How Bad do You Think it's Going to Get?

[Belleweather]

I've been toying with the idea of changing some major things about how our family is handling money in the light of the economic mess -- major stuff, like decreasing/suspending 401(k) contributions and forbearing or decreasing student loan payments and debt payments to keep more liquid assets. Perhaps even stashing some cash under the proverbial mattress. In the middle of the night, this seems like the only sane solution, but in the light of day it seems like the slightly saner equivalent of buying guns and gold. Which is right, I suppose, depends on how bad you think things are going to get.

So I thought I'd ask -- how bad DO you think things are going to be and what, if anything, are you doing to prepare?

I've been watching the economy closely since back in the days when people who believed in a housing bubble were considered kooks and spooks. Because of that I might be a little bearish in general. But I think it's going to get BAD. Very likely Great Depression style of bad. Possibly currency collapse/Weimar Republic bad. I don't think it's the end of the world as we know it or anything; I do think that we as a nation will recover. But I think it's going to suck fairly mightily in the short term (3-5 years) future.

On the other hand, I could be wrong. We've done most of the things I'd want to do that don't involve huge opportunity costs (ie. pantry, energy-efficient and safe house in a walkable area, etc.), I'm just wondering how far I trust myself when it comes to making big financial choices.

[Jenelle]

You people 'round here make me nervous. I am going to bed.



(I'll be back in the morning to read the intelligent replies. )

[Dandelionkid]

Originally Posted by Jenelle

You people 'round here make me nervous. I am going to bed.



(I'll be back in the morning to read the intelligent replies. )

Agreed

[umarider]

I continue to invest... stocks and mutual funds are a bargain now and there are some businesses that do well even when other segments are down.

I plan to continue keeping a low/minimized debt load. No matter what happens, it's easier to maneuver w/out a load of debt on your back.

We are currently living in military housing, but when we move we will be looking to buy a house. I'd love to have an energy-efficient and fairly self-sufficient housing/gardening set up, but I was leaning in that direction prior to the economy changing. It has more to do w/ having a smaller carbon footprint than paranoia. It would also be nice to have a large, fully stocked pantry, even in the best of times, there is something satisfying in filled shelves.

We've increased our contributions to the local food bank and habitat for humanity because there is more demand than ever for support organizations.

Maybe I'll start to keep more cash on hand, but that's mostly driven by some power-outages we've suffered where atms weren't available to 1-2 days.

But no, I'm not planning on buying guns or anything like that, just keeping my cool, and keeping an eye out for logical choices and opportunities. There are always opportunities.

[JTA Mom]

I've been reading that deflation, at least in the near term, is a bigger threat. Honestly, with all of the possible job losses, I would focus as much of my income into savings & debt payments. Without any debt, your needed earned income becomes lower. This makes you MUCH more flexible. No car payment, no cc payments, etc, mean more money is left for more important things, like food & rent.

As for student loans, keep paying them. If you can easily pay them off in a few months time, do so. If it looks like you still have a few years left (esp. with extra payments) maybe just send in the minimums if it means you'll be able to pay off your other debt faster/increase your savings in the meantime. In other words, don't do things in a panic.

Right now, we are snowballing our cc debt (will be gone in a couple months), then focusing on our car loan. Once those two are gone, no more debt, which will free up tons to go into savings. We are keeping our savings rate stable too. We haven't increased it, but we are not decreasing it either.

hth

Ami

[Sonnenwende]

I dunno. It will be what it will be. I doubt the government will collapse. Might declare bankruptcy, but there will be no Mad Max anarchy.

At any rate, I am glad not to be married to a house right now. Renting allows for a lot of mobility. I don't have a lot of bills. Basically just my rent, utilities, insurances, and student loan. No credit card debt, mortgage, or car loan. We live off of my income, so we don't need both of us working full-time.

[choli]

Well, it's not looking too good to me. My job is under a cloud due to a company merger, and I'm likely to be laid off within the next 12 months However, I've survived layoffs before in the .com bust, and I survived Ireland in the 80s, so I reckon I can survive this.

I'm not suspending 401k contributions - it would be rather counterproductive when the market is so low. I'm not stockpiling - if the expected deflation happens, that would also be counterproductive, why stock up if prices are going to go down? We are debt free apart from the mortgage, and the mortgage is for a lot less than the condo is worth (at the moment, with the way prices are dropping who knows?). I do dread entering the job market again. I've always been extremely lucky with jobs, but I am very underqualified on paper for what I do.

