Small business is crucial to the American economy. These businesses have helped kick start our economy after the past several recessions. So why is this not taking place now? What has affected the make-up of our economic machine? It could be many reasons – the recent scandal in the mortgage industry with foreclosures is now leading the way to a apparent downfall, one that could send the whole economy reeling again to the likes of what we witnessed in 2008. Also contributing could be all the government tinkering over the past decade and a half. It is quite possible and very apparent that we simply broke it. We allowed greed to let the government make decisions that essentially broke our capitalistic economic machine. A machine that had run well for us over the past hundred years or so.
Several years ago when so many businesses – large and small – were making money like gangbusters, we all got greedy. Housing prices were skyrocketing, people were spending freely and everyone was buying things they really could not afford trading away a future. Credit was handed out like free candy at a record breaking pace. People were buying homes and getting loans on things they could not afford and should never have been able to obtain. Homes that really should have been worth about $200,000 were now selling for $350,000 or more. Interest rates were kept artificially low and so even more credit was handed out. Hell – money was being thrown around so much some people were really starting to believe that money was growing on trees. Everyone was getting credit, credit for everything they had dreamed about. If someone didn’t qualify, the banks created new ways for them to be able to get credit. We allowed our government and corporations to break the machine – we broke the machine!
Then when everything came crashing down – no one was spared. We all in some way contributed to the mess because we allowed our government and ourselves to fail. When the machine broke this time, there were not any spare parts to fix it. There was no way to put a band aid on this. People lost their homes – many who should have never owned them in the first place – people lost their possessions, businesses began to fail due to lost sales, mismanagement and bad loans and so many people lost their jobs – jobs that will take many years to recover. What were we all thinking? We listened to a government tell us things were fine, they said inflation was in check (that was minus food and gas, two items that skyrocketed in this timeframe). They said look – People can buy overpriced homes and cars and get credit for them.
Think about this now – how can family of four, making about $70,000 per year total income afford a $400,000 home, two car payments and all the other associated family expenses? This was happening all across America. Back in 1999, I bought a home in Las Vegas for $108,000m sold it in 2002 for $149,000 and as I followed is it sold again in 2005 for $350,000 – at one time the value had shot up to $400,000. Then what happens – the machine starts to make rumbling sounds and finally breaks down – crashes! That home now has a value of about $100,000 – 11 years later it is worth less than what is was brand new. It should have never been worth $350,000, Las Vegas’ economic make-up centered on tourism and the casinos, the city could not sustain that. But we let our government tell us different. We did not pay attention to what the politicians we elected were doing because we were greedy. We trusted the people we elected – yet we did not pay attention to what they were doing once they got in office.
So why is small business not pulling us out of this mess this time? It is because we broke the machine, we abused it, we did not take care of it, we allowed others to borrow it, tinker with it and they abused it. We messed it up pretty good. Now – we really need to face the facts – we can no longer fix it, we don’t have the right parts available. We need to build a new machine and learn to take care of it, put it on a maintenance schedule to keep it running smoothly.
There are so many people out of work, unemployment continues to hover around 10%. No one has cash to spend. We were all dependent on credit. People out of work, pay raises are slow to come or still non existent, hundreds of thousands lost their homes and jobs and businesses. Now we are also looking at a Mortgage Industry that has foreclosures on hold and many possible lawsuits lining up due to the crisis. Small businesses thrived on people being able to spend. Small business is now stuck in a rut along with many larger businesses.
President Obama has come up with many short term ideas but unfortunately his administration and the congress as a whole can not come up with the necessary solutions to get the economic machine back on track. They are unwilling to face the fact that we as a whole actually broke it. The government broke it, corporate America really broke it and we as Americans broke it. The bail out money given to all these companies did not help – the corporations used it to clear the red ink from their books and invest it in higher yielding shares and reaped the profits. With the profits, they did not invest it in hiring but are holding it within. Sure, now some of these corporations are paying back the money but we as Americans are the losers in this process. They borrowed our money, they made profits off it and they keep the rewards of those profits. Tell me – how did this help the economy? It didn’t not one bit, unemployment rose and is still hovering near 10%.
I still applaud Ford Motor Company. They did not take any bailout money, they went back and figure out what they needed to do and turned things around and made a profit at doing it the right way. Sure car sales went up at some of the other car manufacturers once the cash for clunkers was in place, but as soon as it expired, sales slowed again. The same happened in the housing industry, once the incentives were removed housing sales slumped. To top it off the government and the economist wondered why this happened – are you sure we have the right people running things?
