When the Titanic was finally finished being built, it was the largest passenger steamship of its time.
It was a site to behold, having been designed to be both functional and beautiful. (The fourth smoke stack was merely an ornament to make the ship look more impressive.)
Some of the wealthiest citizens of the early 20th Century eagerly bought tickets for the maiden voyage.
Of course, we all know how that story ended. When the Titanic sank in 1915, a full 68% of the passengers were greeted by watery graves.
Incredibly, despite the urgency of the situation, some of the lifeboats were deployed even though they were half full.
Why?
Nobody Believed the Ship Could Sink!
Passengers really believed the Titanic was invincible. Even trade journals of the day had said the ship was “practically unsinkable.”
Unfortunately, it seems the same kind of disbelief is now happening in the U.S. Except this time the ship is the economy.
For months, Americans couldn’t admit the economy was in trouble. They believed the U.S. was “too big to fail.”
Then the big bankruptcies started happening. IndyMac, Lehman Brothers, Washington Mutual,etc.
Now, Citigroup may be next in line whether they get “bailed out” or not.
Nevertheless, many people continue to believe that the recovery is “just around the corner.”
My take is different:
The economy is in BIG trouble. And if you want to survive, you need to be proactive — and
Get on a Lifeboat Now
But here’s the problem:
The U.S. is the “keystone” of the world economy. If it goes down, it will bring down the rest of the world with it. So there may be no advantage to “jumping ship” and moving to another country.
Furthermore, since an economic collapse of this magnitude has never before happened in history, it’s hard to know for sure how to prepare.
Maybe you should stock up on some essentials: food, clothing, etc.
Or maybe you should sell your house, find a rental, and ride out the storm.
Or maybe you should swap your dollars for gold and silver.
Who knows.
Until we have the benefit of hindsight, it’s all speculation.
And while chances are you’ll survive this collapse with your life, your currency (U.S. or otherwise) may not be so lucky — no matter what “lifeboat” you choose to preserve it.
Which is why a better strategy seems to be to
Play with All Your Heart Until the Curtain Drops
Did you know some of the most famous people who died when the Titanic sank were the eight band members who continued to perform until the ship sank?
As people slowly realized the inevitability of their situation, some got on lifeboats; some panicked; still others became reconciled with fate and patiently awaited their deaths.
These band members were of the latter group. They calmly sat on the deck of the Titanic. And rather than “rearrange the deck chairs,” they played their songs as long as time permitted.
Of course, all eight band members died. But not without leaving their unforgettable mark on history.
In many ways, I believe one of the best strategies for surviving the coming economic storm is to merely practice your craft as best you know how — and play with all your heart — until the curtain drops.
And when the curtain rises again, you may still be standing and ready to take your bow.
-Ryan M. Healy
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I can be happy whether I’m abased or whether I abound. My joy, peace, and happiness don’t depend on this world.
That being said…while I like the grit and determination of “the band” mentality…I have a strong desire to survive. My family needs me, so I’ve got to persevere.
Never, ever, ever, ever, never, ever, never, never give up.
@Tony – I actually think you and I agree. I’m suggesting that our best way to survive is to “play the best we can” — and not to give up.
That’s the way I took your post, too. It was my way of saying “I second that emotion.”
You and I don’t let the pundits and politicians determine our success.
Very well written, Ryan… and extremely thought provoking.
Each day brings new adventure and we are given the ‘choice to choose’.
Every day is a good day IF… I make the right choices.
Unfortunately, it has taken many years for me to learn this simple, life’s truth.
You’re right, Ryan. We have no idea what tomorrow brings. Waxing a little philosophical now: “Take no thought for tomorrow…” To my way of thinking, Jesus is saying, we have NO control over tomorrow’s happenings, so STOP worrying and START living.
What do you think about Peter Schiff’s theory that other economies will thrive once they let us fall? He thinks the reason asian economies are struggling is mostly because their biggest debtor is bankrupt… that their economies are fundamentally sound and will recover once they get rid of us.
His theory is quickly given at the beginning of that new Ron Paul video, The Philosopher’s Stone.
I’m not an expert so I can’t argue too strong one way or the other. But I’ve been placing my bets with Peter for quite some time.
