop deliverin’ for whatever reason…the ball game is over.
The Germans in the hyper-inflation of the Weimer Republic sold
family heirlooms for a couple of bushels of potatoes.
I will tell the people who are totally screwed…those livin’ in the major cities. These idiots payin’ bazillions for cushy luxo condo’s in NYC, LA, Miami, just fookin’ slay me.
Whoweee…Katy bar the door-burn, baby, burn.
New Orleans is a prime example.
Once those welfare checks aren’t cashed ’cause the gov’s payin’ of in worthless script, the AK’s 47’s are gonna come out en masse. And if you’re like most urban dweller’s politico’s like Mayor Menino in Beantown of Mazzholeland
have seen to it thru confiscatory guns laws that only the criminals will have weaponry to take what they want when they want it.
“When those Teamster driven food trucks stop deliverin’ for whatever reason…the ball game is over.”
True Dat!!!
I worked stock crew in a typical supermarket in Milpitas, CA (Next to San Jose) in the mid ’80’s. There were about 5 stores in the same 5 sq. mile area, plus all the smaller convenience, liquor, produce, etc. And lots of restaurants.
Anyway, we pulled in a minimum of one tractor trailer truck of food per day to keep the shelves semi-full. Not counting produce, frozen/refrigerated, of fresh meat/fish. One truck per day.
After a week without trucking or railroad, the shelves would be completely stripped. Next, you’d be looking at food riots. Imagine a breakdown in the water supply - even worse.
Keeping a boogie bag ready for when you have to boogie is a good idea. Also, know the county and state roads out of your area. Hopping on the freeway won’t get you far if the SHTF. What’s not gridlock will be roadblock.
Luke 22:36
As much as I believe we’re facing a day a reckoning I think people underestimate the positive if delayed effect technologies like the Internet are having on our economy. So I’m not totally convinced stocks are all that over-valued. At least non-homebuilder stocks.
A severe correction would wipe out the wealth of the greedy and ignorant who bought homes hoping to get rich. That’s probably a good thing for the economy in the long run. Also, a depression would force people to change their lifestyles and way of doing business, probably for the better. We’d all learn to be a bit more conscious of waste and inefficient businesses would finally succumb to the weight of better technologies.
For instance, is anybody really going to miss newspapers in the presence of a much better online alternative? I learn a lot more from this blog than the ad-ridden Homes section of the local paper.
We’re not going to starve if things go bad, we’re just going to have to adapt a little bit. Change is good.
As the dollar goes down, exports, along with manufacturing in the USA, will go up. Also, as long as the price of imported oil stays up, alternatives developed & produced here will keep dollars in the USA.
Went to my local pizza place and much to my suprise, they were using clear plastic cups for the soda. Turns out the “plastic” is actually a polymer made from corn (sugar) by NatureWorks (Cargill). These cups seemed just like regular plastic cups, but “It can be physically recycled, industrially composted, incinerated, and chemically converted back to lactic acid through hydrolis or land filled.” http://www.natureworksllc.com
dont bet the corn, ethanol is a subscription.
for wasted food.
Ethanol is not used - the process to make the polmer uses dextrose from the corn. Other sugars can be used instead of sugar from corn.
Corn is about two-thirds starch, which is converted to ethanol and carbon dioxide during a distilling and fermentation process. The remaining nutrients in corn, such as protein, fat, minerals and vitamins, are concentrated in three different ways and end up as distillers grains or condensed distillers solubles. Distillers grains are a co-product of the dry mill process used to make ethanol from corn
http://www.iowacorn.org/ethanol/ethanol_11.html
oops…
polmer should be polymer
and the second part of the comment is about the ethanol process only
Stock market is way over valued by almost any measure you want to use.
So let’s say one were up to one’s neck here - an FB, both underwater on a house, and with lots of credit card debt. How would you prepare for the great unwinding other than stocking up on ammo & MREs?
I imagine you could sock away a least a little cash between now and the ultimate contraction, but you can’t keep it in a bank if the man will just come take it, so you’re left with holding it in paper (dollars, yen, or otherwise), or perhaps precious metals (though these will probably take a beating too when the liquidity push begins).
What else? Any advice for the FBs out there who do not have the six figure cash savings of the folks on this forum, and little opportunity to make it happen a short period of time?
Get away from our bigger cities…
Ground Zero, for false sense of entitlement~
Well, that makes me feel good.
NYCityBoy, stay where you are, but just be prepared to leave if you need to.
Professionals in their 20s and 30s generally earn less than professionals in their 40s and 50s. However, the jobs for the young set are generally more stable since labor costs are lower for business. When I was 20 or 21 during the last chicken little phase (1980) when lots of people were preaching gloom, I was worried about hyperinflation (well not that I lost sleep). But I had a lot of years ahead of me and could have (should have) leveraged it by investing in stocks back then. Anyone on here in thir 20s should be maximizing their 401ks and IRAs into stocks.
America will probably exist in 40 years. After the British empire fell, Britain still existed. Didn’t it? Moreover, Britain went into a phase of grey socialism during WWII and emerged out of it once Margarat Thatcher took over in the 1980s. Kind of disproved the theory of Hayek’s “Road to Serfdom” that civilization is doomed to ever larger governments. Certainly East Germany, Estonia, and lots of eastern bloc countries have emerged from serfdom. The US may see its most severe socialism from 2009 through 2016, but enter the golden age of small government after that.
we can only hope the tyranny of the majority is quelled by the minority….its what the constitution is supposed to accomplish.
the protection of the monority from the TYRANNY of majority.
minority
big cities are fun when you are young.
small towns are fun, always.
respectfully disagree, grew up in a big city, spent my 40’s in a small town and was bored to tears, recently moved to a medium sized town and am much happier…
BTDT, to the point that it all fell apart for me. I think the most important concept is “when you find yourself in a hole, stop digging”. Take a hard honest look at the money going out and the money coming in. If there is no possible way to live without going further into debt each month, start preparing to face the music now. It’s tempting to just live a normal life as long as possible and then let it crash with way more debt than you have now, but there are advantages to facing reality sooner rather than later.
For example, even after there was no hope of avoiding foreclosure or bankruptcy, I *could* have controlled which one occurred. I waited too long and didn’t figure out that I could have done a short-sale in such a way that would have kept me out of bankruptcy. Speaking of credit, FBs struggle to the bitter end trying to save their credit, not realizing that it’s a losing battle and that you really can live without it once you live on less than you make. Recognize that your credit is screwed in the end, and instead work on the best long term solution for your family that doesn’t involve credit. In the meantime you’ll actually be doing the most ethical thing you can for your creditors to avoid borrowing even more money from them before you end up stiffing them. If you know you’re going to end up screwing them, do it sooner for less money rather than later for more.
Once you’ve done whatever you’ve gotta do to actually live each month without going further into debt, then look at what you need to do to prepare for harder times. In the meantime actually living on a set amount each month will be helping you learn much of what you’ll need.
I’ve been a bit shocked to figure out what lifestyle a median income will actually pay for. I have no car payments, low car insurance, rent for a reasonable amount and walk to work most days, and still don’t have a whole lot left over at the end of the month. As an FB I was probably spending 2k/mo more than I am now and had no idea it wasn’t sustainable, because “everyone” else I knew seemed to be doing the same thing.
Best of luck…
Former FB: God bless!
“I’ve been a bit shocked to figure out what lifestyle a median income will actually pay for. I have no car payments, low car insurance, rent for a reasonable amount and walk to work most days, and still don’t have a whole lot left over at the end of the month.”
This is where most folks are on the economic totem pole; they just don’t like to admit it.
Dear Anonymous,
I assume you’re serious. First thing, on the house, what state do you live in…and do you have any Helocs on your home? Makes a difference in the options you have. Painful, but I’d total up all my liabilities and my assets( and I’d be ruthless in calculating assets) and take a look. I’d consider my employment prospects–is my job stable, and likely to remain so, or could I do better elsewhere in the country?
If the debt numbers are truly bad, and you are underwater on your mortgage and on a heloc as well, so that you can’t slash the price of your home and sell and get out, I would rustle up the money and find a good bankruptcy attorney and pay for a consulation. Find out what laws govern your state, area, what protections may be available.
If bankruptcy is a viable option, and it may well be, how can you order your affairs to take maximum advantage. These are cold, business decisions, with long-term repercussions, but without first-rate information, you are a sitting duck.
And for those who feel this is immoral, I point to the hedge fund boys who just got Congress to agree to their untaxed billions.
Everyone deserves equal protection, so wake up and inform yourself of your options-then make the best moves you can for yourself and your family.
It’s pitifully easy to tell the difference between a real and a fake gold coin. Take gold American Eagles for example. The real ones will be 32.7mm in diameter and 2.7mm thick and weigh exactly 33.93 grams. You can get a very accurate battery powered digital gram scale for $30 and a millimeter gauge for $10. You cannot fake the density of gold. Once you have handled a few coins you won’t need the scale or gauge to tell a real one from a fake.
I do advocate having some physical gold on hand, but I wouldn’t take all your money out of the stock market either. We all know the market is artificially propped up but very powerful and rich people want it to stay strong. Might as well go along for the ride and collect some profits along with the wall street billionaires. I am really starting to wonder if anything can kill this stock market if the people with all the money and power want it to stay strong.
Fake gold coins are a scare tactic of the fiat money crowd. If you know your dealer you won’t get ripped off, and as you say it is easy to test. IMO physical gold will become almost impossible to get in a hyperinflationary environment. People just won’t sell their gold. That’s why you need to get some now.
