Time to stop and smell the roses…
I’m about to discuss a topic that might give some of you some stress. For this, I apologize. The concept here is that there are some troubling times ahead, but there is a silver lining in it. As a species, we adapt really well. However, this subject could give some people some levels of anxiety, so reader beware.
I recently saw a video with Egon von Greyerz on YouTube called “Global Debt Implosion Coming” which can be found here. I think everyone needs to hear this, to understand risks that are involved coming up. You don’t have to go prepper tomorrow, but at least understand the risks that exist out there.
The overarching point Egon makes is that debt has run up so high that defaults are likely to occur and a lot of bad things are about to happen. I agree with this theory, although to different degrees. He points out that the stock market crashed in 1929, but later fell an additional 90%. He sees that type of event playing out. I feel we have a lot of tools today to prevent a 90% drop, but I do see a significant swing downward. At the same time this was going on in the 1930s, the “dust bowl” was also happening, causing major crop losses and people losing their farms.
I’m not a history PhD, but there are said to be similarities between the Great Depression and today. Some people refer to something called “The Fourth Turning” where history seems to repeat every 4 generations. Here is the synopsis:
“This book builds on the theory that history is cyclical, repeating after four ‘turns,’ each lasting 20-25 years. The first turn is the high, a period of relief after a crisis has ended. The second turning is an awakening, when people start to get back to reality after the high. The third turning is an unraveling, in which people are unhappy with the way things were in the previous two turnings and are now becoming pessimistic about the future. Finally, the fourth turning is a crisis; some unexpected major event that will involve everyone and completely change the way people think from before the crisis occurred to after it ends. Then the cycle begins again with a new high.”
Chris at Peak Prosperity turned me on to this, and it really does seem like we are at the end of the third turning with everyone so unhappy with institutions. This leads many to believe there will be some major events that lead to the 4th turning.
Let’s look at what that might be? A lot of this has to do, in my opinion, with government overextending itself. It makes promises it cannot afford, and has led to all groups putting their hands out for a slice of the pie, while those who have worked hard their whole lives continue to see less and less in their paychecks.
- Inflation. While CPI numbers officially say things like 2%, inflation has actually been much higher, for VERY long. In the 1950s, people could live happily in a $10,000 house with one car, one TV, one salary of $9600. Consumerism has taken over, and products continue to rise in costs. You get “less” for more money. Two incomes makes due in most situations, but our culture is ripe with over-consumerism which has led to massive debt for each household.
- Keynsian economics – the government spends, spends, and spends. I feel at certain times in history, this could be used as a tool. However, it has now been used as a sledgehammer for all times and has now built us into a spiral of debt. This has led to promises no one can ever hope to pay for.
In both cases, the root cause of unhappiness is spending beyond our means. This is the cause of all of our problems, but is also the root of the fix of the problem down the road.
What is about to happen over the next 5-10 years is a cultural change in this country like virtually none of us have ever seen. My 93 year old grandmother was born in 1927 and lived through the great depression. She was “farmed out” at a young age when her mother passed away when she was 7. She lived a hard, hard life. I can learn some lessons from her and my other grandparents. What were they like? What lessons can I take?
- Re-using wrapping paper
- Canning vegetables to store in their basement
- Extra freezers to store lots of food and extras
- Gardens to help supplement
- Families with gardens would exchange excesses
- Thrift spending throughout the year
- All of them saved silver
- All of them saved change
- Home cooking, rarely ever ate out
- All were good with their hands, used their own labor to build things
- No one ever got new cars. Kept them for 10+ years
- reasonable clothing. No big budget items
- Pot luck family gatherings a lot for entertainment
- Emphasis on keeping costs low and avoiding all debt
- No fancy furniture
- One TV for the house
I bring up all of the above because today’s culture of consumerism really pisses me off. There are protocols you must do for others, or else you look bad. Despite the fact that you may not have something to give, you end up taking on debt to give something to someone else they may not want or need. I was in a best buy and when I saw a pink computer, I knew that was it.
