Sushi Money

    It strikes me that much of the market turmoil in recent weeks is based on fear… and maybe for reasons that have nothing to do with 99% of the investing and working public.  In large measure, so much of the credit, lending and hedge fund crises have been created, expanded and literally blown-up by the banks and investing institutions who designed and packaged their gourmet derivative specialties.  Yesterday we heard rumors of more hedge fund problems and that affected the financial markets as Wall Street finished a difficult week. This coming a couple days after rogue French trader “Mr. Average” causes billions in losses for one of France’s largest banks…. which may also have caused or exacerbated the European market turmoil last week.  How the heck does that happen anyway?!!!  

     Among all the stock market and investing challenges we have faced lately, I started thinking about The Recession.  The big scary word that everyone has been batting back and forth the past few months.  On an individual basis, do we really need to worry about a recession?  For many the answer might be… it depends.   It depends on if your job and income is something that may be affected by the recession of course. 

    There are many arguments for if or why we may be in a recession, and why the financial markets have been so volatile.  Housing, improper lending practices and wholesale repackaging of lousy loans has brought on a crisis of confidence throughout the financial services industry.  Many consumers are mystified by the degree of angst and financial losses that have occured to the largest of financial and investment institutions around the world.  Perhaps not since the savings and loan crisis of the 1980’s have we seen this degree of financial loss, confusion, negligence, fear, public reaction, and pending government legislation.  But this crisis is still unfolding… what the Financial Times calls The start of the great unwinding:

“If the US suffers a recession in 2008 or 2009 it will not be due to an industrial decline or an oil price shock. It will be a recession that began in the financial system. The response of the general public is confusion, tinged with horror, at how intangible finance can impinge on their daily lives. Even some bankers and traders must be struck by the chaos their business can unleash, and feel awe at just how powerful they have become.” 

      It is staggering to consider the losses that have occurred in the financial services industries.  And staggering to consider the ramifications for how it affects the consumer, consumer spending, and a slowdown in business nationally.  We may indeed be facing a long recession with difficult times ahead.  And the way out may hinge on the ability of the consumer to continue to spend.  But many people have jobs that are fairly well protected, or entrenched perhaps.  Government and civil service workers don’t need to worry about the recession per se because they normally won’t lose their jobs.  Workers such as teachers and professors with tenure don’t normally have to worry about their jobs either.  Highly skilled workers such as doctors, lawyers and other professional workers proably have less to worry about as well- and in some cases may do more business in difficult economic times.   Some service industries actually do better during recessions:

“Most of the service division’s 16 major industry groups decelerate in job growth or lose jobs during recessions. Five major groups are at least slightly countercyclical, however, gaining jobs faster in recessions than in normal times.”

 

Source: Bureau of Labor Statistics, Monthly Labor Review; Updated 2006

     So that shows that even during a recession there is opportunity.  But admittedly there are many workers with jobs that depend on the economic appetite of others, such as factory workers, sales personnel, mortgage and loan workers, etc, etc.  If you don’t have much education or skills, and you live in an economically depressed area… then the recession is something you feel first-hand.  But is it a national recession, or a global recession?   Are there really no jobs, or much fewer jobs?  Depending on the region you live in, maybe so.  But I know in the metro area that I live there are many, many jobs.  Maybe they’re not the same jobs that people either want or had before however, but there are jobs.  Service jobs are available everywhere of course.  We’ve written about the service economy before, and where the jobs of the future will be.

     News and information now travels in seconds and minutes compared to days, weeks and months over prior decades.  We hear every tidbit of news and quotable thoughts by leading economists throughout the world.  We analyze data much more quickly, and the markets react by the minute to news…. the world really is much smaller, and as Edward M. Gomez from SFGate.com writes yesterday, the impacts of a recession in the U.S. are far reaching.

“The news coming out of the World Economic Forum, which has gotten under way in Davos, Switzerland, is not good. At the international gathering of leading economists, high-level government policy-makers and captains of industry, the collective prediction is that a “full-blown, prolonged recession in [the United States] is now inescapable, with the rest of the world set to be dragged into a severe global slowdown despite [this week’s] emergency U.S. interest-rate cut by the Federal Reserve….” (Times, U.K.) ”

     Those are pretty tough words- read the rest of Mr. Gomez’s thoughts and it’s downright scary.  Yet I think it’s important not to give into the fear and rhetoric that’s plastered across the headlines every day.  We can even read a list of 10 Reasons a Recession is Coming.   Uh… okay.

