What Can You Do?

As 2008 comes to a close, it’s difficult to find encouraging economic news. In a Harvard Business Review article about 12 years ago, the featured case study in which a methodology for making accurate market conditions was showcased. An oversimplification of the methodology is that the more people that are in agreement, the stronger the likelihood of accuracy.

I have developed the stomach to read through 18+ newspapers and business news sites every morning. There is a consistent prediction that there will be a honeymoon period after Obama takes office that will dissipate towards late summer when the aggregate loss of jobs, credit and wealth will cause an economic crisis that makes our current situation look pretty mild.

The United States is likely to undergo a financial collapse much like the Great Depression. Massive unemployment didn’t reach double digits when the market collapsed in 1929. Unemployment took until 1932, three years, to go from 3.2% to 25%. As the year progresses, there will likely be decreased access to goods, services and food. Some of this will be due to stores going out of business making purchasing more inconvenient. Some will be due to suppliers and transporters going under.

Most Americans will see radical cut backs in local services and social safety nets. Unemployment and food stamp programs will be overwhelmed. On November 27, 2008 headlines included the fact that the number of Americans on food stamps is poised to exceed 30 million for the first time this month, surpassing the historic high set in 2005 after Hurricane Katrina. Reduced tax revenues will eliminate funding for many state and local programs. The federal government will have to withdraw some of its commitments simply to keep people from starving in the streets.

In addition, climate change is accelerating. Ice caps are smaller than they have been in thousands of years. Methane being released by permafrost areas thawing are exacerbating the problem. Recent devastating floods in Brazil are being attributed to climate change. Significant increases in jelly fish populations and swarming world wide are attributed to climate change. In addition to occasional human deaths, increased jellyfish populations and swarming damages fish populations, fisheries, fish farms, marine mines, desalinization plants, ships, nuclear power plants, and business at beach tourist destinations. Climate change will mean severe unpredictable changes weather systems. We can expect to see increasing heat waves, record high temperatures, and heavy precipitation (floods and hurricanes).

As much as some might wish they could, mentally “refusing to participate in the recession” is tantamount to sticking your head in the sand. Running around like Chicken Little is no better. When you are panicked, you will not see opportunities and can not coherently plan and contingency plan.

When there is disruption there are always opportunities. Many in the real estate industry professionals have moved to mortgage mediation. At some point, that will dry up too. The number of people who are stopping making their mortgage payments so they can negotiate lower payments and lower principal is rising rapidly. Because many lenders are even now only issuing forebearances, homeowners end up in default again, typically less than a year. Lenders will be under exponentially more pressure as mortgage mediation gets more sophisticated and reductions in principal trigger more investor lawsuits. At some point the sheer number of foreclosures dragging down enough banks will hit a tipping point where people find it feasible to simply stop making mortgage payment knowing it may be years before they are evicted from their property.

One of the big differences between the Great Depression and our current systemic financial system failure is that the middle class is extremely well educated and resourceful. The massive layoffs will spur many to start their own businesses. Small businesses weather economic storms better because they can be more flexible in responding to changes in the market, thus having a better chance of remaining viable.

Those countries, including the United States, Great Britain, China, and India, that allowed themselves to be infected with economically deadly Affluenza are about to be cured in a most unpleasant way. One of the benefits of the implosion of our morally ill consumerism economy will be the resurgence of community. Humans are designed to need each other. Consumerism isolated us and gave us the illusion that anyone can make it on their own.

To quote Sharon Astyk “We will endure, sometimes even find ways of loving our new lives. There will be acts of remarkable courage and heroism, and acts of the most profound evil and selfishness. There will be enormous losses - but we will also discover that most of us are more than we think we are - can tolerate more and have more courage and compassion than we believe of ourselves”.