My Idiots Guide To Economic Downturn And What We're Heading Into
An Idiots Guide To What We're About To Enter Into
Hold on tight please and fasten your seatbelts, we're in for a heavy landing.
The UK and World's economies are staring right at the drop at the moment, staring deflation in it's face.
It may be a short word to some, but a look around deflation, is actually able to provide us alone with a good summary of what the Western World, and the UK one of the most harshly is experiencing in what it calls, "The Credit Crunch".
What is deflation? In a nutshell it's prices going down, on everything, everyday things in the shop, the price of your football ticket, to the prices of professional services.
It's a little more than that though. It also refers to the situation in which the supply of money and credit dries up.
An environment full of fear, in turn causes people to become more cautious with money, people and businesses alike. It's not just people who are cautious with their savings in times of recession, it's businesses and institutions too. As credit dries up, the economy grinds to a halt. Businesses, and banks stop lending to each other, in caution of their funds and the what the futures hold. Demands for money hit harder than before, and individuals and businesses are strained. Jobs are lost.
As it stands, we are not in deflation. We are in what is know as disflation...a time where inflation is still on the go, prices are still rising, but not as at higher rates as before.
Think of it as a pressure guage, and most of the time prices are rising and the percentage rate on the dial is in the green. At either ends of the green safe portion is an amber zone where things aren't so bad but need to be monitored to prevent them getting out of hand and a red zone where things are dangerous as it's either underpressured or overpressured.
During the boom time, banks were giving credit here there and everywhere. You practically could give a false name and get a 100% mortgage. Funds were plentiful as the grass was green. In the early days of this, the pressure guage would have been in the amber zone, things needed to be monitored to make sure they didn't get out of hand, but it wasn't fatal.
But it struck the red zone, and the machine of the economy was too late to be repaired. The gaskets had blown and the guage dropped downwards towards the negative figures and lower red zone faster than anyone could have imagined.
So here we are. The civilised world's economies are shrinking from a few executives in the City being a bit uncivilised in bathing themselves in their bonuses not caring for the lapse conditions they encouraged in giving credit too freely.
The supply of money is clawing back, and governments look to prop the economy up and encourage things not to fall any further, and to improve by taking over the banks and shoring them up. However, it isn't working. The cloud in peoples minds will not disappear and fear leads both individuals and institutions to be careful with their affairs. Money supply falls, and with it comes people deciding to make their weekly grocery shopping a little humbler than the luxuries they might have included in the boom confident days. Some may even put off buying certain things because they foresee that they'll be able to get it cheaper at a later date.
Of course one or two goods no longer going through the supermarkets checkouts, hits companies revenue and profits. A spiral already started with banks and businesses being cautious is added to further. More jobs are lost. The populace starts to get visibly affected, you can now see it and smell it - we're entering into recession, and if we're not careful, deflation's bedmate, depression.
There are many things a business can do in these times, and of course, the future is not set in stone.
It's essential that businesses today are able to identify and find some pride in knowing that it is they who hold the key to the economies' survival. If trade continues for long enough, it could be the one solution no government could do alone. Business is not dead, and money is still to be made. If enough good products and good services get out there and make enough people happy to achieve a good demand, the mood of the times can be raised from fear and optimism will gradually return and with it the supply of money could be increased.
So what are we headed for?
A lot of blame for a start.
The population throwing blame on the banks, the banks shrugging and pointing blame to the change of wind direction, the governments throwing blame on the lenders of finance cautious that any more gloom and blame would make the market even less optimistic and resulting in further collapse. Instead the governments try desperately to plaster over the cracks by holding the banks up with their hands as if they are lifting up scenery that's in danger of falling like some kindergarten play.
It's a long old road. I suppose the only answer (in time, probably about 10 years time) is for the economies to right themselves with a gradual growth in trade, self sufficiency boosting local economies, and eventually (as it always will do) the cycle will go through a flourish and if left to the right conditions, a boom in economies will then lead to the next bust growing like this period's toxic debt bacterium.
To end with a Louis Armstrong quote, I suppose the only way forward is to look forward, 'chin up' as the English would say.
"I see skies of blue..... clouds of white
Bright blessed days....dark sacred nights
And I think to myself .....what a wonderful world."
