It's Not If, But When, The Economy Willl Collapse Part 2

So like every problem, large, small, annoying, or hugely traumatic, there is not much value in worrying about it incessantly. The only two things you can do with the problem of the economy or anything else, since you can not change the situation, is to prepare as best you can before something terrible happens and respond after the event as best you can. Here's some thoughts:

• Don't stress over the problem, or worse, panic. This impacts your ability to think rationally and takes up valuable time that you could be spending on more important things.


• I've posted some informative links on the CNI site (http://www.codenameinsight.com/) in the Daily INsight section on economic collapse--check them out.


• There's always hope that things will turn around...I'm just not holding my breath...


• Think preparedness, creativity, and as the comment on the last post said, look for new opportunities.

Some pros and cons in regards to preps:

• Home/land ownership: Pros--once your home is paid in full, all you need to worry about is getting together the money to pay the taxes; definitely a huge financial burden lifted. Depending on your lot/acreage your land can be useful for gardening, raising animals, and other cash crops from which you can earn a bit of income. Cons--governments have a way of just taking any land they want, especially right after they declare martial law. This is a huge amount of money to sink into one asset. You may be less than eager to leave your land even when it becomes necessary. You will need to protect this asset from the marauding hoards.
• Investing money in dollars/stocks/bonds/government securities: Pros--if the monetary system decides to stabilize, you will be ahead of the game and your investments will grow. Having a lot of cash on hand is a very secure feeling. Cons: If the economy continues to tank, so does your investment. Currencies can implode and lose all value and all you end up with is worthless paper. Overall, it's a crapshoot.
• Investing in materials (food, tools, fuel, firearms, items for barter): Pros--these items are there for your use no matter what is happening in the larger society. These items, during a total collapse, are the items of currency which will be mighty useful to barter with to get the things you need (you can't eat, plant a garden with, or defend your home with dollars or gold). Cons--like a house and land, you need to store, care for, and protect these assets. If you do need to flee, you can't carry all of this stuff with you.
• Investing in gold/foreign currency/foreign assets (like land in a foreign country): Pros--gold has been a standard currency for centuries. Foreign currency may be more stable than the dollar (this is iffy since all currency is intricately interwoven with the US currency system). Foreign land will give you a bug out location outside of the US and depending on the country may either have a lower cost of living or a higher stability in price. Cons--you can't eat gold; it's fairly heavy and you need to protect it too. Foreign currency, like I said above, is a crap shoot and isn't a good investment choice for the novice. Foreign land purchases are fraught with pitfalls including a line of red tape for foreigners that will make your head spin. Again, you will need to protect it (some countries squatters rights are amazingly bad--for the legal owner). And, you may need to flee from it.
• Investing in your own skills and social connections: Pros--these are things that will serve you well no matter what is happening in the society at large. The process of learning, both technical skills and social skills, will not only expand your abilities, it will increase your creativity and put you far ahead of the crowd when TSHTF. Cons--there aren't any.

The bottom line: No one knows what is going to happen to the economy or the overall state of the US. If someone tells you "you must buy gold now! you must buy land now!" or anything else where they want to part you with your hard earned money, they are feeding you a line of crap. It takes careful consideration of all of the facts, careful consideration of your own situation because everyone's situation is different, and your own best educated guess before you take action to avert any repercussions of an economic collapse or other disaster. Here's what I am doing:

