Sunday, October 26, 2008

Hurricane on the way. Is anyone still laughing?

An interesting article about from the Times of London about yet another economist (Nouriel Roubini) who used to be laughed at for suggesting the "blasphemy" that the fundamentals of the U.S. (and world) economy are in bad (if not moribund) shape - but who is now slowly being believed.

A big storm is coming, and we need to make preparations. It may be a category 1 or a category 5 - but a financial hurricane is coming.

People all over the U.S. were unbelievably critical of New Orleanians who did not evacuate for Hurricane Katrina, and then were indignant that their taxes went to bail those same people out who did not prepare when the storm was coming.

Well, America, a financial storm is headed our way. Let's see you put your money where your scorn is and don't get caught unawares by the rising waters of debt. The outer bands of this hurricane are already dumping on us. How bad it will get and exactly where the eyewall will hit are not known for sure. But now is the time to prepare. It's time to "financially evacuate" - or at least get your house in order so when the time comes, you will be ready.

The bottom line: now is the time to:

1) Pay off credit card debts, 2) Get adjustible-rate (and teaser-rate) mortgages refinanced into a fixed rate (if still possible, the window is closing), 3) Stop spending money on luxuries (be frugal), 4) Save!, 5) Be careful not to let savings go down the drain if the dollar tanks. In other words, convert savings and domestic investments (including your 401k) into a portfolio of precious metals and investments tied to strong foreign currencies.

The Euro Pacific Capital brokerage company (and others who likewise understand the coming storm) can help you with the fifth point. The president of Europac (Peter Schiff) has also written a couple books that can help you prepare: Crash Proof and the Little Book of Bull Moves in Bear Markets. Both are full of practical advice, and though written for laymen, aren't dumbed down.

The author, Schiff, is another economist who was laughed at by the establishment media and apologists for the Administration and Congress for suggesting that something as unthinkable as the takeover of Fannie Mae and Freddic Mac was going to happen, or that the housing boom was really a bubble, or that recession was looming. But there are no more chuckles these days when Schiff appears on financial news programs. We would be wise to listen to those who predicted the recent unprecedented events while there is still time to prepare. Maybe we Americans really need a dose of reality instead of the eternally rosy picture that is sometimes confused with patriotism.

Barack Obama will not fix this problem. John McCain will not fix this problem. Cutting interest rates will not fix this problem. Injecting large amounts of "liquidity" (read: printing more money) will not fix this problem. The bipartisan Obama-McCain bailout will not fix this problem. Cutting taxes without cutting spending will not fix this problem. In fact, all of the above will make the problem worse. It can't be fixed overnight, nor can it be fixed without a lot of pain.

But the good news is that it can (and likely will) be fixed. And the solution starts with us as individuals: living within our means, being producers and not just consumers. We need to do like our grandparents and work hard, save, don't use credit cards, delay gratification, get through the tough times, and be as financially secure as we can when the time to rebuild comes. If we do that, we will be a better, stronger country than before. The longer we put it off, the worse the coming crash and depression will be, and the longer it will take to recover.

And, if a miracle intervenes - or if the gloomy predictions of Roubini, Schiff, and others are wrong - and the hurricane drifts safely away from our shores and peters out in the middle of the ocean, you have lost nothing. In fact, by getting rid of debt, saving, and being more frugal, you will only elevate your standard of living, and in the long run, will contribute to the financial well-being of our country. If you love your country, making the sacrifice of frugality is a better way to show your patriotism than a bumper sticker or flag lapel pin.

Regardless of what happens, being prepared for "the big one" is good stewardship and will give you peace of mind if and when we do get pounded.

1 comment:

Past Elder said...

Not a single word in argument from me!