Common sense plans for an uncertain future.

[wilicyote]

In light of the fact that almost anything is possible, from the moderately severe recession, to major depression, to complete meltdown of society as we know it; what steps are reasonable for a man to take?

Step one:

Get out of debt. Do everything you can to eliminate your debt because it makes you a slave to your creditor. Do not count on the likelihood that during an economic meltdown he will go bankrupt and then you won't owe him. This is not how it works. His assets are auctioned off and the new owner has full rights to collect from you. Also do not give in to the myriad of schemes rampant now to unload your debt. They are very tempting, but immoral as they pass your debt, your rightful burden, onto the shoulders of some other moral man, who must now live as a slave to carry you.

I am not arguing here that debt is immoral, merely irrational during a time of crisis. It ties you down, and ties up more cash in the form of interest. If you need advice on how to best accomplish this, ask, but don't delay. Get started now... today.

Step two:

Learn some sort of trade skill. In the words of my grandfather, "A man with a basic trade skill will never go hungry." While this is not absulutely true in all cases, it dramatically improves your odds. If your present employment or career is in the service ecomony or even in high tech, you are in jeopardy. Pick up another skill on the side-- learn it as a hobby or whatever. Think of yourself as Hugh Akston cooking in his diner.

These two steps are a good start. They do not require you to run to the wilderness and live in a cave like some sort of mountain man waiting for the end of the world. They will, however, go a long way to improving your situation. If it turns out that this downturn is only shortlived. You will have gained a great deal; a skill you can use for your own benefit, and financial freedom.

I recommend further steps, but I will wait to post them so that those who want to comment or critique will be able to do so in an orderly manner.

Edited February 1, 2009 by wilicyote

[DavidOdden]

Get out of debt. Do everything you can to eliminate your debt because it makes you a slave to your creditor.

This is of course good advice at any time; but debt does not make you a slave to your creditor. It simply means that you have an obligation. Slavery has been outlawed.

Learn some sort of trade skill.

Such as...? Computer programming, on the theory that we will always need computer programmers? Watching an assembly line as SUVs are put together by robots? Or emptying trash cans in an office building? What exactly are the basic skills for which there will always be demand, at least assuming something less than TEOTWAWKI? Production and distribution of food, clothing, energy, water. Maybe I'm mistaken, but I don't think that learning to drive a big-rig is a useful way to protect yourself in the current-and-future economy. Nor would I recommend doing anything to learn energy-related skills. Why? Because irrationality is enforced by law. Obama has stated his intent to put an end to all coal production in the US, and there is no question that there will be further limits on petroleum as a fuel source, plus the existing clamp down on atomic energy. You might think that it's a good idea to pick up some kind of biofuel or wind-and-solar skills, except that we may discover that corn-based ethanol is not the fuel of salvation -- maybe it's jojoba-bean oil, or algae; we may discover that wind is politically incorrect for arvironmental reasons. So since energy is highly controlled by the government, and the government adopts irrational principles as to what it will encourage versus oppose, the idea of acting rationally doesn't make any sense.

[Steve D'Ippolito]

Even if (as I suspect) he is talking about things like plumbing, electrical, HVAC.... you need a government license to practice those, these days. (Where I live you can do your own work but may not work for hire without that license.) Even if you know how to do them, you will find it hard to get work without one, since such work would basically be "gray market".

Sucks, don't it? Way number 1,342,921,007 the government immorally infringes on your rights.

[James I]

Oh dear, it seems like a bad time for me to think about doing an English degree and becoming a writer. Well, perhaps if the electrical grid fails I can sell stories to the plumbers in lieu of TV!

[wilicyote]

This is of course good advice at any time; but debt does not make you a slave to your creditor. It simply means that you have an obligation. Slavery has been outlawed.

You are correct, my mistake. I should have said it is voluntary indentured servitude. Still not something you should do if you can aviod it.

[Zip]

I believe Wili is talking complete collapse of our civilization as we know it, but that makes point #1 useless. If the structure of the nation really does fall apart banks and big companies would follow in short order and your debt (i.e. the cash money you "owe") would be worthless paper.

Regardless of how remote the possibility of a complete collapse, taken in that context (the end of our civilization) his second point makes sense. While there may be some work for and in high tech, there will probably be much more need, and you yourself will find much more use in one of the traditional trades like the ones that Steve mentioned.

Don't forget we're talking the end of days here, there are no longer any regulators left to complain when you wire Billy Bob's bunker with a 24 volt pulse system and hook his twin .50's up to the same circuit on the electrical panel you made out of an old ammo crate.

