With all the new recent serious talk again of a Great Depression (or just a “Depression”) now that confidence seems to have totally dissipated in regard to the economic stimulus projects (not that they won’t work – but just that they might not work soon enough, and the ensuing debt they create will have its own set of problems. Just as an example, the amount of interest the US currently pays on its pre-stimulus debt per month is more than it spends on education. Ouch….), it has me thinking again myself about the D-word as a serious thought experiment.
In terms of mere logical possibilities, another Great Depression is very logically possible. Yes, the economy is very different today, but the differences are kind of scary too – even in the 1930’s, the Depression went global. I don’t have to explain to anyone how much MORE globalized the economy is now. And with instant wireless transfers of virtual wealth, the preponderance of fiat currencies (currencies backed with nothing but consumer confidence)… you have the logical recipe for disaster. Sorry – it is a logical possibility that we have to admit.
But we now have much more foreknowledge and abilities for avoiding such a Great Depression. Nothing that global had ever devasted any economy before, let alone on a worldwide basis (so forget about the Tulip bulb bubbles, etc.). The beginning of the twentieth century was an unprecedented experiment in global capitalism and trade. No one knew what could happen. This time it’s different because (1) we’ve had that experience and (2) no one wants it to happen again and (3) actions have already been taken to avoid it.
Whatever happens on a macroeconomic level, there are some basic things I think we can all do to avoid the experience of a Depression at home. These largely involve the idea of having an emergency fund, but ramping it up to include larger contingencies such as disruptions in local supply chains, transportation and communication. Basically, try to put yourself in as conservative a fiscal position as possible as soon as you can. So here are some ideas of mine:
(1) have extra supplies of cash on hand (tin jars, under mattress, etc.)
(2) pay down as much of your debt as you can
(3) I do think you should probably try to own some pieces of gold as a precaution
(4) stock up on some survival basics (toiletries, extra water, etc.)
(5) get to know your neighbours, develop more local support networks
(6) do you have the ability to grow any of your own food?
(7) put off major purchases that you don’t need
(8) plan for alternate modes of transportation and communication
But wait! This sounds like a “gloom and doom, survivalist manifesto!”
I can understand that it does have that appearance and connotation, but let me clarify: most of these actions are just good, sustainable economic practice anyway. The US has lost touch with many of these. By putting these into practice you’re helping to create a more sustainable economy and helping to create the new foundation that will support the form of the new economy now taking shape. Because regardless of what happens “on paper”, that is, virtually, or in theory, in the globalized economy at this point – it’s all going to boil down eventually to individual daily experience (not as in, “if you don’t experience problems, problems don’t exist,” but individuals as comprising concrete units that add up to macro-situations in the population).
Are YOU experiencing a recession at this point? In my case, aside from losing $134 in dividend cuts, I’m not really experiencing the effects of a recession at this point, let alone any hint of a depression. My food prices have continued to RISE since one year ago. I’m not saying this to be snotty about my position when others may have lost their jobs, but I’m just trying to suggest the difference between the collection of all individual experience and the action of then assigning that a label which is used in popular discourse and which then conditions others’ perceptions of collective experience. In other words, the self-fulfilling prophecy.
At the same time, start to plan ahead. Be frugal, but with the right things. Find sustainable solutions that authentically match your situation. Don’t replicate at a micro, individual level the widespread “creative accouning” tendencies that have gone on in the name of “Growth” at the big-business, big-government level. When all is said and done, what’s going to survive this economic turn is survival itself, in a new form. There are other models of progress and growth not based upon massive artificial inflation and creation of wants and desires. I think this is what we’re going to end up moving towards. After all this phony-money, fake-asset, off-balance-sheet sleight-of-hand wizardry, I think we all want something authentic, solid, durable, trustworthy and lasting. That means sustainable.
Anyways, this is what I think so far. The world is definitely changing, but we want to change it in the right ways. Let’s not freak out and hunker down into psychological caves of fear and scarcity.
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{ 4 comments… read them below or add one }
Great suggestions for having the proper mindset for any economy. If anything, I’m grateful for the gloom and doom mentality around me, because it forces me to take positive and proactive action. Let’s create our own personal economy!
Steve, yes, there’s nothing like the gloom and doom for sharpening one’s financial intelligence – it forces us to pay more attention to how we’re living, which is a good thing.
The status of the economy is strong in my mind unfortunately. What’s sad is that I can’t do much about it except to keep on working hard at what I’m doing. From there it’s in God’s hands. Or at least in Obama’s policies.
By the way, you all need to go and visit Gary Vaynerchuck’s blog. There is a great clip that pertains exactly to this topic, and it’s very inspirational!