Since I wrote the two-part article
on the Great Depression, several people have asked me for thoughts on
what to invest their money in, a 'safe harbour' when currencies and
economies go into collapse.
Many investors have been buying
stocks of resource companies, metal commodity futures, and stocks of
so-called 'blue chip' companies that have done well in previous
recessions. The problem with these investments is that (a) these stocks
are mostly denominated in US dollars, and (b) speculation has already
pushed their prices up to possibly unsustainable levels. Bonds pose a
similar problem: If interest rates spike, bond prices have to fall to
push yields up to competitive levels.
As this article explains,
and as the chart above from that article shows, some Western
governments have recently been deliberately underreporting the true
rate of inflation (which is likely at least 6%) for political reasons:
- to improve labour contract negotiation position,
- to reduce COLA clause costs,
- to inflate consumer confidence,
- to encourage indiscriminate borrowing and spending,
- to reduce the cost of rent agreements, and
- to artificially suppress interest rates and hence cost of government and corporate debts
Once
investors in bonds come to realize this, they will demand double-digit
returns on such investments, potentially cutting the price of these
investments in half.
Commodities and alternative currencies have
had similar speculative run-ups to those of resource company stocks, so
these investments are also not for the faint-of-heart. But leaving your
savings in US dollar denominated investments is even more dangerous,
since the US dollar is the most over-extended and most vulnerable
currency. And real estate in most areas is absurdly overpriced -- far
beyond its replacement cost -- and in a downturn real estate is also
illiquid, hard to convert to cash when you need it.
So what do you do with your savings? And if your entire net worth is tied up in real estate, what should you do?
I'm
neither an expert in investments nor an expert in economic forecasting,
so I wouldn't presume to tell others what to do with their hard-earned
money. What's more, I'm not sure the economic collapse is as imminent
as some would have you believe. This house of cards has a lot of
carefully-placed cards holding it together, and it could last a while
yet.
All I can do is tell you what I'm investing in myself, and
thinking of investing in myself. We're exceptionally fortunate: We have
a house on a large piece of land which would cost considerably more to
replace than what we paid for it. We have no debts. I have a fully vested defined-benefit
(fixed guaranteed annuity) pension that (barring a complete economic
meltdown) will kick in in a few years. Most pensions are now, or have
been converted into, defined-contribution
pensions (like IRAs and 401(k) plans) that in an economic collapse will
be relatively worthless. This is what Bush wants to convert the US
social security system to, transferring all investment risk in the case
of a Depression to the citizen/employee.
Despite our good
fortune, we're not personally out of the woods, not by a long shot.
Pension plans can go bankrupt. Living out in the country, we're close
to farms but far from most employers and customers. When the
electricity goes out, we're without heat as well as light. And living
in Canada, we can't live without heat. Like most North Americans, we've
made out living with our heads, not our hands, so we're poorly equipped
to make and fix things ourselves if we need to.
So here are ten things we're looking to invest money and time in, all stuff that would be valuable in a Depression:
- Our own self-sufficient Natural Enterprise:
a sustainable business we can run from home, that will be viable even
with $10/gallon gasoline (i.e. our customers will be close by,
physically or at least virtually), that people really need, and that will not require incurring debt to launch and operate
- Windmills and solar panels: to get us off dependence on the grid and non-renewable energy sources
- Energy conservation: insulation, energy-efficient appliances and lightbulbs and other products that can reduce our energy costs
- Stuff that doesn't need maintenance or replacement: if it doesn't have a useful life of at least 20 years, we don't buy it (when we have a choice)
- Know-how:
learning how to do things for ourselves: carpentry, home repair,
sewing, vegetarian cooking, and other skills that make us less
dependent on others whose services we may not be able to afford in a
Depression
- Health and physical fitness:
self-awareness, self-diagnosis, self-treatment, and self-knowledge to
stay healthy and fit and look after ourselves as much as possible when
we're ill
- Being creative and disciplined to stay out of debt:
buying less, and only what we need, creating our own entertainment,
spending an evening a week 'unplugged', doing more stuff in (and
collaboratively with) our wonderful little community, buying with cash
not credit, doing more things that are free (cycling, picnics etc.)
- Building social networks:
finding people who will do things for you and with you on a reciprocal
basis rather than at market price, who will tell/show you how to, or
help you do something instead of doing it for you, who will trade
(surplus) or share (expensive and rarely used) stuff with you, etc.
- Creating local markets:
finding what our neighbourhood wants and needs (e.g. organic produce,
hand-made clothing, a competent electrician or plumber) and what each
of us has to offer, and linking them up
- Permaculture:
land with soil that isn't so polluted or exhausted it depends on
fertilizer made from Middle East oil to grow anything on, or on
pesticides, herbicides and imported water to be viable; and learning how to sustainably and naturally steward that land
A
lot of these things cost next to nothing, but require a fair bit of
time. I'm learning that one of the keys to resiliency, which is what
we'll need most of all in a Depression, is willingness to give up time
to save money. When your time is charged out at $200/hour, or when
you're paid $50/hour, it's easy to shrug off tasks that on the surface
don't seem to be 'worth' that much. Why do something yourself when you
can pay someone $20/hour to do it for you, better than you could do
yourself? Because it makes you dependent. And when the Depression comes
and you can't afford $20/hour, you won't have learned how to do it
yourself.
And time is much cheaper than we think: Every minute
we spend walking, cycling, exercising, adds three healthy minutes to
our lives.
Investing in these ten things could also make us
more dependent on the Internet than we are already. Many readers
thought I was unnecessarily worried about the Internet going down in
the next Depression the way phone service did (tens of millions cut off
for non-payment) in the last one.
I respect the fact that the software of the Internet is resilient and relatively low-cost. My concern is the related hardware,
and keeping it running. When the utilities start laying people off,
blackouts and brownouts will become more frequent, and last longer.
Electricity and telecom costs could soar relative to average incomes,
making the Internet an unaffordable luxury for most. The physical
infrastructure of the Internet -- servers, networks and systems --
won't be maintained if everyone is out of work. And the shoddy computer
hardware that most of us are forced to struggle with could easily
become too expensive to maintain or replace.
So I'm worried
about the Internet, and while our investments in the ten things above
will be largely Internet-dependent, I'm also looking at a Plan B that
will work even if the networks go down.
If readers have other
thoughts on 'safe harbours' for investment for when the US dollar, and
hence the global economy, goes into free fall, I'd like to hear them.
Is gold really a safe investment? What's the least expensive way to
move your savings into Euros? Where else are you moving your savings?
I
really hope I'm being unduly pessimistic about all this. The value of
any currency is, after all, strictly psychological -- it's worth what
the people who own it think it's worth.
Just like in 1929.
P.S. For those who have been asking about my progress with the Shangri-La Diet, my latest update is here. |
MADE IN CANADA
trust your
instincts 
