After the Bust

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There is nothing as surreal as walking through Downtown Las Vegas an seeing so few people that you think you are on a movie set.  The Malls are dead, restaurants always have empty tables and they have short or no lines and amazingly even McCarran Airport is often empty and it seems to have fewer and fewer people arriving.  Now the multi-billion dollar CitiCenter project, the jewel of the Las Vegas Strip, is in financial trouble with MGM and Dubai World squabbling.  Its a new world out there, one that I have never seen, and never wanted to see.  As the unemployment rate climbs above 10% and the vacancy rates begin to climb in offices and retail buildings the reality of this mess is beginning to sink in.

To make the slow down worse, there is nothing on the horizon that would lead me to believe that this craziness is going to turn around in the next few years.  Even if we were to see a turnaround now, it would take years for any real improvement to take hold.  The “experts” are saying we should look for an end to the downturn in 2010, 2011 or maybe 2012.  In other words, its not happening for a while, so its time to accept the reality of minimalism.

Since I’m a baby-boomer with many years of bad spending habits under my belt it’s hard for me to say the words, but yes, its time to become frugal.  There is less money to go around, and the good times can’t keep rolling without cash.  So it’s time to dump the expensive credit cards, time to sell-off the closet full of useless items and time to save any extra dollars that find their way home.

Its downright wrong that the lifestyle of average Americans has to be downgraded because Wall Street fat cats and government regulators continue to find ways to bend the financial system to their will.  I am always amazed that the biggest crooks just smile for the TV and retreat to their private islands or expensive London homes when they are found guilty or discovered to be guilty of ripping off investors and taxpayers for Billions.  The message is clear, the more deceptive you are the less likely it is that you will suffer any real consequences for your actions. 

For me the economic downturn means fewer trips to the Mall, fewer restaurant visits and more time spent reading and watching rented videos.  It’s not that bleak, but for others this nightmare will mean a lost home, a lost job, a lost retirement and possibly a depression that will be difficult to overcome.

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There are a lot of predictions regarding which businesses will survive the “bust” brought about by the recession and which ones will not. Difficult economic times usually act as a “business accelerant” that forces business operating at the margin over the cliff.

One of the businesses most often identified as being in trouble are the newspaper and magazines. The costs associated with producing their product is relatively high. Paper, ink, printing press equipment and relatively high labor costs have all contributed to their profitability problem, but the Internet has been the main culprit for their demise. There is so much free information on the Internet that is accessible in seconds that it is hard to compete with it via alternate media. Many of the newspapers and magazines have seen the light and started to transition their businesses to an Internet model.

Another example of a business in trouble is the pay phone business. Just about everyone is carrying around one or more cell phones. It’s tough to get into a car with another person and not have 2 phones at your disposal, yours and your passenger’s. When you consider just how cheap cell phones are becoming, with disposable phones and by-the-month plans, it’s hard to believe that there will be much use for the pay phone in the next few years.

How about some easy ones. . Television antenna manufacturers, arcades and the CRT Tube manufacturers. It’s hard to believe that antenna manufacturers will not be in trouble as we now transition to digital TV, and CRT’s have been on their way out for some time and there are few manufacturers still around. The prediction that arcade games are less popular since home gaming systems have improved is hard to argue with.

The recession has gone beyond causing the closure of real estate agencies, mortgage brokers and title insurance companies. I have seen the closure of many high-end food establishments as the recession has progressed. There are fewer $ 10 a Sundae ice cream stores, fewer $ 35 per steak restaurants and it seems to me that even branded restaurants with marginal locations are closing their doors. So it’s not just the businesses that have lost out because of modernization, changing trends and the real estate debacle, there are many meat and potatoes business that are also failing.

Survival of a business in the current economic climate has to do with consumer preferences. That’s why places like Wal-Mart and MacDonald’s are thriving. They are relatively cheap, well located, branded and offer necessity items (food and clothing).

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It doesn’t take a financial wizard to figure out that the Public’s 80% stake in AIG (American International Group, Inc.) has already spelled trouble for some members of Congress. The question is, how can our legislative leaders in good conscience gain controlling interests in major corporations using public funds and then expect that existing executives will stifle their corporate greed? It is a part of our culture the desire for wealth doesn’t just evaporate because the influx of money came from a public coffer.

