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Monday, September 29, 2008

Facing Economic Reality: What You Can Do About It

I share my business offices with another business that primarily depends on government contracts. The employees of that business have few or limited investments and so far the banks where they cash their weekly paychecks are still solvent. In short, the collapse of world financial markets seems like it is taking place in a different world from where they live their daily lives.

The 777 point crash in the NYSE today will impact everyone. Unfortunately the impact of such losses may take weeks or even months for to be noticed by people who have no investments whatsoever. Capitalism tends to spread out the pain of losses far more quickly than the benefits of good times. The millions that own stocks or have a 401k plan will know in days or whenever they dare to look at their devastated accounts. Unfortunately these last few months represent only the beginning of a long period of unemployment for millions.


They know that Washington Mutual failed on Friday, but some other bank bought them so that's OK. This morning Wachovia Bank was sold at a tremendous loss to Citigroup, but none of them bank at that institution so no worries there.

Downtown Charlotte 42493Wachovia Bank in Charlotte, North Carolina

Little people all over my community clearly understand that very rich people are losing money by the millions in places like New York but they cannot understand how the banking crisis will impact them or if it ever will.

This entire disaster hovers over every person in the world but only those who take the time to consider it can even begin to fathom the consequences.

#1 When a big business fails thousands of little Mom & Pop shops are also forced to close. Small restaurants are particularly feeling the pinch right now.

#2 The loss of many big firms, even banks and investment houses, means the loss of hundreds of thousands of jobs. People without jobs spend less but they also pay less taxes.

#3 The loss of tax revenue from corporate taxes and individual taxes is already destroying the national, state, and local budgets of many countries. In Maryland some local governments are already planning to furlough workers for several weeks. The state government is planning large cuts in most services.

State House, Annapolis 42290

#4 Normally, people, governments, and businesses would borrow money to get by until the economy recovers. In this disaster nobody wants to loan any money to any group. Those banks that loaned money in the past want the loans paid back quickly.

#5 If the above 4 problems continue to get worse, real unemployment in developed countries, including the United States and European nations, will possibly reach 50%. In the urban areas of underdeveloped nations the unemployment rates could reach 75%. Government unemployment figures will not be accurate, they seldom are, even in good times. Look at the history of the Great Depression era if you want to confirm these percentages.

Michigan Barn 00001

The people left working are farmers and essential services like hospitals, grocery stores, police, and military. Employees that any remaining businesses cannot possibly function without will keep their jobs, many will face pay cuts. Even some of the latter groups might find their paychecks getting delayed for lack of funds. Businesses wait longer and longer to pay each other. In later stages they only pay suppliers which would prevent them from remaining open.

The consequences of 50% unemployment also include massive homelessness, rampant increases in crime rates, widespread hunger, and even huge increases in mental illness. Essentially a breakdown of society into anarchy. Most developed countries will only see these consequences in certain regions.

While all of us would prefer to see some positive news that paints a more rosy picture of the future of mankind, we must confront the real possibilities now. In that way we might all be able to take some steps to forestall what seems now to be an inevitable decline into really nasty living conditions.

WHAT STEPS CAN PEOPLE TAKE NOW?

If you or your partner work in a private business or government agency and notice that activity has slowed considerably in your department, prepare for the possibility of a furlough or even being laid-off. Keep doing your work but think about how your family activities and expenses may need to change if someone loses a job.

Work on your resume now. Do it before you lose your job. Develop several versions of your resume that present your skills in different ways to reach the greatest potential number of employers. Talk to people you know about any openings, but be careful not to jeopardize the job you have now. A second job is not necessarily out of the question for many people, though they may dread the notion. When you interview, think about what your potential new employer sells and how it might be impacted by an ongoing business slump.

I suggest that people find ways to form tighter, closer communities. Teams, groups, and families are usually much better at confronting economic, physical, and mental challenges than lone individuals. Try to overlook small differences and resolve conflicts in the light of a more severe crisis.

Go to community meetings. There are always needs in every city or town, even in the most extreme economic conditions. See if you can find a niche where your abilities, skills, or positive thoughts can be of assistance to others.

Learn a new skill. Look around and see if there is an opportunity to learn something new. That new skill could turn out to be the most important talent you acquire in only a few months time.

Consider the possibility that you or someone close to you may lose their primary residence. If people cannot make mortgage payments or rent that is what happens. Try to be understanding if a member of your family asks for a place to live, consider the alternative if you turn them away.

I want to suggest that people reduce their spending to essential items only, however I also know that consumer spending is a critical part of a healthy economy. Look carefully at your budget, you certainly should have a detailed one by now. It certainly would not be a bad idea to stock up on canned goods and essential household items soon since prices go up rapidly if inflation spikes. I am not talking about hoarding but rather keeping more than one or two week's supply of essential items, perhaps a month's worth.

I want to suggest that people plant vegetables in their yards but winter is coming to the northern Hemisphere. Those living south of the equator already do a fairly good job of planting land that can grow crops. Consider planning to grow a vegetable garden next spring.

Market Day,  Purulia District 00018

People that know me casually sometimes ask how I know about surviving in truly hard times. I am a citizen of the United States and certainly not old enough to have lived through World War Two or the Great Depression.

Other than in my writing, I rarely mention my experiences in rural Puerto Rico, India, and Haiti. Lately, people who know me well have begun to ask me what happens when times get really rough.

While few people like a pessimist, many people value what a realist has to say.

I had a choice to go to those places or not, and live under those extreme conditions. I also remained when times got rough, really rough. As much as possible, I lived like my very poor neighbors, with very limited assistance from overseas. It was years ago, but I remember the details like yesterday. I remember the electricity getting cut off. I remember the empty pantry. I remember neighbors wondering about how they were going to feed their children. I remember working harder and longer in my gardens in Puerto Rico.

You never forget living though a severe extended drought or a massive hurricane.

I also remember myself doing all the things I suggested at the beginning of this section. I learned to keep bees. I often met with the other farmers or my neighbors. Most of all, I recall how good it felt when things started to get better in those places. I remember how people shared what little they had with each other. Finally, I remember clearly that local communities solved many of the major issues facing their members. That is likely how we will all get through this current global economic crisis.

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