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  • Depression, here it comes

    Posted by Frugal on January 26th, 2009

    As days go by, I’m more convinced that the current economic slowdown will turn into an economic depression (but don’t sell your stocks before April, until the intermediate rally runs out of steam).

    This depression will be less severe than the last Great Depression at the lowest depth, but it will last much longer, possibly until 2014 to 2018 (no, that’s not a typo). The shape of the recovery will be like a W, with the two low points at the end of 2011/mid-2012, and another point probably at 2016/2017. And we simply haven’t seen the depth of depression yet for sure. I think S&P500 would go to 600 at the minimum, and possibly lower.

    Like always, in every depression, the most difficult thing that happens to a family is unemployment. In Great Depression of 1929-1932, the unemployment rate hit 25%. I think we may be looking at 12% to 15% for this current depression. Let’s hope that it doesn’t get worse than that. At 15%, about one for every eight adults is unemployed. If you don’t have any rainy day funds built up, it is probably too late to build up something sufficient to carry over you through the downturn. Make sure you don’t lose your job.

    Anything that you could do now to help yourself through?
    1. Imagine that your company cut employees by 30%. Will you be the one that remains? If not, you should make every effort to become one of the people that may remain.
    2. Apply and get all the credit cards that you can possibly get. Only spend like $10 on the card to just keep them active. You should only use these credit cards until you cannot even afford food.
    3. Cut everything to barebone. Review your budget.
    4. Sell anything that you don’t need or use now by garage sale, or Ebay. (It’s a little late, but better late than never). Don’t bother to pick up more discretionary junks at the bankrupt Circuit City or similar stores.
    5. Keep a positive attitude. Hope for the best, but always plan for the worst. Do something, and do something out of your ordinary routines. That is the only way to create different possibilities for yourself.

    At last, if you are able, please help people around you through charity. It may be very hard to give, but every dollar that you give out, means a lot more than in the heydays, by at least a factor of 3X. Charity organizations are experiencing a drought of donation. It is unfortunate, but that’s just how everything goes.


    More related posts:
  • A good website for economic history
  • Intermediate lows are behind us

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    22 Responses to “Depression, here it comes”

    1. Posts about Digg as of January 26, 2009 » The Daily Parr Says:

      [...] Posts about Digg as of January 26, 2009 Bio-Cycle Proves No Rise Of The Machines – coated.com 01/26/2009 It looks like the Rise Of the Machines didn’t go all that well … this story to a friend! Yahoo! Buzz StumbleUpon Digg Facebook Fark Reddit Wrapping Up Homes With a Big Shiny Bow – agentgenius.com 01/26/2009 Get out of your feed reader and comment on this post- we PROMISE that the ShamWow guy won’t pop out when you do… The Vision’s Gettting Harder to See It seems there are more people than ever sitting on the sidelines waiting for someone to give them a signal that it really is okay to buy real estate again Depression, here it comes – 1stmillionat33.com 01/26/2009 Posted by Frugal on January 26th, 2009 As days go by, I’m more convinced that the current economic slowdown will turn into an economic depression (but don’t sell your stocks before April, until the intermediate rally runs out of steam).This depression will be less severe than the last Great Depression at the lowest depth, Likud allow settlement expansion – rsstimes.net 01/26/2009 Discuss Add this link to… Bury Add to: [ submit 'Likud allow settlement expansion' to del.icio.us] [ … submit ‘Likud allow settlement expansion’ to digg submit ‘Likud allow settlement expansion’ to reddit submit ‘Likud allow settlement expansion’ to Pligg submit ‘Likud allow settlement IBM Spokesperson Confirms Layoffs - tomshardware.com 01/26/2009 Word on the grapevine last week was IBM was about to become the latest company to lay off staff in light of the weakening economy … . Comments from the IBM Employees Union Website Alliance@IBM claimed that the company was in the midst of laying off… Add to del.icio.us Email this Article Add to digg Add to Google General Availability for Windows 7 Beta Ends Feb. 10 - tomshardware.com 01/26/2009 With the tech world talking everything Windows 7, Microsoft has decided that the Beta now has enough testers and with feedback pouring in from all … directions, and plans to end general availability in just a couple of weeks. Add to del.icio.us Email this Article Add to digg Add to Google I love when I get an order for… - we.motivators.com 01/26/2009 Business card sculptures are so much fun to take an order for! I love the idea of an artist designing a sculpture out of someones cards as a present … ! BlinkList Del.icio.us Digg It! Furl NewsVine Reddit StumbleUpon Technorati Hi! My Name Is…. - we.motivators.com 01/26/2009 As I have said before, and many entries before me have said, … a friendlier place if everyone wore a promotional name badge. BlinkList Del.icio.us Digg GOPLeader: NBC Nightly News Highlights Republicans - polfeeds.com 01/26/2009 Permalink - [ Add ‘GOPLeader: NBC Nightly News Highlights Republicans’ Call for Economic Plan Focused on Protecting & Creating American Jobs: . … /csj52m’ to digg Add ‘GOPLeader: NBC Nightly News Highlights Republicans’ Call for Economic Plan Let - polfeeds.com 01/26/2009 Permalink - Comments (View) The goals of any economic recovery package should be job creation, job preservation and spurring consumer spending … ‘ to digg Add ‘Let’s Increase Family & Small Business Spending, Not Bloated Government Spending RSSdoodle by The Lessnau Lounge. Results provided by Technorati. [...]

