Mar 16, 2011
As the U.S. and world economies work to recover from the burst economic bubble in 2008, I'm starting to feel like obstacles are mounting to challenge the recovery. It's not that we won't recover; it's just that, day by day, it’s getting to be more of an uphill battle.
One of the first challenges the U.S. and other countries face going forward is a disenchanted generation of baby boomers. When so much money was poured into the economy to try and rescue the banking system, boomers became almost instantly aware that government debt was escalating to extraordinary levels and that higher taxes were almost inevitable. On top of this, after the new administration's comments that it was going to tax and then tax more those who work hard, take risks and provide jobs, I saw many business owners becoming very disillusioned.
Look at, for instance, a 50-something or 60-something baby boomer who has worked an entire career to build a business, taken all kinds of risks and dealt with all sorts of hassles. Then, in a matter of months, 40% or 60% of net worth disappears in stock market and real estate values. Next, the government announces that to fix the economic malaise it is going to tax those boomers and take money away from them at every turn. Many business owners have said enough is enough. I'm just going to hunker down, protect what I've got, take less risk and look to get out rather than build up what I have.
This kind of a reaction is common. Any time there is uncertainty, people tend to retreat and be cautious.
Other factors have developed that will make the economic recovery slower and possibly more sporadic than it otherwise might have been. One of them is the export of jobs. To give you a stark example, I know a locally owned business that had 6,000 employees. When the economy collapsed, it eliminated nearly 2,500 jobs by either moving them overseas or laying people off permanently. As the economy has been recovering, all its rehiring has taken place in overseas plants. The labor is cheaper and overhead costs are lower. This type of approach is widespread. Many businesses across the land have found they can do a lot less business with a lot fewer employees and still make very good money. These businesses have learned that employees are expensive. Their business goals are to rebuild with a minimum amount of rehiring.
World events are another major factor that have reared their ugly heads in recent weeks. The uncertainty of these world events will certainly cause nearly everyone globally to reevaluate their lives. When you see massive unrest in the Middle East that could, on one hand, lead to democracy there, yet, on the other hand, could lead to radical foreign governments that are far less stable and less friendly than those that they replaced, it's worrisome. The associated spike in oil prices has many concerned about escalating commodity prices and a skyrocketing cost of living. The earthquake and tsunami in Japan, and now the forecast that the next major quake may very well happen on our western coast, have to shake confidence in personal security for many people. On top of that is the ongoing nuclear meltdown in Japan.
When you step back and look at all these events, you have to realize that, in these times of great uncertainty, people question their values. They step back and decide that family is very important. They step back and decide that work is less important. They step back and decide that they want to enjoy life while they can. And they step back and realize that they cannot spend every penny they've got like there's no tomorrow. They need to be conservative and prepared for the unexpected. All of these things lead to less spending, less productivity, less risk taking and less economic activity.
My point is not to say that our economy is doomed or to even say that the economic recovery won't continue. I just think it is important for people to realize that, in times like we're facing today, an economic recovery can occur, though it will have a bit of a brake dragging it down. When setbacks do occur along the way, they will be a little bit deeper and possibly a little bit sharper than they otherwise would have been. The recovery time window may not be as quite as long as it otherwise would have been. And when the really big setbacks occur, they could be even bigger, even deeper and more severe than they otherwise would have been.
As with much of what I write about, the key point to take away from here is that volatility in the marketplace is going to continue and uncertainty seems to be growing even greater by the moment. Face it: Who can predict next earthquake, the next tsunami, or the next country to erupt in violent protests and experience economic and infrastructure meltdown due to lack of a central government?
We're living in uncertain times. The only certainty that you can count on is continued uncertainty and volatility. The only sensible reaction to that is to be prepared. Prepare for the unexpected, and rely less on an outlook and more on your preparation. As we like to say, don't focus on where the market may go. Instead, position yourself for whatever the market may do.
Scott Stewart is president and CEO of Stewart-Peterson, a commodity marketing consulting firm based in West Bend, Wis. You may reach Scott at 800-334-9779, email him at firstname.lastname@example.org.
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