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Economy

The Prepper’s Economic Guide to 2018

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Now we’re all prepared for the next big disaster to descend on us, right?

Well, maybe not so much…at Coffee with a Cop last week, I did win a first-aid kit for the car. But that’s about as far as I’ve gone in the emergency-preparedness department. At least I’ll have a few band-aids, anyway, come the Apocalypse. {sigh}

However, there is something y-cumen in that we can prepare ourselves for, and it’s a lot more likely to happen than a Korean bomb dropping on our heads or a wildfire consuming Philadelphia.

Videlicet: let us speak of the next Great Recession.

Now, just as we’re having fun? Yeah: now.

We do know that what goes up must come down. As Leo Abruzzese, The Economist’s public policy consultant, notes in a prognostication for 2018, “If it [history] is any guide (and it is), the business cycle is coming to an end. The world economy tends to tip into a recession every eight to ten years, and the last one ended in 2009.” Further, he adds, “Recessions typically start when central banks, eager to keep economies in check, raise interest rates too far and too fast. On cue, America’s Federal Reserve will probably raise rates three times in 2018 after three increases in 2017.”

Higher interest rates, Abruzzese goes on to explain, “foretell an end to credit cycles as indebted companies and consumers default in greater numbers. . . . [They] can also produce big corrections in stockmarkets.”

If you’re a legacy follower of Funny about Money, words like these no doubt make you think been there, done that. And yup: we sure have.

Given that economies, like everything else, go up and down; that ours is now way up; and that anyone who can remember the Reagan administration and the Bush fiasco has, by now, figured out that the Republicans’ trickle-down economics dogma is a dangerous superstition, it behooves us to be prepared for the next big economic crash. That, I submit, is a lot more likely than a nuclear hit upside the head from Kim Jung Un or a hurricane in your living room (enjoyed by our friends at Planting Our Pennies) or a wildfire cresting the nearby hills (equally enjoyed by our favorite escapee from Chicago).

What can we do to prepare ourselves for the next “Great Recession”? One that, we can be pretty sure, is likely to fall under the heading of “Major Depression”…

Now is the time, IMHO, to look back on the G.R. and think about what we did right and what we did wrong. Consider these strategies:

1. Get out of debt! In other words…

Get out of debt!

Get out of debt!!

GET OUT OF DEBT!!!

Pay off your loans as fast as you can. And do not rack up any new debt.

If you have cash with which to pay off a mortgage, use it. Do it! Your financial adviser will have a freaking kitten, because of course you are earning one helluva lot more in the stock market just now than you’re paying on one of the present low-rate mortgages. My guy was furious.

But lemme tellya: If I hadn’t paid off the mortgage when I had the money, after I lost my job in 2009 (permanently, folks: “retirement” was not my choice), I would have lost my home. There is no way on God’s Green Earth I could have made payments on a home loan that amounted to 80% of $232,000. I’d have been thrown out on the street…like my neighbor across the road, like my middle-aged students who had worked hard all their adult lives and paid their bills every month, and maybe even like some of you. The only reason I’m writing this from my living room rather than from a low-income apartment, a motel room, or the 7th Avenue Underpass is that the house was paid for when the sh!t hit the fan.

Pay off all your other debts. Accelerate payments on your car. Do not buy a new car, or if you must replace a vehicle, buy one seriously second-hand. Accelerate payments on your credit cards, and once you have those cards paid off, NEVER charge more than you can pay in one month. If you couldn’t pay for it in cash or with a check today, just do without it until you can.

This takes some self-discipline. Probably the most direct and easiest way to summon that self-discipline is to manually keep track of your charging, as you go. Enter “pay off credit card” in Funny’s search bar (on the right side of the page) and you’ll find a slew of  suggestions for climbing out from under debt.

2. Save. Save regularly.

Establish a savings account at your bank or credit union and pre-pay yourself a percentage of each paycheck. If, for example, your goal is to save 5% of income for emergencies, arrange for the bank to make an automatic transfer on every payday.

Do not spend this emergency fund on anything other than a real emergency. It’s not a Christmas fund or a vacation fund. It’s a disaster fund. Keep it that way.

3. Build frugal strategies

Consider the regularly recurring expenses that you can do away with, should the evil day come.

• Cable TV
• Expensive mobile phone plan
• Frequent meals out
• Amazon Prime
• Fitness plans
• Subscriptions

Look closely at your credit card and bank statements and consider: do we REALLY need to pay for that? Is there a cheaper alternative? Can we do without it altogether?

Even if you don’t want to cut back now, at least know what you can cut back on.

4. Create a potentially money-making side gig.

This can be a hobby while money is coming in the door. Still, a hobby that can be monetized is a potential life-saver. Even blogging brings in a few bucks a month. And consider that, over at Budgeting in the Fun Stuff, Crystal’s dog-sitting enterprise — originally a side gig of the first water — has now evolved into a growing, paying business.

Any activity that yields a service or a product is potentially a money-making concern. Consider what you can do, start doing it as a hobby, and know in advance how you could convert it to a business.

