Charting Your Course Through Troubled Waters - Part Two

What Happens Next?

As of this writing, the stock markets are gyrating. Also the world's authorities are pumping massive amounts of funds into the banking system to get the flow of interbank lending (the life blood of the financial system) going again so the normal everyday business can be funded again but they are far from stable. While there is a lot of uncertainty, there seems to be just a bit less outright panic and terror.

So what does this mean to those of us who are just little folk buried way down among all the statistics? Well for one while you can stop panicking that does not mean you should not be concerned. Bubble and stock market crashes are preceding indicators of economic recessions. For most of us in the work-a-day world it is not the value of our investments declining that will have the major effect, it will be the influence of real economic decline over all in the economy. That is what causes loss of jobs and loss of income - the part that we little folk fear and dread.

Before I start going into what one might be able to do about one's future in this environment (which will be in Part Three), I want to get you really, really focused on what I believe is the magnitude of what we are dealing with. Because I don't think we are having just a run of the mill major recession - which for those of you too young to have gone through one is not pleasant. We are going to go through a prolonged period of learning to deal with much, much less than we've had before.

Now I'm not a Nobel Laureate economist, but I do have a pretty good track record for calling these things. (It has been gratifying in a perverse way the last few weeks as a number of business clients and associates have reminded me that I called this collapse starting two years ago).

The world economy is now awash in new debt and financial commitments that have been thrown in trying to restart the flow of business funding. Before this the U.S. was already way in debt both as a country and as a mass of individuals. Where is the money going to come from to pay down this debt? It's going to come out of taxes. It's going to come from less monies governments have to give services. It will come from individuals not being able to buy things because they are going to be paying down debt and higher taxes.

When all these things happen, that money paying down debt can't go into building new products and new infrastructure. When that happens the businesses that produce products and do infrastructure can't hire people. All of this causes a decline in economic activity and a reduction in jobs and income. Add to that something I've written about in the past - the fact that there are lots of places in the world that have cash (China, the Middle East) and they want what we've had and are going to be able to pay for it. That's going to mean less of everything for us.

This is a new world and it's going to last for a long time. We are going to be in a situation in the U.S. where we just don't have the capital to make things happen. People are going to find out that a lot of stuff that they think they are entitled to is - guess what - not an entitlement at all. In fact they are going to learn that they have been very, very, very lucky to have been alive during a period when one country dominated the world's economic output and a corresponding lifestyle - and all that is over.

They are going to find that they are not entitled to:

• Multiple cars
• All the electronic gadgets anyone could desire
• Being able to eat all our meals out whenever we want
• Having a system pay hundreds of thousand of dollars per individual just to keep them alive 9 more months
• Own a house
• Use all the energy they want
• Go on vacations anywhere and anytime they want
• And a host of other things
  

We've been on a wonderful ride - but it's over.

But that does not mean one has to despair. Because in every circumstance there are winners and losers. If you want to be winner, you have to understand that the rules are all changing. Accept and embrace that and you are on your way to charting your new course.