Thinking Ahead: Predicting the Depression
Sharon October 14th, 2008
One of the hardest things about facing tough times is figuring out what to do. The right choice depends on an uncertain future - it depends on guessing right about what will happen. Do you transfer your stock market funds to Treasuries? Get out of the market? Give up on retirement? Go back to school? Should you be preparing for a job loss? Should you let your house go? And of course, we’re gambling with your future, and losing has high stakes.
A lot of people have emailed me lately asking me what I expect to have happen, so that they can make plans. This is not something I’m totally wild about - I’d personally rather you base this on your own analysis. I have been doing fairly well at the prediction game so far - I predicted a deflationary depression with rising food prices just about a year ago and my annual New Year’s predictions are now officially 8 for 10, but I also would have predicted oil prices to remain fairly high for a while into the recession, and I’ve long said that I though the fundamentals of the economy were so bizarre and unstable that I didn’t understand why it hadn’t crashed already. That is, I do not think that every word that comes out of my mouth was put there by a divine being, and neither should you. I’m wrong sometimes, and you should remember that. But because so many people are asking me to give them a sense of what we’re facing, I’m going to do that, if you promise not to make any life decisions solely based upon my thinking.
So here are my bets for what we’re facing the coming decade in re: food, energy, etc…
- That in retrospect, the current economic shifts will last at least 7 years, and probably a decade or more before stabilizing, almost certainly at a new, lower economic and energy level. During that period, there will be a number of seeming signs of recovery, periods where things are worse, declarations the crisis is over (I like CNBC’s website for a daily promise that the crisis is over today and that the last set of interventions have worked. They start out every morning with that promise, and amend their claims according to the end of the day.)
I think we are entering a Depression - and both the Great Depression and the 1970s recession took us a full decade to get out of. In both cases, they were essentially escaped by the application of lots of cheap energy - the former withe WWII build out, the latter with the cheap oil of the early 80s price collapse. It isn’t clear to me what would get us out of our current economic crisis - but we will probably reach various points of stability in between drops to lower economic levels, as John Michael Greer argues. Meanwhile, I also believe that we are likely to see what we’ve seen in other economic crises - denial, rallies (such as we’ve seen in the markets yesterday and so far today), minor improvements, declarations that all will be better soon. One of the tricks is going to be sorting out real improvements from wishful thinking and outright lies. My own opinion is that it is wise to think about this crisis as a long term, rather than a short term one. That does not mean that things won’t get very nasty in a short time - it means that whatever levels we fall to, I would say we’re a ways from getting out.
- Markets will still exist after this. This seems obvious, but I’ve had people ask if there will still be a stock market after this. The answer is yes, certainly. If nothing else, the US, which is the world’s largest grain exporter will be trading food to energy producing nations and food for large nations that can’t produce what they need for a long time. There may be points at which trading is suspended, and my own bet would be in a steep decline over the next year - a few days ago we were down 40% over last year - I think there’s at least another 40-50% to go from here. It won’t be a steady downturn, though - there will be rallies and improvements. I think it is perfectly possible, however, that a lot of foreign investment may leave the US and the amount of money available for markets to play with will continue to decline for a long, long time. I suspect most ordinary people will probably get out of the markets, just as they did after the 30s.
Where should you put your money? This is not my area of expertise, so I’ll just tell you where I’ve put mine - into my home, into the food in my pantry and the tools I use, into my community (I’m trying to keep up my charitable donations as much as possible), and my local credit union. Is this a perfect solution? No, and it probably isn’t helpful to those close to retirement, retired or with lots of money to preserve. In that case, I’d take the advice of Ilargi and Stoneleigh over at www.theautomaticearth.blogspot.com. They are far better at this than I am. I still think that durable goods, land, natural resources and basic things like food make a lot of sense.
- This one is more an intuition than a fully formed and reasoned thought, but I’m coming to suspect that we may find ourselves unable to import some, or many goods at some point in the not-too-distant future. Watching Iceland’s current situation is going to be unique - and the costs of shipping are also a major issue. There are two consequences of this - the first is the re-onshoring of some manufacturing, which would be good. A friend of mine who works in the medical equipment business already jokes that his job in New Bangalore (Boston) is the cheap place to make stuff for the Swiss company owners.
The second consequences may be that you just can’t get stuff you are used to. So I’d suggest getting unused to it, if you can. This will not be easy or pleasant. And this includes food and other things we need. While the US can feed itself, we are also one of the largest food importers in the world.
