Why We Can’t Foresee the Pandemic’s Long-Term Effects
The Great Depression of the 1930s was an economic downturn that became a prolonged malaise. A Nobel laureate asks whether that pattern might be repeated.
If the United States had an economic downturn on the scale of the Great Depression of 1929, your life would change dramatically. One out of every four people you know would lose their job. The unemployment rate would skyrocket to 25%.
1 Economic output would plummet by 25%. The gross domestic product would fall from a $20 trillion level to around $14 trillion. Instead of inflation at about 2%, deflation would cause prices to drop. (The Consumer Price Index fell 27% between November 1929 and March 1933, according to the Bureau of Labor Statistics).
2 Trade wars caused international trade to shrink by 65%.
Could it happen again? After the 2007 financial crisis, many people are still worried about a depression reoccurring. Here are a few reasons why that fear persists—as well as some reasons why they may be wrong.
Global business leaders are preparing for a drawn-out U-shaped recession due to the impact of coronavirus and many fear their companies won’t survive the pandemic, a survey of thousands of chief executives.
The pandemic sweeping the world has killed nearly 180,000 people, routed financial markets and could trigger the worst economic meltdown since the 1930s Great Depression.
Around 60 percent of chief executives are preparing for a U-shaped recovery – a long period between recession and an upturn – compared with 22 percent who predict a double-dip recession, according to an April 15-19 poll of 3,534 chief executives from 109 countries conducted by YPO, a business leadership network.
The survey found that 11 percent of chief executives see coronavirus as a risk to the survival of their firms, while a further 40 percent say the pandemic poses a severe threat.
“We have not seen a crisis like this for over a hundred years, and some household names will not survive,” said Glenn Keys, Executive Chairman of Aspen Medical, a Sydney-based health services firm and YPO member.
Business leaders in the hospitality and restaurant sectors were the most vulnerable with 41 percent of executives saying their firms were at risk of not surviving, while 30 percent in aviation and 19 percent in wholesale and retail sales feared they may go under, the survey found.
There are some beneficiaries, with 10 percent of sector-specific retail and wholesale leaders as well as heads of production firms in agriculture, factories, mines and utilities reporting a positive impact to their revenue.
However, most chief executives expect things to get worse before they get better.
Almost two-thirds of business leaders forecast a negative impact on earnings to continue for more than a year, while a quarter expect their workforce to be down by more than 20 percent a year from now.
“Across the globe, the mindset of the business leader is clearly that the world has changed in a very short space of time,” said Scott Mordell, YPO’s chief executive.
“We are in unchartered waters, filled with an unprecedented number of pitfalls, that are challenging some businesses’ very existence.”
Next few years, be prepared for the New Great Depression strong hands are waiting, Jim Rickards
Rickards is forecasting a major bullish forecast for gold. With prices closer to $15,000 an ounce, the yellow metal is currently trading around $1,900 an ounce. The author also speaks of the coming new great depression, which he says has risks of an increase in urban riots. “Everything that is happening now I forecasted,” says Rickards.
How to be prepared for a food crisis?
Food Crisis queuing case of a food shortage you should be aware that grocery stores only have about 3 days of food in stock. People will rush and buy as much as they can so probably the food will vanish in less than a day or hours. So if anything was to disrupt the food supply chain for an extended period of time, there would be chaos in most communities. It’s very important to start preparing NOW. There are several ways to start. The choice you make should depend on the event you are preparing for. Of course the best way is to prepare for all scenarios including long periods.
Jim Rickards: “PREPARE FOR THE NEW GREAT DEPRESSION!”
The Lessons of the Great Depression
In the 1930s, Americans responded to economic calamity by creating a richer and more equitable society. We can do it again.
The economic collapse of the 1930s, one of the defining traumas of the 20th century, is still the benchmark against which recessions are measured. And, for many Americans, the New Deal, launched by President Franklin D. Roosevelt, remains the standard for how the federal government should respond to a major national emergency. By the late 1940s, the United States had exited economic calamity and entered into an unparalleled period of national prosperity—with measurably greater income equality. America did not merely endure the Great Depression; its response transformed it into a richer and more equitable society.
Many hope to replicate that achievement today. But the success of the New Deal was built on more than all the agencies it spawned, or the specific programs it established—it rested on the spirit of those who brought it into being. The New Dealers learned to embrace experimentation, accepting failures along the path to success. They turned aside the ferocious opposition their bold proposals provoked. They organized supporters, and learned not just to lead, but to listen. And, perhaps above all, they pushed for unity and cultivated empathy.
Our economic future could be even bleaker than you expect — and last year was the moment to unleash your inner survivalist. If the financial system suffers any more crises of confidence, credit gets even tighter, and the fed falls into a liquidity trap, we could be in for several hardscrabbling dystopian years. Forget maintaining your current shiny standard of living — how will you feed and clothe yourself, in the worst case scenario? We’ve compiled a few suggestions for things you can do now to brace yourself.
The problem with this mindset is that most of us forgot to prepare for the eventuality that the future would not always be full of riches.
It’s not too late to plan and make sure yours are covered. Those well prepared to handle this setback also have the opportunity to acquire great wealth while everyone else panics.
Assess your current situation
– How much cash/liquid assets do you have?
Liquid assets are assets that can be quickly converted into cash at market value. How much cash do you have in your bank accounts? Do you own any stocks? Bonds? Mutual funds?
– How much illiquid assets do you have?
Illiquid assets comprise all of your other belongings, they typically take more time to divest from and will be sold at a loss during financial ruts. This includes, cars, homes, retirement accounts, cars and any other valuable.
Remember that assets typically take a 30% dip in recessions. Discount your assets by that amount
– How much debt do you have?
