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As a business owner who takes orders from all over the country and a manufacturer, too, the writing is really on the wall: The downturn has begun and it isn't going to be pretty. I hope that all of you here at the DU will watch your expenses and your charges and brace yourselves for the bad economic weather we are entering. Plan ahead. Set some money aside if you can. My small business now has and so has my family.
It's a perfect storm this time, too.
Fed Chairman Ben Bernanke knows he needs to cut rates and make money more plentiful to stave off foreclosures, to prime the pump making more money available and cheaper to keep businesses investing, to keep consumers spending and to avoid more layoffs and companies cutting back on spending.
But Chairman Bernanke also must weigh the fact that one of the greatest contributors to inflation is energy costs, that means oil, and today oil danced around the $80 range even after a promised increase in production by OPEC.
Chairman Ben Bernanke's dilemma:
1.) If he cuts rates, the dollar plummets even further which is really a bad thing. Especially, since more and more oil is being traded overtly and covertly in Euros which may explain the $80 price in the face of increased production. As the dollar sinks, China will not allow their currency to underwrite the dollar which will mean higher prices in the Wal-Marts and other U.S. retailers who are at this point little more than glorified distributing warehouses for Chinese goods.
2.) If he doesn't cut rates, the sub-prime mess will really, really get nasty quickly with banks going under and yes...runs on the banks. Don't think it can happen? It just did in France last month and it happened with Countrywide, too. And when people run for their money, the banks don't let them have it "in order to protect them from themselves."
So, faced with the two options, Chairman Ben Bernanke will cut rates. No doubt about it. Will it be a quarter? Will it be a half? Don't know, but either way, the recession is already here.
And the recessionary cycle has begun as it always does:
Consumers are running out of spending money mid-month and quit buying from the stores.
Stores are reporting ugly drops in sales, even below their estimates and, in turn, are cutting back on orders from factories and their suppliers.
Factories are in turn slowing down on business purchasing and inventory restocking...and of course, this means layoffs.
Layoffs only accelerate the lack of consumer spending and the spiral downward continues.
The so-called Bush tax-cuts for the extremely wealthy did not keep the economy running these past years where we saw some growth and meager job creation (compared to the 23 million jobs created during Clinton's years). It wasn't the Bush tax cuts that kept the house of cards from collapsing.
What kept this shitty economy floating along these past years was two things:
1.) Greenspan's' cheap money and low rates that fueled the housing market
2.) And sadly, Bush's war spending which was all borrowed, of course. Yes, that old defense budget spending did also help offset Bush's stupid tax cuts.
War, Boom, Bust. Anybody here old enough to remember that one? Well, it will be the proper name for the Bush Years between 2001 and 2009. War, Boom, Bust.
We've had the war.
We've now had the little boom.
And now comes the bust.
Please have a talk with your families and prepare because 2009 is not going to be an easy year.
Best to all, DZ
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