Most of us understand that corporate America runs on greed. The famous Wall Street movie speech given by Michael Douglas said it all, “greed is good.” Expecting that partial government ownership in major corporations is going to change that view of the Wall Street view of the world is naïve.
The belief that Politicians are not every bit as greedy as those on Wall Street is another bad assumption to make. If recent events have not proven that to you, then you need to sit down and read about the money that is being spent again, and wonder about where it is all coming from. Moral leadership in my opinion has become an oxymoron.

So what do you do about this mess? Prepare as best you can for the coming inflation. It is the real “bail out.” Once you ramp up a 10% or higher inflation rate, the public debt, corporate debt and all of those billions of dollars squirreled away by individuals in their IRA and savings cash hoards will turn to mush. It gets a lot cheaper to pay back people with dollars that have an evaporating value than to pay them back in today’s dollars.

Economists have talked about the inflation solution being possibly the worst scenario for us, but it seems unlikely at this point that there is another course of action that the government will take. It is easier for government to solve our problems using inflation than it is to force the burden on taxpayers. It is easier to destroy the debt than to pay it.

Some are in tune with what is about to happen, read the blog post on the WorldNetDaily that talks about a recent bill introduced in Montana that is attempting to bring them back to a gold standard.  I would expect more people will see where we are headed in the coming months.

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What does “green” mean?  Beyond the color the Merriam-Webster dictionary  notes that one definition of green is; “tending to preserve environmental quality (as by being recyclable, biodegradable, or nonpolluting).”

Our environmental problems are many and deep rooted and whether you want to accept them as real or not they are on their way to your doorstep, and they will arrive in the not so distant future.  ”The Limits to Growth,” the 1972 book that modeled possible economic growth outcomes pointed to potential global problems and more recently Al Gore’s “An Incontinent Truth” focused on humanly caused carbon dioxide increases that are the cause for Global Warming.

Our meager attempts to date to change direction on the use of fossil fuels and coal in the U.S. will likely have no effect on China or other developing countries that are ramping up their pollution outputs, but as the major environmental pollution abuser we need to lead by example. 

Adjusting to small, fuel efficient autos, significantly increased utility bills and being forced to reduce our consumption will be one of the most difficult adjustments that we as Americans will have to face over the next several years.  The fact that we, as a nation, are now recognizing that environmental problems exist instead of turning away as if they do not is a positive change. 

Most people have heard about the advent of “green” buildings but there are literally millions of products that are claiming to be “green,” and you can access a list by State and by Category at United States Green Products.  Another great source of information on the “green” revolution is Yahoo.  You can find their area dedicated to this topic at http://green.yahoo.com/. 

If you want to start buying “green” now, Treehugger.com provides a Buying Guide that offers a number of alternative products.  If all you can do at this point is make the right choices, this is a great place to start.  Sending a message to businesses that the environment is important will accelerate the development of “green” products and services.

I would like to also acknowledge Tim Willard’s “The Future is Green” blog, it is full of great posts that date back from 2003, and each post includes great information on a variety of “green” topics.  If you would like to read more about climate change, fossil fuel limits, alternative fuels and other articles on environmental topics his is a great source.

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It wasn’t that long ago when individuals trying to enter many occupational areas didn’t have to have a formal education. Few arbitrarily established educational licensing requirements were mandated by the federal or a state government. If you wanted to be a real estate agent, a hair dresser, a cosmetologist, an attorney or a nurse, you got your training on the job.

Our current educational system requires hundreds to thousands of hours of classroom attendance to meet basic licensing requirements before a student can take a test and then perform what is often a relatively mundane task. Is the new system better than the old? I guess that depends on how you look at it. If you are an employer who doesn’t want to have any involvement with training, and you can shift that responsibility to an educational institution, it’s a great system. If you believe that all education is good, then again I guess that you would say yes. Finally, if you are trying to trying to keep the number of entrants into a field low, you increase the requirements for entry.

It has become over time education as a business, and I have a problem with where it is going. Just because political “representatives” get a law passed that requires 2,000 hours of education in a certain area to become licensed does not necessarily mean that the educational hours required will improved the quality of those who graduate from a program or that the public will be better protected.

Some educational requirements simply create jobs for educators. It is a fact that much of what an individual learns during their required education they will forget.

