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Financial collapse?
I'm extremely bearish on the US dollar and stock market and am wondering what other people think about how to prepare financially for the medium term future. I don't there's any other way you can cut it: there's a debt crisis and, worse yet, I don't think the US will be able to convince bond buyers that they're serious enough about the issue to avoid a debt spiral. The fact that gold has cracked 4000 (almost 4200 now, with BofA setting a 5000 target) seems to suggest that central banks are similarly pessimistic about a financial collapse. What do y'all think about where things are likely headed?
The most important thing is to try to avoid panic or being emotional about it. I'm of the "hold index funds for a long time and don't look at them often" camp, Boglehead-ish. If you have a few days, try reading A Simple Path to Wealth, by JL Collins. While there's a chance we could see a 1929-level crash, there are enough market protections in place to prevent that from happening (most likely, nothing is certain). My stuff is at Fidelity and I hold FZROX and FZILX in a 60/40 ratio in my retirement accounts and VTI and VXUS in a 60/40 ratio in my taxable account.
Regardless of what you choose to do, the book is a good read and really helped me understand what was going on with things like bonds, for example. It's also good at providing a roadmap for what to hold and where as you approach retirement and have to deal with required minimum distributions.
Don't panic!
John Bogle (founder of Vanguard)'s Little Book of Common Sense Investing is also a good, short and simple read which makes a similar recommendation.
Tune out the FUD and invest broadly and for the long term.
I saw a couple news reports earlier this year that multiple investors downgraded the US, like meaning that US debt wasn’t as reliable as it once was, making US debt worth less.
Thats my understanding of it, anyway. Is that accurate?
If its accurate, it seems to me that the rest of the world will continue to move away from using us debt as a banking solution, making the US dollar comparatively worth less and less, and its not going to happen in one single panic but over a lifetime of high inflation that increases at such a rate that any us currency you save today for retirement will be worth fractions, even with interest, by the time you need it.
So, should we be putting money into foreign stocks?
Stocks are considered a hedge against inflation much like bonds are considered a hedge against deflation.
The Bogle approach to owning whole market index funds (that are “self-cleansing”) provides weighted ownership of huge multinational corporations. JL Collins argues that is sufficient international exposure. The US Total Market funds at Vanguard are VTSAX or the ETF version, VTI.
You’ll see “VT and Chill” because VT is Vanguard’s Total World Index ETF. It’s basically a combo of VTI and VXUS, which is Total Ex-US Stock Index ETF. It traditionally has underperformed VTI but has done very well this year, in no small part due to the performance of European defense companies and the US not providing as much support to Ukraine.
Anyhow, the global economy is almost infinitely complex and still extremely tightly bound to the US Dollar. While China and other countries might like to divest of US Treasury Bonds, they will harm themselves and the rest of the global economy greatly if they dump them. They know that. So do other countries.
My personal opinion is that the global economy would be healthier without complete USD dominance. It may shift in that direction, so pay attention and rebalance as needed. This is leaps and bounds easier if you’re just rebalancing between VTI and VXUS. It’s like 30 minutes of paying attention once each year or so. Or, “VT and Chill” gets you there.
There are tax advantages to holding VXUS and other Ex-US ETFs and funds, like the foreign earned tax credit. That will help determine whether you want those in a retirement account or taxable brokerage account.
I’m not a financial advisor, so do your own research etc etc.
Edit: had wrong ticker for VTSAX
From a brief search, I see a foreign tax credit that looks useful to avoid getting double taxed, but I’m not sure if that’s what you mean. Could you explain?
Essentially, foreign stocks pay dividends that are subject to foreign withholding taxes before they reach you. The FTC lets you claim a credit on your US tax return for the foreign taxes paid, reducing your US tax liability. It will show up on your 1099-DIV. You can take it as a simple deduction on 1040 schedule A or as a tax credit on form 1116 (I think). The latter gets you more of a credit. There’s a threshold that provides an easy-out exception. You usually can get up to 0.25% on your after-tax returns if you claim the credit.
I may have some details wrong here but that’s the general gist of it.
This is great, thank you, I already hold VOO so this is a super easy adjustment to make.
I'd start here to understand better:
https://en.wikipedia.org/wiki/List_of_countries_by_credit_rating
Of note, the US is still, by far, the largest economy with a rating that high in the S&P list. Obviously in the Fitch list the EU is comparable (20t gdp to 30t gdp) and close, but it's not like the US is just garbage now.
The concern of course is that the downgrade is a sign of losing inertia and the start of a trend so it COULD continue to get worse, and that's possible.