@James – That’s excellent advice: “STOP worrying and START living.”
@Stephen – Hard to say. For instance, Japan has been in one big, long recession since the early 1990s. That was when the U.S. was healthy. Their economy has never fully recovered. Bill Bonner and Addison Wiggin cover that in Financial Reckoning Day.
China actually has the most to lose of any Asian country because they hold a Trillion U.S. dollars in reserve. That means they’ve lost more than $100 Billion in the last week because of the dollar’s recent decline. If China starts dumping dollars, it could trigger a stampede out of dollars and into other currencies or hard assets.
Lindsey Williams predicted $1.50 per gallon of gas back in June when we were hitting $4 a gallon. It happened as predicted. Supposedly, those in power have lowered the price of oil as a covert act of war on Middle East countries, as well as Venezuela. They’ve become accustomed to the revenue from high-priced oil and are now having a hard time adjusting to the huge pay cut. Already, real estate in Dubai is dropping in price.
Speculation and unhealthy levels of consumption (in the West) and production (in the East) are alive and well all over the world. These imbalances will not be corrected without feeling the effects in some way.
Will some countries fare better than others? Certainly. But it’s really hard to say which ones. Nobody ever guessed Iceland would collapse in a day… but it did.
Interesting post, but I wouldn’t be so gloomy.
During the great Depression, government policy caused international trade to plummet which worsened the situation, people lost their houses even though they had put up 90% deposits, unemployment reached about 25%, and people lost their life savings due to there being no bank insurance, which caused a huge drop in consumer spending, weakening the economy even further.
The present situation isn’t even in the same league. Even the most gloomy economists think the US will start coming out of this recession by late 2009. And when Warren Buffet says he’s putting 100% of his personal wealth into equities…
Roll on the upturn…
I can find gloomier economists than that!
“I can find gloomier economists than that!”
LOL!
So can I, but none that can show any facts that this recession will last longer than a year or so. I wouldn’t underestimate the strength of the US economy.
To quote Buffet again: “Over the long term, the stock market news will be good. In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a flu epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497. ”
If the world can cope with all that, and still become more affluent, it can cope with this and become more affluent.
The sun hasn’t stopped shining. It’s just obscured by clouds at the moment.
My bet is you’re listening to Keynesian economists. That’s the big government school of economics that is pushed by our schools (who like big government), by the media (who like big government) and our politicians (who like big government).
A lot of them seem to think we’ll be done with this mess rather shortly, especially if we get that $1 trillion dollar stimulus (and then maybe a larger one when that doesn’t work).
But the Austrian economists I’d side with aren’t too optimistic.
Find an economist who says we’ll be out of this mess in 2008 and then check out what they were saying about the economy a year or two ago.
My guess is that they were blindsided. (There are exceptions, I think Paul Krugman was one.)
Then try the same thing with an Austrian economist who says the economy will be in the tank for 5-10 years. See what they were saying a year or two ago.
My guess is that they knew we were in trouble and could explain why.
I wouldn’t pick Peter Schiff because his views then and now are already well known.
@Steve & Stephen – Too funny. You guys crack me up.
Looking at the economy broadly, we’re suffering from a massive debt hangover. On a national and individual basis, we have spent money that wasn’t ours to spend.
I wish we could all pay off our debt… oh, let’s say tomorrow. Or next week. Or next month.
But I don’t think it will happen that way. You can accumulate debt FASTER than you can pay it off. So it stands to reason that the correction will be equal to or longer than the “debt binge” that caused the problem in the first place.
Now, if the folks in Washington would declare a Jubilee, in which all debts are forgiven, a recovery would happen much faster.
Just my opinion, of course. :-)
Hey Stephen!
I’m not listening to any economist in particular, and I’m not a fan of “big government”. I’m just looking at history. And in the past things have been much worse (the Depression and WWII for instance) and yet the economy recovered and the world went on to greater prosperity.
In fact it’s the media (who you say love big government) who are the main pessimists. Just like in the boom times they were the main optimists.
I prefer to look at long term trends, not what the media says during the heat of the moment…
Hey Ryan, glad we crack you up!