- I’d expect to lose your job. I’d bet on high unemployment levels over the next decade - 15-30%. There’s a lot of fat in our economy, and a lot of us make our money on that fat - that’s not a value judgement, btw - books are a luxury too, as is a college education. The problem is that we don’t much distinguish in economic crisis terms between valuable luxuries like education and valueless ones, like Mercedes.
Just to be clear, we’re totally implicated in this one. We figure there’s a 50-50 shot Eric will lose his job - he brings in a huge amount of money to the university and is paid less than a comparable tenured professor (part of our betting mechanism), but if across the board commands come to get rid of non-tenured faculty come out, he’s toast. This is bad, since it provides our benefits and also much of our income. It is also bad because Eric loves his job. We particularly took this job, as opposed to say, a tenured position at a small university (Eric is primarily interested in science education, not research, so tenure at a research University was never considered), because we thought that despite the risks, the state universities are more likely to survive a major crisis than small private ones, but this was a bet, and we may pay the price.
If your job depends on travel, state and county budgets, parents having the money for private schools or college, luxury goods (and by luxury I mean “stuff you don’t need), high end consumers choosing to pay more for quality (and this is likely to affect many small organic farmers, crafters, etc… me included), real estate development, or can be described as a “Dilbert Job” you are probably at risk. I’d also suggest that people relying on current non-traditional energy booms, and renewables are in trouble if the credit crisis continues. You are even more at risk if you are a. older, and highly paid and can be laid off and replaced with a much cheaper younger person b. recently hired c. recently graduated or d. have a medical condition that makes you expensive or are likely to have a baby, and thus seem expendable.
What can you do about this? If you can, make sure someone in your household (and remember, “household” is a fungible commodity - it does not have to consist only of a nuclear family) has a reliable job if possible. If you currently are making a lot of money, but could shift into something more stable, it might be wise to do it. Otherwise, pay down your debts and do what you can to start cottage industries and local businesses so that you have a way of bringing in income. Double up with family, share resources, cut your budget and get ready. If you do have stable employment, sit tight and play nice.
- I may be wrong here, but I don’t expect most people to lose their homes, nationally. I think millions will, but the enormous build out of homes has left us with more housing than we can possibly use in any rational system. So while some people will be homeless, my assumption is that gradually, either municipalities will decline to foreclose, as several have already, or legal challenges will allow people to keep their homes, because the institutions that once held their mortgages are now owned by the government, and paid for by the people. I think more people will end up living together, but most people will have homes, simply because we built so many of them.
- I think that most people’s kids aren’t going to college for a while. Eventually, my guess is that some small schools will close or be bought by state colleges, and eventually, the US will probably go to a subsidized college education system - but that’s longer term. I think this is likely simply because sending young adults to college is one of the best ways to keep them from rioting and causing violence - it is a cheaper thing than letting them start revolutions because they have no work and no money. In the coming 5 years or so, I wouldn’t bet on college unless you have the cash to pay for it securely in your mattress - I think state colleges and community colleges will do ok, with trickle down of more affluent parents sending their kids there, but private, expensive colleges without huge endownments will struggle.
It is time to think about alternative education - apprenticeship, cooperative universities created by professors in their communities, and other educations.
I do expect, in the very short term, a lot of people to go back to community college and especially graduate schools. But since such programs only have subsidies for a few, be very cautious about borrowing money for this.
- I don’t expect short term loss of the utility grid as a whole or food access as a whole, but I do expect a lot of people to struggle to pay for them. Utility shut offs are up again, and food is the one thing whose price is not falling much. I expect high food prices in proportion to income to continue over the next years - and people are going to pay more and more of their income for food. The same is true with utilities - while people may cut back some, I don’t expect radical drops in gas or electric prices. So my guess would be that more of us should be set up to do without electricity or heat, or with very minimal use of these. Growing some of your own food, and perhaps food to sell is going to continue to be essential.
- I have said this before, but I expect that generations are going to have to come to terms with one another really soon. That is, older folks who have been expecting to retire, or are retired, but now can’t do so or are struggling, are going to have to come together with younger folks who can work, but don’t have assets like housing or remaining funds, and have large debts from college and other sources. The only possible answer to this set of problems is for them to work together - parents with kids, younger friends with older ones. The good news is that this isn’t bad. The bad news is that both generations are going to have adjust their expectations of the future enormously - the all leisure retirement is probably over. So is the idea that living with your parents means you are a loser. Valid relational difficulties are going to have to be overcome - or chosen family will have to take on the characteristics of biological family - ie, they’ll love you and help you even when they don’t like you much.
