March 28, 2014 by Liberty
This is a question that I’m glad was brought up. There are a lot of fear mongers (in the most polite way possible) in the liberty movement. Most predictions of the economic problems are accurate but many people take those arguments way farther than they should be. There have been people predicting the “final collapse of the American economy” for over half a century.
I’ve been putting a lot of money in gold recently. I’m a little disappointed though. I keep watching the markets going up and it looks like I’m losing out on a lot of potential gains. I know the second I put my money in stocks the economy is going to crash but it’s tough to watch it sitting there. When are you predicting the economy is going to collapse?
The first and obvious answer is, I try not to predict. There are many experts predicting major problems within the next half decade. Unfortunately, many of those same experts have been predicting major long-term problems in the American economy since the 1970’s.
The American government is digging itself into a hole. Every year it’s flooding more and more money into “stimulus” that doesn’t work. The debt and unfunded liabilities (otherwise known as debt and more debt to the average person) is at a level that can never be practically paid off. Short of a few miracles, the collapse is inevitable.
Those experts predicting problems in the US economy are right when they look at the problem. Where they’re wrong is in the creation of a timetable. The economy is not a clock or a mathematical equation. It’s hundreds of millions of people making hundreds of millions of decisions. It’s (essentially) unpredictable. Does that mean it’s impossible to predict a collapse of the American economy?
Not exactly. This is going to be a long explanation but bear with me, I think it’s worth it:
A free market economy strengthens itself over time. (Cars get faster. Train moves quicker. Computers get cheaper.) That strengthening makes it very difficult for a major collapse to occur because the problems are always being solved when they’re small. Banks that provide bad loans don’t survive. That means bad loans don’t survive to be in big banks.
When an economy loses that aspect of free market in any particular area, the markets weakens (relative to everything else) over time. The incentives to correct problems go away. (Or are replaced by people’s “good intentions” and good intentions only go so far.)
Every year the American economy is weakening the free market and replacing it with government mandates (like Obamacare or bank bailouts.) That means it becomes easier and easier for major economic catastrophes to occur. It doesn’t matter what the economic catastrophe might be. There is no way to know when that economic catastrophe will occur because we’re breaking new ground historically speaking. There has never been such a monstrosity created. Most reasonable predictions would have already seen it collapse.
All we can really predict confidently is that it’s become more and more inevitable by the year and that the severity of that crash is going to be worse the longer it takes to happen.
In the short term, you can expect more and more of the minor economic problems to be longer and more severe. Crashes like the real estate bubble are probably going to become more common.
Instead of focusing on specific dates and relying on their accuracy, you should be adjusting your asset allocation to a formula that doesn’t require prediction. Using stock options you can invest in stocks without most of the risks of the bubble popping. You can either protect the downside of the stocks you’re buying. You should still have a reasonable percentage of your assets in metals (I like around 25%) but you can take some of the gains as long as the bubble is building.
Prediction is a game that’s very difficult to win. You don’t want your portfolio to require prediction to grow. That’s a recipe for disappointment. Just set yourself up in a way that accounts for the possibility that these economic bubbles could last a very long time without exposing yourself to too much risk.
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