Michael J. Panzner(here's a link to his blog) would like to make us think so in his book: Financial Armageddon, where he predicts the unraveling of our economy and years of misery. I'll be honest with you; I haven't read the whole book. I was at Barnes And Nobles the other night and this book was sitting on the shelf, looking really interesting. I picked it up and flipped and read through a couple pages, focusing especially the ones about how to protect yourself against this economic collapse.
Even if you believe that the times are good and that we are all safe, it is still important to know what to do in case something bad happens. Just in case. Knowledge never hurts, right? Well I'm trying really hard to use my own judgement and to further my own knowledge in order to make my own opinion on the matter. With a family to support, I have to stay on top of things. And what better way to think about a subject than sitting down and writing about it?
A potential economic disaster
Panzner presents two main problematic periods and how to defend yourself against them. He argues that we will first enter a deflationary period where prices everywhere will be falling because of a lack of demand. In such a case, the best is to be debt free. If you still owe money to lending institutions, your monthly payments won't change, but your income will probably go down, making it harder to make ends meet. Hanging on to cash will be the best thing to do since it's purchasing power will go up daily. Hopefully you have an emergency fund!
Eventually, the government will try to stimulate the economy by injecting massive amounts of cash in the system, thus diluting its value. Cash being plentiful again will make prices go up. And with other countries trying to get rid of their US dollar reserves, our dollar will be worthless pretty quickly. A period of hyperinflation will ensue, where prices go up in general by 50% every month! In this case, the best defense is to spend your cash AS SOON as possible to buy necessities like food and gas, but also assets who's value tends to follow inflation, like a house, or maybe gold if it remains evaluated in US dollars.
Will this really happen?
I don't know. The United States government hasn't helped the situation, to be sure. I mean, the deficit is at an all time high and the dollar at an all time low. Asian countries hold us by the balls because they own such a huge stockpile of US currency; all they have to do to bring us down is spend those dollars on US assets and flood the market with cash, which will trigger an inflationary period. This is what happened in Germany after the first world war. Germany printed money to pay off their debt. Angry, the lenders took the money and spent it inside the country. There was so much money going around that people would burn stacks of bills because it would burn for a longer time than the wood they could buy it with. Yeah, we don't want that happening here.
With more and more banking institutions like Bear Stearn, Fannie Mae and Freddie Mac going down, we can only hope that the bleeding will eventually stop. On top of all of this, gas and food prices keep going up, which reduces our consumption, and the gross domestic product hasn't grown that much recently (1.9% in the 2nd quarter of this year.)
And to top it all, our entire economy is based on debt when it used to be based on gold reserves. With credit having dried up and with it the means to create debt, it will be harder to help the economy recover. This amounts to what certain people are calling The Perfect Storm and God knows what will happen. Financial armageddon, another great depression or just a small recession? Nobody can know. But if you prepare for the worst and hope for the best, your chances of surviving the next couple years will be greatly increased.
Personally, I think the word "armageddon" is slightly sensationalist and exaggerated.
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