I don’t have to talk at length about the fact that the educational system is now beginning to leave students upon graduation worse off than when they entered it. When you get your certificate, diploma or degree the first thing that you will hear from many potential employers is that “you are not employable” or “you haven’t learned anything that will be useful to you in the position you have been educated for.”

Educators counter the “unqualified applicant” argument by pointing out that they have taught a student “how to learn.” So at the crux of the educational system is the theory that you may not be taught anything that is useful enough to secure yourself a job, but you will be taught enough to learn.

I always find it interesting that educational requirements often increase arbitrarity over time. This usually happens when there is a concerted effort on the part of some organization to keep out competitors. It’s not that the job that you are trying to get a license for now takes better qualified licensees it’s that those individuals who have licenses want to restrict entry into the business.

The reason that the educational system is now graduating thousands of students who are unemployable is not because the students failed to acquire an understanding of “how to learn.” It’s that they have been graduated into a job market that has been set up to be so exclusive in its design that it fails to give individuals with different majors an opportunity to compete.

When individuals attending vocational schools are more employable than those coming out of liberal arts colleges, something is wrong, and when the cost of an education becomes so high that it yokes students with tens of thousands of dollars of debt, that is also wrong.

Maybe I’m missing something, but I have seen campuses growing over the years, a lot of empire building has been going on, but it appears that relatively little attention has been paid to student costs and student outcomes.

When you think about the fact that schools have no way of monitoring the actual supply and demand for positions its easy to see how massive misalloctions occur. When there is a boom, like the dot come one we saw after the introduction of the Internet back in the early 1990’s, schools graduate many in computer related fields. When dot come jobs evaporated, many students just had educations that were relatively useless.

On the job training was better. When you got done with your training, you generally had a position and you knew exactly what was expected. You didn’t have to take a lot of courses that had no relevance, you oftent didn’t have to acquire a license and you got paid (albiet at a reduced rate) while you were training.

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How can the U.S.A. via President Obama or via another leader create a healthcare system that would provide services to the masses?  The answer is simple; just control costs, exclude insurance company participation and consistently provide only services that are truly needed. 

I’m not going to argue that such a system would be better than a system based on economic principals; the rich will always find a way to get better healthcare services than the poor.  The system proposed parallels in some ways the system found in some Socialist countries, they work but they generally provide fewer and lower quality services.

You start by offering services via large centrally located clinics.  Yes, you may have to travel to be seen.  The clinics would have no glitz, no marble floors and no impressive towering arched entries.  You get your services in plain, functional facilities.  Everyone first sees a Nurse Practitioner or Physician Assistant.  Many for profit clinics are already being run by these healthcare professionals, and the savings to a system for the masses that employed them would be substantial. 

Next, if you want a healthcare system that actually works, you must remove insurance companies from the mix.  You don’t need insurance company involvement in a not-for-profit government sponsored system of healthcare.  While insurance companies do a good job of controlling costs in the current system, the savings / profits are retained at the expense of participant services.  In my opinion they would add no value to a government sponsored healthcare system.

Once someone is diagnosed with a health problem, which may have to be completed with the assistance of higher level medical professionals and tests, patients could be provided treatment.  Again the treatment provided would be by the lowest level provider necessary.  Even the for profit healthcare system now in place in the U.S. will run you out of a hospital in the blink of an eye.  You likely would not perceive much of a difference between the current treatment that you receive from a “for profit” provider and the service you would received under a government sponsored provider.   

Like many things that government does, running a sponsored healthcare system for the masses could be devised that offered the government limited liability.  The government could draw a line at some arbitrary number, like $ 20,000 per case, and if there are errors made, that amount would be the most that you could collect.  A government sponsored healthcare system could not work if everyone who wanted the cheap services could sue the government sponsored system for millions.  If you are willing to accept the low cost services you have to accept that the quality would likely be lowered.  This is again, not a new idea, limited liability is already in place for many government activities.

If you are looking forward to the day when the healthcare system covers almost everyone, you are looking forward to a day when our quality of care will be lowered.  In the end, it will depend on your perspective.  If you didn’t have insurance coverage, something is better than nothing.  If you did have insurance coverage, you may find that a government system for the masses does not provide you with the quality of service that you were used to.