That said, it's just as possible we turn things around or stabilize somewhere near where we are now. Betting that your money is going to be safer in foreign markets is fine, but foreign markets rarely have the uhh...history/fundamentals the US market has had, and still does have AND many foreign markets do not allow outside investment in the same way.
The US market is the way that it is in part because it's so reliable. There's not some other magic 'oh its like the US but not with issues' market. China and India are HUGE economies but with a much worse track record internally AND don't much like straight up foreign investment. Europe itself has had some very volatile history and is much smaller. On some levels that's because they don't want what comes with it, and on some levels its because they just haven't been as good at doing it.
A saying i've heard (roughly) a few times in my life is that "no matter how poorly the US does, they tend to do less poorly than most of the rest of the world". It's FAR from perfect, but it's why these solutions aren't so easy.
Oh and it's worth noting that the biggest holders of the US debt....is the US. It's a complicated subject, but for obvious and non obvious reasons that's unlikely to change.
Best thing I would advice is to decrease debt and lower spending, because that's always a good idea. Live smaller, learn to cook, buy less, keep using what you have for longer, (edit: learn how to) grow food or hunt/fish/forage if you can. I realise that most people rent and there's not much one can do to further decrease rent. Feels bad
un-informed investments muttering
Not advice: just muttering. I recently moved my investments to "more cash less equity" conservative funds, but I'm expecting them to take a beating still. If my investment horizon is less than 15 years i would move them completely to cash only. Also moved them away from US markets, towards ex-china ex-HK Asian Emerging but that's more my beef with USA/China as a Canadian/Hong Konger than investment outlook.Edit: sorry for editing. But I want to say that the US economy isn't going to collapse and become (say) Zimbabwe or reduce to bartering sticks for eggs. There's 400 million people collectively dreaming this dream, and the entire world is heavily tied in to their massive massive finances and military might. The US and the world overall will survive the next panic, just like it has done for 2000 and 2008. I would only really worry if I were heavily leveraged, if I had no savings, or if I were retiring/retired. Otherwise, be frugal without being a miser, and it'll be tough but okay.
As someone with chickens, a hobby garden, and experience hunting big game, none of those things will save you money compared to buying eggs, vegetables and meat from a grocer.
I did a lot of research on this a while back and found that chicken/duck feed ended up costing more than eggs from the store. Foraging breeds can cost less, but none can live on foraging alone.
Our area has hawks, eagles, and coyotes. All of our neighbors have dogs, so we’d also need to rebuild our fence. Given all is that and setup costs, I determined that we can’t even afford to do it right now.
It's one of those things that is unintuitive until you look into it it feels like. Maybe because we're urbanized to the point of "oh it's 'just' farming, everyone used to do it!" Not paying money (directly) for the thing is obviously cheaper than paying money for the thing. But those indirect costs add up fast. There's a better return if you do it year over year because you don't have startup costs, but mostly if you count your own labor as 'free'. I don't even think that's unfair given that taking care of chickens is more 'fun' than walking down a grocery store isle and the quality can be better, but only if you have the time to invest in another 'hobby'.
It just turns out economies of global/mass production are really efficient, for better or worse.
Watching Jeremy struggle with that is a large part of why I think Clarkson's Farm is entertaining / frustrating in equal measure.
My partner was very eye rolly at the massive amount of research I did when I started gardening. People did this for thousands of years, how hard could it be? Finally this year I engaged in some yolo gardening by tossing seeds into one of my raised beds. Nothing grew.
It's easy to discount that most of us are missing out on generations of knowledge that used to exist for growing things.
Yeah, there's a tendency to think that people were stupider hundreds or thousands of years ago.
They were just as smart as we were. Humans haven't had significant brain development for the past 300,000 years or so.
People doing something for thousands of years should give you an idea of how difficult and unintuitive it is, especially when you consider the fact that we didn't figure out how to do it until 12,000 years ago.
It’s also a lot of time and effort you have to put into it. I remember my father, who grew up in rural Mexico, would constantly say “the end times are coming we need to stock up on chickens and grow our own food.” And I would always ignore this cause it was never possible, also he didn’t actually want to take care of any of that stuff.
You can save a lot of money on fruit and vegetables if you go about it the right way (e.g., don't build raised beds — just grow in the ground like your granny did). It's not a realistic option for many people, however, depending on their climate and soil.
Oh I absolutely agree they are money sinks, the value is more in knowing how to do those things as a hobby and getting to know other people who also know. Ditto bee keeping and beer/wine making.