Just compare the size of a couple of American Bullion Coins, The Pure 24k Gold 1 Troy Ounce Buffalo Coin, to it’s equally Pure 1 Troy Ounce Silver Eagle Coin…
The Buffalo has about 1/2 the mass, of it’s counterpart, whilst weighing exactly the same.
I think you mean “1/2 the size”, not “1/2 the mass”. Actually, gold is about 3 times the density of silver, if I recall correctly.
I’d better go hoist a mass or 2…
Prost!
Gold is 19.3 g/cm cubed.
tungsten is right there (19.25).
difficult to work and a very high melting point. Can be gold plated..
they do make darts out of it..
whilst hoisting a mass
My goodness - I guess you do not remember 2000. Nasdaq was over 5000!
Any recommendations on a well-reputed merchant from whom one can buy gold and platinum bullion?
Are there banks in the U.S. that have savings accounts that allow you to keep your balance in Euro? Who has the best rates? If not in U.S. how about off shore?
I asked the exact same question about six months ago on this blog and got a great answer:
http://www.everbank.com/001WorldCurrencyCD.aspx
Check out their World Currency CD. Right now, their Euro earns 3.0% on a 12 month CD. Not as good as a high-yield savings account, but still respectable if you are anticipating a continued decline of the USD. It’s even FDIC insured.
I’m also curious about this; If I suspect the dollar will weaken and that there will be hyperinflation, doesn’t it make sense to park your dollars into an Euro-denominated account? What if there was a huge bank run, and FDIC is unable to protect the system, much less your personal checking/savings account? Wouldn’t having an Euro account be a hedge against this ‘doomsday scenario’?
One thing I thought about having an Euro account was that when SHTF here in the U.S. and its financial markets, I can always use the funds to pay for day to day necessities. If worst comes to pass, i.e., rioting, lawlessness, etc. (You’re bumming me out!), I could always get an airplane ticket outta here and use the Euro account for this purpose. (Something tells me the airlines won’t accept dollars under this scenario!)
Or is the Euro currency market so closely tied up with the dollar? i.e., a crash in the U.S. currency will also crash other currencies, including the Euro, Yen, etc.? Is there truly a ’safe-harbor’ currency we all could fall back upon, when times get rough for our native currency?
“Or is the Euro currency market so closely tied up with the dollar? i.e., a crash in the U.S. currency will also crash other currencies, including the Euro, Yen, etc.? ”
That’s my assumption. I fear it will be a cantagion if the dollar tanks. I’m 20% gold–just in case.
Yes, there is a “safe-harbor” currency: gold. As Alan Greenspan once said (approximately): “Gold is acceptable in extremis. It is the only money that is acceptable then.”
Probably a good answer to all of this is people leaving Germany in the 1930s. Einstein came here in 1933 I believe, 5 years or more he would have had to deal with KrystalNacht. Smart guy. Goes without saying though.
Or how about Argentina in 2002. Couldn’t get money out of an ATM. How you gonna log on to Everbank and tap MAC? I wouldn’t rely on it. Not a bad idea, but don’t rely on it. Probably a good tactic is physical bullion, gold and silver. Old silver dimes and Morgan dollars would probably come in handy because most people would see them as US money, but at the same time know there’s something special about them because they only saw them in coin shops or on QVC and were expensive so convincing them of their silver worth would be fairly easy. I could see talking someone into accepting a Mercury dime in exchange for a few gallons of gas or a small meal.
Speaking of that, I’m not entirely convinced we’re experiencing peak oil either considering in 1963 it took 3 1963 dimes to buy a gallon of gas, and now, 43 years later, it costs three 1963 dimes to buy a gallon of gas (each 1963 90% silver dime now being worth 92 cents at .715oz of silver per silver dollar) for a total of $2.76/gal.
Keep the suggestions and insights coming! I’m trying to think of a safe harbor for my 401(k). Now strictly in a couple of Fidelity stock funds, and I’m itching to get out before the rush, but where to? Aren’t money markets and bonds infected with evil CDOs?
Otherwise renting main dwelling, own a “vacation” house on 15 acres clear, reasonable savings. Skills for a downturn? Don’t know how desperately folks will want editors, but I’m working on my pool game as a backup, lol.
If you are able to put your 401K into a brokerage account then you can either buy the gold etf (GLD) or you can buy the Central Fund of Canada (CEF) which backs stock shares with both physical gold and silver (55% to 45%, my understanding). You may also consider holding a mutual fund like Prudent Bear (psafx) which holds short term foreign sovereign debt (treasuries) as well as some precious metals shares. Just a couple of ideas among many.
Thanks for the ideas, auger-inn. Will especially take a look at Prudent Bear, as an independent investment option … not certain, but don’t think work 401(k) plan’s gonna let me buy gold. We get maybe 7 or 8 choices (dogs?) to pick from at Fidelity.
jack@ss…
you do remember, its not even close at the momment
avoid the bubble and run, while I plow my cash in…..lookin for the meltdowns to double down…..
VGPMX. May be closed to investors now though, or maybe just closed to anything under a minimum of $25,000.
Just got back from Home Depot here in So Cal. You could of shot a Scud Missle down the isle and hit no one. No Joe Sixpacks - but plenty of Joe Beerbellys.
Two years ago you had to stand in lines of 5 customers each checkstand.
Just got back- Same thing at Lowes
i got a parking space right in front the other day, middle of the afternoon .. i mean first one next to the front door. The lot was about.. 10% full?
More employees than customers inside.
Sobay, dimedropped, joey: You guys are scaring me. Home Depot (Bank Street) in Ottawa is fine.
Several months ago, I realized that there wasn’t a stock in the world that I wanted to own anymore. This was after 30 years of being an avid stock market investor. I could have gone straight to cash, but I didn’t. After thinking about it awhile, I decided that if there isn’t a stock in the world I want to own, some stocks have to be grossly overvalued. So, I bought two double short ETFs with the highest P/E ratios and greatest exposure to a flight to safety, TWM (small-cap U.S.) and SRS (U.S. REITs). That’s where I stand. I live in the suburbs of NYC in a home that (at the peak) was probably worth $1 million. Everybody here thinks NYC is immune to the downturn. I think it’s the most vulnerable place on earth. Three quarters of the people who work in the financial world don’t really do anything productive. The overcapacity of humans is staggering, and soon a lot of them will be out of work. When that happens, there is no bottom in NYC real estate. US and UK commercial real estate is the next big domino to fall, in my opinion. Already is.
The best thing you can do to prepare is to save more money and pay down debts. I don’t believe we will inflate our way out of this one. Not as long as Medicare is around and Social Security has a COLA. Look, it’s not that bad. The United States is about to go from “hog wild spending” back to a normal way of living and saving. It’s going to be shocking to some people, but you should be ready for it.
^^^Your right on the money guy.
If you are sitting on a NYC home worth that much that you think will crash then cash out!
great comments and suggestions. thanks.
“I think it’s the most vulnerable place on earth.”
Come to San Diego and say that.
After looking into it a bit, I realized powerful lobby groups are aware of rising inflation are doing something about it. It’ll be interesting to watch Wallstreet clash with the AARP. It also makes me glad to see there is a well financed and powerful lobby group opposed to excessive inflation.
“TSCL, in large part through the grassroots efforts of members, was successful fending off this “Greenspan COLA Cut,” at least in 2005. ”
http://www.tscl.org/NewContent/102526.asp
RE: I think it’s the most vulnerable place on earth.
Got that one right, Bubba.
Wasn’t there a movie called Escape from New York?
I really enjoy post s such as this one.
I have a house, a rental, some stocks, a rich uncle, a good job, but who reads books anymore, everybodys gonna be buring books for energy cause we cant grow enough food?
dust bowl is floating away….
inflation is real, the market bubble is real….
most youngsters are goin into energy, I too must confess I almost fell under that spell, but a balance of Corporate bonds, Ginne May, and a 40% (for risk tolerant) Big Cap weighting will pay off into 08..
Guy,
Regarding your comments about commercial RE in the US being the next domino to fall, I fully concur.
I work in commercial RE development in one of the bubbliest areas of the country (Riverside County, CA), and I can tell you that there are still new shopping center developments being planned at very early stages. The developer I work for just purchased 40 acres of property in a sparsely built area and are moving forward with the entitlement process to develop the land into a new center. The center will not pencil out financially unless the surrounding housing developments are built. Unfortunately (for the developers) these tracts are in serious trouble as the housing market has crashed and gets worse every day. The problem is the developers all talk to each other and believe they have timed the market perfectly. By the time the commercial project is fully entitled and they are ready to pull construction permits (two years), they believe housing will be in a recovery and they will be positioned to take advantage.
I have a much more realistic view of what is occurring and believe the market here will never full recover due to peak oil and the fact that most people who live in the area commute substantial distances to get to work.The area has the following problems which will not be resolved:
* Older shopping centers in the city are losing tenants to the new developments and these vacant spaces are not being filled.
* The new developments are being built, but are taking a very long time to find tenants.
* Many new businesses are failing soon after opening.
