Christopher made an interesting point in one his comments.  He mentioned that he’s seeing more jeeps for sale.  Well, oh boy, did this get me thinking ….. and while this is tangentially related to jeeps, it more about my thoughts on the economy.

I agree wholeheartedly with Christopher.  I believe the number of flat fenders appearing for sale is greater now, and the prices better, than I’ve seen since I started following them (which is only 2 years mind you).  Most of the ads appear to have the same theme, ‘don’t want to sell but need the money’.  Now, I don’t keep actual stats on this, but I have been pondering ways to do this without it being a time burden …

Combing Trends

When I combine the jeep sale trend I see with the recent October filings for unemployment insurance (highest in 16 years) and the record drop in October US house sales (worst in 50 years), plus the number of job applications per job here in Boise, I get the feeling the economy is still heading downward.

The Anecdotal Evidence

From the anecdotal evidence I’m hearing, I expect retailers are going to have a tough year, further downgrading economic expectations; I expect the DOW and S&P markets will continue to spike up and down, with a downward trend, similar to the first couple of years following 1929’s economic crash; I expect the US car industry will take months — similar to what Chrysler experienced in 1979 — to develop an agreement between all the interested parties (UAW, suppliers, manufacturers, etc) before Congress will agree, if they do agree, to provide them with loans (btw, the chrysler loan made good money for the US taxpayers); and I believe demand for goods and services will continue to be low for the foreseeable future (for example, oil demand as measured by gasoliine sales continues to be low despite significant drops in prices — people stopped driving as much).

Chicken and Eggs

Now, here’s where I go out on a limb with my opinion and thoughts on the matter ….

Where do we start? Unfortunately, we have the chicken/egg conundrum.  Does demand cause jobs to return or will it be jobs that cause demand to return?

Creating Jobs

There’s evidence to suggest that despite the money pumped into the economy during the 1930s through the New Deal, that demand did not bump up, which meant the economy didn’t pick up like expected.   This doesn’t mean that the new deal didn’t provide a unique opportunity to accomplish valuable things for the nation, it’s just that it didn’t really ‘save’ the economy (as far as I can tell).

I would classify this strategy as giving jobs, hence money, to people in the middle and poorer classes.  This would suggest that jobs don’t necessarily create demand.

Trickle Down Investment

At the same time, I don’t believe providing money to the upper class is necessarily the answer either, though it has been a social experiment of the last couple of decades through the use of tax law and acceptance of boards of directors concerning the ‘value’ of company officers.

The top 1% of the US is wealthier and own more assets than ever before, yet they don’t appear to me to be investing and creating jobs at a record pace. This trickle-down approach to economics simply doesn’t guarantee money keeps flowing, not because these wealthy people are evil or greedy, but because they dont’ see the demand necessary to invest in anything worthwhile.

The problem I see is that the demand for goods and services has been slowed significantly due to the tightening of credit.  I believe this situation has its roots in modern corporate financial theory, external competition and increased technology.

The Roots of the Problem

Modern corporate financial theory sets expectations for financial returns higher than just making a profit.  If financial returns are not growing, then the company is dying.  To meet these expectations, companies must either grow revenues (sell more product, purchase other companies … ) or cut expenses (reduce salaries, reduce inventory cost, reduce margin costs, etc) and an ongoing, annual basis.

The effects of external competition is more obvious.  Competitors operate in such a manner as to force companies to cut costs or more aggressively increase revenues, no matter the corners cut.

Information technology has allowed companies to more closely monitor employees, reducing middle management, and better understand the underlying financial trends, allowing businesses such as walmart to schedule workers almost on demand.

One of the important net results of these three financial storms is that blue collar, service workers and white collar jobs have eroded, in either numbers, salaries, or both.  Initially, this created a need for married couples to both have to work (or unmarried couples to have to live together to survive).

Additional Stresses on People

Unfortunately, additional stresses on income (federal/state/local taxes + mandatory insurance + mandatory tabs on vehicles and boats + increased utilities + inflation …) forced families to become more dependent on credit.  For many people, cell phones, computers, email, and more are a necessity, not optional, for people to get their work accomplished.

To get a financial handle on all those expenses, to get a leg up on life, my generation was told to get a college degree.  But college expenses went up, forcing many, many people to get student loans to cover those expenses.  But, with the number of people getting degrees, the situation created a problem: no longer was it a leg up, but instead without a college degree, the chances of landing a good paying job has been reduced dramatically.

Even More Stresses

Now, if you combine all the stresses with unexpected problems (job losses, medical problems, etc) the situation is ripe to loose control of finances.   But wait, add to that the fact that many people have just lost a good chunk of value in their main asset, their home, due to falling housing prices.  And, throw on the fact that many people I know owe at least some money to the IRS or state for taxes.  Finally, bind it all together with the a virtual noose — there’s a giant financial infrastructure that tracks your every move.

There is no starting over — bankruptcy is tougher than ever; forget owning a home, you can’t even rent without reasonable credit; some jobs require credit checks; compounding interest of credit cards builds faster than some can pay them off.

The Spigot is Off

When people are desperate enough, they turn to credit (they can’t just go outside and shoot a bird or deer or catch a fish to eat), which worked fine for years; but the credit crunch turned off the spigot.  I believe millions of people are broke, close to being broke or barely treading water.  I believe they have no extra money, no credit, and many are still working full time.

People simply can’t afford to purchase anything now or in the near future unless the credit markets are open and wild as they have been.  But, I don’t believe the credit markets, even if they loosen, won’t open up like they were.

Government Shuts Down Car Sales

The event that got this entire thought process started in my head was something my mom said to me.  She mentioned that during World War II the government shut down car makers (Jan 1, 1942).  You couldn’t buy a car.  You couldn’t easily buy gas.  My Grandmother told me the story of driving around downtown New York city around 1942 and only seeing a few automobiles on the road (Grandpa worked for Boeing and had special ration stamps).

So, this suggests that by the end of the war, not only was there pent up demand for all kinds of products not available in US, there was pent up demand world-wide due to the devastation caused by the war and the lack of infrastructure in devastated countries to provide products. This would explain why the war pulled the country out of the economic hold — but it wasn’t the investment in war materials; instead, it was the deprevation, the built up demand.

Situation Worse than in the last few Recessions

My sense is, and I plan on making it a focus of my research, is that there are more issues colliding to cause economic problems then we have seen in the past few recessions.

I believe real demand (for all kinds of goods), followed by the incomes to support that demand, will have to start climbing before we get ourselves out of this jam.  Without this demand, without millions of people able to right their own financial ships with excess cash or capital, there will be no wind to blow our collective financial ship forward.

Great Time to Buy a Jeep

Until all that happens, I think you will see people dumping all kinds of assets, including jeeps.  It’s a buyers market now and for the foreseeable future.

My only regret is that I don’t yet have my Foundation together financially to take advantage of the economy. This is a great time to snap up good quality jeeps at good prices to begin building the jeep museum complex I have planned.

NOTE:  This is what happens when I don’t work in the garage .. but it just seemed to cold today to get out there 🙂