My 11 year old son had a closet of toys he never opened, and never used. I begged my mom and others for years not to get him so much. What’s interesting was how she was raised – by children of a depression – there was not a not of excess. I was raised by her, and we didn’t have a lot of excess, but one time a year at Christmas she’d spoil both my brother and me. I learned years later they would go deeply in debt on credit cards to do so. Now, children are expected to be spoiled at all times with thousand dollar iphones, game systems, toys out the ass, $3,000 birthday parties, the list goes on.
What may come in the next few years? While we are a resilient bunch, the debt is just too much. This may lead to banks failing at some point. While the US banks are in decent shape after the crisis of 2008, many are not globally – Deutsche bank is on the hit list in my opinion.
Right now, you have the printing press burrrring frantically printing trillions. Eventually, at some point, the debt explosion upward fries the system. The theme for Davos this coming year is “The Great Reset”. I want you to really, really consider that for one second.
Since 1944 or so, the world has use the US dollar as the world’s currency. Many countries found ways to exploit this and devalue their currency, thus making positive gains in exports to help their economy – and hurt our manufacturing. We recently then did a giant middle finger to the world at this, and began printing money and never stopped to try and devalue our currency against theirs.
All of this “race to debase” has interest rates sliding down to zero, and NEGATIVE in some cases. If you have a bad credit score, people may lend to you, but at higher rates. Well, our fed has bought every bad debt instrument out there and continues to do so to keep the machine going. At some point, the interest will need to go up, one would think. But it won’t, and the only entity who will buy our treasuries is the fed.
We currently have a $27 trillion debt and $150 trillion in unfunded liabilities. If interest rates go up on anything, it’s game over and all dominoes begin to fall.
So we cannot raise interest rates, at all. Our currency will continue to be devalued, and this “stimulus” that is happening is throwing gasoline on the fire of inflation. Soon, you may see $3 apples. Or $5 apples. Or $20 apples.
I don’t want to be Mr. Doomsday, but I want to properly comment on the positives of Egon’s interview….
4 years ago, I made a pledge to myself that I would cut spending – mostly. All of the spending I then did was geared towards my health and career. Yes, I bought some gadgets for running/biking. Exercise clothing. Headphones. New bike. Swimsuit. Running shoes. Books on trading. Home gym things to reduce the need for a gym membership. Cooking gadgets and meal prep stuff to stop eating out. Books on eating healthy. I focused spending away from things I felt were superfluous.
What happened to me was a little mind-blowing. Suddenly, I became very sensitive to non-essential spending. Decorative things I lost my mind over for no reason. I felt it was like lighting things on fire. I obsessed about getting 6 months worth of bills in the bank, at all times. I obsessed over the concepts of gold and silver. I don’t give a shit about the “green lawn” which I’m sure makes me the ugly duckling of the neighborhood – but given I feel I know what is coming, I’d much rather spend that $500-$800 a year on REAL things rather than de-clovering to make you feel better.
But that silver lining…..
For me, I don’t feel it will be a major struggle, unless my employment goes away. And, that is something I’m preparing for in 10 different ways. I have back up plans to back up plans. No one can foresee everything that is coming. But the lessons of my grandparents has been pretty fruitful in helping me prepare.
- Get a garden. This year I grew mine out a little and have been getting tomatoes out the ass. I eat a LOT of salads. The “one sweet tomatoes” I’d eat were costing me $6 a container. I swear since July I must have saved $150-$200 just in tomatoes. I’m now getting a lot of raspberries in, and I like a quart cup of them a day before exercise. Next year I will grow it out even more. Friends of my wife actually do a lot of fermentation. That skeeves me out, but I think something like that is useful to know!
- Do a yard sale. Any stupid shit you have that you do NOT need, convert it to cash. I did that last fall and it helped me start some of my investments that have grown tremendously.
- Learn new skills. I will be doing some drywalling soon downstairs to build a play room out for my son. I have a gym down there as well. Maybe my primary source of income disappears, but if shit gets really bad I can sell vegetables, assist construction projects, do financial advising (I have an MBA), manage a store/factory, run construction projects (I have a PMP certification), flip houses, write for money, do IT gig work, be a trainer or consultant, mow grass, shovel snow….point is, you need to be resilient and wonder what you might do in a different future. A year from now, I might have 8 different jobs to pay the bills. You never know….