That said, commercial developers feel they are smarter and more sophisticated than their housing brethren. Commercial loans are generally harder to qualify for as the developer must provide evidence the center will be able to generate positive cash flow soon after completion. This can come the form of having secured a major anchor tenant who will draw customers to the center to support the tertiary businesses, or by having secured letters of intent from several smaller tenants. The complication which arises from these planned developments comes when a major anchor agrees in principal to lease or purchase a pad in a commercial development, but this purchase is contingent on having a suitable number of rooftops in the surrounding area to complete the deal. Based on the initial agreement with the major tenant, the banks will provide loans to fund the entitlement and site improvements, but if an insufficient number of houses in the area are built to meet the major tenants requirements, the deal can fall through, and the developer may not be able to secure the additional funding required to complete the construction.
Since this is a housing bubble blog and I work in commercial RE development, I have not posted frequently about the problems I am seeing in my industry, but if there is interest, I would be glad to post more observations about commercial real estate.
Please do post more observations, so as long you are not risking your employment and not doing anything unethical.
Rancho Cal,
Your observations are really welcome. Please post more often.
“That said, commercial developers feel they are smarter and more sophisticated than their housing brethren.”
The bigger they are the harder they fall.
or
Pride cometh before a fall.
It depends on what you believe the outcome will be; the main camps are divided between inflation/hyperinflation and deflation. Since I lean toward the hyperinflation scenario I positioned myself in energy/natural resource stocks, PMs, and I even carry margin debt which I believe will be inflated away in real terms. If I see inflation getting much worse I may buy some farmland too.
If hyperinflation comes about the worst things to be in are bonds, dollars, other fiat currencies. Of course if deflation occurs I am positioned very incorrectly.
Thats why its bad to have any debt, period. Pay it off and diversify your money into stocks, bonds, funds, real estate(but not right now) and maybe even silver/gold.
I think you should buy guns. They’re pretty, and fun to play with.
Olympiagal, thanks for the laughter-inducement.
“…and I even carry margin debt which I believe will be inflated away in real terms.”
You have an army of Wall Street bulls backing you up on that bet
positioned for inflation, not the hyper style or DE-flation….
sounds like bonds are the to go.
When it hits the fan, this will be a necessity:
http://narutofever.com/information/ramen-recipe.php
Ramen keeps coming up, so it is worth pointing out that this is a false value. The cheapest, man-made, commodity based foods are the worst for your health and the most likely to make you just another casualty of the diabetes explosion. Ramen in particular is strongly inflammatory and loaded with fat. If you really take this subject seriously at all then a victory garden is the way to go because seeds and seedlings are very cheap and the produce can keep you healthy.
Assuming that people have land to plant said garden in, and the weather in which to do it. Fact is, most people won’t be able to live off of what they can grow. Gotta put away some non-perishables for the winter. Or be ready to eat turnips for 60 days straight.
Other people always mention MREs for emergency food; I’d prefer canned soups. Cost is equal or less, keeps for years. Tons of variety. And they make lower-salt, lower fat ones too.
It looks as if we are headed for major deflation in RE and durables as demand for both falls due to faltering credit growth. The key here is the reaction of the Fed. They can either let things take their course, in which case, we will see widespread failures of banks so you want t-bills and cash. Avoid risky debt, especially junk bonds but also most investment-grade bonds bank deposits. The speed of the downgrades is going to shock Wall St.
If the Fed panics and tries to bail out the financial system via inflation, it will destroy the value of the dollar. In that instance, you want to have hard assets, most especially physical gold. RE also falls into this catagory but is too overvalued to make a good inflation hedge until its relative value declines severely.
The bonds of fiscally responsible governments should do well in either case - this means low budget deficits as well as disciple over the money supply. Switzerland and Singapore look to be the best candidates there.
My current portfolio is heavy in energy and mining stocks along with treasuries. I hold some gold and am looking for ways to invest in conveniently in foreign bonds. Suggestions on that front are welcome.
1. “It looks as if we are headed for major deflation in RE and durables as demand for both falls due to faltering credit growth.”
2. “If the Fed panics and tries to bail out the financial system via inflation, it will destroy the value of the dollar.”
In light of the swoon of the dollar on world currency markets, what are the betting odds on these two scenarios?
FED dont panic, they print.
and write positions
Damn, this blog amazes me. The level of intelligent and wide-ranging comments I see just floors me. This is so great since the level of the dialog at work is usually, “but I heard we’ve hit bottom” or “this is Manhattan. It’s different here.”
ditto, NYCityBoy….I get chills sometimes, because I feel I’m privvy to stuff there is NO WAY I’d get anywhere else. I’ve taken some pro-active steps that would have ONLY come about by reading the generous posts of some brainiacs.
One way to invest in international bonds conveniently is through T.Rowe Price International Bond Fund (”RPIBX”), which by policy doesn’t hedge the currency exposure. It invests primarily in developed country soveriegn debts so the credit risk is minimal. The fund has a decent track record, but does better in a falling rate environment. If you want to take additional risk, you could also look at their emerging markets bond fund, which has considerably higher historical returns.
One thing about stocks and bonds that can’t be stressed enough…
When the CDO hedgefunds collapse, it becomes a “baby gets thrown out with the bathwater” deal, with every other Wall Street financial product, regardless of merit.
What will be the “bank run” this time around, look like?
A run on the only place our citizens have any money…
Wall Street.
American Century International Bond Fund(BEGBX) is an alternative to consider for an unhedged bond fund.
GetStucco
The dollar is down about 10% on a trade-weighted basis over the last 12 months. Since both the Yen and the Chinese Yuan are kept artificially weak by their governments, the dollar has fallen more like 12-13% against the currencies that trade freely. Other than the Yen, the only currencies still weakening against USD are bottom of the barrel - stuff like the Gamabian Dalasi and the Zambian Kwacha.
Clearly, the currency markets are betting on inflation from the Fed, though not hyperinflation at this point. As long as Bernanke is Fed Hed, who can really blame them? His inflationary bias is notorious in the financial community. This is the guy that once threatened to “dump liquidity out of helicopters” if necessary. He also said the following:
“Like gold, U.S. dollars have value only to the extent that they are strictly limited in supply. But the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services.”
http://www.federalreserve.gov/boarddocs/speeches/2002/20021121/default.htm#fn18
Oddly, gold is still below its high from last Spring - $720 in May 2006. I think this is due to the fact that the Fed’s main tool for expanding credit and inflicting inflation on us is breaking down. Banks and bondholders may not go along with the plan; since losses are rising so rapidly, they might be a bit reluctant to make new loans and buy new bond offerings. So, while there may be the will to inflate there might not be the means.
Great handle BTW.
GS, I have a question. Whenever I go to money.cnn.com and check out what I can trade a dollar for in terms of Euros and Yen, the values don’t seem to have changed much over the past year. So where do you go to find info on how much the dollar is down or up?
Ooops - that was a question for Deron.
Sally
Try Yahoo Finance. Left side of the page under “International” you’ll see “Currency”
On Dec 11, 2006, the exchange rate for dollars to yen was $1 got you 115.49Y. But as of July 14, 2007, $1 got you 122.24Y. So doesn’t that mean the dollar’s position has improved in relation to the yen since 12-11-06?
Sally
You’re absolutely right that the dollar has strengthened against the yen - or more properly, the yen has weakened against the dollar. Japan’s central bank kept their equivalent of Fed Funds at zero for years and even now it’s charging 0.5% vs 5.25% here. They are deliberately devaluing the Yen to make their exports more attractive. China also keeps the Yuan weak but it’s still going up vs the dollar and so is every other marjor currency. That’s why I wrote:
“…both the Yen and the Chinese Yuan are kept artificially weak by their governments,”
“Other than the Yen, the only currencies still weakening against USD are bottom of the barrel…”
Most central banks operate on Keynesian theories where economic weakness can be overcome by forcing people to save less by borrowing and spending more. Thus, the CBs tend to keep rates artificially low to punish savings and encourage borrowing and consumption; the Fed has been one of the most aggressive proponents of this policy. The theory works but the long-term costs are horrendous.
On the plus side, the excess consumption helps to explain why we haven’t had a severe recession in 25 years (since 1982) - just 2 short shallow ones in 1990 and 2001. But the cost has been the complete destruction of domestic savings. Americans used to save about 10% of their income; that number is now -1.4% so we’ve carried that trend past it’s logical endpoint and into the realm of absurdity. So we now import most of the savings of Asia in order to consume it.
The Bank of Japan has been less successful in their attempt to imitate the Fed. Even pushing interest rates to zero, they could not convince their citizens to stop saving and spend instead. I think that it partly cultural but also due to the tramatic fall from the late 1980s bubble years. Real estate, stocks and other financial assets collapsed together so dramatically that consumers became afraid to spend and banks afraid to lend. But that’s always what happens to overextended systems of credit - they fail catastrophically. Japan suffered recession relieved by periods of stagnation for 15 years.
The US was set to experience something similar in the wake of the NASDAQ collapse in 2000-2001. But the Fed acted so quickly to pump up the money supply that confidence never collapsed. The bubble mentality simply shifted from stocks to RE and from there to other asset classes. Of course, to counter the collapsing stock bubble, the Fed and other CBs had to create an even larger bubble. It has extended to virtually every nation and every asset type. Homes in London, coal in Australia, office space in Mumbai, factories in Guangzhou. Argentina defaulted on their government debt and pays lower interest rates 5 years later than they did before they repudiated their obligations! It’s globo-mania and just like every other “new era” you will find monetary excess at its root.
‘The Bank of Japan has been less successful in their attempt to imitate the Fed. Even pushing interest rates to zero, they could not convince their citizens to stop saving and spend instead. I think that it partly cultural but also due to the tramatic fall from the late 1980s bubble years. Real estate, stocks and other financial assets collapsed together so dramatically that consumers became afraid to spend and banks afraid to lend.’
