Herman School of Business
History does repeat Itself
On January 2, 2008 I will be a guest on a radio show in Montreal and the topic is my business predictions for 2008. Where will the economy be and what does that mean for business owners and the rest of us who will either be customers or not.
When I am asked to see what’s coming ahead, I have to look at where we have just been. History does repeat itself you know. Let’s look at my lifetime and describe by decades the booms and busts. As a Baby Boomer born in the years just after World War Two I was a tyke in the booming nineteen fifties when America was on a building spree and jobs were plentiful. Men worked, and most moms stayed home raising kids and the economy was limited by what Dad made. The sixties came and so did revolving credit. Sears said buy now and pay later. They were the number one retailer, because they gave customers the most buying power. You could buy more than you had cash to pay for so guess where you shopped? Sears of course.
By the seventies every store offered store credit and some financial genius came up with VISA and MASTERCARD so you could get credit and shop wherever you liked. The economy surged ahead. But Dad’s salary wasn’t enough to pay for all that debt. So, Mom went to work too. That meant more income and more buying power. Soon both Mom and Dad had credit cards as well as jobs. Materialism started flourishing like never before. During the eighties the middle classes suffered a bit as the richer folks kept making the gap larger between the classes when junk bonds gave the rich business owners more buying power to grow their companies beyond belief. You see, someone rich figured out that giving credit to companies was unbelievably good for people running the companies, because the guys at the top skimmed huge amounts of wealth off, even if the companies never repaid that debt. Bankruptcy became a very common word and was no longer a stigma.
Throughout the nineties, with both parents working and feeling guilty about leaving the kids alone so much we simply bought them more things to keep them happy. The economy loved all that guilty indulgence. But Mom and Dad ran out of buying power even with two jobs and a fistful of credit cards. How would the banks make more money if people couldn’t borrow more and how could the businessman get even richer if Mom and Dad were squeezed to the hilt? While the government claimed to be giving tax relief, the truth was people were getting whacked for more taxes than ever before. Looks like the economy would run out of gas for sure.
Not to worry, let’s give them more credit on their houses. People love their houses and would never give them up so why don’t we just lend them more on their house so they can borrow more and go buy more stuff. Some banks offered 125% of the value of your home. Others thought it would be great to give forty and fifty year mortgages with no money down and interest only payments. And throughout this past decade the economy exploded and banks made record profits and business owners got very, very rich. So now what?
Mom and Dad are broke. They owe so much on their house and their credit cards they fight like cats and dogs. Junior wants more stuff. Now. The people keep calling the house wanting to know when the payment is going to be made. The bankers are blaming the real estate appraisers for inflating values. People who put no money down and bought houses they couldn’t afford are crying so loud politicians are going to take money from the smart ones who didn’t do crazy things and give it to the dumb asses who shouldn’t have anything since they spent money they didn’t have in the first place.
So, since both parents already work, and credit cards are maxed out, and the house has been hocked for more than it is worth, and taxes are at an all time high, how can people buy any more? They can’t. So the past tells us the future. Until some genius figures out a way to give people more buying power, the economy will finally start chugging slower. But, don’t worry, people are buying and debt addicts. Someone will find a way to squeeze more buying power out there, no matter what it costs the rest of us trying to live within our means.
- Posted: 31 December 2007
- Comments: 0
- Category: Business failure
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