I'm sure that everyone here has read the story in the Boston Herald (gack) via Atrios about recent remarks made in a speech by Morgan Stanley Chief Economist Stephen Roach.
If not, here is, roughly, what he said:
An economic Armageddon is approaching and the country has a ten percent chance of passing through unscathed.
The biggest problems are absolutely apparent to any casual observer of our nation's economic predicament: 1) Government spending, 2) Government debt and 3) Consumer debt.
Debt, spending, debt, spending, debt.
Why should you listen to what Mr. Roach says? Here is why:
His company, Morgan Stanley, had about a half trillion dollars of wealth under management when I quit my job there, about five years ago, a number that has certainly risen by leaps and bounds since then. Mr. Roach and his company are in the business of generating and protecting wealth for many of the globes richest and most powerful people and institutions.
If Mr. Roach is making a statement like this about the state of our nation's finances, the peril is real and he intends for brokers and money managers at Morgan Stanley to act on this statement.
And so should all of us.
I can personally imagine all sorts of nightmare scenarios stemming from a U.S. economic "Armageddon," but the thing that worries me most as an immediate concern is the depreciation of the U.S. dollar. Currently, one hundred percent of my wages and investments are in U.S. currency. As the dollar depreciates, the real value of my wages and investments also potential decreases. That's bad. The good side is, of course, that the size of my liabilities in terms of debt can also potentially decrease.
Still, I want to know how I can maintain value when the currency that I use is plummeting in the world markets. What can I do?
The second and third concerns of mine are 1) rise in interest rates and 2) inflation. Interest rates themselves are not a huge deal for me, because I don't have a mortgage or car loan and I don't roll over much from month to month on credit cards. But higher interest rates will bring on higher rates of inflation ... and as inflation grows, it's like getting a pay cut every month.
I wish that I were a finance expert right now. I don't even know how to start to prepare for an "economic Armageddon," much less just arrange my investments and spending around the likelihood of a lower dollar, higher interest rates and inflation.
I have a feeling that for me, like most people, financial planning is just going to have to boil down to "spending less" and "stuffing the mattress." It seems like the Bush Administration wants me to spend, spend, spend like there is no tomorrow. But the coming economic crisis has me scared.