The U.S. Economy Crisis

[dalebert]

http://www.youtube.com/watch?v=zmyvEhU-gmw

I'm moving this over from another thread. The point of this thread is to talk about what we can do. Obviously, there are things our country should do and we can talk about that, but I'm more interested in what individuals can do to protect themselves in the meantime.

Besides taking action to get our government to stop playing games that are fucking with our economy (and that's really putting it lightly), aren't there actions that individuals can take once we have this information to protect ourselves? For instance, right now I have my retirement fund largely invested in an S&P 500 index fund that's largely linked to the American economy. Conventional wisdom, based on the history of the U.S. economy up to now, implies that this is a pretty safe investment, at least in the long-term, but knowing that conventional wisdom may be flawed, are there safer investments to make? Is it better to invest in hard assets given this information like real estate or gold (in your hand, of course), or perhaps foreign markets?

Considering that wealth is measured relative to the wealth of others, could one actually benefit from this by investing in things that have real value while most of the population's assets are declining in value. Would not you become wealthy by virtue of being a smarter investor? Or, the more pessimistic view is that the whole world could be thrown into turmoil because the U.S. economy is so tied to the world economy. If that happens, we could all just be royally screwed. You might be fabulously wealthy, but if resources become scarce enough, it may lead to martial law. I guess that depends on just how bad it is and whether it's recoverable before it reaches that point.

Everyone grab your shotgun and a can of beans and find a safe corner to guard.

EDIT: I have already been corrected about my statement "wealth is measured relative to the wealth of others". What I was trying to say was owning something with stable value might increase your buying power in America if the value of the U.S. dollar declines. For instance, if you own a lot of Euros, you can buy more now in America than you could a year ago with those same Euros.

EDIT #2: I removed my link to America: From Freedom to Fascism. Since I watched the movie, I have debunked a lot of the misleading information in that movie so I'm not referring to it here. There is, however, SOME good information in it about the Fed and such.

[Russell Kanning]

luckily I moved out of the US to The Shire recently

[Russell Kanning]

What "assets" do you think are going to decline in value?

[Russell Kanning]

Considering that wealth is measured relative to the wealth of others....

I would consider wealth as having enough for me and others I care about to live comfortably. It wouldn't be dependent on how comfortable others are ... in fact it would probably be enhanced if everyone around me was happy too.

[cathleeninnh]

I decided that conventional wisdom wasn't enough to make my personal decisions anymore. Yes, we have made some major adjustments in where our assets are invested. Common sense still tells me that we don't want all our eggs in one basket. I have increased my sense of personal security here at home with a number of obvious moves, some hard, some cold, some both. With the retirement funds, we readjusted including more foreign, real stuff. I get more comfort from the stuff that I can put my hands on and knowing that I am not indebted to anyone but my husband.

Cathleen

[Dreepa]

Step 1... get out of debt.

[dalebert]

Considering that wealth is measured relative to the wealth of others....

I would consider wealth as having enough for me and others I care about to live comfortably. It wouldn't be dependent on how comfortable others are ... in fact it would probably be enhanced if everyone around me was happy too.

You're right of course. I misspoke and perpetuated a delusion. I've been telling people for years that money is not a resource. It's paper and numbers. That's why redistributing it doesn't make anyone better off.

I should have described it in terms of currency and investments; not wealth. If your assets are tied up in dollars and the value of a dollar is no better than the word of our government, then you're obviously in trouble. If your assets have real value and others have their assets tied up in dollars, then I guess what I mean is your buying power might actually go up just by virtue of being one of the smaller group of people who still has something of value to trade.

As for getting out of debt, that's generally very good advice. However, if your debt is in dollars and the dollar declines in value, isn't your debt shrinking? I am debt free at the moment but I can't help but wonder if putting a down payment on a house might be better than buying it outright in such a situation. How awesome would it be to buy a house with monopoly money?

[Dreepa]

As for getting out of debt, that's generally very good advice. However, if your debt is in dollars and the dollar declines in value, isn't your debt shrinking? I am debt free at the moment but I can't help but wonder if putting a down payment on a house might be better than buying it outright in such a situation. How awesome would it be to buy a house with monopoly money?

Well... have you heard about all the people in CA with Subprime loans? 
Are you willing to take that risk?
How many years before the collapse?  Can you afford the higher payments until then?