But I think this discussion has probably come to a natural end. Good luck everyone!
Hey,
All this talk about the economies of the world, debtors, depression is being countered wonderfully by two sites everyone reading this needs to know about.
moneyandmarkets.com
whiskeyandgunpowder.com
Money and markets is headed up by Martin Weiss of the famed Weiss Research marketing machine. And all his copy is written by or chiefed by none other than the super fantastic Clayton Makepeace.
Their emails are just plain awesome. I can tell they’re leading to a sale but they’re informative also so I’m ok with em offering me something.
Clayton has also sold Martin on the idea of giving away the store like he does at his site so you’ll get all kinds of education on how to counter this bad market for free too.
Whiskey and Gunpowder is run by the boyz over at Agora Financial-Mike Palmer, Porter Stansberry and so on.
Their Emails are huge but 90% of them time they’re very informative and entertaining.
Both of these direct marketing titans do a fabulous job of not making their emails super technical.
Even if you’re a novice investor you won’t feel overwhelmed like when reading the Wall Street Journal.
The hidden benefit of getting on these lists is to see how these master salesman counter the doom and gloom so they can continue to have million dollar launch days.
This is a primo opportunity to let their extraordinary strategy and tactics soak your subconscious.
Check these out. You’ll be happy you did.
Note Taking Nerd #2
http://www.mynotetakingnerd.wordpress.com
PS. Thanks Ryan for responding to your readers comments. It adds a warm touch to your site.
I once heard another copywriter say how Martin Weiss had predicted 10 of the last 2 recessions.
Too funny. But it sells!
Great take on the U.S. economy.
It’s the attitude that matters.
@Note Taking Nerd – Thanks for the resource recommendations. I like both Martin Weiss’s and Agora’s stuff. I particularly like The Daily Reckoning. And you’re welcome for responding to comments. I enjoy it. :-)
@Kevin – I hadn’t heard that before… awesome joke. :-D
@Eric – Thanks for the compliment. And thanks for reading, too!
Keep in mind unemployment tends to continue to increase for 6 months after the bottom of a recession hits. The stock market anticipates the end of the recession. Of course there can also be bear market rallies.
As far as Buffett going all in, I’m sure he is. Not with the grocery money though. I’m pretty sure his house is paid for, his modest (by most people in his position’s standards) will continue. He doesn’t have to worry about facing foreclosure or not being able to pay his bills.
So prepare yourself for the worst, plan for the best, as Winston Churchill said and Tony paraphrased, “Never, ever, ever give in.”
As Garrett Gunderson says in Killing Sacred Cows, “Ultimately, the only way to stay out of debt is to create more value in the world than we consume, or in other words, to serve more than we are served.”
Figure out how you create value, and someone will pay you for it.
These are interesting times indeed… I am siding with Stephend Dean regarding Peter Schiff that this is the tip of the iceberg.
What we do know is that Obama (and I believe McCain would have done the same so I’m not picking on the left or the right) has basically said he will spend as much as it takes to try and avoid the un-avoidable recession/depression.
Bernanke has fired the last salvo he has and is now out of bullets with the recent rate cut and has said from now on he is going to fire up the printing press and buy more government bonds… both of these things are going to increase the money supply and by definition that creates inflation.
The wild card in all of this are the trillions in US debt that China, Japan, UK, et el own in teasurys. What happens when those countries decide they want to cash out and invest in their countries instead of rolling them over? Obviously we don’t have the money to pay them back so we either stiff them or have to fire up the feds printing press to pay them back… ergo more inflation.
I have more faith in the free market then the government, unfortunately it keeps meddling with the market which is going to prevent recovery. History should have shown us that centralized goverment planning doesn’t work (USSR anyone?) and that the last new deal didn’t work and to this day we are still paying for it in the form of the Social Security Ponzi scheme.
-Jim
@Ryan re: paying back debt
We could pay back the debt…. but with what? Since we have shifted the bulk of our manufacturing to other countries we don’t have anything to export (we can’t export our debt-laden consumer service economy).