    2. eric Says:

      Now don’t be going all Chicken Little on us. The sky is not falling.

      “A piece of the sky? Shaped like a stop sign? Not again!”

    3. eric Says:

      Now don’t be going all Chicken Little on us. The sky is not falling.

      “A piece of the sky? Shaped like a stop sign? Not again!”

    4. eric Says:

      Now don’t be going all Chicken Little on us. The sky is not falling.

      “A piece of the sky? Shaped like a stop sign? Not again!”

    5. eric Says:

      Sorry for submiting that comment three times. I didn’t think it posted.

    6. thomas Says:

      buzzkill

    7. solwoldjr Says:

      Unemployment today in the 15% range is close to the unemployment at 25% back then. We count unemployed people differently today. Many people have been without work too long and are no longer considered looking for work even if they still are. Many others work part time to make ends meet even though they wish to be full time, but cannot find work. All of these people, had they been counted, would drive the rate near 25%.

      Frugal I think your view is spot on. People don’t realize what lies ahead.

    8. Lazy Man and Money Says:

      I think it will get worse before it gets better, but I don’t think it will get quite as bad that you predict. Or maybe I’m just hoping it won’t be that bad.

    9. JR Says:

      The American jet flew on a single engine – consumption. That engine has filed and fallen off. The only direction we’re headed now is down.

    10. Monevator Says:

      If a depression is on the way, I fear for the average person. At the moment the recession is being marketed more as a lifestyle choice than a change in economic circumstance. It’s almost like thrift is the new fashion, like 80s style the year before. People have genuinely forgotten what it’s like to do without…

    11. pacman Says:

      20-30% decline in living standards will fix the basic problem – which is America consumes more than what it produces

    12. mDh Says:

      Yeah, I actually think it will be worse than what Frug-meister is predicting.
      But I guess our optimism can lie in the new “economic recovery” package Pelosi is putting together.

      The people that need the most help will get slammed the hardest in the coming years…

    13. wing Says:

      some thoughts of getting thru this hard times:- save on heat:- wear a jacket at home and use electric blanket or water themo pack. save on gas:-car pooling and subways. save on roof:- move back with families, share the rent, double up. entertainment:- use local libraries, read a book, go to the park, go to church. avoid depression:- reach out to people; sit under the sun, plant some something and watch it grows. and count what you have not what you have not.

    14. Scott Says:

      Not that I doubt your analysis, I’d just like to see some evidence for what you’re predicting. I don’t tend to believe sweeping estimates without some facts to back them up.

