Thursday, October 25, 2018

The Masses Suffer Most When The Economy Collapses

When the economy hits the wall it is the average Joe (or Jo) that suffers most because they are often ill-prepared to muddle through. Few people really think about the economy to any great degree or even try to understand it as they go about their daily existence. The average person only begins to care about "the economy" when they are directly affected or it deals them a bad hand or slaps them in the face. Without a doubt some wealthy people will take a hit, however, overall the pain will fall squarely on the shoulders of the masses. The fact is much of what happens must be viewed through the eyes of relevant value. Certainly, a few of the .01% will take a hit but even after losing a great deal of wealth most will remain wealthy and basically unscathed while the same cannot be said of the average man or woman on the street. History has shown during times of economic collapse the middle-class and the masses always suffer most and carry the brunt of the pain.

Savers And Wage Earners Often Get Hit Hardest
Do not be deceived into thinking the elite .01% play by the same rules as the rest of us. The middle-class or those who have worked and saved will see their wealth vanish and at the same time be surprised to find how resilient debt and obligations can be. Oh, the sweet allure of easy profits poses a charm or attraction that is hard to match. It draws investors like a magnet with its seductive call causing us to dance about as we drink the Kool-Aid and discount the risk we are taking. It is far easier than you might think to lose your wealth or have it ripped away by crooks because you invest in a scheme that turns sour or a slew of other "bad luck" scenarios. When a check fails to arrive the time to take action has often already passed.

Many of the "modern monetary theories" in use today have not been proven over time but reflect an attitude that we can control economic cycles better than in the past. The basis of the economy we have today is unsustainable and because it has been able to exist for so long does not mean it can continue.  The fact the system stumbles along does not guarantee that we will not suffer financial harm as individuals. Even though we are often led to believe shortcuts exist the truth is the learning curve in how to invest and protect your assets is both long and hard.  Simply reading a book, taking an investment course, learning a new charting or technical system is no guarantee you will make money. Many investors only learn this lesson the hard way and after a series of costly mistakes and errors. Again I caution, the first goal of achieving financial security is to take steps that ensure capital preservation.

The debt burdens we take on when all is well often become overwhelming during an economic pullback. The fact is most people are totally unprepared for any kind of a massive financial shock to society. This vulnerability is carried by the masses as most people do not have at their disposal the full range of investment options those very engaged in the markets have developed. You should view the economy as an economic battlefield and imagine your enemy carrying an M16 while you are armed with only a stick. Building a better arsenal is not an easy task and cannot be accomplished overnight, it takes both planning and a great deal of effort, it is also not a task that should be outsourced or entrusted to someone else, your financial survival depends on it. 

Banks Can Limit Access To funds!
The lack of investment options that many people have will leave them unable to react if and when trends dramatically shifts. The bulk of society is extremely vulnerable when an economic shift does occur and you do not want to be in this group! A major concern should be that we are often lulled into being far too complacent as to the real economic risk that surrounds us. A glaring example of this is how people just assume the bank will honor their credit lines or they will be given access to their savings during an economic crisis. As everyone rushes to the exit, it is silly to think you will be served in an orderly fashion or even fairly. Mind the "small print" in all the agreements you have signed and remember the banks are not your friend.  

It is debatable which is the lesser of two evils, the Wall Street bankers or the government when it comes to placing blame for orchestrating the coming economic trap that awaits us. Years ago President Eisenhower warned the American people about the Industrial Military complex, but nobody warned us an even more evil alliance that of the "Financial-Political Complex."   Everyone knows the Federal Reserve and other central banks hold great sway over the economy, however, when forced to ask which is the worse of these two evils the answer is very troubling. Government wins hand down because the bankers can claim their goal is to make money and it is the politicians we elect to lead, protect and guide us, we do not elect or appoint bankers. 

When the next financial crisis hits, and sooner or later it will, no one can predict and how deep and long it will be. Just as difficult is predicting the form it will take. It has been many years since pure panic has dominated our lives and filled the streets so most Americans have never faced such a situation. It is important to recognize several catalysts exist that could usher in such a scenario, but predicting such an event is impossible to time. Watershed events can occur in the blink of an eye or be spread out over weeks or even months. The base on which our economy sits is comprised of ever-growing debt that is unsustainable. Because this system has been able to exist for so long does not mean it can continue.   

The science of economics is riddled full of loops that feedback upon themselves and unexpected pitfalls based on expectations that may never take place. Many economic theories exist, but they are often baffling, confusing, as well as full of holes and conundrums. All this can become quite abstract with economist seldom agreeing and often predicting events that never unfold as expected or planned. The way people react to an overall economic policy may have to do as much with timing and perception as it does with reality. While many of the "modern monetary theories" in use today are spun to reflect an attitude that we can control economic cycles better than in the past by using newly forged tools the simple truth is they have not been proven over time. To navigate the treacherous terrain of investing without a road-map or knowledge means you travel at great risk.

As society has accumulated wealth over the years a growing trend has been to store it away in promises made on paper or existing somewhere on a computer database. This could explain why inflation has not raised its ugly head or become a major economic issue in recent years because it lowers demand for tangible products and goods. My misgivings with current economic policies are many, of chief concern is the massive debt being accumulated by governments and the rate that central banks have expanded the money supply.  If a great deal of this money would suddenly shift into tangible goods seeking a safe haven inflation would soar even as debts go unpaid and promises are left unfilled. If I'm wrong and another scenario takes place such as stagflation or deflation an even bigger problem may emerge and that is the massive amount of unpaid debt that will have to be written off, either path is fraught with peril.

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