Tuesday, August 12, 2014

Protecting your economic future in a time of chaos: Part 1

(Part 2 of this article may be found here.)

I've been writing for some years about how the world's economic system is broken, and how we're facing a meltdown of possibly catastrophic proportions sooner or later.  Many authorities with stellar track records have been predicting the same thing.  As an illustration, two days ago David Stockman, former Director of the Office of Management and Budget, had this to say:

I think we are in a zone of extreme danger.  It’s hard to predict whether this will be the big, destructive bear market that inevitably has to come, or simply just another dip that encourages the robots and the trained seals on Wall Street to buy for another move higher.  But one of these times we are going to have a big failure and I don’t think it’s too far down the road.

. . .

Train wreck is a pretty good term to describe what is coming.  But this train wreck isn’t simply going to hit a wall out of the blue. Actually, it has been forming and accumulating and expanding for many years now, and yet it has simply been ignored, particularly by the financial markets which have ridden this bubble to these extreme and historic heights.

But when you take the balance sheet of the Fed from $900 billion to $4.5 trillion in less than 70 months, and when that pattern is replicated around the world, that is a train wreck in slow motion.  The only issue is, when does it hit the wall?  The answer to that question is it’s not very far down the road, and I can promise you that is when all hell is going to break loose.

Sobering stuff.  There's more at the link.

The collapse is already happening in a slow, creeping sense, with the pillars that have supported the economy for decades being slowly but surely eroded away.  All of us have seen the results.  Just yesterday it was reported that US jobs pay an average of 23% less since the 2008 financial crisis - and there's no prospect that wages and salaries will recover to pre-crisis levels in the foreseeable future.  Some of the most iconic corporate names in our economy are in dire trouble and may not be around much longer (see, for example, this report).  What's worse, as we've pointed out before, many of the jobs lost during the restructuring of the economy over past years aren't going to come back.

That means that the economic consumption previously funded by those lost jobs, and those iconic corporations, and those diminished wages and salaries, has been and is being lost as well, apart from whatever portion has been made up by increased debt (loans, increased use of credit cards, etc.).  Even the latter is no more than a panacea, because debt draws forward future spending to the present.  When it has to be paid back, the money used to do so is no longer available to buy other things, thus reducing future economic consumption even more.  Therefore, even if our own jobs are stable and our own income hasn't diminished, we're going to be affected by the reduction in economic activity caused by those realities - so much so that our seemingly secure situations may not be so secure after all.

The question is, what can be done about this?  What practical, concrete steps can we take to protect ourselves from an economic future that's uncertain at best, and possibly dire?

I've written in the past about 'Preparing for economic hard times'.  That advice remains valid and important, IMHO, but I'm not going to repeat it here - you can read it for yourself in my earlier article.  I'd like to use this article to put the situation in a broader perspective to provide a 'road map', if you will, of what one can do over the next weeks and months (and, yes, years) to create a 'safety net' for oneself and one's family.

The first thing to do is to make a sober, realistic assessment of where you are right now.  Start with your job.  Is it relatively safe, even during hard times, or is it potentially at risk in an economic downturn?  Can it be 'automated' out from under you - in other words, can you be replaced by a computer or machine?  (Last year researchers suggested that up to 45% of today's jobs may be automated over the next 20 years.  Is yours among them?)  Make a similar assessment for your spouse and your children.  Are their jobs stable and secure?  Are your kids preparing/studying/training for jobs that will be there in 20 years time, or are they in (or trying to get into) fields of work that have a limited lifespan?  To help with your analysis, see the report linked above, and this three-part series from the Associated Press from last year:

The results of this assessment may require an action plan.  You and/or your spouse and/or your kids may have to actively seek new employment, or re-train for a different job or career.  In particular, your children will have to choose any university education very carefully indeed.  If their degree is in feminist studies or underwater basket-weaving, the only jobs for which it's likely to qualify them are those where they ask, "Do you want fries with that?" - and even burger-flipping is now being automated.  The main thing is, if you've done your analysis now rather than when an emergency erupts, you'll be in a position to initiate changes on your own terms, while there's still time to do so.  Being proactive is almost always better than having to react to outside forces.

In reconsidering your job/career position, don't just focus on full-time work.  Good jobs are few and far between these days, and you may find it difficult or even impossible to change jobs or career fields without great difficulty.  Ask yourself what skills you possess that could be put to work as a second, part-time job, particularly one where you're self-employed.  Such work can often be done 'under the radar' on a cash basis, maximizing the value of your time.  You might be surprised at some of the skills that can earn you money - or bring a return almost as good as money.  Think outside the box.