- I expect that in the coming years there will be a lot of misery and unhappiness. And also a lot of surprising moments of happiness. There will be a lot of pain and suffering. And there will be a lot of moments in which people show extraordinary courage, kindness, and experience joy and delight, despite what’s happening. We will live through extraordinary events, but we will also experience our lives in ordinary ways, and if we plan and think ahead, it is possible even to imagine that happiness will predominate, in the face of very difficult times.
Sharon
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- Comments(72)
Sharon:
Congrats on getting so many of your predictions right. I agree with you on most of your points.
My advice is to minimize debt, be armed, and diversify OUT of dollar-denominated investments and into TANGIBLES. (I’ve described some suggested tangibles in detail in my blog.) Don’t neglect stocking up on food. A food reserve is great for both a societal worst case AND for a personal worst case-namely, unemployment. At least you’ll know that you will be able to feed your family.
God Bless,
~Jim Rawles~
Editor, http://www.SurvivalBlog.com
If you like predicting the future, go to intrade, and open a few prediction markets. Pediction markets have better track record than anybody.
Geoff, I’d wager that you’re at one of a half dozen or so schools I would have loved to attend. But at the time I went to college the programs either didn’t exist or I didn’t know about them. By the time I learned about them, I already had another degree and had picked up most of the book learning they offered on my own, but I always missed not having been part of that community of like-minded folks for four years.
It sounds like you’ve already been immersed in that type of thinking though, so unless you feel the need for making new contacts and being in an educational community for a few years, I guess the question for you to decide is what you think you’d gain by getting a degree. Do you think that’s going to be a job requirement for something you wouldn’t be able to do otherwise? Is it the community or the knowledge that you need?
What I’d try strongly to resist is allowing others to make you feel like a failure because you don’t live their way. That’s never mattered and it’s going to matter less in the future. Unlike the other folks who commented here (I don’t have much in common with them other than an interest in the ongoing collapse) I wouldn’t let debt stop you from doing something you want. Ultimately, that’s not going to matter much more than other people’s opinion of you.
I just had to respond WRT to the education thread and the comment from “the normal middle”. In years past, most people didn’t get educated! My father was born in 1932 in North Dakota and did not get to go to high school at all as the family could only afford to send half the kids there (shoes, fees, books, needed the free farm labor, etc). He got his GED courtesy of the US Army and continued to educate himself every chance he could.
The idea now is that everyone needs, deserves, requires an education. Educating everyone means that you have to take in everyone including all those kids who would NOT HAVE BEEN ACCEPTED because of disabilities, chronic illnesses, mental issues, etc. Watch the parade of severely handicapped kids at your kid’s school if you get a chance. Even 25 years ago, most of those kids -if they had survived at all - would not have been mainstreamed. Many of them are very smart indeed, others not so much. Even supposedly normal kids vary greatly in intelligence and motivation. My smart 18 year old, now in community college, is only smart in some areas: A’s in math, sciences, computer programming, D+’s in english and history. He had emotional issues as well and we were very happy he graduated with a B average (in the sparrow track) and shows signs of not living under a bridge as an adult. He can barely write a paragraph and only if it is technical in nature.
I am not surprised that many kids in school can’t write in complete sentences. Where does it say that we all need to be Renaissance scholars able to write high falutin’ prose and integrate equations and design bridges? Different skills, different abilities, and some people just aren’t as smart as other people.
Never forget: by definition, half the population is below the median for intelligence. And there is more than one kind of intelligence!
Wow, I’m really quite amazed and even touched at the level of response my query has gotten. Thanks so much to everybody! I do appreciate your advise.
I think I should say two things here, because any advice people might give me depends on how much they know about my particular situation. The first thing is that my parents are paying for my college education- completely. They’ve been pretty smart and frugal with their (I suppose ‘our’) money, and have a whole fund, completely unconnected to the stock market or any of that, set aside for me going to college, and perhaps some money for grad school too. I’m an only child, and as far as I know my family has no outstanding debts to speak of, so this is basically ‘it’ in terms of really big, long term capital investments. Unless the USD starts acting really crazy and goes into insane inflation, I’m extremely fortunate to not have to worry about going into debt or having to look for scholarships or loans for college. So the money thing, as far as I can tell, is NOT an issue for me.
