My only investment advice ever

I am a pretend economist who refuses normally to give out investment advice but…

Get the hell out of there.

Don’t think about how we’re at the bottom of the market. You can’t know that. The bailouts Bush is talking about are unheard of. All anyone seems to want is a “solution” when it’s entirely possible that our economy is irrevocably screwed up and needs to be given time to resolve itself. We have no idea what the result such violent intervention may be.

Where is the money going to come from for any proposed bailout? Further public debt. There are no sudden proposed tax increases that will pay for this. After all, we don’t want to actually feel the effect of bailing out a private corporation. Instead, it’s going to be dumped in a seemingly unending pile of private and public debt for which America is liable. A quick and dirty way to estimate how much a private entity is worth is to subtract its liabilities from its assets. By that method, America is coming very close to being worth nothing.

Paul Samuelson famously once said that economists have correctly predicted nine of the five recessions. To be honest, for all of my paranoia, I don’t think it’s more likely than not that the economy will collapse… but that’s not the full story. If there’s a fifty percent chance that, if you make an investment, you’ll increase your assets by 25% and a ten percent chance you’ll lose pretty much everything, would you honestly do that? Anyone who is still in the stock market is taking that chance.

With our impossible debt outstanding, theory is untested conjecture. There are no case studies in what happens to world dominating nations that have nearly bankrupted themselves. Knowing nothing else, what does that tell you about such a nation’s ability to repay its debt (t-bills)? Even apart from the standard issue skepticism everyone should have about the stock market, can we even trust the very fundamental foundation of our economy?

Until we start paying down our societal debt, whether privately or publicly, I cannot imagine a scenario where it makes sense to rely on our shaky financial system. Economists and financial advisers scorn at the notion that certain assets are more “real” than others. After all, “real” estate is especially illiquid and capricious. Some assets may still guarantee their value over others in times of extreme financial distress. Yet, what real value is there in corporation that fall to our monetary irresponsibility?

When this government gets off the short-run maximizing train it got on in 2001, business can continue as usual. Those band-aids of short-run maximization, whether they were in the form of “spending ourselves out of a recession”, championing the availability of a home to all Americans, or bailouts, may only be allowing our financial gangrene to fester out of view. Before that point is reached, when we rip off those band-aids, the only investments I could possibly recommend are a broad sample of precious medals, foreign currency, and commodity futures. Losing 5% of your real value to opportunity cost is not a steep price to pay so that you will not end up in the poor house.

In 1987, America’s banks lost more money lost more money than they had gained in profit in the previous century combined. Back then, the FDIC protected us from bank failure.

What happens when the FDIC fails?