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How to Prepare for a Depression : Inthon

I’ve spent a great deal of time this weekend thinking about my financial future as well as what trends which will emerge in an upcoming Depression.  I feel like reading all sides of the economic spectrum (good and bad) from a variety of sources (technical/fundamental analysis, Bloomberg, blogs, Fortune, CNBC, talking to people in finance/banking) gives me an Accurate Model of Reality and a good sense of what I should do to prepare.

It is easy to read a lot of economic and financial blogs and realize the awful shape the economy is in and then do nothing.

My mind tends to race when I read about this and it is good to slow it down and think about exactly what I need to focus on to increase the safety of myself and those that I love.

I’ve been in situations like this before where I have a good idea of what I see happening, but I don’t take the necessary, decisive action to prepare.  The time has come where the benefits of taking action now outweigh the costs of not taking action.

After thinking about national issues last weekend, I realized a few major trends:

  1. I am doing a great job of thinking about this and I should maintain my state of awareness.
  2. I realize I have a fairly decent situation compared to most, which is comforting.
  3. I realize that a healthy attitude beats money in the bank everyday in terms of who will adapt best to the next 20 years.
  4. Complacency is the enemy. I keep coming back to this idea since it is a theme I find emerging in every aspect of my life (work, relationships, investing, etc).

I began my weekend watching some of Chris Martenson’s Crash Course.  If you haven’t seen it, I highly recommend it.  He provides a very realistic scenario of what can happen if the macro trends (economic, energy, demographic) do not change.  I am adding his blog to the blogroll since he has a useful site and honest commentary.

After viewing this, I began listing things that can be done to increase my level of actual or perceived safety.  Among these:

  • Improving my performance and distinguish myself at my current job
  • Improve relations with neighbors/family that are nearby in case of an emergency.
  • Eat healthy and take care of my body.
  • Start a second job or find a second source of income.
  • Spend less money, save more money.
  • Take time to appreciate my good fortune.
  • Buy a handgun and ammunition.
  • Optimize my investments to profit from a collapse.
  • Buy hard assets and “junk gold” (jewelry) in the event the dollar loses its value.

Assessment of factors:
Job – Needs improvement.  I work for a bank which is extremely risk-averse.  They have been in business almost 200 years.  It is a partnership, which means the company does not have to “beat earnings”, is not subject to moronic “upgrades/downgrades” and they could also not be the victim of any insane shareholder activist campaign.  My division has high visibility and is run by a rising star within the firm.  The firm is well-managed and very down to earth.  The risk is that I am not indispensable.  I have decided to make a concerted effort to improve my performance and contribution at work since I know that no company is immune to layoffs.

Bad/Expensive/Stupid habits – Good.  I do not drink, smoke or gamble.  One of my worst habits tends to be reading too much of the same thing and writing/contributing too little.  Wasting time is a bad habit, but it will not wreak havoc on my financial situation.

Safety – Needs Improvement.  I live in an extremely safe town in Massachusetts and the people are quite soft and easygoing.  I do not know basic self-defense or own a handgun, which could be problematic.  In a disaster, buying a gun will be nearly impossible.  It would make sense to purchase a firearm and ammunition before a disaster happens.

Food safety/Water safety – Needs Improvement.  I consume mostly fruits, vegetables, meat, and water.  I consume few packaged food products, which are unhealthy and expensive.  Unfortunately, I am totally reliant on the grocery store and my apartment complex for food and water.  I have no access to any farmers and no one I know grows their own food.  I have no excess food/water stored anywhere, when I probably should.

Health – Good.  I am not on any medication, I eat sensibly and I exercise regularly.  I do not have any dangerous hobbies like hang gliding, rugby or rock climbing.

Temperament – Good.  I learned from being around rich, miserable people that money does not buy happiness.  I cannot express how grateful I am for learning this lesson at such a young age. I also realize that we are in a unique period in history that could very well be the start of a new depression or ugly stretch of history.  I am not naïve enough to think that my generation or my country or my lifetime will be immune from diseases, famine, war or other events that have plagued human history.  This grounding is one of the things that gives me the most peace of mind.  I have gotten over my teenage angst and I realize that life is luxurious in the United States.

Ego – Good.  If the only jobs available were manual, I would see no problem taking a manual job.  I obviously feel better about working in an office, but if tragedy happens and I need to earn money in a different way, I can do that without a crushing blow to my ego.

Level of frugality – Good.  I have owned the same one suit since about 10th grade.  It is 11 years old and still going strong.  I am a slight foodie, but I always wince at the mention of an expensive dinner.  I have a high threshold for boredom and a weekend reading books suits me fine.  I am not worried at all about impressing others with a fancy apartment, fancy clothes or fancy car.

Transportation – Good.  I have access to a car is fully paid, reliable and insured.

Dependents – Good.  I have no children/parents/pets/friends to support and I do not plan on adding any in the near future.

Cash on hand – Needs Improvement. I do have savings in the bank, plenty of month’s worth, but none of it is at home.  If there was some idiotic “bank holiday”, I would be temporarily unprepared.  I need to save more money at home in small bills in case of an emergency.

Credit –  Good.  I have access to a large line of credit; however, everyone’s credit would dry up in a large economic meltdown so it is a moot point.

Debt – Good.  None material.

Entertainment – Good.  I don’t need to get drunk/high to have a great time.  Watching Seinfeld reruns or reading is highly enjoyable and I don’t need constant stimulation/distraction to feel at ease.

Retirement – Good.  I have no plans of retiring anytime soon and I would prefer to work until I die.

Overall:  Good.  I need to focus on my primary job since I have a great amount of control over my performance and it is, by far, the most important source of income/safety.  I also need to focus on saving more money, keeping larger food buffers and having ready access to cash.

Other thoughts from the weekend:

  • My main concern is that too many people fall on the dependent side of the equation.  Municipal payroll/pension obligations, government healthcare, government schooling/day care, food stamps, government housing and other services are all facing severe pressure as the market declines, taxes rise and dependency increases.
  • To fund these dependencies, property, income and business taxes will rise.  Rising taxes will kill businesses which will put more people on the dependent side of the equation.  This vicious cycle will lead to far fewer small businesses, which are the biggest source of jobs in this country.
  • The only way out is permanent decreases in entitlements and people coping with a lower standards of living.
  • The underground economy will thrive.  Marijuana use will increase due to futility of jailing violators.
  • The Armed Forces/Peacecorps will swell as scores of college kids find no jobs available for them.  Degrees are ubiquitous and an older workforce, unable to retire, will fill remaining jobs.
  • A lot of people’s opinions are driven by whether or not things are going to get better or worse.  I am firmly planted in the “worse” category based on data.  Better seems to be driven by optimism.

Takeaway:  It is always good to do a self-checkup and see how well you can withstand an economic catastrophe.  Please give it a try.

Thank you for reading.

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Comments

2 Responses to “How to Prepare for a Depression”

  1. Zee L. on June 11th, 2009 9:41 pm

    Your latest analysis was pretty good & made interesting reading. Also enjoyed the Green Pizza box video…what a great idea!

  2. Tyler HebertNo Gravatar on June 12th, 2009 4:02 pm

    great post.  however, i thought you told me that if you had to do it all over again you would try to make as much money as possible.  whereas in this post you insist that money is not a main concern. ( I learned from being around rich, miserable people that money does not buy happiness.  I cannot express how grateful I am for learning this lesson at such a young age).

    overall, very robust post.  i was confused at that point though

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