Is Financial Armageddon Here?

I’ve been reading a lot of books lately about the end of the financial world. Some call it “Financial Armageddon“, others call it the “Bubblequake“, but essentially numerous writers these days are forecasting end of days scenarios.

Let me start out by saying I have no idea what is going to happen. I’ve been struggling with the “deflation” or “inflation” question and have been trying to figure out what I think will happen for quite a while now, and I haven’t come to any conclusions yet. I do plan to write on this topic extensively in the near future though.

I do know that fear sells, and publishing houses are probably having a hard time getting all of the “doom and gloom” books out into the market as fast as they can. The two books I’ve read so far, “Financial Armageddon” and “America’s Bubble Economy” both offer a lengthy explanation how we got here and what will happen in the future.

How We Got Here

Truth be told, I could care less about this. There are a lot of reasons why things have happened in the economy, and I’m more than happy to gloss over the finer details. My interest is rarely focused on why something happened. I’d much rather work to figure out what is going to happen, and what I can do given the current situation. For the most part I’ll read enough to understand the major economic themes and drivers, but arguing the finer fed policy or political angles is of no use to me.

What is going to happen?

According to these two books at least, here are the key highlights of the near future (I do not necessarily agree or disagree yet with this point of view):

• inflation is going to go through the roof (i.e. double digits)
• unemployment is going to sky-rocket
• avoid real estate and stocks.
• avoid adjustable-rate debt
• you won’t be able to depend on a fixed pension
• buy gold and euros
• bet against the stock market (short selling, puts, bear funds, etc).
• consider switching your job or selling your business if you’re in an industry that will not do well in a prolonged recession/depression (i.e. get out of the auto industry and get into the health care industry)

It’s true that we’ve seen trillions of dollars on paper vanish this year due to the stock market’s decline. I don’t know that I’m all the way there on “it’s the end of the world” though. And I’m not sold on the gold investment strategy either. There sure are a lot of people pushing gold though, which also makes me even more cautious.

What are your thoughts? Is it time to stock on the garage with non-perishable foods and ammo? I think not, but I do agree that scaling back and doing what you can to improve your current financial situation is very important.

These basics are reasonable in any economy:

• reduce your debt where possible, and get out of any variable-rate loans that you have
• increase your emergency fund, as unemployment is rising. 6 months to 1 year’s worth of expenses would not be out of line here, and 1-year’s worth of income would be even better.
• create a second, “worst-case” budget and figure out how long you could survive given your current cash reserves
• think about an alternative employment plan. It’s terrible that many of us are losing money on our investments, but if things truly get desperate the big risk I think is going to be a job loss. Many of us have had issues living within our incomes in the past. Just imagine what it will be like to live WITHOUT an income at all. I would recommend thinking about what other jobs you could potentially do if your job is eliminated.

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