- Home entertainment and spending time with your family is key during this. You don’t need $10,000 in toys and gadgets. Some board games, crayons, books, legos, imagination…maybe a $10 netflix or Disney subscription provides the little ones hundreds of hours of entertainment.
- Cook most meals at home. Learn to cook a variety of meals and how to store/preserve leftovers.
- Create a storage space and stock up on food. Cheap foods like pastas and rice can store for long periods of time, but are not nutrient dense, but caloric-dense. I also have things like canned chicken for protein that lasts years. I am getting a stand up freezer and want to store things like a quarter cow in it. I also have interest in perhaps learning to do canning so if I get good harvests with the garden, I can store some in cans/freezer.
- Get extra income. I’m invested in other housing, so if my income disappears down the road or I have to take a job with a 50% pay cut, this can help keep the lights on.
- Invest. I talk about gold and silver here, but my focus mostly is on the miner stocks. With lots of upside coming with gold and silver, metals equities can act as a hedge against a downturn. While a 90% drop might take Nike and Tesla down, gold and silver prices will be through the roof and the companies that produce them will print money.
- Try and keep 6 months worth of bills in cash at all times. For me this is mostly invested, and mostly liquid, but the point is that I have access if needed to funds. Why buy shit to hang on your walls if you can’t afford groceries if you miss a pay check?
- Do “dinners” with guests. When I was a small child, my parents would have couples over, and we would go over to their houses. It wasn’t a $300 dinner bragging about their new yachts. It was having a few beers, playing cards, letting the kids run around and play, and being real people. I like the idea of having dinner guests over. Nothing fancy.
- Spend a LOT of time OUTDOORS. You can walk, hike, run, play tennis, golf, bike, go to parks, go to lakes, go to the beach. You don’t need a $10,000 Disney vacation. Take your kid out biking and running with you. Tell them how much you love them. Spend money on decent bikes that might last 10 years and do family bikes. Buy some tennis rackets and balls and each year you are spending $20 on tennis balls for an entire season of tennis.
- Really use the internet to learn things. Maybe shit goes sideways, but you still have your internet connection. I have spent the last few weeks watching a lot about “World War 2 in HD” and “World War 2 in color”.
- Do “races”. I put this on here because these things can be relatively cheap but also inspire you to train and be healthy. If you always have a race to look forward to 3 months out, you might be more suited towards watching what you eat and training more. If you can avoid thousands or hundreds of thousands in healthcare costs by just living life a little healthier, you got a leg up on a lot of people.
- Eat “cleaner”. More veggies and “cleaner” meats. Reduce the pre-packaged shit. You can eat a ridiculous amount of delicious veggies or small quantities of vegetable oil “snacks” that are killing you. By spending a little more upfront on cleaner food, you save a LOT more in the backend on more expensive clothing, doctor’s bills, and eventual serious medical issues.
Overall, I think the point of Egon’s talk finalizes with the upside that humanity can get back to doing what we do best – spending time with each other and putting the phones down. COVID has further separated us from everyone, and now we are a Zoom-like society further distanced from each other.
Would it be so bad to have a culture that returns to taking their children to the park to play instead of going to a mall and spending $500 on brand name shit no one needs? Would it be so bad to spend time in a play room with your little one reading him a story rather than marching him around some over crowded theme park that is sweaty and selling overpriced shit that he won’t remember? Would it be so bad to invite friends over for a six pack than going out to a $300 dinner no one can afford to a place who’s food isn’t as good as yours?
What you are about to hear the next 6-12 months is that people must go out and spend to help our economy survive. The truth is, you need to help your family survive, and you need to take care of them and let everyone else fend for themselves. You need to get your house in order soon.
Look on the bright side. If none of this does happen, you are financially sound and resilient for some day down the road if an economic downturn happens!
To conclude, I almost raged that day I saw a $2,000 pink computer right next to $300 headphones. All I kept seeing in my head was millenials that are too broke and can’t afford anything bitching about it while typing on their $2000 pink computer with their $300 headphones in. I think that any kind of serious financial issues that could come would be a great shock to society. However, it could also be what saves us as a people.