Economic Effect on Tech
If you have a job, retirement assets, are looking to spend or invest in anything, or have a company that relies on discretionary consumer spending (or a Web startup that is dependent on equally volatile discretionary ad spending), then listen up.
Woke up this morning to this article in the Minneapolis StarTribune entitled, “Retailers Hit 40-Year Low” which said in part, “On Thursday, the nation’s retailers turned in their worst January in almost four decades, as high fuel and food prices, a slumping housing market, tighter credit and a tougher job market pushed consumers to the edge.”
It’s no wonder that Apple cut its production of (what is mostly) discretionary purchases. From that StarTribune article, “Wal-Mart Stores Inc. says that its shoppers are redeeming their holiday gift cards for basic items — pasta sauce, diapers, laundry detergent — instead of iPods or DVDs.”
But it gets worse than consumers buying staples instead of tech.
Consumer coffers are even drier than most of us realize. For instance, l archived a link to a New York Times article from November 2006 that had this money quote in it (no pun intended), “Since January 1999, according to figures compiled by Alan Greenspan, the former Federal Reserve chairman, and James Kennedy, a Fed staff economist, in a Federal Reserve Board paper, more than $2.62 trillion has been extracted by homeowners through refinancing and home equity loans.
But as rates have gone up, the extraction has continued. In the first six months of this year, even with interest rates rising, more than $511 billion was extracted from homes through cash-out refinancing and home equity loans, and that was more than the amount taken out for all of 2005, a record year for mortgage equity extraction.”
I’ve heard talks, listened to podcasts, read books and articles on the drop in home equity over the last decade (from the 60th percentile in equity to the low 30’s) since people have, in effect, been using home equity as a piggy bank. A bank that now has but a few pennies left in it.
Besides the substantial loss of life in the Afghan and Iraq war, estimates are these conflicts may total $1.6 trillion by 2009. History shows that the effect of war spending has always been economic stimulus as the military industrial complex employs millions and the funds injected into the money supply (i.e., debt) carries an economy.
The triple-whammy of high fuel costs, national debt and the lack of huge home equity sums available for consumers to buy those HDTV’s, cameras, iPods or to sign up and pay you for your Web 2.0 service (all of which is significantly slowing economic growth and negatively impacting, for example, ad spending) is a perfect storm, and I hope you’ve taken steps to mitigate your risks or are doing so right now. It’s gonna get even uglier once the US presidential election concludes in November and a new president takes over in January of 2009 and any propping up of the economy (like the just passed stimulus package) has run its course.
About Steve Borsch
Connecting the Dots Podcast
Podcasting hit the mainstream in July of 2005 when Apple added podcast show support within iTunes. I'd seen this coming so started podcasting in May of 2005 and kept going until August of 2007. Unfortunately was never 'discovered' by national broadcasters, but made a delightfully large number of connections with people all over the world because of these shows. Click here to view the archive of my podcast posts.