Light hearted banter based on the short reply you've given.
Lol. You're totally right. But your response really makes me think of a line from The Big Lebowski:
Walter Sobchak:
Am I wrong?
The Dude:
No you're not wrong.
Walter Sobchak:
Am I wrong?
The Dude:
You're not wrong Walter. You're just an a**hole.
Walter Sobchak:
All right then.
The only people offended by math, are those who can't do it.
This would include the Dude.
Depends on what you hunt, where you live, and who you know. I don't know about other states, but Texas at least has few restrictions on who can hunt exotics, or how many they can bag. There are parts of Texas that are practically overrun with exotics, and it's quite possible to hunt your way to a year's supply of meat for little more than the price of bullets and a hunting license.
The most difficult part is just finding a place you can hunt for free.
It’s interesting to note that while you’re right in that the best way to weather the coming storm is to be prudent, there are a number of safeties that may not work during such a storm. This means that theoretically, the best “selfish” way to weather the storm to come, especially if today you have significant debt and you are certain we are headed to collapse, is to increase spending and bankrupt yourself, clear debts, and start fresh.
:) I always thought the repossession people come take your stuff when one declares bankruptcy? I've heard of people going bankrupt and never quite understood how they recover from having nothing + having no credit
As I understand it, bankruptcy is how you prevent people taking all your stuff to try and cover your debts. Instead of getting sued by creditors and having various savings or pieces of personal property seized in separate cases to cover different debts, you file for bankruptcy protection, which ensures that some amount of important things are not seized to cover debts, and that the creditors all lose out to the same degree, instead of the last one to sue you losing the most.
How does that work? Why wouldn't everyone just get a house, fill it to the rafters with goods then declare bankruptcy protection?
Because bankruptcy affects your credit score and makes you a high risk profile for a variety of things, which makes you ineligible for many other jobs, aids, etc. It also doesn’t cover everything; eg student debt in the us is famously excluded from bankruptcy protection.
They can take your house/car etc if you have enough equity in it and you are up to date on payments.
If you are behind on payments for those then you might be able to do a repayment plan to keep the house/car, otherwise bank will sell it and you’ll loose it.
But yes, you can buy a bunch of shit and keep it. I grew up with a ton of people who filed and it was always like “we’re going bankrupt, let’s max out our credit cards- shopping is all on me!”
Apparently though, they have gotten more strict about it. Something about spending more than 800$ on luxury within a certain timeframe of filing you’ll be slapped for fraudulence. Also, if you look sketchy they can simply deny you from declaring bankruptcy.
There are repercussions for doing it to dissuade people for doing it, though. It can impact future jobs, your credit, your ability to find housing (landlords won’t rent to you) and folks will stigmatize you.
I’ve seen people do some quite impressive bounce backs who totally got their lives back in order after the reset. So, it’s a pretty cool system for those who actually want to change. Unfortunately, there will always be sketchy people who abuse the system.
Edit: just wanted to use this opportunity to rant: You can’t file bankruptcy for student loans and that is a damn shame. We really need a better system to get people out of crippling student loan debt.
Obviously, the correct move is to always be spending thousands and thousands every month so it doesn't flag as unusual /s. I have a feeling that most people have their debt follow (eg, student) because they're too conservative. You gotta go too big to fail/repo
Bankruptcy is a painful, complicated process. It often requires you to liquidate assets to cover debts if you can.
It's not generally something you want to go through, and is only worth it if the alternative is spending the rest of your life paying down debt you can't possibly ever get out from.
That's what I always thought and hence why I was surprised @Kale has personal anecdotes of people who make a ... way of life (?) / experience out of it. I guess they did mention it was a while back and rules might be different now.
:) the TV version I grew up with, people in suits come into your home, put labels on every piece of furniture you own, and and count the eggs in your fridge and ask you to leave. Reality probably somewhere in the middle.
Depends on the country, state, situation. There are things that cannot be repossessed. There are also things that are very difficult to sell which you may no longer want or need. Of course if one were to do something like this on purpose they would have to study the optimal way first ;)
It seems like a risky maneuver that only works with perfect timing? Sort of like shorting stock.
Decrease high interest debt, to be specific. Not all debt is a bad thing. In fact, I think an argument can be made that debt is good to have in a high inflation environment.
Yeah I wouldn't get rid of say, mortgage on a reasonable size house just to rent. But consumer credit card debt for sure. And the mortgage on that third investment condo or the twice a year lake front cabin maybe
Well, I don’t think you’re exactly wrong.
