Wrong forum Time to protect yourself

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Ret45

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Like most people I feel like we have been watching a slow motion train crash with the economy over the past year. I thought i was bearish about the economy before but its really worrying to see the extent to which all sectors are being hammered.

Public Sector workers think they are insulated, but in reality they are not. Generous salary increases over the past ten years have basically been paid for from tax receipts from construction and financial services, and these receipts have now been wiped out. The Government will simply not be able to borrow €20 billion every year to pay public sector salaries so one way or another they, along with everyone else, will have to take a big decrease in net income - either through higher taxes or lower pay, or probably both. Public sector workers in the 1970s and 80s had to cope with low salaries, interest rates of 20% and a top rate of tax of over 50%. And they didn't have big mortgages! I can see public sector incomes being reduced by 20-30% in real terms by 2012.

But my big fear for the economy, and one which few people are talking about, is inflation. If you look at US debt to GDP ratio, the country is essentially insolvent. The US is drowning in trillions of dollars of debt that the country has no possibility of paying back, and for the moment their creditors - China & co. are willing to accept this situation to keep the dollar strong so that the US can afford to keep buying cheap Chinese products. The US Fed is reacting to the recession by literally printing more money to pump into the financial system, putting more pressure on the dollar. Eventually this will catch up with the US, and China and others will start selling their massive dollar reserves, and we are going to see dollar devaluation and worldwide inflation. Add to this the price of oil going back up, which it will with worldwide oil depletion rates of 8%, then all foods and commodities will also rise and inflation could go hyper (hello Zimbabwe!). This could potentially derail the world economy for the next 20 years. Imagine trying to pay back your tracker mortgage when the ECB rate is 25%! The hard part is trying to predict when inflation will kick in - it could be this year but could also be in a year or two. Its also hard to know how quickly euroland will be affected by US inflation, but I think the inflation will be global.

Ireland is very much exposed to all this and I don't think we are aware of how financially vulnerable we all are. There are a few things that we can do to protect ourselves in case things really start to melt down.

My advice is: 1. Buy some physical gold (ie gold coins or bars as opposed to a paper holding). As paper money gets printed and devalued, the price of gold will retain its value and rise against all currencies - in fact the value of gold is currently at an all time high against the euro. 2. Fix some or all of your mortgage - sounds crazy at the moment but when inflation does hit home it could be the one move that saves you financially.
Look at fixing some of your mortgage if there is another interest rate cut or within the next 6 months or so. 3. Buy funds/shares/pensions related to commodities and oil - in five years time they will have increased considerably in value. There is the risk though of funds going bust before then so be careful which ones you buy. Share certificates that you physically hold are probably best.

Things are not going to get back to 'normal' in the next 5-10 years and its time to start using your imagination in terms of how to protect your income.
 
My god,you make George Lee seem upbeat

I dont agree with your doomsday scenario,it is not beyond the wit of man to solve our current economic problems
You make it sound like the economy is some mad beast on whose back we are all strapped and we don't which cliff its heading for
 
Ret45's concerns are genuine and should be addressed and not dismissed sillily as a "doomsday scenario".

Virulent inflation, stagflation and even hyperinflation have been seen in many (some wealthy) countries in recent history and we will see them again - see Brazil, Chile, China, Isreal, Italy, Spain, Yugoslavia, Russia, Argentina and many others. Today we can see an extreme version in Zimbabwe and in a currency crisis and severe inflation in Iceland.

All these societies survived and recovered, as will we, but best to acknowledge the real risks facing us all rather than using a straw man argument of suggesting that Ret45 is suggesting that the world will come to an end ("doomsday scenario") and we will revert to the Stone Age.

He is not saying that. Nor is he saying we will become an impoverished Third World nation like Somalia.

You have car insurance - do you assume you will have a car crash? No you do not but everybody has insurance just in case. Similarly, in the current climate it pays to think outside the box and be slightly prepared for whatever economic scenario confronts us.

