Boom

Boom:

An economist writes on the global situation:

On the real economic side all the advanced economies representing 55% of global GDP (US, Eurozone, UK, other smaller European countries, Canada, Japan, Australia, New Zealand, Japan) entered a recession even before the massive financial shocks that started in the late summer made the liquidity and credit crunch even more virulent and will thus cause an even more severe recession than the one that started in the spring. So we have a severe recession, a severe financial crisis and a severe banking crisis in advanced economies.

There was no decoupling among advanced economies and there is no decoupling but rather recoupling of the emerging market economies with the severe crisis of the advanced economies. By the third quarter of this year global economic growth will be in negative territory signaling a global recession.

'A severe global recession touching emerging markets' the kind of technical speech that masks hard reality. What this means is that war and famine are coming to much of the world, and with them the rider of the pale horse.

We tend to think mostly in terms of what this means for America, especially this close to an election: our minds are focused on the immediate. America is stronger than most of the nations, though: this is why the dollar is growing steadily through this crisis. The world is burning, and America is the safest place. It is unlikely that war will reach these shores, though not impossible given the political divisions in the nation and the deep distrust that will greet the incoming President, whoever he is.

Allah notes what we can look forward to tomorrow.

These things, dire as they are, take time to fall. You can see them coming, and there is time to prepare. I am in no way a financial advisor, lawyer, or other expert, but it is the experts who brought us to this pass. Here is what I have done: you may do what you like.

1) I moved all of our money into FDIC-insured accounts, both in the military's USAA and in another secure bank. All of it. The FDIC fund is limited, but it is backed by "the full faith and credit of the United States." If that fails, money will be the least of your problems.

Why this is worth doing: The market is losing massive value every day. The experts seem to think you should be buying now, so that you'll be in a better position when the market comes back. In the meanwhile, every dollar you sink into this is worth less tomorrow. That suggests to me: Walk away from whatever you've lost, and rebuild shares when the situation does turn around.

Several people I respect have declared they are doing the opposite, rather than be part of the problem as they see it, which is panic causing these credit shortfalls. I don't agree that panic is the problem; I think there are real, structural problems. Leaving your retirement funds in your 401K may be patriotic, in a sense; but I would have to consider it an act of patriotism, a sacrifice for some common good.

2) I purchased a large quantity of dry goods: dry beans, flour, salt, dry yeast, baking powder and soda, powdered milk, and so forth, plus oil, whiskey (for medicinal use only, of course), and other such goods. The real danger in America is transportation difficulties: so much of our economy is based on 'just in time' deliveries that can be disrupted by even minor variances in the fuel supply. Anyone living in the South knows this right now, because of the gas outages we've had lately. A major finance crisis could cause shortfalls, and most people keep only a few days' supplies on hand at most.

Stock up. Buy a few months' emergency supplies. As insurance goes, it is very cheap, and can prevent disaster. Right now supplies are plentiful and inflation is no problem.

Why this is worth doing: There is a real risk of disruption in fuel and shipping; at the least, you'll be sure of living in comfort through any such shocks. This kind of 'insurance' is cheap, and if all turns up aces, you'll eat the stuff anyway. So there's no risk, no loss, but you are protected from a danger that has potentially severe consequences and a nontrivial chance of happening.

3) I laid in a few hundred extra rounds of ammunition: not just heavy stuff for defense and deer hunting, but bird shot to make it easy to bag squirrels and birds for the pot. I trust it will not be needed except for sport, and I will have a pleasant day at the range some afternoon in the future. Yet if it is needed, it will be needed intensely.

Why this is worth doing: If you live where there is abundant wildlife (and deer populations are at or near record levels), it's another source of food in the case of fuel-caused shocks. In the case of wider chaos, you're prepared; and if the absolute worst happens, and even FDIC insurance is no good, you have a valuable barter item. Unlike the food, there is a small cost (you can't eat it later if everything works out fine, although you can enjoy a fun day shooting). Still, the potential benefit to having adequate ammunition stores easily outweighs that small cost.

4) I'll be leaving on another Iraq adventure much sooner than I wanted. The parallel for readers: if a solid, good paying job you may not really want appears, take it anyway.

Why this is worth doing: We've heard that in a recession or depression, cash is king. Adding to rather than living off your savings will be difficult at this time, but at the end of the collapse, there will be a lot you can buy cheaply: real estate, businesses priced below their value, homes, etc.

Conclusion:

The advice I hear the financial experts giving boils down to: buy, buy, buy. Double down on the 401K. Shares are undervalued, so pick up bargains and make a fortune on the rebound. Getting out of the market means you can't make up the value you've already lost.

As the AP notes in passing today, however, that money was never real. I would suggest a different approach to understanding wealth.

Wealth doesn't come from speculation. It comes from work.

If your hard work has left you with money to invest, invest it in your own work. Alternatively, invest it in the business of a man you know, whose work ethic is known to you. Use it to buy land, and put cattle or crops on it -- or hire someone who knows how.

These things have real value that can't just 'go away.' They aren't fairy gold. They're real wealth. Hard work, friendships with men of strong ethics, land, cattle, food: this is what we built the country on to start with.

Nassim Nicholas Taleb is right: banks don't make out on this.

Clearly, with current International Monetary Fund estimates of the costs of the 2007-2008 subprime crisis, the banking system seems to have lost more on risk taking (from the failures of quantitative risk management) than every penny banks ever earned taking risks.

I intend to focus on the real fundamentals of the economy. It's hard work and sacrifice that got us where we are, and that is how America will thrive -- if it does -- in the future. There is no substitute.