Prepare for the worst and hope for the best 

We are in the midst of a global pandemic, no surprises there then, which has led to a complete shut down of the world's economy and however short (or long) a term of this shutdown, there will be consequences. Therefore I have been looking into what are the chances of this being a recession or even worse a, and apparently no one wants to say the word, depression. 

My mother is 82 years old and even she wasn’t alive during the last Great Depression, only having been born 2 years before the Second World War. So even she has never truly experienced an economic depression and what that entails. She did, however, grow up with the same mindset which was instilled into her from her parents who did experience the depression and then rationing during the war. 

But before we go there let me explain what I have looked into over the past few weeks in my research and preparation. 

In the words of Ray Dalio, he states that the economic machine and it is a machine with so many moving parts that it is unfathomable to try to predict what one thing will do and silly for people to say it is controlled by one party or group of individuals. This machine has 3 major fundamentals;

1. Production or productivity which you require to grow. Let’s take a very simple example, a farmer has no tools and so digs out his crops with his bare hands if he has tools and fertiliser etc. His crops will produce more yield and he can sell more thereby increasing his productivity. Where does he get the tools and fertiliser from or more to the point how does he purchase them? He has to borrow or get a cash loan to purchase the necessary items to increase his productivity.
2. The second part of the machine is the short term debt cycle. So history has shown us that for productivity to increase people need to borrow or get credit. This credit is part of the debt cycle. On average a short term debt cycle is one where the credit increases for a certain amount of time until liquidity in the market drops and then the growth drops causing a recession and on average these recessions are every 7 to 10 years or so. This is why it called the short term debt cycle.
3. Thirdly and lastly overseeing all of this and running in the background is the long term debt cycle, whereby the global economy, even though having been through the troughs and spikes of the short term debt cycles the productivity keeps growing until it reaches a certain point whereby there are multiple factors in the global economy which allow for a very large recession otherwise known as a depression. On average the long term debt cycle is anywhere from 75 years to 100 years. The last great depression was in the 1930s nearly 90 years ago. 

The next thing I researched was there are 3 types of recession;

1. A ‘V’ recession which is where the economy has a sharp drop but bounces back very quickly if you imagine a linear graph it would make a V shape. 

2. A ‘U’ recession whereby there is a fairly sharp drop in the economy and a slightly slower return to normal, which if you imagine a graph the shape would form a ‘U’ shape.

3. Lastly, there is the ‘L’ type recession which depicts a sharp drop followed by a much slower return to normalcy which if you can imagine would take the form of an ‘L’ shape on a graph. 

Therefore many experts are keeping a close eye on China to see how their economy reacts after they release the lockdown. Although it has to be noted China has a massive domestic GDP that is most likely not so relatable around the world. 

Now obviously apart from Bill Gates no one in the world could have foreseen this crisis coming and the way in which most nations around the world would have responded. For many of us, we are anxious about the future and it is so easy to make armchair comments in ‘hindsight’ about the rights and wrongs of what actions should have been take and what actions have been taken. So here we are and according to most economic experts we were expected to have a financial crash with or without COVID-19. 

What is it then we can do?

Hopefully, this is merely a ‘V’ shaped recession and because of many of the stimulus packages that Governments are implementing we may find ourselves back to normal in a very short space of time. But that does not change the fact that a large recession is imminent and that this was simply the wake-up call. I myself am still being too frivolous with my spending ordering things online that I ‘need’ for my fitness and my health, which is clearly an excuse. If you are not looking or at least thinking about your own personal finances at the moment then you are clearly kidding yourself and hiding your head in the sand. 

What am I doing? Firstly I am taking a serious look at all of my expenditure and getting ready to slash any unnecessary costs and bills that I do not need to make including reducing the amount of food I eat to the point I only need one or two meals per day. Secondly, I am looking around for lots of free online training and any online bargains that will only enhance my prospects in the future. Thirdly I am starting to study how many rich people survive in economic downturns and what is it they do that I can learn from. 

What do the rich do? 

From what I could gather they do not save cash and hold onto it. They do not play games on the stock market. They do not live beyond their means and that started even before they were rich for most if not all of them. They do initially save cash so as to buy commodities like silver and gold, possibly even Bitcoin and Altcoins. They do not trade these commodities in but keep them as a guarantee for the day when cash becomes virtually worthless overnight. Another thing they do is they buy land or real estate. Yes for many of us that’s a pipe dream, but if you look closely enough there are co-op structures and if you want real estate as an investment then why not look up to the North of England or cheaper areas instead of dreaming of buying in London?

To be able to buy these things takes time obviously and if we have missed the boat because we are already in another great depression then prepare yourself mentally. It is the 'strong' that always survive and we have had it far to good for far too long. Prepare yourself for the worst and at the same time try to remain positive and hope for the best.