Posted by: nedpelger | February 10, 2009

How Bad Can This Get?

I don’t think you’re going to like the answer. Most Americans have never seen hard economic times, much of the rest of the world lives it daily. I’m a big fan of the American system, especially our productivity, and strongly believe we will be bouncing back. Unfortunately, we could have a ways down before we start heading back up.

This chart from The Gavel Blog shows the job loss per month for the 1990 recession in blue and the 2001 recession in red. The green line shows the current recession. While the other recent recessions skipped many areas of the economy, this one will touch everyone.

jobsrecessions

Lots of people complain about our ineffective government, but the economy simply overwhelms what government can usually do to control it. Last fall was an example of the Treasury Department acting well. On the night of September 15, 2008, an electronic run on money market accounts took place. Within 2 hours, $550 billion was withdrawn from money market accounts. The Treasury Department stepped in, shut down the system and stopped a total collapse from occurring. Rep.Kanjorski from PA recently stated:

“The Treasury opened its window to help. They pumped a hundred and five billion dollars into the system and quickly realized that they could not stem the tide. We were having an electronic run on the banks. They decided to close the operation, close down the money accounts, and announce a guarantee of $250,000 per account so there wouldn’t be further panic and there. And that’s what actually happened. If they had not done that their estimation was that by two o’clock that afternoon, five-and-a-half trillion dollars would have been drawn out of the money market system of the United States, would have collapsed the entire economy of the United States, and within 24 hours the world economy would have collapsed.”

That’s some scary stuff. Today, in Russia, people are so scared of the stability of the ruble, that major construction firms are bartering their services. That means major construction firms are advertising that they will accept bartered items, like food or heavy equipment, for payment for their services.

Most of our economic prosperity is based on the confidence that the system is stable and people will do what they say they will do. With those assumptions, we can leverage our limited resources, as a business or as a country, and create extra value. If we lose the confidence, life gets much harder to live.

Sorry to be gloomy, we will get through this. Just don’t make the mistake of thinking we already are.

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Responses

  1. Have you seen what Zig Ziglar is publishing on YouTube yet? http://www.youtube.com/results?search_type=&search_query=zig+ziglar+sales&aq=f


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