Hold on tight please and fasten your seatbelts, we're in for a heavy landing.
The UK and World's economies are staring right at the drop at the moment, staring deflation in it's face.
It may be a short word to some, but a look around deflation, is actually able to provide us alone with a good summary of what the Western World, and the UK one of the most harshly is experiencing in what it calls, "The Credit Crunch".
What is deflation? In a nutshell it's prices going down, on everything, everyday things in the shop, the price of your football ticket, to the prices of professional services.
It's a little more than that though. It also refers to the situation in which the supply of money and credit dries up.
An environment full of fear, in turn causes people to become more cautious with money, people and businesses alike. It's not just people who are cautious with their savings in times of recession, it's businesses and institutions too. As credit dries up, the economy grinds to a halt. Businesses, and banks stop lending to each other, in caution of their funds and the what the futures hold. Demands for money hit harder than before, and individuals and businesses are strained. Jobs are lost.
As it stands, we are not in deflation. We are in what is know as disflation...a time where inflation is still on the go, prices are still rising, but not as at higher rates as before.
Think of it as a pressure guage, and most of the time prices are rising and the percentage rate on the dial is in the green. At either ends of the green safe portion is an amber zone where things aren't so bad but need to be monitored to prevent them getting out of hand and a red zone where things are dangerous as it's either underpressured or overpressured.
During the boom time, banks were giving credit here there and everywhere. You practically could give a false name and get a 100% mortgage. Funds were plentiful as the grass was green. In the early days of this, the pressure guage would have been in the amber zone, things needed to be monitored to make sure they didn't get out of hand, but it wasn't fatal.
But it struck the red zone, and the machine of the economy was too late to be repaired. The gaskets had blown and the guage dropped downwards towards the negative figures and lower red zone faster than anyone could have imagined.
So here we are. The civilised world's economies are shrinking from a few executives in the City being a bit uncivilised in bathing themselves in their bonuses not caring for the lapse conditions they encouraged in giving credit too freely.
The supply of money is clawing back, and governments look to prop the economy up and encourage things not to fall any further, and to improve by taking over the banks and shoring them up. However, it isn't working. The cloud in peoples minds will not disappear and fear leads both individuals and institutions to be careful with their affairs. Money supply falls, and with it comes people deciding to make their weekly grocery shopping a little humbler than the luxuries they might have included in the boom confident days. Some may even put off buying certain things because they foresee that they'll be able to get it cheaper at a later date.
Of course one or two goods no longer going through the supermarkets checkouts, hits companies revenue and profits. A spiral already started with banks and businesses being cautious is added to further. More jobs are lost. The populace starts to get visibly affected, you can now see it and smell it - we're entering into recession, and if we're not careful, deflation's bedmate, depression.
There are many things a business can do in these times, and of course, the future is not set in stone.
It's essential that businesses today are able to identify and find some pride in knowing that it is they who hold the key to the economies' survival. If trade continues for long enough, it could be the one solution no government could do alone. Business is not dead, and money is still to be made. If enough good products and good services get out there and make enough people happy to achieve a good demand, the mood of the times can be raised from fear and optimism will gradually return and with it the supply of money could be increased.
So what are we headed for?
A lot of blame for a start.
The population throwing blame on the banks, the banks shrugging and pointing blame to the change of wind direction, the governments throwing blame on the lenders of finance cautious that any more gloom and blame would make the market even less optimistic and resulting in further collapse. Instead the governments try desperately to plaster over the cracks by holding the banks up with their hands as if they are lifting up scenery that's in danger of falling like some kindergarten play.
It's a long old road. I suppose the only answer (in time, probably about 10 years time) is for the economies to right themselves with a gradual growth in trade, self sufficiency boosting local economies, and eventually (as it always will do) the cycle will go through a flourish and if left to the right conditions, a boom in economies will then lead to the next bust growing like this period's toxic debt bacterium.
To end with a Louis Armstrong quote, I suppose the only way forward is to look forward, 'chin up' as the English would say.
"I see skies of blue..... clouds of white
Bright blessed days....dark sacred nights
And I think to myself .....what a wonderful world."