The process is a simple one, the answer is not so simple. To keep business growing and to sustain that growth, people need to buy your product, your sales have to keep growing. At issue is the fact that so many people are out of work and so many people have less money that no one is spending. It used to be we spent more than we saved in this country – now we are saving more and there is less to spend. Credit is harder to come by and people are buying more with cash. All this contributes to lower sales. This all should be common sense to our government officials – we elected them in part because we believed they had some common sense. So to tackle this whole issue we all have to start with common sense. We first have to face the fact – We Broke the Machine.
Now – we faced that fact. Unfortunately so many of our elected officials have not. We have to face the fact that this will be a long process – not good news but it is a fact we need to face. So far our elected officials have not faced that fact. We also need to face the fact that we need to build a new economic machine – one we all agree we will take care of and nurture – many of our elected officials refuse to want to do this.
Some things are starting to turn around, but not enough to help us out of this mess. Several banks are still failing, some have seen the errors of their ways and have cut back on issuing credit, making it much harder to qualify. This is making it harder on many small businesses who rely on short term loans to stay afloat and other loans to expand. So many of these businesses no longer can qualify. They no longer have the sales to generate enough capital to show the banks they are able to repay the loans.
A big key to this whole process is finding a solution that will lead to middle class Americans increasing their spending. A substantial part of the process will also involve spending with hard cash and much less credit. Doing it this way is a longer healing process, but it would be more sustained and much more credible. This will be one of the pains of rebuilding the Machine. With so many people out of work we must face the fact that this process will be long and tedious. Many people will need to be retrained for new jobs and roles in other fields – a situation for which we as a country are simply not prepared.
The big fact we need to face is that we do not have the right people in power to take care of this job. We need to quit looking at which party is at fault – both parties help mess this up and neither seems to have the answers. The leadership is poor. We do not have a winning team in place and now the draft is approaching (election) a chance to get valuable replacement players that are willing to take us to the next level, willing to put in the true work it is going to take to get a new Machine built. This all starts in your own communities, with your local poloticians all the way up to the national level. Many localities are still run by the same families that contributed to this mess in the first place. People who are descendents of people who have been in power in some instances for a few hundred years, they are elected just because of their name. Not a good deal – this is not any better than voting along party lines. This country was not meant to be a two party system but we have now made it that way.
Further bailout packages to corporations is not the answer. We need to find a way to get money into the hands of the people so they can spend again and get companies to start growing. If we don’t build this machine correctly and maintain it, we are going to end up in this mess again. We need to build the Machine the right way, make it work and take care of it. It will be a long process for everyone, but working together we can do this. America was built on the backs of hard working Americans – we can not forget this. Hard work is what made us, hard work is what will get the Machine built and hard work is what will sustain growth.
With the elections coming up – remember this. Now is your opportunity to make a change for the better. Get people in office that will work hard for us, for the belief in America! Ignore the party lines, look at what each candidate has to truly offer. IT is our time to make a change and let our voice be heard. We must all remember that our government is – “By the people and for the people” it should not dictate to us, we should dictate to it. _ Just My Explosion of Thought!
Showing posts with label Economic decline. Show all posts
Showing posts with label Economic decline. Show all posts
Monday, October 18, 2010
Saturday, April 17, 2010
Our Economy April 2010
The economy is ever so slowly showing small signs that we may be experiencing some recovery. There are more companies that are beginning to move out of a survival mindset and back into a growth mode. Some of these companies are relying on mergers and acquisitions to achieve new growth, targeting other businesses that may complement or expand their basic model. Others are looking at better and more cost efficient ways to manage their businesses.
Many business leaders have stated that the fundamentals of productivity have changed for good. Uncovering new ways to free up cash and lift operating performance and production. Many more companies are going on the offensive, they are aiming to drive workplace efficiency. They are accomplishing this by focusing more on retention – increasing salaries and benefits, increasing production among their current employment base and with development and empowerment of top talent. They have discovered that operational efficiency as a result is the best way to deliver more value in today’s markets. They are focusing more on empowering their top talent to pursue better and new creative solutions. They are utilizing the knowledge and experience of those they already have on board. Even with a mild economic upswing on the horizon, the focus on doing more with less won’t fade away.