Ask any J6P about that and see what they say. Japan should be a reminder of our fragility.
excellent post, as a yougn 30 ish individual,
I have 15% in gold
its pronounced “yung’un”
“By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services.”
I wonder if he ever regrets having made that speech? Most Fed chairmen worry about establishing a reputation for vigilance against inflation by making credible commitments to control it. BB is the first Fed chairman I am aware of who talked about credible threats to inflate the currency, and despite all the jawboning, his policies thus far have only bolstered the threat’s credibility.
Bernanke is an idiot - an ivory tower academic. Americans are paying for those remarks every day in the foreign exchange markets whether we know it or not. Even if we don’t pay attention to past writings of the Chairman, rest assured that currency traders and bond buyers do.
Bernanke is hardly the only one with a severe inflationary bias. Just this week the Philadelphia Fed President spoke in Europe. What he had to say reveals a lot about why the Fed has acted as it has over the last 10 years:
“In general, economists (and policymakers) have great difficulty determining if a rapid increase in asset prices reflects changing fundamentals or a bubble.”
translation: We have no way to recognize a bubble.
“I am also skeptical about how effective or desirable monetary policy can be in restraining such asset price booms if they do occur.”
translation: We can’t really do anything even if there is a bubble.
“Nevertheless, there is general agreement among economists and policymakers that, regardless of the cause of a rapid rise in housing or other asset prices, the rapid unwinding of such price booms should be monitored carefully by policymakers. A central bank should be prepared to act quickly to forestall any subsequent large adverse effects to the economy or financial system. I share that view…”
translation: We need to do something when a bubble bursts and do it fast.
http://www.phil.frb.org/publicaffairs/speeches/plosser/2007/07-11-07_euro-econ-finance-centre.cfm
So you can see the self-serving and highly-inflationary “logic” at play here. We can’t possibly recognize a bubble when we see it. Even if we’re sure it’s a bubble, we shouldn’t act to stop it since it might not work and something bad might happen. But certainly we’ll have no trouble spotting a bursting bubble and then we will act aggressively.
To sum up the hypocricy, the Fed claims it can’t spot a bubble rising but can spot a bubble falling. They claim monetary policy might not work to stop a bubble but their implied confidence in that same montary policy to deal with a bursting bubble is total. They claim they should not act against a bubble for fear of negative consequences yet seem to display no fear of similar consequences from propping up a failing bubble. It’s just absurd.
You might want to look at UAE govt bonds http://www.nationalbonds.ae . Moreover, the persian gulf countries are scheduled to unpeg their currencies from the dollar and create a unified currency in 2010. Kuwait already unpegged their currency earlier this year, and it appreciated 3% against the dollar in 3 months.
typo, that was 6 months
Anyone betting on Hyperinflation needs to understand what they are hoping for: Policital System change as a result of new currency and respective control of it. Sound crazy??? Well, that’s exactly what happened in Weimar Germany and lead to the Nazi party coming into power…and we all know how that worked out for them don’t we?
The only way that solution works is to get inflated dollars into the wages of J6Pack. I guess I should go demand that 200% raise from my bosss first thing Monday morning. He never listens to me. He’s always mumbling something about outsourcing and India or Philipines or something….I’m not sure what because I’m usually thinking about that McMansion I want to buy.
“…what they are hoping for…”
I for one am certainly not hoping for this, but I would argue the Fed is playing Russian roulette with this scenario by their various forms of market manipulation that are in play on the bold assumption that they can always outsmart and outmaneuver market forces.
I would argue that fascism, of the financial flavor…
Arrived long ago~
Hyperinflation is the nadir economically, as a result of.
Of all possible outcomes hyper-inflation is the one I want least and scares me the most.
Too bad the Fed’s mortal fear is deflation. IMO, that would be better for the $US and the future of the country than the Weimar Republic scenario mentioned above.
Fed constituency is the banking system. Deflation would crush banks, but Fed believes they can manage inflation, so they opt for the devil they know.
No, it only crushes the ones that were making bad decisions with mortgage lending and can’t absord the losses associated with the loans. I suspect there will be a rash of consolidation that happens amongst many banks that cant handle the damage.
I think the Fed is going to get deflation whether they like or not. They are just going have to get use to it. I think the real question is if the Fed is going to suvive in the long run, or are they going to go the way such agencies as the ICC or the CAB.
JWM
The Federal Reserve of the late 1920s and early 1930s comes in for a lot of abuse today. But they were faced with a situation where the alternatives were deflation or hyper-inflation. Considering that they had the horrible example of Weimar Germany right in front of their faces, who can really blame them for making the decision that they did? Even with 20/20 hindsight, things worked out a lot better for the nations who chose deflation rather than inflation in that period.
When the Federal Reserve was created, it was in response to the panic of 1907. One of it’s duties was to provide liquidy during a run on a bank in order to prevent wide spread bank panics, like the panic of 1907. When the downturn began in the summer of 1929 and through 1930 the unemployment rate was about 8-9%. This was about same as the resessions of 1973-75 and 1981-82. It was wave after wave of bank failures from 1931 into 32 that distroyed the banking system, and the whole economy. The Federal Reseve boards sat on their colective hands and allowed this to occur. It has nothing to do with monetary policy, it was a govement failure of the worst kind. There been many bank panics in American history, none of the prior ones caused such a clamity.
Marriner Eccles Becomes Chairman of the
Federal Reserve Board
Marriner S. Eccles, a Mormon and banker from Utah, was the first Fed Board chairman after Congress passed the Banking Act of 1935. He wrote much of the Act and was an indirect force in promoting its journey through Congress. The Act effectively remodeled the Federal Reserve System so much that Congress might better have labeled it “The Central Banking Act of 1935.” As just reward for his efforts, President Franklin Roosevelt nominated Eccles in late 1935 to be the first chairman of the new Board of Governors.
…
Fed Policy during the Depression and War Years
http://www.minneapolisfed.org/pubs/region/99-06/martin.cfm
One thing to keep in mind is what the money saved is to be used for. If your savings are for buying a home, right now you are getting a very good return as real estate prices deflate. So be careful what you put the money into, as it could lose the extra buying power you need for a home.
In any case, after watching this admin for the last 7 years, one thing is certain. They have no idea how to manage a crisis. So when the SHTF expect the utterly incompetent Bush regime to screw it up even more.
they will be out of office by then.
Yep. Bush will leave one heck of a mess behind him. The question I have is not about who I vote for in ‘08? The question I have is, “who would want the job?”
Maybe next week we could have a weekend topic of what the world would have looked like if John Kerry had been elected in ‘04. I voted for Bush twice and now I really think he has been incompetent. But I don’t believe things would be much better under Kerry.
absolutely!
“I’m fascinated by rap and by hip-hop. I think there’s a lot of poetry in it. There’s a lot of anger, a lot of social energy in it. And I think you’d better listen to it pretty carefully, ’cause it’s important.” - John F. Kerry
Perhaps a better question to ask is if things would have been better under Gore.
We have what we have, and we deserve what we have IMHO. This isn’t incompetence. It’s an abdication by the electorate of their civic duty.
Don’t know of anyone watched Bill Moyers Journal last night…
http://www.pbs.org/moyers/journal/index-flash.html
sigh…..if only…
NYCityBoy, I don’t feel so bad now. I voted for GWB in 2004 (Libertarian Party candidate in 2000) and if I think Kerry would have been no less incompetent. The only hope is Ron Paul, who is totally out of the mainstream wimpy Bush status quo faction. By the way, I was inspired after seeing a Ron Paul Revolution poster on Indian School Road near 64th street going into Scottsdale from Phoenix today.
‘The question I have is, “who would want the job?”’
There are always those who want the job. A better question is “who is up to the job?” Though I am not 100% into Romney’s positions by any stretch of the imagination, I believe he may be the best qualified for the situation at hand. He, and his dad before him, is a turnaround specialist. Look at his record (and withhold judgment on his Religion — no candidate in this country can get elected w/o at least kowtowing to Christianity…).
18 months more seems like 18 years more.
I bought a 2002 ploice car at an auction and it sits in my driveway. Good security system.
LOL
I bought a 2002 police cruiser at an auction and park it in the driveway. Good security system. Unmarked but definitely a cop car from a distance.
I’m expecting stagflation and a recession, but civilization as we know it isn’t coming to an end; so survivalist plans involving me, a gun, and a secret enclave of Amazon women, remain a fantasy.
My money is in cash or equivalent, and I have no debt. Other than that, I’m not doing much else. My job is recession-proof, though my wife’s isn’t; but we can get by comfortably on mine.
You mean those Amazon women who work for Bezos?
Sorry, could not resist. lol.
Like you, no debt, lots of cash (although the manner in which it rests makes me nervous). We are carrying our remaining real estate at 8% (land), but it appears we may be getting it back…that’s ok…the guy put a 8″ water main, and got commercial zoning.
Anybody got some good ideas about specific bonds? Or, better question, what bonds to avoid?
“My job is recession-proof” = Canadian government job?
recession proof=gov
I fear peak oil(google this) may exacerbate the global depression. Is any of you here planning to relocate to some other state or even to Canada?
If I was going to relocate, I’d have to relocate my whole family along with me and I don’t think they’ll go for it. We’re talking four grown kids, with spouses. And then we’d have to move the spouses’ families…..nope.
