John Kennedy once described a crisis as the simultaneous existence of danger and opportunity.  This understanding provides a very accurate description of the current financial crisis that is causing turmoil in the markets . . . it is an opportunity that is riding on the dangerous wind.  To those who are prepared, the opportunity can be very great and to those who are unprepared, the danger can be immense.

Popular psychology articulates this principal through the Chinese symbol for “Crisis” that combines the symbols for Danger and one of the symbols that can mean Opportunity.  Some scholars have gone to extensive lengths to point out that the second symbol in “crisis’ does not necessarily mean opportunity exclusively.  Regardless of the linguistic credibility of this observation from Chinese language, the fact still remains that the most influential pivot points of our life frequently occur during times of crisis and uncertainty.  These times of crisis hold both danger and opportunity.

We have already seen the danger from the recent financial collapse, and are just beginning to see the some of the opportunities.  One opportunity that we are continuing to see is a ‘flight to quality’ that has resulted in treasury bills with yields very near zero, creating extremely low fixed-rate mortgages for those who can qualify.  In this way, people who have behave prudently are being rewarded with the opportunity to purchase or re-finance a home at interest rates that are almost too low to comprehend.

Another opportunity on the rise is income real estate.  Since the credit collapse has pushed down prices, there are many properties available to an investor that is willing to take action.  When this is combined with the relatively constrictive credit standards most banks are now adhering to, and the high likelihood that interest rates will increase in the future, it is very likely that rents will be increasing.  When this phenomenon unfolds, it is likely to result in a situation where investors who act decisively will experience rents that are pushed up by inflation, while the primary cost of the property remains fixed at a low interest rate in the mortgage.

There are definitely dangerous seas to weather though.  One such danger is the looming specter of inflation.  While it is true that the credit contraction has cause prices in many sectors of the economy to contract, it is also true that the Federal Reserve has significantly increased the supply of ‘high powered money’ in the economy.  Once credit markets normalize, that extra money floating around in the economy will result in dramatic price increases.  (Flat Output + Growth in Money Supply = Inflation)

The unfortunate effect that inflation creates is that it distorts real prices and production.  The effects of inflation impact the poorest sectors of the economy especially hard since food and energy are the sectors impacted most intensely by inflationary pressures.  Since people of limited means must spend a larger percentage of their income on food and energy, it creates a difficult circumstance where the impacts of inflation created from government policy levels the greatest impact on the people who are least able to afford it.

One possible remedy to this inflation is for the government to pull the excess money out of circulation.  Unfortunately, this would create a rapid increase in interest rates that would have a high likelihood of collapsing the economy back into recession.  This is where the danger and opportunity intersect.  There are likely to be difficult situations in store for people in all sectors of the economy.  The critical question for each of us to ask ourselves is what actions we are going to take so that the dangers looming in times of crisis do not blindside us and carry us into a sea of destruction.

What we should focus our attention on is finding opportunities in times of crisis to surge ahead in our personal, professional, and financial lives.  The only way that we can accomplish this feat is to be prepared when the dangerous opportunity presents itself.  This means that we must think about future situations, and ensure that we are ready for them before them come about.  This is equally true in the realm of our personal relationship, our professional career, and our financial decisions.

Each of us have a daily opportunity to shape and mold the decisions that we make.  We should understand the daily opportunities that are presented to us, and capitalize on them to create a more happy and prosperous future for ourselves and the people we care about.