Bailout bubble giving us plenty of time to prepare
In a fiat monetary system, the powers that be can change the rules by fiat, just as they have been doing since the start of the crisis. Last year the system came close to falling apart. A report out of the UK revealed that some major global financial institutions came within hours of failing. Then, govs went berzerk and released the full strength of their arsenal: bailouts, accounting rule changes, expansion of the money supply, breaching of contracts (GM, Chrysler bondholder haircuts), credit extensions, unemployment benefit extensions, stimulis packages and so forth. Were the system to operate within the confines of the old rules it would have surely collapsed as it should have.
The system was set up to be functional with the old rules. Even with the old rules the system became unstable and was unsustainable. Fractional reserve banking was unsustainable but coupled with a fiat currency and insane 70-1 leverage ratios its inherent instability and unsustainability was further exacerbated. Where before the margin of error for a systemic crisis was small it has become even smaller now, with too much liquidity causing hyperinflation or not enough liquidity and the system continues its deflationary unraveling, only now with even more credit being destroyed.
The powers that be have made it clear that they will fight the system’s failure even to the point of self destructing. Even in the event of the system falling apart, more and more desperation will be made from the lever pullers. This means less and less freedom and wealth for the bottom 90% of the working class. No one can now exactly how long the system will last, but by looking at historcial examples it can last for quite some time. Thus it would be prudent for us with knowledge of the facts (total credit debt, interest rates, unemployment) to work as hard as possible in order to save as much as we can. Expect the government to default on its entitlement payments by a certain percentage. Expect the fed to increase its balance sheet to 5 trillion. Expect the unexpected.
Sometimes, it is important to study the tree as opposed to the entire forest, because it is the tree that yields the fruit that we live off of. My point is that by being so worried and concerned about what could happen, or when its going to happen, we lose track of the every day tasks and opportunities that lie in front of us. It is still possible to make a good amount of money during this period, whether it lasts 3 years or even 10 yrs. I know people that are doing short sales or refis and they are making a killing, even though they squander their profits. Why cant we also try to suck as much out of the system as possible right now, but instead of wasting the currency, we can invest it properly! Keep an eye out on the forest, but still have some focus on the trees that are right in front of us. There is still plenty of fruit to be harvested.
You are right, we have a lull now to make decisions and prepare for a time when things may be moving too fast.And it goes beyond the markets:
Our state used part of the stimulus money to give out very nice rebates for installing solar. Even though I’m opposed to all the bailouts and stimulus I jumped on it. The program was oversubscribed within few days. I now have a 4KW system in the garage waiting for the snow to melt. I will get 60% or more back on the purchase.
I saw on the news another program to replace appliances. It varies state by state in timing and how it works, but in some places it’s a substantial rebate. Check into it. If your ‘fridge is over 10 years old, a new one may be much much, more efficient. The Energy Star site has a calculator to figure out payback.
Toyotas may become a good bargain soon as they struggle to regain consumer confidence.
When you get bad weather (like the snows we’ve had here in the eastern US) go out and help (and maybe meet!) your neighbors. I made some good community contacts over this last storm. Found out I have a neighbor with a BIG tractor, I pulled out the guy that plowed me last time and let him borrow my blade, and another neighbor wants to start gardening again this year and needs some help.
For me it means running two plans simultaneously. One for now in the system that exists under the conditions that exist and one for the conditions that may come. I suspect it is possible for them to prop this zombie up for another 30 years. It seems unlikely, but I allow for the possibility. 30 years is still not that long. I need to plan to be self-sufficient in my old age and prepare my children to be able to survive what comes.
My concern now is about saving. Most of the way the system currently is actually penalizes savers. Additionally, if you’re not on top of things you could easily miss the clues to get your money out before it is liquidated, confiscated or inflated out of existence. Aside from investing strongly in a SS lifestyle (we can go off grid for a week with no lifestyle changes or a month with modifications.) what recommendations for savings do you have?