• I am continually investing in my skills and social connections. Any class that comes up, I'm there. Even if it has no bearing on anything I am doing now, all knowledge is good knowledge. Usually classes are very inexpensive, they give you an opportunity to meet other people who are interested in the same thing, and you never know when a particular skill will come in handy. Ditto with social connections. Start by leaving all judgmental inclinations at the door. Then start acquiring connection with people from all walks of life--rich people, poor people, drug dealers, immigrants, doctors, scientists, homeless people...all people have something to teach you; close mouth and open ears.
• I pay for a house and land that I can easily afford. Some people are up to their eyeballs in house debt to the point that the majority of their income goes to support a house and leaves them very little to invest in anything else. I find my house comfortable and useful but I'm not tied to it. If I had to leave it tomorrow, it wouldn't bother me overmuch.
• I put some money towards cash and well diversified mutual funds but not a lot. Like I said, when you put all of your eggs in one financial basket you are bound to lose.
• I put more money towards hard assets. I feel comfortable having a year's worth of supplies in my home (food, toiletries, etc); this isn't a huge amount of items so I could leave them behind (but I would be real bummed). I also like finding very good deals on assets which have a high probability of being useful to me or for barter (firearms, ammo, tools, gardening equipment, etc) and which also hold their value.
• I am not so much into gold except for some baht jewelry as it is risky both value-wise as the price tends to fluctuate like currency and there is also the part of having to possibly carry it away and protect it. I keep some foreign currency on hand as this makes it easier when I travel but I wouldn't even think to trade in the stuff--too volatile. I minimally invest in foreign assets through others who I can trust however, again, this is a very small part of my investments because 1) I don't completely trust anyone, 2) foreigners tend to get ripped off if they aren't there to watch their investment 24/7, and 3) I don't want to go through the expensive, mind-numbing red tape to put these assets in my name so I certainly won't throw all of my money at such an asset.
• I am continually looking at the situation and making adjustments that make sense for me and my family. Right now I am looking at other housing options as the kids are grown and moved out, we travel often, and we don't need a big house. The idea is to be flexible, always keep your options open, and be prepared to take advantage of random opportunities as they come by.

That's all I have to say on the topic. Be prepared as best you can and hope for the best.

It's Not If, But When, the Economy Will Collapse Part 1

I make it a point to not go out of my way to stir people up, scare them, or otherwise be the bearer of bad news, but the more I look at the economy, the more I see no viable options for turning things around. I am no economist but simple math isn't that far out of my realm of abilities. Here's my concerns:

• The largest group in US history, the Baby Boomers, are beginning to retire. No longer will they be producing for the economy but rather withdrawing money from Social Security and pension funds.
• Social Security requires tax payers to support this fund. Fewer tax payers (look at all of the job loss) and less money (wages and income dropping) means less money in the fund.
• Ditto for pensions, many of which are invested in the stock market which has nosedived.
• EVERYONE is asking for a government bailout and seemingly everyone is getting one. Insurance companies then auto companies and now commercial real estate companies are asking for and often getting a bailout. The only problem with this is that the government gets this money from us, the taxpayers, or they just print more money. Neither one is an unlimited source of funding but it seems like the government hasn't figured that part out yet.
• People have stopped shopping and spending with abandon as they did through the 90's and early 2000's. Some because they came to their senses and decided to get their financial house in order and many others because they ran out of both money and credit. No shopping and spending leads to layoffs, business closures, and an economy that quickly comes to a screeching halt.
• You can't prop up an economy with sporadic injections of money. Even Warren Buffet couldn't pull this off. Economies aren't top down sorts of things, they are bottom up entities where the 310 million people in the US need to have confidence in order to shop, spend, open a business, invest in the stock market, etc.
• You can't prop up an economy with injections of money at the top. Of all of the bailout billions given to companies over the past year, how much have you or any of your friends seen? About nothing? I thought so. The money was used to prop up these companies books and did not trickle down in any way that impacted "regular" people.
• You can't reward bad behavior and expect to keep the economy neatly humming along. Integrity and responsibility go a long way towards building confidence in the economy. Now I can keep paying my mortgage because that is the responsibility I took on when I signed the contract but it looks like if a big bailout for homeowners comes along, it would make more sense (for those with less than stellar integrity) to not pay their mortgage until it goes into default so they can get a better deal. Honest, responsible people see these deals and wonder why they are being punished for doing the right thing.
• Accountability has gone out the window. If you ask where the bailout money went--even if you are a congressman or other powerful person--you will get the answer "we don't know". Apparently they forgot to put an accountability clause in the bailout contract. Duh.
• Oversight has gone out the window too. Can you spell MADOFF? And it wasn't like his scheme was a secret, people had been telling the SEC about it for years.
• The little people (the bulk of us 310 million US citizens) are getting hit in all directions: job loss, fewer new businesses being created, reliance on government support which will at some point run out, increasing prices, investments that are losing money at a furious pace, money that is losing value, high debt load, etc.