On the other I have felt that way since before Covid as have many others. Knowing a crash is coming and knowing when and how is much much harder.
Personally after going back and forth on it I’m mostly focusing on being employed and staying stable. Keeping my savings up as much as I can and trying to get my feet under me long term.
Hedging safely is extremely hard, especially if it’s the level of collapse you’re talking about. Doing stuff like buying gold can just as easily backfire (especially if it’s a historically unique collapse), foreign currency is its own gamble/problem, and specifically the bond market collapse scenario throws out a lot of other options like, well, bonds.
Maybe someone smarter than me has a better idea, but if shit really his the fan I’m not sure what more you can do than be stable and diversified (liquid/savings/simple investments)
I've been bearish on Canadian real estate for 20ish years and I've been wrong for 20ish years. "Markets can stay irrational for longer than you can stay solvent." Even if prices crash to 20% of the current prices (government will 100% NOT allow that to happen) it's still a crazy amount of increase since the 90s. Meanwhile, one still needs a place to live come heck and high waters.
I agree with you: hug a job, don't gamble on number stock/margins/options/meme stock. Best strategy this whole time is still be frugal, be employed, and do whichever buy/rent/live at parents makes more financial/mental health sense.
Yeah I got a place after thinking that after they finally raised rates things would change…. and they didn’t.
My dad brought up that people had felt much the same about the Bay Area(where he lived for some time) and obviously that’s another “never looked back” market.
It’s worth trying to be savvy but at some point that means recognizing you don’t know what’s going on and even if you did probably don’t have the means/leverage to play it.
I don't quite understand all the advice to be frugal and pay down debts. However slim the odds might be, people outside of the prepper community are rationally discussing the potential for a US financial collapse. If that happens, all that money you're saving isn't going to be worth anything. You need to spend that money today on tangible goods that will always have value. You need to rack up your debts, buy all that stuff on a credit card, and overextend. In a hyperinflationary scenario, where today's $100 is worth next week's $20, that means today's $50,000 in credit card debt will be worth $10,000 next week, which will be worth $2,000 the week after, etc.
I'm not saying that's a good idea, but it is something I've been pondering for a few months, and honestly kind of regretting making a big push to pay off credit card debt last year. It's kind of a way to short the economy. If you're right, you acquired a bunch of free stuff to use in the post-money apocalypse. If you're wrong, you're buried in debt for life lol. And just like the stock market, the big players will always beat you.
I think the rationale is. Economy bad means there's more job layoffs, meaning you have a greater risk of losing the income you're relying on and don't know when you'll be able to secure employment again.
This would not be the first time. Plenty of people thought financial collapse was coming in 2000 due to Y2K panic.
There are many many degrees of financial collapse. The kind you're discussing would be more akin to the great depression, and STILL probably be worse by description.
And that's the trick. What qualifies? What will always have value? What keeps long enough and is easy to stockpile. What will people care about should such a serious collapse happens. Further, if kept, what can you actually afford to sell and defend in this nearly apocalyptic collapse, where people WILL be desperate?
I mean this is just how every "timing the market" strategy works. "Just do the thing that would be crazy good if you're right..and just don't be wrong like the millions of others who are". Further you seem to assume debts wouldn't adjust for inflation. It is very possible they could, especially if the debt is ultimately held in a foreign bank/currency.
The odds you will regret paying off that credit card debt are slim to none. Credit card debt is brutal, and trying to be liquid "just in case" is only taking down your total earnings. If the economy gets fucked up so badly, whatever extra cash/assets you would have had from not paying it is going to make basically no difference. The main factor will probably just be if you're lucky enough to be in the right place at the right time to get through it, not if you have $100-100,000 more in assets.
Congrats you've discovered gambling? Probably easier to bet everything on a roulette wheel or a sports bet, and about as likely to end well.
That's not really true about the stock market and that's why the market is, generally, such a common investment. If you think you're some brilliant day trader, yeah, you get wiped out basically every time, since a huge part of even having a chance to succeed is having the liquidity to weather storms, and most don't. If you follow index's and blue chips it's pretty easy to see decent ROI. For example: https://www.macrotrends.net/2526/sp-500-historical-annual-returns
To be clear i'm not trying to be snarky as I suspect it might come off that way. I do think there's a lot of people who feel the way you do, but there's a lot more to all of this on just about every side of the issue.
The US economy isn't going anywhere. Even in a massive recession, the US dollar is going to remain a pretty stable currency, and the US dollar can't crash without everything else in the world crashing too.
