2008 Recession or Depression is Likely

I’ve been doing a lot of reading lately. Most of it has not been of good news and all of it has been about the economy. The economic issues that have caused disruption and disorder in 2007 – the credit crunch, housing bubble bursting, and high fuel prices – are, by my estimates, only going to get worse in 2008.

Here, for example, is the number of subprime mortgages set to reset in the coming year, courtesy of the Dallas Federal Reserve Bank.

subprime

The economic difficulties that resulted from subprime mortgages going bad – loan portfolio writedowns, CDOs and other financial instruments imploding – all will only accelerate in 2008. Take a look at March, 2008 on the chart. From about $35 billion in resets to $50 billion – and upwards of 70% of subprime mortgages seem to be going bust lately. This is going to be a major economic shock.

On December 2, Venezuelan president Hugo Chavez may gain the power from his constituents to suspend oil production in Venezuela, according to the LA Times. Should he gain that power, he can throw America under the bus, as a hefty percentage of American fuel runs through the refineries of Venezuela. A fuel crisis just as the holidays hit would be a major psychological shock to the US economy.

How do you deal with this all? Well, prepare as much as you can. Investments are likely to be unsafe – double check your retirement and where money is allocated. Look internationally or in secured accounts, and soon. Cash is king; debt is your enemy. On the fuel front, if you have any option of switching off fossil fuels to biomass – even a wood stove – do so, or have the capacity to do so. If you’re economically able to do so, now is the time to trade in the gas guzzler for the most efficient thing your money can buy. Negotiate with your office if possible to telecommute as much as you can – if gas hits $4/gallon, not driving a day a week to work could pay for the fastest class of broadband available in your area.

It’s never a bad idea to have some emergency rations on hand. Brown and white rice store well in plastic, animal and insect-resistant containers, cook relatively easily, and last for months, if not years. Having a few gallons of water in your basement in sealed jugs is always smart, even in the best of times.

Be ready. 2008 is going to be a rough ride.

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