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Countdown To The Greatest Crisis That Business Has Faced In A Centuryby Dan Arnold
Just about everyone knows that consumer spending accounts for around 70% of the economy as measured by the GDP and, if consumers cut back on their spending, the economy goes into recession. What most people don’t know is that when you add what the federal, state and local governments spend after taking it from us primarily as income, social security, sales and property taxes, the consumer is really responsible for at least 90% of the GDP. It is therefore only commonsense that the long-term trend of the economy must be controlled somehow by this absolutely overwhelming consumer spending component. In the short-term (1 to 2 years) many factors, such as war and scandal can seriously affect the economy, but they are always sideshows to a much bigger "hidden" picture. To figure out what is happening in this hidden bigger picture we must look at who we the consumers are with regard to our ability to spend. Obviously, 1000 middle-aged men or women earning and spending say $40,000 a year are going to have a vastly different effect on the economy (GDP) than 1000 15 year old teenagers spending their allowance of say $1000 a year. According to the Bureau of Labor Statistics the group with the biggest spending by far is the 45-54 year old group. This makes total sense of course as they are at their peak career earnings with huge expenditures to support teenage/college kids, their biggest mortgage, their best car etc. In the chart this 45-54 year old demographic is compared to the DJIA (Dow Jones Industrial Average) from 1920 onwards.
What emerges is a glove-fit picture of the economic past with every boom and bust, and everything in between, effortlessly accounted for with stunning accuracy for nearly a century. The huge ramp-up starting in the early 1980s is of course the baby boomers. We always accurately know this 45-54 year old demographic decades into the future. So, also starkly revealed in the chart is the unavoidable coming economic abyss that we are now headed for, and most of the world along with us. It’s nobody’s fault. It’s simply the inevitable result of our demographics. It cannot be fixed or wished away. The federal and state governments cannot solve it any more than they could in the 1930s and the 1970s. Demographics are, and always will be, just as unstoppable as a tidal wave. We have to accept the reality that this terrible depression is coming, and plan for it as best we can. For virtually all businesses this means that there are perhaps as little as six years of good economic growth left, followed by a catastrophic depression of historically unprecedented magnitude lasting about thirteen years. Financially it is about seven times a bad as the Great Depression of the 1930s. Many businesses, no matter what they do, will not survive. If a business depends heavily on the consumers’ discretionary spending, it will fade away as that spending moves towards zero. There is no magic bullet for businesses in what is coming. They will suffer terribly along with the entire population. Some will just do better than others. As with personal finances, those with the least debt or other forced financial obligations will fare the best. Businesses should strive to eliminate or minimize debt by the onset of the depression. How technology can help improve business efficiency should be pursued to the hilt, and labor costs driven down relentlessly. Prices for commercial real-estate will plummet in this depression. Businesses should try to re-negotiate what will turn out to be very high priced real estate leases and only enter into new leases that have termination dates close to the onset of the depression. Those businesses that urgently start working now on survival activities for what is coming will stand the best chance of being around down the line. Read and learn more in The Great Bust Ahead by author Dan Arnold. What do you think? Are we headed for the biggest economic depression ever? Or will things remain pretty much as they are for many, many years to come? Talk about it here.
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