Contrary Thinking

[David Randolph]

I realized that I was falling into the same trap as every one else in thinking about the economy. I suggest thinking about some ideas as "what if?"

 

For example, one thought is that many people assume that China will continue on its current course. What would happen economically if there is a military coup in China - one that took things back to the Cultural Revolution? Typically, such coup's are done by a group of younger officers who are not happy with the corruption of the upper ranks and want to pull the country to a better ideal.

 

Another thought is that we are all expecting inflation. The Fed is printing money like crazy and the prices of oil and gold are showing that effect. What if we don't get inflation but deflation? What if we are going to have a price collapse in oil? What would pull the price of oil to $10 and what would be the effect on all the wind farms, natural gas, hybrid cars, etc.? After the oil shock of the 1970's, businesses around the world and homes started working very hard to become more energy efficient. The result was a significant slowing of the oil demand growth. We also had political situations where the Saudi's wanted to pump a lot of oil with the resulting crash in Russian income and it brought down the Russian government.

 

If we are headed for deflation, it would be very important to be out of debt. If we are headed for major inflation, we need to bone up on debt.

 

"The market makes fools out of everyone." So, where am I open to being made a fool?

[John Masterson]

Who knows what's going to happen?

Things typically proceed in a linear fashion to a point; then an unexpected event changes everything.

We are usually correct to project linearly...but not too far, I'd guess. Especially in the unprecedented explosion of technological growth we are currently experiencing.

[benali72]

Good thoughtful post, David.  For example, what you mention about China... I've just unthinkingly accepted the "conventional" view that China will continue upon its present course.  But thinking more broadly about alternatives like you suggest helps one be better prepared for *whatever* might happen (which as JM points out, none of us really know).

[Origisaurus]

If we are headed for deflation, it would be very important to be out of debt. If we are headed for major inflation, we need to bone up on debt.

Since we can't predict with anything like confidence beyond the next trading day, the prudent thing is to live well below our means and prepare for serious economic disruptions.