A country's economy doesn't depend on its currency. It depends on it's productive capacity. The US is still an absolute powerhouse when it comes to production of goods and services.
The dollar represents that productive capacity, and as such isn't going anywhere either.
Torpedoing your entire life to "hedge" against the USD isn't a rational course of action.
It's not about expecting collapse when cash is completely useless (won't happen); it's about training to be happier with a little less (always beneficial).
As a bit of a tangent: I don't know about you but most of my liquidity isn't cash. It's numbers on a digital bank account.
Why does it matter? Because in an unprecedented economic collapse it'll be a lot easier for, say, a morally and financially bankrupt government to take a look at how much people have in there and find a way to take it.
I find it very hard to gauge what form my assets should be in if I want the best protection against a crisis, because I assume whatever the crisis, if one takes place, it will be very different from anything that humanity has faced before.
I think if you’re going to do disaster prep, it should probably be doing things that would be useful after any disaster, like an earthquake or hurricane or pandemic.
There are broadly two things to prepare for: what if you can’t leave? And what if you have to evacuate?
Emergency supplies and getting to know your neighbors are both good. Also, if you did leave, where could you go that would likely be outside the disaster zone?
Financially, having an emergency fund helps. Not having it all in one bank is good in case of a temporary outage.
This conversation was about an economic collapse though. Earthquakes and hurricanes aren't a thing where I live anyway. Another pandemic? Sure, but I'm more concerned about the global financial instability rippling over and reaching my shore, and the many unpredictable effects it can have.
I still think emergency supplies and getting to know your neighbors would be good in that sort of financial crisis, though. Also, perhaps there are other disasters that could affect you where you live?
My recommendation is to think about it as preparing for multiple scenarios at the same time, rather than just one. For example, the Internet or the electricity could go out for a lot of different reasons. I have trouble imagining scenarios where money is no good anymore but these things are still running.
The reason I'm thinking about "just one" scenario is because I have made basic preparations for environmental/societal disasters years ago. Appropriately diversifying my finances is something I haven't figured out yet at all. Which is why I'm here talking about that in particular. Buying a second tent will do little to protect me against inflation or unpredictable changes in our tax system.
And I was saying I don't think it's very likely I'll end up in a real life situation where money is no good anymore (even though I have prepared for it).
Fair enough! I don’t know your situation.
One thing to consider is that a financial crisis is sometimes limited to one country. For example, during the Greek financial crisis, there were restrictions on ATM withdrawals and bans on bank transfers out of the country.
The 1997 Asian financial crisis affected multiple countries but was still regional rather than global. There was capital flight from Asian currencies to the US dollar.
So, depending on where you live, foreign bank accounts and investments might be a good hedge? I’m hesitant to recommend cryptocurrencies since they have other risks that seem worse, but they are also a way of diversifying.
Often during a financial crisis, there is a “flight to safety” to the US dollar, which makes it difficult to know what to recommend as an alternative to US dollar-based investments.
The US government creates US dollars via fiat. They have no interest in taking money.
They have no need for money in general; they can simply create it if they want more in the economy, and tax it back if they want less.
The damage they'd do by suddenly evaporating people's bank accounts wouldn't even be slightly worth it. They'd just tax you more to achieve the same thing without creating a national catastrophe.
Oligarchs in authoritarian countries face their own personal existential risk if el jefe decides to defenestrate them, so borrow from their playbook and acquire estates (ideally) or the right/ability to live in multiple foreign jurisdictions. Otherwise, diversify assets by jurisdiction.
Of course, this is very different than the best "invest for retirement" advice, and safety comes at the expense of returns. The real crisis might just be running out of money in one's old age.
My plan is to seduce Jeff Bezos and make him fly me to Mars. Equally realistic and lets me dodge WWIII.
This might be a bit out of touch, but citizenship in Vanuatu is only around $130,000. There’s a decent number of countries that offer citizenship or residency through investment (ranging from $100,000 to ~$4,000,000 USD). Lacking assets, there’s also working holiday (if under 30) and digital nomad visas.
People think about "shorting" like they just have to figure out the direction that something's going to go in order to make a profit, forgetting that in order to short, they usually have to pay interest. So now they have to be correct on direction, magnitude, and duration. If you rack up that $50k credit card debt on the thesis that the US dollar will drop to a tenth of its value (implying mass turmoil worldwide) and it doesn't come to fruition within 2 years, you've probably destroyed your life in order to have a non life-changing amount of money.
