This is one of those times where I feel my age is working against me. It's the economy. And the fact that I don't have the hindsight to see how bad things might get.
The housing market is declining, causing a credit crunch and banks to become unstable. The cost of oil is predicted to nearly double in price, the stock market is declining, and people are losing jobs. And now I have heard that Israel is planning to go to war with Iraq.
So...here’s my question~
As a (relatively) young person who has never seen the economy bad~ I might have been alive for it, but I was unaware of it~ is "this" (waving my arms to gesture towards everything around me) "bad"?
The last 10 years have been pretty good for me by my terms. I was always able to earn enough money to put a roof over my head, and food in the pantry. Many years in a row I also had plenty left over to go to restaurants and vacations too.
This year I have seen the cost of everything rise. But I still have enough money to put a roof over my head and have food in my pantry. There is just less money left over for extra stuff.
I have heard the economy will get worse. I am wondering how much worse. I obv. Wasn’t alive back then, but in my perspective the Great Depression is about as bad as it can get.
~Will it get to be like another Great Depression worse,
~or worse like I am able to put a roof over my head, food in the pantry but money is so tight that there nothing extra?
~Or will I NOT be able to put a roof over my head, food in my pantry without raiding my savings?
Another question, Short of nuclear war, is there a "perfect storm" for our economy? Is it possible for America to collapse? I know there are safeguards now in place to protect the economy, but are we in a position where we will soon be utilizing those safeguards? With the Indymac bank needing FDIC help, are we already starting to tap into the safeguards?
With our economy as intricate as it is, is it possible for anything to collapse?
I am just wondering if we are riding a downward wave and in 10 years we will be headed back up, or if America has cycled through its era of supremacy and is on it's way to being recorded in the history books as "it WAS a great nation."
I know the economy is cyclical, but I wonder if it is possible for our economy to just get off the track and run a whole new uncharted course. Or have these "things" (once again waving my arm around to everything around me) happened before where banks become unstable, oil becomes unavailable, large amounts of jobs are lost, ect.
Thanks for your input.
So...how is our economy doing?
July 13th, 2008 at 06:20 pm
July 13th, 2008 at 06:40 pm 1215974426
Next.......
July 13th, 2008 at 06:51 pm 1215975068
July 13th, 2008 at 09:57 pm 1215986248
It was an unsettling time, but what helped me was that I decided to focus on what I could control, which primarily meant making myself indispensible at work, so that hopefully as long as my company survived, I would have a job.
In the long run, living through that period of history helped me learn a few very valuable lessons:
- I learned what my REAL risk tolerance was. Lots of people talk a good game about having a high risk tolerance, but when things go bad they panic and cash out their investments. I learned that my risk tolerance was somewhere between moderate and low. Once I got to the point where I was actually investing in mutual funds, I kept in mind how I felt in 1987 and invested accordingly. I have stuck to a "stay on target" program ever since. I did not get euphoric during the tech stock bubble, and I did not get gloom & doomy when the bubble burst. Take note of your feelings now, and remember them when the day comes that you have "substantial" assets.
- I learned that really bad things can happen in the world of finance that I cannot control, and that nothing good lasts forever. I now know that we all really do have to save for a rainy day. I feel the most sorry for those folks in their late 30's or very early 40's who never experienced a "financial crisis" who lived the high life and now have mountains of debt.
I was "lucky" enough to get a wakeup call very, very early in my adult life ... And so are you!
July 13th, 2008 at 11:02 pm 1215990133
I was at a Christening yesterday where my mother met old neighbours and they were discussing their childhoods.... walking miles to school, being self-sufficient with meat & vegetables, hand-me-down clothes, only have one good outfit for Sunday Mass etc etc
Post Celtic Tiger, Ireland is facing downward economic pressures too.... In fact I think they are welcome as people went mad spending borrowed money (whick the banks threw at them) on frivolous items... it's a positive thing as people MAY, hopefully, learn the value of a Euro.
As regards the USA's status in the world - as a foreigner I believe the USA has passed its peak superpower-wise... but there won't be any great changes within our life-times - look at Great Britain - not so Great anymore superpower-wise but still has a very high standard of living.
We can't ignore the future growth/power of China/India and even an Europe that France/Germany want to integrate into an United States of Europe.
Of course the future is unknowable.. but I'll tell you one thing... I THANK MY LUCKY STARS I'm living in the Western world (Europe/USA) and not in Cambodia, Siberia, Afghanistan, Zimbabwe etc etc etc
We truly are blessed. We only have to accept it and give thanks for it.
