In 2006 I made a flippant prediction of the 2008 financial crisis. I got the details all wrong, but the root cause and the end results were mostly correct. This time, with a similar rumbling in my gut, I’m making another prediction of financial doom, and considering how to react to this feeling.
Fool Me Once
On a 2006 visit to the US, my father-in-law commented that people in the US seemed to live much more comfortably than their Korean counterparts. I explained to him that a lot of this comfort was made possible by unsustainable personal debt, and the modern American lifestyle was a house of cards that would collapse and lead to economic catastrophe. (Fun fact: 800B of debt is carried by over 50M households – an average of nearly $17K per household!) It was a flippant prediction: I didn’t think it through, didn’t back it up with numbers, and didn’t follow through. Nevertheless, two years later it all came to pass in the form of the Subprime Mortgage Crisis.
It’d be wrong to say I called it, and I’m making no such claim. I had no idea it would be housing debt that would ultimately break the bank. I also had no sense of the timing – even if I’d been bold enough to place a bet on my statement, I doubt I could have made much money. I didn’t know that the financial back-end was acting as irresponsibly as the consumers borrowing into it. But my gut was correct: that something was horribly rotten in the area of household debt, and that in the end it would result in a systemic failure above and beyond personal bankruptcies. In some very abstract sense, I did call it.
Won’t Be Fooled Again
These days, much more than ever before, I can’t shake the feelings of impending economic doom. My observations from 2006 still stand, and if anything the situation is a lot more dire than it was back then. In addition to a population living well above its means, with an average consumer debt of $7800 and national debt of $47,500 for every man, woman, and child in the US, now we have a hamstrung government that is not even sure whether or not it wants to pay its federal debts, let alone what we should do to solve the problem. At this rate, will we even be able to orchestrate a bailout the next time we have a massive breakdown?
I predict that over the next 10 years, the US economy will see a series of corrections, as the market adjusts to match the reality of a rotten system, and consumer and federal spending/debts adjust to bring themselves closer to their means. Because of tremendous social/political inertia, I predict these adjustments will be largely reactive and forced, rather than proactive and voluntary. In short, I believe we are in for an extremely bumpy decade, and that’s if we’re lucky. If we’re unlucky, it’ll all come crashing down at once, there will be massive tectonic shift in the global political and economic landscape.
Just like in 2006, I have no idea how this will all play out. But this time around, rather than simply making a flippant prediction, I’m trusting my gut and am beginning to take action.
In 1999, I laughed at the paranoids wringing their hands about the Y2K problem and stockpiling food, water, and weapons for the impending global collapse. Twelve years later, I’m that guy. Here’s my checklist.
Investments. Without going into details, I continue to bias my investments internationally. As a US citizen and resident, I am implicitly so heavily invested in the US that regardless of my outlook on the economy I should invest internationally as a hedge. In light of my views, I will increase and target my investing bias over the coming years.
Career. My career perspective is that in times of uncertainty, one should focus on getting the basics right. My mental model of industry mirrors Maslow’s hierarchy of needs, with soft skills at the top of the pyramid, and tangible contributions forming the base. This hierarchy exists at both the industrial and the individual career level. In industry, intangibles like media and advertising form the top of the pyramid while necessities like farming and construction are at the bottom. For the individual, it’s politics and communication up top, product design and development down below. I’m dismayed because everywhere I look I see a race upwards. Companies like HP, the largest PC business in the world, considering dumping their hardware business to focus on enterprise software. At the career level I see people all around me, particularly those working in large companies, sprinting into abstraction as fast as they can. Having invested the last 20 years in Computer Software, I can’t easily change my industry and will remain in the upper-middle of the pyramid. But from a career standpoint, I continue to bet heavily on grounded skills concerning the design and production of software, since I believe these will always be truly valuable even if the “margin” may be slowly eroded through globalization.
Residence. My biggest contingency concerns my physical residence. I spent the first half of 2011 traveling around South America and Southeast Asia. The primary purpose of this trip was honeymoon and relaxation, but a secondary concern was to build a better understanding of the developing economies of the world. On each stop along the way, my wife and I tried to understand the economy and quality of life in each country. Our final stop ended up being Seoul, my wife’s hometown. Under different circumstances I would not consider living in Seoul, due to language and culture barriers. By the end of this trip I will have been here for four months, and I may come back again next year to stay for a longer period. I believe Korea an ultra-industrious, ultra-dynamic country with its feet firmly on the ground, and that as an American I can learn a lot from the way of life here. I’ll be posting those findings here as I find them (e.g. on healthcare, local business). I firmly believe that families with a footing in two or more countries will have a much easier time navigating the upcoming economic and social challenges in the coming decades. I still have many reservations about moving here for the long term, but I want to keep that option open and be prepared with a solid network and the basic skills to live here comfortably and happily.
Activism. This is the fuzziest item on my list. With a problem as big as the one I am observing, it’s really unclear how an individual can contribute, but I’m slowly working out my plan as it relates to US competitiveness and sustainability. This blog is my first step: a mental sandbox as I start to try to understand what’s going on. In parallel, I am working on creating a business in the personal finance domain targeting the US market. I believe that responsible consumer investment is a powerful lever to address some of the major concerns. And finally, I hope to increasingly contribute to causes in line with my belief system.
I am increasingly pessimistic about the US economy, and while I lack any detailed proof or substantiation, I have tried to articulate the basis for my sincere concern. At the 10,000 foot level, I’ve also outlined what I plan to do about it.
Do you agree with my prognosis? If not, why not? If so, what do you think about my response? What are you doing about it? Do you know any meaningful efforts towards creating sustainable lifestyles and economic competitiveness? Please add your thoughts in the comments.
Image courtesy of Esther Gibbons on Flickr under Creative Commons license.