The Real Face of the Economy

I'm far from being an expert, but all common sense points to being in a depression. Today, we speak of the economy as suffering through a severe recession. Tomorrow, we'll be discussing why the economy was drudging through a mild depression.

The points:

The national unemployment number is still in the single digit figures, but there's blatant symptoms that the trend is to continue higher. Just take a look at California. I'm living here in one of the world's biggest economies, and the unemployment rate is over 10% (somewhere around 10.6%, if memory serves). This isn't even the worst of it.

What the media hasn't really told you about is that there is a severe hiring freeze. I keep a crude eye on the job market, and the rough evaluation shows the near absence of available positions. Even in recessionary periods, companies still continue to hire employees despite massive lay-offs. The business reasons are many...one of which is to prepare for the next boom cycle with a re-energized and revamped organization. But this market is bad...for Joe Schmo and the CEO.

Look at your neighborhood with common sense eyes. Sometimes, we can better assess economics through rudimentary practices, such as merely talking to the store clerk.

I live in an area where for every ONE bank, there's at least TWO banks. Now, let's look at the situation with some simple common sense. Regardless of the evolution in "financial products," the fundamental way for banks to make money is to issue loans. If they don't issue a loan, they simply don't have a business. Are we to believe that the demands for borrowing money are so great that it is a sustainable and viable business practice to locate competing retail banking institutions in clusters around the same city block? We always want to see a situation where people are lending money to help a business expand. Yet today, most borrowers want money so their businesses won't die. I don't know about you, but I never feel comfortable loaning money to a crackhead...it's bad business.

Banking is a business with a similar feature to insurance. The average person doesn't understand, nor even truly care to understand, the legal ink. We don't know what makes for a good bank and bad bank. We never evaluate the business by their practices. The differentiating factor is the RATES the banks offer. Banks offering the higher savings rate get our deposits. Banks offering loans with lower interest payments get our applications.

There never was that much money going around. Next door to all of these financial institutions, businesses are going bankrupt...and without replacements for the vacant retail locations.

The last GDP figure that I looked at showed our economy shrank around 6% for the quarter. If we were a balloon, we lost a lot of helium and ain't flying so high anymore. Today's economic activity is likely to be a little worse than the data is showing.

The standard of living by means of consumption of normal goods is showing signs of decline also. In lay-mans terms, people are buying crappier food. The executive of Safeway has publicly stated that they are seeing a decline in purchases for beef and pork in exchange for increases in purchases for the cheaper protein, chicken. Although this may not directly relate to you, imagine reverting back to a diet of instant noodles and dollar menu items because your post-college career can't support your restaurant weekdays anymore. Recessions are supposed to be the times when you can't afford the weekend getaway. Depressions are when you're eating bacon and eggs for dinner instead of the slices of medium rare sirloin you were accustomed to.

Warren Buffett is the world's greatest investor and has reported in his annual letter to Berkshire Hathaway's shareholders that the rest of 2009 is likely to be a grim year. His conclusion is NOT important because he's the world's greatest investor. The significance of Warren Buffett's statement draws from the types of businesses he's involved in. Have you ever heard of Fruit of the Loom? Gillette shaving razors? Coca-Cola? These are normally "recession-proof" companies that service some of our basic human needs. And when people are choosing to wait until the holes in their underwear get big enough to fit a hand through before buying another three-pack, the economy is taking a beating.

Warren Buffett doesn't speculate about the economy. A lot of his conclusions come from the activities he sees in his businesses. So, when he sees Coca-Cola shares hitting $39 after a year high of over $60, slowdowns in purchases for underwear, and even major credit card companies offering to pay customers to close accounts.....my eyes get a little wider.



The private sector is screwed up really bad because no one is a true risk taker. We say we're very risk tolerant in boom cycles, but the moment retractions begin to happen, almost everyone starts to run with their tail between their legs. And especially in these times, there's just too much uncertainty in the economy right now. Thus, I hope you're not like Rush Limbaugh and wishing that President Obama fails. Our best bet is for increasing government activity towards new infrastructure.

I grew up believing that the USA was the world leader in all fields. For a time, it was nearly true. But those days are long behind us. Gov. Arnold Schwarzenegger has stated that our railway systems are ancient when compared to the rest of the developed worlds'. He said that our infrastructure resembles a third world country's with completely out of date systems. Our society is wasteful in that most people choose to fly 200 miles because no better efficient ground transport system exists. This is why I voted 'yes' for the high speed railway system. The tax implications can be reversed in time. We need efficient ground transport...especially for the economy.



What are you to do in this economy? Go back to school maybe? Yes, but be careful about your graduate school dreams.

Get ready for the next wave of lawyers. If you thought today's legal system was wrought with ambulance chasers, we're going to have a whole new populous of suits and briefcases in the next 5 years. MBA's are already plentiful, and the next 3-5 years are going to see even more wishful managers. Computer scientists are probably going to have brighter futures, but the average programmer is gonna bite a bullet or two. This is all because a trip back to school is the common route when the economy declines.

What can you do??? GO BACK TO SCHOOL!!! Part-time, full-time, it doesn't matter. Enroll in a program and at least get a certification. Unless you've got a unique and special skill, you don't really have any other options.

Regardless of what we do in these tough times, there's only ONE way to win. Engage in dialogue. Your future is going to be the product of your social skills. It's not good enough to merely network now. You MUST constantly TALK to the people in your network. Lunch, dinner, weekends, and even on Facebook.

Academics has not been keeping pace with real world activity, so there has been a severe homogenizing of pedigreed professionals. Our bachelor's degree is equivalent to our parents' high school diploma. Thus, the only employers that are going to take notice of a stranger's academic credentials are the employers that are only interested in people with master's degrees or doctorates. And the bad news is that after we grow past our current depression, a master's degree won't stand on it's own right anymore.

I hope you're making friends. Slightly less than 700,000 jobs were cut from payroll in February. With everyone going back to school, see your classmates as comrades and not competitors.

- J