How many people think that in our lifetime we will never see another Lehman Brothers?
Despite the optimistic forecasts that economists are gleefully singing based upon positive jobs and GDP data, the system is still broken. Leverage is still spectacularly high both here and in Europe. The emerging markets, specifically China, are evolving into a state of debt overhang that will be problematic inevitably. The next crisis will begin in those emerging economies and the contagion will spread to the United States, a reversal of how the last one happened.
And when it does hit, here’s why we are going to be worse off than in 2008.
One reason is that there are simply not many levers left to pull. What is the Fed going to do, keep printing trillions of dollars? We’re already in an inflation death spiral. This could actually break our currency. Secondly, the source of up and coming prosperity is not equipped to handle another downturn. The Millennials, Generation X, and Generation Y (whatever you want to call them) have not yet shored up enough capital to survive another bout of unemployment. The boomers are retiring and who is going to buy their homes, their cars, their businesses?
The final factor is downright terrifying. Electronic currencies like Bitcoin are not regulated by the Central Bank. It’s used for online payments between individuals – it’s Internet money, so to speak. These transactions happen as fast as email and in a flash could accelerate the speed of crisis from a minor shock to an all out collapse. The first thing is preparation of capital. Stow away as much cash in your 401(k)’s, 529’s, IRA’s, savings accounts, etc., as you can and invest it as wisely as you can in income producing assets that will be recession proof. Think twice about gambling with your retirement money. Secondly, strive to earn as much as you can while you have a job. Now is not the time to be complacent. That doesn’t mean to simply ask your boss for a raise. Find a way to get connected to a higher stream of income at your job, either by building more relationships, gaining new skills, or even switching employers. Diversify your income. Invent another form of income, perhaps by starting a small side business. Not just a hobby job, but a real revenue stream. As I state in my blog, “The Unemployment Stopwatch”, you may have to get sales training. The hardest thing for new entrepreneurs to do is to learn how to get people to part with their money. You may have to invest some money in a solid sales training course or two. Once you do that, however, you will gain the power to produce financial freedom for yourself. Watch your debt. Try to increase coverage levels (meaning, the ratio of unit of cash to unit of debt). Pay off debt as soon as you can and set aside extra cash to call on specifically for this purpose in case of a break in employment. Learn how to network using the Internet instead of in person. I mean, really network, as in building a following of tens of thousands of people. If I can upload a picture to Instagram and have 30 million people see it in four seconds, why would I bother going to BNI meetings in person anymore? This is a grandiose example, but if you look at the sheer numbers it is staggering to realize how much you are falling behind if you are not able to develop productive business relationships online. You may say that you have a big enough network and this can wait until you need it, but followings take years to build. The more visibility you have as a business professional on LinkedIn, FaceBook, etc., the more likely it is that you’ll attract opportunities in a time of scarcity.
So what should everyday people be doing now to protect themselves in advance?
To all my readers, thanks for tuning in again. What do you think of the possibility of another recession?