What would a new depression look like, and how can I prepare?
March 2, 2008 10:31 AM   Subscribe

What's the worst-case scenario for the US economy over the next 10-20 years? And what can I do to prepare for it?

I'm not well-educated with respect to such matters, but I have an ominous feeling. I'd like to be able to hedge against the economy falling apart, as I don't have a lot of confidence in those who run it, nor in the savings-be-damned ethos of many of my fellow Americans.
posted by joshjs to Work & Money (20 answers total) 42 users marked this as a favorite
 
Previously, sort of.
posted by tinkertown at 10:43 AM on March 2, 2008


personally, i'm taking lessons from people who lived through the depression--learning the skills or at least getting books on how to be more self-sufficient. a little bit at a time, i'm acclimating myself to extreme frugality, figuring out how to grow my own food and live in a way where a big downturn won't affect me so severely. people survived those times by leaning on each other, and displaying skills they could barter for goods and services. that may be where we end up--if too many people are out of work, then our skills and ability to produce on our own will be all we have.

i mean, yeah. Vote. but also realize that a disaster can occur even if the "right" people are in charge.
posted by RedEmma at 10:53 AM on March 2, 2008


As strage as this may sound, keep buying things. Problems in the economy tend to get even worse when people panic and stop supporting businesses like they nomally would. The businesses lose money, tend to lay people off when they're not earning as much, which puts even more people out of work, who then won't spend more... and the cycle continues. The US is a market-based consumer country.
That's to say, definitely don't head out buying a plasma tv just to "support the economy". Plan well, invest, keep as frugal as you can. But support local businesses as much as you can. Eat at some local diner, buy your clothes from the neighborhood seamstress. The added expense does good when you know that you're helping the economy rolling and supporting someone's job.
posted by shesaysgo at 10:58 AM on March 2, 2008 [1 favorite]


Best answer: The way I see it, we've got 3 possible courses of events up ahead:

1) The Great Depression course: economic implosion over 10+ years leading to global dislocations, double-dip recessions amidst weak domestic economic vitality, massive credit defaults, capping off with a major war, eg. China and Russia mixing it up over Korea and/or Taiwan.

2) The milder course: Japan's "Lost Decade" . . . speculative excess leads to credit destruction but the events here in the US are "decoupled" from the larger global economy and things work out on their own, sorta, eventually.

3) The mid-90s course: speculative excess lead to malaise, but the economy powered out of this malaise via higher taxation, productivity gains brought by the PC (Windows bringing the Mac ease-of-use to the masses + the internet revolution), increased oil supply leading to an oil glut and dramatically lower energy costs (95c/ gallon!).

Your timeframe, 2008-2028 is going to be a pivotal point in US economic history. The FICA surplus taxation will be reversed around 2015, meaning OASDI will begin requiring the general fund to pay it instead of the other-way around like it has been operating for the past 20-odd years. With the baby boomers heading to the hospitals more, Medicare will have fully imploded by 2018 unless critical structural changes have been put in place by then. Oil will be $300/barrel (SWAG) but we'll be consuming a lot less of it so energy overall will not be 3x expensive.

As for hedges, I see you're in WI, which is just a hop & jump to Canada. Take their test and improve the areas you need to pass. Canada has the population of California combined with the natural resources of half a continent. They'll do OK in this century. Learn French. From what I gather it's useful in Canada, plus it's the only "European" language you'll need to know should you have the opportunity to relocate there.

If you're in your 20s, start studying Japanese and/or Chinese. You can combine the two by learning the Kanji -- 2000 characters sounds like a lot but most are easy if you approach the task systematically and a lot are like puzzles to figure out. Beats wasting your time on sudoku at least.

Also try to curb the negativity. I was "down" on the US in 1992, headed off to Japan out of college, only to jump from the proverbial frying pan into the fire. The future is unknowable and things have a tendency, sometimes, to work out OK eventually.

