What Should Young People Do With Their Money Today?

We are living in unusual times. The US has never had so much debt, and its central bank has never created so much money out of nothing. Most central banks around the world are following suit. 

As of March 27, 2022 at 4:45 PM Eastern Time
Watch it evolve here:
National Debt Clock

History suggests that at some point the crap will have to hit the fan. What will that moment look like, and how will it affect the younger generation? 

Most youngsters have no idea what’s coming or how to protect themselves. Those that have some savings probably won’t have much choice other than to put them in a bank account. Most will have little money to save, so they will be forced to go with the flow, "play it by ear" as I like to say.  

But still, there are traditional rules to follow. The first rule seems to be to put some money aside as soon as one is able. The purpose is to build a cushion for the proverbial “rainy day.” Young people should do this now before trouble begins. And this advice applies most urgently to young families. Common knowledge says to put away, little by little, about six to twelve months of living expenses. 

Young people should keep credit to a bare minimum, pay off the principal every month, and watch impulse buying. Be smart and humble. Make do with a good second-hand car and merely adequate housing until they have the necessary savings put aside.

And budget, budget, budget. My own rule as a young adult was actually very simple: “Spend nothing above the essential, with only very rare exceptions.” That worked very well.

Buying of gold coins can be entertained at some point once the above is achieved. (But be careful where they are stored.) 

Then one could venture out towards other investments. Examples: Depending on one’s capacity to manage rental property (land or habitat), and also on the state of the real estate market (i.e. not now), that might be an option. Depending on one's plans for moving or not, one could buy a home.

Then, if finances permit, there's the option of branching out from there to rental property of some sort. That’s assuming, of course, that one will not be changing jobs and moving to another state right away, and that one has the time and inclination to devote to this side business (for that's what it is).

Eventually stocks and bonds can be considered, in an effort to build up a retirement account that will grow and provide an adequate income later in life. One can find reasonable advice about that almost anywhere. Caveat: If the investor decides to go with an investment advisor, just be careful about the fees. Compare, compare, compare.

And here again, watch the timing in a “macro” sense. The best time to buy is when the market is in a recession and the investor's own employment situation is secure – a rare combination. Some say don’t try to time anything at all. Just start accumulating little by little over time. That’s possibly the safest way to go about it.

If the whole show comes to a halt because of the monetary nonsense that has been going on since the last century, then it will be survival mode for most of us. The young will do whatever they can just to get through it, but they will have little to lose. Those who have some savings will need to keep a level head, not panic, and stick to the basic rules we have trusted to date.

One really can’t say much more. The current situation is unusual in many ways, and yet in other ways it's classic. As has happened so many times throughout history, currencies all over the world are all being debased, which is easy to do because they are all reliant on a “fiat” monetary system. In other words, no currency in the world has a solid foundation, such as a gold standard or equivalent, as was common in the past. They have all been manipulated, inflated, and deformed to the point of potential rupture. 

In our modern world, cryptocurrencies have been introduced, which is of course new. We don't know yet how they will turn out. Meanwhile, some old standbys are still available. One such is gold, which retains its “barometer” function over the long term, from what one can see so far. 

The Swiss franc is also still a beacon in a sea of monetary folly. In the 1970s it was 4 Sw.fr. to US$1. Now it’s 1 Sw.fr. to US$1.07. Unfortunately, Switzerland no longer accepts US citizens' money in their banks, due to burdensome reporting regulations between the two countries. Other forms of investing there might exist, however.

It would seem to me that a disruption is inevitable. But if, when, and how? Only a fortune teller would pretend to know. 

So When Will the Next Recession Strike?

Lots of elements of our current economic situation point towards a disruption of the status quo sooner or later. Here is a list:

• The Federal Reserve has been blowing up the money supply over the past few years, with the result that markets are skewed, e.g., real estate and the stock market, which I will come right out and say are bubbles.
• Price inflation has raised its ugly head, inspiring Fed actions that may or may not work. (John Williams on his website Shadowstats would show a much higher figure, but he's behind a paywall now. [Congrats to him, but too bad for us.])
• The Covid responses around the world have disrupted the supply chains and been responsible for a least a part of the price inflation – but which part? Hard to say. Here's a chart giving only the supplies that Russia provides. You can imagine the rest of the world.
• The world seems to be dipping into a precursor of World War III, or at least a period of daring moves on the part of some globally aggressive players, which makes everyone jittery.
• The dollar's reserve currency status is undergoing a test as China and Russia pair up to circumvent recent sanctions on Russia's banking system.
• The yield curve has recently started to invert, which some say is a harbinger of bad times to come.
• US bonds have been extremely expensive for the past few years (yields are the inverse of the cost of the bond), but loss of reserve currency status could definitely put a wrench in those works, causing a flight from the dollar and from US bonds. (Having said that, the US bond still seems like the tallest reed in the field of bond choices.)

Even from a business cycle point of view, one can be certain that there will be a recession, and probably sooner rather than later. But as I’ve said before, no one has ever consistently (important word there) predicted when a recession will occur. So any effort to do this is really risky. The chances of being right are probably about 50-50, but the resulting damages from being wrong are astronomical. 

On the other hand, I see no reason one can’t try to protect oneself from potential recessions all the time, which is what E.C. Harwood and others at AIER wrote about over the years. (Send me your e-mail in the comments, which I won't publish, for a copy of his last book, The Money Mirage.)

The Money Mirage
by
E.C. Harwood

Will the Federal Reserve governors stop trying to increase interest rates (which increase is supposed to depress price-inflationary pressures) because of the war and its effects on the US? Or will they plow through with their original intent and risk being blamed for any damages that critics might later say (justifiably or not) that they caused? 

A more interesting question is: Do the Fed governors really know what they are doing? If you've read a few of my blog posts, you know my answer to that one.

My guess is this: Should any whiff of recession come around the corner during this war and its consequences, the Fed will soften its interest-rate-raising program. But who knows if we will get that whiff? Only time will tell.