wallydownundy

Before World War Two, Germany endured a decade of economic losses spurred by the loss of World War One and the Great Depression. That period of time, called the Weimar Republic, was characterised by high inflation, currency devaluation, unemployment followed by a rise of nationalism and social unrest. With the vast scale of economic collapse globally I believe we’ll look back and call this time the “Pre-War Years”. Something’s gonna give - big time.

No country is being spared in the global economic collapse. Millions are jobless. In the USA in January 750,000 joined the ranks of unemployed. In the last six months 20 million people in China lost their jobs. That’s roughly the population of Australia. Government benefits are being rushed out to help but like all things government it will be too little, too late. Prices are tumbling and confidence has evaporated.

In time these collapses will ripple further. What happens when food production is impacted - or people can no longer afford dietary staples? One billion people lack access to clean drinking water. What happens when some of those live in Orange County or Barcelona or Beijing? When will civil discontent bubble into unrest?

In “Canadian Bacon” a fictional USA President finds his popularity waning. He believes war to be the best way to galvanise the public behind his presidency. Doesn’t take a large stretch of the imagination to foresee a Premier in China concerned about growing civil unrest - and using the same tactic to divert attention. And as always there are plenty of countries needing to be brought in line.

Other than the eternal bogeyman of China it is easy to see any country squabbling with its neighbours near and far over economic issues. Boost the tariff on pulp and watch Canadians get annoyed. Ban salted cod and the Portuguese are your enemies. Dispute a province and India is before the United Nations.

In times of economic unrest the quickest diversion for any politician is to externalise the argument. This isn’t the economy, stupid. This is war. Now it’s just a matter of when and where. Are the British betting agencies accepting wagers yet?

Australia owed its success in the first half of the 20th century to wool - it was ”a lucky country” built “off the sheep’s back”. In the 1990’s the economy powered through a decade without recession due to increased demand for minerals. Raw exports from Australia fed the growth in Asia and particularly China. In the same period China built vast reserves due to growth in trade. Australia was one of a very few countries with a positive trade balance with China. The USA faced a record imbalance as it relied more and more on China’s low cost imports.

Today China still has vast wealth reserves. Couple that with a desire to secure long-term resources and the country is sitting pretty.

Australia’s Treasurer Wayne Swan faces difficult decisions as China’s state-owned minerals company seeks to buy into Rio Tinto, one of Australia’s largest mineral companies. (Further complicating matters Rio Tinto knocked back an offer from BHP Billiton and now may accept a lower offer due to financial stress. Their gamesmanship didn’t work. Checkmate, Rio Tinto?)

Is China using the global economic crisis to sweep into long-term deals? You betcha!

In Russia a loan was announced today where two oil companies receive $25 billion from China in exchange for long-term supply contracts. The frankest summation comes from Charles Freeman at the Centre for Strategic and International Studies in Washington DC:

“Realistically, there is nowhere to go but China.”

But China faces an enormous image issue - as they experienced during the Olympic Torch Relay. A large number of people around the world distrust the Government of China. Human rights, Tibet, Tiananmen Square, censorship and other serious issues are raised. But today the country with cash is king. And China is awash in foreign currencies. It is one country able to buy USA bonds to fund the massive bail-out.

China has become a lender of last resort - and one we are highly, highly dependent on. William Shakespeare said:

“Misery acquaints a man with strange bedfellows.”

Shove over America, Australia, Russia and others - make room in bed for Superhero China!

Barack Obama signed a bill today in Denver apportioning US$787 billion to stimulate the USA economy. That same day his aides say the President has not ruled out a second stimulus package.

Here in Australia AU$42 billion has been approved to kick-start the local economy. (Actually kick-start’s a poor verb. Australia hasn’t officially entered recession yet. The package will keep Oz on life support and out of the red.) Similar packages have been approved in dozens of other countries.

Yet on the day the bill was approved the Dow Jones fell, as did other major indices. The markets had already factored in the stimulus bill. They were responding to the dire news out of Japan. Tokyo forecasters say the country is in the worst recession since WWII. In many ways this downturn is looking more like a long-term depression that a temporary recession.

In the novel “Water for Elephants” by Sara Gruen readers follow a circus worker in 1930’s America. In one scene he is met at the train station by a local official and notes what an expensive car the man is driving. He comments that many would have been less excessive if they’d known what that Friday in October 1929 had in store.

So. We’re not the first to go through this. What did our grandparents and great grandparents do to survive? My Aunt Lottie washed plastic bags and reused them. Her husband Al saved string and had multi-coloured balls of it in various drawers. But more than that they did without.

Coles Supermarkets has already reported a decrease in steak sales and an increase in sausage sales. People are starting to trade down and do without.

What more can we learn from the dire decade of 1930 to survive the coming years?

Late last year forecasters said the economic downturn would be bad for the first half of 2009 but by July we would see recovery. Then in January predictions were for a grim 2009 but a quick recovery in 2010. But last night Wall Street tumbled (again) and the Australian dollar sank in sympathy.

