Business advice

Let’s look at the 30s compared to our current economic state
January 21, 2009, 6:25 pm
Filed under: Blogroll, Business Advice

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Let’s look at the 30s and our current economic state

Are we going down farther than we already are? Even though I couldn’t find a reference to farmers burning their crops during that time on the Web, they did. When they couldn’t get any money at all for their hard work, they set their crops on fire. They did hold onto corn since it could be used as fuel. If markets go down so far, then the goods are either handed over or destroyed. That is what we are seeing. The reins of corporations are changing. Let’s hope other businesses, like Enron aren’t abandoned and closed completely. Those who held the reins violated the principle of economic efficiency. If you don’t use those resources to run a profitable business, you lose them.

Hopefully, we wouldn’t get to that point during this downturn. We don’t want to see people burning their homes in lieu of turning them over the sheriff when they come calling.

There is much talk about how Obama is going to jumpstart the economy either via tax cuts or another private economic stimulus package. This is short term money dealing with day-to-day expenses and purchases. We have much bigger problems to churn over.

We had an economy that was running on hot air, sort to speak. It was all based on the premise that prices and value would continue to go up. If value, on real property, durable goods and the stock market, continued then escalating prices would continue. Someone came up with the idea that we needed business plans. Inherent in this concept is that sales will increase dramatically. A limited article on Wkipedia pointed out how much trouble that caused during the explosion. New business owners all envisioned tons of money coming their way. When it didn’t happen, problems; well, you know the story.

Ok, everything, price wise doesn’t go up by large percentages. The price of homes in the 50s rose only about 10k by the end of the decade for the medium range. Prices were stable. There were no inflation worries and we had few sources of credit in that time. We didn’t need them. Stable wages and stable prices make for a happy group of people. No one had informed us yet that we should buy things, other than homes and cars, and pay for them later.

To keep an economy going with the constant use of credit, there has to be a belief that salaries, values and prices will continue moving up into the stratosphere. We also need a population of consumers willing to go along with this vision. All this is to say that we have seen the end of unheard of rise in the value of real property. There is more to this than just real estate. The value of autos has to be also included. I have a feeling that car dealers are going to be about as popular as someone selling sand on a beach. The value on this product is decreasing, and the terms of the alleged dealers are getting more sleazy as the days goes buy. I have seen commercials by a guy hawking cars in the greater Los Angeles area with the promise of selling to anyone for a $95 down payment.

Times aren’t even going to be back where we were even with the promise of tax breaks and more refund checks. Those promises only deal with the short term. They say nothing about the other values we have discussed here. It also doesn’t deal with the fact that businesses are still caught up in the track of projecting gigantic increases in sale volumes. That’s how they were able to pull in investors. If things got, better, than everyone gets paid off, big checks and everyone is smiling. Sales projections are going to have be downsized for future projections.

Ok, what’s next and how are we going to deal with it? The biggest problem in my humble opinion will be acceptance. Can we deal with the idea that things are not going to back seeing the profits that we did with flipping houses, etc.? This is not to say that those folks will die out. There will be a smaller amount of folks trying to make a profit in this market niche. Profits will also diminish in other market niches.

Everything will be in disarray for quite awhile. There is really only one way to deal with all this rationally, one step at a time. Plans for spending, housing, employment and business expansion need to be looked at in a while new manner. Look at what you can afford today with the realization that there may never be more money in the future. There may not be raises coming down the tube. Businesses may continue to shrink. Sales may stay stable, no new growth, at least for quite awhile. Do not make a move in any part of your financial life that will ask for money you may or may not have down the road.

Keep your eyes on the economic forecasts and ongoing changes in the economy. Keep yourself informed like it was a matter of life or death. And, it is, your financial life.

Change is still coming in big waves. Exactly what and how is anyone’s guess until the new president has a chance to settle in.