    15. caryn verell Says:

      you got it right brother! i have been preparing myself and family for the past three years for what has come and what is coming…not a pretty picture now and the economy is definetly getting worse…every working and non working body needs to have a talk with grandma or grandpa (the over 80 crowd) and take their stories of survival seriously and to heart.

    16. Melody Says:

      For Scott:
      http://www.chrismartenson.com is a great site. It’ll take about 2 hours of your life (at least) to go through his presentation, but it’s well worth it. Even if you don’t agree with his analysis of the situation, you’ll learn more than you ever wanted to know about the way our system works.
      The great part about this over so many other ‘doom and gloom’ videos and such on places like YouTube, is that it offers an overall analysis – I’ve seen a lot of ‘spot’ problems, but this gets my vote for tying everything together.

    17. Christian Gross Says:

      Do you even comprehend what you are talking about? I mean do you really understand? You write the words, but I fear that you don’t understand.

      Because whatever you think can prepare you for a depression is wrong. Our society is based on rational thinking, and being able to plan and prepare ourselves. But when things like a depression like the one you are talking about occurs all rationality goes out the window.

      Let me illustrate:

      1) You say get as many credit cards as you can and use them to buy food. Dude, if we have a depression the banks are a goner. That means the credit cards you worked so hard to get are essentially useless. If anything I would advise put as much money on the credit cards now and use that money to barter with.

      2) You are an employee, wow, woopee dooo… If your company is cutting 30 to 40% of the employees, well at least those people will be unemployed to work under the table. Whereas you as the single worker in the company will be wondering if you will be paid. I bet you will not even be paid, and if you will be it will not be your full payment.

      3) Cut everything to the barebone. Really? So tell me what is barebone? Because if you are saying we are going to have a depression, then cut off cable, cut off telephone, sell your car, and so on…

      4) Why sell everything? If we have a depression then we are all in the same boat and hence there is no winning or loosing. Thus if you can’t pay for anything, hey so what. What’s the worst they will do? Take your house or car? It’s not like they will not already be taking things.

      I worked for an investment bank and my boss gave me a piece of advice. He said, “if you truly believe that we are headed towards a depression then you better learn animal husbandry.”

      I looked at him and said,”Huh? Why?”

      He replied, “If you truly believe we are headed towards a depression then whatever we have today is going to be completely meaningless and left over will be only the absolute bare essentials that have worked for thousands of years.”

    18. Mike Hunt Says:

      Hi Frugal,

      How about a net worth update since we are at the end of January? Are you still in the 6 figures for NW?

      I’ve been playing with stocks and got burned badly yesterday (friday).

      -Mike

    19. occdude Says:

      Frugal, your assuming DEFLATION without significant INFLATION. I think we’re going to see both. The market wants to fall and prices want to fall with it, but the government has the reigns on the money supply and they’re gonna fight this with inflation.

      The manifistation of this scenario will be decreasing asset prices, real estate, stocks, bonds with an increase in commodities, staples, non-durables all the important stuff.

      I look for Dow to be in the 3000-4000 (would be lower if it weren’t for government money printing), I think one OZ of gold will equal the DOW so look for gold to be in the 3000-4000 dollar range. Oil should keep its historic 10-1 ratio so look for 300-400 dollar a barrel of oil. Gas got up to 5 dollars a gallon at 150 a barrel so look for 10-12 a gallon for gas.

      Now what to do. Real stuff is always a bargain. Buy food that will store. I know it sounds crazy now, but food will always have value in deflation or inflation. Trade in your gas guzzler for a high mileage car and learn how to maximize gas mileage. Right now the economy is in liquidation phase, that will turn once all this newly created money comes out of treasuries, so deals are to be had for durable goods, washers, refridgerators, cars and food are relatively cheap in this liquidation environment, that wont last. China makes most of our goods and the dollar is enjoying a respite for now, that wont last, if you need a Chinese durable goods like shoes, clothes, tools or whatever now is the time to get it. Oil too on a dollar level will not stay at these levels. The world will decouple, the East will rise, and our standard of living will fall generally and if you don’t take precautions your standard of living will fall specifically.

