24 Mar 2009

Creating Price-Variable Income Streams

All Posts No Comments

The number one thing I think people need to do to prepare for a possible hyper-depression (=stagflation squared) is to move out of variable-rate, dollar-denominated debt as quickly as possible. You don’t want an ARM or a rolling credit card balance when the prime rate jumps to 45%. Strictly speaking, it’s fine to let the balances roll over right now, but make sure you can pay them off within a month if you had to. And of course the issue isn’t, “Could I pay them off next month if I had to?” Rather, the issue is, “If the ‘unthinkable’ happens such that one of the offshoots is a 45% prime rate, in that environment would I be able to pay off all my variable rate credit card debt?”

The number two thing I think you should do is get your hands on (ideally) a few months’ worth of income (at today’s prices) for an austerity budget, in physical gold and silver. So for example, if your drop-dead monthly expenses right now are $5000, then ideally you would want $15,000 in actual gold and silver–and if we’re really going to be specific, I think you want them embedded in old US coins, so that they will be very identifiable to many Americans.

The number three thing is to get the wheels in motion on income streams that will at least rise with general prices. For me, that vehicle is a book contract. The way my royalty contracts are structured, I get a percentage of the retail price. So if CPI goes up by 50% over the next two years–something I consider entirely possible, though I wouldn’t yet commit to “likely”–at least my stream of royalties will rise too. It won’t keep me whole, of course, since only the lucky recipients at the foot of Bernanke’s printing press will be the real winners. But it’s a lot better than having a salaried job where, at best, I can ask for a cost-of-living raise every 12 months.

If you have a bunch of spare cash, a possibility is buying low-frills housing or office space to rent out. Now maybe real estate per se is risky for obvious reasons right now, but you get the point: If at all possible, you want streams of income that will automatically rise with the fall of the dollar’s purchasing power.

I don’t know what other options exist, but there have to be tons of them. One of my former students used to make a decent amount of money cruising around looking at garage sales for stuff to sell on e-Bay. Now there, it’s not as obvious, since presumably the person running the garage sale would increase the price of the stuff too. But even so, the point is that as an entrepreneur, you can increase your “markup” very flexibly. So whatever margin worked under the old price relations, could also be inflated in the new regime.

Ultimately, you do not want to be relying on a corporate salary–let alone bond payments and Social Security checks–if and when large price inflation hits.

Comments are closed.