In our last post we mentioned the existence of asset bubbles. During the Great Financial Crisis aka the Great Recession, the Central Banks responded by lowering interest rates to close to zero (to free up credit/liquidity) and printed a lot of money (to bail out the financial institutions). This ‘free’ money, for the most part, remained in the non-productive or wealth sector of the economy; it didn’t go to the real economy where goods and services are produced. It was used to purchase financial instruments and other high-end assets such as fine art, collectibles, and real estate. In effect, it regrew the asset bubbles (housing and stocks) that popped in 2008. Not only did it regrow them but it expanded them and exacerbated a bond (debt) bubble that has been forming for decades. The current set of bubbles has been dubbed the Everything Bubble. If you would like to gain a good overview of the Everything Bubble, Mike Maloney produced a video back in 2017 that explains it in a relatively simple to understand way.
Since that video was made, these bubbles have continued to increase in size and we feel are close to maximum capacity. Without going into all of the signs, we’ll just mention a few – stock market volatility, trade wars, overextended consumers, increase in amount of risky bonds to investment grade bonds, Central Banks lowering interest rates again, and a recent spike in overnight interest rates. We will be surprised if the stock market does not experience a crash before year-end 2019.
So, what can you do to protect yourself from experiencing the worst of the coming economic collapse? Here are a few suggestions…
Because we anticipate the dollar to decline in value due to the excessive printing of money, owning some real money (gold) can help you retain your purchasing power. To be safest, buy the physical asset in ounces or grams and store it securely outside the banking system. If your budget doesn’t allow you to buy gold, consider silver. And if you can, buy some of both. And, just to be on the safe side, store some cash in your secure area too.
When the asset bubbles pop, the value of the assets go down; and, that results in losses (loss of profit, loss of employment opportunities, loss of income that maintains the status quo lifestyle). To weather this downturn, which is expected to be of long duration, it is important to become as self-sufficient and frugal as possible. There are several things you can do to prepare. Here are some…
Trade your vehicle in for an old diesel that enables you to use alternate fuels or an electric one if you have off-the-grid solar for charging. Thrift stores are great places to buy clothes at low low prices. Food is something you’ll want to seriously consider growing yourself. Even if where you live doesn’t have a yard or a balcony, you can grow food inside. Whether you grow your own food or not, do stock up on canned and dried food goods – just add a little extra to your cart each time you go to the grocery store. If you have discount markets in your area – Costco, Aldi, Walmart, Sam’s Club, etc. – consider doing your grocery shopping there if you don’t already and explore your local Farmers’ Market for fresh food deals.
Let’s talk a little about debt. The more debt you have, the more vulnerable you are when the economy heads south. Taking steps now to reduce your debt load – be it a mortgage, auto loan, etc. – will really help you get through the tough times ahead. Think of downgrading wherever possible to reduce your exposure (the time to sell is before the economy hits the skids).
It’s also a good idea to take a critical look at your buying habits. Before you make a purchase, ask yourself – Do I really need this or is it something I’d just like to have? If you really need it, look for less expensive alternatives (used vs. new) or something with zero or few bells and whistles vs. the deluxe version or if it’s something you only need for a one time use, try and borrow/rent vs. buy.
To generate some extra cash, assess your stuff and sell what you don’t need.
If you think the company you work for might be vulnerable during a down economy, you can look around for a part-time job in a more recession-proof business. Places that sell/provide the basic necessities vs. luxury goods or services tend to fair better during belt-tightening times. Better to secure that position now before everyone else that just lost their jobs are vying for it too.
You can also consider starting or buying a small business that fits the ‘basic necessities’ criteria as well. Businesses can be a great source of cash flow and help you on taxes.
As conditions change, we’ll offer additional suggestions. The ones we’ve listed so far should give you a good head start on being more resilient during the challenging times ahead.
Disclosure: We are not investment advisors or economists or professional survivalists, we are simply sharing information we have gleaned elsewhere (links to some of our sources are included here), and some opinions we have arrived at through absorption of and reflection upon that information. You are highly encouraged to do your own research and base your individual response to current and potential future economic conditions on the due diligence you conduct.