5. Think ahead.

You’ll have to figure that one out yourself. You know your circumstances. Review them all and think about how you can economize — whether now or in the future — and how you can best work to recession-proof your finances.

Do it now. Let’s not be caught by surprise this time.

“The Economy”: A Context for Personal Finance

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The Economist publishes a discussion of academe’s shortcomings in the teaching of basic, introductory economy (yeah, that Econ 101 course you took for three useless credits). They — the shortcomings — are manifold. But, we’re told, someone’s working to fix it . . . and for those of us who are drawn to questions about money, the economy, and how they work, the fix is extremely interesting. It involves a free, full-length online textbook designed to approach the subject in a better, more effective, and more engaging way. Frugally enough, its authors have titled it The Economy.

Our reviewer points out that economics “accounts for more than 10% of degrees awarded at elite universities each year, . . . and many more students take an introductory course as part of their general-education requirements. . . . Economics teaches that incentives matter and trade-offs are unavoidable. It shows how naïve attempts to fix social problems, from poverty to climate change, can have unintended consequences. . . . [and] at its best, enables people to see the unstated assumptions and hidden costs behind the rosy promises of politicians and businessmen.”

In other words, if your eyes glazed over on Day 1 of Econ 101 and stayed glazed all semester, you need this book. More to the point, where the future of humanity is concerned, maybe your kids do, too.

Designed by an international team collaborating as the Curriculum Open-Access Resources in Economics, the book takes a fresh approach to its subject. “Messy complications, from environmental damage to inequality,” we’re told, “are placed firmly in the foreground. It explains cost curves, as other introductory texts do, but in the context of the Industrial Revolution, thus exposing students to debates about why industrialization kicked off when and where it did. . . . Quite early on,” we find “lessons in the weirdness in economics . . . that make the subject fascinating and useful but are skimmed over in most introductory courses.”

So cruise on over to the site that hosts this free tome. The table of contents gives you a clue — and with color-coded markers shows how chapters fit into various themes such as  history, innovation, the environment, politics and policy…among other topics key to everyone who buys, sells, invests, or votes.

Here’s Why I’m Paying off a 2% Car Loan…

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...right now, without waiting.

And that is without taking into account any assessment of the clowns who have taken over the White House.

It’s easy enough to see that what goes up must come down. Capitalist economies have always been cyclical. That’s normal. But I think we’re looking at stupidity and foolhardiness that exceed normal, compounded by seditious collaboration with foreign parties who are not our friends, outright corruption, and the takeover of a national political party by ideologues who are so passionate they have taken leave of what little common sense and ethics they might once have had. Compounded, too, by a natural disaster from which this country will not soon recover.

The next economic crash is going to make the Great Recession look like…heh! A tea party. It may make the Great Depression look like a walk in the proverbial park, too. Many, many more of us are going to lose our jobs, and quite a few will never replace them — just as quite a few of us never replaced decently paying jobs and decent benefits after the Fall of the Bush Economy. You think we have a gig economy now? Wait’ll you see what’s coming up the road.

Most of what brought us the Great Recession is already back in place: and then some.

I believe we will see another major economic crash within the next three and a half years, if Trump stays in the White House through his first term. If he is impeached or if he resigns and is replaced with Mike Pence, that may slow things down a bit: then we can expect a major economic crash within the next seven and a half years.

This time, we can see it coming.

Anyone who lived through the Bush Recession would be a fool not to line things up and get prepared ASAP.

What to do to line things up?

• Number 1: Pay off debt, as fast as you can and to the extent that you can. Pay off the car loan, pay off the credit cards, pay off the mortgage if you can.

• Number 2: Do not assume any new debt! Do not buy a new car. Do not buy a new house. Certainly do not buy real estate at the present price point, which in many parts of the country is back in the “bubble” range. Do not charge anything on a credit card. If you can’t afford to pay for it in cash, don’t buy it.

• Number 3: Build a cash emergency fund. Build it as fast as you can. Pay yourself first by putting a set amount aside out of every paycheck. You should have enough in savings to cover at least six months’ worth of living expenses; preferably a year. Even better: two years’ worth.

• Number 4: Take care of routine health and dental care now, while you can afford it. If you are laid off your job, you’ll have about a snowball’s chance of getting health coverage that you can pay for.

• Number 5: Stock up on nonperishable food items. And while you’re at it…

• Number 6: Plant a vegetable garden.

• Number 7: Enhance your networking strategies. Join business groups and make yourself known to potential employers in your field. And while you’re at it, update your resume and keep it updated.

• Number 8: Start a side gig. Ideally, it should be one that could morph into a business that, combined with unemployment and a spouse’s income, can support you. Use the income from a side job to pay off debt and build cash savings.

Be prepared. If you’re not already prepared, better get that way soon…

Banner Image of the Day: Unemployed men outside a soup kitchen opened by Al Capone in Depression-era Chicago, Illinois, 1931. Public domain

Time to Batten Down the Hatches?

