From Bad to Worse to Catastrophic?(III)

If we understand Kotlikoff’s figures, there is no possible way that the United States can avoid the bankruptcy of the federal government. We don’t know when it is going to happen, but we do know that it is going to happen. This is a matter of political leadership. There is none. The politicians have promised more than the economy can possibly deliver. Then the goal of the politicians is to survive in office long enough to collect their pensions, maintain their power, seduce their secretaries, or do whatever it is they want to do because they possess power, or at least the trappings of power.[1]

In my view there is probably an 80% chance of the world entering a Depression, in the next ten years. Anyway out of that? Yes, but because the way out involves almost instant pain and significant hardship for hundreds of millions of people, the chances of the way out being adopted politically throughout the world community would be under 5%.

That means it’s a good idea to look carefully at what’s probably going to happen, and make plans accordingly. If your yacht is heading into a storm, and there is a strong likelihood there will be big seas washing over your decks, you don’t leave people or important items sitting on the decks, or hatch-doors open. You secure all valuable items, ensure people are below and away from threat, and batten down the hatches. This could get very ugly and dangerous.

It is the essence of the crisis today that international leadership is virtually nonexistent here. There is not a single political leader anywhere in the world today who has the confidence of his own people, let alone the confidence of people across the border. There is no Ronald Reagan, no Margaret Thatcher, and no Deng Xiaoping.[2]

That doesn’t mean we become pessimistic. Yet we must be ruthlessly realistic about international economics in future, and individuals making proper preparations will make a big difference.

Some of those preparations are intellectual ones. For instance:

a) Are you debt free? If you aren’t, what steps will you now take to get out of debt?

b) In order to economise, how could you reduce your present costs?

c) How would you cope if you had a brief period (say, 6 weeks) out of work?

d) What if this was extended to say, 12 months?

e) Could you supplement your present work with other work?

f) Have you considered your present job security, in the context of 15-20% national unemployment?

g) If you lost your present job, would you be prepared to move to another location?

h) How would other members of your household/family deal with points a-g)?

i) If you are receiving regular Social Security payments, how would you cope if these were reduced, or even cut off?

There are other issues to consider. For instance, if I were in the market to buy a house today, I would probably wait for a number of years to do so.

Why? Because housing values in 5-10 year’s time in Australia, will probably be less than what they are today. We all like getting bargains wherever possible, and I suspect this will be the case in most of the world. In times of high unemployment, there are lots of distressed sellers, which means perhaps twenty times as many sellers than buyers- a buyer’s market. Today, there are many, many houses in the US for sale at $30,000. There will be more.

Economic stress reveals community needs. In times of personal hardship, people realise they need to deal more with their neighbours. This may be new for many people, and thus a bit of a challenge, but it is a good thing. If it’s difficult to get to the shops because there simply isn’t money for petrol in the car, people then turn to their neighbours so they can work things out between themselves and travel together, or get groceries for one another.

If there are concerns about security, people can quickly learn to work together.

Australia presently has around 5% unemployment, and this can be seductive. People can say, “there aren’t real economic problems. What’s he worrying about?” But low unemployment is dependent on having profitable employers, who in turn are dependent on buyers for their products.

Every society has a built-in interdependence, and if one link in the chain goes down (for instance, wide-spread employer profitability), it affects everyone. Employment becomes much more difficult to find.

We cannot expect to be warned about this by government. The Australian Federal government has enough problems of its own trying to be re-elected, to be concerned about and warning people of serious international difficulties ahead.

They want to be projecting optimism, not fear. So, we have to become properly informed ourselves, and act accordingly.

[1] Gary North, “Political Leadership and Gold,” 24/8/2012.

[2] North, ibid.