What Should We Invest In If the Economy’s Going to Collapse?

inflation
Since I wrote the two-part article on the Great Depression, several people have asked me for thoughts on what to invest their money in, a ‘safe harbour’ when currencies and economies go into collapse.

Many investors have been buying stocks of resource companies, metal commodity futures, and stocks of so-called ‘blue chip’ companies that have done well in previous recessions. The problem with these investments is that (a) these stocks are mostly denominated in US dollars, and (b) speculation has already pushed their prices up to possibly unsustainable levels. Bonds pose a similar problem: If interest rates spike, bond prices have to fall to push yields up to competitive levels.

As this article explains, and as the chart above from that article shows, some Western governments have recently been deliberately underreporting the true rate of inflation (which is likely at least 6%) for political reasons:

  • to improve labour contract negotiation position, 
  • to reduce COLA clause costs, 
  • to inflate consumer confidence, 
  • to encourage indiscriminate borrowing and spending,
  • to reduce the cost of rent agreements, and 
  • to artificially suppress interest rates and hence cost of government and corporate debts

Once investors in bonds come to realize this, they will demand double-digit returns on such investments, potentially cutting the price of these investments in half.

Commodities and alternative currencies have had similar speculative run-ups to those of resource company stocks, so these investments are also not for the faint-of-heart. But leaving your savings in US dollar denominated investments is even more dangerous, since the US dollar is the most over-extended and most vulnerable currency. And real estate in most areas is absurdly overpriced — far beyond its replacement cost — and in a downturn real estate is also illiquid, hard to convert to cash when you need it.

So what do you do with your savings? And if your entire net worth is tied up in real estate, what should you do?

I’m neither an expert in investments nor an expert in economic forecasting, so I wouldn’t presume to tell others what to do with their hard-earned money. What’s more, I’m not sure the economic collapse is as imminent as some would have you believe. This house of cards has a lot of carefully-placed cards holding it together, and it could last a while yet.

All I can do is tell you what I’m investing in myself, and thinking of investing in myself. We’re exceptionally fortunate: We have a house on a large piece of land which would cost considerably more to replace than what we paid for it. We have no debts. I have a fully vested defined-benefit (fixed guaranteed annuity) pension that (barring a complete economic meltdown) will kick in in a few years. Most pensions are now, or have been converted into, defined-contribution pensions (like IRAs and 401(k) plans) that in an economic collapse will be relatively worthless. This is what Bush wants to convert the US social security system to, transferring all investment risk in the case of a Depression to the citizen/employee.

Despite our good fortune, we’re not personally out of the woods, not by a long shot. Pension plans can go bankrupt. Living out in the country, we’re close to farms but far from most employers and customers. When the electricity goes out, we’re without heat as well as light. And living in Canada, we can’t live without heat. Like most North Americans, we’ve made out living with our heads, not our hands, so we’re poorly equipped to make and fix things ourselves if we need to.

So here are ten things we’re looking to invest money and time in, all stuff that would be valuable in a Depression:

