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Bad economy may be good medicine By Michael C. Guilmette Jr. Originally published on Jan. 8, 2009, in the Connersville News-Examiner. Lately, some rather nifty words are being used to describe the current state of our economy — “troubled,” “shockingly weak,” “recession” — and even the dreaded word “depression” is being thrown around to paint a dreary picture of our financial present.
This picture does have some truth behind it. On Wednesday, we learned that two-thirds of a million jobs were cut in December 2008, with most of those cuts, 602,000 of them, being made by small and medium-sized businesses. Following the half-million jobs lost in November, it is pretty clear to see that the economy is retracting. Gloomy economic prospects are never a joy to contemplate, but they are being contemplated nonetheless. However, more than the usual suspects are throwing the two cents that they haven’t lost in their 401(k) into the mix. In fact, the late-night call-in talk radio show “Coast to Coast AM,” usually home to aliens, conspiracy theories and other assorted Star Wars cantina denizens, is being dominated more and more by increasingly legitimate economic experts. Still, “Coast to Coast” has a loyal audience who expects the usual amount of prognostication the show presents. On Jan. 1, one of the guests was trends analyst Gerald Celente of the Trends Research Institute in New York. Celente and his group gained some fame by predicting the U.S. would see a swift battlefield victory in Iraq but would then get bogged down in the postwar efforts to rebuild the country. Celente said the trends he studies indicate the U.S. is headed for the “Collapse of ’09” to be followed by the “Greatest Depression,” eclipsing the Great Depression of the 1930s. Instead of using a crystal ball like many of the late-night show’s guests, Celente points to commercial real estate as the next “shoe to drop.” Commercial real estate is, simply put, office space (and warehouse space and retail space, etc.). Commercial real estate owners usually purchase this space on leverage — taking out loans to be paid back with rent earned from that space, akin to a landlord paying a mortgage on an apartment building with rent checks. This system works great when the economy is booming and businesses are snapping up commercial space and even making more. But when things “go south” economically speaking, businesses stop renting space and paying rent, and then the bill comes due for the owners, who don’t have the rent checks to pay their bills. As far back as May 9 of last year, Gene Sperling, a top Clinton economic adviser, wrote on Bloomberg.com that commercial real estate was no longer offsetting the declining housing market and lending for commercial space was being looked at with more scrutiny. “Almost 80 percent of domestic banks are tightening their lending standards for commercial real estate loans,” Sperling said. With billions tied up in commercial space, that shoe dropping would certainly make a noticeable footprint, one that Celente says will start the next depression. The possibility of another depression is debatable, but Celente did offer a silver lining to his dark-cloud prediction — a return to what he called “Yankee frugality,” defined by the motto “use it up, wear it out, make it do, do without.” He also said that Americans as a whole need to themselves find ways to increase productivity — and one way, he said, was to return to a Main Street mentality by finding niches locally to provide goods and services that have been lost due to corporate contraction. As an example, Celente said the “fast coffee” giant Starbucks closing 600 stores opens a lot of opportunities for local coffee shops to fill vacated store fronts — assuming Starbucks doesn’t get a government bailout. The incoming Obama administration is looking at a variety of government efforts — highlighted by a near trillion-dollar stimulus package — to “fix” the economy. Even with this plan, the president-elect is forecasting trillion dollar deficits for years to come. Some economists say the Great Depression was made worse by government intervention, and government intervention at this time could not only result in added economic chaos, but it furthers the notion that only government can do anything about it. A downturn in the economy is an opportunity to cut a lot of the fat and largess out of the marketplace. Consumers are already tightening their own belts without having to be told to do so, as evidenced by the fall-off in new vehicle, home appliance and home electronics sales. The American people are smart enough to get themselves out of this mess if they are allowed to do so. However, attitudes like “I’m owed a job, a house, health care and a paycheck” or “it’s the government’s problem, they need to fix it” only cause drag, and it’s those attitudes that need to go. So, while economic troubles may come with some discomfort, they may usher in a resurgence of self-reliance, personal responsibility and the “can do” spirit which made this country great. We just need to brave enough to take our medicine, no matter how bad it tastes. • Guilmette is managing editor of the News-Examiner. He may be contacted at mguilmette@newsexaminer.com. |
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Copyright © 2009, Michael C. Guilmette Jr. |
President-elect Barack Obama himself said Tuesday the economy is “very sick” and suggesting what medicine we will need to take to fix it.