      There is a free online book that was written in the early 80′s during inflationary period called the “alpha strategy” which is a little dated, but gives you great ideas on what is true wealth and how to preserve your standard of living. Buy physical gold to preserve any wealth you wish to hold in the future that you cant consume in the immediate future, gold is a preservation of purchasing power, so if you want the same purchasing power in the future buy gold. If you want to invest for the long term 20 plus years, look eastward at china with etfs, brazil, australia, singapore, taiwan and hong kong. Buy their reits, look at mutual funds specializing in s.e. asia which will be the next gowth spot. Buy their dividend yielding reits, etfs, mutual funds. The East is rising just like the sun.

      Our world economy is changing. The rest of the world wants a taste of what we have and we need to readjust our overly consumptive society. This is going to be a painful process for us, but it doesn’t need to be crippling. People need to look for ways to maximise value, invent, create, save and innovate. The government needs to shrink and people need to adopt traditional values of family, friends and community again. We dont have the resources for everyone to atomize themselves in their own cocoon anymore. Participate in your communities. If you want a nice environment dont look for the government to do it for you, you have to build it yourself, twas always thus, thus twill always be.

    20. pacman Says:

      Christian Gross is offbase. What frugal means by a depression is a long and deep recession.

      BTW the world moved on during the Great Depression. Of course I do not like the way Germans put Hilter in power. My grandfather did fine as a farmer. He did not starve.

    21. Das Says:

      occdude,
      You are spot on with your analysis. Those who can prepare by changing their lifestyle before they have to are certain to be glad they did when things get worse.

    22. John Says:

      Christian Gross and Occdude have provided the best feedback. Christian might not be as sensitive, but is realistic, and seems to speak from experience.

      We all know a severe downturn is underway. Unfortunately, it’s too late to start preparing. If you don’t have the necessary skills, education, financial security in place, you can’t suddenly make it happen, as you alluded to in one of your sentences. Right now, the best advice people, who read your blog, can use is how to plan for the future and make the most out of what we have managed to retain.

      Those of us who have planned well and lived within our means should take advantage of “buying low”. For example I’ve needed a new more efficient refrigerator for years. I refrained from buying, since I would have been negotiating alongside people who were handed out credit they shouldn’t have been given. I just refinanced my mortgage with a fixed 30 year 4.625% rate. If times get tough for me, I have a smaller obligation, if not, I pay a much lower rate.

      I don’t understand the logic behind stocking up on credit cards. That makes absolutely no sense. It’s better to go to a soup kitchen, a food pantry, or some place like Glide Memorial Church than to rack up credit card debt on food. Ask anyone who lived through very tough times. You should advise people to seek help through social services, before building up debt, on credit cards they’ll never be able to repay. That’s one of the reasons we’re in the mess we’re in right now.

      Regarding this point: “…you should make every effort to become one of the people that may remain…” If you ever lost your job, through no fault of your own, you would know this sounds insensitive, and probably sparked Christian’s response. If you’re going to lose your job, you’ll lose it. Additionally, that statement has an undertone that suggest undermining your colleagues: seek out brownie points, point out someone else’s shortcomings to detract from your own… The list goes on, and it creates a very unpleasant atmosphere to work in. Of course it’s great if you’re able to keep your job. But keep in mind that if you get canned, there is very little you could have done to change that outcome.

      Another important issue to focus on, as Occdude pointed out, is inflation. If you think it will never happen to you, I’m certain that those raggedy, post WWII Europeans we have all seen pictures of, taking a cart-load of cash/trash to the market to buy a loaf of bread didn’t think it would ever happen to them, either.

      Thanks for your entry. Even though I disagree with some of your points, I agree with the premise that we’re in for some tough times, and we need to take certain actions to protect ourselves.