Another recession is “unavoidable” according to an article today by Yahoo! Finance. Lakshman Achuthan, co-founder of the Economic Cycle Research Institute (ECRI) went on to elaborate, “You haven’t seen anything yet. It’s going to get a lot worse.”
These comments are significant for two reasons: 1. the whole point of the ECRI is to identify whether or not we are in a recession, and 2. only a month ago Acuthan said the “jury is still out.”
Now, apparently, the jury has returned and the verdict is “guilty.”
Many people would argue that the “old recession” never ended – that this “new recession” is not a double dip but rather the continuation of a very long recession. (Achuthan disputes that.)
Of course, the “Great Recession” was vehemently denied by our government and the media for over a year, until finally in December 2008 the widespread financial panic made further denial impossible. But just four months later, Bernanke already began talking about “green shoots.” Then, in September 2010, the recession was declared to have been over since June 2009!
Talk about the Emperor wearing no clothes!
I have lived through a number of recessions in my lifetime, and I can say with absolute certainty that this recession (oh excuse me, the LAST recession) was the most denied recession I have experienced.
But frankly, the debate of whether we are entering a “double dip” or that the “Great Recession” never ended misses the point.
The fact is, we are now in a “new normal.”
Most people think 2007 was normal, and we just need to get back there.
The trouble is, 2007 was NOT normal. It was a crack high.
The economy was funded by an insane real estate Ponzi Scheme. As real estate values soared, lots of people got rich, and far more THOUGHT they were rich.
Two examples from my own little world:
1. A friend’s cleaning lady asked him for advice about what to do with her THREE investment condos that were all under water. Now I am all for the Great American Dream, but I am not sure a cleaning lady earning $12 an hour should be investing in three condos.
2. A house in my neighborhood was purchased as a rental by a cocky twenty-something sub-prime mortgage broker who drove around in a Bentley. I remember thinking, “Uh oh, this isn’t going to last.” Sure enough, when the music stopped a few months later he lost both the house and the Bentley. He mistook being at the right place at the right time for his own financial genius.
These little anecdotes were repeated across the USA countless times. I am sure you have stories like these too.
But the hangover from a crack binge isn’t the whole story.
While the media rightly talks about the real estate fiasco as a cause of the recession, very few people connect the dots about the larger, structural changes that are taking place at the same time.
As baby boomers age, they will spend much less on big houses and big cars. Younger consumers are both fewer in number and poorer. As someone wrote awhile back, “Who is going to buy and furnish all these 4,000 s.f. mini mansions?” (Harry Dent has been writing about the economic impact of demographics for years.)
Meanwhile, while almost everyone acknowledges demographics make Medicare and Social Security unsustainable in the long run, virtually no one has the political will to do much about it. Just yesterday I saw a commercial from AARP extolling us to protect Social Security and Medicare – which would be great except that we cannot afford to keep funding these” birthrights” like we have in the past.
As if that weren’t enough, official unemployment figures remain close to 10%, and the hard truth is that a lot of jobs aren’t coming back. Culprits include:
1. Many high-paying manufacturing jobs have disappeared overseas, replaced by lower cost workers.
2. Now that many of today’s unemployed have become chronically unemployed, their skills are out of date.
3. In a world where high tech is the future, we are graduating far too few engineers and scientists.
Then on top of all that we have crushing domestic debt, financial crises in Europe and ongoing consumer malaise.
I could go on, but the bigger question is, “What should we do?”
I would argue that it is time to get past the earlier Kübler-Ross stages (denial, anger, bargaining, depression) and finally get straight to “acceptance.”
Only from a perspective of reality will we finally make the necessary decisions we have been putting off.
I remember reading a book by Robert Ringer in the 1970’s that sums it up nicely:
“Reality isn’t the way you wish things to be, or the way they appear to be, but the way they actually are. You either acknowledge reality and use it to your benefit, or it will automatically work against you.”
So going forward, I advocate preparing for ongoing economic problems and staying flexible in your approach.
I am a Partner in a medical advertising agency, and I think it is a good case study.
Through most of 2008, we (like a lot of companies) had strong sales.
When the bottom fell out in 2009, the phone almost stopped ringing. The doctors, hospitals and manufacturers we serve either froze or panicked. It was really amazing that demand could drop by almost 50% so quickly.
We survived those tough times, though, because our company is “new economy” based. Due to technology, we have very little overhead and most of our costs are variable. When demand slowed, we cut expenses and our costs shrank almost proportionately.
(I cannot tell you how happy I am that we didn’t have all the expenses of a traditional ad agency during that time.)
When the phone started ringing again in 2010, we didn’t see any “green shoots.”
No one was calling because they were optimistic about the economy. Rather, prospective clients told us they simply couldn’t wait any longer for things to get better.
(To this day, I cannot think of a single client who has told us he or she wants to market in order to take advantage of the “better economy.”)
Today, my company is receiving new opportunities from every direction. This is in fact the most exciting time of my professional career.
But despite all the good things that are happening for our team, I still “hope for the best, but prepare for the worst.”
There are fundamental changes going on in the economy (and in healthcare for that matter), and things are going to limp along for a LONG time.
So your job is to accept and deal with that fact.
Let’s rethink, restructure, rebuild, be flexible and especially prepare for our “new normal.”