The best hedge is to develop world-class tech skills and be a desirable employee. There's always going to be an immense IT market for people able to design and maintain tech on the new frontier.
posted by panamax at 11:10 AM on March 2, 2008 [18 favorites]


^ addedum, make sure the tech you do master isn't something a tech grad can pull out of an O'Reilly book in a week or two. To thrive in tech with two billion asians wanting your job, you've got to be the guy able to WRITE the O'Reilly book, and/or be the professional, front-office "face" of the enterprise.
posted by panamax at 11:15 AM on March 2, 2008 [1 favorite]


Preparation for a depression: Get a job in a non-cyclical industry. Civil servant, firefighter, cop. Spread your wealth around as much as possible.

Don't bother voting or spending. While it's important that everyone (else) votes and spends, you personally will have no impact. If you're worried about it all going to hell you should save more (even though, if everyone does this, it'll all go to hell).

But it's really not going to get that bad so don't worry.
posted by TrashyRambo at 11:49 AM on March 2, 2008


Response by poster: if everyone does this, it'll all go to hell

I don't disagree, but I see this as a fundamental problem. If everyone spends moderately and saves moderately, we should be able to remain comfortable and secure.

(I'm aware that's a much more difficult notion to entertain when you take the current state of affairs into account.)
posted by joshjs at 12:03 PM on March 2, 2008


I suppose the technical "worst case" is a full-on global thermonuclear war involving Russia, China, India, Pakistan and whoever else feels like jumping in.

In that case, build a fallout shelter and horde.

And then there's an extinction-level meteor strike.

More realistically speaking, we're fine. Nothing incredibly dramatic is likely to happen and, if it does, there's no way to prepare for it. Live your life, get the job you want, invest as you see fit.

People love to believe they live in "end times," but historically speaking, we live in a very peaceful, safe, non-eventful time. 1968, 1941 and several years in the 30s were all worse than the current situation by an exponential degree, yet if you invested in just about anything just before any of those crises, and held it until today, you'd be incredibly rich.
posted by drjimmy11 at 12:05 PM on March 2, 2008 [1 favorite]


I'm surprised no one's mentioned gold. For the past billion years or so there have been ads on TV bemoaning the terrible state of the economy and recommending gold. I always go "Yeah right" and then the price of gold keeps going up. Seriously, if I had bought gold the first time I rolled my eyes at the prospect I would easily have made a grand or so by now... *sigh*
posted by Deathalicious at 12:22 PM on March 2, 2008


Because of disastrously stupid fiscal policies since Reagan, the US will decline much more sharply than the rest of the developed world. Even the best policies from this moment forward will not be able to stave this off, in my opinion.

I wonder when we will start seeing offshore accounts denominated in alternative currencies (Euros, Loonies, new Rubles, etc.) offered directly to average American consumers as a matter of course. If corporate persons can do this (and they certainly can and do), why shouldn't we real persons?
posted by jamjam at 12:24 PM on March 2, 2008


Best answer: Live beneath your means. Invest in your own retirement fund, make accelerated payments to any debt you do have. We don't need a new car every few years and we don't need a new style of phone every six months. We live in a crazy craptastic world and you don't need to buy into it. I've never had cable TV, I think it is a waste of money. I make accelerated mortgage payments and I will own my house free and clear within 2 years. That is only 7 years of payments which will give you some idea of the power of compound interest when it is working in your favor and not against (like with credit card debt). To be debt free and living below your means is an enormous load off your mind and gives you a lot of options including being able to coast bad times.
posted by 45moore45 at 12:49 PM on March 2, 2008 [5 favorites]


I'm surprised no one's mentioned gold. For the past billion years or so there have been ads on TV bemoaning the terrible state of the economy and recommending gold. I always go "Yeah right" and then the price of gold keeps going up. Seriously, if I had bought gold the first time I rolled my eyes at the prospect I would easily have made a grand or so by now... *sigh*

