“Everywhere I look I am reading this message that the economy is going to blow but I have no idea what that means in real practical terms. Does any one have an informed opinion on just how bad it is going to get for the man in the street? Not the guy with the big portfolio, the guy with two kids and a mortgage.”
The question (actually a reader comment from a previous article), is a very good one. What will it mean to the average ‘Joe’, if and when the economy crashes hard.
I say ‘if’, only because there is a chance that ‘they’ may still somewhat control the crash landing, although it will still crash – the crash will still be nearly as painful for ‘Joe’.
I say ‘when’, because logically there is no other way for this cycle to end – it must end badly. A question is, how bad will bad be…
So, what will it mean for ‘Joe’? (the guy with the two kids and a mortgage)
Joe probably busts his ass every day, so to speak, to bring home the bacon. Joe’s wife probably does too. Between them, they probably make enough money to barely make ends meet, or maybe they have a little left over (or maybe even more than just a little), but it’s not enough to write home about…
They probably vacation once or twice a year (or used to). They probably have a mortgage that today is barely ‘even’ with market value or possibly even ‘under water’ (owe more than it’s worth). They probably have one car loan between them while the other car may be paid off or purchased used. There might be an outstanding college tuition loan too. No doubt there is some credit card debt as well. Joe might have a savings account with a few grand in it. He probably has a 401K-plan from work (depending on his employer), and it has taken quite a financial hit due to the disastrous results on Wall street of late – once again (remember ’08’?). Unfortunately, Joe’s 401K plan doesn’t have any funds that allow him to invest in gold or silver…
So, what will it mean for Joe when the economy blows up?
1. If he has a 401K, it will tank even more than it has in the past. This will put off any hopes of retirement that much further.
2. His bank may be closed, and he may have to wait until the FDIC sorts out getting his money back. (Too-Big-To-Fail banks will probably be saved once again)
3. What money he does have, will be worth much less than it was just a short time ago.
4. The prices of most everything will rise faster because the ‘value’ of the currency (in this case, the dollar) will be worth less.
5. His employer will not raise his pay to keep up with the devaluation of the dollar.
6. Joe may lose his job as employers and corporations scramble to stay afloat.
7. Unemployment will skyrocket. Event the ‘government numbers’ will look bad.
8. The stresses at home will become intense due to the pressures of finding ways to keep up with the bills.
9. What little spending that Joe and family was doing in the first place, will be cut entirely, therefore increasing the speed of the overall demise of the economy as all other ‘Joe’s’ will be doing the same thing.
10. No consumer spending, no products to sell, companies fail.
11. If Joe is still working, the expectations, hours worked, and pressures from the job will be enormous as employers leverage the desperation knowing that thousands are waiting in the wings to get a job.
12. So many people are out of work, and becoming angry or desperate, that social unrest will become wide spread while authorities are of insufficient numbers to contain it all.
13. Crime will increase, especially robberies including home invasions. Joe ‘may’ become a victim himself one day.
In general, and in summary, I believe that life as we know it will become much more gloomy as we all try to cope with making ends meet.
The good news, and something to plan for, is that those who have no debt will do the best, and will be the happiest.
More good news is that once the real bottom is reached, and although it will take awhile to make the adjustment, a new cycle will begin – probably one with hope, renewed core values and responsibility, and a new generation of children whose parents have lived through the 2nd Great Depression.
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It all depends on how controlled the crash is. So long as the FDIC does cover accounts, people will be able to meet their needs.
So long as they have a job.
If you’ve got a job and a mortgage, you’ll be fine, and on the other side of the depression, inflation will have reduced the value of your mortgage, but also reduced the value of the money you have in savings. In the stock market, firms that don’t fail will recoup their value. In theory mutual fund managers can quickstep around and you’ll wind up with more than you started with in an IRA or 401K. In theory. Not sure I’m impressed with them, at this point.
The problem is hitting retirement age in a depression, when those accounts’ paper value is low.
The good thing about hitting retirement age in a depression is that if you lose your job, you can, in theory, start getting social security payments. There’s that term again. In theory. Assuming that SS is still in working order, getting enough funds in to cover most of the checks going out.
Here’s hoping for a slow, controlled crash!
It’s no good having a mortgage where it’s value is far in excess of the actual property value.
I would say you were way too nice in your assessment of our future but were otherwise spot-on. Unfortunately, most people have no idea about any of this and will suffer more than those who had a clue. At least they can claim blissful ignorance.
A true depression may well last 5-10 years. This is especially true if we continue to try to use Keynesian economics to dig us out of this hole. What most fail to take into account when they predict what living in a depression will be like is the grinding poverty and insufficient food and necessities day after day, month after month and year after year. Our Social safety net is already strained. We have borrowed ourselves into a position where we won’t be able to borrow in the future to continue to give welfare, food stamps and 99 months of unemployment to everyone. We could well see the time when the food you have to eat is food you grew and canned. The heat to keep you warm may well be from burning wood you scavenged. It could get that bad but the reality is hidden from us thanks to borrowed money funding the welfare, food stamps and unemployment. When that money disappears then the reality will hit home. Don’t wait, buy food and necessities now while your dollar is worth something and supplies are good. You can buy 50 lbs of rice at Costco for $25. You can buy canned food and freeze dried food cheaply at Walmart. Start a garden, acquire the equipment to do your own canning. Why not! If we don’t have a crushing depression then eat your stored food and save a few bucks. If we do have the expected depression that food might mean the difference between life, health and starving.