it has arisen as a result of a collapse in the value of assets (loans, primarily sub-prime mortgages in the USA).
the value of these assets/loans has been artificially inflated by a credit bubble. [wiki]
credit bubbles are inflated by cheap debt, ie. low interest rates, plentiful money supply
credit bubbles can take many forms - tulips, the stockmarket, property - whatever people are willing to bet on.
eventually the bubble bursts and deleveraging (calling-in of loans/paying off debt) ensues.
the economy moves in cycles, that means that sometimes it expands, and sometimes it contracts - there's usually between 7 and 10 years between peaks (the last major correction was the dotcom crash of 2000/2001) - see the business cycle [wiki]
pay down your debt - if you lose your job, or the currency devalues, you might have trouble meeting payments
seek a payrise, or a second job, if money is tight
improve your education (ie. your employability) - attend training courses, night school, or university
if you lose your job, consider starting a business (there's rarely a better time, since you have no job to throw away in order to start it) (see also: entrepreneurship)
if you have some spare cash, save it, or invest it very carefully - this will help you be ready for the next boom
if you have investments, ensure they are diversified - various asset classes, in various companies, in various locations
regularly spend a few moments considering your financial position
advice for business owners
Adopt a defensive posture, this means trimming costs to the bone, while squeezing maximum revenue per sale. You also want to find new ways of making money from existing assets (including customerbase), eg. create new revenue streams. You also want to diversify your sources of income and your supplierbase, so that you are not overexposed to any particular entity.
Look at ways of quickly adding value to your products, for example partnering with a firm in a related market, so as to gain access to new markets without having to build marketshare organically, and new products without having to develop them yourself.
If you have some spare cash you should try and plough it into research & development, so that you have some new products in the pipeline, this will keep you ahead of your competition and you'll be ready to make hay when the sun shines again.
While all this is happening you do a strategic review, that means revisiting the vision/objectives/strategies of the business, and revising the business plan and the marketing plan. This way you will have a clear idea of what you're doing, and the chances of failure due to misaligned business processes are minimised.
This is not the time for a retreat - if you can afford it now is the time to quietly, carefully invest. Your ability to do this will be determined by your fiscal prudence during the boom years.
currency devaluation due to low interest rates/poor macroeconomic outlook (this hurts those holding the currency, including foreigners, but does encourage exports and inward tourism)
inflation increase due to currency devaluation eg. imports are more expensive, this pushes up input costs for businesses, resulting in higher prices at the till (this erodes savings, and hurts those on fixed incomes)
tendency to deficit, rather than surplus, in national budgets due to poor macroeconomic performance (slow growth means fewer jobs, and higher benefit payments), and the cost of any bailouts (banks etc)
budget/spending cuts due to reduced cashflow (cuts in spending reduce the deficit, but result in public service redundancies, plus less business for suppliers, and possibly redundancies at those suppliers)
recession due to reduced economic activity, redundancies, public spending cuts
increasing yields on government bonds due to poor macroeconomic outlook, inflation, deficit, recession and credit rating downgrades (this makes it more expensive for the government to borrow money)
interest rate increases due to need to track inflation (this hurts long-term variable-rate debt holders, but does encourage foreign investment)
tax increases and benefit cuts (these improve the public balance sheet, but result in a fall in the standard of living for the average citizen)
falls in the standard of living for the average citizen, due to a combination of inflation, tax increases, benefit cuts, public spending cuts, and lower wages due to a poor job market
stagflation - a period of high inflation / high interest rates / low growth
credit rating downgrades due to currency devaluation, budget deficit, high bond yields and poor macroeconomic performance (this hurts short-term debt holders - when they refinance, it will be more expensive)
sovereign default/national bankruptcy due to inability to meet interest payments on foreign debt (this hurts foreigners holding the currency)
asset sales, to pay down debt and/or meet bailout terms - including state-owned enterprises, land, gold
how to save cash/get out of debt (aka Austerity Mode)
prioritise spending, deferring non-essential purchases until later
cancel all direct debits and standing orders - you want to be in charge of when each bill gets paid
try to get a discount, or some other way, save money on everything purchased (seek the savings - go bulk, build an inventory, only buy the specials)
try to charge extra, or some other way, make more money on work done (seek the extras)
try to make extra cash in addition to regular revenue streams (moonlighting)
try to get some things for free (eg. clothes, furniture, electronics, travel, etc)
try to live frugally (eg. avoid luxury purchases, cancel unnecessary subscriptions, buy cheap things - my friends call this the Dolmio Diet)
try to live cash-only (eg. don't run up any more debt)
try to pay debts incurring interest immediately
try to defer paying debts incurring no interest until later
try to invest spare cash (only if debt-free, otherwise, make extra debt payments)
try to spend some time and money on long-term revenue generation (eg. enrol in a course)
try to save, even if it's just putting every coin below a certain value, at the end of each day, in a jar
if unable to make a payment, ensure to contact your creditor to make a plan, before the payment is missed if possible
if running a business, spend time on products that can be resold, and spend time on the most profitable customers only
a few notes on cashflow
money flows as follows: possible sale/contract/job -> sale/contract/job in progress -> awaiting payment -> bank -> cleared funds
future cashflow can be estimated by measuring the fullness of these lists/tables/queues
insufficient/poor cashflow is typified by an inability to invest in critical infrastructure
eg. some things must just wait until they can be afforded (if ever). This causes delays
to some services, and the total inability to provide others, despite having all the other
required factors, including the knowledge and customer demand. In turn this causes
sub-optimal revenue thus lower monthly earnings. As this is time-related those losses
can never be regained. There are other losses as well, related to lost opportunities,
and also lost of face/respect/confidence stemming from this slowness/inability.
fractional reserve banking
fractional reserve banking is based on the *assumption* that all of the depositors will never ask for all their money back at once
as history shows, this assumption is WRONG.
therefore, the theory of fractional reserve banking is invalidated.
it thus follows that systems built on this theory will be unsustainable.
fractional reserve banking creates money out of nothing.
what we are seeing now is all that money returning from whence it came - nowhere. it is evaporating before our eyes, because it never existed in the first place.
it was not really money at all. it was a token of DEBT - banknotes are simply a promise by the bank to pay.
the difference between fiat money and traditional currency is that traditional currency actually exists.
examples of traditional currency include salt, camels, and gold.