I wish I could be as "la la everything will be fine" as my DH is about it all...

[velochic]

Take my opinion for what it is worth (perhaps a grain of salt). I don't think things will get better until at least into 2010. We'll see unemployment in the double digits before this is over, but perhaps not until after this year. More businesses will fail that are already in trouble. I think some small businesses that can be flexible might not do too bad. The housing market will continue to tank and property values sink for a while. I think the DOW is scooting along its bottom, but some economists think it could go down to 6500. I think that Obama's stimulus package will go through, but will not stimulate an already cautious economy. I think a lot of people will save that money "just in case". I think we'll see deflation.

I hope a lot of people will start getting back to basics and put in gardens, do more preserving, teaching fabric arts, soap making, etc. and that we will gain a sense of community again like we had in the early part of the 20th century.

I lived through and remember well the 80's recession. I was obviously much younger and less jaded, but this really does feel different. I'm not optimistic.

I will lose my part-time job as grant writer because there simply isn't any money to get out there.

I'm not really doing anything differently. Stock up, use my basic skills like gardening, putting food by, sewing, soap making, etc. Remaining debt-free and continuing to invest.

According to an article by Paul Krugman (Princeton Econ Prof), "Let’s not mince words: This looks an awful lot like the beginning of a second Great Depression." Article here. That doesn't make me feel very good. I highly respect his opinion.

*Disclaimer: if things heat up in Gaza, Russia, or between India and Pakistan, all bets are off.

[organicmommy]

Velochic:
I agree with a lot you have said, but please explain that disclaimer you have there?
I want to see your thoughts on it.

[ShaggyDaddy]

I do not believe that anything, short of nuclear war, or (more devastating) a catastrophic Honeybee virus could cause a great depression similar to the one we had in the 1930s.

One of the HUGE factors in the great depression was the dustbowl, which was a drought (and poor farming practices) that killed crops and basically caused a wheat famine in the US. 400,000 people who used to grow food, left the great plains, starving and destitute.

That was a different America.

The main reason we will be O.K. is actually one of the focal points of the negative news media. Americans are fat, but more specifically even lower income americans are fat. In fact one of the biggest problems fighting obesity for americans is that it is so expensive to buy low calorie foods. In a historicaly counterintuitive twist, in the modern world one of the risk factors for Obesity is low-income.

Don't get me worng, people starve in the world and even in the U.S. but our system us set up to feed people lots of calories for not a lot of money, we are so far removed from "This season's crop must feed my family" so controlled in our farming that, if there was a global problem, we would probably not eat well, but we would still eat.

Starving in bread lines, freezing to death, fighting for food... these are things you will probably not see(much more than usual). Unemployment, 5 families living in one McMansion, consumer depression, multi-generational housing, Entire subdivisions becomming semi-abandoned or ghettos not because they are run down, but because they are far from work, these are the things you will see.

Oh and in the great depression, the rich did not usually get richer, In this one, the already wealthy are likely to get MUCH MORE WEALTHY. The most likely long-term is that class lines will polarize... the middle class will largely dissappear and is not likely to be rebuilt without a plague, or world war (some of the historical events that successfully established the middle class in the past).

[Jenelle]

So you're saying I should pork up. Wonderful.

[velochic]

Originally Posted by organicmommy

Velochic:
I agree with a lot you have said, but please explain that disclaimer you have there?
I want to see your thoughts on it.

If we get into a war with a major player in the world (the Israeli/Palestinian conflict, a war to protect Ukraine from Russia, or get in the middle of two nuclear powers such as India and Pakistan), I think there will be actual food shortages, disruptions in fuel supply, government mandates causing civil unrest (perhaps even a... dare I say it... draft?), and areas of the country that become severely depressed. THAT scenario scares me, but I also think that there is a very slim chance of things escalating to that.

However, I disagree with ShaggyDaddy that short of nuclear war or pandemic we will see conditions similar to the GD. During the GD 70% of the entire population were farmers. Now it is 1%. People rely on their jobs to feed their families. It won't take nearly as much reduction in manufacturing to cause turmoil as it did during the GD. Also... hate to say it, but our citizens are also simply less scrupulous. That worries me, as well.

