Posts Tagged ‘inflation’

According to a press release, “The Federation of Small Businesses is . . . calling on the Government, the banks, local councils and consumers to play their part during the year by providing support to small businesses in fighting regulation, accessing finance and maintaining cash flow to buck the increasing trend of business closures.”

The Federation for Small Businesses needs to do more than just issue a press release.

The government has financed the banks, protected Wall Street and back stopped the auto industry, but government and our political and financial leaders have ignored the needs and potential catastrophic impact of the small business failure.

Limiting interest rates is just one limited step. Encouraging banks to lend, promoting a major SBA program similar to “HOPE for Homes”, encouraging lenders to extend credit rather than reduce amounts available, are but a few of the many steps they could take.

The FSB is to be commended, but at the same time must call upon the communities across the US to mobilize and lobby Uncle Sam to work to protect our small businesses, their employees, and the core of the American Economy.

As a small business owner suffering from a reduction in income levels due to the recession, I am very familiar with the shortage of credit for small businesses. It impacts the small businesses directly, as credit cards and other signature loans are their liquidity lifeblood. Also, customers and clients rely on credit to purchase services and products and with credit levels being reduced and credit needs not being fulfilled, consumption and purchase levels are down significantly.

Much comes back to the Federal Government and their missteps regarding the TARP and providing capital to our banks. One would think that the government bailout would have helped the small businesses indirectly, but then again, nothing has been as “one would have thought” over the past 6 months.

On December 15, 2008, Peter Zeihan wrote “Falling Fortunes, Rising Hopes and the Price of Oil”. See it at:

Stratfor is the world’s leading online publisher of geopolitical intelligence. Thus, it is an amazing source of real news and analysis.

Mr. Zeihan’s article begins: Oil prices have now dipped — albeit only briefly — below US$40 a barrel, a precipitous plunge from their highs of more than US$147 a barrel in July. Just as high oil prices reworked the international economic order, low oil prices are now doing the same. Such a sudden onset of low prices impacts the international system just as severely as recent record highs.” Please see it at the link for the full article.

My thoughts:
I would emphasize the tremendous risk economically, politically, and globally that severe volatility (both on the upside and downside, of valuations for energy, currency, food, labor and more) can and will present to the US and all global economies and cultures.

Though economically, the US will benefit from significantly lower energy costs and many, many other commodities which have inflated over recent years due to the the rising energy costs and the great speculation/investing in “hard assets”, the risks to our way of life and our economic vitality are potentially greater.

The article describes the potential impact on governments and regimes, and the possible instability that will likely ensue, given human nature. Interestingly, I have been pounding the table with my equity investor clients on the reasons to purchase stocks in defense oriented companies, due to these very reasons. This article, plus the recently announced government spending plan, fully supports the strength of the sector and the essential need for continued development, irregardless of our incoming government’s timetable for Iraq.

Interestingly, our financial leaders are extremely concerned about the potential for spiraling deflation. They have defined deflation as the deferral of purchases in anticipation of lower prices. From my vantage point, the deflation that we are currently experiencing is more of the reversal and undoing of inflation of past years. Additionally, in the economic studies I have read recently, the decline in current consumer spending has not been due to “waiting for lower prices” but due to the lack of money to buy goods and services within neighborhoods and communities throughout our country and in many places in our interconnected world. The volatility economically and emotionally of having significant access to money (through savings or credit) to having little or no discretionary spending capability should be an area of focus for our national and global leadership.

In this holy season, as well as this season of new beginnings, we all must be optimistic about tomorrow and at the same time pray for political, economic and social stability locally, nationally, and globally .

All the best for the New Year!

Six months ago the world was facing a tremndous threat of global inflation.  So much so, the EU Central Bank, in their wisdom, raised their Interest Rate for all of Europe!  This, at the same time, was when the US had already cut rates substantially to abate the market’s collapse.

With the global economy collapsing, demand for raw materials to finished goods has fallen flat.  The basic equation of price being set at the intersection of the supply curve and the demand curve has produced current prices. Demand dropped, supply increased and prices generally have plummeted.  Risk aversion in the markets (whether currency, commodities, securities, energy or eggs) has increased drastically.  Values per unit can change by 2-10% in any given day, either following the direction from the prior trading session or setting a new direction.  Thus, the number of players in these markets have declined.  Too much inventory is spead throughout the supply chain, with each sector of the chain trying to push it off to the next.

Prices have dropped and now the greatest threat is global deflation!  Deflation could spiral as less capital is available, values of assets held declines, and the buyers patiently wait for values to fall further.

The demand for stocks has dried up , as investors fear that valuations will be forever changed (to the downside.)  Retail sales are down as people wait until they truly need something before they buy it.  Unemployement numbers are skyrocketing and with that average labor costs will come down, as people price themselves competitively to enter back into the work place.  And last, and most important, housing values will continue to fall, as credit becomes scarcer, incomes lower, and supply of available units increase.

WATCH OUT FOR FALLING PRICES!!!! THEY COULD CRUSH US ALL!!!

What do you think?  Share it here.

When I close my eyes and try to envision where our economy is going, not based on the “Morons in the Morning” but based on what is happening on Main Street, Wall Street, and every other commercial avenue, business park, etc. in America, I AM VERY AFRAID!

There are layoffs in all areas of our economy, all sectors, industries, professional levels, etc.  Manufacturing, marketing, banking, sales, retail, health services, insurance, real estate, construction, and more are all under pressure.  The only “safe” jobs today are undertakers, auditors, CIA Clandestine Services (which is advertising on our local radio station extensively for help wanted, believe it!), and litigation attorneys.  I do not think anything else is even remotely stable.

If we think back to the medieval times, the Black Plague spread violently and killed more than half the people in Western Europe.  I liken this economic crisis to the Red Plague, based on the financial losses most people are suffering around the world.  It is absolutely an epidemic!!! The Financial Times this week used the term “epic proportions”.  EITHER WAY, THIS IS VERY SCARY!

An excerpt of President Bush’s speak from Wednesday was included as a guest column in the WSJ today.  He noted that the only way for the world to get through this is to adhere to the capitalistic system.  (I would not want to be him at the meeting this weekend of the global economic leaders.  They will all laugh at him, or at least smirk and chuckle into their palms.)

We are on a cyle that may be extremely difficult to break.  But then again, when we think of the rampant inflation of just 6-9 months ago, and how it just collapsed, maybe there is hope????  What do you think?

To use an analogy, it takes energy and effort to push things up (i.e., inflation) and only  natural forces (i.e., gravity) to have them fall.  Trees do not grow to the sky, but a leaf can fall a long, long, long way from the top of a tree, until it lands.  An even after hitting the ground, can be impacted and moved by wind, rain, fire, snow, insects, decay………………..

Can someone help me to be a bit more optimistic??????????????

Please leave me a comment.  Let me know what you are thinking.