     But what does it mean to us?  Probably only something that each of us can answer.  At some point, in order to understand it, I need to make the economy more personal.  Rather than worry about it, or not understand it, I think we need to assess how it may affect us at home (and within our communities) and whether or not The Recession may really challenge our individual ability to have an income and support ourselves.  If the answer is “yes” then I think it’s time to take steps to protect ourselves.  I’m not talking about survivalist measures from a total doom and gloom perspective… or about panderers who would take advantage of consumer fear (Caution: That site is designed to take your money while providing common sense solutions that you already know!).  But in the same way that emergency fund of savings can help us bridge difficult financial times, I think there are practical measures we can take to improve our lives while the economy regains traction over the course of the business cycle.  Because it is a business cycle, and eventually the economic slowdown will turn around while productivity increases.  This time it may take longer, or it may not… we just don’t know yet. 

   But what practical measures can we take if we are really worried about The Recession?  I think there’s a lot we can do.  Simple things like cutting back on spending, increasing savings, and reducing the use of debt.  Maybe start carpooling or becoming more efficient with transportation, eating healthier and exercising more to stay healthy (and reducing medical bills now and in the future!).   And even becoming more sustainable at home through growing a garden, reducing utility costs, etc.  Those are all simple, yet important things we can do in our own lives that will make a difference.  More importantly, we can develop our own human capital through gaining education, skills and experience in certain areas can provide an emergency skillset or knowledge-base that allows us to transition more quickly and efficiently to a new job or career if necessary.   Job retraining has become a hot-button issue for politicians and economists lately, and rightly so.  I strongly believe we must support current and future workers because education and job retraining initiatives will provide strength to our nation from an economic and human capital perspective over the long-term.  If our nation is to remain strong economically from a global perspective, then we must make sure to support our workers’ education and training development.

    We can also focus on those service industries that actually do well during a recession as shown above.  Can you say healthcare?!   Maybe we need to stay in a career or industry longer than we want because it is a practical, secure solution for the time being.  And remember The Grapes of Wrath?  A story of social and economic desperation with a major theme involving the mass movement of people from one region in the U.S. to another simply because there was little work, income, or even food to support them.  A stark illustration perhaps, but I don’t think it’s out of the ordinary to consider moving from one geograhpic region to another if a downturn in employment and opportunity will really affect quality of life and income needs.  I have a succinct opinion on the matter:

If it takes change to make our lives better, then we better change!

   I think back some years ago to a time in the early 1980’s.  I was finishing college and totally engrossed in school and personal activities.  College has always been a time for being totally engrossed in yourself and those pursuits you find most- well, interesting at the time… certainly a time of self-indulgence as well as growth.  But in the late 1970’s and early 1980’s the U.S. economy was in really, really bad shape.  The worst unemployment since the Great Depression, and crazy high inflation (over 12%!) that had spiraled out of control. Many Americans had lost confidence in themselves and the government.  It’s no wonder Ronald Reagan was elected President in a landslide vote with his optimism and strength.  Here’s a look at the long-term U.S. unemployment rate from 1958 through 2008:

Source: Burea of Labor Statistics, 2008

    But during that timeframe, honestly I was pretty clueless to the economic challenges the nation faced as a whole during those years.  Recession?  It really didn’t mean much to me.  I was a young college student with stars in my eyes.  Unemployment?  I didn’t really think about it… I found jobs waiting tables, being a lifeguard, working as an usher at sporting events, working in a chicken processing plant cleaning up chicken parts, and even working hard to get a scholarship.  Yes, I was a college student and didn’t have to worry about feeding a family and paying off much debt at the time.  But I think millions of other people do the same thing each day by scrambling to find work and opportunity.  Remember the recession of 1990-1991?  I don’t remember much about it.  I was working in a secure job and focused on getting things done.  I remember there was a housing downturn, and some challenges nationally, but we worked through it.  The booming 1990’s left those memories in the dust. 

Here’s another view of the long term unemployment rate (as a percent of the civilian labor force) compared to past recessions from 1970 to 2005.  It does show how unemployment usually increases before and during and even after recessions.  But often we don’t even know we’re in a recession until months afterwards.  If we’re in a recession today, we probably won’t even know until at least June, after two consecutive quarters of a decline of real GDP… here’s how the NBER dates a recession, with a lot of other info.

