Straight Line Logic has published numerous articles forecasting debt contraction, deflation, a financial crisis, and a severe global depression. For anyone who needs a review, at the end of this article is a list of links. A recent article, “Who’s Right?” (SLL, 1/5/15) examined commodity, credit, and foreign exchange markets, and various indicators of the real economy, and concluded they were all sending a different message than the US equity market, where some indexes made new highs in December. Now, however, volatility has increased dramatically in that market, and it may be joining the other indicators, signaling at the least an economic contraction, and almost certainly worse. If that is the case, while it will be important to understand how it happened, it will be even more important to take the necessary mental, psychological, and physical measures for what’s to come. In other words, look forward, not backwards; there’s still time for significant preparation.
Many people have trouble grasping that a bullish trend has reversed. History is full of such reversals. After the tech wreck at the turn of the century and the recent financial crisis, risks and dangers should be on everyone’s mind, but they’re not. Hope springs eternal, and today’s version rests on faith in governments and their central banks to manage economies and financial markets. Few SLL readers share that faith, but for those that do, consider renouncing it (see the links at the end of the article for intellectual and empirical arguments against statist religion). One cannot prepare for turmoil, financial carnage, contraction, and possible collapse if one does not believe they can happen.
Emotionalism, fueled by fear, the most powerful human emotion, surges during a crash. Even for those who expected it and may be profiting from it, the emotional register jumps. Humans are quite sensitive to other humans’ emotions, especially in a group setting. To counter the often manic impulses of the herd requires a deliberate braking effort, telling one’s self, perhaps out loud, to slow down, to breathe, to carefully consider—away from the herd—and reconsider important decisions, and then, before your decision is final, to talk with someone whose judgment you trust.
Should you try to profit financially from a crash? It’s a lot harder than it looks. Most investors, especially those not involved in markets day-to-day, should put their money in cash, cash equivalents, and precious metals and wait it out. There are ways to profit from market crashes, and some mutual and exchange traded funds employ leverage that allows speculators to magnify their bets. They are generally quite popular at the end of bear markets and shunned at the top of bull markets. More leveraged bets—options and futures—are only for the pros. Even when the timing is correct, most people making leveraged short bets have trouble handling the excitement and profits when the market’s going their direction or the snapback rallies that invariably start at the most unlikely times and force many of them to cover. If you’ve got strong nerves, a cast-iron stomach, and can sleep under any circumstances you can perhaps risk nonessential capital. If you’re not part of that small group, play it safe.
Speculation can only increase inner emotional turmoil at a time that demands calm rationality. As deterioration accelerates, so too does chaos. Businesses go out of business and individuals and their families face unemployment, poverty, and homelessness. To the shock and dismay of those keeping the statist faith, governments break down as they go broke, and they are unable to provide the services that had been taken for granted. Government “safety nets” fray or rip entirely. Infrastructure deteriorates as maintenance, repair, and capital investment are permanently deferred. Crime increases and the government’s ability to do anything about it decreases.
Those who thought the government would always protect them and their property will discover they’ve been living in a fools’ paradise. Self-defense is the first imperative of survival. For the heretofore defenseless, the time to acquire firearms and learn how to use them is now. In general, the complex systems we take for granted—industry, commerce, finance, transportation, agriculture, communications, information technologies, as well as security—will be subject to severe stress, some to the breaking point. This will drive what will become the mantra of the coming crisis: self-sufficiency.
The basic theme is that the more you have and the more you can do for yourself, the better. It is beyond the scope of this website to provide comprehensive instruction on emergency preparedness and learning gardening, mechanical, medical, and other useful skills. Googling “emergency preparedness” will yield a trove of sites and information. For the heretofore unprepared, the time to start preparing is now.
As the mechanisms of our society break down, the areas with the best chance of developing a tolerable lifestyle under the circumstances will be smaller communities. Cities are apt to be dangerously chaotic and violent. While rural areas may be safer, they will be isolated and offer fewer of the benefits of trade and mutual assistance. In smaller communities, barter and exchange of services (among those with something to trade and useful skills) will be the order of the day. Such communities can band together to provide their members a measure of security. Get to know your neighbors, now. Take a daily walk through the neighborhood and strike up conversations. Attend homeowners’ association meetings. They are tedious and often degenerate into vicious battles over trivialities, but they offer an opportunity to meet people it would be helpful to know in a crisis. Try to get phone numbers and addresses (the phones may not work).
A final note. One thing you can count on in a crisis: governments will make it worse. Prepare yourself mentally and emotionally for their cupidity, stupidity, mendacity, rapacity, criminality, and tyranny. It’s the other good reason to arm yourself.
LINKS TO EARLIER ARTICLES;
A Skyscraper of Cards
A Brief History of Government
The Economics of Debt, Deterioration, Deflation, Depression, and Disorder
A Mania of Manias
Oil Ushers in the Depression
Oil Economics, Part 2
REMEMBER OPTIMISM? READ ROBERT GORE’S NOVEL OF THE INDUSTRIAL REVOLUTION, WHEN OPTIMISM REIGNED.