The Party Is Over…Let The Hangover Begin

March 21, 2009

The party was good while it lasted or at least that is what we thought. Unsolicited credit cards in the mail, automatic increases in credit limits, bank managers offering lines of credit at low rates of interest, large retailers offering interest free terms and credit card companies supplying millions of frequent flyer points.

And then the music stopped. For some quite suddenly. For others little by little. Ask yourself how many people you have come across who have, sold their homes, had their working week reduced or job lost, withdrawn their children from private schools or complained that their business takings are down by 20-30 percent. At the very least they have witnessed redundancies in their workplace.

Ask any superannuation retiree or person intending to retire and the response may contain a host of four letter words. The damage to their super is untold and unless they can come out of retirement or delay retirement by at least 10 years, the situation is grossly disturbing.

Virtually every soothing and calming pronouncement by any government or banker worldwide over the last 18 months has proven wildly optimistic. Sure, it kept the masses feeling reassured about tomorrow and resulted in only one bank run in the UK, but in the process they have shown how out of touch they are and how little control they have over the situation.

No one and I stress no one is able to predict with certainty how and when the whole situation will unravel. The reason I say this is because no one can predict what irrational schemes the governments of the USA and Europe will try to put into practice. Equally unpredictable is the reaction of China to the USA now printing money and therefore weakening the dollar and the value of Chinese dollar holdings. Finally, matters become even more complex depending on whether there is an increase in Middle East tensions either by an Israeli attack on Iran or some rogue group being able to perpetrate a 911 type action.

As a result these unknowns and the order in which they might or might not occur, make predicting a guessing game. What is virtually certain however, is that "things will get worse before they get worse" as one blogger recently said.

Homes, jobs and businesses will be lost in one wave after another before we finally touch bottom. Many shops and factories will close. Those that will fail will be the ones with tremendous debt, low savings with which to ride out the storm, inability to reign in spending and businesses that are operating on low margins or high break-even points.

The sooner these events take place, the better. Don't be disturbed or angry by this statement because if the current situation drags out, it will end up exhausting individuals and businesses of their buffer and leave them with precious little to re-start their engines.

It has now become a game of survival. Profit and wealth creation have been put on the back burner. In fact, the value of homes may suffer further if job losses start to climb and share values may drop even further as companies post little or no profits.

Government stimulus packages are doomed to failure largely because they are a caffeine-hit rather than a vitamin drink. Building halls for schools, giving handouts to taxpayers and other such gestures do little to enhance the productive capacity of the nation and once spent do not perpetuate any ongoing activity.

But governments will spend and when this does not succeed they will spend even more. Governments will feel some sort of divine urge brought on by their sense of destiny to keep the printing presses going. Their sense of infallibility will give way to inflammability as inflation puts its torch to our income and savings. Deflation is also not out of the question and it may be that both may be experienced concurrently depending on the asset or product as well as the location you may find yourself in and the currency you are holding.

Of course there are many that remain hopeful. Hope is vital, but it is not a strategy if not combined with preparation. "What preparation", you may ask. In a nut shell the only sane and reasonable strategy is the "simple life". I know it sounds simplistic but getting there can be darned hard. But there it is, the simple life, combined with a healthy sense of community may inspire a grass roots adjustment to a new reality. A reality that will be enhanced by innovation, lateral thinking, reduced strife and less consumption. Above all, we must have government that restricts itself to defending us at our borders and not in some foreign land. It must be a government that taxes us to do only those things that we cannot do as a individuals or small groups such as justice and the protection of our currency's integrity. A currency, I might add, that is anchored in time honoured and disaster proof gold and silver.

10 karat gold is 41.7% pure gold.