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The Recession Will Be Unevenly Distributed

GOLDZILLA

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#1
https://www.zerohedge.com/news/2019-01-10/recession-will-be-unevenly-distributed

Thu, 01/10/2019 - 16:25

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Authored by Charles Hugh Smith via OfTwoMinds blog,
Those households, enterprises and organizations that have no debt, a very low cost basis and a highly flexible, adaptable structure will survive and even prosper.
The coming recession will be unevenly distributed, meaning that it will devastate many while leaving others relatively untouched. A few will actually do better in the recession than they did in the so-called "recovery."
I realize many of the concepts floated here are cryptic and need a fuller explanation: the impact of owning differing kinds of capital, fragmentation, asymmetry, opacity, etc. ( 2019: Fragmented, Unevenly Distributed, Asymmetric, Opaque).
These dynamics guarantee a highly uneven distribution of recessionary consequences and whatever rewards are generated will be reaped by a few.
One aspect of the uneven distribution is that sectors that were relatively protected in recent recessions will finally feel the impact of this one. Large swaths of the tech sector (which is composed of dozens of different industries and services) that were devastated in the dot-com recession of 2000-02 came through the 2008-09 recession relatively unscathed.
This time it will be different. The build-out of mobile telephony merging with the web has been completed, social media has reached the stagnation phase of the S-Curve and many technologies that are widely promoted as around the corner are far from profitability.
Then there's slumping global demand for mobile phones and other consumer items that require silicon (processors) and other tech components: autos, to name just one major end-user of electronics.
The net result will be mass layoffs globally across much of the tech sector.Research is nice but it doesn't pay the bills today or quiet the restive shareholders as profits tank.
The public sector is also ripe for uneven distribution of recessionary impacts.Local government and its agencies in boomtowns such as the SF Bay Area, Seattle, Los Angeles, NYC, etc. have feasted on soaring tax revenues and multi-billion dollar municipal bonds.
The Powers That Be in these boomtowns are confident that the good times will never end, and so the modest rainy-day funds they've set aside are widely viewed as immense bulwarks against recession when in reality they are mere sand castles that will melt away in the first wave.
A $1 billion reserve looks impressive in good times but not when annual deficits soar to $10 billion. Local governments depend on various revenue streams, and most rely on a mix of property, sales and income taxes, both wages (earned) and capital gains (unearned). All of these will be negatively impacted in the next recession.
Local governments are especially prone to The Ratchet Effect, the dynamic in which expenses move higher as revenues climb but the organization is incapable of shrinking, i.e. it only knows how to expand. This defines government as an organizational type.
Inefficiencies (including low-level corruption and fraud) pile up and are offset with higher revenues. When revenue crashes, the system is incapable of eliminating the inefficiencies or reducing benefits and headcount.
I call the endgame of The Ratchet Effect the Rising Wedge Model of Breakdown:

The Ratchet Effect is visible in organizations of all scales, from households to sprawling bureaucracies. The core of the Ratchet Effect is the ease with which the cost basis of an organization rises and the extreme resistance to any reduction in funding.
The psychology of this resistance is easy to understand: everyone hired in the expansion will fight to keep their job, regardless of the needs of the organization or the larger society. Every individual, department and division will fight with the fierceness of a cornered animal to retain their share of the budget, for their self-interest trumps the interests of the organization or society.
Since each "ratchet" will fight with desperate energy to resist being cut while those attempting to do the cutting are simply following directives, the group that has pulled out all the stops to resist cuts will typically win bureaucratic battles.
Broad-based cuts trigger Internecine Warfare Between Protected Fiefdoms as entrenched vested interests battle to shift the cuts to some politically less favored fiefdom. Bureaucracies facing cuts quickly shift resources to protecting their budget, leaving their mission on auto-control. (The Lifecycle of Bureaucracy December 2, 2010)
These dynamics create a rising wedge in which "minimum" costs continue to rise over time even if modest cuts are imposed from time to time. The eventual consequence is a cost basis that is so high that even a modest reduction collapses the organization.
In other words, incremental reductions and reforms have zero impact on the endgame. The organization has become so brittle that any structural reform triggers a breakdown.
Those households, enterprises and organizations that have no debt, a very low cost basis and a highly flexible, adaptable structure will survive and even prosper. Those with high debt loads, high fixed expenses and inflexible responses will find incremental reductions and reforms will have little impact on the endgame of breakdown and collapse.
This is one of the core topics of my latest book, Pathfinding our Destiny: Preventing the Final Fall of Our Democratic Republic.
Here's a household example of the type of organization that won't just survive but thrive in the recession: a household with $100,000 in revenues from multiple income sources and fixed expenses of $35,000, no debt and a management team (the spouses/adults) that's willing to implement radical changes in lifestyle, expenses and work at the first disruption of revenues. The household that doesn't just survive but thrives sees crisis / disruption as an opportunity, not a disaster to be mitigated with denial and wishful thinking.
* * *
Pathfinding our Destiny: Preventing the Final Fall of Our Democratic Republic ($6.95 ebook, $12 print): Read the first section for free in PDF format. My new mystery The Adventures of the Consulting Philosopher: The Disappearance of Drake is a ridiculously affordable $1.29 (Kindle) or $8.95 (print); read the first chapters for free (PDF). My book Money and Work Unchained is now $6.95 for the Kindle ebook and $15 for the print edition. Read the first section for free in PDF format. If you found value in this content, please join me in seeking solutions by becoming a $1/month patron of my work via patreon.com.
 

