Fund managers have been warning that an economic downturn is in the making, and they are prepared for it. They say it’s “going to be ugly,” but how can you prepare for the coming economic crisis?
The main culprit for the looming downturn, fund managers say, is the Federal Reserve, which is expected to again raise U.S. overnight interest rates on Wednesday. The signs are starting to add up. The United States is at the top of the economic cycle, and therefore headed down, likely into a bear market and recession, an increasing number of economists and money managers say. “When the music stops I do think it’s going to be pretty ugly,” said Jonathan Beinner, chief investment officer of global fixed income at Goldman Sachs Asset Management.
Led by new Chair Jerome Powell, the Fed is slowly bringing interest rates up from zero. According to Yahoo News, those rates were near zero for around a decade. This is an apparent attempt to stabilize the economy and keep inflation from creeping higher. While a few argue that interest rates should remain at zero forever, many are expecting the withdrawal of the liquidity cushion the U.S. central bank has provided for the economy to lead to some negative consequences.
“We’ve sown the seeds for the next downturn and there’s a lot of similarities,” Beinner said, comparing today’s climate to what existed ahead of the global financial crisis in 2008. “After ’08 everyone was like, ‘I can’t believe we did all those very stupid things.’ But we’re doing them all over again,” he said during a presentation at the Bloomberg Invest summit in New York last week.
The one thing most suggest is to pay off your debts. Get those credit cards paid off and don’t charge anything. Pay off your car and get the title in hand. When the interest rates rise, so will the amount of interest you’ll be charged on loans with changing rates, like credit cards. Investopedia writes, “if you make it a point to pay down your credit card debt, you will reduce your monthly financial obligations and put yourself in a position to start building a nest egg or be able to build one more quickly.”
You could also prepare by having an emergency savings account. Saving 6-12 months of expenses sounds like great advice in a personal finance column but it can also feel unrealistic. Those who have the ability to save that much probably don’t need to. If a well-funded emergency savings stash is not in the cards, you better have some other option available to you, like a Roth IRA savings.
But it’s not just about saving money and paying off debt. There are other considerations to be made as well. In her widely popular book The Prepper’s Blueprint, Tess Pennington writes:
As important as it is to know how to preserve your wealth during times of uncertainty and understand the fundamental economic problems and fraud facing the system, it is also equally as important to ensure we’re ready for anything that gets throw our way.
The recent economic breakdown in Venezuela has proven that financial and economic collapse can very quickly lead to the collapse of the rest of the system, making it impossible to acquire the most basic items like food, medicine and even toilet paper – all the things one would want to stockpile when considering a preparedness plan for any major disaster.
It’s already ugly. Wages are not going up for most. Full-time jobs with benefits are scarce.
Gas and food prices going up. Even Trump said to prepare for some pain. Not good.
Soylent Green for all!
The main reason interest rates are rising is the pension crisis in America. In 2014, Congress passed a law that would allow pensions to do the once unthinkable: cut benefits to current recipients in order to stave off a crisis.
The law opened the possibility of a multi-tiered cut to benefits based on retirees’ current age. Those who are 80 or older, or who receive disability-related pension payouts, couldn’t have their benefits cut. Those who are aged 75 to 79 would have to tolerate some cuts. For those who are younger than 75, it was open season — that group would experience the most substantial reductions.
Hundreds private multi-employer pension plans could fail. The designated backstop, the PBGC, is almost certain to fail, too. That leaves taxpayers, through government legislation, as potentially the funding source of last resort for multi-employer pensions on the brink of insolvency.
The Hoover institution states that in aggregate, the 564 state and local systems in the United States covered in this study reported $1.191 trillion in unfunded pension liabilities (net pension liabilities) under GASB 67 in FY 2014. This reflects total pension liabilities of $4.798 trillion and total pension assets (or fiduciary net position) of $3.607 trillion. US Census Bureau data indicate that US state and local government retirement systems had $3.7 trillion in assets in FY 2014, so this study captures plans that hold 97 percent of the state and local government pension assets in the nation.
