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Safeguarding Against Deflationary Economic Collapse and the Big Credit "Call"

For two decades,  the West has inflicted upon itself the profligate expansion of its use of insufficiently underwritten credit leverage to facilitate growth of non-capital equipment based service-related economic activity.  This is neither a product of nihilistic ethical degeneracy nor a "Roaring Twenties"-style flaunting of the law while forcing industrial workers into the arms of radical politics through brutal exploitation.  Rather has the public been sold a false bill of goods respecting the significance and impact of service economies relative to core industries, such as what was once taught as the "Big Five" of industrial enterprise: agriculture, manufacturing, energy and mining, transportation and construction.  The forthcoming market corrections, as a result of a dearth of backing capital and over-levera ging of both private and public debt, will be a product of banks and other institutions calling in of outstanding debt by ever-more-creditable risk tiers, even up to the level of municipal and county government lending instruments.

Before everyone reading this decides to practice their freight-train-hopping  and apple-vending skills, please rest assured there are several dozen large institutions and think-tanks working to put into place the safeguards needed to protect those enterprises which have exercised wisdom in maintaining a low level of debt exposure.  Also recognize that depressions and recessions invariably are sector phenomena, where the tornado of fiscal collapse misses large portions of the overall economy while even expanding the prospects of others. 

When the shark becomes hungry, the first thing it does is eat the parasitic remora fish which ride on its back or belly.  The next Depression will be no different than the last in this respect, and massive purges o f non-essential white-collar service workers will take place. In many respects this will be a good thing: as an example, any auditor comparing the books for a hospital organization of 1987 to a spreadsheet for  today's hospital  will remark angrily on the relative growth of bureaucratic administrative personnel  against the reduction of both nursing and medical personnel on staff. The net effect of digitizing the workplace has been to increase relative personnel requirements, not to reduce them, and save in isolated instances, net efficiency gains have been grossly inflated but for inventory and billing applications.
The myth of America's de-industrialization also needs to be squelched once and for all, as it has always been a lie of epic proportions that the presumed elimination of manufacturing and heavy industrial employment was ever forthcoming. One need only consult the Bureau of Labour Statistics website at
http://www.bls.gov and the "Industrial Trends" statistical secti on of the website for the American Machine Tool Distributors Association at

plumbing contractors and machinery maintenance and repair firms.

Invest in basics. Any infrastructure contractor, especially union shops, is a critical and potentially lucrative buy. The main buffer for the forthcoming Depression is all the infrastructure projects which municipal, county and the U.S. Federal government have been putting off deliberately as sources of mass employment against this very imminent contingency.  Sewage treatment facilities, water treatment facilities, electric power plant facilities, roads, erosion control projects such as dams and levees, and inland waterways reconstruction have all had their impending scheduled work delayed by design to provide sufficient employment for American workers against this very day. If you think our governments have been remiss in discharging their responsibilities in planning for future economic mishap through not studying their history books, you couldn't be more wrong.  If you think this is a fairy story, I respectfully invite you to conduct even the most cursory review of the condition of the total general fund deposits in reserve for the individual states of the U.S.A.   Unlike during the days before the last Depression, America has a superb infrastructure of social support mechanisms and occupational retraining facilities the likes of which we have never had in our history, presently chugging along on idle at about 30-40% capacity.

Work with real, not "décor-matching," people. Invest in labour intensive but commodity-based "Big Five" undertakings. Money does not make money, your people do, through the sweat of their brows and the skills brought to bear through application of their minds. Together with commodity and manufactured goods-based enterprise as opposed to "nice to have" but non-essential service industries, the short-term yield margin may be narrower, but for the long-term, you will know tomorrow will always be there. 

America has the innate adaptive capacity to cope with contingencies unequalled by any other nation, because as much as we deny the fact of its reality, the prevailing spirit of the nation is that of the pioneer and the outsider on the make. This time around we are ready. Just make sure you are, for the sake of your employees and for the sake of the nation as a whole.

W. James O'Brien
Editor/Publisher
TransActions Magazine
   

http://www.amtda.org to confirm this fact. 

America is not outsourcing manufacturing activities to foreign lands because our manufacturing enterprises are not cost-effective, nor because our labour productivity is substandard (the closest competitor to the Number One productive worker in the world, the American worker, Japan, is half as productive per work-hour of labour), but because the United States of America literally does not have enough people to man the machinery to service its outstanding production orders. Our industrial infrastructure is further protected through our alliance with other nations which have sounder finances and also having contracts with the US Federal government, corresponding mutual procurement agreements called "offset memoranda of understanding."  Regardless of our own currency's fluctuations, we are protected as well through the very deposits and trade imbalances with nations which we owe: the bank which presided over the last Great Depression, the Bank for International Settlements, at http://www.bis.org, is already ramped up to address potential instabilities.  For those alarmists and connect-the-dot conspiracy theorists who hold the Middle East and OPEC responsible for the impending market corrections, please be advised that what margin ALL the Middle East enjoys out of the heavily-subsidized petrochemical trade inflicted on them by the West is less than the GDP of the State of California.  Petrochemical pricing is a symptom, not a cause, of economic downturns.

What can be done by one's corporation to ameliorate the prospect of a forthcoming Great Depression?

Firstly, the soundest approach is to invest aggressively applying the principle of "back to basics." This consists of the following:

Pay down your outstanding debt while it is still affordable to do so, even if it means straight-arming the shareholders  until the next quarter on their dividend payout.

Tra nslate service-based revenue streams which rely on "what the market will bear" sales strategies into commodity cost-plus revenue streams.  For instance, if you are a freight-forwarding firm, rent industrial storage space and purchase containers against when the market for them goes up, or diversify into labour-intensive loading and packaging operations.  If you are a broker, do not buy and sell on a hands-off basis: economize and "concretize" your activities through buying commodities for resale.

Dump rental properties and bought-on-margin real estate to pull out your equity, and invest in capital equipment-based enterprises such as welding shops, machine shops, building maintenance concerns,