Check all of you outstanding debt and calculate the total principal remaining on them. Do you have a mortgage? Car loan? Furniture or Electronics?
– What’s your net worth?
Your net worth is simply Liquid Assets + Illiquid Assets — Debt.
Unfortunately, as illiquid assets are discounted during recessions, your net worth might become negative. You will need to make sure you maintain a positive cashflow since selling your assets won’t cover your debt. This is the next step.
– What’s your debt service?
How much cash do you need monthly to cover the expenses stemming from your servicing debt? If you are paying $1,000 per month for a mortgage and $250 for your car, that makes your debt service $1,250 per month.
– What are your monthly expenses like?
Add all of your non-debt expenses here, food, medical, gas, insurance, electricity, water.
Example: food ($300) + medical ($200) + gas ($150) + home & car insurance ($200) + electricity ($100) + water ($50) + internet ($100) + cell plan ($50) = $1,150 / month
– What’s your monthly burn rate?
Combine the above two together and you will get your monthly burn rate. In the above example. We are at $2,400 / month
Have 6 months of expenses covered
– Do you have 6 months in cash?
Before considering acquiring any sort of other asset, you should always keep enough to cover 6 months of burn rate for unexpected reasons. On top of giving you a more relaxed mind in case of unforeseen events, it will also allow give you the time to figure out how to get back on your feet instead of panicking and settling for a lesser job/opportunity than you could get.
I can already hear people saying that the precariousness of their situation didn’t allow them to save enough. While it can be true for some, for most it’s really a case of financial mismanagement. Millionaires with poor financial education will go broke as well, and the drop will only be steeper for them. Yet, some less fortunate with a good plan for the future will fare much better…because they had 6 months of cash and low expenses.
– If not, sell your assets before devaluation
Assets take a big hit during a recession. Everything becomes a buyers’ market. Houses go on sale, cars, electronics, stocks, businesses… If you can’t cover your expenses for the next 6 months, sell enough now that it won’t come back in your face down the line, forcing you to settle for less than you could get now.
– Cut your expenses
Now is also a good time to lower your burn rate to make sure you meet that 6-month minimum requirement. Swap your car for a lesser model, you won’t be doing much driving anyways. Cut Netflix, you can find great content for free online. Stop that expensive prepared meal delivery and make food yourself for ten times less.
Every amount you can save now will help you tremendously throughout the crisis. If you manage to have enough money saved up for the recovery of the economy, you will be able to turn pennies into dollars.
– Refinance your debt
With low interest rates abound, it’s a great time to knock on your bankers’ door and try to get a last-minute refinance before the money supply dries and interest rates rise. The $100 a month it could save you could be the difference between staying afloat and having to choose between food and internet down the line.
Have plan Bs
– What happens if I have to stay home for X months?
If like many bartenders and baristas you were heavily impacted by all the curfews. Can you generate money from home? Could you write about your skill? Publish tutorials on YouTube about how to make the perfect latte at home? Realize that other people are stuck at home which could give you a great opportunity to reach a large audience.
– What happens if I lose my income?
Hopefully you have successfully completed Step 2. If you couldn’t, it’s time to take some massive action and figure out a way to make money. Don’t just sit at home and start tweeting about how the government should give you a $1,000 because you’re an irresponsible person. Take responsibility for yourself and your family.
Find immediate ways to get some cash. Sell your belongings on eBay if you have to. Realistically, you only need one pan, one pot, one pair of pants, one pair of shoes, a few shirts and underwear to survive, sell the superfluous.
Next, figure out what skill you have that people would immediately be willing to pay for. If you speak two languages, look for some translation jobs online. If you have a car, find out if you are eligible for Uber Eats or any other driving gig.
– What happens if I get ill?
Unfortunately, stressful times can also put strain on your body and overall health. You should strive to remain strong but the flow of bad news can take out even the best of us.
Now is the time to check any health insurance you may be a beneficiary from either personally, through your employer or your government. Make sure you understand the policies and what they can bring to you during worst-case scenarios.
If you don’t have any insurance, again make sure that you have your expenses covered for at least 6 months.
Come back with a vengeance- You have successfully done what 80% of the population hasn’t
This is what will set you apart from the rest. Because you were ready and you knew what to expect, you will be committed to succeeding. You will gain that strength and toughness that you acquired by doing so much while other were squandering their times, looking the other way while the world was burning. It’s not why or how you fall that matters; it’s how you get back up.
You were hardened like steel and are now ready to take on more challenges. What didn’t kill you made you stronger.
– You have a bit of cash ready to invest and everything is at a discount
Assets are discounted during recessions. Now is time to lease an industrial space and buy machinery to start your factory, acquire failing businesses and turn them into gold, develop your own businesses from the ground up while others are still counting their losses. You will have tremendous opportunity in front of you, just don’t wait for it to come knocking on your door.
– Buy stocks during recovery
Had you bought Apple in the midst of the 2008 crisis, you would’ve made over 20 times your money by now. That’s a 2000% return on investment. As Baron Rothschild famously said:
“Buy when there’s blood in the streets, even if the blood is your own.”
– Invest in real estate
When people’s buying power decreases, the demand for housing also decreases tremendously. Some find themselves cash-strapped with illiquid assets and have not choice but to sell at a deep discount, in the order of 25% to 30%.
When even something as stable as brick takes a hit, it’s a good time to acquire it. Look for opportunities online as they will abound, generally 6 to 18 months after the onset of the recession.
– Develop additional income streams
Again, develop these new income streams you’ve always wanted to take a stab at, this is the perfect time to diversify and think long-term. If you play your cards right, you will be set for the next 10 years.