That doesn’t seem right. I retired from a City government. Every $1 i put into the retirement system the City put in $2. All the money went in, there was no additional unfunded liability on the city. Now I am retired I get a monthly payout based on how much is in my account.
I would think all governments are the same. Except Detroit and maybe all the other liberal cities.
JS,
You must have had a 401K or 403B?
rellik: yuuup, his is just like our 401k we are drawing on in retirement.
The city didn’t put that money in, the taxpayers did.
thank you for correcting it.
My pensions send out a prospectus yearly.
They are well funded by corporate and Federal government bonds, plus Real estate, and are generally close to 100% funded.
If my pensions fail I’m pretty sure there is no America left.
Which I’m mostly prepared for.
The people most at risk are union government employees where politics are involved. I really don’t like most union government employees so I find it hard to feel bad for them, due to the symbiotic relationship Democrats and unions have when they do negotiations.
Let the bubble burst begin.
???
Is this an infomercial for “The Prepper’s Blueprint”?
Saving money is good personal financial advice. However, since this is an economy based on consumption, saving only helps to bring on a downturn.
If you want the economy to flourish you need to spend, spend, spend and borrow, borrow, borrow. Keep that economy rolling on.
It is, after all, a debt based monetary system that will crash unless debt constantly is created to pay back the usury attached to it.
Saving money is great, unless the money becomes worthless.
Keep some cash, yes, but it is best to have hard assets.
After the collapse in Argentina people put their money into real estate because it kept it’s value when money was worthless.
I don’t have any pension coming and I doubt SS will be there for me when I reach the right age. So I’m just working til’ I drop or the EMP, whichever comes first. All money I ever had set aside has been invested in preps, in things that help guarantee my survival. I’m debt-free so no worries there.
B’heart: Hubby just had cataract surgery, we have Cadillac insurance along w/medicare. Everyone needs to save some for medical emergencies and co pays. We had a $600. co pay, no, he didn’t get multifocal lenses those cost $5000.or more, and he doesn’t mind reading glasses. Rx non formulary drugs also have a co pay with drug insurance. many ins. co’s won’t cover non formulary drugs. Retirees today need a 401k or IRA, unless they wanna work till they drop or inherit a pile of money. I know a handful of 70 plus people still working (two sell cars). Everyone will face these issues if they get old.
Laura Ann, I had that laser surgery to remove cataracts in BOTH of my eyes back in 2007. Those were the days BEFORE OBAMACARE when we had good plans. The plan I had then only had a $500 deductible and covered 80% of the cost while I had to cover the remaining 20% out of pocket. Until that time I had prescription glasses for driving only. Always been able to read without them. Haven’t worn glasses since that time. I had the money already saved up for the co-pay and the out-of-pocket expenses so problems there. I also know some 70-plus people still working. Retirement is a thing of the past unless you’re wealthy.
DBH: Not everyone lives with their parents.
Reality, I realize that. And your point?
Good points. In an economy like we have, homilies to saving and cookie jars stuffed with cash actually leave that person locked out of benefiting from the exponential creation of credit. In simple terms, the government must always create more credit and expand the monetary base or the whole house of cards comes crashing down. If you leverage yourself to that (as does every rich person and investor), then you will see your wealth grow at each step along the way to credit growth. Otherwise, the coins in your cookie jar devalue by the day and will not buy more than a chocolate bar in 10 or 20 years’ time.
That is the system we live in now. You can’t do anything about the system but you can do something about how you respond to the system.
Tens in tins.
Crisp ten dollar bills in #10 cans.
Actually I have mostly change, as they don’t bother with change when they devalue a currency.
Quarters in a sock could make a great weapon too.
Nothing like getting a beat down by a bunch of George Washingtons’.
Use a good sock though… Don;t want to loose your quarters on the first wack.
1oz Silver does more damage…
You are supposed to use rocks.
You have done some jail time.
Sock full of rocks is a good weapon.
my buddy worked for the department of corruption, and when i mentioned i carry a padlock in a sock in my pocket while riding my bike, he reminded me i live in calipornia, and there would be trouble if i ever had to USE it for it’s “intended purpose”……whatever THAT might be…hee hee.
