World GDP in US dollars is officially down by 5%, and falling. At the lowest point of the crash in 2008-2009, it was down 10%. Every commodity price has fallen by about half. Central banks around the world are resorting to negative interest rates because the lowest rates in recorded history just isn’t enough. Nobody noticed the last time events like these occurred, in 1929, because after all, the stock market was making all time highs. The economy must be doing great right?
Watching the news every night, you’d never know the global economy is falling fast. But political leaders, bankers, and institutional investors know, and their actions are very revealing. Ever wonder why interest rates keep going lower, and lower? Most people don’t, they just think they can now buy a more expensive house. That’s the intended purpose of lowering rates, to have you take on more debt, buy a bigger house, get a new car, etc.
The economy is in much worse shape than you’re told, and your leaders are desperately trying to revive it by encouraging you to buy things on credit, because they know you can’t afford to pay cash. If consumers could afford to pay cash, the economy probably wouldn’t be in the mess it’s in. We’re tapped out, overextended, and extremely vulnerable to an economic shock.
The music will play on though, right until the bitter end when the passengers on the good ship Titanic finally notice the ship is listing and their drinks slide off the table right in front of their eyes. It was noted that after hitting the iceberg, crew on the Titanic were reluctant to “alarm” passengers, and passengers were not interested in being alarmed. Everyone was having a good time listening to the band, drinking, and dancing the night away. Even when it became obvious the ship was going down, few were interested in leaving the warm, music filled environment of the ship to get into a lifeboat out in the cold night.
The first to leave a sinking ship will have the best chance of surviving, while those who prefer to deny the reality facing them won’t react until they’re flung overboard by a 90 degree ship on its way to the bottom of the ocean. Of course, it’ll be far too late by that point for a reaction to save anyone. I use this analogy because right now, we are the passengers on the Titanic. We’ve hit the iceberg, we’re taking on water, we’re watching our supposedly unsinkable ship begin to sink, and some are reacting, but most are in denial.
Humans are simple. Winston Churchill knew how simple they are when he coined the phrase, “a chicken in every pot.” At the time, England was being attacked by Germany and the English people were panicking. Many were trying to flee the country, or loot and steal in order to eat. England tried everything to bring peace and order, but nothing worked. That’s because they didn’t understand human nature, but Churchill did. He knew that if you give a person something as simple as a chicken to eat every day, he’ll believe things aren’t so bad, good even. People project their reality to the entire world, assuming the world is much like what they experience in their day to day lives. For example, if someone has a good job making good money, they believe the world economy is doing well, and conversely, if they can’t find a job, or can’t get a better job, they believe the economy is terrible. Putting a chicken in each person’s mouth every day convinced them that although bombs were falling and war was everywhere, things weren’t that bad.
That’s how it is today. Those with good jobs are convinced the economy is doing well, though the signs tell a different story. In the oil and gas sector, everyone was confident in the world economy, their jobs, and their future because they were insulated from reality. Then oil crashed by over 50%, thousands and thousands are losing jobs, oil producing regions are panicking. Suddenly, the economy is in terrible shape and someone needs to do something about it!
That’s how social and political unrest is born. People’s reality is burst in an instant. All their hopes and plans are snatched away before their eyes with no warning. Once the shock wears off, anger sets in, or for some, sadness and fear, or all three. Politicians fear this, because they understand how quickly they can have thousands of protestors demanding their resignation if economic conditions get bad enough. This is why the evening news has a decidedly optimistic slant to it, with bad news filtered in at times, but always capped off with a positive spin. An example is how low oil prices are good for consumers, and this may in fact outweigh the negative effects. History proves otherwise.
This is where financial advisors can be very valuable, by educating and informing their clients, so they are aware of the economic risks facing them, as well as opportunities. At Financial Advisor Vancouver, we consider this to be our responsibility, since most people aren’t interested in following economic news, at least not in detail. We at Financial Advisors Vancouver can not only get you to retirement faster, but they can also help you avoid the pitfalls along the way.
About the Author
Michael Yates is a Vancouver Wealth Management expert.