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Cassandra before the burning city of Troy. Evelyn de Morgan, 1898

It may be time to batten down the financial hatches…even if you’re not a paranoid crazy like this blogger. Congress has appointed a special prosecutor to look into the question of Trump’s suspected collusion with Russia in subvening the US election process — if indeed any such collusion occurred. And the guy is not our honored leader’s friend: he’s a former FBI director.

Nothing good is going to come of this, no matter which side of the bob-wire fence you happen to be on. To say financial markets are unstable is to put it mildly: the Dow is in a tailspin and the dollar is dropping. Meanwhile, household debts hit a record high this quarter.

If you haven’t already done so, now is the time to review your investments and move to the most conservative position possible. If it’s not too late, shift some assets toward cash. Avoid buying large-ticket items, such as real estate, that may be overvalued at this time. If the markets sink further as this turmoil continues — as they most certainly could — this is not the time to make any major purchases or to be unduly exposed in the market.

Prioritize pay-down of debt. The less debt you have at this time, the better. Pay for day-to-day purchases in cash, and do not borrow for high-cost items unless absolutely necessary. If you can’t afford to pay for it in cash, don’t buy it.

And…you remember what I told you about stocking in propane, water, and nonperishable foods? Do it.

Obscured in the current flap over Trump is the speculation — discovery? — that the recent global ransomware hack came out of North Korea. If that is true, in normal times it would be regarded as an act of war. More to the point, if it proves to be true, it shows that we are in the crosshairs of an unfriendly power led by a demented dictator who is certifiably insane and who has stated his hostility to the US. A better designed, more targeted attack could — and one day probably will — take down the entire financial and power infrastructure.

This will cause more chaos than any of us can even begin to imagine. And what better time to launch such an attack than in the middle of our present self-inflicted chaos?

Be prepared: not just financially but in terms of daily living:

• Have food and water stocked in.
• Keep your car filled with gas.
• If you have a long commute, plan an alternate route to get home if traffic lights and other infrastructure are down.
• Keep battery-run devices fully charged.
• Back up computer data to media that can be disconnected from your network — now, not later.
• Have some cash on hand (if there’s no power or no computer connections, your credit & debit cards won’t work).
• Stock in barterable goods, such as cigarettes, alcohol, weed, and the like.
• Stock in prescription drugs, any OTC drugs you use regularly, and first-aid supplies.
• If you’re a Second Amendment type, stock in ammunition, if you have not already done so.

Sure. I may be crazy. But that’s what they said about Cassandra…

 

ahem…

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Dare I say I told us so?

“U.S. stocks bumped lower on Tuesday, erasing early gains and putting the market on track for its worst session of 2017. The S&P 500 and the Dow are also at risk of falling for a fourth session, which would be the longest losing streak since November.”

Heh…maybe someone noticed, at last, what a freaking disaster is rolling through Washington.

Got your propane? Your water? Your rice and beans? Your camp stove?  Heh heh heh…we’re gonna love life in the Third World…

Image: DepositPhotos, © jamdesign

Preparing for the Trump Recession?

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Ghost riders in the wind?

So I had a chat with my financial advisor on Friday. Turns out I’m not the only one who suspects our gold-plated financial house of cards will not stand the test of time. He said quite a few of his clients had come in and asked to be positioned so that their assets will withstand a major recession, which they expect to occur…oh, some time in the next four years.

Interestingly, too, at Scottsdale Business Association, on Thursday our speaker was our member who’s a financial advisor. And interestingly, he spoke on instruments that will provide a (relatively) safe haven for your investments…and some that look like they will but are real or potential rip-offs. He warned against putting a substantial amount of assets in instruments that lock up your money so you can’t get it out without a penalty and that pay no more than or even less, over the long run, than equally conservative tools that keep you liquid.

So anyway, my guy is less pessimistic than I am, but still cautious. We’re invested about 40/60 in bond instruments that pay less but lose less in a crash and in stocks. Meanwhile, the investments we do have are going batshit. My investments have returned over 47% since I went with Stellar in 2000, despite the Bush catastrophe. If we hadn’t enjoyed the worst recession since the Great Depression, the return would presumably have been even higher, and today I would be able to pay for the car without worrying how I’m going to buy groceries.

Last month the big IRA returned 13 grand.

Still, I wonder. That fund is capable of losing twice as much in a month, and at times it has. The reason I survived the Bush Recession without too much long-term harm is that I bucked said advisor’s wishes and paid off  my house.

He felt I should  have kept the money in securities. I realized that once the alimony ran out, my salary would not cover the mortgage payment (at that time I had no other debt) and also my routine living expenses. As it turned out, if I hadn’t paid off the mortgage at that time, I certainly would have lost the house in the wake of the Great Recession.

So…there’s a point at which you have to think for yourself.

However, not knowing what to think as the country spins toward a colossal train wreck, I suppose the best thing is to stay the course.

It probably doesn’t matter. At this point, anything you do with your money, short of taking it all out of the market and burying it in tin cans under the roses, comes under the heading of moving deck chairs.

Image: Depositphotos, © rrraum