kiffertom

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#2
this is bullshit! the ones that are fucked will go after the ones who are not! so then everyone is fucked. i dont see how anyone will make it out of this one unscathed!
 

GOLDZILLA

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#3
By living modestly and acting like you are as desperate as everyone else. If there is a bread line, you stand in it whether you need to or not.
 

the_shootist

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#7
The poor and middle class have nothing to lose, they had no recovery from the last bomb, only the rich had a recovery
I wouldn't say that. There are a lot of middle class people who aren't as dumb as posts. Many of those people post here and on sites like this. Those are the informed and the people who have taken an interest in preserving what they're earned and built. There are more of us than most people think.

The poor? Yeah, they're fucked, but some of them share some of the blame because many of them could have built a career and worked themselves out of poverty yet, chose the free gibs from the government instead. You reap what you sow in this world. That will never change no matter the politics.
 
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Son of Gloin

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#8
Don't they all? If you're prepared you'll be fine. If you're not, you won't. Read all about it in my new book available on Amazon for $24.95 for a limited time only...
I love it! ‘Hang’em all! Hang ‘em high!’ by The Shootist. I’ll buy it.
 

TAEZZAR

LADY JUSTICE ISNT BLIND, SHES JUST AFRAID TO WATCH
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#9
Here's a household example of the type of organization that won't just survive but thrive in the recession: a household with $100,000 in revenues from multiple income sources and fixed expenses of $35,000, no debt and a management team (the spouses/adults) that's willing to implement radical changes in lifestyle, expenses and work at the first disruption of revenues. The household that doesn't just survive but thrives sees crisis / disruption as an opportunity, not a disaster to be mitigated with denial and wishful thinking.
WHO??? lives like this ? :dduck:
 

TAEZZAR

LADY JUSTICE ISNT BLIND, SHES JUST AFRAID TO WATCH
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#10
I wouldn't say that.

The poor? Yeah, they're fucked, but some of them share some of the blame because many of them could have built a career and worked themselves out of poverty yet, chose the free gibs from the government instead. You reap what you sow in this world. That will never change no matter the politics.
Most of the "poor" are poor because they are too fucking lazy to go out & work. Right now there are lots of jobs.
Many of us grew up on the poor side of middle class. We got out & worked & became middle class. Our socialistic government has ruined, the will to work, for many people.
 

Uglytruth

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#13
There are a lot of middle class people who aren't as dumb as posts.
I think that depends on YOUR meaning of "middle class".

My sister makes big $ compaired to how she was raised to expect but with the cost of living and where she lives (commiefornia) she dosent really live any "better" than when she was raised by 2 parents, one a factory worker and one a waitress.
 

the_shootist

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#14
I think that depends on YOUR meaning of "middle class".

My sister makes big $ compaired to how she was raised to expect but with the cost of living and where she lives (commiefornia) she dosent really live any "better" than when she was raised by 2 parents, one a factory worker and one a waitress.
My son makes over $100Gs a year and he's not living any better than when my wife and I were raising them and making $60K/year combined! We sent them all to private high school at a cost of about $80K total for tuition. We cosigned their college loans but they paid them. I suspect my kid can do better than me. I started out with nothing, being the breadwinner for my single Mom and 5 siblings. I married young (21) and never knew any other roles than as a provider for my family. I'm not sure if I was taught to be that way or simply figured out that someone needed to take on that role and doing that was a no brainer! Having played the role as a single guy with no Dad I discovered I liked it. It made me feel good. SO I became a Dad and worked my ass off (sometimes 3 jobs at once) to do my best to provide all that I could for them, while still being there for them every night when they went to sleep and every morning when they woke up.

It's not as much about the money as it is about resolve and refusing to lose! My son honored me by telling me that he had a distinct advantage over me growing up. He had a Dad! That's all I'll ever need to make it all worthwhile!
 
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