Gold is indeed tricky, since you can't do a fundamental analysis on gold like you can a stock or even a bond. So, there's no way to extrapolate the "meaning" of a given price level of gold and assess whether that's rational or not. I bought some gold about a year ago, which has turned out well, but I'm hesitant to keep buying more. There's also a strange dynamic where, if people start viewing gold as the safe investment instead of treasuries, then the dollar is even more likely to crash. Maybe simply bracing for impact (reducing debt, holding assets with immediate utility, avoiding unnecessary expenditure if you're not at least upper-middle class) is the best strategy? Perhaps dividend stocks are worth buying, since PE ratios tend to be lower and there's less weird market psychology/irrationality fueled by stock buybacks?
Back in March we were gloomy about tariffs and I recall that there was someone on Tildes who sold all their stock. Since then the S&P 500 is up 12%. So I hope they changed their mind?
Market timing is very hard. The market is up enough that maybe taking some money off the table makes sense, particularly if it helps you sleep better at night or you might need it in the next five years.
But also, maybe consider that you probably won’t time it correctly.
You have to be very very careful with logic like this in both directions.
Yes they missed out on 12% gains assuming they did nothing else with that money.
However are the avoiding potentially losing further down? Lets say a crash finally happens tomorrow, and it's 30ish %. So you lose the 12% you gained and you lose an additional 15+% than if you'd pulled out during the tariffs.
You are EXTREMELY unlikely to time the market even to the year of an event. People had been worried about 08 for 5+ years. Those who pulled out a 3 years before, likely, were better off than those who rode into 08.
Except...that depends on if you needed to pull out during 08. If you could continue to let it ride, and didn't have to pull out your funds, then it wasn't really a problem because yes, you recovered.
This is the key thing to all stock investment which is also knowing your time frame. If aforementioned posted pulled the money out, but otherwise was planning on leaving it there for another 15 years, yeah it's probably foolish. Any economic activity that makes pulling out for 15 years a good move, likely changes the game so much you have bigger problems, just leave it alone as you're unlikely to beat the market.
However if they say have some large purchase to make or are going into retirement or have another area to reinvest in, then pulling out before it goes up 12%, but possibly avoiding a future crash, is more than fine.
So in short, you have to be very very careful with the "oh look at what I missed" logic (yeah..fomo) because it works both ways. They might have buyers remorse right now, but if in the next 2 years shit hits the fan you have to ask yourself, "if i let it ride past the tariffs, would i have let it ride into the ground".
Yeah, we don’t know their circumstances. That’s why I put in a “might need it in the next five years” caveat.
One thing that is kind of new is that the tariffs are partly a pump and dump that is intentional. It’s a wealth transfer. The value doesn’t just disappear. It’s is being transferred to trumps buddies. If you aren’t his buddy you can’t time the market.
The money they get by selling comes from new investment (other people who are buying when they sell). Markets are kept afloat by buyers.
Investors who are just holding their investments don’t participate until they ultimately sell, and then you hope people are buying.
Each collapse in 2001 and 2008 started with a bubble popping and lead to interest rates dropping, bailouts and loans into the hundreds of billions, and rampant inflation. The cause of 2020 collapse was different but the result was the same.
Magnificent 7, AI companies, chipmakers, and the US gov itself are now in a biweekly circle jerk of multibillion dollar investments among themselves to keep the stock chart lines going up. How long can that keep going? At some point, to paraphrase Sam Altman, "someone will lose a phenomenal amount of money." Cue the bubble popping, bailouts, interest rate cuts, and more inflation.
There will probably be a correction, but the real fear is being mostly in cash during a time of rampant inflation. It's not that prices are going up - it's that purchasing power is going down.
Looking at the chart, I don’t see “rampant inflation” after 2001 or 2008? It remained below 4% the whole time.
The money supply has become a parabolic curve. But the inflation chart is tame compared to this. What gives?
A look at consumer price index as a measure of inflation. We, the people, buy things and over time they get more expensive to buy.
But the gov/fed have been low balling the CPI since the Clinton years by stripping out food and energy costs (who needs gas, heat, or food, anyway?), and using "heuristic adjustments", eg if a $1000 laptop in 2025 has twice the CPU power of one from 2020, it's come 'down' in value by 50%. Using these adjustments, the gov has incentive to lowball inflation so they don't have to pay out as much for inflation-linked entitlement programs.
If the cpi as it was calculated in the 90s is used ( before heuristic adjustments), cpi inflation is above the official number. It's even higher running the numbers today using the method how it was calculated in the 80s, back when food and energy were included in the CPI.