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The Obama cap and trade program will of course cost us all more money. It’s basically a tax that will roll down to consumers (see the Wall Street Journal, “Who Pays for Cap and Trade?”)  Notably, the higher energy costs that the program will bring will hurt lower income individuals and people with the highest fuel costs.

If you were struggling to pay your energy costs in the past, wait until the cost of this program hit you.  Some states with large coal-based energy producers will be hit harder, and thus their customers will be hit harder.  In other words, this program will not be even handed.  If you think about whom this program will hurt the most it has to be the elderly.  Fixed incomes are not going to absorb the energy increases that will appear after the implementation of this program.

There is no doubt about the fact that we all use more energy than we should.  The changes coming from this program will begin to force Americans to deal with a new reality, and “downsizing” is going to be a fact of life for many of us.  When you think about your energy consumption in the future, think small is better.

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It’s easy to point to Mexico and make comments about how bad things are getting there. Violence is on the increase and radio and TV personalities are bashing the Country for the government’s lack of control. The fact of the matter is that Mexico is tanking because of our problems here in the States. They derive a great deal of income and stability from the United States. When we stop buying, stop traveling, stop hiring and stop investing, Mexico pays a price.

Since our short-term prospects look bleak, especially with regard to the auto industry on which much of Mexico’s industrial base is dependent, it is not hard to predict that Mexico’s short-term future will bring even more negative economic results and more social upheaval. Our economy is so closely tied to Mexico’s economy that it is reasonable to assume that as long as we continue to have problems with unemployment, tight credit and general market instability, Mexico will suffer from the same. If our unemployment reaches 10%, Mexican unemployment will similarly soar.

What it means for those of us looking to the “end of days” or the end of the current recession / depression is that Mexico will continue to be our dark shadow, the one that follows our every move. When things get brighter for us, Mexico will benefit from that change. The longer it takes to turn things around here, the more likely it is that Mexico will continue on its current course.

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How many people are convinced that because of the financial crisis we are all doomed? How many believe that there will be civil unrest including riots and civil war? I don’t think that there are that many Americans who believe that society will deteriorate to that extent no matter how bad things might get in the stock market, and no matter how bad unemployment or housing prices get.

Let’s face it, things get bad and people react. While many may not like what is happening, and what may happen over the next several months, few will pick up a gun in an attempt to solve the problems. In my opinion the reaction will be more along the lines of belt tightening with food, energy and entertainment. People will also cut back on travel, buy fewer clothes and generally become a lot more cost conscience. Sure there will be an increasing dissatisfaction with the financial realities that we are all worse off, but will civil unrest really solve any of our problem?

Families are forced together in bad financial times and there likely will be an increase in family size as children and relatives who have lost homes have to share accommodations. People will have to work longer hours to pay their bills, and fewer will be able to retire. Even those who are retired may have to reassess their situation as prices increase and the money cheapens.

The coming inflation will not make you rich. Your dollars today will buy a lot more than your dollars in a year of two. There may be more money floating around, but it is likely that it will have lost the power that it now has. So that giant cash hoard that people are holding, most of which was pulled out of the stock market to avoid a crash, will dwindle in value.

Is this a doom and gloom forecast? I don’t think so. Most of these things are already beginning to happen. They are a part of our “new reality,” and as hard as it may be for people to accept where we are going, it’s just a matter of time. What is important is that you prepare for an extended downturn, it may take five years or more to come back from this one.

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The current financial downturn is wreaking havoc on many individuals and businesses.  Bankruptcy filings are way up, foreclosures are breaking records and businesses are closing one after another.  Times are bad for many, but the downturn is relative to each individual’s situation.

There are many people who have steady cash flows from government pensions, commercial investments, family trusts and other sources that are unaffected by the slow down.  For the moment, they have found themselves in a wonderland of cheap assets, and some have recognized that now is a great time to buy discounted antique cars, furniture and collectibles. 

If there is an inflation or as some have claimed to foresee a super-inflation in our future, it makes sense to be in the acquisition mode now if you can afford to be.  Even if inflation were not to materialize, any kind of return to normalcy would bring with it an increase in prices as fewer and fewer people liquidate their valuable possessions.

Individuals act in their own self-interest, and while taking advantage of others doesn’t sound like the right thing to do, it’s exactly what you can expect to see in the future as we continue down the dark path of recession.

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