Monday, December 08, 2008

May you live in interesting times...

That Chinese proverb will soon gain a new level of meaning for all of us.

My Dad has been warning me for a while that the paradigm of "normal" in this country will soon change. For a while I've been skeptical and pretty dismissive of his words. I am now changing my tune a little. Economically, all bets are off.

First of all, it's popular to criticize big business for greed and profiteering, (oil companies, banks, corporate employers) but it's important to maintain perspective. I agree, the exorbitant lifestyles of some of the CEOs, and the grotesque levels of profit made by the investors (stockholders) is a bit much, but I'm still a fan of profit. I don't blame someone for hopping on an elevator going up, and if a salary and benefits are offered to a CEO, it's personally irresponsible to decline it.

Unfortunately, stockholders and CEOs have been so bent on taking profits, there is little buffer for bad times. Those banks and corporations are the first to experience exigency when the economy degenerates. The popular recourses are now bankruptcy, layoffs and restructuring, which leaves employees in an unkind position. I fear that we as a public haven't even begun to understand how lengthy and severe this economic depression will be.

In our current economy (and the world economy as well), we've seen the first effects, drop in demand. Orders for raw materials have spiraled to serious, unprecedented lows. Consumer demand is dropping in most categories. Layoffs have begun, but we haven't even scratched the surface. As the impact filters down, business models are being jettisoned.

Deflation will be the next word of the day... and not for good reasons. The supply of money will dry up and the government cannot keep printing it. Prices will go down, and without a corresponding consumer confidence boost, they will not spur sales as intended. More companies will suffer losses, cut jobs and close their doors.

The biggest investment any of us have, our homes, have dropped in value precipitously. We (many of us, myself included) sit on a product that is worth less than we owe. This bubble-burst has been the elephant in the room for several years, as we saw 10, 20, and in some areas, 30 percent increases in real estate prices PER YEAR. Those of us who paid those prices are now left sitting on the edge with a stiff wind blowing. (and if you bought a home between 2000 and 2005, this is probably you)

Reality is now coming home to roost, my friends. I think we are living in VERY interesting times.


Clippy Mat said...

it's true.
at least we ARE,
living that is.
so everything else is relative, right?
we live and learn.

The Comeback Kid said...

Interesting thoughts about the home being worth less than you owe. I read an article in the Wall Street Journal saying that most likely homes for my generation will simply be places to live, not investments on the road to building wealth.

C said...

i have caught snipits of the interview gretchen van sustern had with donald trump. while i have not been much of a trump fan in the past, i have to say "BRAVO" to him for the balls he has, to address the "bailing out of banks & big companies" palarva occurring in our troubled economy today. what he says makes sense to me.
..."lucy, you got some 'splainin to do..."