[wilicyote]

.Such as...? Computer programming, on the theory that we will always need computer programmers? Watching an assembly line as SUVs are put together by robots? Or emptying trash cans in an office building? What exactly are the basic skills for which there will always be demand, at least assuming something less than TEOTWAWKI? Production and distribution of food, clothing, energy, water. Maybe I'm mistaken, but I don't think that learning to drive a big-rig is a useful way to protect yourself in the current-and-future economy. Nor would I recommend doing anything to learn energy-related skills. Why? Because irrationality is enforced by law. Obama has stated his intent to put an end to all coal production in the US, and there is no question that there will be further limits on petroleum as a fuel source, plus the existing clamp down on atomic energy. You might think that it's a good idea to pick up some kind of biofuel or wind-and-solar skills, except that we may discover that corn-based ethanol is not the fuel of salvation -- maybe it's jojoba-bean oil, or algae; we may discover that wind is politically incorrect for arvironmental reasons. So since energy is highly controlled by the government, and the government adopts irrational principles as to what it will encourage versus oppose, the idea of acting rationally doesn't make any sense.

Actually I was thinking of any skill that you might be able to market during an economic downturn. This could be handyman/home repair, auto repair, sewing or altering clothes, welding, truck driving (I am not sure why you don't think this might be useful), or any other of a hundred tasks that some child in China is presently doing for us via Walmart.

[Mammon]

Just learn to produce something no one else can, or not a lot of other people can. Make yourself more valuable. Be the special sauce; not the vanilla.

[aequalsa]

Step one:

Get out of debt. Do everything you can to eliminate your debt because it makes you a slave to your creditor. Do not count on the likelihood that during an economic meltdown he will go bankrupt and then you won't owe him. This is not how it works. His assets are auctioned off and the new owner has full rights to collect from you. Also do not give in to the myriad of schemes rampant now to unload your debt. They are very tempting, but immoral as they pass your debt, your rightful burden, onto the shoulders of some other moral man, who must now live as a slave to carry you.

I am not arguing here that debt is immoral, merely irrational during a time of crisis. It ties you down, and ties up more cash in the form of interest. If you need advice on how to best accomplish this, ask, but don't delay. Get started now... today.

I don't know about this part. If you mean don't get in a situation where you are paying 23% to the credit card companies, I would agree, but avoiding long term debt on appreciable assets at the rates they're at now, in a debt based economy with a debt based currency, seems a little financially naive. You can get home loans on these currently undervalued houses at 5%. There is very little chance that this would be a bad investment, long term.

Are you saying you should try to save up dollars which are virtually guaranteed to lose value during the whole of your life and try to pay cash for a house which will cost more later?

Even in our current end of the world scenario, I find inflation, or even hyper-inflation to be far more likely, given Helicopter-Bernanke's views, than deflation, in which case you want to be holding as much debt as you possibly can.

I'm all for being a boy scout. Guns? Check! Two months of food? Check! Functional skills for dealing with the world in a primary way? Check! Refusing to hold debt which will in all likelihood cost less(in real wages) to pay off than paying cash today? No thanks.

[Jake_Ellison]

In light of the fact that almost anything is possible, from the moderately severe recession, to major depression, to complete meltdown of society as we know it; what steps are reasonable for a man to take?

Get out of debt.

That depends on the nature of the debt.

On the one hand, if the debt is in fact a mortgage on your house, or property of any kind, then you should indeed be aware of the possibility that your income will shrink, and you run the risk of loosing that property, because you can't afford a payment.

On the other hand, if that risk doesn't exist (i.e. credit card debt), the high likelihood of inflation and the possibility of "total meltdown of society" are both excellent arguments in favor of having more debt than usual, since that debt will lose its value with inflation and will disappear completely in the case of a "total meltdown". (I don't believe that's a possibility, but if you do, at least prepare for it correctly. Profiting from that event is no more immoral than profiting from any event in the market you may be able to foresee at the expense of your trading-partner.) The only thing that should slow you down in this case is the possibility that the lenders might also be aware of this high chance of inflation, and they calculated the rates accordingly. But if you believe you know something they don't...

[wilicyote]

I believe Wili is talking complete collapse of our civilization as we know it,

Actually I would like to propose a, somewhat arbitrary, breakdown of the future into three stages. Stage one would be major recession. Stage two would be like the great depression. Stage three would be substantial breakdown of social order. The decline could stop at any of these stages and then recover so it might be useful to separate our recommendations accordingly. My first two suggestions would be important in stage one and two, but maybe not so much in stage three. If I were to guess (I'll try to make it an educated one), I would rank the odds for each stage occurring at something like: Stage one - 100% (that one is easy), Stage two - 50%, Stage three - 10-20 %.

