What can I do about this crisis, ask anxious readers.
This is just the sort of public-spirited citizen Uncle Ben's been looking for. If you have, say, a few billion you'd like to use to goose the markets . . .
Ah, you want to know how to protect yourself from the fallout?
Ummm . . . . good question. Pay down your credit card debt as fast as you can. You might think about skipping dinner and a movie this month and applying that towards the Visa. Of course, this was good advice a year ago, and it will be good advice a century hence, so I'm not sure how much this helps.
But other than that, there is no virtuous behaviour you can undertake now that will let you avoid whatever economic fallout emerges from this. If the credit markets contract violently, you will be just as likely to be laid off if you live in a small, sensible house as if you live in a big, extravagent one. Your Mean Time to Bankruptcy (MTTB) will be longer . . . but at this point, it's probably a little late to start regretting your past consumption.
Unfortunately, other than the unhelpful observation that "it's probably not a good time to buy anything on revolving credit", I don't have much advice.
I'm increasing my 401k contribution. You need to buy when everyone else is selling.
If you expect aggressive Fed action, i.e. inflation, then your debt will decrease in real terms. So why rush to pay off the credit cards?
The question is, has Gold topped out - or is it about to surge again on a freshly thrashed dollar?
Seimens is down nearly 20% today they can't compete with GE due to the soaring EURO. Airbus prices its planes in $ but pays its employees in EURO - they are on the ropes. BMW announced 8000 layoffs in Europe and is moving to vastly increase production at the Spartenburg SC plant.
Because if the credit markets are really hosed, the Fed will have great difficulty inflating the supply of money and credit, which means you could end up with effective deflation, or sky-high interest rates.
then, there's this take:
http://freedominourtime.blogspot.com/2008/03/why-arent-we-furious.html
which we have going for us..
In the entire history of central banks controlling a fiat money supply, has deflation ever happened?
Sure: America post gold-standard, Japan in the 1990s/2000s, just to name two.
Don't skip the dinner out. Think about remodeling your house.
Look for the good deal. The newspaper and my mailbox are full of restaurants offering deals and discounts. And the remodelers are on the way to that as well.
Consumption is cheaper now, so you should increase your consumption.
Well the Japan example is not just true but relevant; their central bank got to the point where it was trying to push nominal rate targets to zero.
But by some peoples' reckoning, and mine too, there's a difference between completely severing any connection between gold and the dollar like was done in the 1970s (which preceded very high inflation) and throwing a wrench in it the way FDR did.
I have never in my lifetime seen any significant deflation in the U.S., and if I were twice as old that would still be true. Even during the fastest periods of growth of the last several decades, the economy's growth has been outpaced by growth in the money supply.
If Bernanke were to start targeting higher rates (hard to imagine until he sees better growth numbers), what we'd see would be slightly slower inflation. What is likely is that monetary policy becomes impotent, if it isn't already,/ and the FOMC doesn't target any more rate changes for a while. But just because you're not targeting a lower rate doesn't mean you're not inflating! The money supply still grows.
Normally I find myself telling people to stop reading so much Rothbard, but people who worry about deflation (even now) should probably read more. Stagflation seems much more likely at the moment. Not a rosy picture, but it won't make your credit card balances higher in real terms, either.
"Don't skip the dinner out. Think about remodeling your house."
I agree. I lament buying when I did, but I got a good price on a fixer-upper. Contractors are really hungry for business right now, so that fixing should be cheaper. Prices on large durable items, like furnaces, heat pumps or central air units are way down, and local contractors are offering all sorts of deals on installation. I figure thes are items scheduled to go into new developments that are not being built.