Revaluations

A lifetime of activity finds us falling in love, having families, buying homes, improving homes and establishing a life style. Our jobs make this possible. Salaries and wages provide the income flow to pay bills, save, and create investments that allow us to buy bigger homes, nicer cars, and fancier clothes. In time we find more leisure time for trips, dining out, entertaining and generally expanding our circle of friends.

Style of living. Standard of living. The many pieces of our lives fit together. Things work out and life is good.

Then something happens to change all that. maybe it is a challenging illness with long-term consequences. Perhaps our ability to earn a comfortable living has been reduced and income declines. Maybe a job is lost and it takes a long time to find another job that replaces a good chunk of our past earnings. Meanwhile some bills were left unpaid or payments made late. It takes months, maybe even a year to catch up and learn how to live with the new financial realities.

Maybe the death of a breadwinner has knocked the family finances for a loop. Or maybe, you aged and your career ebbed, new industries arrived on the scene and not only your job is in peril but your entire industry is disappearing, too!

If some or all of the above occurs while a recession occurs then a world of hurt is not only in store for you but many others as well. A general economic downturn will challenge norms throughout the economy. Life styles will change. Some may never return.

2007 was something different. A recession began without many actually realizing it. A year or two later economic analysis made it clear. The US was deeply involved in a recession, perhaps of historic dimension. In fact it turned to be an historic economic collapse. It will be long studied and probed to guide future public policy, but here is a snapshot of what all went wrong. No attempt is made here to cast blame or determine the order of happenings that created the mess or made it worse. For now it is enough to realize the components of the melt down America experienced from 2007 to 2014. Also the global economy suffered through the same problems at the same time. Global markets were linked and thus the shared economy suffered similar pains.

The housing industry experienced a major boom-bubble and it collapsed. Mortgage markets collapsed globally; investment banking and stock markets collapsed under the enormity of the interrelated collapse. Banking organizations suffered through major revaluations of their balance sheets and the value of their customers’ deposits.

Real estate agents and brokers lost their businesses. Mortgage companies disappeared. Huge insurance companies lost their fortunes and had to re-establish the basis of their businesses.

Investment banks and stock brokerages disappeared in droves, even huge firms. Years later these two industries rebuilt but in different shapes and formats.

Manufacturing declined as economic activity dropped to historic lows. Meanwhile manufacturing processes took a major turn in technology and jobs were erased as robots and material engineering changed the very face of making goods.

The Internet culture combined with all of the above to change how consumers shop and purchase goods. Small retail outlets disappeared at a faster rate, and malls surprising did so as well.

As unemployment soared finding a new job was a major task for millions of households. The career landscape had changed, however, and unemployed had to learn to redefine themselves, their careers and their expectations. Salaries and wages were vastly lower than what they had earned in previous jobs.

As I have encountered much of these currents of change, I have arrived at some tentative conclusions:

1. Careers have been redefined; all of us will need to change to fit in with the new normal.
2. Personal incomes have been calculated to lower norms. Life styles and living standards will need adjustment to live within the new household standards.
3. Housing standards will be reduced to smaller homes, fewer amenities, higher efficiency standards and higher density of land use. All of these elements define the new affordability matrix of housing.
4. While all of us adapt to these changes, many dislocations will occur: in our neighborhoods, schools and education goals, housing standards, transportation means and standards, retirement options, social interaction of a more diverse population, and expectations of quality of life.

In the past economic blips were limited in scope. This time changes are huge and long lasting. I don’t think we will return to normal. I think we are witnessing a new normal taking shape.

The sooner we adapt to these challenges the sooner we will learn how to make the best of the opportunities that all problems offer us.

This is another way of asked if the glass is half empty or half full. The reality may be the same but the attitude will make all the difference on how well we each weather the storms of change.

December 17, 2013