Secondly, in answer to a good question ‘greentangle’ posed about whether I’m looking for knowledge or community in college, ultimately I’d have to say the community aspect played a huge role in my decision to come back to school, or at least ‘regular’ school. I remember Bill McKibben quoting a statistic once that had a good majority of Americans say the happiest time in their life were the years they went to college, because of the intense, close-knit sense of community that can exist on a college campus that is so rarely found in modern American society. I would tend to agree with him.
Though it gets a lot of romanticization (don’t know if I spelled that right) and praise, especially by young men in my age bracket throughout history, the ‘wandering’ lifestyle, where you stay at places for only a few months or even a few weeks at a time, and then drift over to another place, can be a profoundly and agonizingly lonely one. Any relationships with people you make along the way are almost always cut short and fade, because you’re always moving on, never settling down. Being somebody who bases a lot of my ethos on a Wendell Berry-esque idea of “belonging” and “citizenship”, that wandering lifestyle was getting pretty tiring. Almost all my ideals around caring for the environment center around the concept of ‘community’, and I started to realize that I couldn’t really talk about, much less try to help build sustainable communities, if I wasn’t part of a real community that I could call home. That’s why I wanted to give it a try again- I was starving for a place to make long-term human connections again. And I know that I can’t find that, sitting under a tree reading lots of books, or even just sitting under a tree, staring at it and thinking how beautiful it is.
Finally, I think- or I hope, anyway- that in terms of the ‘knowledge’ aspect of higher education, there is a kind of knowledge, insight, and if you’re lucky wisdom that can ONLY come when lots of people from different places come together and put their perspectives together. Colleges have long been a place where that happens. There are other places that do this very well, too, though. I know, because I’ve been to some of them, and I know there are many others out there. Right this moment college is looking like the best place to find that kind of ‘collective genius’. But I could change my mind, depending on what happens in the world and what experiences I have in the future.
Anyhow, I thought I should give that as a bit of background; it seemed people might be giving advice that was very good but not really appropiate to my situation, and I wanted to clarify things. Much thanks again to everybody; I welcome any more advice people want to give.
namaste, Geoff
[...] I found a link over at Total Survivalist Libertarian Rantfest (one of my almost daily reads) to an insightful piece over at Sharon Astyk’s blog: Thinking Ahead: Predicting the Depression [...]
I’ll just chime in with my two cents on the college question. I am very lucky to be attending Princeton University on pretty much full financial aid. I will graduate with no debt and very good letters of recommendation, grades, etc. to go on into grad school.
The only ‘problem’ is that I am absolutely enthralled with what would seem like a very unmarketable degree: Theology and Philosophy. My greatest passion and fulfillment are found in reading and discussing great books. Recently I have become much more aware of the impending societal upheavals which will occur as a result of peak oil, the financial melt-down and other factors, but I feel that it wouldn’t be wise for me to just drop everything and become a nomad, picking up guns and survival skills like Sarah Connor in “The Terminator” series. Why? For one thing, I have a shot at getting into some of the top graduate programs in philosophy in the country, the ones at colleges with plenty of prestige, large endowments and full financial aid. I figure that if those last, spending 5 or 6 years in grad school is as good a place to weather an economic storm as any. I do want to pick up a few skills, though, such as learning to grow food, treat water and first aid, basic plumbing, carpentry, etc. But for now I feel my place is in academia.
For another thing, though, I profoundly disagree with the idea that in times of hardship a liberal arts education is a ‘rich man’s luxury’. The threat of starvation, disease or violence may push the big questions from people’s minds temporarily, but human beings are as much social and intellectual creatures as they are biological. The need to tell and hear stories, ask big questions and try to attain some unified perspective on the world is no less real for not being biological. There have been priests, scribes, scholars and writers in all periods of history, including the most troubling, and the life of the mind has been a source of great comfort in persecution and hardship (think of Boethius’s Consolation of Philosophy, or John Bunyan’s Pilgrim’s Progress, or Bonhoeffer’s Letters and Papers from Prison, to name just the prison diaries that have changed the world). The problem is that academics have become isolated in their ivory tower, only producing research to be read by their colleagues and hapless grad students, instead of reaching out to people in their communities and helping them tackle the urgent real-life questions they face and find a sense of meaning and perspective.
That’s not to say that academia will survive in its present form, or that all academics are guaranteed a job at a school of their choice in a time of hardship. Most of them will not (myself perhaps included). But I maintain that academics IS a worthy pursuit even in the face of societal breakdown, and though I plan to do what I can to prepare myself for hardship (there is not much I can do: I have no house, no savings, no dependents, etc.), I will stick to my present course and just do all I can to take advantage of whatever opportunities come my way.