Core business practices are mandating managers and other staff to anticipate risks earlier and manage them more effectively. This also requires establishing what risks are worth taking and which risks should be avoided. When proper and stable risk management is most effective, key roles and responsibilities will be communicated throughout the company. In business today where we hear of previously unimaginable events, companies need to master the discipline of risk intelligence. As this recession begins slowly to gain, recovery will not follow a familiar pattern; companies will need to contend with a new and more competitive marketplace.
The recent economic growth report said we had about a 5.6% growth rate. After you take out restocking of low inventory levels, the real number for growth rate was only 1.8%. A 40% increase in gas prices over last March drove the March Consumer Price Index up about 2.3%. Gasoline prices are based mostly on oil prices, which were only $40 a barrel this time last year. What may help some in the months to come is that demand in this country is still below numbers in the past and gasoline supplies are still in surplus. What can hurt is if speculators again start up and force prices on a more brisk upward trend. Just in the past few weeks we have seen gas prices edge up by .10 to .15 per gallon.
I believe we are still looking deep into next year to see any real sustained growth in this country. The time frame could grow much shorter if job growth was surging. Unfortunately it is not. The mild increase in employment in March was not sufficient enough to bring down the 9.7% unemployment rate. The most recent look at the employment market is still not encouraging. For the week ending April 3, about 460,000 new applications for unemployment benefits were filed. This begins another week in what has become a stubborn trend which cannot seem to produce sustained employment improvements. It is anticipated that service industries are on the cusp of hiring and we may see some measurable improvement before too long. Unfortunately it is very likely that those joining the ranks of the newly-unemployed will be many state and local government workers many that are connected with public education, as many state governments have announced that their budgets are being severely curtailed.
The rising stock market seems unable to overcome weak labor markets and the severe downturn in home values, so it may be a while until sustained growth can be obtained. Many areas of the country are still suffering from the economic downturn and home prices have yet to show sustained movement. It has not been an opportune time to place your home on the market in many parts of the country. Many people are selling out of desperation due to job loss or decrease pay. On the same block there may be a home for sale for $300,000 and right down the street 2 similar homes that were foreclosed on can be purchased for $90,000 to $150,000.
Here are some parts of the country that have been hit hard and have yet to see an upward trend:
A. Las Vegas, Nevada
The population from about 1996 – 2001 saw huge increases yearly. But over the past 2 years it has declined about 6 to 7%. The average wage has sharply declined in this time period also. They have seen a very steep drop in new building permits, with a decline of 63.63%. Unemployment from January 2007-January 2010 has sharply increased by 180%. There has been a negative in new jobs added from February 2007 - February 2010 of a negative 12%. To top that off the change in median home prices from market peak in 2006 was a huge drop of 50% from that peak. Many people who bought even before the peak have seen prices decline. A home I had purchased in 1999 for $118,000 I sold in 2001 for $149,000, it was sold again in 2005 for $265,000, the current value of that home is now at $99,000 a 17% drop from what I paid for it when it was newly constructed and a 63% drop from its last selling price.
B. Sacramento/Roseville, CA
The Sacramento area of California saw a decrease in population of about 3% in the past few years. There was a remarkable drop in new building permits in the last 3 years of about 75%. Unemployment in this area from 2007 to 2010 decreased by 142%. New job creation decreased by approximately 8% and the decline in home prices saw a drop of over 35%.
C. Orlando-Kissimmee, FL
In the Orlando area of Florida from 2007 to 2010 building saw a very steep drop off with new building permits dropping by over 65%. The population in this area saw a decrease of about 4% as people relocated to areas with better job opportunities or were forced to move in with relatives in other areas. The unemployment rate during this period realized an outstanding drop of over 250%. New jobs adding in this time resulted in a negative of over 8% and home prices dropped by 35%.
D. Phoenix, AZ
Phoenix, AZ was another area hit hard over the past few years. Between 1995 and 2003 that saw double digit increase in jobs, home prices, population and building. Over the past 3 years though the population has seen a decline of about 7%. New building permits declined by a whopping 83% as home prices declined by over 35%. Unemployment in the area jumped by over 145% and new jobs added was a negative 10%. I knew a couple who moved out there in late 2005, he had taken a new job with a security firm and they had a home built for about $250,000, homes at the time were going up everywhere in the Phoenix area. By mid 2007 his company went under, he put his home up for sale, but they were still building in his community and prices there were on the decline. The new homes were now selling for $200,000, not wanting to take a loss he rented it out and moved back to the DC area to take a job. Less than year later the renter lost his job and moved out, he had no other choice and let the home go into a short sale.
