Tuesday, January 26, 2010


A Helpful Nag From Uncle Bob

Hey kids, just to refresh your memory, I still think we are the opening stages of what will become known as the second Great Depression. (I think they will hold off on calling it "Great Depression II" because then people might get worried there will be a whole series.) On top of that, I expect large price inflation in the near future.

So in addition to cutting back on your spending in order to either pay down (variable rate) debt and/or invest in things that respond well to price inflation, I also strongly suggest that you start diversifying your income sources.

In particular, it's important that you get your foot in the door now as opposed to (say) 6 months from now when everybody knows we are in this for the long haul. So if you want to start doing freelance writing, or want to start cleaning houses on the weekends, or start walking people's dogs, or...whatever fits your skills and desires, then you should get going on that now. If and when the market crashes or the dollar tanks, every temp agency is going to be overwhelmed with new applications, and Craig's List etc. is going to be overwhelmed with newly-laid off people looking for one-off jobs. So you want to get your foot in the door now, before the rush.

Why would I do that when I can collect unemployment "insurance"?

Would you say there are essentially two distinct economies, the financial and the "real", and that they respond primarily to two separate forms of intervention, monetary and regulatory, and that furthermore we're in the opening stages of GDII primarily because so far the intervention has been largely contained to the financial economy and the monetary form of regulation?

I noticed that something the GD had that GDII doesn't, so far, is intense attempts at coordinating industrial/real economic production and the subsequent attempts at propping up prices, wages, etc. We're seeing "price controls" in the financial economy and the long-run GDII trend downward seems readily evident... but the real economy has stabilized a bit (not crumbling at such a fast rate) and I am wondering if that's because the real economy is adjusting to current prices and is not suffering the regime uncertainty and constant surplus/shortage scenario that would result from more direct, overt price controls via regulatory intervention.

In other words, this thing will become GDII just as soon as the politicos get started on that, in earnest, and, because we're reasonably confident this is the only thing politicos know how to do, we feel safe in predicting that they will do it and that therefore we will arrive at GDII.

Your thoughts?
I don't have a good answer for that one, von Pepe. I suppose because eventually it will run out, and if one chooses he can work odd jobs under the table. But I admit I don't even think in those terms.
If there is going to be price inflation, shouldn't that mean people should be going more in debt?

Well, for sure I don't think people should pre-pay their mortgages or car loans, so long as they are fixed rate. But it is just too much a violation of standard wisdom for me to advise people to take on debt. I mean, I suppose if you were really disciplined it would make sense to take out a fixed-rate home equity loan in order to stock up on gold, silver, and maybe even real estate, but I would be afraid to say that because someone might start charging pizzas on his credit card.
taking on debt, hoping that it will inflate away, only works if your income is inflation adjustable....
Duly noted. I've dumped most of my stocks and parked my money in gold. And no new debt on the horizon.

Until the valiant President Obama rescues the economy, via a brilliant made-in-Washington plan, that is. :)
James Rothfeld said...

taking on debt, hoping that it will inflate away, only works if your income is inflation adjustable....

January 26, 2010 11:05 PM

This reply, along with what Taylor said, remind me of something I've been wondering about for awhile: That price increases only work for those that can get away with it. That others, workers, will have to take lower paying jobs when they lose their current one; or like me, bid jobs lower just to get the work. Prices go up, wages go down.
Is this typical in a shrinking economy?
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