[dalebert]

Well... have you heard about all the people in CA with Subprime loans? 
Are you willing to take that risk?
How many years before the collapse?  Can you afford the higher payments until then?

But that's a different issue, isn't it? That's about the housing bubble. I bailed out of my condo in CA at what seems like an ideal time. That's why I'm debt-free right now. In both cases there is speculation involved. I'm planning to wait a while for the housing bubble before buying a house. Houses change in value. Still, hopefully the house you buy is at least not built on such unstable foundations as the U.S. dollar.

So there is speculation involved but if you really believe that the value of the dollar is going to drop like a rock like these videos argue, then owing someone some dollars isn't such a bad thing.

[cathleeninnh]

As worthless as that "dollar" is, if they keep demanding it and you can't get anymore worthless "dollars" because you have no job  and they can take that real house back, you are up SC. Lot of ifs, but still unsettling.

Cathleen

[dalebert]

As worthless as that "dollar" is, if they keep demanding it and you can't get anymore worthless "dollars" because you have no job  and they can take that real house back, you are up SC. Lot of ifs, but still unsettling.

That's a very good point. The reality is there is no telling what lengths the government will go to if the situation gets desperate enough. If the economy goes down the shitter, lots of people will have trouble making a living. That's one of the scenerios I worry about. That's what had me joking about curling up into a fetal position in the corner.

Barring one of the worst-case scenerios though, I guess I'm speculating much like any investor would. If you can make money now or if you have assets now, what can you do to protect your assets? Just as you might sell some stock that you think is about to plummet or buy stock that you think is currently under-valued, this could be looked at in the same way. Let's say you have lots of money right now that has value the same way everything else does- because someone believes it has value. Let's work on the basis that you currently have assets.

Let's say you speculate well and buy something that holds its' value well with borrowed money, say a million $ worth with 20% down, then the money drops to half its' value (for easy math). That's essentially saying we have 100% inflation. What you bought has now doubled in value. You can now sell 40% of what you bought and be debt free. You've gone from 200 units of assets to 600 units. You've tripled your net worth. I avoided using the term "dollar" because I'm talking about hard assets, not any arbitrarily valued currency.

But you have a good point. There are lots of "if"s. Having debt during a financial crisis could be a very bad thing and speculating in a manner to try to benefit from the devaluation of money could definately backfire. If the economy suffers badly enough, who knows how hard it will be to find someone able to buy something you have to sell? It could end up being the major suck for just about everyone. Grab your guns and bunker up.

[dalebert]

I'm about to take a serious look at where my investments are right now and considering moving a considerable chunk over to foreign investments. I'm also looking to some hard assets like real estate, but I want to watch the market a bit first. It's still to unstable and hard to tell if the bubble has deflated yet.

In the meantime, it made me think of something. What's the Euro based on, if anything? I'm pretty sure it's not based on a gold standard. I don't think much of Europe is functioning with a debt, or certainly not to the extent that America is. On the other hand, they are functioning largely under socialist policies.

In short, how much better off are you to just move investments outside of America considering the trouble the dollar is in? A friend said invest in Honda. He said they'd always be going strong. *shrug*

[Dreepa]

I'm about to take a serious look at where my investments are right now and considering moving a considerable chunk over to foreign investments.

It is always a good idea to have some $ in foreign stocks... however if the Economy were to collapse 100% no where is safe...
The Russian collapse of the 90s sent a scare throughout the whole world... the markets truly are 'globalized' to a degree.

[error]

The euro is 100% fiat.

[David]

Step 1... get out of debt.

I see the point of having debt based in dollars as being good if the dollar collapses, but debt is a prison when things go wrong.  It significantly reduces your flexibility. 

The euro is 100% fiat.

Most currancies were originally based on something of value, the euro never was. 

The US is in a partly unique situation, the economy is so huge, that its collapse will trigger waves throughout the rest of the world, much worse than the Russian collapse.  Btw, russian still hasn't recovered.  Oil is the only thing keeping them in the game, and maybe some agriculture. 

My dads retirement plan is what seems to be one of the most common sense plans I have ever heard of.  A person should 1. on their own home, with as little debt as possible, pref ably free and clear.  He should have a 2. source of income, a pension, job part time, an existing business, ect.  There should be 3. long term investments or savings.  And short term liquid cash savings, mostly for emergencies.