  1. Our own self-sufficient Natural Enterprise: a sustainable business we can run from home, that will be viable even with $10/gallon gasoline (i.e. our customers will be close by, physically or at least virtually), that people really need, and that will not require incurring debt to launch and operate
  2. Windmills and solar panels: to get us off dependence on the grid and non-renewable energy sources
  3. Energy conservation: insulation, energy-efficient appliances and lightbulbs and other products that can reduce our energy costs
  4. Stuff that doesn’t need maintenance or replacement: if it doesn’t have a useful life of at least 20 years, we don’t buy it (when we have a choice)
  5. Know-how: learning how to do things for ourselves: carpentry, home repair, sewing, vegetarian cooking, and other skills that make us less dependent on others whose services we may not be able to afford in a Depression
  6. Health and physical fitness: self-awareness, self-diagnosis, self-treatment, and self-knowledge to stay healthy and fit and look after ourselves as much as possible when we’re ill
  7. Being creative and disciplined to stay out of debt: buying less, and only what we need, creating our own entertainment, spending an evening a week ‘unplugged’, doing more stuff in (and collaboratively with) our wonderful little community, buying with cash not credit, doing more things that are free (cycling, picnics etc.)
  8. Building social networks: finding people who will do things for you and with you on a reciprocal basis rather than at market price, who will tell/show you how to, or help you do something instead of doing it for you, who will trade (surplus) or share (expensive and rarely used) stuff with you, etc.
  9. Creating local markets: finding what our neighbourhood wants and needs (e.g. organic produce, hand-made clothing, a competent electrician or plumber) and what each of us has to offer, and linking them up
  10. Permaculture: land with soil that isn’t so polluted or exhausted it depends on fertilizer made from Middle East oil to grow anything on, or on pesticides, herbicides and imported water to be viable; and learning how to sustainably and naturally steward that land

A lot of these things cost next to nothing, but require a fair bit of time. I’m learning that one of the keys to resiliency, which is what we’ll need most of all in a Depression, is willingness to give up time to save money. When your time is charged out at $200/hour, or when you’re paid $50/hour, it’s easy to shrug off tasks that on the surface don’t seem to be ‘worth’ that much. Why do something yourself when you can pay someone $20/hour to do it for you, better than you could do yourself? Because it makes you dependent. And when the Depression comes and you can’t afford $20/hour, you won’t have learned how to do it yourself.

And time is much cheaper than we think: Every minute we spend walking, cycling, exercising, adds three healthy minutes to our lives.

Investing in these ten things could also make us more dependent on the Internet than we are already. Many readers thought I was unnecessarily worried about the Internet going down in the next Depression the way phone service did (tens of millions cut off for non-payment) in the last one.

I respect the fact that the software of the Internet is resilient and relatively low-cost. My concern is the related hardware, and keeping it running. When the utilities start laying people off, blackouts and brownouts will become more frequent, and last longer. Electricity and telecom costs could soar relative to average incomes, making the Internet an unaffordable luxury for most. The physical infrastructure of the Internet — servers, networks and systems — won’t be maintained if everyone is out of work. And the shoddy computer hardware that most of us are forced to struggle with could easily become too expensive to maintain or replace.

So I’m worried about the Internet, and while our investments in the ten things above will be largely Internet-dependent, I’m also looking at a Plan B that will work even if the networks go down.

If readers have other thoughts on ‘safe harbours’ for investment for when the US dollar, and hence the global economy, goes into free fall, I’d like to hear them. Is gold really a safe investment? What’s the least expensive way to move your savings into Euros? Where else are you moving your savings?

I really hope I’m being unduly pessimistic about all this. The value of any currency is, after all, strictly psychological — it’s worth whatthe people who own it think it’s worth.

Just like in 1929.

P.S. For those who have been asking about my progress with the Shangri-La Diet, my latest update is here.

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14 Responses to What Should We Invest In If the Economy’s Going to Collapse?

  1. James Samuel says:

    My partner and I have some money that at the moment which we are living on. At the same time we are investing in social capital – a longer conversation which would be fun to have sometime. But some of the activities include a trip to an African Learning Village recently was a fantastic investment. Time spent helping bring forth a library of documentary film on subjects which help us to understand the world we live in – I am a fan of film as a medium for making difficult subjects accessible. Getting a community garden established, and a garden at home – ie investing in the learning process of how to grow my own food, can never be underestimated. And for a massive collection of inspiration check out the latest book by David C Korton The Turning Point – which I just posted an inttroduction and links to.

  2. James Samuel says:

    And thank you Dave, for the clear pictures you have painted of the options for those of us who see big changes coming and who are seeking ideas, for how best to respond and participate in the challenges and opportunities.

