Not many people pay attention to statements that the International Monetary Fund makes from time to time, but it would be a wise thing to do. Christine Lagarde (director of the IMF) in a speech about the world’s financial situation, warned about tough economic times to come for the global community.
This report is not from some obscure conspiracy guru, but from the horse’s mouth itself, so to speak. The next financial crisis is coming, it’s a just a matter of time – “and we haven’t finished fixing the flaws in the global system that were so brutally exposed by the last one.” This is, of course, bad news, but when you prepare for it you might miss the worst of it. Don’t forget the blessing of a warning!
’Risk of Global Financial Crash has Increased, warns IMF,’ reads a headline of The Guardian of October 7th, 2015. The core of the problem, according to the IMF, is the ’handover’ to a more sustainable recovery – without the extra prop of ultra-low borrowing costs – has so far failed to materialize.
Meanwhile, the cheap money created to rescue the developed economies has flooded out into emerging markets, inflating asset bubbles, and encouraging companies and governments to take advantage of unusually low borrowing costs and load up on debt.
Balance sheets have become stretched thinner in many emerging market companies and banks. These firms have become more susceptible to financial stress,” the IMF says.”
So as the US Federal Reserve lays the groundwork for a return to peacetime interest rates, from the emergency levels of the past seven years, financial markets face what the IMF calls an “unprecedented adjustment”; and the world looks woefully underprepared,” The Guardian continues.
How do you respond to such news? We have a few recommendations:
- Consider the source of the report and realize that there is good reason to view it as serious
- Don’t panic, but don’t delay either – a warning prepares you for a good outcome – if you plan accordingly.
- Get out of debt – any debt, including credit cards, loans, overdrafts, lines of credit, etc. Pay off the smallest debt first and use the extra cash flow to pay off the next one, and continue until all debt is paid.
- Realize that it will be painful and sacrifices will have to be made.
- If your mortgage or car loan is too high, consider selling your house/car and buy something more affordable. The last crash cost thousands of people their homes and cars.
- Live below your income.
- Where you find bargains, store up some consumables – it is always good to have a bit of emergency supplies anyway. Keep some cash on hand.
- There is no harm in living prepared, and even if nothing happens you are always better off that way.
A prudent man foresees evil and hides himself, but the simple pass on and are punished. Proverbs 22:3
The rich rules over the poor, and the borrower is servant to the lender. Proverbs 22:7
Owe no one anything except to love one another, for he who loves another has fulfilled the law. Romans 13:8