The US Economy is in the grips of a pretty major recession. Very few would argue that, and the numbers suggest that it could be another year until we recover. Plastered all over the news we hear the doom and gloom of the day.
Jobless rates are soaring. The US currency is devalued to levels not seen in decades, governments both local and national are running out of cash and issuing IOU's, the stock market is in the dumpster and even worse, some high profile scandals have created a feeling of distrust.
While the jobless situation and other factors are very real, there is one thing behind it. Fear.
Since the market rebounded sharply after the tragic attacks of 9/11 the average American on the street felt pretty invincible. Home prices kept rising, the economy kept tacking on gains and the overall feeling of prosperity kept humming along. Funny thing is, it is this feeling of invincibility is what got us into this mess.
We all know the guy. He is a renter, gets into a home on a creatively financed deal and starts to develop equity. Rather than be smart and refinance into the fixed while he had tons of equity, what did he do? He bought motorhomes, boats, took luxurious vacations and paid off credit card debt, all with the help of his newfound money tree in the back yard. His home equity.
His financial situation did not really change, but he had a whole lot of money to buy toys. It was this feeling of the gravy train never ending that powered the US to some pretty incredible gains. However, the bubble has burst, our example has lost his home and his toys and is now looking to Uncle Sam to bail him out.
The media for the longest time turned a blind eye to this situation. They assured that the US economy's predicament was limited to the "subprime" debt. Then, when the pain was too large to ignore, they saw that the US was in a recession. Now, it is so much more. The bad news of the day is now amplified to the point of paranoia. Now, the US is in the complete inverse situation. People with good financial situations are now terrified to spend a penny and it is killing us.
Now, when we NEED the spending, even those with cash are not spending. Now, the pendulum has gone too far. I see the downturn as being good for us for a few reasons.
1.) A return to frugality - this will help people learn to save and actually demand something for their money. This will lead to better product quality and the mentality of taking care of things. The US, hopefully, will become more efficient.
2.) Job Loyalty - in great economic times, people job hop like crazy. Now, hopefully, people will be happy to have thier job and will actually stay and perform better (for the fear of being cut is always there). This will help our workforce be more efficient and more loyalty. Just the reduction of turnover will help alleviate the recruitment and training costs that have risen so over the past decade.
3.) Opportunity to pick up undervalued assets - I make my major purchases in down economies when possible. Houses, cars, toys, all can be had for pennies on the dollar to those who were wise enough to be cash rich when the downturn hit.
4.) Innovation - smart employees are coming up with ways to make extra cash. This is second jobs consulting, starting small side businesses, etc.
5.) Savings - When times are good, "savers" are scoffed at. "Why not?" is the common question asked of them when they hesitate on a purchase. "You work hard, you deserve it" is another. Hopefully, this revelation that the US economy, like so many others, is prone to hard times, maybe people will rethink their savings strategy. Those who saved and planned while times were great are cash rich now and are much better off than the people who leveraged too much and got hammered. Hopefully, a new saving mentality can come of this.
In general, I see that the economy is bad. The dollar will undoubtedly fall apart as the Fed runs the printing presses of cash. I get that. But, when looked at with a fresh perspective, this can be a good thing.
I do things a bit better now. Less lunches out at expensive places, less money squandered on things not needed and a much better record of saving and investing. With some luck, we will get through this a better, wiser and more disciplined society.
Good luck,
mrboo
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