  3. James Samuel says:

    Dave – PLEASE delete some of these entries – I am so rushed and want to appropriately honour this man and his book:The Great Turning – From Empire to Earth Community – David C Korten

  4. Matthew J. says:

    I wonder, and do not actually know, what the actual inputs, resources, and industries are to keep an information network (perhaps not the internet in its current form, but something similar), up and running. I hear that fiber optic cable, which exists even here in a rural area of a rural county of the rural province of Nova Scotia, is pretty durable and not super hard to create. But the electronics, especially the wireless, are beyond me. I was born after radio shack stopped offering the actual components to a radio. I wonder if these things, with the appropriate infrastructure, could be maintained, maybe even produced, much closer to home… Maybe somethign for me to look into.Thanks for your writing Dave

  5. kerry says:

    Dave, I didn’t find your post pessimistic at all. On the contrary, it represents a hopeful shift in values. And I have little fear, since I have never desired to amass wealth beyond what is necessary for me and my immediate family to have a certain level of comfort. Thanks for the positive thoughts!

  6. kerry says:

    Actually, one more thought. It would allow us to enjoy wealth. The wealth of a balanced, healthy, sharing community, instead of the wealth of fast cars and jewellery. We would rediscover our creativity and what it is that we really desire, deep inside.

  7. Dave Pollard says:

    James: Thanks for this. I have Korten’s book on my list (I loved When Corporations Rule the World). I was going to use ‘social capital’ as point 8 but then I thought some people would get turned off by the jargon. Love your domain name (ihug)!Matthew: That’s useful to know. Anyone else have any knowledge about how easy/hard it would be to keep the Internet together if the big boys walked away?Kerry: Exactly. Suzuki uses the term ‘genuine wealth’ but the word wealth has become so polluted to me that I’ve stopped using it metaphorically, and now use it only in the negative sense of horrific mis-distribution and hoarding of Earth’s resources.

  8. Mariella says:

    I fear more a climatic collapse, than the dollar collapse. Now, put them together…. I was thinking about water, greenhouses, seeds, …. solidarity.Perú, (my country) has 84 of the 114 eco climatic systems, 44 etnias, 14 linuistic families…. our bio/cultural diversity is so rich….. yet so fragile.http://www.rumbosdelperu.com/ecologia_articulos1_perumegadiverso.htm Maybe we could consider our bio cultural diversity reserve as a safe place where to move at least a small part of our investments.

  9. Peter says:

    We have a discussion group going on The Great Turning. Everyone is welcome to join.http://www.karavans.com/forum/showthread.php?t=28

  10. randall says:

    Regarding the infrastructure required to keep a network running… You would need:- reliable power for all locations, (solar, wind, and batteries to store energy)- Server(s)- Client computers- Wireless access point equipment- Switching and routing equipment- cables, patch and long-haul- spares of all equipment- repair and test equipmentIf the Internet is “off”, then the next best thing would be to establish a replica (as much as is practical) using open source software, and cheap commodity hardware.

  11. randall says:

    please send an IM to rrnwexec (yahoo, AIM, gmail chat) if you want/need more info.

  12. Joe Deely says:

    Just in case anyone is interested …The chart in this article is taken from an article written by a financial planner who is a proponent of gold. In other words, by pushing that inflation is actually higher he can make more money.The change in inflation calculations was part of work done by the Boskin Commission in 1996. Michael Boskin, who chaired this commission is an economist at Stanford. For an extensive, peer reviewed look at these change, seehttp://www.csls.ca/ipm/ipm12.aspOf course, most of the economists doing this review are also part of the great conspiracy… so be careful.

  13. Joe Deely says:

    One more thing…I think all of Dave’s ten suggestions are good ideas.I would add – build a strong family.

  14. I have to agree that build a strong family should be on the list. During the last depression, many families survived by pulling together and helping one another. Building a strong community would also be along these lines. One couple with helpful, hard working, skilled children who all work together would be much better off than a couple whose children are lazy and greedy. Children are truly a good investment:)

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