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 How To Cope With An Economic Recession
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Administrator
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Posted - 01/19/2008 :  22:31:50  Show Profile  Visit Administrator's Homepage
(Click Here For "The Next Banking Crisis")
Dear Members,

What I Did To Protect My Family From An Economic Recession

I do not have any expertise as a financial advisor. However, I can tell you what my wife and I did on January 14th to protect our savings against a possible recession.

On the advice of my own financial advisor (who has an excellent reputation), I got completely out of the stock market. My wife and I now have all our life savings in cash, guaranteed investment certificates, and bonds. In doing so, we lost all the profits we had made in the past year on the stock market (but that was the price we paid to protect our savings).

Why Am I So Worried About There Being An Economic Recession?

Over the past 5 years, the Bush administration has doubled the number of US dollars in circulation (by increasing the money supply by 17% per year for 5 years). In order to get these newly printed dollars into circulation, the Bush administration loaned this money to private banks at a very low interest rate (1%).

This literally swamped the private American banks with trillions of dollars of "cheap", newly printed money. These private banks literally ran out of "prime" (or low risk) customers; so these banks started to lend this money to "subprime" (or high risk) customers. (The banks did this by lending this money to mortgage companies etc. who then made the high risk loans.) Millions of people who lacked the ability to pay back their loans were nevertheless loaned large amounts of money.

Now, all these bad loans are coming back to haunt these banks. There are now 4 banking crises:
  • The subprime mortgage loan crisis: In the last few years, from 2 to 5 million house mortgages were given out to financially high-risk Americans who now can't repay these mortgages. The private banks are now exposed to $1 to $2 trillion dollars in bad debt from this blunder.


  • The subprime credit card crisis: In the last few years, millions of financially high-risk Americans were given credit cards which they immediately "maxed out". These individuals now can't repay their credit card debts. The private banks are now exposed to billions of dollars in bad debt from this fiasco.


  • The subprime auto loan crisis: In the last few years, millions of financially high-risk Americans were given auto loans which they now can't repay. The private banks are now exposed to billions of dollars in bad debt from this disaster.


  • The ultimate crisis, credit-default swaps: American corporate bonds are insured against default by a specialized insurance scheme called credit-default swaps. This insurance scheme is a major way whereby American private banks extend credit to corporations. The "credit-default swap" is a $62 trillion financial market. (Note: the entire US Gross Domestic Product for last year was $14 trillion.) Now it appears that many providers of these credit-default swaps are insolvent, and the banks will be left with their bad debt. Thus the resulting credit-default swap debt has the potential to be the mother of all banking crises.
Stock Market Crash

Here it comes, the stock market crash of 2008.

This past week has been brutal on the world's major stock markets. This occurred despite the European central bank arranging a $500 billion "loan" to the American private banks in late December. In this emergency bail-out, certain Arab central banks "loaned" well over $100 billion, and the Canadian central bank "loaned" $50 billion to the private American banks.

The "security" given by the American banks for these "loans" were the subprime mortgages themselves. Thus, if the American banks default on these "loans", the lenders (i.e., the non-American central banks) will inherit all these bad debts (i.e., the defaulted subprime mortgages). Thus America will export its subprime banking crisis to the rest of the world which, unlike America, will be left "holding the bag" (suggesting President George Bush is a genius.)

Tips On How To Survive A Recession

  • Get out of the stock market.


  • Keep your life savings in cash, guaranteed income certificates, or bonds (but not "junk bonds").


  • Pay off as much of your debt as possible (since interest rates may eventually soar).


  • Don't make any major purchases (e.g., car or house). All these high price items will soon decrease in price.


  • Hold onto your (disability) pension and government subsidized housing (if you have this).


  • Hold onto your job. A significant increase in unemployment is coming.


  • Most importantly, stay on your psychiatric medication. This is not the time to experiment with going off medication and risking the loss of your job or mental health.
How Long Could A Recession Last?

Honestly, I don't know.

The last recession in Germany lasted 4 years. The last recession in Japan lasted more than a decade.

Could My Gloomy Prediction Be Incorrect?

For all of our sakes, I hope so.

However, I lost one-third of my life savings in 2000-2001 when the dot com financial bubble burst on the stock market. I will never again risk my life savings on the stock market when the market is as volatile as it is today.