July 14th, 2008 at 12:35 am 1215995732
Its true that the economy is cyclical & the tide's going out. Just don't be swimming naked. Naked in this case is debt with no savings.
Could it get worse? It probably will. Too much credit got thrown around and it now has to go away. Better it goes away quietly and gradually rather than all at once, but it's something that you yourself can't control. Ditto the possibility of an "American collapse". You can't control that either.
Control what you can. Save money, get out of debt.
July 14th, 2008 at 02:39 am 1216003174
The Great Depression, where a lot of the common citizens lived in tents and subsisted on hand-outs. That was bad. Do you see that in anywhere in large scale?
World War II. A War where practically all of civilization was at war, and for a while, wasn't sure what the outcome could have been. That was bad. Sure, we're in Iraq, but is that anywhere near the scale compared to World War II?
We also went through the Cold War. Two super powers that could easily obliterate the globe several times over. That was really bad, and it almost nearly happened too. (One of Russia's radar station had a malfunction that showed a pre-emptive missle strike from the US. The Soviet procedure was for them to launch their own salvo of nuclear missiles at us. The Commander at the time hesitated and demanded verification, even though the radar showed what seem like irrefutable proof. To this day, he remains as a forgotten hero who saved our civilization.)
In 1987, the stock market crashed. That was bad too. Is the market crashing? No. In the dot.com bubble burst, the DOW bottomed out at 8000. That was kind of bad. Currently, the DOW is slipping, but we're at around 11000. Not as bad eh?
And yet, despite all of these setbacks, We Are Still Here!
Oil? A combination of speculators, weakened Dollar partially from lowered Fed. Reserve interest rate, and mostly increased demand in China. Bad? Nothing like the oil embargo in the 70s I think? Plus, people are being much more fuel-conscientious. That's not a bad thing at all!
I won't say that we've got nothing to worry about. However, we need not be scared of what's going on. Instead, we need to be "greedy" and realize that this could be a wonderful opportunity to get ahead. For example, I'm frankly rather giddy that stocks are so cheap because of the pessimistic economic climate. How else am I going to maximize my buys with my limited funds?
I'm sorry for rambling so much. It's just a bad storm that's all. Imagine how nice everything will smell afterwards. Just be sure not to get caught in the rain, financially-speaking.
July 14th, 2008 at 03:07 am 1216004846
Hey BA~ your last post stated you bought a bunch of Boeing stocks, I briefly saw that Boeing is moving to Chi-town. I hope that means your stocks are on their way up for you!
July 14th, 2008 at 02:14 pm 1216044868
I read your post and there are a lot of inaccuracies in it. The unemployment is currently at 5.5% and inflation is at 3.9%. Inflation of 3.9% is considered average. A unemployment of 5% is considered fully employed. Anything below 5% is considered to be unattainable in the long run.
The credit crunch is separate from the mortgage issues. The credit crunch is due to illiquidity in the market. In other words banks, and bond investors are not welling to take on risk.
Banks that didn’t take on additional risk in the good times are well suited to move forward. The mortgage issue was people buying houses who could not afford houses. This will work itself out of the system. As prices going down, people will come in and support a bottom.
Currently, we are not in a recession. In fact, most economists feel we won’t be in a recession at all. It takes 2 quarters in a row of negative growth to be in a recession. Currently, we haven’t had 1. So most economists suggest we may have one but not two.
Also with the housing market, there was a time in Florida where you could buy an unbuilt condo in the morning and sell it in the afternoon for a $20k profit. This model is unsustainable. We have recently seen in Florida, Las Vegas and Arizona (I suspect the same thing happening in San Deigo as well) what happens when speculators run for the exits. Prices collapse and people that need to sell (moving, divorce, and foreclosure) receive a smaller price.
Oil – BA is pretty much spot on on this. Oil is traded in dollars so you have the USD falling sharply (this is due to the interest rates in US, once interest rates increase the dollar will strengthen), demand from India and China, and speculators.
Yes gas is expensive but not as expensive as it is in Europe. Europeans have had $5+ per gallon for at least a decade now. And their economy hasn’t collapsed. Did you know the average American uses 4% of their earnings on energy? The average band over time is 4% - 7%.
So in summary, this is a far cry from 1930, not even close to stagflation of the 70’s, and closest to the unemployment and housing market down draft of the early 90s. This is when every savings and loan was going under, everyone in middle management was being laid off, no one graduating college could get a job, houses were losing value, and we were in a huge credit crunch. Guess what happened a few years after that?
So best advice, stay the course, reduce debt, invest in a diversified portfolio., reassess your risk tolerance, and rebalance as necessary.
July 15th, 2008 at 04:56 pm 1216141003