Two Letters Re: Projecting Some Possible Outcomes for The Panic of 2007

Very, very well done post, “Possible Outcomes for the Panic of 2007”. I would say you nailed it as good as can be done. However you will not be invited to be a guest on CNBC. – DAV


Don’t ignore the compounding effects of a) an energy shock from peak oil, a major gulf hurricane, or geopolitical conflicts, b) natural disasters, particularly major 8.0+ earthquakes on the West Coast or the New Madrid fault, or c) wars and terror attacks driven by causes other than angry debt collectors (e.g. Al Qaeda, false flag attacks). All of these could shift us from the current outcome in your framework to a more painful one. Likewise, do not underestimate the risk of U.S. dollar hyperinflation – it is substantially more than 2%. Spending more money and printing money (or creating its electronic equivalent) is too much of a temptation for 99+% of politicians (Republican and Democrat) who are too cowardly to take desperately needed but painful steps and instead make everything worse with more spending, more regulation (particularly high risk of currency controls and offshore investment accounts), and more government interference in both the economy and our lives.

The most important message is to be prepared. Now is the time to get any long-lead time preparations ordered or built and to get any items that may no longer be available in the near future (particularly imported items). To the extent that you can make your family either partially or fully independent of the grid through a) installing solar electric, wind turbine, and/or small hydro alternative power systems, preferably with battery backups, b) installing combined heat and power or solar hot water systems, c) drilling water wells (even in suburbia where you have city water, d) building greenhouses and other infrastructure to grow your own food (plant and animal), and e) installing diesel backup generators with large fuel tanks, do it now because all of these are good personal investments for hard times. Although the financial markets have only dropped about 8% to 10%, at some point in the near future, one may have to think about non-conventional investment strategies to liquidate IRAs and other financial portfolios and move assets into either real goods (e.g. prepay future expenses), precious metals, or offshore in non-dollar denominated accounts with non-U.S. financial institutions with little or no exposure to derivatives. – Dr. Richard