In Japan the 1990’s are known as “the lost decade”. Economic policy and deteriorated confidence led to ten years with no economic growth. The country was at a standstill.

Take a walk around your town. Take notice of the “For Lease” signs. Notice the businesses having sales of 50% off or more. Many of those closing down? Look for construction sites at a standstill. What about houses for sale? Any of those under the instructions of the mortgagee? Stop for a coffee and read the newspaper. In the USA in January over 600,000 jobs were lost. That’s one month alone. Companies are closing. Retirement savings are lost. Squatters are occupying million dollar homes. Twenty million migrant workers in China are unemployed and are back in the countryside with nothing to do.

I believe we are at the start of a lost decade. It will take that long to return to the heady economy we enjoyed just one year ago. Shops will sit vacant. Construction sites will overgrow. The newly unemployed will become an army of part-time workers scrambling to make due. And governments will spend and spend.

It is a sad, scary and sobering thought. That’s not a speed bump ahead - it’s a brick wall.

It’s hard adjusting to the new world order. Citigroup owes its future to a US$300 billion rescue package from the government. Detroit is crying calamity if they don’t get money - US$25 billion is a start.

Consumers are about to get angry.

The bail-out fall-out is going to be surprisingly nasty. In the aftermath of Enron and Worldcom we consumers sat back in shock. Now with direct government support the levels of participation and demands will ratchet up.

Minimum requirements going forward will be transparency in use of government funds. More likely will be calls for active, hands-on governance as vested parties. The American public will feel entitled as owners of Citigroup and possibly General Motors to be involved in the decision-making.

For other companies, you can expect greater scrutiny on financial solvency and demands for the greatest level of transparency possible.

The bail-out fall-out is you’re going to have to share enormous amounts of information now and forever.

Every client in every industry is feeling the full frontal hit of the economic crisis. I was in Beijing last week and the impact is truly global. Public relations professionals from as far afield as Nigeria to Poland, Peru to China, Australia to Turkey all bemoaned the downturn.

It’s going to be a nasty new year.

But not for undertakers. My son goes to pre-school and a fellow parent manages a funeral parlour. Good times and bad people die. And their loved ones want to send them off in style.

Beer companies also see an upturn in sales during economic downturns. Seems we like to lubricate ourselves against ignominies while we’re above ground.

These two industries got me thinking. What other businesses are recession-proof?

Enough’s been said about the world’s financial situation. So instead let me share a mock magazine cover making the rounds.

The global markets are in free fall and the end appears nowhere in sight. In reality the end for America is in late January. Until the inauguration of the 44th President of the United States of America the world financial crisis will continue.

No one likes uncertainty. If we don’t know what to expect we cannot plan. If we cannot plan we panic. So Wall Street doesn’t know who will be in charge in a few months, and are also unsure what the new President’s policies will be. Debates and campaign promises are illustrative but not indicative.

Now apply this same thinking to your own embattled employees. eBay is shedding 1,000 people. Car companies reported record low sales. Banks are folding. Certainty is gone.

Provide your people whatever news you can - even if they’re only calm reassurances that management is actively working to control the impact on your company. Tell them what you can when you can - and never, never lie.

People need your reassurances right now. Stop blogging and start talking.

Day Four of the Olympics and newspapers around the world feature athletes and medal tallies on their covers. Dig a little deeper into the journal and you’ll see soldiers and mortalities. Russia is using the cloak of the Olympic Games to conduct war in neighbouring Georgia.

I’ve advised clients facing a serious crisis - and I understand the relief of a “busy news day”. That means the day your crisis breaks another, larger event occurs that dominates the airwaves and headlines. Your client’s crisis does get reported - but it is buried towards the back of the paper, or later in the radio broadcast.

It is shocking to see Russia using this same strategy to wage war. Yesterday a colleague skimmed the paper and said, “Is there anything else happening in the world (other than the Olympics)?”

There is a war. And it’s raging under the immense cloak of the Olympics.

Today marks the end of the financial year in Australia. Yes, instead of following a calendar year we close our books and report taxes from 1 July to 30 June. My theory is the summer sun made it too vexxing to consider doing accounts in early January - that’s when every self-respecting Aussie is at the beach or burning meat on the Barbie!

In 1992 when providing a speech to mark the 40th anniversary of her coronation, Queen Elizabeth said it had been an “annus horribilis”. If you can’t decode the meaning of the Latin phrase she said it had been an awful year:

“1992 is not a year on which I shall look back with undiluted pleasure. In the words of one of my more sympathetic correspondents, it has turned out to be an Annus Horribilis.”

The financial markets would tend to agree - today we close the year and it has been really savage. Stock markets are down 20% - officially entering bear territory. Inflation is up. Profits are down. Credit markets are tight.

Perhaps we’ll have a resurgence this year. Probably not. Be prepared for a year of bear. Then next year we can ponder - what’s worse than an “annus horribilis”?