True wealth is created by manufacturing products that then can be sold to other countries. Thats precisely what happened in WWII when the US was practically the only industrialized nation with a manufacturing base that wasn’t bombed to pieces… so after supplying our military and allies with war machines we re-tooled to supply the world with goods they wanted. That is arguably what brought us out of the depression.
@Jim – You raise an interesting point about debt. How do we pay it back?
Here’s the problem. Our entire economy — even our currency — is based on debt.
Dollars are debt notes. Look at them. It even says so on each bill.
The Fed prints dollars and LOANS them to the U.S. government. The government then has to pay back those dollars — with INTEREST — to the Fed.
But how?
Let’s boil it down to just two people in the entire economy. I loan you $100 and say, “You can borrow this $100 if you pay me back $110.”
You say, “Okay. But I only have $100. How will I pay back $110 if I only have $100?”
I say, “No problem, I’ll just print more dollars and loan those to you as well. So I’ll loan you another $100, that way you can pay me back $110.”
You say, “But wait. Now I’ll owe you $220, right?”
“Yes.”
“But all I will have is $200. How can I pay back $220?”
Etc, etc, etc.
This is how our financial system works. The Fed gets to create money out of thin air and loan it to the government at interest, which ultimately makes the private bankers running the Fed wealthy.
The government’s debt to the Fed accelerates over time… putting the American people into bondage and poverty.
Eventually the whole system crashes because the U.S. government can’t keep up with servicing the debt.
This is starting to happen now.
Until we abolish the Fed (which is illegal according to the Constitution) and the U.S. takes back the right to print its own money, our economy will suffer.
@Ryan
Thanks for making the point that I alluded too… Yes we use a fiat currency. The federal reserve needs to be abolished, the government needs to be limited to its constitutional rights and we need to go back to some sort of gold standard.
It’s amazing how many people don’t realize the fed is a private institution and nobody is really quite sure who actually owns it. Bernanke is a bold face liar (“the central branks never talk about gold”) and his purpose is to make money for the feds owners and not serving the best interests of the American people.
Wonderful discussion all.
Here is the Philosopher’s Stone Ron Paul video
http://www.youtube.com/watch?v=8PIEGK0IbA4
> “I can find gloomier economists than that!”
>
> LOL!
>
> So can I, but none that can show any facts that
> this recession will last longer than a year or so.
> I wouldn’t underestimate the strength of the
> US economy.
Check out HSDent.com and his comments on the demographics of why the US economy is heading down after 2009, bubble or no bubble.
As for Buffett, I’m reading his biography “Snowball”, and his father was claiming the collapse of fiat currency would happen back in the 1930’s.
My personal guess is that Buffett will never lie, but you have to interpret what he says very carefully. Remember he owns whole companies even more than he owns equities, and I don’t think he has burnt through all his cash reserves to buy up at these prices.
I wish I knew about Peter Schiff a bit earlier, but the only doubt I have is whether the rest of the world really will be able to decouple from the US like Peter hopes it will.
And a final thought from Robert Kiyosaki, “If you want to understand the world economy, take a refugee from Zimbabwe to lunch.”…
http://finance.yahoo.com/expert/article/richricher/124339
I’ve been in Japan since ‘94.
While there’s a large domestic market, many of the famous names in automobiles and consumer electronics depend mightily on overseas markets – so, when the US economy gets pneumonia, they all catch cold.
The J-Folks I know are hoping that somehow this is non-fatal and the export-led party will eventually begin again. Maybe debt-forgiveness and a dollar devaluation are going to be parts of the new new deal?
Yet I can’t at the moment see when/how the US consumer begins major debt-fueled spending – for a while ‘frugality’ is a reality.
… Even in Japan. Now when I go get the “dozen eggs for 99c” Saturday morning special, there’s already a queue of 30 or more waiting for the doors to open at 10am. (But no Wall Mart style scrimmage like we saw in NJ. These are mostly older people and the shopping lanes are too narrow to do much damage in..)
Japanese NHK nightly news has covered the plight of part-time and contract workers being let go by many of these big firms – and while there’s an up-tick in unemployment, not (yet) much in the way of mass-layoffs.
In fact, for most of 2008, the “sub-prime” problem was reported as mainly a foreign affair with little collateral damage to Japan.
When LEH blew up attitudes started to change.
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