Let's try to do as much as we can to support each other in our support communities during the difficult times ahead.

Phil Long M.D.
Administrator
 (Click Here For CBC Radio Interview About "Subprime Mortgage Loan Crisis")
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Administrator
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Posted - 01/21/2008 :  08:18:12  Show Profile  Visit Administrator's Homepage
Dear Members,

Looking at the continuing meltdown in the global stock markets; I am afraid my earlier prediction of a stock market rout is (unfortunately) confirmed.

Now comes the recession.

Who is responsible? Without question, the Bush administration and their ill-advised military and financial expansionistic policies are to blame.

If this global stock market meltdown continues, many of us will see our pensions decreased (since they are dependent on the stock market).

This stock market meltdown was so preventable. President Bush didn't have to go to war in Iraq. The war in Afghanistan bankrupted the U.S.S.R.; we are about to see what the war in Iraq does to America.

Tragically, in a recession, services to the mentally ill usually are the first to suffer loss of their government funding.

Phil Long M.D.
Administrator


    P.S. I am a Canadian and a great supporter of American democracy. What President Bush has done to America is the saddest thing I have witnessed in my lifetime. Canada is America's #1 source of natural gas, and #2 source of oil. One-quarter of Canada's economy is based on exports to America. Economically, there is a saying in Canada: "if the American economy catches a cold, the Canadian economy catches pneumonia". This time around, I think both of our economies are going to develop pneumonia.

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firebird
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Posted - 01/22/2008 :  11:33:14  Show Profile
Thank you for your good advise Dr Long. Although I am not American, I live on a Caribbean island which is a dollar economy as nearly all our tourism is from the States. The french side uses the euro and they had seen business decline because the americans are now finding it too expensive, also the business imports a lot from France making it over priced and hard to sell. We also say 'when America sneezes, we get a cold". Our greedy short sighted politicians have allowed a construction boom, with hotels and new estates destroying all but a tiny bit of the natural enviroment, for what?, they are finding this new real estate hard to sell now. We dont manufacture anything, we dont even grow our own food, all we have is tourism, all the eggs in one basket. Hold onto your hats folks, I see lean years ahead and crime about to soar, so watch out for your stuff. On the positive side, maybe all the illegal immigrants that came for the construction will go back home now theres no work and also the ravaging of whats little left of the natural enviroment will get a break.
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Administrator
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Posted - 01/22/2008 :  20:26:48  Show Profile  Visit Administrator's Homepage
Dear Members,

I'll Make An Economic Prediction: Let's See If I'm Right

Today, January 22, was a good day on the global financial markets. Most markets stopped plunging, and bounced back after President Bush announced a 0.75% drop in the central bank's lending rate to private banks.

I predict that this won't stop a recession this year. The stock market is still going to significantly decline (with a loss between 20% to 40%).

Why Do I Make This Prediction?

I believe that the Bush administration's economic policies are going to push America into stagflation (i.e., recession and inflation).

The main problems in the American economy stem back to President Bush attempting to have Americans spend their way out of the economic slowdown after 9/11 in 2001. President Bush did this by:
  • Excessive government spending (primarily on the military).


  • Excessive consumer spending (fueled by the American central bank flooding private banks with trillions of "cheap" newly printed American dollars)


  • Excessive government, consumer and corporate debt.
President Bush's "recovery package" for the economy is to continue doing more of what got America originally into this mess. Namely, to stimulate more consumer (and corporate) overspending by further cuts to taxes and interest rates.

These "recovery" measures will just increase government, consumer, and corporate debt, and further erode the government's tax base.

Argentina tried an identical "recovery package" to assist its failing economy in 1991-2001. This combination of overspending, overprinting of money, and massive government and consumer debt eventually caused the collapse of the Argentine economy and practically wiped out the Argentine middle class.

The lesson learned is that a nation can't spend its way out of debt.

America is now the greatest debtor nation on earth. America got this way by overspending. Now President Bush is dropping taxes and interest rates to stimulate further overspending. This is a recipe for financial disaster.


