The economy: WTF WTF WTF WTF WTF WTF...

[CoffeeCat]

I am about ready to lose my frickin mind.

I'm trying to plan for the future and protect my family from whatever economic conditions
lie ahead. The dam problem is---there are so many conflicting opinions about what the future
holds. I'm not asking for a damn crystal ball. However, it would be nice if someone--anyone--
would step forward as an authority and leader on economic issues, and give us SOME KIND of
idea of what is likely to happen and how we can prepare.

Is that too damn much to ask????

Furthermore, the mainstream media tells us NOTHING of substance. These yapping heads, were
telling everyone to "Buy! Buy! Buy!" three months ago!

I'd just like to know---for the love of Pete--what is going to happen to the economy?

Are we in for Depression-like circumstances? Or will we have a slump, in which most people
will not be tremendously impacted?

It's completely INSANE that opinion on this is all over the damn map! How are families supposed
to plan?

I hear this morning that Warren Buffet said that anyone holding onto cash right now, is making
a big mistake--and that their money should be in the market. Right now, I'd like to strangle
Warren Buffet, because this is the exact OPPOSITE of everything I've been hearing! I was under
the assumption that the market was going to take major hits as the credit freeze impacted the
economy and as the "credit-card bubble" burst.

Many, many people have been saying to hold onto cash.

I'm pissed people. I want to know how a family is supposed to plan?

If there are any economic psychics on DU, step forward and give us some love!!!!

[madokie]

1. At this point the best plan is to put planning off until after we have a real President

concentrate on keeping your head above the surface while taking on as little water as possible until that day comes. IMO

[earthside]

6. Obama is Not the 'Economic' Messiah

Even after Obama is President, the economy will continue on its downward spiral. To ascribe some kind of omnipotence to President Obama on the economy is unfair to him ... and ultimately to us, too. He can propose plans to mitigate the suffering, but neither he nor a Democratic Congress can wave a magic wand and make everything better again.

As to the original post, step back and be a bit more objective. The stock markets are down twenty-plus percent, there is huge volatility, unemployment is going up, businesses are shutting down: that is the big picture. The recent actions of the federal government in the 'BIG Bush Bailout Plan' and the AIG bailout show us that there are trillions of dollars of debt yet to be dealt with -- in other words, it is clear that things are bad and are still going to get worse.

So, we should all be doing what is best for ourselves, it is a mistake to count on a bankrupt government to save us from the effects of a severe recession. Preserve what you've got is the obvious strategy for the time being.

And don't listen to Warren Buffet anymore that any other billionaire investing gambler ... because that is what he is doing, gambling (no matter what happens, he can afford it; and you think he isn't spinning 'advice' for his own advantage?). For average working people, playing the market now seems to me to be a bad idea ... that was a big lesson from 1929 that we as a country have forgotten.

[spinbaby]

17. Yes, that's the best plan

Most of my 401k is in a guaranteed income fund. When Obama wins, I'm moving 25% to mutual funds. When he's inaugurated, I'm moving another 25%.

[LaurenG]

2. Put some money under the mattress - just enough to get by for a while

put some in mutual funds, some in cds and some in stocks (energy/green technology/medicine/medical).

Plan on living within your means, conserve, live simply, cut out anything that doesn't "serve" you. For instance; scale down your cell phone and calling plan, get basic cable or no cable (just remember that in February older tv's won't work with rabbit ears), plan a garden for next spring, combine trips, take mass transit and walk or bike as much as possible and get to know your neighbors. Help where you can and barter with like minded people.

I'm no economist but this is what we're doing. :hi:

[CoffeeCat]

5. Thanks for the advice...

I'm a little batty right now. Mainly because Warren Buffet has my husband fired up and
wanting to put more money in the stock market. :hi:

I like all of your advice, and I'm currently doing all of those things, including keeping a stash
of cash in the house. I scaled down our budget and cut out some things that weren't necessities (health
club membership, NYTimes subscription, etc). We're down to a bare-bones budget and it feels great!

You must believe that things are going to get a lot worse, just as I do--if you believe people should
have some cash on hand.

Again, thanks for your sound opinion. :)

[HamdenRice]

7. OK, but can you see the "collective action" problem you present to the system???

You wrote: "including keeping a stash of cash in the house. I scaled down our budget and cut out some things that weren't necessities ..."

