Thursday, January 15, 2009

Protect Yourself from the Biggest Heist in History

My previous three posts cover the groundwork necessary for this one:
  1. Currency
  2. Deflation
  3. Inflation
Now it's confession time: I'm not an economist. I'm a software engineer who just pays attention to the news.

Deflation has started--I don't have to be an economist to see that. Not when this story just pops up this morning (Wholesale prices fall for 5th straight month) in addition to the evidence I presented this morning. And the Fed has said it's going to crank up the money supply to do their best to stop it (actual quote from the article: "Mr. Plosser said the Fed must assert that it will resist expectations of deflation, and he noted the central bank has pumped large amounts of liquidity into the financial system.").

When the deflation cycle ends, there's no way the money supply can shrink fast enough to prevent massive inflation. That is the heist that's coming. Inflation will reduce the value of every dollar you hold. Things of value will retain that value (I expect long-term investments like 401(k)'s to do okay, etc.). But luxuries and cash (including what's in savings accounts) will drop precipitously in value. And if prices rise too fast, people on a salary will have a hard time adjusting their lower buying power to meeting basic necessities.

So here's my plan to protect myself from what's coming. Hopefully it can be useful to other people.

Hold To Value

As prices fall, it may be tempting to buy luxuries. I don't however plan to buy a new flat screen TV (even though I find it tempting). I'm going to buy canned food and durable goods. I'm going to buy an extra pair of shoes and more clothing for my kids that they'll grow in to. That way, when the inevitable inflation hits, I'll be able to save on those expenses.

I also plan to buy precious metals and a quality rifle. I'm already an enthusiastic hand gunner, but a rifle will be something which will hold value. And in the worst-case scenario, I can defend my food. :)

The metals and other things hopefully can be converted into usable currency (or barter!) as necessary if cash becomes short during inflationary times.

We recently replaced a dead car in our family, and we picked a used vehicle that was highly rated for dependability and lifetime, and wasn't the newest one on the lot. We partially financed it (remember, debtors win when inflation hits) but put enough of down to keep the payments to a reasonable monthly level.

Hold To Truth

I continue to search for voices of truth I can trust. Not very many economists predicted this downturn or even the housing collapse, even though common-sense pointed at it (and highlighted it, and made it blink red on and off). People who were interested in truth found it (my personal favorite is Glenn Beck, who is far from perfect, and many people disagree with his opinions, but he does work hard to find out his facts).

I intend to hold to true principles as well! When I compared the $700B bailout to a bridge, I never expected the reasons for the bailout to be abandoned right after it passed (rather than buying sub-prime loans, the government put money directly into banks). The justification for its passage was barely okay in my opinion. Every spending plan since then has been a violation of free market principles. Even Bush famously said, "I've abandoned free-market principles to save the free-market system." That's an absurd statement. We are on the high road to socialism. Bush didn't save the free-market system, he pointed a gun at its head and pulled the trigger. If it dies, it will be an execution, not a natural death. If you're falling off a cliff, pretending gravity doesn't exist won't save you.

Principles only matter when your back is up against the wall. If you don't hold to them when you're being tested most, you didn't really believe in them to begin with. And I don't believe in big government handouts because I don't accept theft as moral if it's passed as a majority vote, even if I benefit in the short term from the theft.

Hold to Freedom

As the federal government gobbles up private enterprise, it encroaches on our freedoms. I read the Constitution and Declaration of Independence recently (ah, the benefits of homeschooling) -- those inspired words ring loudly in my ears today. We're teaching our kids about how important freedom is, and how great the Constitution protects those freedoms as long as it is respected. We will likely come out of the current crisis with less freedom than we did going into it, and we're going to have to fight to shrink the monster of government back.

There is the very real possibility that the federal government will borrow hugely to rescue states from insolvency, fold pension plans into social security and health plans into a federal heath plan. Once that happens, the government will be able to tell you what to do with your life, property and pursuit of happiness. Our liberty will definitely shrink unless we stand up for it.


ajping said...

I don't think that we are on the road to socialism. Socialism is not about giving billions of dollars to rich bankers through deficit spending. The road to socialism would be more like shooting the bankers and taking their money. Oh wait, that is more like anarchy. I mean, the road to socialism would be more like giving $700 billion dollars to people in the form of food stamps. Oh wait, that is a stimulus plan.

Andrew said...

AJ, you live in a largely socialist country, and you support socialism.

I know we're going to disagree about the desirability of socialism, but we shouldn't disagree about what it is.

When the government dumps billions of dollars into an industry, then takes partial or full control, that is socialism.

Unfortunately, socialism is also what got us into this mess--government legislation forcing the banking industry to make loans they shouldn't have. There was a component of industry greed, too, but many banks that desired not to make no identification, no down payment loans, were accused of redlining and racism, when all they wanted to do was make responsible loans.

Government interference got us into this. There's no reason to believe they can get us out.

Big Jay said...

Yeah. I've been having a sinking feeling for a long time that the medicine we've been taking to help the economy is the kind that will make us sicker. Sometimes it pisses me off. Sometimes it makes me sad. Sometimes I look around and think everyone else is crazy.