What would be most useful would be steps that could be implemented gradually, in pace with the progression of the downturn. This way we could aviod running off into kookville at the first sign of crisis, but should it get really bad, still have options and hopefully a decent plan. This is why I started with steps one and two above. FWIW I have already done these two steps myself.

Step three:

Educate yourself.

There are two areas I would recommend. First read up on the great depression. Don't waste a whole lot of time on commentaries about what caused it. Learn what it was really like. What jobs dissapeared, what jobs remained? How quickly did the collapes actually occurr and how long did it really last (this might suprise you)? What insane laws were passed in response to it and what would it mean to you if they were passed again now?

Learn about growing most of your own food in your garden (did you know that you can grow almost all your own food on about one acre of land, less in some places, more in others). Buy a book or two on canning. Learn to cook from scratch (it is a good skill to have anyway). Gather to yourself the resources and textbooks necessary to do things the old way.

This area is optional. Read up on historical collapses of societies. What human behaviors manifested themselves? Where did these societies eventually end up? What did people do when suddenly most of them could not get food to feed their families? Whom did they blame? Mob behavior is fairly consistent, and unlike the latest stock picks, past performance IS a good predictor of future results.

[DavidOdden]

Actually I was thinking of any skill that you might be able to market during an economic downturn. This could be handyman/home repair, auto repair, sewing or altering clothes, welding, truck driving (I am not sure why you don't think this might be useful), or any other of a hundred tasks that some child in China is presently doing for us via Walmart.

What about ditch digging or working the counter at Macdonalds? The answer, I believe, is that such "skills" do not give you a competitive advantage over the other 200 million unemployed. The labor market is saturated in those areas. What you want is a skill where you will have an advantage in terms of the supply-demand equation. I'm suggesting that there is not a shortage of truck drivers.

I do think that "handyman" is a somewhat plausible option, since there is a clear shortage or fixit guys who can do household repairs. In a lush economy, people can replace rather than fix, and in a depression you would expect to there to be an increased demand for fixing, as long as fixing is cheaper than replacing (generally, it is not, these days). Countering that consideration, though, is the decrease in fixable things, so that repairmen are often "module replacement technicians".

I think a better alternative perspective is to contemplate some expansion of your skill set, without worrying too much about the specific new skills that you acquire (though I would not urge anyone to learn continental philosophy as a hedge against getting laid off). If you have a concrete reason to think that there will be a sudden increased demand for more plumbers or a sudden decrease in the supply of plumbers, it would make sense to gain those skills and hope that not a lot of other people are having the same thought. OTOH, if you are independently fascinated by plumbing and would like to take up plumbing as a hobby, then by all means pursue that hobby and if you can make some money off of it in case of crash, so much the better.

My point is that you have to pay attention to supply and demand for labor. Where are the big imbalances?

[wilicyote]

Even in our current end of the world scenario, I find inflation, or even hyper-inflation to be far more likely, given Helicopter-Bernanke's views, than deflation, in which case you want to be holding as much debt as you possibly can.

So far that hasn't been working out too well for anyone I know lately, not the homeowners, not the bankers, nor the economy in general -- all of whom hold massive debt -- and its killing them. I know that it goes against almost all modern economic theory. But, having spend a great deal of time talking to people who lived through the great depression I will take their advice over the latest financial gurus who have no solution for the mess we are in now.

Playing the debt vs. asset value game and trying to profit on the downturn or upturn of economies, inflation or whatever, is a loosing game in the long run. It is all propped up on false value. Remember where real value (real money) comes from -- producing. If you don't want to keep your value in cash because you fear inflation (I agree with you on this), put it in something that is not vulnerable to that force. Any Chinese will tell you, having watched their history of ups an downs that spanned thousands of years, that land is your best bet. But don't confuse putting your debt into land as being the same thing as putting your money into land. One is value that you have earned, the other is value you have yet to earn.

[Jake_Ellison]

So far that hasn't been working out too well for anyone I know lately, not the homeowners, not the bankers, nor the economy in general -- all of whom hold massive debt -- and its killing them.

It's working great for a lot of people, actually. But that's besides the point, as is your statement.

Playing the debt vs. asset value game and trying to profit on the downturn or upturn of economies, inflation or whatever, is a loosing game in the long run. It is all propped up on false value.