By the way - George Lee was right in his warnings and if people had listened to him and been more prudent (saved; got out of debt; not bought into the property bubble and been properly diversified) instead of engaging in silly name calling, they would not have seen their pensions and net worths drastically reduced and the country as a whole would be in a far better state.
 
We all know the situation we are in,but I am sick of the constant negativity and people competing to forecast the worse case scenario.
Its like we have gone from complete denial to the other extreme

Governments around the world are dealing with this crises proactively,and hopefully their actions will yield positive results

I don't think advising people to engage in risky behavior like investing in commodities is particularly helpful
 
capall said:
We all know the situation we are in,but I am sick of the constant negativity and people competing to forecast the worse case scenario.
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I agree, but it's probably the most you can expect for the forseeable future.

Denial, Anger, Bargaining, Depression and Acceptance... and all that.
 
Looks like some people are still in the denial phase.

Investing solely in any one asset class - be that "funds/shares/pensions related to commodities and oil", gold, equities, bonds or just cash is risky. Unfortunately, all our Irish eggs were in the stocks and property baskets.

Real asset allocation and real diversification makes sense right no and there is a risk that we will now in fear put all our eggs in the Euro cash basket.

The US is in big trouble and thus better to be really diversified and more defensive - invest in fundamentally sound currencies like the Swiss franc or the Singapore dollar; buy some precious metals; and buy non US, dividend-paying stocks, possibly with an emphasis on natural-resources companies (especially if inflation takes off) and inflation linked AAA rated bonds.

That way if things get better sooner than we think (let's hope it does) you will do very well. But if it does not and things deteriorate further then you will also do well and be protected.
 
''You have car insurance - do you assume you will have a car crash? No you do not but everybody has insurance just in case. ''

This analogy hardly stands up as the legal obligation is the main incentive for a large percentage of drivers when opting for car insurance.
 
capall said:
We all know the situation we are in,but I am sick of the constant negativity
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It is, of course, the wallflowers who don't want to hear anything negative and resolutely keep their fingers in their ears who will, down the line, expect others to pay for their fcuk-ups. See, for example, those who bought properties, ignoring advice otherwise as being "negative", who are now clamoring for a mortgage relief scheme.
 
Good point PJ.

Home and other forms of insurance are more appropriate for the purpose of the analogy.

Interesting point though - government legally obliges us to have car insurance.
If the government had legally obliged Irish pension funds not to put nearly all our pensions money solely in equities and to be properly diversified in a range of asset classes then maybe we would not have incurred the huge losses we have in recent months.

Lex diversificatio - would be good for the government to implement this law.
Thou shalt not have all the nation's eggs in one basket !
 
I agree strongly with ret45 and george.shaw.

As individuals we need to be creative to protect ourselves. The current financial meltdown has many similarities to previous meltdowns including the Great Depression.

Many are prudently investing in gold and silver, which could reap major rewards in the coming years. High dividend paying foreign mining stocks are also an attractive alternative especially in Asia, Australia and perhaps Canada. These stocks are trading at bargain prices. Some see the current gold price to be a bargain price.

Diversification and creativity are essential for individuals to protect themselves at the moment. If we go down the gold route and the mining and exploration stocks route, there are many advantages. Worst case scenario, everything will get back to normal and we are left with sound fundamental high dividend paying stocks. These stocks specialise in scare resources such as gold and oil which will always be in demand.

I wouldn't dismiss the previous mentioned comment's as 'doom and gloom'. They are prudent and rational. We keep hearing that this economic downturn is different and it will pick up. Should we believe this? Inflation and hyper inflation could be a very realistic threat. Fiat money in today's current form has only been around for approximately 40 years. Considering that fiat money has failed time and again over the course of history, why should we believe that this time is different?

Being proactive and innovative instead of relying on ‘going with the flow’ could prove to be an insurance policy that could pay off regardless of this current economic outcome.
 
