30 December 2007

Can You Spell R-E-C-E-S-S-I-O-N?

I've been telling friends and colleagues this for months, so I thought it would be interesting to put it in writing so I can look back in a year and see how right (or, hopefully, wrong) I will have been:

We are headed for a big crash in 2008 -- as in recession, maybe even depression.

I normally do not follow the economy very closely. Not sure why. We don't buy on credit and the only thing we owe on is our house. No credit cards, no other debt of any kind. (When I bought my new car a year ago this weekend, I paid cash. I am not rich; I put away money during the eight years since I bought my last car. I probably saved about $15,000 in interest charges.)

We stayed away from the re-finance bandwagon when housing interest rates fell. We have a relatively low rate, so why change? We also stayed way far from the "sell your house for a huge profit and buy something you can barely afford" contingent, content to stay where we are.

So, why my interest now? This could be the first time in my lifetime (and possibly last) where we as a country have gotten ourselves so far underwater that it might actually change the course of our country's history. As a journalist, it is intriguing to watch -- no experience -- history in the making.

Next, look at the indicators:

value of the dollar very low
price of oil obscenely high
number of mortgages in default at near-record highs
amount in personal savings accounts very low
amount of credit card and other debt very high

It does not take a Nobel laureate to see the writing on the wall. We, America, are in for a very rude awakening sometime in 2008 (probably).

My advice: pay off as much of your credit cards and other bills as possible (to save on interest charges), start putting away everything you can in savings (to start earning interest) and hold off any major changes (new house, new job, new family member) for 12 months.

Hopefully, by this time next year, we will have a much better grasp of the global changes underway and will be better able to make choices.

You can read more about the financial future here.

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