Recession Update - 01/10/10

Many people don’t have a job, thankfully, I do. Unemployment numbers reveal what everyone already knows: the economy sucks and will continue to do so for a while longer. Who cares, except large investors, if the Dow and S&P hit new highs. Ordinary people are still struggling. It has been pointed out to me, to put back to work the millions who lost their job we would have to see over 3 hundred hires every month for three years, no interruption.

We are increasingly seeing two worlds – the rich and those struggling to get by. There is no middle class any more, or didn't you get from the news? They never, or hardly ever, mention the middle class anymore because, there is none.

The first world is one where Wall St. and large corporations are making very big profits due to lower costs, namely from lay offs, cheap money from very low interest loans, government backed money and global revenues.

The second world, small businesses in the meantime, the mom and pop shops, are in a survival mode, make or not. They are not hiring because their profits are so tight. Many small business owners are taking on more of the day to day responsibility to cut costs. Furthermore, many people are still underwater on their mortgages and barely hanging on. We can expect to see more foreclosures.

It has become a bizarre economy indeed. The gap between the rich and the poor is getting much wider. This is always the result with government bailouts because executives are the main beneficiaries, not the rest of us. There is no trickle down. When the rich are given money, they hang onto it for dear life. The poor on the other hand have no other choice but to spend it.

Many people, especially young people, don’t care and don't pay attention to what is happening to the economy. Many young people, and adults, feel: if they have a job, who cares and if they don’t, the economy sucks. That is about as deep as their thinking goes. Shallow I say.

I’m here to tell you, you need to pay attention, especially to the economy and economic news.

Career/Job

Understand the economy helps you to make better career decisions. Being fortunate enough to be able to pick between a number of job opportunities and having knowledge of the economy helps you to decide what the best opportunity is for yourself. If you are unemployed currently, understanding the economy will help you to know where to position yourself in respect to your skills and education to better your chances of finding a job.

Investing

Economic knowledge will definitely pay dividends on your investments. Many people typically have only one job, but you can have many investments. Understanding the economy and various sectors ready to outperform can create a tailwind in your sails for your investments to easily glide along.

Politics

Who will you vote for? People who don’t know anything about the economy, or how to properly select a candidate in an election shouldn’t be allowed to vote. People stoically voting along party lines or for the most charismatic candidate should have their head examined – they are uninformed voters. Yes, that is harsh, but true! It is actually anti-democratic, because their votes lead to consequences for everyone – just look at this economy.

People should have to understand basic economics, especially the parts that related to long term economic health in order to properly vote. To understand economics makes you a better citizen and voter, actually strengthening the democratic process.

Following and Understanding Economic News

It only takes a few steps to understanding the economy. First, follow headlines, and financial news. Including the GDP, unemployment reports, job sectors, and so on. More importantly, read credible commentary from a variety of sources, even one's you may not agree with. Reality is, many of the reports come from government figures which are skewed to paint a much rosier picture.

For example: There are always more people unemployed than is being reported. Why? The report only counts those who are collecting unemployment benefits and not those who have stopped and are still unemployed. Always double the number you hear to be more accurate. You wouldn’t know this if you didn’t read the commentary and various blogs on the Internet that interpret economic news for you.

My Advice

Is the same as it always has been:

- Create a budget, and review it often making adjustments along the way
- Cut spending because as a nation we overspend.
- Get out of debt. Stop being a slave to your debt!
(Debt drains you of wealth. Investing that money instead, once out of debt, could make you financially secure.)
- Save, Save, Save – your financial health depends on it! (your children's too!)
- Learn to invest, investing as broadly as possible. Diversification is out.
- Repeat these steps over and over again until you can do them in your sleep.

That's it. Here's to your financial health. Cheers.

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