Since our focus this week has been on ways to prepare yourself financially for that darkest of times, global collapse, here's a piece Nancy wrote fifteen years ago offering a little perspective on the subject. The business cycle is just that--a cycle. The economy grows and shrinks and then grows even more. So, exercise caution, of course. Don't live beyond your means, and remember to save for lean times. But don't lose hope either. Stay in the game and play smart.
It's easy to get used to good times.
Everyone is working. New businesses are springing up. Profit margins are growing fatter. The stock market is booming. And we assume this condition will last forever.
We buy a bigger house, start a new business. Our credit card balances balloon. And we don't worry about the debt because we are certain the money will keep rolling in. We ignore history.
Mississippi has shared in the recent prosperity. We have benefited from the influx of new industries, like gaming, and the phenomenal growth of developing industries, like telecommunications. Our geography and our people have attracted businesses from around the world, with the latest coup being Nissan.
But in the last few months, there have been rumblings of a slowdown.
Timber sales became weak. Housing starts slowed. Car sales slacked. The stock market fell. The trickle down became a river flowing downstream as we all felt the pinch in our pocketbooks. Finally, Christmas came and retailers felt the crunch, slashing prices in an effort to salvage the season.
And we find ourselves at the tail end of an economic boom with a large amount of debt hanging over our heads. Will we never learn?
Joseph, of Biblical times, is called upon to interpret the Pharaoh's dream. The Pharaoh dreamed of fat cows and lean cows. Joseph saw this as seven years of good times followed by seven years of famine. He encouraged the Egyptian leader to store up food during the good times as a way to prepare for the lean ones. As a result, Egypt was saved, and Joseph became the hero of his estranged family.
We have had seven years of good times, but instead of preparing ourselves, we have indulged ourselves. The business cycle is a rolling wave that carries us from prosperity to recession and back again. The wave may resemble a surfer's dream or may look more like a gentle swell.
While the Federal Reserve's actions may moderate the movement, it cannot stop the cycle. There will be good times followed by bad times. The good news is that for all the boat rocking, we are still making forward progress throughout the process.
The bad news is that we cannot seem to learn about storing up for the lean times. The time to pay down debt and store up our investments for the years ahead is when the money is rolling in.
While we don't know exactly when the slowdown will come, we know it will. And, inevitably, when it does, bankruptcy rates will soar among businesses as well as individuals. Living on the edge during boom times will certainly lead to a downfall when recession hits.
Both my parents were born in 1929, the year of the Great Depression. They grew up in the shadow of this event, and, to this day, talk about it in hushed tones. Those lean times left their mark on them and colored their attitudes forever.
Europeans who lived through World War II experienced devastation and uncertainty. Many insist on keeping part of their money in gold bars. They want something they can take with them in case they have to flee again. And they want something that is sure not to be devalued.
Extended prosperity sounds nice, but it does nothing to develop character. The longer an economic expansion goes on, the more likely we are to forget the experience of slower times.
And this puts us at risk.
So, this is the time to learn from stock market losses and business slowdowns and layoffs.
Thankfully, even the Great Depression did not last. Prosperity will return. When it does... don't get used to it!
--Nancy Lottridge Anderson, Mississippi Business Journal, January 1-7, 2001