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capall said:
We all know the situation we are in,but I am sick of the constant negativity and people competing to forecast the worse case scenario.
Its like we have gone from complete denial to the other extreme

Governments around the world are dealing with this crises proactively,and hopefully their actions will yield positive results

I don't think advising people to engage in risky behavior like investing in commodities is particularly helpful
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That's the problem, the Government interfering and causing more problems. When will people realise that the Government is the problem and not the solution?

It was successive Governments of the USA that had intervention policies when it came to the markets and the dollar. They should have let capitalism and the free markets free reign and run their course. We would now not be in this mess.
 
UptheDeise said:
That's the problem, the Government interfering and causing more problems. When will people realise that the Government is the problem and not the solution?

It was successive Governments of the USA that had intervention policies when it came to the markets and the dollar. They should have let capitalism and the free markets free reign and run their course. We would now not be in this mess.
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And here was me thinking that it was deregulation that caused this mess.
The free market and lazzez fair approach works great when there are profits about.
Amazing how fast the free market brigade want to socialise their losses though............
 
Well said Cancan

Last time we had laissez faire government in ireland a million people were left to die and a million emigrated
 
No Cancan, it was the USA governments that interferred with the dollar standard and also lowering interest rates when they shouldn't have. They encouraged Americans to borrow, spend and consume. They've also flooded the market with excessive dollars, please read up on quantitative easing.

As for the bail outs, again more intervention, which will only exacerbate the problem. Socialism at its best (or should that be worst)
 
What would you have the governments do now?
The no intervention approach led to the great depression, and a bucket of intervention was required in the end to stabilize the ship in the end.

The government never gave me a loan as far as I can remember. It's the private sector who rammed loan offers down people’s throats.

If people are too dumb to realise that you can only live on what you make, not what you can borrow, it's a tad unfair to blame terms that you discovered on wikipedia to complicate the causes of something that is quite simple - you can only borrow so much, before your ability to pay it back comes into question, be you an individual, a company, or a country.

If the financial industry was not able to measure risk (as greed makes it hard to see), the public fails does likewise (the paint on the X5s are very bright might not be able to see straight), and the government stands back after deregulating the whole lot at the behest of the private sector, you can expect the chaos you are seeing now.

It's not the bloody rocket science that many people are trying to make it out to be.
There are far too many MBAs out there who tried to circumvent these very simple principles, thinking their overpriced education allowed them to discover financial alchemy, only to have their dreams dashed in a healthy dose of reality.

They can’t teach you cop on in college….
You need to lose a bucket of money to figure that one out, and a whole lot of people just got a free education.
 
UptheDeise said:
No Cancan, it was the USA governments that interferred with the dollar standard and also lowering interest rates when they shouldn't have. They encouraged Americans to borrow, spend and consume. They've also flooded the market with excessive dollars, please read up on quantitative easing.

As for the bail outs, again more intervention, which will only exacerbate the problem. Socialism at its best (or should that be worst)
Click to expand...

So for the last 200 years or so of booms and busts it hasn't been capitalism's fault. There comes a point at which people stop believing the 'It wasn't us, it was (Insert appropriate fall guy)' line. You can't blame messing with the dollar for the 1930's - they had a gold standard. You can't blame interest rates for the 1870's, there was no Fed.

Hank Paulson, former head of Goldman Sachs said "Raw capitalism is dead". Trichet declared the markets to be 'enormously pro-cyclical' in Davos very recently. In central-banker speak that amounts to what Paulson said. Capitalism works alright. It concentrates wealth on a regular basis and then destroys it just as regularly. The true believers like yourself will never accept that capitalism is inherently unstable. Most people are starting to realize that what is happening now has happened before, with some regularity, and it will happen again, as long as we have the same system. One definition of madness is repeating the same thing and expecting a different result. We are not the first generation to tinker with regulation and then some deregulation and any other kind of messing every time there's a bust. And if we don't acknowledge every other generation's failure then we won't be the last.

As for protecting yourself, if you're on the wrong train then running back up the corridor won't solve your problem. This train is headed in circles past the same booms and busts it always goes through. And the tracks are a rollercoaster. Does anyone remember being asked if this was the train you wanted to get on?
 
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