Personal anecdote: rent inflation (housing). A 1 bedroom apartment in my PNW city was $650 in 2012, but that same one now is $1900. So rent inflation is closer to 6% YoY.
I suppose "rampant inflation" could have been written as "dramatic increase in the money supply", or "prices doubling quickly, with no accompanying wage growth".
At any rate, after all three financial collapses, there were many loans and bailouts, the money supply increased, and anyone holding cash savings saw their purchasing power quickly eroded.
Circling back to OP, this is one of the reasons why the price of gold has been rising: a larger and growing money supply is chasing a finite amount of gold bullion.
Every time that site gets linked and its arguments used I die a little bit on the inside. That site is so wrong it's fucking crazy. Did you know the charts there are just taking the BLS charts and then adding a fixed constant to increase the Y-axis values? LOL!
EDIT: Specifically, ShadowStats. ShadowStats, ShadowStats, ShadowStats. Let me repeat: ShadowStats is trash. Here's a takedown.
Care to offer better source?
Yeah, BLS is still a better source. It's widely scrutinized by economists worldwide. I just edited my reply to add a critique of ShadowStats. You don't need to believe the BLS; just really don't believe ShadowStats.
Interestingly enough your chosen excerpt is illustrative of reasons why I distrust economics generally. Economics is applied statistics, and raw statistics are fundamentally misleading because they are created by hiding details, so nearly any stance on anything can be supported by economists because it’s just a matter of finding the right spin on things.
The comparison between the 1981 and modern TVs only work if you think of the two things as commodities that are unchanging. But the two things are fundamentally different things based on dramatically different technologies. There are some things that can only be done with the newer tv and some things that can only be done with the older tv. And as per the price, the ShadowStats prediction can actually be considered to be more accurate because color CRTs of any size are no longer produced - they were too expensive and couldn’t be sold on the market anymore. To make a modern CRT you would have to have someone hand make it from scratch, which would be very expensive indeed.
It’s true that changes in technology make comparisons between prices in different years somewhat subjective. The past is a foreign country; they had different stuff. Also, different people live in different places and buy different stuff so they experience different inflation rates. So a national average might not capture your own experience very well.
But it would be hard to argue that a 1981 TV was better in any way. Analog NTSC was a 525-line interlaced system and color accuracy was very bad. It was possible to use a TV as a computer monitor (for a Commodore 64, for example), but to avoid the flicker from interlacing, vertical resolution was cut in half and text was still pretty blurry. Buying a dedicated computer monitor was better. It was only with HDTV (in the late 90’s) that TV resolution became reasonable for displaying text.
Sound was worse too. The first stereo TV broadcast was in 1984 and it wasn’t until the late 80’s that most new TV’s had it.
There are alternative ways to measure inflation. The one that people normally cite is called CPI-U (Consumer Price Index for All Urban Consumers) and there is also CPI-W (CPI for Urban Wage Earners and Clerical Workers) and C-CPI-U (Chained CPI for All Urban Consumers) and and a bunch of “research series” that begin with R, and that’s just what the US Bureau of Labor Statistics provides.
If you want to go down that path and argue that some alternative measure of inflation is better actually, it seems like the argument gets very technical. It’s not a given that a new series is necessarily better.
To be clear I am not trying to defend ShadowStats. The only advocacy I'm doing here is for healthy skepticism for economic claims.
I'm not trying to say that all economic studies are bunk, because there is obviously science being done behind the scenes. But the vast majority of us are not well equipped to understand that science, let alone evaluate their merits. The average news consumer might be familiar with CPI et al, but they probably don't know exactly what it means or what the limitations are.
I feel like we’ve seen constant waves of “the economy is about to crash” pretty steadily since 2016 after Trump was first elected. Even during Biden’s presidency. We actually even entered a recession in 2022. Did you feel it?
I’m not going to say we’re not about to see a crash happen. But I’ve always seen “experts” predict it and it never coming to fruition. Obviously you should save money when you can, just normally try to build up some cash reserves in case things go south for you. But this isn’t something you have to keep worrying about.
The problem that has been growing steadily, and recently reached levels not seen since before 1929, is the the massive disparity in economic growth for the top 10% of the economy vs the bottom 90%. This has become extra obvious recently with the stock market hitting record highs while unemployment is exploding.
This trend is not sustainable, and I don't think many people will argue with that. What nobody knows is where the breaking point will be.
