Crisis of Credit explained

Comment

Comment by Steve Hand on August 23, 2009 at 11:35am

Laurel:
I have thought about this question since you posed it. In my own life the focus has been on adding passive income but that is not a commonly available option. It also takes time and I am not sure that is a luxury this economy will support. Imagining a serious downturn, like the Depression, I applied thought to what would make a difference. Barter will be commonplace and people will trade services for simple goods. One easy and completely available solution is to invest in tangible assets. Specifically precious metals. I do not recommend buying more futures and paper assets (although, hopefully, you already own those.) Rather, purchase actual commodities. Gold has limited use and is already highly priced. Platinum is fine, so is copper. Any long term strategy should include a mix of all types. Based on research my current preference is silver and it seems to be well positioned. There is a surplus and that keeps prices low. It has a lot of uses (solar collection, batteries, etc) and has a wide distribution network. You can buy in very small quantities which would facilitate regular transactions. 1 oz is under $20 and you can get .999 pure silver in coin or bar form from a number of mines.
If the economic storm never materializes, you can simply resell it later.
It is reasonably liquid, low risk, and the upsde potential is high.
Last week the Chinese government recommended all its citizens start buying so I imagine the price will surely rise.
This is food for thought.

Comment by Steve Hand on April 12, 2009 at 8:28am

The simple answer is not to buy what you can't afford. Don't expose yourself to any unneccessary debt.
That's not part of our typical lifestyles, though, and most of our financial systems discourage this behaviour.
Drive off the lot with a depreciating "asset" and car payments that will outlast the life of the car. Instead, buy what you can afford. Pay cash for your car.
Unfortunately, to get us out of the current credit crisis the Federal Reserve is printing money at a breathtaking rate.
Inflation may make the simple solution above largely impossible.
This is an important topic for discussion.

Comment by Steve Hand on March 8, 2009 at 11:06pm

The answer is not easy but always goes back to the basics...supply and demand, rational valuation, etc.
This was all caused by an excess of greed. After the collapse, the result is growth of fear. Neither are healthy.
This example ties tangible assets to rates of return. What amazes me is how many people depend on their investments in paper assets without understanding how the market works. This crisis was inevitable and may very well extend to other areas.
Please consider that this all takes place at the macro level. Your personal situation may differ at the micro level. I am very optimistic in the long view, although concerned about bailouts and nationalization of industries.