[organicmommy]

Thank you for that insight.
I think that things are bad and sadly I think that they will get worse.
I hope that we don't end up at war or conflict like you are talking about as I think that you are right we all have a reason to be VERY VERY scared if it does happen.
I can honestly say that I wish that there was some magic way to make it all better, but I have yet to see one.
I am lucky in that right now our only debt is 2 loans that we are working on getting paid off. After that its just rent and utilities and if it came to it we could move in with MIL and save on that as well.
Hopefully we are able to get through this with an easy transition.
Hugs
Jessica

[slsurface]

Originally Posted by ShaggyDaddy

Starving in bread lines, freezing to death, fighting for food... these are things you will probably not see(much more than usual). Unemployment, 5 families living in one McMansion, consumer depression, multi-generational housing, Entire subdivisions becomming semi-abandoned or ghettos not because they are run down, but because they are far from work, these are the things you will see.

Oh and in the great depression, the rich did not usually get richer, In this one, the already wealthy are likely to get MUCH MORE WEALTHY. The most likely long-term is that class lines will polarize... the middle class will largely dissappear and is not likely to be rebuilt without a plague, or world war (some of the historical events that successfully established the middle class in the past).

Some good insights. Although, it is doubtful that millions of Americans will be starving to death, certainly millions in the third-world will be. Also, we are likely to see a decrease is the diversity of foods, while at the same time seeing an increase in prices for basic necessities. At the same time, the quality of foods will also probably decrease as companies are trying to meet the bottom line...needless to say, I'll be staying away from processed foods, as always.

For me, I've been living in a state in crisis for some time now. Last summer, the unemployment in my city was 28%! We have led the nation in unemployment for years - we are already at double digit unemployment state-wide. Now the population of the state is also decreasing as people are moving away in droves. The housing bubble burst a few years ago here. I watched as speculators repeatedly bought up homes and flipped them again and again, driving the prices up artificially high compared to the average income in the area. Now there are thousands of empty homes around town, like slowly decaying corpses.

But even with all of these things, I don't think that it is the end of the world as we know it. I think that things may be bumpy in the short-term, but hopefully the economic stimulus that Obama has planned will turn things around. My bigger worry is the price tag of the economic stimulus. Our nation is already trillions of dollar is debt because of Bush's war, now our nation is going into such a deep debt that it will take decades to dig ourselves out of it. As a Gen-Xer, I worry that I will be paying off this debt my whole adult life...it is likely that the Millennial generation will be too.

In the meantime, I spent 2008 working hard to pay off my personal debts. I feel pretty comfortable with our level of debt: we only have modest mortgage and a small student loan (currently deferred as I am in school). We live frugally and my only bills are related to the house and utilities. I will continue to garden, can, sew, knit, and make my food from scratch in order to conserve money and resources...but I always did these things. Unlike some, I think it's a good idea to invest in stocks right now. Better to buy when prices are low. It does me no good to put my retirement money in the mattress...I'd rather invest and see the numbers fall in the short term, but know that my long-term investment will pay off.

Before I leave my soapbox, I just want to make the argument that all our (national & international) economic woes really come down to the excesses of the 1980's and 90's and ENERGY. We didn't learn from the energy crisis in the 70's, so now were stuck in the same place, only worse. : Now we've used up more of our fossil fuels and energy reserves. We are no closer to a real solution for creating more efficient and renewable power. Hybrid and battery powered cars are a death sentence. They are highly toxic and not sustainable in the long term. But now that we are in a panic mode, we will make bad decisions rather than taking the time to develop a real solution. In order to avoid a total collapse at some distant (or not so distant) future, we have to make wise decisions and take it upon ourselves to change our lifeways to be more sustainable. Ok, done foe now...

[slsurface]

Originally Posted by velochic

If we get into a war with a major player in the world (the Israeli/Palestinian conflict, a war to protect Ukraine from Russia, or get in the middle of two nuclear powers such as India and Pakistan), I think there will be actual food shortages, disruptions in fuel supply, government mandates causing civil unrest (perhaps even a... dare I say it... draft?), and areas of the country that become severely depressed. THAT scenario scares me, but I also think that there is a very slim chance of things escalating to that.

However, I disagree with ShaggyDaddy that short of nuclear war or pandemic we will see conditions similar to the GD. During the GD 70% of the entire population were farmers. Now it is 1%. People rely on their jobs to feed their families. It won't take nearly as much reduction in manufacturing to cause turmoil as it did during the GD. Also... hate to say it, but our citizens are also simply less scrupulous. That worries me, as well.

I agree. Don't forget the potential threat the China poses. They own most our national debt...

[ShaggyDaddy]

Originally Posted by velochic

However, I disagree with ShaggyDaddy that short of nuclear war or pandemic we will see conditions similar to the GD. During the GD 70% of the entire population were farmers. Now it is 1%. People rely on their jobs to feed their families.