Inequality is of course bad, but I don't see why it's unsustainable. It's obviously sustainable between rich and poor countries (unfortunately) and between rich and poor regions in the US. I'd expect the rich parts of California to continue to do well. For Mississippi to come out on top would be surprising.
Turnaround stories do happen, but they seem surprising rather than inevitable.
Could there be a recession? Sure. But they don't fix inequality.
I say it's unsustainable because western democracies have a tendency of turning nasty, then eventually Doing The Right Thing when the situation becomes untenable for a large enough subset of the population.
The Industrial Revolution created the Gilded Age, which in turn led to the Progressive Era.
I'm somewhat hopeful that as we watch history continue to repeat itself, the good parts will eventually be repeated too.
I am of the opinion that "market correction" and small dips are more likely. The 2008 crash was tied to banks giving out questionable loans to home buyers, and we are not in that position currently.
The 2016 Trump admin ripped away an R&D taxation strategy businesses have used for ages, but it was reinstated in the "big beautiful bill" recently. Something like that is more likely to cause some insane ripple effects - and it already did create or at least initiate a wave of tech layoffs.
I do think concerns about an "AI bubble" are becoming more and more reasonable. But I don't think it will be a "pop" like others expect. Companies have invested insane amounts of money into failed projects before. The big investors into AI are either huge companies (all of which except OpenAI have other income streams) or startups with absurd seed money or other funding.
And I don't see some kind of coordinated ejection from AI happening either. If OpenAI announces it will shut down tomorrow, Microsoft isn't going to abandon Copilot. Apple's investment into on-device capabilities on their custom chips won't disappear. NVIDIA won't burn to the ground - though they will likely see a dip in their stock price. AI is not just one company or even one use case. Yes, it is not yet "profitable" by almost any metric, but companies are viewing it as a long play and are not blind to this.
I think an AI pop is very much in the cards.
Right now AI accounts for a way bigger slice of the American economy than the internet did in 1999. I also think the real world utility of AI is a lot more dubious. This insane level of investment is predicated on the idea that "AGI" is just around the corner, and the first company there will win the market and go on to reap untold riches. That is seeming increasingly unlikely.
I'm not necessarily expecting a full-on collapse, but I'm pretty bearish, too. I got very nervous about the economic outlook in February, so I sold off my US-based investments then (I'm a US citizen, but I don't live in the US and don't have the mindset that the US is the only market). I reinvested them in non-US ETFs, weighted somewhat toward European defense because I think (fear, more like) that this particular industry is going to see more action and development over the next few years.
I had a lot of savings in both US dollars and Australian dollars, and I was worried that either or both currencies might undergo excess inflation, so I also invested a big chunk of my savings in a gold ETF. It's nice that gold has risen in value, I guess — but to me, this investment is just a hedge; any extra money I make off the top is a bonus. I do not intend to sell those shares until I'm far more confident in the world economy than I am now, which will be well after gold peaks in value.
There will be dips, especially if there's a sudden economic shock, but I don't think we are near gold's peak yet (however, take my opinion with a grain of salt; I'm not an economist). If I had to gamble, I'd say we're still a few years away from the world economy stabilizing enough that people/institutions/governments are broadly unconcerned about currency devaluation and start moving away from gold again. (Anecdotally, I live in a region that had a gold rush in the 1850s/1860s, and a lot of gold mining companies are starting to spin up here again. This seems pretty bullish on gold's value over the next several years.)
Apart from that, I invested in areas that would help me save money in the near-term future (some bulk purchases, looming home/car repairs, thorough medical and dental checkups, etc.). Ever since, I've been focusing on keeping my savings high and my expenses low so that I can coast a good, long while if I lose my job.
I'm still just as pessimistic about the economy today as I was in February, but I am personally feeling a lot better now — way more prepared for what may come.
What are safer investments if this came to pass? Gold for sure, Are bonds safer than cash? What about other currencies, or are all those currencies valuations linked together? What about crypto, ugh?
Ammo. When a Democrat gets elected to fix this mess, everyone will panic about gun control passing and you can sell what you bought for twice the price per round!
That's really creative, I hadn't heard about the ammo shortages, it's hard to wrap my head around that. It makes it sound like a shady industry with conspiracy theories fueling prices, lol
While conspiracies about made their way around the gun world during that time, it was just the same sort of panic buying you saw with TP during Covid, mixed with most plants not increasing their output (due to a combination of union agreements and the expense of adding new production lines).
Felix Phren just covered this about an hour ago. He has the most rational and well informed investing channel on the entire internet, far as I can find anyway.