I actually agree. But you are suggesting that we do exactly that, by giving up all debt (even that which we can reasonably expect to be able to turn into profit), by betting on a crisis.

1. It's debatable that this would necessarily be the right course of action, in an unlikely total meltdown.

2. It is unclear what the extent and nature of the crisis is. Why give up the chance that it will just be a recession, with some serious inflation, in which case one can, given the great opportunities aequalsa mentioned, do well by taking on a loan?

I would say that in the end you're suggesting that we give up, stop building a great, prosperous, happy future, and prepare instead for the meltdown which is unavoidable and impossible to weather. I say: What's the point? If there's to be a meltdown, I'll address it then (after all, what's there to prepare?), but until then I'll continue to be optimistic. And the main reason for that, besides the fact that a meltdown is just not something I judge to be likely, is that there's very little I have to lose by betting on a bright future, that I wouldn't lose anyway if society went to Hell. On the other hand, someone withdrawing from this, still perfectly viable economy adn society, to prepare for Armageddon, has his entire potential future to lose.

To put it in AS terms, I'll be a bit like Dagny, who continued to work on her railroad up until there was absolutely no chance of her work being of any use at all. Obviously, I might give up sooner than her, because I don't have a railroad handed down from generations to protect, but the argument is the same as hers, when she refused to stay at Galt's gulch. AND we are nowhere near that scenario.

[Jake_Ellison]

OTOH, if you are independently fascinated by plumbing and would like to take up plumbing as a hobby, then by all means pursue that hobby and if you can make some money off of it in case of crash, so much the better.

You guys do know what plumbing entails, don't you?

Edited February 1, 2009 by Jake_Ellison

[Sarrisan]

If you're scared of debt, then one thing you can do (Instead of piling on high useless cash dollars) is start investing in a physical commodity which can hold it's value through long periods of time (And through a depression, obviously). One of the best commodities for this is, of course, physical gold, as long as you do your homework before buying. In fact, I think doing such a thing would be a good idea at any time, at least as a reserve tactic in case of a sudden downturn in the currency value.

[wilicyote]

It is clear that a number of people disagree with my recommended Step one, and some disagree with step two. So should we have no steps or does anyone have some alternate recommendations?

While this (all of the following) is just my opinion based on historical data, I agree that we will probably see massive inflation down the line, but at first we are going to see the opposite -- deflation. During the rush to stay in business and outlast the competitors, reatailers and manufacturers are going to cut prices -- a lot. In fact they are going to cut them to the bone. Their reasoning is going to be something like this. Say I am a grocery chain and my nearest competition is feeling the squeeze just as bad as I am. If the other guy fails first he will save me because all his customers will still have to buy food and now they will come to me. I call this the Ford vs GM/Chrysler syndrome. But since customer's money is tight I will have to attract as many customers as possible while trying to outlast my competitor. So I will cut prices to draw customers. I will attempt to cover any shortfall by cutting operating costs and running up debt. Whoever reaches the bone first looses. As soon as my main competitors are out of the way I will have to raise prices to maximize profits, to get out of the big hole I just dug for myself.

To check this, just look at what direction prices are going right now. They are going down, not up. This is only going to last 12 to 18 months, then hold onto your seats cause we are headed straight for the moon.

Herein lies the gamble people have to consider with debt. While it is true that they will stand to profit greatly if they are holding debt purchased at the bottom of the market before rampant inflation kicks in, they first have to survive the deflation. It is the deflation in the housing market that is generating the huge body count. So to make this gamble pay off, don't take on any new debt until consumer prices hit bottom.

Now whether or not you survive the deflation is directly tied to whether or not you keep your job. If at any time on the way to the bottom, your company is the one to reach the bone first, your screwed. You won't be able to pay off the debt you have now, and since you don't have a job, you won't be able to take advantage of the comming inflation becasue nobody will give you a loan.

Now, on the other hand, if you pay off your debt now, your ride to the bottom will be same except that you won't have a big anvil of debt hanging around your neck if you loose your job. If you reach the bottom and still have your job, you can then choose to take advantage of the opportunities provided by inflation. And you will be able to buy more at the bottom because you are not already heavily leveraged.

All of this presumes you can "call the bottom". Good luck on that.

[wilicyote]

On a side note, our generation, the ones raised to think that it is normal to put a Subway sandwich on a credit card, are in for a rude awakening. We have been raised to think that stuff we own by means of debt is the same as wealth. It is not, and we have been immersed in this credit culture for so long that we can't see that. In fact there will be at least five posts following this arguing that it IS the same.

