The Danger of Recessionary Habits and Time

Not long after this recession hit I was hearing all the politicians and news people proclaiming this current recession as “the worst since the Great Depression”.  Even our president and other economic advisors proclaimed this as the worst.  Of course I scoffed at this since I did not believe it even measured up to the recession in 1980/81.  I felt like an old timer saying this, since many I was saying this to had not yet been born.  How do I know this and why?

 I graduated from business school in March of 1980 and began my finance career in commercial banking in May 1980.  Six months after entering the commercial lending world, the prime interest rate hit its high of 21½ %.  Unemployment was high and the worse was the inflation rate which was 12%.  I believed it was this inflation rate that made it worse – I am still not totally convinced it was not.  Some have said “what about the interest rates – wasn’t that the worse?”  Of course it was, but compared to our current day recession it is equal.  Say what?  You must be kidding?!? 

 At 21% we were lending, we had to just to keep companies afloat.  Today, although somewhat better, the banks are still not lending money; so the interest rate does not matter.   3% or 21% – if you are not lending, the rate doesn’t matter. A lot of the current population did not live during this time and has not “tasted” the scourge or inflation; at least as it is measured now.  I think we are living it, it’s just not being reported as such and that makes it worse.  Ah… that is for another article.

 What then makes this recession possibly the worst since the Great Depression?  The time we have stayed in it.  Yes the time.  Any good business person will tell you that when bad things happen, you take corrective action and get out of it as fast as possible.  I will not assess the actions or inactions of our leaders, business and political, in this setting; I shall only say we have been in this recession for too long.

 But many will say we are out of the recession and on our way to recovery.  And from an economic statistics position this would be correct.  But unlike other economic downturns we are not all recovering.  This appears to be one of the most disjointed recoveries I have ever witnessed.  But GDP is up, unemployment is down, interest rates are low, consumer confidence is improving, the stock market it up – right??  Is it –everywhere?

 I am writing this fromToledoOhio.  Tell me we are on the way to recovering inToledo, or anywhere in the Midwest or West or other parts of theUS.  While the stock market is up, if we could value small and mid sized businesses inAmerica, would their stock be up?  How many Americans have stopped working or looking for work or have just stopped taking a paycheck since business is down and they are now draining their savings –their future?

 Whether good times or bad we are creatures of habit.  In the good times we spent too much, ran up too much credit and overextended.  In bad times we cut back, we pay off debt, we stop spending.  This latter habit is the death of an economy since consumer spending has brought us out of all previous recessions. 

 But what about this last Christmas you say – record sales and spending?  Yes, after two years we have conserved some cash and recession weary people will decide to make themselves and others happy.  That’s a human condition.  And I was one of them.

 The problem is that up to Christmas we weren’t spending and haven’t done so in a long time.  THIS IS THE DANGER.  We get used to not going out or buying the extras.  I for one have not been to the mall or a shopping center, except for Christmas in two years.  I passed by a couple of stores I used to go into and admittedly would make some on the spot purchases.  I haven’t done this in nearly three years.  Am I the odd man here?  I don’t think so based on conversations I have had with others.  But this isn’t the worse.

 The worse is when this recessionary habit becomes ingrained in businesses.  When a business lays off 5, 10, 20 or more people they do so for survival.  In the “old days” the signs to new sales and other good economic news meant bringing these employees back and maybe even hiring new ones to train for when it really was “getting good”.  Not now!

 Today, businesses especially those small and mid sized see sales trickling in and even with higher sales, many are seeing if they can get by with the current staff.  If they can, they can make more profit and for many this is what’s happening.  This “dangerous business habit” is fatal to our economic recovery. The longer business leaders get used to smaller workforces, less office supplies, fewer factory needs and purchases, the longer it will take to really get recovered.

 Our economic enemy is not Europe, orChina; it’s not bankers, or interest rates, or the stock market or housing prices – but time.  I can only hope this time shrinks and we get back to normal (whatever that is) before the evil inflation monster strikes.  For if it does and we aren’t normal yet, 1980/81 will look like rather tame and maybe even considered a “mild recession”.

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