Source: BLS Issues in Labor Statistics, January 2006 (.pdf file)

     So back to our original question… does it really matter if we are in a recession?  I would really ask, “Does someone out of a job really care what you call it?“  I think the answer is self-evident.  People lose jobs, are out of jobs, are looking for jobs and are hired for jobs whether there’s a recession going on or not.  It happens all the time.  Politically and economically recessions matter because the nation’s economic engine slows down and it can have long-lasting effects nationally and globally.  There are real consequences to depressed economies and loss of the ability to pay for goods and services.   So yes, it potentially means people are going to be affected in greater ways by fewer opportunities to work, and business will be challenged to expand.  But on an individual level I submit that what you call it really doesn’t matter.  What matters is what we are doing individually and collectively to improve opportunity and economic well-being for ourselves and our families.   I think the government is moving in the right direction, and a family of five may even see a sizable amount of tax rebate in a few months.  Our national attention is focused on doing more, and improving the economy. Writers and financial sites continue to answer questions that matter to consumers.

     All things being equal, I think it is better to stay informed than not be informed about national and world events.  For that reason it’s important to pay attention to the leading themes we face.  Certainly you can make and lose money by the influences that shape our economy, and being better informed can help one make better decisions… hence, staying prepared or even finding a better job.  But I think our being informed should be framed in the context of the challenges that really can affect us.  I spoke of it the other day- there are a lot of problems we all have that we should pay a lot more attention to, and that we can do something about.

Petrarch once said, “Where you are is of no moment… only what you are doing there.”  That’s a tough statement for the homeless guy living in the street to swallow.  But I think it speaks to an eternal truth that what we are doing with our lives at any given moment in time really does matter.  We can influence and direct our future, we can improve opportunity, we can help others who need assistance, and we can find a job whether or not we are in a recession.

       Trying to balance the perspective of the words you read each day with what is really important in your life can be a challenge.  For example, just thinking about the 5.4 million people that have died in Africa over the past decade is staggering.  And over the past year there’s been a developing  crisis in Kenya where thousands more people face starvation and I can do little about that as well.  Bill Gates can however, and is pouring millions of dollars into helping small farmers in Africa.

“If we are serious about ending extreme hunger and poverty around the world, we must be serious about transforming agriculture for small farmers — most of whom are women,” he said in a statement. The Bill & Melinda Gates Foundation on Friday unveiled a package of new grants worth more than $300 million, nearly doubling its spending on agriculture.

 There has always been strife and suffering throughout the world.  Usually we tune it out, right or wrong it’s hard to have an impact.  But we can have some impact, and make choices about where some of our money or time goes.  Places like Kiva and MicroPlace are providing wonderful opportunities to have a real economic impact on people’s lives in other nations.  Reading about the life challenges that people face each day around the world certainly provides context to the “challenge” that some of us face here at home.  And when I read the big, scary RECESSION headlines, it helps me to frame that context in a healthier manner, and think about what I can do in my local community.

    In large measure that is why I try to strike a chord of optimism in difficult times, and perhaps why the tenor of my writing is usually more hopeful.  I don’t ever mean to belittle or dismiss the challenges that so many people do face each day.  I know those challenges are real.  And I am thankful for what my family has personally in terms of a steady income. We’re not wealthy by any means, and the effects of economic challenges are very real here at home as well.  We’ve modified our spending based on fuel and grocery costs as well as trimmed back in other areas and increased savings where possible. We are fortunate to have decent income and be able to support our family.  And yet I think it’s vitally important to remember the strength we can find within no matter what our situation, and that we can find and create opportunity in both the present and future through setting goals, intentions, gaining education and continuing a daily effort to grow.

     And besides, when a cafe in San Francisco spends $20,000 on a machine to brew a cup of coffee, how bad can it be out there?  Well, never underestimate the passions of a coffee aficianado, recession or no recession.  Personally I prefer Bill Gates’ approach to helping African coffee farmers.  Instead of spending $4 or $5 bucks on my own cup of coffee, maybe I can find a cheaper cup and have some left over for savings or a good cause.   Those are things I can do something about.   I think we’ll be okay, and there are a lot of things we can do to ease the challenges we may face ahead. Take care of yourself! 

If you like this post, please consider subscribing to Sushi Money in a feedreader.

Or you can subscribe by entering your email address below. Thanks for visiting!