After the Bust

Banks have decided that they are better off holding their money, its risky in the hands of the average Joe.  He may lose his job, like many have, or he may not be able to pay those huge mortgage payments on his house that is down 50% in value. 

It’s not like this psychology is new, this is a repeat of every downturn that I can remember.  The banks turn off the spigot when they smell risk.  It’s easier to make a few bucks safely than to put it on the street for a better return and lose the money.

Their are some private lenders of last resort out there, but the new practice is to ask borrowers for money before they can evaluate you for a loan.  That’s rich, you need money so the first thing they want you to do is pay them so that they can figure out if you are worthy enough to receive their loan.

The downward spiral kicks in when consumers who need loans to continue their business operation fail or commercial building owners cannot re-finance.  Banks want no part of buildings with high vacancy rates, so if you lost a real estate agent, a title company tenant and maybe an exercise business and can’t fill the space, you had better have holding power (deep pockets), because the bank is keeping their money.

So all that talk about getting more money on the street via the banks has turned out to be a joke.  If you give someone a million dollars and tell them to be generous with it, to make some loans and stimulate the economy, and all they did was send you bank statements that showed higher balances, you would probably be upset, right?  Well that is exactly what has happened with the banks, they took public money and hoarded it.  Many poorly managed their customer’s money when they had it, now they have become Scrooge with the bail-out funds.

Popularity: 15% [?]

It’s easy to get caught up in an easy-going lifestyle.  You know, one that settles you in to doing the same things over and over mindlessly until you are numb and oblivious to the real world around you. 

Did you know that a recent national news story focused on the lack of availability of gun ammunition?  I’m not an alarmist, but I do wonder why there is a rush on gun ammo in this country?  It’s not bad enough that there are a gazillion guns out there, now everyone wants to hoard bullets?

The point is that, just like the evaopration of bullets from the gun shops shelves, the landscape of our future will likely experience rapid change over the next few years.  An inflation as predicted by many would likely flip the economy upside down, we could go from this period of impossible to find money that we are in to a time when we are awash with dollars.  Right now that is hard for many to imagine that scenario, but the psychology of the market can change quickly.

Its hard to point to an object or a service that you are familiar with and not anticipate that things related to it are already changing.  Autos, homes, energy, health care, jobs, money . . . its all in a state of transition, only the stars are (hopefully) not going to realign.

Beyond “expecting the unexpected” is there anything that you can do?  If you are in business, you can anticipate the increasing influence of the global economy by making your goods or services available to foriegn buyers.   You can also watch for the opportunities that rapid change will bring in your area of expertise.  Its difficult to forecast specifics about the future, but its not difficult to see that the world as we knew it is already beginning to change.

Popularity: 19% [?]

Anti-government, anti-right wing protests?  I guess that those descriptions of the Tea Party rallys all over the country this week didn’t strike me as being entirely off the mark.  I can understand that a backlash is building against the rampant spending that appears to be the “solution” to the financial crisis.

It is my guess that this wave of dissent will evaporate if thing begin to return to normal, which is relatively unlikely.  What is more probable is that Tea Parties may be the infancy of a much larger dissent that could develop if thing become worse.  It appears that the President is about to attempt making radical  changes to the tax system, healthcare delivery and possibly to energy policy. 

I don’t know that anyone can predict what the outcome will be to these well intentioned changes, but if you are listening to the press, there is already talk about some individuals leaving the country to escape what may become (in their opinions) harsh, penalty-like income re-allocations. 

Change is a great mantra that may help you get elected, but few people may have understood what “change” entailed in the mind of the Democratic leadership.  If you are sure that you are on the wrong road you assume that another one has to be better, but that is not always the case.  I’m not saying that we went from the wrong road to another wrong road, but at this point I can’t see that the one that we are headed down is better.

One thing is for sure, change is never easy.  Another thing is for sure, if you protest what the government is doing loud enough you may become labelled as an aggitator subject to investigation or harrassment.  It’s not supposed to work that way, but guess what, nothing works the way that it is supposed to.

Looking to the short-term future its my opinion that a broad based backlash will continue to build as we deal with more economic turmoil.  Hopefully the economy will make the turn upward that most of us would like to see.  Will the turn be because of government intervention or despite it?

Popularity: 17% [?]