If you had purchased an ounce of gold in 1979 for $300, you would have been able to sell it in 2002 for just $300, a net gain of zero for 23 years. Meanwhile inflation would have eaten up nearly two-thirds of your investment so that you could only buy the equivalent of $100 of goods compared to 1979. Gold is no sure thing and nobody knows what gold will do in the future.
posted by JackFlash at 1:03 PM on March 2, 2008 [1 favorite]


I don't know if this will help either of us much, but I'm (in theory) trying to gear my purchasing less towards silly shiny things that will be obsolete in a few years, and more towards things that can last a decade or a lifetime. Extra points going to things which can increase my self-reliance (tools and equipment for example), and even more points to acquiring infrastructure that can enable me to do things people will pay for.

In practise? She's a hard boat to turn around :-)
posted by -harlequin- at 1:19 PM on March 2, 2008 [1 favorite]


I wonder when we will start seeing offshore accounts denominated in alternative currencies (Euros, Loonies, new Rubles, etc.) offered directly to average American consumers as a matter of course.

You can already do this by investing in currency ETF's.
posted by Xurando at 1:25 PM on March 2, 2008


Best answer: historically speaking, we live in a very peaceful, safe, non-eventful time.

which sees us charging our standard of living on the national credit cards while outsourcing our wealth-creation human capital to Mexico and China, plus being on the wrong side of Hubbert's peak domestically, requiring us to send huge chunks of our GDP to the OPEC nations, while facing demographic stresses in health care that WILL require us to adapt to a new status quo regarding availability, quality, and/or socialization of medical insurance if not providers, plus outspending the rest of the world combined on military goods and enterprises with dubious capital returns, all the while household debt has increased from $8.5T in 2002 to today's $14T.

A Depression is a recession that goes on & on. While I do not share Malor's universal negativity, I don't think the goldilocks case is anything but mindless pollyannaism.
posted by panamax at 1:26 PM on March 2, 2008 [1 favorite]


Extra points going to things which can increase my self-reliance (tools and equipment for example), and even more points to acquiring infrastructure that can enable me to do things people will pay for

harlequin's above is important, too. In economics terms he is biasing his purchasing more towards capital goods rather than consumer goods.

My first above, 45moore's follow on about savings, and harlequin are all talking about the same thing but in different dimensions: acquiring and retaining CAPITAL, be it intellectual, monetary, or physical.
posted by panamax at 1:31 PM on March 2, 2008


Whenever I hear stories from people who got through the Depression of the 30s it was mainly - grow your own food, sew your own clothes (which was more usual back then anyway) and try to maintain. And mostly they did. One of the biggest things I admired about my grandmother was how stylishly she maintained her whole family (in the city - no country farm) - thought they were totally broke and she made everything. She still made it look as if it were no problem. And they were stylishly dressed. If a bit thin. Speaking of which - yeah - grow a garden.
posted by mkim at 6:52 PM on March 2, 2008