I recommend a book called “American Theocracy”. I think we are likely to go the way of England, fading out of our supremacy as our energy source (oil) is depleted and our economy is nearly totally dependent on the rentier class vs. manufacturing. I think this process started during the Clinton years and sped up exponentially during the W years, and at this point it would truly take a miracle for us to regain the prestige and power we had at the end of the Cold War. So long as we are dependent on oil, though — even if a miracle happens in the short term — we are doomed to decline in the long term.
Just moved from SoCal to Canada, following jobs. The economies are pretty tightly coupled, and it’s the only country that uses more energy per capita than the US. Don’t count on it as any kind of refuge from whatever happens in the US. Canada’s RE is bubbling, but you might be able to find some decent farmland in SK. Just build your compound with good insulation.
I’m originally from Alaska - not a great place to run to either: it’s completely dependent on food shipments from very far away, and a tough place to run a farm. (I loved living there, though.)
interesting..my wife and I moved from the SF Bay Area back to our native Nova Scotia last fall. Nova Scotians are pretty frugal in energy use and recycle just about everything. Outside the bigger towns here (Halifax mainly) land is relatively cheap..I believe a 3% yearly appreciation rate is the forecast.
We bought our house for cash and have a level acre..planted a big garden and we’ll see what the critters leave us to harvest. So far, having a great time. Watching the US news now is so otherworldly..
I am Canadian and live on the prairies but am in the process of relocating to the West Coast (Sunshine Coast - smaller community stuff). A big Canadian problem is the rampantly evergrowing insidious bureaucracy at all levels in a country that is quite socialistic that has NO PRIVATE PROPERTY RIGHTS in its “consitution” . As well the press is so socially and economically iliterate that it is scary. Thus even though this is still a good country, i really don’t trust what kind of things the “They’s” might do to one in any kind of economic or social crisis. One thing i have done is to actually move some funds off shore and invest these through a Swiss Bank (one of the big ones) as i figure it is good to have enough of one’s assets physically away from the country you live in. My choice of Switzerland is that i figure that if that country was able to stay neutral through WW1 and WW2 then it is worth putting some of my funds there for safehaven purposes. These banks are sophisticated and can and will do most commercial transactions for you including investing in specific stocks and securities in most global markets Also i think if one wants to hold precious metals it may be well worthwhile to have some of these physically offshore. Anyway fwiw and i do report my Swiss stuff on my Canadian tax returns so this isn’t a tax dodge thing. It is just an attempt at some kind of preservation in the face of a possible monster storm.
Been trying to get my husband to agree to learn either French or Italian…. Too old to relocate to New Zealand. Close to Canada, which looks better every day from the resources, peak oil, climate change, global economic turmoil (or all of the above) viewpoints…. Sadly, I’m no longer kidding. I’m old (62) and nauseatingly healthy, but let’s get real here…..Safety in a city? No thanks. I’ll take my chances in a remote area. We may not be the Nearings, but can do a survivable imitation……..with gold.
Well, IMO Great Depression #2, if it happens, cannot possibly be as bad as the first. This is because the entire world has become more prosperous since 1929. And it’s not just paper wealth, either. We have the Internet, television, air conditioning, two cars per family, etc. These things are all real, and they were all unheard-of luxuries in 1929. Also, productivity gains play a big role. We have gotten so good at producing things like food, clothing, and basic medicines that I can’t see us ever really running out of those staples. All Americans should be able to SURVIVE a Great Depression #2 without going hungry. A lot of people will be ruined financially, but at least we’ll survive.
And even if the entire economy tanks and the standard of living of the average person is cut in half, one-half of a 2007 standard of living will still be much nicer, in objective terms, than one-half of a 1929 standard of living. Even if everything goes poof, most people should have enough and be all right.
I myself am trying to prepare for a big crash — even if it never comes, it never hurts to be prepared. But I’m trying to do it in a way that is realistic. While it would be great to quit my job and start a dairy farm, I can’t possibly do that, I don’t have the capital. So I am trying to focus on things that I can do today.
One thing I have already done is pay down all of my non-student loan debt. We have no credit card debt and both of our cars are paid for and will be driven into the ground.
Next, I am trying to accumulate as much cash as possible. If only the housing market tanks, I’ll have a big down payment. If the whole economy tanks I’ll have a nest egg. If the crash is big enough I’ll have a nest egg and a down payment, LOL.
Also, it’s a good idea to minimize monthly expenses as much as possible, but that’s obvious.
Third, it’s a good idea to avoid large expenses if they can be anticipated and avoided. For example, one of our cars is a foreign luxury model, but the other one is a cheap, primitive, and utterly reliable American car. If things ever get really tight, at least we’ll be able to keep one of our cars running. I doubt they’ll get this tight, but again — it never hurts to be prepared.
Finally, it’s probably a good idea to do what the Mormons do and have a good supply of food on hand. Again, this probably won’t be necessary, but if there is ever a terrorist attack or civil disobedience or things get really difficult at least you’ll have enough to eat. Along those same lines it’s probably a good idea to have a gun.
Again, I think the apocalypse scenario is so unlikely that it might as well be disregarded. But all of the above measures are a good idea even if there is never a crash of any kind, so that’s what we are trying to do.
“one of our cars is a foreign luxury model, but the other one is a cheap, primitive, and utterly reliable American car.”
Your grandfather must have been driving that during the 1st depression since that isn’t a description you’ve seen attached to an American car in decades.
pay down debt
accumulate cash
minimize monthly expenses
avoid large expenses
emergency supplies..
hey.. i guess i’m in good shape since that’s the way I’ve always lived.
While I generally have a hard time envisioning a Great Depression II, here is the thought that sticks in my head: this time around, we have a population with a feeling of entitlement that surely did not exist in 1929 and through the ’30s.
Though many of us on this blog are prudent savers, etc., the vast majority of Americans have no concept of austerity. That will be either the wake-up call, or the trigger that ignites chaos in the streets. That’s what worries me.
Look, though I’m a saver, have no debt, bitter renter and so forth, in many ways I’m just as fat and happy as the rest of the country. I’ve never known real hardship in my life. Nor have most other people. How will society react? I don’t have high expectations. I don’t own a gun, but I’m guessing many of the ruffians in the streets sure do.
And don’t expect the government to be able to do much about it. If Katrina taught us anything, it’s this: don’t count on the government to truly help in times of crisis. Maybe a jug of water or two. Mostly you’ll be on your own.
Happy Saturday everyone!
– Judge Smales
“You’ll get nothing and like it”
“We have gotten so good at producing things like food, clothing, and basic medicines that I can’t see us ever really running out of those staples.”
Who is “we”, though? Assuming we can fuel the tractors, yes, “we” can grow a lot of food. If you’re not one of the ones actually growing it, what can you make or sell that the ones whe ARE actually growing it would be willing to take as payment? The farmers will need clothing and maintenance items for their homes and equipment, and if they can get those things they might even be interested in a few luxuries. We’ve already outsourced the means of production for all those things, though, so what is your plan for how to produce anything that anyone will trade you food for? IMO anyone who can’t answer that would do well to stockpile some food.
“Who is “we”, though? Assuming we can fuel the tractors, yes, “we” can grow a lot of food. If you’re not one of the ones actually growing it, what can you make or sell that the ones whe ARE actually growing it would be willing to take as payment?”
Me ruv you rong time.
Do you have any suggestions as to what kind of food is good to have on hand as emergency supplies? What is nutritious and has a long shelf life?
beans and rice….partly kidding….mostly not
Well, IMO Great Depression #2, if it happens, cannot possibly be as bad as the first.
No, it can be much, much worse. Economically & psychologically we are arguably inferior to those who lived through the Great Depression in many ways.
Ahem, inferior from a standpoint of preparation for bad times.
Most people these days are total idiots and have no idea how to make anything, survival to them is fooling themselves into thinking they haggled well with the car salesman to get another $500 off a $30,000 car. People in general in 1929 were productive, people today in general are just plain stupid.
jeeze.. all this doom and gloom is bummin me out big time.
Got razor wire?
young people here, the fear is palpable…
sucks me in a lot, but I just work….and buy in when I can
Im not a gambler by trade, but I invest a bit.
I don’t think another great depression is likely. The great depression became a disaster because the Fed didn’t do it’s job and allowed the whole banking system to collapse. It’s something that is not going to be repeated. I think what is more likely is a decade or so of economic turmoil, with at least two or more nasty resessions. That will lead to reform, and a return to prosperity. Like the 1970’s or even the 1890’s.
This is what I’m hoping for as well…I just hope it’s enough of a much needed “financial reset” here in the US and specifically SoCal…good god, SoCal needs it bad….
The first thing the Fed screwed up was fueling rampant speculation via excess liquidity in the 1920’s. Sound familiar???
Another depression is *highly* likely. History rhymes, because human nature doesn’t change…
Another depression is *highly* likely. History rhymes, because human nature doesn’t change…
Preach it. The Fourth Turning anyone?
I agree with those who say the world will not end, but neither will current asset values and spending in excess of earnings remain.
In the transistion, Wall Street will have a cyclical downturn, which will return the real estate market in NYC back to normal levels. I do not expect real estate to fall below normal in the NYC area, though the loss will be considerable for those who bought at the top and have to sell.
A guy that lived through the depression told me this a long time ago:
“Invest in things that cannot be taken away from you.”
if he lived by his word (and you didn’t leave out any words) i guess he didn’t invest in much.
