“Depression.”
Get used to that word. You’ll be hearing it a lot as the U.S. and the rest of the world weave their way through the worst economic crisis since the Great Depression of the 1930s.
Before you dismiss me as a pessimistic harbinger of doom, visit and type in “Learning Bank.” Click on “When” and read about the past “panics” and “Depression.”
Take 2 Prozac and read on:
According to a recent CNN poll, 60 percent of Americans believe an economic depression is likely. A domino effect has led to the disintegration of major U.S. banks and brokerage firms, followed by the Chinese and Russian stock markets collapsing by more than 65 percent, and now European banks and financial institutions are failing at an accelerating rate.
Americans are just reacting to the facts on the ground. Unfortunately, it’s likely going to get much worse.
What can we expect? High unemployment, more bank failures, a shrinking economy, lower wages and deflation.
How to prepare?
In deflationary times, debt is a killer. You pay back with dollars that are MORE valuable. Why deflation and not inflation? Demand destruction. When people don’t have extra money, they don’t pay inflated prices for houses, cars, fancy home theaters, etc. Prices have to come down to get a buyer. Have you noticed that real-estate prices are going down and that Toyota is offering zero percent interest on car loans?
It is possible that the dollar will be worthless. I’m optimistic enough that will not happen. U.S. Treasuries, FDIC-insured CDs and money markets, as long as they have very high quality assets. The new federal guarantee is a nice feature too.
The value of assets is going down. Commodities prices plummeted by more than 26 percent in the last five days alone!
State regulated legal reserve insurance companies have the strongest balance sheets of any financial institutions. (While AIG was a basket case, and the parent was bailed out by the government, its wholly owned life-insurance subsidiaries are rock solid, and policyholders are fully secure.)
In addition, they are backed up in amounts that vary from state to state, by state insurance guarantee funds. Contracts issued since 2006 offer some of the most consumer oriented income features available today.
The months and the years ahead will be the time to buy assets, businesses and to seize other opportunities at unheard of prices. Alaska was purchased from Russia in a distress sale for $7.2 million. The Louisiana Purchase from France cost between $15 million and $23 million. It doubled the size of the U.S. at the time, and represents 23 percent of U.S. territory.
Jeff M. Wilson, BSE, CLU and ChFC, is president of Wilson Advisory Group, LLC.