JRS, surely you jest! One must aim to keep debt to manageable (read: PAYABLE) levels. And spending to acquire valuable assets (land, firearms, ammo, foods) and skills is always good policy.
We don’t live in a debt-based economy! We STRUGGLE in one — think about it.
mmmmmmm…….
debt to manageable (read: PAYABLE) levels
That is not what they say anymore. Debt is now “sustainable” not payable.
They don;t ever intend to pay back the debt, just sustain the minimum payments.
indeed…..our graph showing debt to GDP ratio is about to go parabolic,……wonder how we survive THAT when rates on the ten-year bond get back to 4%?
That would no doubt include the worthless IOUs of $1.7 trillion and $1.0 trillion that GW and Obie 1 repectively stole from Social Security…
More bad news about the economy?
Movies and magazines are designed to make you go out and spend your hard earned money in ways that do not promote your survival.
Television is like bringing the devil into your living room.
_
It’s only going to be ugly if your money is tied up in a 401k or a 457.
Most people can’t withdrawal their money until they quit their jobs. So, quit your job and get your money or stay at your job and risk loosing a massive amount.
????
who is mandated to keep their 401k’s in stocks ??? I transferred mine completely to bond funds in may.
Not to worry, your local Walmart will have plentiful housing available for those without a roof overhead…
https://www.facebook.com/jeffmerkley/videos/10155510407061546/
Currency,silver,ammo,food,meds,shelter,water are all stocked up and ready for the crunch…
The Big Ugly…we all knew it was going to show up at some point.
Get prepared and stay prepared. Whether an urban or country dweller, there are options. (I know I’m preaching to the choir.)
Here is an opinion for your consideration:
The stock markets in the US are at all-time highs. The median price-to-valuation is higher than both 1929 and 2001. John Hussman has plenty of details, and estimates that anyone invested in stocks now will lose 60-75% of their value over the completion of this market cycle, which is soon. So that suggests you should sell your stocks if you can, unless you are happy to wait more than 12 years to get back all the money you are about to lose.
What about real estate? The next crisis after the markets crash will see real estate drop too. It depends on your area, but with the increase in no-doc loans and all the silliness that caused the first mortgage crisis happening all over again, please expect housing to crash as well.
What about bonds? Well, with historically low interest rates, they are at or close to all-time high prices too. Interest rates typically go high in a crisis. If the rates go above a certain rate, the US Government will not earn enough in tax to even cover the interest payments on the national debt. It may be a great idea to buy bonds later in the crisis, when the rates are 20% (like they were in the Asian debt crisis in 1998). For now, though, I would not want my savings in bonds.
OK, so you sold everything and you have cash.
You keep some cash in the house for emergencies (like a blackout affecting ATMs).
What to do with the rest? You might be thinking: well, now I won’t lose any money, but I’m also not earning anything. And what about inflation? or hyperinflation?
Gold will preserve savings through a crisis. It will really shine if hyperinflation occurs, or the currency is devalued, or a new currency issued.
Even if the market crashes, but no crisis ends up happening, you can still sell your gold and buy into stocks again at low prices, or buy bonds at high yields then on offer.
So gold is a good option for savings at a time like this before the next crisis occurs.
There is also the view (see FOFOA’s blog) that gold will be revalued many times – from about $1300 today to between $30K and $80K (in today’s dollars) – as a result of the end of the US dollar’s reserve currency status.
So after revaluation, a single gold coin could end up buying a luxury car. With a handful you could buy a modest house.
By the way, silver is not the same. The Gold-to-silver price ratio will also skyrocket, leaving silver worth about what it was. Central banks all around the world hold Gold on their books. In a crisis they move gold.
If you disagree with me, that’s fine (and sorry its a bit long). I only offer this opinion in case it helps anyone to develop their own plan.
I agree with almost everything. As long as you are living in your house, and not using it as an ATM, and have a fixed-rate mortgage, it shouldn’t matter if the value drops. I could care less about the resale value of my home or how much equity it has. I am living in it and being an owner was a way to fix my housing expense and stop being charged more rent, year after year.