Geoff, I think in your case, and JD’s, education makes a lot of sense. Far be it for a woman with a double major BA in History and Literature, an MA in literature and ABD in an English Ph.D program to rant against the beauties of higher education. I loved the academic life. And like JD, I went to grad school in part because I was enthralled, and in part because grad school isn’t a bad place to spend a recession - in the early 1990s, the pittance they were paying grad students was a pretty good pittance
.
What I think is a problem is the idea of going massively into debt for higher education - and since credit ratings are increasingly used to evaluate job worthiness, security risk and a host of other things, most people, who require heavy loans should think very seriously before they take out debt they may have to default on. Most people don’t have the money that that Geoff has, and a comparatively few people will get the kind of scholarships that let me go to a pricey private college with minimal debt, or that it sounds like JD has. For those lucky enough to fall in those categories, great - go on and do what you love. The world needs more philosophers, theologians and thinkers of all kinds, and they need people who can navigate complex ethical quandries - such as the ones we are facing.
But let’s be honest - these are unusual things. Being able to pay outright for your tuition is unusual, and likely to be increasingly so as families savings are eaten by markets, and no debt scholarships are hard to find. It isn’t impossible, but for the majority, we’re going to have to think about other ways to learn. For most of us, conventional college education as it stands is a rich man’s luxury - because only the rich or the very brilliant will be able to afford to do it in a way that doesn’t handicap them later in ways that are indefensible.
The price can be quite high - I know of people who cannot find any job in their field in public policy because they are held to be a security risk because they cannot pay their student loans. Another person I know cannot get an academic job because he’s behind on his student loans and his university will not release official transcripts. Then there are countless families on the hook for enormous loans in jobs that may not be there. I think the risk of those loans always exceeds the potential benefits, unless you are truly prepared to live with the price of default.
And while in an ordinary recession, grad school is great - I too entered a field where there aren’t as many jobs as there are candidates, knowing that. It is easy, I think, JD, to say that you know that from the perspective of a recent college graduate. But in the course of a graduate degree a surprising number of us acquire things like dependents or spouses, and the prospect of unemployment, and years of shifting around to various adjunct positions looks different in your late 20s or early 30s with a spouse, and perhaps a child or talk of one. I’m not trying to be condescending, merely observing that while all you say is true, the reality of the job market is sometimes harsher than it sounds even if you know intellectually what you are facing. I’m not trying to discourage you - in your circumstances, it probably makes sense, particularly if you can prepare yourself for a future in which your funding dries up (or perhaps you’ll go to a hugely endowed Ivy and that won’t happen - anywhere else, I’d be concerned) before completion. But think about what else you can do as well.
I agree that much is gained by bringing large groups of people together of different experiences - but I think it is a mistake to see the cross-section that colleges pull together as the be-all end all of such groups. They can be achieved many other ways - and colleges self select as much as any other community, as can education. I think there are powerful limits to autodidacticism, but it is possible to get a good critical education in a host of ways if what you care most about is the life of the mind, and personally, I’d not recommend anyone mortgage their future for that. Because it can be had in other ways - and those ways often come with a lower price.
Again, in both the specific situations of Geoff and JD, go for it. For most people, for whom borrowing is the necessity, I’m not sure that would be wise.
Sharon
“Afraid,” to print my comments??????????????????????
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“So far as I know, you can light the top burners of ALL gas stoves with a match. ”
Unfortunately, I found out this is not always true. We bought a Whirlpool gas stove last year(we wanted a gas stove because of our frequent winter power outages.) and were extremely disappointed to find out that when the power is off, the gas gets locked off as well. It didn’t mention this in the manual that we could tell, but several calls to customer service confirmed it. I never would have chosen this model if I knew this beforehand and I suspect that a lot of the newer models with electric buttons might have the same “features”
This is what is really what is going to happen to America!!!!!!!!!!!
http://www.youtube.com/watch?v=yd4aJitpRSs&NR=1
Another person’s vision of America’s demise.
http://members.iglide.net/jdurr/ProphecyNewsContent/Allen.htm
Get right with God through Jesus.
I wish this terrible end for our nation was not going to happen, “”but I am convinced it is!”"
You may not believe it, but please research it.
God always judges sin!!
50,000,000 abortions(MURDER)!!!!!!
John 3:16
http://www.cuttingedge.org/ce1038.html
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