E. Los Angeles/Long Beach, CA
Good old Los Angeles, the City of Angels. I just heard that last week, Nicolas Cage lost two adjacent Malibu, California, properties and his Bel Air home to the bank. This is after his two homes in New Orleans went into foreclosure at the end of last year and his Las Vegas Mansion which he paid $8.95 Million for in 2006 just sold for $4.95 million. See photos here: http://www.lasvegassun.com/news/2010/jan/25/nicolas-cages-foreclosed-las-vegas-home-sells-495-/ . His Bel Air home failed to sell at Auction last week. Cage had initially tried to sell it for $35 million. The home went up for auction at $10.5 million and had no takers. The home was once owned by Dean Martin and also by the heartthrob Tom Jones, the 11,817-square-foot compound has a 35-seat home theater, a full Olympic pool, nine bathrooms and the walls are covered with framed comic-book covers from Cage’s collection. He blames his current financial difficulties on his finance/business manager Samuel Levin and is currently suing him. So even the stars in this city have been hit somewhat by the recession (I say it was still on the brink of a depression). Unemployment in LA jumped a staggering 163% in the past 3 years while new building permits declined by over 50%. Home prices in the area dropped almost 30% and they had a new jobs added decline of over 8%. The population in the city remained relatively unchanged.
So as you can see we still have quite a ways to go. Home prices need to show some more movement. You can expect the Federal Reserve to keep the borrowing rate pretty much stable but I would still expect to see an increase of at least ¼% in the next several months and maybe another ½% over the next 8 – 12 months. We need to get the value of the dollar to increase some and with the interest rates so low, we can not expect to see much movement. The government still needs to find a way to motivate and stimulate the middle class in this country so that they will be able to start spending again. As I have been saying, until this core group of people in this country start spending again we can not expect to see us pull ourselves out of this recession fully. My Explosion of Thought!
Many business leaders have stated that the fundamentals of productivity have changed for good. Uncovering new ways to free up cash and lift operating performance and production. Many more companies are going on the offensive, they are aiming to drive workplace efficiency. They are accomplishing this by focusing more on retention – increasing salaries and benefits, increasing production among their current employment base and with development and empowerment of top talent. They have discovered that operational efficiency as a result is the best way to deliver more value in today’s markets. They are focusing more on empowering their top talent to pursue better and new creative solutions. They are utilizing the knowledge and experience of those they already have on board. Even with a mild economic upswing on the horizon, the focus on doing more with less won’t fade away.
Core business practices are mandating managers and other staff to anticipate risks earlier and manage them more effectively. This also requires establishing what risks are worth taking and which risks should be avoided. When proper and stable risk management is most effective, key roles and responsibilities will be communicated throughout the company. In business today where we hear of previously unimaginable events, companies need to master the discipline of risk intelligence. As this recession begins slowly to gain, recovery will not follow a familiar pattern; companies will need to contend with a new and more competitive marketplace.
The recent economic growth report said we had about a 5.6% growth rate. After you take out restocking of low inventory levels, the real number for growth rate was only 1.8%. A 40% increase in gas prices over last March drove the March Consumer Price Index up about 2.3%. Gasoline prices are based mostly on oil prices, which were only $40 a barrel this time last year. What may help some in the months to come is that demand in this country is still below numbers in the past and gasoline supplies are still in surplus. What can hurt is if speculators again start up and force prices on a more brisk upward trend. Just in the past few weeks we have seen gas prices edge up by .10 to .15 per gallon.
I believe we are still looking deep into next year to see any real sustained growth in this country. The time frame could grow much shorter if job growth was surging. Unfortunately it is not. The mild increase in employment in March was not sufficient enough to bring down the 9.7% unemployment rate. The most recent look at the employment market is still not encouraging. For the week ending April 3, about 460,000 new applications for unemployment benefits were filed. This begins another week in what has become a stubborn trend which cannot seem to produce sustained employment improvements. It is anticipated that service industries are on the cusp of hiring and we may see some measurable improvement before too long. Unfortunately it is very likely that those joining the ranks of the newly-unemployed will be many state and local government workers many that are connected with public education, as many state governments have announced that their budgets are being severely curtailed.
The rising stock market seems unable to overcome weak labor markets and the severe downturn in home values, so it may be a while until sustained growth can be obtained. Many areas of the country are still suffering from the economic downturn and home prices have yet to show sustained movement. It has not been an opportune time to place your home on the market in many parts of the country. Many people are selling out of desperation due to job loss or decrease pay. On the same block there may be a home for sale for $300,000 and right down the street 2 similar homes that were foreclosed on can be purchased for $90,000 to $150,000.