Read the Grapes of Wrath to get an idea of the worst that could happen in the 30s.
Now think about today. Most Americans have resources far in excess of what was common 75 years ago - not least are lots of clothes, comparatively good health and substantially better education. If you can find a place to live (do your parents own their house, or another friend/relative) you will be looking OK. Getting enough to eat is considerably easier than 75 years ago, the cost of food as a percentage of wages has shrunk dramatically, especially when you consider basic subsistence foods.
I can't envisage any sort of financial crisis where the outcome was any worse than "well, I'm broke and have to start again".
So assuming you can find somewhere reliable to live, you must find some work to put food on the table, and to cover other necessities.
In the US this includes healthcare, and if you have any regular health expenses you may need to plan for this. What's the best way to do that? Maybe stockpile a few months of regular medication (remember to rotate it so you always are using the oldest) rather than cash. If things got tense it might be tempting to spend the cash on something more immediate, but leaving you stuck longer term. If I am hungry now it is uncomfortable, but I can work tomorrow, if I have no medication I might be unable to work, for example.
Oh, and get your teeth checked ;-)
That said, liquid savings are very useful. If you can save some money, by all means do so, but I would be reluctant to advise investing, whether it be in stocks or gold, if the purpose is for an emergency. Investments do not perform well if you are forced to liquidate them, and we can figure in a depression lots of others would have the same issues. Better to have the money to hand or in the bank.
If you are in debt, pay it off as quickly as you can. Figure that in a depression things like student loans can probably be safely ignored, but mortgage payments need to be met, and consumer credit like personal loans and cards would be an albatross.
I tend to think in a depression coping strategies would need to evolve. For example, I could feed my family for months on one month of my current mortgage payment. When I am down to that in the bank I suspect I would rather the prospect of eating rather than another 30 days of owning my house. If a depression does come, I think those in the most trouble will be the people who take longest to adjust to the new reality, who made last months mortgage with a credit card hoping they would find work soon enough to make this month's payment - don't be one of those people - know when to walk away.
I don't think there is a lot to be gained from advice saying you should get a recession proof job. To me it sounds like trying to time the market - if you are wrong you end up in a job you might not like, for probably less income. If you had become a civil servant in 1960 for these reasons you would have spent your entire career hedging against the hardship that never came. Better, I think, to do a job you like, especially if it pays well, even if it might be no longer there for a few years in a depression. If you were in advertising, for example, in the 30s you would have suffered but after the depression no doubt made a lot more money. Not that advertising is an especially desirable job, of course.
I think you need to approach this all a bit like insurance. You want to take a small hit up front to avoid possible catastrophe later, but in the same way paying for income protection, disability, fire, flood, funeral expenses and all the other myriad of available insurances would send you broke if you had them all, doing everything to prepare for a possible down turn would limit both your enjoyment now, and potential future if there is no substantial depression.
So be prudent with your money, pay down debt, build up some savings too. Grow some vegetables if you can, and would enjoy doing it. Do more of your own cooking, if you eat out a lot, use this as an excuse to get pots and pans etc. if you don't have much in that avenue. As -harlequin- suggested, build up areas of your life that can save or make you money (fixing stuff instead of replacing, doing stuff yourself rather than paying somebody else and learning things that might help you pick up some extra income). See what you already have that could be supplemented. For example, if you have a lawn mower it would be viable to earn food money cutting lawns, if you are good with computers there will be demand for people to keep the old model running if money is tight - remember even in the great depression two thirds of people were still employed so even if you have no money there will still be people that do.
Ideally, you would live in a positive community, not one where challenges will mean increasing violence or lawlessness. Make your own judgements about that, bearing in mind I'd rather live in the ghetto with my family and friends than all alone somewhere safer.
Good luck, hope you don't need it!
posted by bystander at 9:36 PM on March 2, 2008 [4 favorites]


Well, depression or not, it's important to think of this stuff beyond simply individualistic solutions and escape hatches. Depressions are 100% capitalist phenomenon. They aren't hurricanes or volcanoes; they are artificial constructions created by people and can be contested by people. In the last hundred years, literally billions of people have fought to change the nature of how their worlds (economic, political, cultural, colonial) worked, and while not always as successful as they originally hoped, it sure beats throwing your lot in with the rockefellers.

In the thirties, people joined up and fought evictions. Women would fight the evicting police and the whole community would pick up an evicted house and bring everything right back inside as soon as the police left. Rent parties contributed to the beginning of jazz and unions flourished.

There may be lessons in the past, good as well as bad.
posted by history is a weapon at 8:54 AM on March 3, 2008 [1 favorite]


Yep, there's one coming. To prepare yourself for the inevitable, ask your older relatives about the (2nd world) war years - grow your own food, rear chickens, move south, and never throw anything away. Oh, I forget - darn your socks!
posted by doutzen at 2:35 AM on March 5, 2008


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