Economists call this the problem of "collective action." In other words, you do something rational from your own perspective , but when you add your actions to those of others doing exactly the same thing, the overall outcome is irrational.

Everyone is scared so they "stash cash" and "cut out things that weren't necessities."

But by stashing cash, if everyone else does the same thing, you hurt your own bank by withdrawing more funds than usual, making it more likely that your own bank will fail.

By cutting back, you reduce your demand for goods and services from your neighboring businesses, reducing their profits, making it more likely they will go out of business, taking away their employees' paychecks, which further reduces demand for goods and services.

What's good for the individual may be terrible for the system, which in turn is bad for the same individual.

That's the paradox of "macro" economics -- the economics of entire systems. Everything you're doing is wise from your perspective, but only if you are one of very few people doing it. It's terrible when everyone does it, which everyone is in fact doing.

If you want to save the system, leave your money in the bank and go shopping!

Of course, that's not what I'm doing. I'm withdrawing money and cutting back. That's because I'm as much a prisoner of the horrible logic of the system as the next guy.

[CoffeeCat]

14. But Hamden, don't you agree...

...that our current economy is unsustainable?

If I'm hearing you correctly, you're saying that we need to continue our current level of spending--in order
to keep the economy healthy.

I like what Peter Schiff has to say--that we need more savings and less consumption--and that we need a correction
that may hurt temporarily--but at least we will be on the right track.

We have a consumption bubble that has been inflated by people using major credit cards, store cards and
people taking out home-equity loans. People lived their lives on rented dollars--beyond their means. In my
opinion, that's no way to live--because it can't last forever. It's an artificial state, that can collapse if people
get maxed out on their cards, or if the economy goes sour, or if that credit is shut off.

It appears that all of those things have happened--causing a downward shift in aggregate demand.

Again, I'm no expert--more of an observer who is open to enlightenment. :)

[HamdenRice]

21. It certainly is unsustainable, but there are different ways to fix it

Let's say we were looking at a consumer rather than a country. This person had run up his credit cards to levels that were almost out of reach of ever paying them back. He is a serious shopaholic, and his habit points in the direction of ever more debt.

At this point, he can sit down and rationally plan a way out -- cutting back, coming up with a plan to pay down the credit card debt, maybe selling off some assets like the extra car, and realizing that in maybe 6 years he'll be OK. Or he can keep going in the current direction until he stops being able to make minimum credit card payments, his paycheck is garnished and he declares bankruptcy, becomes homeless, etc.

The first outcome is a "soft landing" and the second is a crash landing. I agree that what we've been doing is unsustainable, but there would be much less damage if we can have a soft landing. That means no mass layoffs and unemployment, no immediate, catastrophic decreases in demand, but a slow adjustment to leaner times and slow transition to a more sustainable economic path. We have to cut military spending by about 80%, get rid of the really crazy uses of oil, like kids in the burbs "cruising" around the mall in Daddy's SUV staring at each other, heating the house to 80 in the early winter when it's 65 outside, and cooling it to 65 in the summer when it's 80 outside, flying in tomatoes from Holland, cukes from Israel and garlic from China (I actually saw garlic in the supermarket that was labeled "product of China"!). The one thing I'm optimistic about is how much fat we can cut before we feel any actual decline in our lifestyles whatsoever.

What's scary is that we are in a "game theory" situation in which our rational efforts to plan a soft landing as individuals can lead to a crash landing as a country because we're trying to solve our individual problems in the middle of a financial panic.

A good outcome would be for us to get out of the immediate financial crisis and then rationally take it step by step, assessing what we have to do, doing it, and assessing what we've done each step of the way, and redeploying our efforts in better endeavors as we go. A bad outcome would be what we are facing now -- freeze up of credit, mass layoffs, unemployment, and maybe a vicious cycle of low demand/low employment that we can't get out of.

[lib2DaBone]

3. ..Cash is King.... get out of any paper assets...Under your mattress is a good place

http://www.theinternationalforecaster.com/International_Forecaster_Weekly/Liquidity_Injection_Wont_Cure_Wall_Street_Disease

[HamdenRice]

4. No one can predict the future and that's the basic problem

No one knows. I consider myself very knowledgeable about economics (though I'm sure many DUers would disagree and call me some sort of shill or worse). I spent (wasted) several years designing mortgage backed securities in the New York financial sector. I worked in developing countries. I even spent a few years advising part of the government of China on economic reforms.