Education
Education
Gulag
Lobotomy
circumcision?
He would’ve had the last laugh as he plied all the skills most of us don’t have - fixing things, making things, growing things, running things…
Like 45 ammo and double 00 Buckshot ?
I think the FED is in a pickle. They are surely aware of the dollars decline, that Iran is now requesting oil payments be made in yen or euros, Chinas new lack of purchases of our long term treasury debt that started in May of this year, the interest rate increases in the United Kingdom, New Zealand and shortly on the European mainland are all placing downward pressure on the dollar. A cheaper dollar over time is inflationary. Our economy is so dependent on foreign lending to keep our excessive debt economy running that Ben may have his hand forced into raising interest rates no matter the affect on the housing market. It all depends on the interest rate of the ten year treasury. Keep your eye on the ten year. Since we Americans as a whole cannot live within our means, like it or not we are going to let China decide where interest are headed. As of right now in mid-July, they are pointing way up for the forseeable future.
My recommendation is to get out of debt that is in anyway adjustible. To have some kind of savings and split it into T-bills and gold coins. You decide the percentage to put into each but you ought to have some in both. In the near term of 18 months or so, interest rates and gold look to move higher as long as the dollar continues its slide. In the long run, I don’t think anyone knows if we are headed into hyperinflation or extreme deflation. I would say the best bet is to stay flexible and let it play out.
I would think the worst thing to do would be take out a variable home equity line of credit and use it to buy another SUV, vacation, or some other purchase so that you can try to keep up with the Jonses in your neighboorhood.
Foreclosure Central, that second to last paragraph is very good. Most of my equities are in tax deferred plans that I won’t touch for another 20 years. I invest conservatively outside the tax deferred plans. Mostly government securities and some precious metals.
The only problem with tax-deferred plans is that those deferred taxes will likely be a lot higher than they are now.
Bingo. The day I realized this was the day I opened a Roth IRA.
Of course, the following day I realized that by the time I use it, the Roth exemption would be toast and I’d probably pay taxes on it anyway.
At that point I bought a case of beer and a new guitar. If the IRS wants those back, good luck.
Great posting Bill. I believe the “How it plays out” scenario will be affected by the next administration. I think they’ll be the one’s to break the Fed’s “pickle.” Do they end a war that’s driving the economy and focus on domestic policy? IMHO ending the war would lean towards higher rates in the near term. Perhaps taking us to the end of the current “business cycle”
Here’s a question. Not too many here would like to see a complete societal meltdown, though the idea is intriguing, considering how rotten to the core our institutions have become. But … if we get the 50% housing haircut we’re waiting for, how dark does it have to get?
And how safe is your cash in the bank if that happens? I (we) could possibly hide out upstate, hope for some global warming, and maybe sell off a few trees or a few acres to squeeze by.
But to those in the hyperinflation camp … how much lower do you think the dollar’s likely to go? It almost seems silly to buy, say, pounds, at such a historically high rate, but then I’ve seen the odd prediction of the euro even going past $2. Though I have loved this country, I’m finding it hard to have much faith in it right now. Can’t help but think the wider world is eager to take advantage of this situation to teach us a big-time lesson.
Best Case: Argentina-2002
Worst Case: Zimbabwe-now
I see most of us learning the Tango…
I can’t see how wages are going to go up for everyone when outsourcing continues to increase….
You’re right NYC. There will be no sympathy for the U.S. when the stuff hits the fan. Regardless of the tons of “good” this country has often done for people the world over, we (the U.S.) are viewed as victimizers and gluttons — in the literal and figurative senses. The rest of the the world will use this opportunity to redress all of their grievances — real or imagined — even if it hurts them at the same time.
– Judge Smales
“You’ll get nothing and like it”
Let’s not forget the US consumes a large percentage of imported resources, so if there is competition for them and the dollar is weak won’t they be priced out of the reach of most people? My neighbor told me to get a gun, he says that if things get bad and I have food someone with a gun will take it, and he might be right. I have no illusions about my fellow man, they will always rationalize their actions whether it benefits you or not. I believe that living a rural lifestyle might be the better choice especially when the social services that make the city habitable go away or diminish. Imagine waiting for days or weeks for the police to show, trash collection down to once a month, water service sporadic, and electricity brownouts along the way, sporadic delivery to the grocery store. Lots of things to make a city untenable, I live in Phoenix so a brownout or actual outage of electricity during the summer would be lethal to some. Nope, I don’t think it will collapse into medieval type survival surely no one has any clue as to how things will work out. Being prepared for the worst and hoping for the best will work for a while, but staying informed and being ready to move if necessary is just common sense to me. Water and the purification of it would be a big necessity too, that might be the key. Electricity to pump the water would be another factor. Just thoughts that are thrown out there, and let us not forget natural disasters and the relief efforts or non relief efforts for the survivors would certainly raise the stakes.
“I have no illusions about my fellow man, they will always rationalize their actions whether it benefits you or not. I believe that living a rural lifestyle might be the better choice especially when the social services that make the city habitable go away or diminish.”
People here in the Central Valley that are “rural” get hit quite a bit more with burglary, vandalism, etc. Crooks KNOW the police response window is very long in rural areas. Having a gun or guns is only good if you’re willing to use it/them, AND if you’re not outnumbered too.
I hope it doesn’t get so horrendous that we have to deal with such creepy scennarios on a large scale.
First things first: don’t buy a house or condo now. If you own one, consider selling it and renting for a while. If you’re patient enough, I believe prices will be better after 2008’s failed spring-summer selling season. Heck, they might even be better in 2009 and 2010.
Regarding purchasing other currencies: Everbank has some decent CDs. I’ve held some for a couple of years, and have received interest plus capital gains from the currencies appreciating (except for that blasted yen). It costs 0.75% to buy in and then another 0.75% to sell the CDs (I think they are charging now) but, if you don’t redeem and keep rolling them over for another term, they don’t keep charging you, only when you convert back to $.
Lately I’ve bought some Rydex ETFs, such as FXY (yen), FXE (euros) and FXF (swiss francs). They’re easier to buy and sell, basically like stocks. They do earn some interest (well, not that darned yen). One thing that frustrated me a bit with Everbank was that I never seemed to get the best currency prices. With the ETFs, you can trade intraday and take advantage of spikes or plunges as you see fit. Finally, I own some FAX, another ETF, this one for Asian and Pacific bonds (much of which are Australian). It gets over 6% yield now and has also appreciated some due to the Aussie dollar strength, though not as much as I had hoped. Just some ideas for those interested…
I started preparing for financial independence and economic disaster back in 1996 when I got out of real estate. I brought money to the table to buy myself freedom from mortgage slavery. $13,000 plus about $6,000 equity.
Most people here know I’m the Dollar Cost Average and diversification king. I have been investing in stock mutual funds since 1989 in my 401k and maxing my IRA Stock mutual fund contribution since the late 1990s. My basis in each fund is comfortably below today’s lofty NAVs. I recently (since 2001) have gotten into series I bonds and EE bonds, as well as an Arizona municipal bond mutual fund. I’ve been buying precious metals since the mid 1990s. My take is: Those who put all their portfolio in one asset class will be either richly rewarded or be left in the dust. I chose the middle way. I would rather be partially wrong than completely wrong. I have increased my income significantly since 2000, so I used this to my advantage to lower my risk by diversifying into government securities and more precious metals.
I still think the cities will be the best areas to live in case of a major economic collapse - unless you are a fit 20-something, have big dogs, and have good marksmanship. There won’t be much law enforcement out in the boonies and you will have to provide your own. Also if you need emergency medical help, you will more likely die than get it - if we become a Road Warrier world. Gold coins will get you the emergency appendectomy in New York City. Probably not in Kallispell, Montana though, sad to say… Also in a city you can store water in your garage, alongside dried foods. It will buy yourself some time while some severe rioting takes place. National guards will focus on quelling violence in cities. They will ignore the boonies.
FYI, I don’t think things will get as bad as the scenarios I described. But cities are still relatively better than small towns. Higher paying jobs and public transportation are other pluses of cities. Peak oil will the rural part of the U.S. like South Dakota - undesirable places for young people who are starting out in the workforce.
Hmmm… don’t know. Think “Escape from New York”, or maybe “Resident Evil: Apocalypse”.
Not sure about cities. I take Katrina as example. The government blocked help on all highways from getting into the people. They did not allow air drops of water or supplies. The government did everything they could to make sure no help got to those people. Having water and food ahead did not help because of the flooding. Going to the grocery after, depending on your color you were either stealing, or helping your family.
Government refused aid from other countries in favor of high paid contracts to their buddies.
Entitlements are any government worker who is getting benefits and will get a pension while 50 million go without or with bare minimums. The rest of us would like a little bit of what we paid in and yes we are entitled to that.
Since real estate created a false economy based on inflated ATM home prices and the only jobs created in the last 7 years were in government warfare or real estate, we don’t have a economy to save us once real estate tanks. It will take us down.
“The government blocked help on all highways from getting into the people. They did not allow air drops of water or supplies. The government did everything they could to make sure no help got to those people.”
That is absolutely false. The nat’l media crews were the reason: they simply sensationalized the “looting” (what you saw on TV occurred in 2 square blocks for maybe 3 hours) and all the gunfire (mostly police enjoying their new hunting season). Since even the local gov’t was reduced to only radio access themselves the hysteria set in. They wouldn’t be responsible for further bad press if the rescuers got cut down.
