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Women Mean Business - February 2009

Posted by Jill Kerby on February 01 2009 @ 21:57

 

“I think 2009 is the year that we all rebuild our balancesheets,” says a friend optimistically.  He says he’s quite hopeful that the worst of the credit crisis is over (he was able to renegotiate a loan back in December) and that his business – he’s a craft butcher with strong cash flow – is as recession-proof as it will ever be. 

 

He hasn’t had to let any of his staff go – yet, I think pessimistically to myself – but they’ve been with him for years and would accept pay cuts if necessary.  He doesn’t regret expanding his premises a couple of years ago.

 

And while he still stocks a fantastic selection of fine cuts of meat, Sheridan cheeses and the trays of stuffed olives and artichokes and semi-prepared meals that we all agree taste way better than anything Marks and Spencer’s can do - he also now sells great lumpy vac pacs of inexpensive cuts of beef, lamb and pork that many of us having got a clue how to cook.  

 

“I’ve got that sorted too,” he says enthusiastically.  “I’m adding interesting marinades to help tenderize the meat, and passingon some hints on how to cook it.”  I suggest he collect loads of great recipes for soups and stews, braised dishes and hot-pots, print them up and hand them out to customers…maybe with a free stock cube and a little bunch of herbs.  

 

He’s always been open to suggestions – hence the lovely (but expensive) range of fresh herbs and spices, veg, marinades and pasta, artisan yoghurts and ice-creamthat he also stocks.  But these items are now luxuries; cookbooks and baking pans that have been tucked away in sideboard cupboards and at the bottom of kitchen drawers for years are being dug out again as home cooking is rediscovered.

 

The great Irish butcher – the ones who as apprentices get A+ scores in their ‘how to flirt with your women customer’ classes -will always get my custom over the soulless drones that work behind the meat counters in the major grocery chains. But I also admire my butcher’s determination to do whatever it takes to survive by cutting his costs to the bone (no pun intended), by extending his opening hours, rethinking the product he sells so that it’s affordable enough to stop his customers from shopping exclusively in the discount grocery chains and by keeping up the all-important delivery of friendly, efficient service. 

 

A PERTINENT OBSERVATION 

His balance sheet observation is a pertinent one for all of us. 

I don’t share my butcher’s optimism that the worst is over, however. My guess is that fearful consumers everywhere will drive price deflation further and it will devastate all but the most resilient industries and service providers in the coming months.  Those that do hang on will then be hit by the second wave of destruction:  the consequence of all the re-inflating of the global financial sector and all the other bail-outs that have taken place since last autumn. 

 

Once the central banks and governments have brought interest rates to zero (ie. ‘free’ money), have no more government bonds or debt to issue or exchange for the toxic sludge held by credit institutions, and have sent out the extra hundreds of billions of dollar (and equivalent currency) stimulus cheques to ordinary consumers to get us all spending again, the real end-game will probably emerge. 

 

The professional moneymen and dealmakers will know, early on, to snap up the oil and food commodities, land, precious metals, water resources and the strong, giant household durable companies that produce goods we cannot do without. 

 

They’ll know that you can’t pour trillions into the money system (in the space of months!) and not expect the existing paper currencies in people’s pockets and their savings to maintain their value, hence their quick market action.

 

The ordinary punter, as usual, probably won’t know what hit her until it’s too late; the middle classes tend to get wiped out if and when hyperinflation hits.  

 

I thought such a scenario sounded pretty unbelievable too – apocalyptic even – when I first read about it a few years ago, long before the American and European banking system imploded.  

 

An old-fashioned bunch of Austrian economists, led by Ludwig von Mises and later by Nobel Prize winner FA Hayek, first described back in the 1920s what is happening now in 2009.  Back then, the post-World War I Weimar Republic in Germany lost control of its money supply in its effort to repay its unbearably high war reparation debt. Housewives ended up carrying suitcases of banknotes to buy their daily pumpernickel. 

 

Hayek and von Mises argued then that the artificial inflating of the money supply by governments inevitably ends in an economic slowdown and then recession, but that recession is a painful but necessary period of balance sheet correction. 

 

Trying to prevent the correction by the further expansion of the credit supply and by bailing out insolvent businesses by redistributing scarce credit resources to them, said the Austrians, instead of making it available to worthy, solvent enterprises, only temporarily avoids the correction.  It ultimately ends with the destruction of the currency system itself. 

 

Since the credit crisis began, the US and other governments and their central banks have borrowed or created the equivalent of about $10 trillion dollars of extra credit, debt and cash (the latter out of thin air) to try and recapitalize the banking system and inflate away the historic amount of personal and corporate debt that has been accumulated since the 1970s, but especially since 2001. 

 

It would be nice to think that this time the central bankers and politicians – who got us into this fine mess in the first place - will know how to put the genie back in the bottle once all those hundreds of billions of paper notes are pushed out into the marketplace. But I think that’s a long shot.  

 

 

YOU NEED A PLAN

I’ve written a few times in these pages about the importance of knowing the difference between your ‘wants’ and ‘needs’. Chances are that this is the year that you’re going to find out just how important is that distinction. 

 

The deflation we’ve been experiencing – in the falling price of property, stocks and shares, pension funds, food and oil, household goods and even wages is a reflection of the mountains of debt instruments that have been unraveling, and the fear of consumers that there is worse to come. 

 

For as long as the deflationary periodlasts, it won’t be a good time to have outstanding debts.  But if and when inflation takes off, your debt will start to fall in value; the trick is whether you can stay solvent long enough to enjoy its depreciating effect.

 

Lean and Mean

 

Ideally, you want your personal finances to be as lean and mean as your business. Cut your overheads as much as you can by assessing just how much you need to consume to keep yourself and your family healthy, well-fed, clothed and educated or amused: 

 

Review your housing and food costs, the two biggest expenditure most families have; aim to save at least 10% or more from your food bill, if you haven’t already.

 

Try to cut transport, utility and insurance costs.  Regarding the latter, comparison shop for lower house, motor and health insurance. You may not need the annual, family travel insurance this year or the expensive – and mostly useless – payment protection insurance that comes with mobile phone contracts, expensive electrical goods, etc. 

 

Do not sacrifice your term life insurance contracts if you have dependents or PHI, also known as income protection insurance, which pays out in the event that you fall ill or incapacitated and can’t work. A good independent broker should be able to help you source all sorts of cheaper insurance contracts. 

 

Reconsider your holiday plans. The Irish are big spenders on holidays abroad – this could be the year that it pays to rediscover the joys of your own back garden and magical mystery day trips with the children here in Ireland. 

 

Start using cash, rather than credit.  Take up a cheaper hobby or past-time, anything other than ‘shopping’. 

 

 

Economic downturns don’t last forever.  All those spa treatments, designer clothes and shoes, botox and hair extensions, endless gadgets, new cars, weekend city breaks, private education for the kids…even the mad property investments in some far away sunspot will come round again.  They always do.   

 

The problem with a global recession-cum-depression is this kind of conspicuous consumption will simply jump a generation…or two. 

 

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