And what all this taught me is: in many situations, you can only talk about probabilities of outcomes, not outcomes.

Maybe today the commercial paper market will miraculously unfreeze as traders of paper realize they have been unreasonably fearful and maybe they will also become virtuously greedy about the interest rate arbitrage opportunities made available by the Treasury's guarantee of bank debt.

Or maybe they won't and we'll suffer through weeks of uncertainty. But maybe the election of a non-Republican will calm the markets and everything will be OK.

Or maybe the fear and uncertainty will continue and nothing the feds do, either now or under an Obama administration, will unfreeze the markets and we'll be plunged into the Great Depression of the new millennium.

No one can predict the future. That's the problem. Because whether you stock up on food and take all your money out of the bank, or don't stock up, don't take money out and assume things will get better, is all basically a bet on the future.

No one knows.

[CoffeeCat]

10. Hamden, I appreciate your point of view...

...and I find myself looking for your posts. You are incredibly knowledgeable and I always
look forward to reading what you have to say.

I only have a minor in economics. That doesn't get me too far, but I am able to understand
and appreciate well-thought-out opinions on the economy and finance.

So...thanks.

Yes, the uncertainty is definitely our only certainty right now.

Every time I try to reason out how I should prepare--there are question marks that muddle my
train of thinking. It's wearing on me.

Every thought on the economy, has "pitfalls" that may or may not flesh out. For example, I'm building
a cash stash at home. Then, I think....well, our banks are insured by the FDIC, what am I doing? Then,
I read that the Washington Mutual bailout used up 1/2 of the FDIC's reserves. Ok, that sounds jarring
to me. One bank (granted, it was a behemoth bank) siphoned off HALF of the FDIC's reserves? How in the
world could the FDIC insure widespread bank failures, if this is the case? Also, in the back of my mind
is the incompetence and dishonesty of this current government. Am I really going to rely on
this government to keep my money safe? ...this is the train of thinking on just
one tangent of this, and as you know--there are thousands of tangents.

Sorry for exposing my economic neurotic-ism right now.

But I do appreciate your wisdom and I hope you will continue writing your very astute posts! :hi:

[The2ndWheel]

8. Just keep in mind that

whatever solution we come up with will be larger in scale, and more complex, than whatever we came up with before. Physical reality will catch up to us again, and then $700 billion, or a few trillion globally, or whatever the number is, won't be enough.

This is not a world for you and your family to plan anything. You and your family are a cog in the machine. This is a world for the corporation and the government to plan for you. As we saw with the $700 billion, it failed at first because "the people" said no, but it didn't really fail.

http://www.americanrhetoric.com/MovieSpeeches/moviespeechnetwork4.html

"You have meddled with the primal forces of nature, Mr. Beale, and I won't have it!! Is that clear?! You think you've merely stopped a business deal. That is not the case. The Arabs have taken billions of dollars out of this country, and now they must put it back! It is ebb and flow, tidal gravity! It is ecological balance!

You are an old man who thinks in terms of nations and peoples. There are no nations. There are no peoples. There are no Russians. There are no Arabs. There are no third worlds. There is no West. There is only one holistic system of systems, one vast and immane, interwoven, interacting, multivariate, multinational dominion of dollars. Petro-dollars, electro-dollars, multi-dollars, reichmarks, rins, rubles, pounds, and shekels.

It is the international system of currency which determines the totality of life on this planet. That is the natural order of things today. That is the atomic and subatomic and galactic structure of things today! And YOU have meddled with the primal forces of nature, and YOU WILL ATONE!

Am I getting through to you, Mr. Beale?

You get up on your little twenty-one inch screen and howl about America and democracy. There is no America. There is no democracy. There is only IBM and ITT and AT&T and DuPont, Dow, Union Carbide, and Exxon. Those are the nations of the world today.

What do you think the Russians talk about in their councils of state -- Karl Marx? They get out their linear programming charts, statistical decision theories, minimax solutions, and compute the price-cost probabilities of their transactions and investments, just like we do.