I’m still here (New Orleans) and witnessed that first hand. Citizens from all over the state brought their own boats to save people on roofs - I-10 exits underwater make nice launches.
P.S. If I ever find myself in a room with Shepard Smith, I’m going to prison.
Peak oil will make the rural part of the U.S. like South Dakota - undesirable places for young people who are starting out in the workforce.
Maybe. Where will the food for the city people come from? When food isn’t coming in from outside the country anymore because nobody wants dollars, how important will farm country become? The importance of what’s produced in one area to the people in the other areas has a big effect on relative salaries and desirability. The city may find itself unable to produce anything anyone wants…at least until the food supply is stable and the factories are rebuilt/refurbished.
Good point, FFB. And to add to that - during the Depression, my dad lived on a large farm. He and his brothers and sisters were poor, but at least they always had enough to eat. In contrast, my mom lived in the city and nearly starved. That’s a simplistic scenario, but it’s the only one with which I have any experience, indirect though it is.
Sally. My father said the same thing as you. He was born in 1921 and worked on his grandfather’s farm in the midwest. However these days we are far more depending on oil-based products than in the 1930s. Peak oil will have a severe impact on all developed economies. Cities that hustle and develop massive public transportation systems will do well. We will not go into the stone age, as some of you rural folks imagine. The world economies are less regulated these days than in the 1930s. The job structure these days is different from in the 1930s. Much to some people’s disappointment, there are very important information economy jobs and they won’t go away. The city jobs won’t go away. This economy in 2007 is far more diverse than the economy in the 1930s.
A generation ago, Julien Simon wrote a book that countered the “club of Rome’s” Limits to Growth theory. His central point can also be used for all of us chicken littles here in this thread: The Club of Rome only assumed no new variables entered the equation. In other words, gloom and doom often does not come true because unpredicted external events occurred. Who, in 1987, would have predicted that Ronald Reagan’s request “Tear down this wall” request would be granted?
I’m not being Pollyanish. I’m merely cautious of extremists on this subject. I discount all the extreme predictions. I do think the years ahead will be difficult, but not insurmountable. And that goes for city dwellers.
If anyone had predicted the 9/11 or Katrina happenings, would you have labeled them as an extremist? I’d rather be over-prepared than under-prepared for such events.
bill,
thank you.
“I discount all the extreme predictions.”
Bill — I second you on this. And if I ever personally make extreme predictions, it is to stimulate discussion, not because I fervently believe them (and this includes the PPT stuff!).
No matter how much you have saved, if you own or rent, if you have debt or not, everyone will be affected if we have a severe recession. Some will not be affected as much as others,but everyone will feel it in some way. No one’s saved money will be totally safe even if it’s under the mattress, because the dollar will still decline. Prices will rise and every one will have to pay them to get necessities. Businesses will go bankrupt because people do not have money to support them. People working in those businesses will lose their jobs. Economics has a domino effect, always has, always will. I’ve been through some of the other minor recessions and it still hits you even if you have a job, savings, and a place to live. I was around for the energy crisis in the late seventies and it’s not fun trying to time buying gas on alternate days. There was no where to go for entertainment, because the theaters and restaurants were closed due to the heating bills. Our company went to 4 ten hour days so they could turn the heat down for 3 day weekends, and we wore coats around the office because it wasn’t much warmer on the days we had to work. No one is immune to all the things that can happen in a recession. It encompasses too many aspects.
Woah, ya’ll tickle me. I have said this before here and I will say it again. Most views here on this subject are about as in touch with reality as a realtors view of future price movements in housing.
1. Farming or rural life. Brutal and if you haven’t done physical labor or your over 35 you just are not going to cut it.
2. Gym and jogging muscles are not work muscles. That why a 35 yr old Juan will work the average 20 yr old white boy into the ground.
3. Rural living is about your network. I mean the extended family, ex, school, church connections. You will be an outsider.
4. Weapons. Can you really kill someone? I doubt it. It’s not TV or video games out there.
What do I see? Can we say Amerika uber alles? Facism is as natural to scared people as B.S. is to a salesman. Especially after the next Bin Laden strike of which I will probably die in.
Love your neighbors, act like a decent person, share when needed, and it will be ok unless it isn’t. Don’t sell your soul for personal security and don’t be so freakin judgemental.
NOVA, you are right on. Every count, right on.
Oh, I don’t know that the next Al Queda strike will take all of us DC area folks out. My office is less than two blocks from the White House. If it isn’t a dirty bomb (which would be really nasty) or nerve gas (which would relieve me of all worries though the last few minutes would be very uncomfortable) I expect that the worst of it will be the very, very, very long walk home. I’d like to think the Metro would function, but I’m not sure I believe it.
Took me 30 hourse to get home on 9/11. Don’t expect Uncle Sam to get me a hotel room (my private employers did just that in 2001 until the trains were running again), but how hard is it really to walk 20 miles or so? We are instructed to keep water and food in the office.
Hi,
As you are I am 2 blocks from the village idiot. I am a historian and a writer amongst other things. I just refuse at this point in my life to surrender to fear. European history for those who were not born to the manor has been a 1000 years of dealing with the SHTF. We have been uniquely privliged as a people and I as person to have lived the life I have.
What happens will happen. Whatever shelter I live in will still be better than most of the worlds as will my food and water. In a few weeks I will be in Eastern Europe doing research. One of the places we will visit was were 1.2 million people were killed because they were different. People speak with the fervor of revolutionaries because they were priced out of getting an extra 1000 square feet. Only in America.
Revolutionary fervor is what made this country great. It is gone now and in its’ place we have the greed, complacency, entitlement, and rot, much like the Roman Empire. Give me revolutionary fervor any day.
Just finished reading Judith Levine’s “Not Buying it”. I highly recommend it - it’s about shopping and consumerism, debt, and political responsibility.
1. Agreed. Many people have an amazing ability to adapt, though.
2. Agreed. See #1. White Boy will do OK the second year on the farm if people put up with his stupidity the first year and feed him anyway.
3. Agreed. If White Boy doesn’t have a network, he better pray someone will throw a little charity his way to get him through year 1.
4. Most people will kill other people disturbingly easily if the situation requires it. They only hesitate the first time, which is only fatal if they don’t have anyone to back them up (see #3).
I’m fortunate enough to be covered on these items (except the inevitable adaptation delay due to #2). I just have to maintain the ability to get from here to there when the time comes, and hope some level of govt doesn’t decide to confiscate what it needs from those who have prepared.
“Especially after the next Bin Laden strike of which I will probably die in.”
Enjoyed your post (scary though it was), but I guess you are estimating that Bin Laden has amassed a huge gain in power since 9/11/01? The last “Bin Laden strike” killed 4000 or so people — that is 4,000 / 300,000,000 = 1 out of 75,000 Americans. This is nothing to shrug off, but also suggest pretty long odds on any one individual succumbing in the next Bin Laden attack.
Great topic, I’ve spent the last month reading doom and gloom books-”crash proof, The second great depression, financial armaggedon, american’s bubble economy and gold trading boot camp” all have the same message.. the pain is going to be large and will be felt by the drop/failure of the dollar.. they all give the same reasons, china supporting our debt, overspending personal and government, our work ethic, subprime/real estate and the lack of savings and the usual babyboomer, medicare and SSI- they all suggest simular types of investments.. so in short I am converting CD’s once they come due to foreign dividen paying stocks, the merk currancy fund, Perth gold, foreign bonds (switerland and signapore) bearx fund and some in cash.. the biggest problem so far is the drop in the dollar- that is what is killing us savers slowly.. when was the last time the looney was equal to the dollar.. anyone, anyone beuhler beuhler… Please shoot holes in this as I just completed my plan but have not acted on it yet.. 40 years old zero debt, former La Jolla Ca homeowner (97-05) and sold all the toys, even the freaking harley. Have enough just want to keep it even if its only at 5.5%\
Advice welcome and appricated as I respect bloggers here.
dude, go to SE Asia and farm rice….your done.
whats left or right?
plan complete and no action, so…
plan B?
Gloom and doom is around this blog, but I predict it will become more prevalent. I remember on the Phil Donohue show in 1979 or 1980 there were camouflage-wearing survivalists telling the audience how they prepared. Howard Ruff had a best seller “How to Prosper during the Coming Bad Years,” I think.
Someone at work told me he knew of some guy who feared for the worst at Y2k and moved out of the city to a desert house. Now that guy has no job. What type of living can you really do out there while dressed in your paint-ball fatigues playing soldier?
Watch out all! Your worries may not even come true. Be 100% precious metals and that is when interest rates will go up to 12%, driving PM prices under triple digits.
Calling people doomers is tempting but bad things do happen. Who believed 9/11 would happen before it did, or that an American city would be drowned and left for dead after a hurricane? The world doesn’t have to end; if YOUR little piece of it ends, that is bad enough isn’t it? As for PMs and interest rates, gold historically has done best in a rising interest rate environment. Good luck.
RE: Howard Ruff had a best seller
He also had a newsletter called “Ruff Times”.
I remember I bought a lot of gold mutual funds based on his analysis in the early 80’s when everybody said oil would be $100.00 a barrel.
Most of his prognostications never came true.
I’m not one of the get a gun, build a bunker just want to save my cash and maybe make a buck with some good planning.. the dollar will drop, the stock market will go down 15-20%.. some banks will fail.. so maybe it’s just to much money and not enough education but when you read the writting on the wall you have to do something.. that’s why I sold a ocean view home in la jolla.. who needs a 2 million dollar house anyway.. i loved it when it was work 400k..
make that worth 400k
That is some thread.