Real value is only that which you have earned. Value that you have promised sombody you will earn someday is not real value, until you actually do the earning.

Almost everybody I know my age has spent the last ten years spending about ten thousand dollars more than they earn. They have been doing this by means of credit cards and auto loans. Every couple of years they have been rolling that debt into a refinance on their home. This is not, no matter how we dance and sing, and example of producing more than we consume.

Yes we all thought we could turn a quick dime because we were going to sell that house, make a killing on its skyrocketing equity, and slip into something we could really afford. But look at us now. This is the kind of stuff, I think, that Rand called "playing it short range."

Here is a little story worth considering. My grandmother was a brilliantly talented accountant, highly sought after all her life. In the early days of her career she worked as junior accounting clerk for a wall street broker. Her broker was one of those who walked out the window. Well not actually (almost nobody literally walked out the window on wall street) but almost. Instead he wrote a nice note about how sorry he was, went home and blew his head off.

Fast forward to the mid 1970's my cousin bought a car, a used green VW squareback. This was not surprising after all he was married with kids and in his thirties. He paid for half in cash and the other $1200 he financed. My grandmother almost killed him. I can still remember her screaming, "debt is evil, it almost ruined this entire country, but worst of all debt is STUPID!"

Now bear in mind that this was just a little old lady so take her words with a grain of salt.

Edited February 2, 2009 by wilicyote

[ers]

I'll throw in my two cents, for what it's worth. Bear in mind that in my humble opinion, America is about to experience either a social collapse or a 2nd revolution, or both. (If you want me to justify my reasons, send me a message or we'll start a new thread).

1) Get out of major urban centers, if at all possible.

I'd say if you have the resources to do so, move to a more rural area, or at least a suburb. In my assessment major cities will be hell within the next couple of years.

2) Buy weapons and train with them. Often.

Merely owning guns does nothing to protect yourself or your family if you don't train with them (like owning a piano but never playing it).

3) Stockpile consumables.

Toilet paper. Canned food. Medicine. Even if nothing happens, you can still use this stuff.

4) Ammo is better than gold.

The ammo I have has already at least doubled in value. We're sure to see a lot of anti-gun legislation that will cause ammo prices to skyrocket.

I agree with paying down debt, within reason. Car loans and credit card debt tend to be relatively small and have no advantages, so I try to pay down those as much as possible. Mortgages do have a tax write-off, which is nice.

Edit:

(I don't mean to start a "Which is better, Rent vs Own" debate. For me, I pay double in mortgage interest for my house than the rent I paid for my old apartment and get nearly 4x the space. Plus, I get to write off the interest. Yes, my house has lost value, which is unfortunate, but rent prices also increased).

Edited February 2, 2009 by ers

[~Sophia~]

America is about to experience either a social collapse or a 2nd revolution, or both.

I am placing my bid on neither.

I lived in a country which went through a drastic economic and political change and:

1) it never got violent to the point that you would need to protect your life and property

2) there was no food shortage

3) no any kind of social collapse

With all due respect, there is a lot of emotionalism going on lately here.

[flatlander]

I am placing my bid on neither.

I lived in a country which went through a drastic economic and political change and:

1) it never got violent to the point that you would need to protect your life and property

2) there was no food shortage

3) no any kind of social collapse

With all due respect, there is a lot of emotionalism going on lately here.

What country is that, Sophia?

[~Sophia~]

What country is that, Sophia?

It was Poland but there were few others in a recent history.

The point is: You are living in a civilized society.

And my answer was even assuming that drastic shifts are coming (which I think not anytime soon).

[ers]

You are living in a civilized society.

Am I?

Our 'civilized' society is held together by very fine threads. Threads which are ripping quickly.

But for further discussion let's move to a new topic; this one is for offering practical advice for an uncertain future.

[~Sophia~]

Am I?

Our 'civilized' society is held together by very fine threads. Threads which are ripping quickly.

I don't agree with you. This is pure rationalism and any argument based on such assumption if further more rationalism.

But for further discussion let's move to a new topic; this one is for offering practical advice for an uncertain future.

Perhaps others here would be intersted in debating doom scenarios but I am not.

[K-Mac]

Isn't the American sense of life vastly different from that of the rest of the world, though? And with lots of private gun ownership, I can't help but wonder if Americans won't let themselves be pushed as far as people of other nations. Rand seemed to think that America has a unique sense of life, so perhaps that would lead to a unique situation when Americans are pushed to their breaking point?? I'm not arguing or agreeing with either Sophia or ers, just wondering aloud.