Here are some parts of the country that have been hit hard and have yet to see an upward trend:
A. Las Vegas, Nevada
The population from about 1996 – 2001 saw huge increases yearly. But over the past 2 years it has declined about 6 to 7%. The average wage has sharply declined in this time period also. They have seen a very steep drop in new building permits, with a decline of 63.63%. Unemployment from January 2007-January 2010 has sharply increased by 180%. There has been a negative in new jobs added from February 2007 - February 2010 of a negative 12%. To top that off the change in median home prices from market peak in 2006 was a huge drop of 50% from that peak. Many people who bought even before the peak have seen prices decline. A home I had purchased in 1999 for $118,000 I sold in 2001 for $149,000, it was sold again in 2005 for $265,000, the current value of that home is now at $99,000 a 17% drop from what I paid for it when it was newly constructed and a 63% drop from its last selling price.
B. Sacramento/Roseville, CA
The Sacramento area of California saw a decrease in population of about 3% in the past few years. There was a remarkable drop in new building permits in the last 3 years of about 75%. Unemployment in this area from 2007 to 2010 decreased by 142%. New job creation decreased by approximately 8% and the decline in home prices saw a drop of over 35%.
C. Orlando-Kissimmee, FL
In the Orlando area of Florida from 2007 to 2010 building saw a very steep drop off with new building permits dropping by over 65%. The population in this area saw a decrease of about 4% as people relocated to areas with better job opportunities or were forced to move in with relatives in other areas. The unemployment rate during this period realized an outstanding drop of over 250%. New jobs adding in this time resulted in a negative of over 8% and home prices dropped by 35%.
D. Phoenix, AZ
Phoenix, AZ was another area hit hard over the past few years. Between 1995 and 2003 that saw double digit increase in jobs, home prices, population and building. Over the past 3 years though the population has seen a decline of about 7%. New building permits declined by a whopping 83% as home prices declined by over 35%. Unemployment in the area jumped by over 145% and new jobs added was a negative 10%. I knew a couple who moved out there in late 2005, he had taken a new job with a security firm and they had a home built for about $250,000, homes at the time were going up everywhere in the Phoenix area. By mid 2007 his company went under, he put his home up for sale, but they were still building in his community and prices there were on the decline. The new homes were now selling for $200,000, not wanting to take a loss he rented it out and moved back to the DC area to take a job. Less than year later the renter lost his job and moved out, he had no other choice and let the home go into a short sale.
E. Los Angeles/Long Beach, CA
Good old Los Angeles, the City of Angels. I just heard that last week, Nicolas Cage lost two adjacent Malibu, California, properties and his Bel Air home to the bank. This is after his two homes in New Orleans went into foreclosure at the end of last year and his Las Vegas Mansion which he paid $8.95 Million for in 2006 just sold for $4.95 million. See photos here: http://www.lasvegassun.com/news/2010/jan/25/nicolas-cages-foreclosed-las-vegas-home-sells-495-/ . His Bel Air home failed to sell at Auction last week. Cage had initially tried to sell it for $35 million. The home went up for auction at $10.5 million and had no takers. The home was once owned by Dean Martin and also by the heartthrob Tom Jones, the 11,817-square-foot compound has a 35-seat home theater, a full Olympic pool, nine bathrooms and the walls are covered with framed comic-book covers from Cage’s collection. He blames his current financial difficulties on his finance/business manager Samuel Levin and is currently suing him. So even the stars in this city have been hit somewhat by the recession (I say it was still on the brink of a depression). Unemployment in LA jumped a staggering 163% in the past 3 years while new building permits declined by over 50%. Home prices in the area dropped almost 30% and they had a new jobs added decline of over 8%. The population in the city remained relatively unchanged.
So as you can see we still have quite a ways to go. Home prices need to show some more movement. You can expect the Federal Reserve to keep the borrowing rate pretty much stable but I would still expect to see an increase of at least ¼% in the next several months and maybe another ½% over the next 8 – 12 months. We need to get the value of the dollar to increase some and with the interest rates so low, we can not expect to see much movement. The government still needs to find a way to motivate and stimulate the middle class in this country so that they will be able to start spending again. As I have been saying, until this core group of people in this country start spending again we can not expect to see us pull ourselves out of this recession fully. My Explosion of Thought!
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