We’ve seen a lot of ramifications this year from what initially was the collapsing housing market. The crisis at Fannie Mae and Freddie Mac spilled over to the private financial sector, with ramifications continuing even of today. That credit crisis spilled over to the auto market, which is leading to an employment crisis. Things are just bad all over it seems. The words recession and depression get tossed around a lot these days. The Bush Administration, with an assist from the incoming Obama Administration, have thrown everything including the kitchen sink at the mess. Although somewhat mitigating the mess, it just doesn’t seem to want to go away yet. A lot of people have argued the pro’s and cons of bailouts or not. Depending on the circumstances, I’ve been for some, and against others. We have developed a perverted mess of the public financing markets over the years by socializing the financial sector. Those not feeding off the socialized model seem to be thriving while those that pushed paper and high risk loans seem to be collapsing. What this is all boiling down to is, to put it rather simply in my own opinion, is that the government, in a panic, is sticking their finger in a huge dike. I have touched on the issue here a few times in the past in regards to other issues. The problem is not that traditional US citizens, and indeed the world, are less willing to take risks and borrow money. The problem is that those traditional consumers are thinning out. The United States is an aging country right now. The US is 10% older, on agerage, than it was in 1990. Scarier, the Baby Boomers are just now getting ready to hit retirement en masse. Now, the big issue this raises is the fact that older people are less likely to spend money on things than younger people. They’re not looking for larger houses. They’re not looking for the latest Wii, Nintendo, or XBox. They’re not terribly concerned for the most with the latest gadgets. Most, although I might be a little bit out of the norm, are not buying for their kids. They are for the most part settling in, minimizing expenses, and not consuming at nearly the level of younger adults. Additionally, they are hoarding cash to buffer their retirement. A recession is defined as a contraction phase of the business cycle, or “a period of reduced economic activity”. Economic definitions don’t take into account of why the economy reduces. In this case, although we’re just on the cusp, I think it’s going to reduce simply because we’re living longer and cranking out fewer kids. Businesses that adjust to the newer economic reality will surivive, those that don’t, will be reduced in revenues whether they adjust or not. Now, I don’t think this is going to be some huge earthquake like event. It will be slow over a period of decades. However, most businesses and governments project a continued growth over a period of time. I don’t see that happening in a projectible manner. Service needs will change, product demands will change. Those that prepare will be fine. Those that don’t, won’t.
Given all that, I think the Obama team needs to start telling people that a new economic environment is coming and this phase we’re going through now is the ramifications of us not preparing for it. Promising a return to normal probably isn’t a good idea right now.
Comments
Comments:
Leave a Reply
