Frog Legs

Currently, we are on the downswing of a relatively major business cycle. I mean that in the context of the Austrian model. What that implies is a contraction of a credit-driven economy caused by unwinding of credit.

Credit can expand only so far, that intuitively makes sense. For some reason, the supposedly smartest people around cannot understand that rule applies for an entire economy just the same as a single family. Ludwig von Mises succinctly stated that, “Credit transactions are in fact nothing but the exchange of present goods against future goods.” You can only borrow against future production to a limited extent. Eventually it becomes time to pay the credit off, and to accomplish that you have to tighten the belt. That’s what we are experiencing now. Everything in the news, from the “credit crunch” to decreasing housing prices to decreasing gas prices is simply an indicator of that economic contraction. None of those things themselves are really a problem, they are in fact corrections to the real problem, artificial economic expansion that occured as a result of cheap (and unsustainable) credit.

The coming few years may be very interesting. There is a saying (perhaps incorrectly) attributed to being an English translation of a Chinese proverb which goes, “May you live in interesting times.” We are now living in interesting times. With the coming economic contraction will come high unemployment, unmanageable debt and possibly civil unrest. Along with this will come opportunity. Assets will be less expensive.

What can you do?

Minimize and eliminate debt.

Be mobile, consider selling your house if you own one. If you need to move to follow a job suddenly, you don’t want a house holding you back.

Save. You should have several months of savings. If your income dries up, can you continue to feed yourself and family until that income is replaced?

Be flexible. You should be able to accept a lower salary if need be. That means you should be living well below your means. You may also meet the “living below your means” in other ways, such as growing your own food. Learning to can and store food for long-term. Earning income independently. And probably other things which don’t come to my mind right away.

Personally, I look forward to interesting times. Living in a time of prosperity and easy-living seems boring to me.