Decisions in the New Economy (The Great Recession) - What Would I Do?

January 1st, 2010 |

What would I do?

People in America seem to be worried about a possible permanent shift in the economy that occurred in 2008 with a series of cascading events. A perfect storm of easy credit, the housing boom, commodity speculation (mainly oil), and shady banking practices led to some disastrous events -

Events of 2008

  1. Crash of investment bank Bear Stearns (13 March).
  2. Fall of Fannie Mae and Freddie Mac (7 September).
  3. Bank of America’s acquisition of Merrill Lynch for $50 billion (14 September).
  4. Lehman Brothers filing for Chapter 11 bankruptcy (15 September).
  5. American International Group’s liquidity crisis. AIG’s shares lost 95% of their value and the company reported a $13.2 billion loss (16 September).
  6. The bailout of the U.S. financial system (The Emergency Economic Stabilization Act of 2008). President Bush signed the bill into law within hours of its congressional enactment on 3 October, creating a $700 billion Troubled Assets Relief Program (TARP) to purchase failing bank assets.
  7. The stock market crash began on 6 October and lasted five trading sessions. During that week, the Dow Jones Industrial Average fell 18.1%.
  8. Citibank received the first of their three bailouts (23 November). Amount: $300 billion.

An Economic Roller Coaster

By September 2008, average U.S. housing prices had declined by over 20% from their mid-2006 peak. No one was buying and many mortgage owners were underwater and either walking away from their homes and/or defaulting.

Oil prices set off a world-wide panic, hitting hit $145.29 a barrel (3 July). George W Bush lifted an almost 20 year-old executive order that banned oil and natural gas drilling in most US coastal waters. The symbolic move was presented as a way of relieving the pressure that high oil prices were placing on US citizens. However, by 21 December oil prices at $33.87 per barrel had became too low for companies to invest in explorations and drilling sites.

Gold prices over the period varied from a low of $712.50 in October 2008 to a high of $1218.25 on 3 December 2009, buoyed by international government purchases.

The unemployment rate in the USA steadily increased from 4.9% in January 2008 to a high of 10.2% in November 2009.

The Economy under Obama (2009)

  • A $787 billion dollar economic stimulus package, The American Recovery and Reinvestment Plan was signed into law on 17 February by President Barrack Obama.
  • Automaker Chrysler filed for bankrupcy (30 April).
  • Automaker General Motors filed for bankruptcy (1 June).
  • President Obama signed into law (24 June), The Car Allowance Rebate System. “Cash for Clunkers” was a $3 billion U.S. federal scrappage program intended to provide economic incentives to U.S. residents to purchase a new, more fuel-efficient vehicle when trading in a less fuel-efficient vehicle. The program lasted from July 1 to August 24 2009.
  • President Obama signed the “Worker, Homeownership and Business Assistance Act of 2009” into law on 6 November, extending the first-time homebuyer tax credit of up to $8000 if they close on the purchase by midnight June 30, 2010.

Green Shoots

The first usage of this economic mantra was uttered by Ben Bernanke, chairman of the Federal Reserve Board, in mid-March 2009 when he told 60 Minutes that he detected “green shoots” of economic recovery.

It seems that after a long and dark winter of economic woes, the springtime would encourage a sense of return to the consumerism, low unemployment, free lending, and other such nuances of the American dream that we have been taking for granted since World War II post-war prosperity.

But the point is, as Obama seems to imply - that recovery (green shoots) is possible despite persistently high unemployment. In other words, a jobless recovery? Many experts believe this is not possible.

What would I do?

If I knew that hard times are coming for the whole country, which is still in collapse now with state governments starting to going broke / insolvent (such as California and New York), I would think twice about planning for my future.

The Old Rules Are No Longer Valid

The Old Rules = American Dream (climb until you reach the sky)

The Negative

People I know (and don’t know) are losing their jobs or having their

  1. salaries cut
  2. hours cut
  3. unpaid holidays

People I know who are already out of work

  • cannot find a job
  • become under-employed (same as over-qualified)
  • go back to school for a ‘practical career’

The Positive

People in general are downsizing

  • re-using, repairing, recycling
  • sharing expenses (housing)
  • doing things themselves
  • cutting back on non-essentials
  • getting back to basics (gardening, sewing, cooking)

This is the new normal. There is no end in sight (and it is likely to get worse)

Danger Zone

I don’t take on new debt:

  1. because I may not be able to pay it back
  2. I may be a candidate for debtor’s prison
  3. The banks aren’t lending anyways
  4. The credit card companies are ruthless and heartless
  5. The US dollar may crash
  6. There may be hyper-inflation (this could work to advantage, though)

I clear off my old debt

  • As fast as I can
  • Reason (2) above
  • Reason (4) above
  • Reason (5) above

I don’t buy a house now

  • Because the values keep dropping (another 20%?)
  • Home ownership is no longer the investment it used to be
  • I can’t get credit (welcome to the club)
  • I don’t take on new debt

I make myself as self-sufficient as possible

  1. I live near to where I work
  2. I grow my own food, or get it locally
  3. I am active in my community (organizing co-ops for bartering, trading)
  4. I help people to help themselves (teach skills, form support groups, share resources)

I prepare for the worse

  • Don’t keep all your money in the bank. Have substantial cash on hand for emergency (such as a bank holiday)
  • Stock up on a couple months food (canned, dried, beans, rice)
  • I am able to survive without electricity (off the grid, if the grid goes down)
  • I am able to survive without a car (gas shortage, price increase, rationing)

I re-learn basic skills

  • First aid
  • Reading (ancient pastime)
  • Sewing
  • Cooking
  • Canning / Preserving
  • Repairing household items
  • Meeting my neighbors
  • Volunteering

There’s nothing wrong with any of these. Back when times were simple and uncomplicated and the family was king, a man knew his neighbor, and let a little imagination fill the time - these value were standard fare.

I unlearn bad habits

  • Buying luxuries
  • Driving everywhere on a whim
  • Watching mindless television
  • Believing everything the Media says

I would begin these preparations in earnest, trying to provide some measure of future security for my immediate family and friends. Once the general population stops buying the ‘green shoots’ mentality and looks at the reality of the situation and its global context (no man is an island, because we are supported by other governments in trade and in buying our debt), the measures mentioned above will become much more commonplace.

Barring a new war, possibly coexisting with an energy shortage, or massive inflation caused by loss of the dollar’s value as the de facto world currency, these are the minimum steps to be taken.

Ted Ollikkala is the main contributing author to Decline USA.

The writing is on the wall; has been for some time. People are starting to wake up to the larger picture and realize that change is imminent, foreseeable, and imperative for survival. Who’s survival? In a nutshell: yours. From a global perspective: humankind’s.

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