Phil Long M.D.
Administrator

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EmergingArtist
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Posted - 01/23/2008 :  14:22:20  Show Profile
Hello Dr. Long,
I've been seeing in the papers about the Fed lowering interest rates. My husband and I have a Mutual Funds account through his employer, (he gets a certain amount automatically deducted from his paycheck that goes into a Mutual Fund). We do not have the option to transfer the money out of the fund as far as I know. So we have definitely seen this account lose thousands of dollars as the stock market goes down.

We also have an independent Ameritrade Stock account which we have simply sitting there as a Money Market account. I would like to take greater risks with our money, for greater returns, but my husband is saying to wait. He especially didn't want to risk any new investments when we were paying so much for my talk therapy. Now I am with a therapist who takes our insurance. Possibly when I bring in some income, we may consider investing in something like annuities or bonds, I don't think we make much of anything in interest in the Money Market account.



I voted for Bush. I know his approval-rating has gone way down. I'm planning to vote for McCain in the 2008 election. I'll have to read up on what he plans for the economy.

Today at Starbuck's I found myself more interested in reading the articles about the Fed and the economy.

EA
Age: 32
Sex: female
homemaker, married
Diagnosed Bipolar 1993

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Administrator
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Posted - 01/23/2008 :  20:15:50  Show Profile  Visit Administrator's Homepage
Hi EA,

My wife and I now have our life savings in real estate and a "money" fund consisting of (non-American) cash + guaranteed income certificates + bonds. This "money" fund currently earns 4% per year.

Fortunately, despite the meltdown in the stock market, this "money" fund unit price has remained remarkably stable. Thus, by moving our savings on January 14th out of mutual funds into cash + bonds; we haven't lost any money thus far. We were just lucky.

One of my patients has just come back from Los Vegas where he heard a private speech by Alan Greenspan (the former chairman of the American central bank). This speech was not open to the public.

Alan Greenspan was quoted as saying that the stock market will continue to decline, and that America will have a recession.

Two days ago my son asked me what he should do with his savings. I told my son to convert his mutual funds into cash + bonds + bank term deposits and accept the fact that he will only get 3-4% earnings this year on these. I told my son that it is better to get a low, but secure rate of earnings on your bonds than risk having your money in mutual funds that will lose 20% or more in the next few months.

I am a psychiatrist, and not a financial advisor; so I really lack the expertise to tell anyone how to invest their money. However, I can tell you what I told my son.

Good luck EA!

Phil Long M.D.
Administrator

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Administrator
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Posted - 02/06/2008 :  01:06:41  Show Profile  Visit Administrator's Homepage
Graph of Past 3 Months On North American Stock Markets


Here It Comes

Stock Markets Are Plunging Again

I'm sorry to report that the recent attempts by the Bush administration to prevent a recession are starting to look like a failure. The world's stock markets are starting to plunge again.

Eventually President Bush will realize that America can't spend its way out of the tremendous debt that the Bush administration has created.

This is a 3 month graph of the major stock market indexes in North America. The Dow Jones Index (DJI) is down 10% in the past 3 months. The S&P (GSPC) is down 12%; the Nasdaq (IXIC) is down 18%; and the Canadian Toronto Stock Exchange (GSPTSE) is down 8%.

What Did I Do?

I am completely out of the stock market as well as the bond market (since there could be a massive default in the U.S. bond insurance scheme or "credit-default swap").

I have all my life savings in real estate and government insured one-year bank term deposits (in Canadian funds).

Why Do I Publish This?

I predict that there will be a recession, and that the US dollar will continue to drop in value when compared to the Canadian dollar and Euro.

My hope is that this economic information will help you to protect your life savings.

Good luck everyone.

Phil Long M.D.
Administrator

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EmergingArtist
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Posted - 02/07/2008 :  06:36:49  Show Profile
Hi,
I'm feeling the recession. I interviewed for a job as picture-framer a couple weeks ago, and he is saying now that his business has slowed to the extent that he is re-considering hiring any new help. So that's a bummer. I'm worried it will be extra hard to find employment in the coming months.

There's the "stimulus package" where we may stand to get $1200 refund in taxes in addition to whatever regular refund we're due. My husband wants to buy a flat-screen tv, so we may end up contributing to the economy. I would rather save the refund. I like our tv just fine.