  • Do you hunt?  If so, how about trying to max out your deer limit each year and distribute the meat to friends?  It may be illegal to sell it, but I don't think that need prevent you swapping it for other things you need (ammunition to hunt more deer?), or investing a haunch or a backstrap in helping someone less fortunate, or building relationships that might pay off handsomely in due course.  If you're good at dressing (i.e. butchering) deer, how about working part-time for a deer processor, or helping your friends dress their deer in return for some of the meat?
  • Can you handle various aspects of home maintenance?  You may not be a licensed electrician or A/C specialist, but basic elements of that work aren't too difficult, and you can do the work for a lot lower cost - in cash or in kind - than a specialist would charge.  Obviously, there may be local regulations that prevent you from 'officially' working in the field, but there may be ways around that.  Could you service a friend's A/C system in exchange for him servicing your auto?
  • How about a group of people in your neighborhood, or a group of friends, agreeing together to tackle all the minor maintenance issues they all face?  If everyone needs yard work done, why not schedule a weekend where everyone will pitch in with their mowers, rakes, etc. and do it all together?  How about the same for roof and gutter cleaning, or appliance servicing?  It may not earn actual income, but having essential work done in return for 'sweat equity' rather than cash can still be very valuable.
  • What about canning and preserving fruit and vegetables?  If you want to build up a reserve of food for emergencies, those are very useful skills to have;  and if money is tight, a group of friends can pool their resources, buy in bulk at a farmers market or something similar, and spend a weekend working together to process several dozen jars of fruit and vegetables.  Everyone gets a share in return for their contribution, and everyone benefits.

Not all of those suggestions will bring in cash money, but they'll undoubtedly help you spend less of the (possibly limited) cash money you have.  That's the next best thing.  They'll also provide opportunities for the children of all the families concerned to acquire valuable skills and learn useful lessons in mutual support that will stand them in good stead in later life.

Next, consider self-employment as an option, or working for a small business where you're on closer terms with the owner.  Such businesses tend to value hard-working employees, and see them as 'part of the family' rather than faceless numbers in a corporate database.  If you can help a hard-pressed entrepreneur keep his business afloat in difficult times, the chances are he'll do his best to help you stay afloat while you're at it.  If you're the entrepreneur in question, working for yourself, at least you can't be fired because the corporate bean-counters have decided that they need to lay off another thousand people to bolster the company's bottom line.  There are added risks in not having the 'security' of such corporate employment behind you;  but then, millions who relied on precisely that 'security' are out of work today.  Just how 'secure' is it?  Being self-employed also means that you can continue working as long as you want to (or as long as you need to), whereas companies may well 'retire' you - whether or not you can afford to retire - because they want to shed their older, better-paid workers and replace them with younger, lower-earning new hires.

There are drawbacks to being self-employed, or working for someone who runs their own small business.  One usually has to work much harder to make a success of the business, or one's job in it.  It takes sacrifice and dedication, and even then there's no guarantee of success, as Karl Denninger has pointed out.  On the other hand, one's fate isn't at the whim of faceless corporate bureaucrats.  I can assure you, I'm working harder as a self-employed author than I ever did as a military man, or businessman, or pastor;  but my future is in my own hands.  If I work hard, and produce a product that others want to buy, I'll prosper.  If I don't, I won't, and I'll have no-one to blame except myself.  There's a certain satisfaction in knowing that.

Finally, whether self-employed or working for a company, consider the kind of worker - the kind of person - you are.  There's a famous essay titled 'A Message to Garcia'.  It was written by Elbert Hubbard in 1899, at the time of the Spanish-American War, and it's been in print ever since.  I highly recommend that you take the time to read it (it's not very long), and then ask yourself:  "Am I the kind of person an employer would trust to get a message to Garcia?"  If so, congratulations.  If not, what do you need to change in yourself and your surroundings to become such a person?  The more you are, or become, that person, the greater the odds that no matter how tough times become, you'll always find someone to hire you, and/or always be able to support yourself and your loved ones in some way.

(And if you'd like to compare yourself to the person who really did carry the message to Garcia, you can read his story here.)

I'll continue these thoughts tomorrow with a few more.


(Part 2 of this article may be found here.)


Anonymous said...

Thank you, I just copied "Message" for my grandson. These are things that young men must know. I wonder if I have failed to teach him the same. Julia

Tamara Bell said...

Thankfully, I've got the growing food, and canning down pat. Now on to tackle hunting & fishing.

Anonymous said...

Very true. I'm an architectural draftsman who has used CAD (computer aided drafting) extensively. I've been at it long enough (Feb. '86) to have worked a few years on the boards before computers became the rage.

I've just learned that to obtain some desired work, our office will have to make some substantial upgrades that will not only cost a lot but have a huge learning curb. The upside is that drafting will become much easier that the required workforce will be much less.

Gulp ... yeah, sink or swim. Looks like I better begin gaining a 2nd income wage earner.