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When problems converge
But this time all three have converged in one time and place. It's an unprecedented Triple Crisis. And despite repeated Wall Street attempts to deny it, the severity of the Triple Crisis is undeniable: We have the worst food and energy price inflation since the early 1980s. We've just seen the worst surge in unemployment in 22 years. And ... Financial institutions continue to book the biggest losses of all time, with more than double the losses yet to come, according to the International Money Fund. These are not hidden facts. They are irrefutable, blatantly obvious and reliably reported numbers. What is most remarkable, however, is the sheer speed of events - a fact that not only substantiates reality of a Triple Crisis, but also implies the presence of at least three vicious cycles: U.S. banks and lenders, recoiling from the massive numbers of mortgage foreclosures, are dramatically tightening lending standards - a move that makes it far more difficult for American homeowners to refinance their mortgages and triggers still more foreclosures.
Surging commodity prices are driving up the cost of virtually every product and service in America. These rises, in turn, are driving investors from stock and bonds into commodities and tangibles, pushing prices up even further. The recent strength in retail sales is an aberration - a one-time blip caused by consumers spending their rebate checks and by the higher prices on many items they had to buy. If you make your living in the Money, Stock or Commodities markets, an important part of your strategy is to go on the offensive and pursue profit opportunities in commodities, foreign currencies and foreign markets: gamble or speculate on the wild swings in those markets, go all or nothing! But, if you are not a Wall Streeter, your only option may well be a solid defense. So, let's look at our situation in (1) economic, (2) social and (3) political perspectives. 1. In an economic sense Your First Defense: Cash The most important step is to reduce cash outflow. The second concern is to fight inflation. And, third, you want it to still work for you and your family. The most important step is to reduce cash outflow. No matter what may be happening elsewhere, today's uncertain environment mandates a healthy access to cash. But don't blindly assume that cash must be stashed in a bank. U.S. banks pay far-below-market rates on personal checking accounts. On business checking accounts, banks pay you no interest whatsoever. You do get better interest with CDs. But there, your liquidity - the access to your funds - is severely restricted by early-withdrawal penalties. Instead, I recommend that you sit down with your Banker, and… Set up a Payroll Direct Deposit flow to your Savings Account-to-Checking Account with a minimum in checking. This will max your TINY earnings and protect against those HUGE overdraft fees. Get a Debit Card. Carry a Check Register and record every transaction. Watch your balance. Take your credit cards out of your wallets/ purses and put them in a safe place for carefully planned uses. Begin paying a little extra on the principal to reduce your highest interest debts. Challenge yourself (and every family member) to show how a reduction in spending (cash flow) is being made. The second concern is to fight inflation. There are 3 principals at work where we are dealing with the necessities of life: Do not buy at full retail prices. Search for or wait for discounts, use coupons or delay purchase unless it is an essential replacement. Start seriously comparison shopping and consider 'store brands' which are usually the same quality as 'national brands' where you are paying the extra for advertising. And, of course, if it makes sense, buy in bulk (toilet paper, paper towels, napkins, plates, detergents, etc.). Now is a good time to totally re-evaluate personal and family transportation needs, meaning both the vehicles and the trips to save on ownership costs, gas pump costs and wasted trips. And, third, you want your money to still work for you and your family. This is easier than it seems at first thought: Invest in yourself and family members, not "things" which wear out and continue to cost more to own and operate. Education. Community colleges and trade schools to increase earning power. On-line Free courses. Many colleges and universities now offer free courses. High quality, long-lasting tools to save time and money or to earn more. 2. Remember that the family is the 'molecule' of society; that is, it is the smallest unit of society that reflects the whole; they mirror each other as the thread does the blanket. We know from research with large numbers that there is always a 'median' point at which one half is found above and one half is found below. Understanding and watching for the 'median' behaviors in society will serve both the individual and family see trends to guide our decisions. Clear family and community morals and values (threads) build the cloth (blanket) of society.
Editor's Note***Part II will be published next week.
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