Whole View of Economy Skewed?

I was born in 1982, and taking a look at financial records, the United States was in a secular bull market since 1982 till 2000.

This means my entire upbringing as a child was in the wealthiest nation in the world, during a bull market. Not a bad time to grow up! However that good fortune and easy times as a child may not last much longer due to the current economic outlook of the United States. Now I’m an adult trying to build a fortune in the largest debtor nation in the world. So now the fun begins.

There seems to be a few different reactions to a coming economic downturn:

  1. People who will get scared, then bitch and complain. Most likely will blame certain incidents, the president or other scapegoat for their troubles.
  2. People who will research and understand what is going to happen before it happens, then react accordingly.
  3. People who have no idea what’s going on, will soon be affected, then react later to the new environment.

I’d like to be in that minority of people who understand FIRST what can happen, then prepare in a way which will keep me financial stable and even prosperous despite a bad economy. This course of action requires the most work, reading and research which makes it a sure bet only a tiny fraction of the people will do it.

Of all the really crappy financial information I’ve screened through, I by far think the absolute best advice anyone is giving right now is Peter Schiff. He’s got two recent books out (both which I’ve read) which are excellent. Just Google him and do your own research. He’s been deemed “Dr. Doom” in the recent years because in all his past interviews he used to predict “crazy” things happening like a housing industry meltdown or investment banks defaulting. Well people are starting to take notice now.

The only thing that can “fix” the economy is a recession. This will flush out all the bad businesses, bloated companies and excessive government expenditures.

Here’s an analogy I tell friends which compares the United States to a regular guy (perhaps themselves):

Imagine a guy who works a normal job, doesn’t make all that much money, but lives a really nice lifestyle. He spends more than what he makes because he just puts everything on a credit card and makes minimum payments. He can live this way for a while, but he just goes further into debt and eventually he’s got to pay for it. He must either make more money or spend less to get out of debt.

He can’t just easily start earning enough more money to pay for the debt, so he must start cutting down his expenses.

The United States is just like the guy in debt. The only way to “fix” his problem is to get rid of the nice apartment, stop eating out as frequently, or stop buying so many expensive gadgets.

You can log onto hundreds of financial blogs which started because the owner was deep in debt, and almost invariably got out (usually in just a few years) because they cut their expenses and paid off the debt. Same thing will happen with the U.S….or at least should happen.

The bad part is, when a country “cuts down on expenses” it means the entire country goes into a recession (at least “recession” is the scary term used to describe a slowdown of spending). However the upside is when people get rid of all the debt, they come out smarter about their purchases, can operate with less and can then start saving for their futures or investing back in themselves so they CAN make more money.

I won’t bother going into anymore economic analysis than that, it’s your job to start doing some financial research on why the dollar is falling and will continue to fall, but it brings me to this point:

In the coming years, it’s imperative to be working harder than ever before. Absorption of sound financial information is essential. I’d also highly suggest you increase your savings right now…just in case. Research, reading and frugality will be more important than ever before (Well, not EVER….I mean in my generations lifetime). This is also an excellent time for lots of opportunity, as you’ll find lots of new opportunity when things are being shaken up!

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    Blog posted on: November 13, 2008

    11 comments on “Whole View of Economy Skewed?

    1. linda

      i’ve had 4 friends who got laid off in the past 2 weeks :(
      and then our monitors at work from third party drug companies just laid off a bunch of people. it’s scary!

      Reply
    2. Anonymous

      Nev, I think that we are headed for a depression, not just a recession. Ten years with an economy like this is not a pleasant thought, but it will likely be a reality.

      Reply
    3. Anonymous

      Here are a couple of really good articles. The first is by Michael Lewis of Liar’s Poker fame:

      http://www.portfolio.com/news-markets/national-news/portfolio/2008/11/11/The-End-of-Wall-Streets-Boom?tid=true

      Another is by George Soros and gives a concise macro view:

      http://www.nybooks.com/articles/22113

      What’s really great about this crisis though is all of the opportunity it’s providing. There are so many cheap stocks right now. You can get a really good price on a great business because everyone else is losing their heads.

      I’m reading what I think is the best value investing book right now and I can strongly recommend it: Value Investing: From Graham to Buffet and Beyond. It was written by a couple of popular Columbia professors in 2004 (some of the only academics that teach value investing and don’t buy into any Efficient Markets BS). I’ve read tons of investing books (mostly value investing books) and this is the best (although it does assume some basic financial knowledge, so its not really for pure beginners).

      Reply
    4. Freemundo

      Great overview! A return to form Nev!

      Living in the UK it is great to get a “on the ground view” of what it happing in US, instead of the CNN version of things.

      The UK is about 3 months behind the US and we have all the same problems. People living on credit cards and property prices crashing.

      I can’t help but think that we be growth on online sales as people hunt around for the best prices and look to get some value from they not longer need.

      Maybe it is time to look into ebay stock again?

      Thanks

      Danny

      Reply
    5. Elisheva Wiriaatmadja

      It is amazing to see that most people think that credit is a ‘right’ rather than a ‘privilege’. This probably explains so many people are so deep in debt.

      Reply
    6. myinvestorsplace10

      Thank you for sharing useful information.The economic news as we see it is all farce, the truth of the economy is masked by skewed data and out right lies and incomplete data, economy is being supported by billions and billions of dollars in deficit spending, while the interest rates are kept low by offering the investors ( super rich) by giving them tax breaks on the interest income.

      MyInvestorsPlace – trading, value, investing, forex, stock, market, technical, analysis, systems

      Reply
    7. Pavan

      It’s a shame a person like yourself hasn’t majored in Economics instead of “Government”. You seem to have quite the grasp though.

      However, I have a slightly different perspective. When an individual runs up a debt, he can continue to max out his credit limit and make minimum payments till he dies, should he choose to. The only issue there is the burden it has on society once he defaults through death..who pays for it? Assuming he wasn’t worth a dime.

      The government on the other hand, has no reason NOT to run an infinite amount of debt as long as it too makes the ‘minimum payments’–not that i recommend this behavior. future generations will pay for current spending, and it escalates exponentially into the future…vicious cycle..but no reason why the country can’t have a debt since the country as a whole doesn’t die off

      as for the largest debtor in the world–well, this is how money is made. it’s an accounting equation. it’s not printed on paper. it is through these debt transactions that it is made. debt is actually good for the economy, factoring inflation over time, and the value(money) it produces.

      ps–i just turned 26 a month before you, and i haven’t achieved squat,s o congrats :-]

      Reply
    8. MoneyEnergy

      great positivity in this post… I also agree with you about Peter Schiff. I’m glad I read his book when it first came out (what was that, two or three years ago now?).

      Better time than ever to be exploring new income making opportunities.

      Reply

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