PRESIDENT THOMAS JEFFERSON: "If the American people ever allow private banks to control the issue of their money, first by inflation and then by deflation, the banks and corporations that will grow up around them (around the banks), will deprive the people of their property until their children will wake up homeless on the continent their fathers conquered."
ALAN GREENSPAN: "In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. ... This is the shabby secret of the welfare statists' tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists' antagonism toward the gold standard."
PRESIDENT THOMAS JEFFERSON: "The system of banking [is] a blot left in all our Constitutions, which, if not covered, will end in their destruction... I sincerely believe that banking institutions are more dangerous than standing armies; and that the principle of spending money to be paid by posterity... is but swindling futurity on a large scale."
PRESIDENT JAMES A. GARFIELD: "Whoever controls the volume of money in any country is absolute master of all industry and commerce".
CONGRESSMAN LOUIS McFADDEN: "The Federal Reserve(Banks) are one of the most corrupt institutions the world has ever seen. There is not a man within the sound of my voice who does not know that this Nation is run by the International Bankers".
HORACE GREELEY: "While boasting of our noble deeds were careful to conceal the ugly fact that by an iniquitous money system we have nationalized a system of oppression which, though more refined, is not less cruel than the old system of chattel slavery.
THOMAS A. EDISON: "People who will not turn a shovel full of dirt on the project (Muscle Shoals Dam) nor contribute a pound of material, will collect more money from the United States than will the People who supply all the material and do all the work. This is the terrible thing about interest ...But here is the point: If the Nation can issue a dollar bond it can issue a dollar bill. The element that makes the bond good makes the bill good also. The difference between the bond and the bill is that the bond lets the money broker collect twice the amount of the bond and an additional 20%. Whereas the currency, the honest sort provided by the Constitution pays nobody but those who contribute in some useful way. It is absurd to say our Country can issue bonds and cannot issue currency. Both are promises to pay, but one fattens the usurer and the other helps the People."
PRESIDENT WOODROW WILSON: "A great industrial Nation is controlled by its system of credit. Our system of credit is concentrated. The growth of the Nation and all our activities are in the hands of a few men. We have come to be one of the worst ruled, one of the most completely controlled and dominated Governments in the world - no longer a Government of free opinion no longer a Government by conviction and vote of the majority, but a Government by the opinion and duress of small groups of dominant men". (Just before he died, Wilson is reported to have stated to friends that he had been "deceived" and that "I have betrayed my Country". He referred to the Federal Reserve Act passed during his Presidency.)
SIR JOSIAH STAMP,(President of the Bank of England in the 1920's, the second richest man in Britain): "Banking was conceived in iniquity and was born in sin. The Bankers own the earth. Take it away from them, but leave them the power to create deposits, and with the flick of the pen they will create enough deposits to buy it back again. However, take it away from them, and all the great fortunes like mine will disappear and they ought to disappear, for this would be a happier and better world to live in. But, if you wish to remain the slaves of Bankers and pay the cost of your own slavery, let them continue to create deposits".
MAJOR L .L. B. ANGUS: "The modern Banking system manufactures money out of nothing. The process is perhaps the most astounding piece of sleight of hand that was ever invented. Banks can in fact inflate, mint and unmint the modern ledger-entry currency".
RALPH M. HAWTREY (Former Secretary of the British Treasury): "Banks lend by creating credit. They create the means of payment out of nothing".
ROBERT HEMPHILL (Credit Manager of Federal Reserve Bank, Atlanta, Ga.): "This is a staggering thought. We are completely dependent on the commercial Banks. Someone has to borrow every dollar we have in circulation, cash or credit. If the Banks create ample synthetic money we are prosperous; if not, we starve. We are absolutely without a permanent money system. When one gets a complete grasp of the picture, the tragic absurdity of our hopeless position is almost incredible, but there it is. It is the most important subject intelligent persons can investigate and reflect upon. It is so important that our present civilization may collapse unless it becomes widely understood and the defects remedied very soon".
XAT: "The idea of producing money independent of the powerful Usurers, and Fractional Reserve Bankers, is nothing new."
Government by the Wealthy: "Government by the Wealthy traces the roots of capitalism through American history. Emphasis is placed on the American political structure from Ronald Reagan through George Herbert Bush with an analysis of the career of Newt Gingrich. Additionally, the collusion between corporate America and the government is explored. Finally, Government by the Wealthy provides an insight into the military-industrial complex."
Billions for the Bankers -- Debts for the People: "This block buster book by Pastor Emry made waves in the secular world when he clearly showed the fallacy of our money/debt system, to which America is now a slave. Learn how your slave masters control you." [PDF]
Feudalism ...alias American Capitalism: "The aim of the book is to provide enough shocking facts about the manipulative practices of America's power elite, that readers will be motivated (i.e., made angry enough) to take part in efforts to bring the richest 1% under control, ...before they impoverish the planet and destroy the biosphere."
Money as Debt: "How could there BE that much money to lend? The answer is.. there isn't. Today, money IS debt."
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