Trend: If this financial crisis and recession are really "different this time", investors won't be able to rely upon traditional strategies to accumulate wealth or protect savings.
Here's an excerpt from Michael Panzner's new book, When Giants Fall: An Economic Roadmap for the End of the American Era. This vision is unpleasant to contemplate and I hope he's wrong, like the Y2K predictions of disaster. Unfortunately, he's been right on the mark about the financial crisis.
...[recent] developments constitute a clear and present danger to the economic well-being of every American, especially those who have been conditioned to believe that life can only get better in future. Dramatically changing times will require new ways of dealing with everyday routines. People will need to factor in the likelihood that livelihoods will be continually at risk. Many will be forced to expend a great deal of time and energy figuring out new ways of getting around and getting by. Living arrangements and lifestyle choices that once seemed second nature will have to be completely rethought when efforts to acquire the basics—fuel, food, water—are much more time-consuming and difficult than before.
Those in the United States and elsewhere will have to pay better attention to where and how they live, who they depend on, and what their options are when things go wrong. They will also need to think about the steps they need to take now in anticipation of the upheavals that will occur in future. Health-and security-related concerns, for example, will have to be a key focus of attention when deteriorating public finances, widespread business failures, and crumbling infrastructure boost crime, disrupt safety nets, and leave critical services, including medical care, that much harder to come by. No doubt the world will also be a more perilous place when competition for scarce resources is intensifying and powerful interests at home and abroad are vying to gain the upper hand—in any way they can.
Most, if not all, businesses will quickly discover that existing models either are irretrievably broken or will have to be dramatically reworked to accommodate the risks and challenges associated with a more uncertain and unstable operating environment. Unlike during the era of globalization, bigger won’t necessarily be better. In fact, large size will likely be a serious disadvantage when flexibility and fast response times are imperative. Growth for growth’s sake will be the road to ruin when the costs and risks of boosting payrolls, increasing plant and equipment, and taking on hefty financial obligations more than outweigh the potential benefits.
Mounting logistical disruptions, tighter borders, heightened geopolitical instability, rising costs of key inputs like water and energy, and an assortment of dislocations will shoot holes in many of the old theories about how to improve efficiency and boost growth. For most firms, approaches that might once have increased the odds of success, including just-in-time inventory management, the development of long and intricate supply chains, and outsourcing of functions to other locales, will lead to their undoing. What is more, instead of focusing on aggressively pruning back operations to reduce costs, owners and managers will be forced to strike a tenuous balance between what they might be able do without and what they must have on hand to remain in business when disaster strikes.
Needless to say, investors will have a much more difficult time preserving and expanding wealth under these sorts of conditions. Not only will economic and financial circumstances create a far more treacherous trading environment than has been seen before in modern times, but even ostensibly correct decisions could prove calamitous when other, previously less likely developments intervene. Betting against the dollar, for example, makes sense on many levels. However, the risks stemming from investing in or moving funds into other currencies, markets, and economies during a time of turbulence and growing geopolitical conflict may well offset all of the potential rewards—and then some. Paradoxically, having what others really want might not necessarily be such a good idea in the new scheme of things. At a time when everything is suddenly up for grabs, some things are best left out of reach.
In the end, the road ahead will be fraught with myriad dangers that will be impossible for anyone to ignore or avoid, regardless of current circumstances. Even worse, developments that have brought us to this point make it clear that a new, far more challenging environment is not just a passing storm, poised to quickly blow over. Instead of looking forward to a return to the way things once were, Americans—and investors in particular—will have to get used to a “new normal, ” where only those who are flexible, open-minded, resilient, and fully prepared for the worst will be able to survive, let alone come out on top. Those who refuse to take these threats seriously risk losing everything. Now more than ever, it is time to become attuned to an entirely unique roadmap.