I read in the paper the other day in the editorials a criticism of the stimulus package. The author predicted only the poor will spend money right away, and that it's foolish to believe that the poor will save our economy. A funny scenario he put forth was: you get a cash refund, you go out and spend the money on strippers, then the strippers go out and spend money to stimulate the economy. (He likened our government's "stimulus package" to the impulsiveness of throwing away cash at a strip joint).

So that was kinda clever and funny, but if I am not able to get a job soon, I will not be laughing as we are eating away at our savings.



EA
Age: 32
Sex: female
homemaker, married
Diagnosed Bipolar 1993

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aquamarine
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Posted - 02/07/2008 :  10:59:55  Show Profile
I do not neccesarily agree with Dr. Long's suggestion that you "get out of the stock market". The decision to do that depends on a number of things. It depends on how old you are, when you will need the funds, how much of your savings is invested in the stock market, what you are invested in, how diversified your portfolio is...and the list goes on.

In the short term (the last 3 months) the market has gone down, but if you have a long term plan, and have many years left until you need the money or are retiring, getting out of the stock market may be a foolish move.

If you look at the TSX index over the last 10 years the big picture shows it has consistently climbed. There have been a few slumps, but if you are investing for the long term it may be a good idea to stick to your plan. My investor has suggested that my investments are well diversified, she has lessened my exposure to equities, but suggests we are going through a rough patch which will, in the long term correct itself.

Warren Buffet, an icon in the investment business, is very positive about the long term outcome the whole subprime problem in the States. The National Post had an article about his approach in the paper today: http://www.nationalpost.com/most_popular/story.html?id=290358

Anyways, my point is that pulling completely out of a market that has, in the long term, done very well, maybe be a short term solution that may cost you big down the road. If you are investing for the long term, definately talk with a trusted financial planner before you sell all your equities.
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Administrator
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Posted - 04/11/2008 :  15:31:23  Show Profile  Visit Administrator's Homepage
Dear Members,

By now you know that I am very concerned that the world's economy is about to first go into global recession, followed later by a more dangerous inflation.

Thus far, it looks like I am just "Chicken Little" running around saying that the "Sky Is Falling". For all our sakes, I hope my earlier predictions of global recession were wrong.

In any recession, mental health services are always the first to be cut. That is why I am so concerned about world economic trends.

My belief is that current world spending on war (euphemistically referred to as "defense spending") is bankrupting the world powers. The U.S.S.R. was literally bankrupted by the Afghanistan War and shattered into Russia and a number of other fragmentary states.

If you go to my other website, www.mentalhealth.com , you will quickly detect my views about the Wars in Iraq and Afghanistan.

The bottom line is that I believe our financial system is perilously close to failing.

To illustrate this, consider the above graph for the price of an average house in the US since 1890 (corrected for inflation).

  • What does this unprecedented increase in the price of housing in the past 8 years suggest to you?


  • Could this graph be interpreted that, in the past 8 years, the US dollar has been devalued 50%? (In other words, house prices only went up because the value of the dollar went down.)


  • Does this graph suggest to you that our economic system has been "manic", and now is due for a "depression"?
Phil Long M.D.
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Administrator
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Posted - 04/11/2008 :  15:45:11  Show Profile  Visit Administrator's Homepage
Click Here For This Graph
Buy, Hold And Prosper?

The mantra of most stock brokers is "buy stocks, hold on to them, and prosper". I would like to discuss the above graph.

It's been more than 8 years now since the last boom in the stock market (in 2000). If you had bought stock in 2000:

  • If you bought average "Nasdaq" stocks ("IXIC" on our graph), their value would be about 50% less.


  • If you bought average "Standard & Poors 500 Index" stocks ("GSPC" on our graph), their value would be about 10% less.


  • If you bought average "Dow Jones Index" stocks ("DJI" on our graph), their value would be about 8% more.


  • If you bought average "Toronto Stock Exchange" stocks ("GSPTSE" on our graph), their value would be about 50% more.
From this graph, I concluded that:

  • "Buy and hold" doesn't guarantee stock market success. The best example of this is the Nasdaq. These stocks still haven't recovered from the "Dot.com" crash of 2001. Obviously, it depends when you buy your stocks. If you buy on the top of a boom, and then there is a crash, it might take years to recover.