Where will this end? I have no idea. If a reader has a better grasp feconomics than I do, please enlighten us. It just looks like a steady, downward spiral with no natural stopping point before complete bankruptcy (in this case, from the top down) of the US government, US companies, other companies around the world, and then the little guy. I give it about eight months before all Hell breaks loose.

p.s. I hope I am wrong.

25 Thoughts on Today's Bailout News

In no particular order here are my thoughts on today's bailout news...

1. Wow! Our representatives are actually representing their constituents instead of big business and big government.
2. This is a step in the right direction.
3. I don't know what will happen but bring it on. I feel like we have been bullied by all sides and the intimidation and fear needs to stop. How do you handle a bully? You stand up and fight instead of cowering or hiding.
4. I'm hoping that people will go back to basics and take a breather. Living on credit, living in fear, living to pay bills instead of to play with your kids, living to buy the next gadget...sounds tiring to me. Time to relax and enjoy life.
5. I'm happy I have my preps.
6. Don't panic. This too shall pass. Remember the rice crisis? Remember the stock market drop of '87? What were you worrying about last year on this day? See, we worry about things each day that won't even be a concern to us in a year.
7. I'm a news junkie. I think I need to head off to somewhere where they don't have news and take a news vacation.
8. I have faith in our basic economy, in people's ability to persevere, and in the consciousness that has developed in our populace to where expectations of a better future will create that better, and wiser, future.
9. Look around at what we do have...lots of natural resources, an entrepreneurial spirit, options via the net to sell our products and services to those who want them, etc.
10. What would happen if every talking head, if every news source, if every leader in our country decided that beginning tomorrow they would give a concerted message that our economy was looking up, things were getting better in the financial markets by the moment, and that a turn around in our economy was going on as we speak. The power of positive thinking. Confidence would return, people would start buying (responsibly, I hope), and attitudes would be positive--problem solved at a grand total of $0.
11. Or there is the other idea that has been proposed. Instead of approving $700 billion to bail out businesses and banks, divide it among all of the adults in the US (I believe they said it would be like $100,000 per person). The economy would be stimulated, the people would be happy, and I would have a kick ass new gun collection :)
12. Attitude is everything. I know it sounds like I am on a constant rant but actually I am almost always pretty happy with life. Good attitude = less problems.
13. I can live on less. We all can. When I see how people live in third world countries, I realize how wasteful Americans usually are and how much less we actually NEED to survive.
14. When you see where the crowd is going, head the other way. Did you see the huge lines, arguments, and no fuel in some southern cities today? The reporters noted that less than an hour away there was plenty of gas and no lines.
15. Focus on what you do have instead of what you don't have. You can look at the negative (I don't have this, I don't have that) or you can look at the positive and be thankful for the things you do have (wonderful spouse, blog that I look forward to posting to each day, some trout a friend just brought over).
16. When something scares you, take a deep breath, analyze the situation, and make a plan. Someone may be afraid they will lose their house. Then what? They can live in an apartment that maybe costs half of what the house did and pocket the leftover money. What if they can't get approved for the apartment because of their credit? They can become modern day nomads and live in a travel trailer for a year in order to save money. Radical? Yes. Adventurous? Yes. Permanent? No. The only constant thing is change.
17. Some of the best meals I have had lately have been made at home. Some months ago we made a conscious decision to eat out much less (like once every other week or so) instead of daily like we had for so many years. Home cooked food tastes better, the portions aren't overwhelmingly big, and I know exactly what went into it.
18. Watch the Dave Ramsey Show. He is the voice of reason and calm in these turbulent times.
19. I like a challenge. These are challenging times. I am kind of enjoying all of this. Sounds odd, huh?
20. You wouldn't know the economy was tanking by the number of shoppers at Walmart, Ross, Barnes and Noble, and our local Applebees this weekend.
21. Be happy with frugal things during hard times. I learned this from my grandmother. She and granddad would put together barn dances which both made them a bit of cash and made people forget their problems for a little while during the Depression. She told a story of being happy to buy a pair of new socks at the five and dime; she could have been sad that she couldn't afford a new coat but she was happy to have a simple pair of socks.
22. Take tiny steps each day to make yourself feel more secure. Buy an extra bag of rice. Take on a small project and teach yourself a valuable skill (like sewing a jacket, fixing the broken outlet, etc).
23. Try something new. Have a picnic in the park at lunch instead of spending money at the over priced deli like you always do. It seems odd at first but after a period of adjustment you may find it enjoyable if you give it half a chance.
24. Times of great change usually lead to some very good changes.
25. The year 2012 is quickly approaching...something else to worry about for those who like to worry.