It’s so much easier to not prepare for any potential future crisis that it’s almost the American way.  Like the government’s preparation for Hurricane Katrina, its was easier to turn a blind eye.  I remember picking up a magazine and reading an article about the potential for a huge negative impact to New Orleans if a Hurricane hit there many months before Katrina arrived.  The potential for loss was great and it was well known, yet there were very few who thought to prepare. 

Regardless of the recent announcements that state that the government thinks things are getting better, we are now looking at the potential for a another wave of home mortgage foreclosures, the likelihood of numerous commercial mortgage foreclosures and by the way the monetary system as we now know it may not survive.  A major inflation has been predicted by many prominent economists.   Without being a full on survivalist, there are many people getting back to the basics of having stored food, water, a gun and gold just in case.

If I mention being prepared to many people I get the “I don’t want to survive a crisis that I need food, water or a gun for.”  While everyone has their own decisions to make, and I’m not trying to sell you anything, I can’t see that it would take a great deal of effort to prepare for an unlikely event.  Maybe we won’t have any futher financial crises, but then again you could find yourself in an earthquake, flood, storm, epidemic or part of some other natural disaster.  Being prepared is not just a good idea for Boy Scouts.

Oh yeah, I want to give some credit to Ameko on the “Your Money” MSN message board for reminding me to get plenty of shotgun shells just in case the zombies come.

Popularity: 21% [?]

Do you care that China has accumulated $ 2 Trillion in dollars and appears to be the only major county at this point that is not shedding Dollars?  Is it important to you that China and other Countries have been seriously talking about using something other than the dollar as the international “reserve” currency? 

“Market Forces: The Future of the U.S. Dollar” in the Dismal Scientist by Alaistair Chan talks about China’s recent moves to suggest alternate reserve currencies, and China has already moved toward trading with some partners using Yuans.

The fact that faith in the dollar’s stability is under considerable scruitny overseas should tell you something about its future here in the states.  As India, Korea and others begin to dump dollars in light of our current policy to print mountains of cash, we may find that there are many dollars and no one wanting to hold them.

If the government wants to print another Trillion dollars because they created a new scheme that is based on a 1930’s law, that’s ok.  If they want to bail out the auto industruy a few time . . that sounds good, the airline industry, why not, we wouldn’t want them to go out of business, would we?

Fiscal responsibilty has become an oxymoron.  Its my opinion that U.S. citizens don’t really feel responsible for the debt that is being created.  They really were not part of the decision-making process that created the debt.  If people actually had to sign notes that said theywould repay the $ 118,000 per person, which I’m sure will increase to a significantly higher number in time, they would almost to a person refuse to sign the document, but as long as the government keeps swiping the charge card the bill will keep getting bigger, it becomes less likely that our currency and our way of life will survive.

Popularity: 25% [?]

Businesses that have taken a hit from the recession and want to survive may have to consider changes, depending on the type of business, the changes may be relatively simple or drastic.  The following list provides a few common sense items that should be considered:

1. Increase efficiency  -  fewer meetings, more computerization and less time off may be the answer to some profitability problems. 
2. Income and payments  -  need to be moved forward, not backward during a recession.  If you can change your policy and demand earlier payment for goods and services you could improve you financial situation. 
3. Reduce expenses – there are lots of ways to cut the cost of operations from giving fewer perks to using off-brand ink in your printers.  When things slow its important to everything that you can to keep your numbers in balance.
4. Downsizing staff  -  when times are tight you have to keep staff expenses down, and that may mean that the managers or owners actually work.  It’s nice to  
5. Downsizing office  -  you can usually survive in your business if the expenses become small enough.  With the exception of staff, office space is the largest expense for many business, and negotiating a rent reduction, moving to a smaller space or going virtual may be something that will get you through.  If you don’t need the space that you are in, try to make an adjustment rather that paying dearly for it.
6. Restrict travel  -  its another relatively high cost that is often not necessary for business survival. 
7. Borrowing less  -  is common sense.  Since many business already can’t borrow, this is a no brainer.  With the government ramping up the availability of dollars, however it will be difficult to pass on a loan in the future, but it makes more sense to pass on the money if you can.
8. Bankruptcy  -  may be your last option.  A Chapter 13 reorganization could give you a chance to pull your struggling business through the bad times.  I have heard that all the bankruptcy Trustee has to hear from you is that you were in a hard hit industry, like real estate, and there is not much more that you have to explain. 

For some it’s all about getting through the slow times to the other side.

Popularity: 24% [?]