2009 Gloom & Doom Update: Overspending and the Global Financial Crisis

There have been lots of articles on what has caused the problem and how it can be solved. An article in the NY Times addresses one part of the cause: over-spending. This excerpt summarizes it brilliantly:

In other words, shopping was part of the problem and now it’s part of the cure. And once we’re cured, economists report, we really need to learn how to save, which suggests that we will need to quit shopping again.

My advice to individuals out there is simple: get rid of your debt before you start to spend on new things. You’re not helping the economy at all if you add to your debt, in fact, you’re making it worse.

The retail sector wants you to spend so that it helps them. That does not mean it helps you!

Categorizing Change in Society

Disclaimer: these are thoughts stewing in my head for a little bit. This can eventually become a white paper by refining the following ideas and adding modes of dealing with each.

Change tends to sweep in at different speeds depending on the trigger. A rough way to categorize it is the following:

  • Evolution- this is small, continuous change that happens in systems over long periods of time. Depending on the system being examined evolution plays out over decades and centuries.
  • Reform– this takes generations before it is fully entrenched in peoples mind-sets (a generation is around 20-25 years long). One generation is enough to implement changes and it takes about another generation before the memories of “before” are mostly gone, or at least irrelevant. This tends to start at the top; it requires strong leadership with a long term vision, adequate planning and implementation. This is a proactive role that is necessary to ensure a smooth transition from one status quo to the next.
  • Revolution– this takes years to achieve. This is a word that most governments fear as it is usually assumed to be violent. The connotation is that change will OVERTHROW the status quo. Revolutions are often bottom-up and occur when the status quo gets too oppressive and there is apparently (too) little happening at the top. The conditions for revolution fester when reform is not iterative and the status quo stagnates in a bad place.
  • Crisis– this takes weeks to months to play out. It can cause serious (sometimes irreparable) social fractures. How it is dealt with often sets the tone for other scenarios to play out as they are invariably the catalyst for other types of changes. What is interesting about crises is that they are a consequence of the interaction between internal and external factors. Inadequate anticipation, ignoring causality and avoidance of feedback tend to aggravate crises.
  • Catastrophe– these happen in days to weeks and are often precipitated by external factors. There are limited response options available once events have started playing out.

Each of these modes of change is roughly an order of magnitude smaller than the previous one in the list (decades, years, months, weeks etc).

2009 Gloom & Doom update:batten down the hatches!

In the past months the global economy has become quite sickly. Oil prices are soaring, not because of supply shortages but because of the politics of energy markets and an ever-weakening US dollar. The USD itself is a reflection of the US economy, the ongoing mortgage crises and all its ripple effects.

The mortgage crisis coupled with a credit crisis (US savings rate was negative last year!) is quickly taking us towards a retail sector collapse. Continue reading