Don’t Buy It!

I retired a few years ago from a career as an international banker and corporate executive. In my economic blogs I have for two years been predicting a momentous global downturn, long before any official sources admitted such a possibility. (They are still partly in denial.)

Now I would offer this advice: Don’t Buy It. That is also my word to myself in these treacherous times.

Whether you are looking at taking a bargain cruise, buying a new TV, another car, a house, or making a financial investment, don’t buy it unless you really need it and can clearly afford it without borrowing. I am not buying much these days except groceries and small things I truly need.

It is not our obligation to rescue the American economy or the world economy. Our obligation is to manage our individual and household budgets prudently.

Many economists are telling us to spend more to get the economy going, but that will only put us further into debt, which is the root of our problem.

We are in an economic hurricane that is still gaining strength. There have been several premature announcements of a recovery in the stock market or housing market, but don’t buy this theory just yet. Obviously I wish this storm would be over soon, but I see no signs whatsoever that it is lessening.

In fact, this feels to me like a full scale depression in the making. I am not suggesting a 1930’s drop in GDP of 40%, although that might be possible; but I do expect a GDP drop of 10 – 20%, which would qualify as a real depression by any measure.

So let me suggest a more prudent way of looking at our predicament. What if the government is in fact virtually powerless to stop this incoming tsunami wave?

Franklin Roosevelt tried mightily for nearly a decade to stop the last depression without much success, although he was arguably the greatest president of the 20^th century. Today many economists and government officials have become perfect “Monday morning quarterbacks” who seem to believe that if they had been in charge, the 1930’s Depression could have been avoided or quickly repaired. Don’t buy those pretentious claims; they are unfounded and misleading, even if well motivated.

Various political leaders are claiming their unique expertise about what should be done to fix this mess, but in fact none of them saw this meltdown coming and they have no basis for claiming such profound understanding.

You should instead respect any leaders who admit honestly that they don’t know how bad it will get, or precisely how to avoid it. Our government should be concerned primarily with offering help to those who are hardest hit. Trying to stop the tsunami in its tracks is patent nonsense.

So where does this leave you and me? Hopefully not waiting for someone else to rescue us. That is our job: to rescue ourselves. And rescue does not mean getting back on top of the house of cards that has tumbled down around us. It means bravely starting over from where we have landed.

If you do the math, you quickly realize that the proposed $800 billion American stimulus package divided among a population of 300 million is less than $3,000 per person. How can that provide $40,000 jobs, or rescue $100,000 mortgages in default, plus pay for a new health care system, alternative energy research, and a host of other benefits that we desire? The expenditure per person to do all of that would be astronomical—many trillions. It just isn’t possible.

But the trillion dollar American government deficit will surely contribute to growing inflation and send the price of gold still further up. So if you are going to buy anything, buy gold, because the dollar is becoming worth less and less.

We have a choice. We can sit in a heap and cry about how desperate the economy is becoming or look at history and realize that we are still incredibly lucky. The economist Jeffrey Sachs has estimated that we are ten times better off than our ancestors were in 1750. We are even far better off than our grandparents. They faced war and depression and survived. We can too.

Our principle source of hope is in what we can do for ourselves and for those around us. This must happen at every level, with every person, company, family, community and at every level of government. We need to find entirely new ways to contribute to this stark new economy, whether in paid or voluntary work.

With a “can do” attitude, extreme frugality, and an enterprising spirit, we have every chance to survive and to rebuild our lives.