I believe AQ will strike DC based on my post 93 experience in NYC. They said they would come back and take down the towers and they did. They are not omnipotent but predictable if you look at their history.
As a SF, what I have done to prepare myself being from NoVA is be armed, and have several go-kits for a terroist attack with several escape routes with an off road car prepared for that.
For financial meltdown I do and can grow food (and do) and try to stock a second freezer with protein sources. I don’t do a lot of dairy other than eggs so that’s not too much of an issue.
I also am cash based at the moment where I don’t have to worry about waiting six months for a insured response. I am working on educating myself on how to play a down market and who got rich from the depression.
Things are basically mad right now. I’ve had people chatise me for missing out on the returns of the past year but I also know that most of them are HELOCed and are in credit card debt enough to shock me. Sooner or later the shit is going to hit the fan short of the government exacting some kind of bailout which I don’t think they have the money or will to do.
Now I’m going to go back and re-read that entire thread. I’ll probably print some of it to to use as a reminder.
novasold
One we thing we will not have to worry about is a lack of law enforcement. Police dept. budgets and personnel all across the country have skyrocketed since you know when. Expect martial law before any rioting gets out of hand.
Won’t last. Tax revenues are already coming in double-digit percentages under projection in California & Florida.
Certainly not the case in L.A.
The cops here can’t be bothered to even come out to investigate most crimes - if no one’s been shot, then unless an officer was involved, the LAPD doesn’t give a hoot. I literally once could not get them to come out to investigate a reported attempted break in of my residence. They kept saying they’d send someone out and after 3 days and repeated calls, I gave up. And that’s not even my worst LAPD story! They are here primarily to collect traffic ticket revenue - click the link I posted below to the LA riots story. The cops will not be there when you need them, at least here.
desertrat, I like your handle. Read the book, “A Dangerous Place: California’s Unsettling Fate” by Marc Reisner for a look at how incapable law enforcement can be in a crises. Good read, about the impending earthquakes. He also wrote “Cadillac Desert” about the water crises in the SW, voted one of the top 20 books of the century by somebody important (can’t recall who).
I like the idea of diversifying the long term investments so that you can always be partially right.
The short term problem that will show up over the next few years will be people making the transition back to a cash based economy. People who only use credit cards and don’t budget, have no idea what things are worth.
A car is a perfect example.. Everyone wants to know the payments, not the price. I have a hard time finding salesmen at dealers that even understand that I want a lower price.. They keep offering me ways to lower the payment thinking that I’m a credit junkie strung out and needing another fix…
Give $2000 in cash to someone who only uses credit and they would need help to fill out a deposit slip. Give me $2000 and I know exactly how many months that reduces the time before I a completely debt free, so it’s HUGE for me.
I like the idea of diversifying the long term investments so that you can always be partially right.
The short term problem that will show up over the next few years will be people making the transition back to a cash based economy. People who only use credit cards and don’t budget, have no idea what things are worth.
A car is a perfect example.. Everyone wants to know the payments, not the price. I have a hard time finding salesmen at dealers that even understand that I want a lower price.. They keep offering me ways to lower the payment thinking that I’m a credit junkie strung out and needing another fix…
Give $2000 in cash to someone who only uses credit and they would need help to fill out a deposit slip. Give me $2000 and I know exactly how many months that reduces the time before I a completely debt free, so it’s HUGE for me.
If and when things get worse I expect government to get bigger and exert more control over the economy, over everything. Probably more socialist. So get a government job in homeland security if you’re young enough and worried enough. The government won’t starve its soliders.
most people are wired at birth: either positive or negative outlook. Predictions of gloom and doom tell you this: the person making the prediction primarily notices negative phenomena and ignores positive phenomena, and all of his observations reinforce the preconceived outlook.
Put another way: we see the glass as half empty or half full, but we are not in control of which way we see the glass.
You can tell a lot about a person by listening to his predictions.
if you’re an engineer, you’d say the size of the glass needs optimization
During the Great Depression people didn’t go crazy and start killing each other . Maybe we live in a different world today than in the 1930’s ,but I still think people will be civil if we go into a recession/depression and there will be law and order .
HW,
People in the GD weren’t conditioned to expect government to take care of them and/or rescue them, were schooled in basic crafts, and not used to modern conveniences. Hardship and self-sufficiency were much more familiar back then.
Yes, a lot of good people will move forward through hardship displaying the best of human attributes. However, more recent history shows that a good percentage will not, and that is cause for considerable worry.
Living in downtown LA where the cops don’t even really try to manage the crime let alone pursue the criminals, and in a city where there were mass riots, looting, murder, arson and other pillaging arising from one jury’s failure to convict the cops of an unjustified and severe beat down (see http://en.wikipedia.org/wiki/1992_Los_Angeles_riots), I am unconvinced…
I can remember very clearly sitting in my parents’ living room in 1992 holding a shotgun and waiting, because we were only a couple of miles away from real badness and feared it might reach our neighborhood… and it’s gotten much worse here, not better.
Life in LA has grown so disconnected and self centered that people unapologetically cut each other off in line at the grocery store and the ATM, consciously use their cars as weapons every day on the freeway, and will escalate to blows over a parking spot, so if the great unwinding really comes, I think the barely civilized horde here will be robbing and killing each other in very short order.
People forget - Cassandra’s predictions came true!
I am on the fence. If rates go up we are in trouble, but with sub prime mess, rates will have to drop. OK so with a dead dollar,
where do we put money? I don’t trust the banks with my loot either.
I like the statement, no debt and own things that can’t be taken away, I’d say RE that has a return that is better than a cd is good.
CD’s that are insured are good, but if banks fail, how long will it take to recoop the money.
Do we sit on cash while the dollar falls ??? or do we hold some cash but invest in property/land /income producing property that
is paid in full. If there is inflation, buy now before things go up,
if the dollar drops, buy now ?
This gets confusing. I sound like I am going one direction one day and another the next. Where is the best place for money, risk of losing it or worry about return ? Another great quote, I’m not worried about the return on my money, but that it’s RETURNED at all. Feel free to write direct, I’m looking for insight
Cheri from california,
CheriHartShow@aol.com
What about moving out of the country altogether? Costa Rica? Thailand? The Philippines? Transfer your gold and silver there and live simple. It may go way further. And the people there seem to be friendly and understand english. It should be less chaotic in those places because people live on much less and you can’t take away much from those who have and need little. I’m just afraid that when the SHTF violence is going to run wild all over. Any thoughts?
I have on obsevation I would like to share with all of you fellow bloggers. So here goes….
Since the Federal Reserves creation in 1914, every recession that this country has endured including the Great Depression, was the result of Fed tightning of short-term interest rates (known as the Fed Funds Rate which is currently @ 5.25%) to a point where they are higher than the long term rate (ten year treasury bond which @ 5.11% as of 7/13/2007). For nearly 17 months and counting the short term interest rate has been higher than the long term rate. If the past is any indication of what is to come, we are indeed headed into a nasty recession.
I think the question remains how bad of one are we all about to experience. The private Federal Reserve is owned by the largest banks in the world who are controlled by the richest families in the world. It is in their interest to protect the value of the dollar from plunging too fast. As the dollar continues to fall for the forseeable future, expect the Fed to react by raising short term rates again, this time to slow the dollars decent. We could conceivably get to double digit interest rates as the dollar continues to decline. With the housing and domestic auto economies already in a strong recession, the rest of the US economy is sure to follow. If it wasn’t for the Fed having to defend the dollar, they surely would be lowering short term interest rates by now to shorten the recession. But they can’t as the dollar is too weak. The Chineese have stopped buying our ten year bonds and the Iranians are divesting their dollar holdings. So for the near term, the recession should spread from the housing and auto related businesses to general retail and services. Since America is no longer in control of our interest rates because we are a net-debtor nation, we are headed for a world of hurt. Most likely our standard of living is soon going to go through a major reduction. If you have been living way beyond your means and have accumulated significant debt, your will probably have lots of trouble sleeping at night. Our nation as a whole my have unusually high interest rates for a decade or more until we can either finance our own debt because of domestic savings or at a rate where foreigners are willing to buy our long term debt again. No nation has ever borrowed itself to prosperity. No homeowner has either. You cannot create wealth except through savings. Month after month, Americans have had a negative savings rate. The equity they have in there homes is either being borrowed and for the most part spent foolishly, or is now simply evaporating before their eyes. It has been the greatest gamble the average American has taken since the Twenties. To try to borrow their way to prosperity, instead of saving. And now it’s time to pay the piper.
I predict that this recession will expand into a Depression just as the one in 1929 did due to the excessive debt loads that millions and millions of Americans have taken upon themselves because they had forgotten what a generation of prior Americans had so dearly learned, that you cannot borrow yourself to prosperity. It has to be done by savings. It’s amazing that as soon as the last generation that learn that lesson has nearly all passed away, we repeat the same mistakes all over again.
Does anyone see how in the world we can escape the recession we have already entered from not expanding to a Depression? We have no savings, we are losing our manufacturing base, and the debt load has never been higher. Name one country that has no manufacturing or savings and became prosperous by saying charge it! If it’s really that easy, then why not just give everyone an unlimited credit line? Since loans really never have to be paid off, just rolled over into bigger loans. That’s the insane world we have been living in the last several years. Since when is a house an ATM machine?
Help me understand if I am missing something.