Man made disasters, financial or otherwise, often repeat itself therefore the wise set up checks and balances (also known as independent controls) to deal with human weaknesses for the various systems concerned. However even with the best internal or external control system put in place there need to be constant monitoring or regulation of transgressions by wayward management or personnel i.e. humans. Therefore control systems break down where collusion arises or where regulators regularly turn a blind eye to transgressions of the system. Such irresponsibility and greed of man has happened before, occurred in this decade, and would happen again in the lifetimes of future generations. When and not how will be the question?
In 1989 after reading the book, ‘Surviving the Great Depression of 1990’ by Dr. Ravi Batra, I ventured to ask my elderly businessman friend who had since passed away, what happened during the Great Depression. The same gentleman who lamented that bank ‘collects umbrellas when it rains’.
The first thing he recalled, he was in his early twenties and a trader back then, was that there was ‘No price’ (Wu Jia). ‘No one seems to have any money’, he continued, ‘and jobs were scarce with many unemployed’. Does that sound familiar in the current dire happenings across the globe and the markets?
Malaya or the Straits Settlement as it was known back then rely heavily on the exports of commodities such as tin ore and rubber. Still do to a smaller extent. Her commodities exports now include crude palm oil, petroleum, gas, and cocoa.
Even with so many natural resources available compare to others, a country can still suffer the full blown effects of a great depression tells us much.
When people have no money, capital or credit, demand for any type of supply quickly dissipates. The current ongoing financial tsunami cum credit crunch is proving that simple economic theory to be true. Even if a country has surplus labor and/or land, so what, since money or capital is currently scarce all over the world.
Therefore countries are pumping in enormous sums of money into their economies as fast as they can, unfortunately to no avail it seems, since the control systems have failed miserably, no one knows the bottom of the abyss, and most of these countries actually do not have the means. Sooner or later, they too like Iceland, Pakistan, and some Eastern European countries, need to be rescued. IMF is quickly running short of funds while the rescued countries are requesting for more – there never is enough money to go around – in crises of a lifetime.
So whether the dire scenario would turn into a Great Depression 2 or not, readers need to look after themselves to survive the unfolding crises that have yet to stop.
Though another Great Depression did not happen in 1990 as predicted by Ravi Batra, some of his suggestions to survive one, may help. The most notable of which is for a family of four to set aside a savings of four years minimum annual income (to live), to survive a depression. The excess savings, if any, to be invested in safe or almost risk free investments.
If readers find his suggestions unduly conservative or ‘unworkable’ because it is already beyond their means, perhaps they can follow the suggestions by Suze Orman, a financial adviser who hosts her own show on CNBC (Saturdays in the USA, and weekends in Malaysia on Astro). The American people / audience should hold eight months of their monthly salary in savings to weather the ongoing financial tsunami, she suggests. On top of that they should also have huge savings in their retirement accounts. Start saving and minimize spending on unnecessary things is also her sound advice.
When we are about to see a repeat of history, the able has already gone into hiding since September 15, 2008. Amidst the dire scenarios around the world, do you really want to wait for a much delayed confirmation by eminent economists of a full blown D 2 to do anything to protect yourself and your family?
The choice as always is up to you. Of course it would be better to be safe rather than sorry.