Friday, January 23, 2009


Just as I was going to type the first words of this post, the following popped up on CNBC: "Pelosi: The package will be as big as it needs to be."

Things like that make me go searching for a heavy plank of wood to whack against my head like a monk with a bible in a Monty Python movie.

Let's assume $850 billion, only because they're afraid of the big "T". Add that to the $700 billion earlier. That $1.55 trillion. Take $5000 of your money and flush it down the toilet and you'd have the same effect on the economy.

Okay, enough of that. It's only peripherally what this post is about.

After months of denial, everyone now admits the US, and pretty much the rest of the world, is in a recession, and has been for over a year. Some are even brave enough to call it a depression, but I think we're hugging that line, whatever it may be. However, with the density of job losses that we're seeing, we could very well be there by year end.

Some people are even bright enough to figure out we're in a deflationary environment, depsite the tunnel-visioned discussion of hyperinflation. Consumer prices are dropping. Gas, housing, stocks, and standard good are getting cheaper. Sales are lasting longer and the cuts are deeper. Jobs are being lost at a record pace. Companies are cutting back and shuttering plants and stores. Just because the government keeps printing money doesn't mean inflation is on the way, because that money isn't making it past the vault doors of the banks it's going to.

So, we're in a bad recession and a deflationary environment. What's the fallout on the street?

Well, we've seen Sharper Image, Mervyns, Linens 'N Things, and Circuit City go under so far. There will be more. Look for the stores that sell things you don't need and seldom can validate buying that have nobody in them. Look for clothing stores to start slashing prices before closing up shop. Look for jewelery stores to offer discounts and cut back on inventory. Expect Best Buy to selectively offer huge discounts and ramp up the pressure on the high-margin add-ons.

And look for advancements in technology and style to slow to a crawl. Reasearch and Development budgets will be cut, which I think is the wrong way to go, and companies will focus on existing lines and incremental improvements. Epic shifts in technology require large sums of money that don't see a return for years after commercial application. Intel is closing plants, AMD is in trouble, Microsoft is laying off people, Apple and Google are doing okay, but have their own problems. Expect small increases in speed, mostly cosmetic changes in design, and Microsoft pushing Windows 7 like mad (a Beta is available for free download from Microsoft).

Yes, a side-effect of recessions is that EVERYTHING slows down with the economy. Not only will it feel like money is tighter, but eventually you won't feel the desire to buy more stuff anyway, because nothing is really THAT new. In recent years, it somehow made sense to buy the newest iPod because it was a different colour or a 1/16" thinner and had another 40gigs you'd never fill. Now? That $300 could be better spent elsewhere. And maybe it doesn't make sense to roll that lease over to a new car... this 2-year old one you have still works just fine.

But those things you DO buy? That you either need or want badly enough to justify? They'll be cheaper, but perhaps more difficult to come by. I suggest learning to haggle.

In 18-24 months, things might start to turn around. But it will be unbelievably slow, and with any luck, we'll never see the heights that were seen in years past. Those levels are acheiveable only through false wealth and massive debt and leverage. Stability should be the order of the day, and that requires savings, productivity, and living within one's means, be it an individual, a country, or a planet.

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