The patient is still in the ICU. The doctors have stopped the bleeding and are providing medication to deal with the pain. But it will be many months before the patient will be ambulatory.
Time, maybe 2010 or 2011 before the banks are even capable of lending enough to support a recovery. Consumer’s savings rate up to 7% – 9%, which will take 3 to 5 years. We aren’t just correcting a few years of irresponsible lending. We are correcting at least 25 years of excessive credit creation that has household debt up to 98% of GDP from 44% in 1982.

Good forthright assessment of the current situation. What would indicate that the economy has bottomed?

It will take a long time to retrain investment bankers, mortgage brokers, and retailers to work in the jobs that would be supported by an economy with efficient pricing (instead of interventionist pricing).

Purple Polka – Comparing the duration of a financial crisis equivalent to guessing how long a counter trend rally will last seems a bit disproportionate. The rally from the August 07 low to Oct 07 high was just under 8 weeks, and the Mar 08 to May 08 rally was just over 8 weeks. From the Oct 07 high, leg 1 ended in Mar, leg 2 topped in May, leg 3 bottomed in Nov. It is not uncommon for the time of leg 4 to be roughly the same length as leg 2, or 8 weeks. This implies that leg 5 to new lows is coming, which ties in with the fundamental view that this economic contraction/ very weak growth will last far beyond April 2009.

This will be the first big recession of the Internet age. 10 years ago, a person who wanted pricing on the goods that our small business sells had essentially one option: contact our company and request a price. Now, anyone with half a brain can go on the Net and determine the absolute bottom dollar for almost any item.

The point being: on boxed good items, Internet commerce has already forced us to cut our margins to the bone. We really have nowhere left to cut and still remain profitable. We’ll tighten our belts, eliminate unneeded spending (advertising, etc) and probably lay off workers. But we won’t cut prices …….. because we just can’t. My gut tells me that many small businesses are in the same boat. We’re hopeful because only about 20% of our business is equipment that can be purchased on the Net. The remainder is packaged systems, and the technical services that go with them.

But I’d hate to own any business where you live and die on sales of boxed goods.