We no longer live in a world of nations and ideologies, Mr. Beale. The world is a college of corporations, inexorably determined by the immutable bylaws of business. The world is a business, Mr. Beale. It has been since man crawled out of the slime. And our children will live, Mr. Beale, to see that perfect world in which there's no war or famine, oppression or brutality -- one vast and ecumenical holding company, for whom all men will work to serve a common profit, in which all men will hold a share of stock, all necessities provided, all anxieties tranquilized, all boredom amused."

[FedUpWithIt All]

9. I am of the opinion that anyone who doesn't know what to do should be cautious.

I know i am no Warren Buffett. The very fact that the incoming info is confusing to me means i am not personally savvy enough to play anything right now. Of course i have been disillusioned by our societal view of economic concerns for some time. I have lived a cash lifestyle for a very long time and this current economic atmosphere is simply adding to my personal urgency to become more self sufficient.

We have a few months of food and plan to purchase a little more. We try to donate as much as possible, particularly to food banks. We have very little debt, which we are trying to pay off. We currently rent but plan to purchase some raw land when we have saved enough to buy outright. We are hoping to build a cob cottage. We have two more payments on a used vehicle that we have been careful keep in good shape. In the meantime we are learning from the past. I think that these things will serve our family no matter what comes.

It is a frightening time to carry the weight of a family but i know that for myself, come what may, family is the important thing. The fact that there is no clear and decisive info coming makes things even more concerning. I am planning for things to become bare while living life as responsibly as possible in the world as it stands today. It is quite a balancing act and after years it has finally started to feel more natural.

Obviously this is not a economic forecast post but i wanted to share that you are not alone in your concerns. I think it is important that we all continue to share with each. We may all benefit in the future from the creativity and experience of each other.

:hi:

[eilen]

11. I'm waiting for the dust to settle.

there is too much volatility and instability happening right now to put my money in anything I can't touch. I'm shoring up the house for winter-- new windows and some work on my basement to make life more comfortable to live in now and for the next 6 months.

My son's 529 and my retirement accounts? I am not even looking at them. I am seriously hoping higher education gets a price correction too. If not, we might be looking at a cyborg of independent study/apprenticeship and community college. I can't afford $500 and up per credit hour today, never mind in 2011.

Ultimately, don't panic. We have had an artificial economy for the last 15-20 years with inflated values on homes, tech, stocks, other financial instruments etc. It's been like one big Las Vegas trip full of jackpots for those who cashed in their chips at the peak of each bubble. It seemed to favor those who are a bit past retirement (sold their homes and cashed in their stocks and were tier one on pension funds where there were still pension funds)-- those just at and just behind "the greatest generation" and the Korean war generation-- the people you see at the casinos today, they all have white hair (disclaimer: I know there are plenty of elderly who have not and are chronically ill or disabled and live horribly dull and humiliating lives. Hell of a crapshoot-- I don't like those options.)

[scheming daemons]

12. Buffet is buying stocks now because A) they're low and B) Obama is going to win

...and Buffet knows there will be a HUGE bull market following Obama's win.

[akwapez]

13. I'm no expert, but I would say to prepare for the worst.

I don't believe anyone know for sure what will be happening. I do know that if the "experts" believe we are looking at catastrophic events, they can't come out and say that for the risk of making it worse or at least speeding it up. So, if they say it will be a little rough, assume it will be bad. If they say it will be bad, assume it will be very bad. Most won't even say recession yet, experts predicting a depression would cause panic.
I can't give specific advice, but I would suggest exercising extreme caution, frugality, and preparation.


I'm with you though, I wish there was a trustworthy source would just tell it like it is so we know what is coming.

[madrchsod]

15. if i had extra cash i`d be buying stocks

i remember when Chrysler was bailed out and the stock was 1.75 or so a share. a lot of wise investors made a pile of cash buying at 1.75 and selling at a higher price.

[rucky]

16. Whatever you choose to do, prepare to stay in for the long haul.

Any short-term opportunity will be way risky.

[tavalon]

18. What's the worst thing you can imagine?

Plan for that and then be surprised if it turns out better. I don't think anyone is trying to hide anything from you. The greatest minds have said this is uncharted territory. We don't know what's going to happen. There is nothing in history that compares and yet, this could get much better or much worse. As well, no one with a microphone wants to inadvertently make this worse by musing on doomsday scenarios.