At RETAIL prices, it would cost 80 billion per year to feed every single resident of the united states 1600 calories a day (Rice and beans, oil, lemonaide, oats, sugar) We just did not have that kind of distribution or infrastructure back in the first Great Depression.

80 billion is a tiny bail-out... and if we are talking feeding 15% of americans it is more like 12billion, less than ANY of the major banks got last year... it would be about 120 dollars a year off of each remaining employed tax payer's income taxes to feed the ones who could not find work, and their families.

I am just saying, calories are very cheap compared to most anything else in the U.S. nowadays, and back then calories were still a struggle

[amyamanda]

Belleweather, we are on the same page.

I plan to pay down our debt as fast as I can, though it's worth considering the possibility that hyperinflation will shrink those loans. If inflation starts rising faster than your loan interest rate, you might consider paying just the minimum. But I still think paying off the debt is the best plan for my family. We have only a mortgage, and some minimal credit card debt that will be gone in a month or two.

We are also planning to ditch our large/house mortgage as soon as reasonably possible and get a smaller mortgage instead. It's a bit convoluted, but the basic idea is to dissolve our debt as soon as we comfortably can, even despite the challenges of the housing market.

And although DH's job is not recession-proof, mine feels significantly more secure, and we could pay the bills on mine alone if we had to. I believe that reassessing income options is a good idea in this situation.

I would keep three months' worth of cash out of the bank if you have that much and a secure place to store it. I don't, but it's a goal of mine.

I would personally take any investments tied to the value of the dollar and put them in gold if I could. I would sell stocks, bonds, etc. I would probably withdraw my 401K (if I had one) and take the loss. I would not want my retirement money resting on the stock market (I do not believe that this is just a dip in the Wall Street cycle).

If I couldn't buy or didn't want to buy gold/silver (or wanted something more liquid to supplement it) and the mattress wasn't big enough, so to speak, I would find a top-rated bank to put my money in. www.thestreet.com has a bank rating database that you can search. Search by ratings and then choose an A or A+ rated bank. This is my plan for when I have savings. I might consider a CD in one of those banks, but I haven't researched it yet and I can't say for sure. I am also not exactly sure how you go about opening an account in a nonlocal bank, but when I get to that point I will figure it out. Check the rating on your current bank as well, and see if you are comfortable with your current bank's liquidity status.

I don't think it's insane to buy gold/silver, though I am pretty sure ShaggyDaddy disagrees with me. I don't own a gun and don't feel any pressure to buy one right now. I think there will come a point right before (or when) inflation starts rising quickly when stocking up on useful durable goods (and maybe also storage food) is a good idea. I would only stock up on what my family needs, though some people might want to invest in things to sell later.

Very likely Great Depression style of bad. Possibly currency collapse/Weimar Republic bad. I don't think it's the end of the world as we know it or anything; I do think that we as a nation will recover. But I think it's going to suck fairly mightily in the short term (3-5 years) future.

This is my outlook as well. I think that if you modify your expectations (and your kids'/spouse's) early on, and prepare wisely in the ways that you are able, it will be less of a shock. Sounds like you've made some prudent preparations.

I am a Chris Martenson follower and have found his website to be a thought-provoking source of information and discourse about these kinds of things. There is a self-assessment there that might be helpful: http://www.chrismartenson.com/act - it's a link at the bottom of the page.

I'm interested in what other people have to say about this as well. Just because most of the people out there aren't thinking this way doesn't mean that we are the freaks.

[velochic]

Originally Posted by slsurface

but hopefully the economic stimulus that Obama has planned will turn things around

Congress has to pass it first. As Paul Krugman has said... these things need to be happening MUCH, MUCH faster than they are. We can't wait and if Congress lolly-gags around and it takes too long...

[slsurface]

Originally Posted by velochic

Congress has to pass it first. As Paul Krugman has said... these things need to be happening MUCH, MUCH faster than they are. We can't wait and if Congress lolly-gags around and it takes too long...

True. I think that Congress knows there will be a backlash if they drag their feet. But at the same time, I want this bill to be written carefully and not thrown together...a fast fix is not what we need right now. We, as a nation, have to think about how our actions will effect the future. So we need it soon, but not too soon (if that makes any sense ).

[texmati]

Originally Posted by Jenelle

So you're saying I should pork up. Wonderful.

At least I'm doing one thing right!

I'd wager I could live 6 months in this body only on water and broth.