  • American stocks generally have been under-performing compared to Canadian stocks.
This, of course, is just one person's view. I would welcome your viewpoint.

Phil Long M.D.
Administrator

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lynn2150
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Posted - 05/03/2008 :  20:47:03  Show Profile
Oh dear,
I always choose to ignore world business, BUT, I think it's time I took a look at this when I am more alert.
It's a little frightening.
The last recession I lived through was ten or so years ago.
We had a Nazi type Premier, who cut social services, Many people went and still are homeless.
I was down-sized, a nice name for fired.
I could have fought on and found work but was just too demoralized.
Enough of my babbling.
Have to get back here, when I am bright eyed and bushy tailed.
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e-pea
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Posted - 09/06/2008 :  18:36:53  Show Profile
Portable property won't drop in value, likely. I'd say stockpile whatever you can that has value that stays.

It has been theorized that inflation is actually good for the economy over time. Deflation brings on insanity. I don't recall what the logic behind that was but I remember reading it. I'm guessing it has something to do with the amount of personal debt accumulated during periods of inflation vs deflation. But I don't know.

What we're facing is something akin to 1929. Some economists say it will be much, much worse. I think people should be prudent and should be prepared for it.

My guess is early 2009. I know nothing about the economy but I've been reading a little.

Bill Gates will bail us out. :)

I don't blame the war all that much. It's another issue altogether. I honestly think this debt crisis is totally due to personal lifestyle in the west.

gravity gets me down
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juniperbelle
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Posted - 09/08/2008 :  15:12:36  Show Profile
What I find amazing about this conversation is the lack of comments on how the financial has effected people emotionally. Personally, my husband and I have been "sick" since 2000 when Bush stole the election. The last 8 years have done nothing but confound our anger, hurt, dismay, and confusion.

I know zilch about the stock market, but we have diversified into more bonds and fewer stocks. What I DO know is how this has effected my mental illness, which has been I am much more ill than I was 8 years ago, and I blame most of it on the American government.

All over the world, people want their governments to help them out, which means raising taxes. I can't feed and house the homeless, and I can't cure all the ex-military people suffering from PTSD. However, I think the government should do it, with the help of our taxes. I have no complaints about paying taxes, because, "there for the grace of God, go I." If I didn't have Social Security and my pension, I'd be sleeping on the streets and be dead within days. Why are people so short sighted
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Administrator
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Posted - 09/17/2008 :  09:35:27  Show Profile  Visit Administrator's Homepage
Dear Members,

On September 15th 2008, the US financial markets lost $600 billion; yet this dollar figure was not reported in the US media. However, this dollar figure was reported on Canadian TV.

The American public is not being informed of the severe magnitude of the current financial crisis. In dollar amounts, the current banking crisis is far worse than anything the world has seen since the Great Depression of the 1930s.

Tragically, it appears that the world is now entering a global recession. If the insurance sector fails (i.e., if AIG and other "credit default swap" institutions collapse); banks worldwide will be severely affected.

I am so sorry that my predictions of January 2008 (posted above) have come true. World financial leaders, especially the Bush Administration, saw all this coming and did exactly nothing.

The stupidity and greed of these world leaders is about to cripple the world's economy as the credit, and credit default swap, markets collapse.

Now all the rest of the world can do is suffer. As usual, it will be the funding for programs for the mentally ill that will be cut first.

Thank you President Bush.

Phil Long M.D.
Administrator

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Administrator
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Posted - 09/17/2008 :  20:30:50  Show Profile  Visit Administrator's Homepage

What Can We Now Expect?

There is no accurate way to predict what will happen next as global stock markets plunge.

However, economists have analyzed 3 previous major stock market crashes: the 1929 (Dow Jones / US), 1990 (Nikkei / Japan) and 2000 - 2008 (AEX / Europe) stock market crashes.

When you superimpose all 3 stock market crashes on the same chart (above); these economists noticed certain findings:

  • In the speculative bubble period before the crash, stocks rise more than 350% in 6 years.


  • During the crash, the market falls more than 50% in 3 years.


  • After the crash, markets are volatile for at least 10 years.
We are entering the Great Stock Market Crash of 2008. It may be that this stock market crash will duplicate the course of these previous 3 stock market crashes.

Phil Long M.D.
Administrator
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