[lelgt60]

19. Is that too damn much to ask???? - Yes

You may think that past times are "better" or "more stable". I'm over 60, and that's certainly not the case in my lifetime. People have short memories.

Here's my advice in priority order - probably worth what I'm charging for it:

Health: Learn what is healthy and do it. You can't beat your genes yet, but you can shift the odds. Without health, not much else matters.

General Education: Learn what makes people tick, learn how the world works.

Happiness: Practice the Golden Rule. Do what you love. Work for good causes. Make lots of friends - they're your best hope in tough times. Give 10% to the charities of your choice. Save/Invest 10%. Live on the other 80%.

Education for employment: they can't take away your knowledge. Learn something most people need. Want to be well off: Doctor, Dentist. Or trade skills that can't be outsourced. My mother was right when she wanted me to become a doctor. I should have listened...

Financial Education. Learn how the investment markets work. Make conservative investments in businesses whose products you think will be in demand and are good for humanity, with money you can afford to lose some of. Watch those investments. Buy and hold is the mantra of people who want to take your money. But, if you aren't educated financially, and willing to spend some time at it, it's your only rational choice.

Consumerism: Turn off the TV. Not because the shows are bad, but because you are bombarded with ads THAT WILL MAKE YOU WANT STUFF YOU DON'T NEED. IT WILL MAKE YOU WANT TO KEEP UP WITH THE JONES. YOU CANNOT FIGHT IT. Get your news from the Internet with an Ad Blocker. No matter what, the less you spend of what you make, the more you will have.

[gopbuster]

20. We are all over the map in opinions right now...not a good time to make

hard decisions about anything other than being prepared for the worst. Unfortunately we have a short term phase of uncertainty to get through which should eventually begin to be clarified for best or worse as we move forward. We are right in the middle of earnings season which, although are backwards looking numbers, the companies themselves, most of what I have seen, seem to be saying they are looking forward to flat numbers for next quarter and in a general sense are urging caution. We still have more companies to release and should give us an indication of which sectors will weather any downturn. Good 401K or fund managers should be able to reallocate for the best returns over the longer haul.

The issue lies in just how much the problems in the financial sector will overflow into the other sectors and just how much the overall economy itself is set to contract.

I'm guessing though, we are likely to see a phase of mergers, and bankruptcies going forward. We already see the situation effecting the retail sector as well as new construction starts. A new round of Alt A loan resets will not bode well either. So, indications are the slowdown is here and leaning that way. What they can do to help mitigate it is yet to be seen.

IMO the risk of having all your eggs in the stock market is still way to risky right now for other than short term trades or in a dollar cost averaging scenario

Let us just hope it doesn't become chinese water torture, with more shoes dropping in a prolonged drip, drip, drip, to the bottom which could equivocate to the 5000-6000 range in the stock market whereas that technical intersection in the charts looks to be hitting into next march - june.

Gold is acting like it is being manipulated and held down...as usual, although may begin to run up eventually as I hear supply's are running short.

You are not alone! One day at a time for now with all eyes peeled.

[Joanne98]

22. If OPEC cuts output, that could raise energy stocks...

I play Investapedia.. (just a game) I bought this today..
http://finance.yahoo.com/q?s=CHK up already..

I bought RIO (Brazilian commodities) up already
http://finance.yahoo.com/q?s=RIO

I don't know what to tell you. It would have been nice if Buffet said what he was buying. He did go to Canada oil sands last month.

You could buy the ETF's...

Banks...
http://finance.yahoo.com/q?s=RIO

Energy
http://finance.yahoo.com/q?s=XLE

Gold
http://finance.yahoo.com/q?s=GDX

[Javaman]

23. plant a garden. raise chickens and learn to purify your own water.

invest in yourself by learning a trade. Carpentry, masonry, plumbing, electrician, small motor repair, etc.

in the times we are heading into the things I have mentioned above will be invaluable.

[Strelnikov_]

24. ELP - A strategy for all 'seasons'

ELP. Economize; Localize; Produce.

You do not want to be on the majority side of the US economy--the side that is dependent on discretionary income.

Economize--try to adjust your lifestyle so that you can live on 50% of your current income.

Localize--try to reduce the distance between home (in smaller, more energy efficient housing) and work to as close to zero as possible and/or commute to work using mass transit.

Produce--try to become a provider of essential goods and/or services. If nothing else, look into starting a permaculture garden.