I refinanced down to 2.875% on a fixed rate 30-year loan. I couldn’t rent, in my area, for the same cost as my mortgage, now.
I agree about precious metals, especially with inflation looking to make a comeback. I disagree about the price of silver and the ratio remaining as it is or increasing. The gold-to-silve ration is currently around 78:1 and much higher than the historical average of 20:1.
Furthermore, I expect that pensions will be cut and 401ks will be seized in order to stabilize the country and the economy. They will put out some rah-rah propaganda and people will go along (most don’t understand the economy, or finances, and would be unable to do anything else by the time that happens). People are about to get a new lesson in inflation. I remember the 1980s. Most young people do not. They will have a front row seat.
The government really has few options to respond to a crisis: they either devalue the currency or they inflate away its value. In either scenario your savings get chewed up and you will see all that hard sacrifice taken away at the tap of a keyboard somewhere.
I have lived through many of these events all around the world. I have seen so many friends follow the saving advice given them by their parents etc. and then watch as their 401 or some other saving scheme get chopped in half or worse when the crisis hits. And they were always told “keep it in!!” or the taxes and fees to get the money out were huge, and so they kept hesitating until they lost most of the money.
Money these days is no better than the credits in a video game. They go up, they go down. Never have faith in a fiat currency in a financialized economy. Just ask an Argentinian.
That is my conclusion as well. Those 401ks will be seized and pensions will be cut. People will be shocked, of course. Those of us paying attention? I will shrug my shoulders. I have tried discussing this with people. Most are not interested. When they are suffering I will be doing very, very well. When they ask me how I did it, I will tell them, but they won’t like hearing that all they had to do was listen and then act, as I have.
Namely, to reduce my expenses, get out of debt, save as much as possible including owning physical precious metals and having cash on hand. I have also been able to fix my expenses for housing and lock those in. It wasn’t hard. People have had plenty of time to do the same thing.
Paying down debt going into an economic downturn, with the exception of paying off your vehicle, IS A TERRIBLE IDEA. You need to be acquiring resources and assets. What you should be doing is maxing out credit cards to acquire resources you’ll be using to survive the downturn, like long shelf life food and outdoor gear. You should also be pulling physical cash out of the banking system, and converting a good amount of that into physical bullion metal.
You should also seriously be looking at bypassing paying the mortgage, and instead committing that money to self storages to store your resources. Who should be thinking along this line? Anyone who is looking to get out of their house and sees that they will have a hard time moving the house. Find the first moron to give you a mortgage for more than 100% of book on the house, immediately begin doing what I recommend, then walk away.
If you think you’re not going to be able to make the mortgage payments, stop doing so immediately and do what I recommend. You’re already in a short window in terms of acquiring resources and assets. Besides, even if you do stop paying on the mortgage, the odds of you being thrown out of the house are fairly low. Banks are letting people live in these houses even though they’ve already walked on the mortgage because throwing them out pushes that now-empty house into the housing supply inventory, driving down prices. Banks need housing prices to remain high so they can fabricate mortgages and re-hypothecate them into securities that can be then sold to brain-dead pension fund managers.
The man who acquires assets and resources now, besides the man who has already been doing so, is going to be rewarded handsomely. When this thing does blow, you’re going to see the mother of all fire sales on real estate, vehicles, and the like. For a single ounce of gold, or a handful of silver ounces, you will be able to acquire amounts of assets that you never thought would be possible in your lifetime.
The United States may be at the top of the economic cycle. More important, it is very close to the end of its life cycle.
You can listen to fund managers. But life trumps money. Your loved ones might be better served if you listen to James Westly Rawles’ recommendations at https://survivalblog.com/retreatareas/
pay off credit cards and car loans ?
thanks dave ramsey imitator !
seriously, if the next recession just has credit card and car loan defaults, the country will be lucky.
if inflation gets out of hand or the dollar isn’t the standard anymore, then you will see ugly.