20 Reasons Why The Bailout Idea Sucks

The bailout idea is wending its way through congress as we speak. In my non-economist, common sense, uneducated opinion, here are 20 reasons why the bail out is a bad idea all the way around...

1. One person will be in control of the program without any kind of oversight. Power corrupts. Absolute power corrupts absolutely.
2. The government is in charge of making and enforcing laws and some other things. No where in the Constitution does it say the government should own major businesses. The government can't even run the government and now we are going to expand its reach? Dumb.
3. The plan is to use good taxpayer money which could be used for infrastructure, children's health programs and a million other good causes in order to buy bad debt. If my broker said "I'm going to take your retirement money and buy bad debt with it" I would fire him. Immediately.
4. The bad debts are supposedly going to be purchased, repackaged and sold to...who? Let's see...the largest generation in history is heading towards retirement--they will be taking money from the system instead of putting money into the system. The government is gung ho on deporting 12 million wage earning, car/home/food buying illegal immigrants so scratch them from the pool of purchasers. The birth rate is 14.1 per 1000 in our country so we aren't growing a huge crop of new investors. That leaves...?
5. The free market needs to correct itself. Meddling by anyone (the government, investors, financiers, the mafia or anyone else) does not work over the long term.
6. Congress was given exactly seven days to sign off on this program. My grand daddy used to say that anyone who uses a hard sell tactic ("buy now or you will never get the opportunity to do so again") to get you to hurry up and make a decision without thinking things through completely usually is trying to rip you off. Grand daddy was right about 99.9% of the time.
7. The economy is going to implode to one extent or the other; I would rather have it happen now and not push the problem off to my kids and grand kids.
8. If a company is failing, no matter its size, that means it isn't economically viable. What happens when the government's money stops coming in?
9. You can't artificially keep prices up forever. Whether we are talking about home prices, stock prices, interest rates, etc, artificially inflating prices eventually back fires.
10. Let's see...over paid executive drives company into the ground. Government rewards bankrupt company and over paid executive. Over paid executive gets to keep job and continue running company into the ground and continue being over paid. Lovely.
11. If this bailout happens, all big companies will assume that the government will bail them out no matter how stupidly the run their companies.
12. Who will be next to suck the taxpayers dry? ATT? Microsoft? Exxon? The Big Three Automakers? Hell, why doesn't the government just take over all of the businesses in the US--we will be just like the Communists, our staunch enemy for so many decades. I'm confused.
13. The powers that be said the bail out "might work", "should work", "will probably work". Obviously they don't know since this has never happened before. I don't want to bet the farm of "might", "should", and "probably".
14. Companies that behaved badly, stupidly, fraudulently, et al. will get rewarded and companies that were responsible, honest, and fiscally prudent will get..squat. Great.
15. The bail out costs nearly a trillion freaking dollars!
16. The American economy needs to rebuild itself on real dollars from real people not on hyped up investment schemes that crumble like a house of cards with the first small breeze.
17. Elections are coming up. When people are scrambling to keep or become elected to their job, I wouldn't trust any of 'em.
18. This plan would cause the government to be the enabler in the financial disaster relationship. Much like parents who continue to bail out their children who run up huge credit card debt by paying their bills and hoping they will change (they never do), the government will be enabling big business to continue down their financially destructive path.
19. The people who are putting this plan together say that without the bailout, credit markets will tighten up and people won't be able to get credit. Hooray! Can you imagine people paying cash for the things they want and need? Can you imagine people not living under the yoke of permanent debt? Can you image people saving money for future purchases? Wow.
20. The Bush/Cheney regime has been using fear and intimidation to reach all of their ends. The Patriot Act? Check. The let's send $600 to each taxpayer so they can go shopping? Check. The Iraq war? Check. I'm tired of my government keeping me in a constant state of fear. No wonder high blood pressure is rampant in our country. Good grief!

I'll hop off of my soap box now.