GROUPS: Rich nations, poor nations, bankrupt nations, the rich, the poor
Investor Doug Casey has included China, Japan and the U.S. with Europe as economies which can ruin itself due to debt. That the world’s three largest national economies and the world’s largest trans-national economic bloc (the EU) all have monetary issues, it is good to imagine the worse-case scenario and how it may impact one’s personal lives. Some of this has been done by Louis James for Casey Research. He states:
What if the EU disintegrates and the US sinks back into recession? What will China do with all its productive capacity then? Some would be wasted – factories and luxury cars can both rust for lack of capital to maintain them – but the productive capacity would still exist. With the investment already made, my guess is that the cost of goods manufactured in China would plummet. Particularly with so many state-owned enterprises – for which jobs and production may become more important than profit – selling at no profit would be better than shutting down. The central committee may even see flooding the world with inexpensive products as a way to help China’s trading partners while helping themselves.
Remember that, unlike the US, the Chinese government is not borrowing money to build a network of high-speed trains across the country; it’s paying for it out of excess savings. On the household level, people who save 40% of their income every year could lose half their savings and still have a lot more net worth than the average, highly indebted American.
My point is that if China is in a bubble, and if it does pop, this system will still be here, as will all the new highways, houses, factories, etc. This is not a deeply indebted nation of lawyers and hairdressers, but a cash-rich nation building up its productive capacity. If growth here were cut in half, it would still be substantially greater than in the US or EU.
This assumes that there would not be some sort of economic calamity accelerating event such as a war or natural disaster. And what if the US dollar collapses and hyperinflation results (from printing more US dollars)? Since all nations are interconnected through (economic) globalization, it is in the best interest of all nations to have the largest economies as healthy as possible.
The ailing EU economies were derisively labelled PIGS for Portugal, Ireland, Greece and Spain. Italy was added to the list to form PIIGS.
The economic woe has led to:
- Decreased national sales and GDP
- Increased suicides and mental issues
- Decreased worker wages and benefits
- Unemployment and underemployment
- Rioting and protestations
- Increased crime and drug use
- Increased homelessness
- Increased racist and anti-immigrant sentiment
- Increased personal, town, city, municipality bankruptcy
- Decreased tourism
- Increased cash withdrawals from banks
- Property price crashes
- Financial hardship or ruin for foreign retirees
- New taxes
- Child abandonment
- Lack of pharmaceutical supplies
- Doctors working for free
- Increased prostitution and STDs
And what of other nations?
- Cyprus has requested bailouts;
- Slovenia is almost there;
- Portugal isn’t screaming … yet;
- The UK is in recession (and hoped that the Olympics would help, most likely it won’t);
- Italy has cities at risk for bankruptcy;
- The US now has homes for purchase at a low of $500 and ethnic conflicts are becoming more pronounced along race (‘That black man in the White House caused this economic woe’), nationality (‘Those Chinese, Indians and Mexicans stole our jobs’) and class lines (Occupy Wall Street); and
- Next up (possibly) is Germany, the primary driver of EU wealth and 5th largest economy.
Greg Mark reports the following for Spain:
Recently two noted Spanish economists were interviewed. One was always an optimist and one was always a pessimist. The optimist droned on and on about how bad things were in Spain, the dire situation with the regional debt, the huge problems overtaking the Spanish banks and the imminent collapse of the Spanish economy. In the end he said that the situation was so bad that the Spanish people were going to have to eat manure. The pessimist was shocked by the comments of his colleague who had never heard him speak in such a manner. When it was the pessimist’s turn to speak he said that he agreed with the optimist with one exception; the manure would soon run out.
DYNAMICS: So just what should the average Joe and Jane citizen be doing to protect themselves and their families from a worldwide economic recession and depression?
- Minimize spending with Do It Yourself (DIY) products such as shampoo and toothpaste;
- Only spend on essentials, return rashly purchased items if possible;
- Minimize risk by paying off loans and credit card debt so the bank cannot repossess your home;
- Create multiple backup plans for different scenarios such as for losing a job;
- Intelligently investment by studying Gerald Celente, Robert Kiyosaki, Doug Casey and like-minded individuals who seem to be more knowledgeable;
- Deferring costly investments such as tertiary education by opting for accredited online degrees, part-time degrees and/or cheaper credits from community colleges;
- Have a backup career path especially one that enables you to live very basic such as farming;
- Plant herbs in small buckets or pots so that they can be used fresh, positively impact your health and don’t cost as much as processed/packaged herbs;
- Eat healthy and exercise to reduce health risk cost and the rising cost of toxic processed foods; and
- Don’t expect politicians, economists or anyone to fix the problem soon, it may take some years before normalcy is achieved.
Grant, Mark. 2012. The Reign in Spain May Soon Be Over. Zero Hedge. http://www.zerohedge.com/news/reign-spain-may-soon-be-over [accessed: 2012-07-24].
James, Louis. 2012. China, Metals and Your Money. Casey Research. http://www.caseyresearch.com/cdd/china-metals-and-your-money [accessed: 2012-07-24].