A strange time. What, on earth, is a “strange time”, and why might you have to prepare, to be ready, for it?
The past few months have given us clues, if we only bother to look for them.
So let’s look, shall we, and think about what it might all mean.
This is, after all, about doing personal due diligence. Such looking is a diligent person’s stock in trade.
A society deflating around us
Deflation is far more than just falling prices, although that is how it is often portrayed. It’s also far more than something central bankers get all panicked over, doing “whatever it takes” to fight.
Deflation is the shrinking of the economy. In particular, money increases in value. Labour is less valuable. So, too, is debt – quite a bit less valuable, in fact.
A deflating economy takes real money – cash in hand – and raises its value. Technological improvements (whether those are physical or programmed technology, or better processes, or better ideas) increase productivity. This shows up as needing less people to do the same work. That, in turn, shows up to you as job risk.
Since the 1990s at the very least – it was then that the first web sites went online, that most people started to buy computers, and that electronic communications (starting with email and text messages) became a part of our lives – technology has been wiping out jobs left, right, and centre.
This hasn’t shown up in an obvious fashion. The jobs I held in the 1970s were still there in the 1990s. They don’t exist at all today in the 2010s. But new jobs have replaced them, right?
Well, not exactly. Toronto, where I live, is a prosperous city on the surface. But it has over ten percent unemployment. Half its citizens only hold part-time jobs – often, two or three of them, none with benefits, none paying well – or are “consultants” scratching out a living from one project to the next.
50% with no security, 10% with no anything – only 40% have some degree of security. That’s not prosperous.
But, like Japan two and a half decades into a deflation, appearances differ from reality. Japan has lost its lifetime employment guarantees during these years. Only the fact that the Japanese population is falling has stopped mass unemployment from becoming a reality (the way it is in Europe in most of the countries along the Mediterranean). But many Japanese now scratch out a living from project to project or hold part-time positions without benefits, rather than the lifetime positions they used to hold.
Canada and the United States faced their last long deflation after the American Civil War and after Canadian Confederation. The 1870s, 1880s, and 1890s were decades of deflation. Look at the progress: streetcar networks in cities, electricity, the phonograph, the projector, the automobile, asphalt and macadam (to pave roads and put the mud at bay), street lighting, a web of continental railways – it’s a long list. But for a quarter century jobs were hard to find, self-employment wasn’t rewarding in most cases, people on farms (and doctors) lived near starvation most of the time.
The next few years will see this deflation – that began two decades ago – erupt into full view. The central banks will, either by choice (as with the Swiss National Bank this month, or Iceland’s central bank), or by being forced into it by the market, to give up trying to forestall this deflation.
They spent $50 trillion – yes, $50,000,000,000,000 – over the last seven years to stop this deflation. That money must still be repaid (it’s on their books as loans). But, in a deflation, debt doesn’t get cheaper – it must be repaid with ever more expensive money, as money grows in value (a dollar buys more, in other words).
The nineteenth century didn’t have central banks and spent half its time in inflation, half in deflation. That was the pattern since the fourth century in Europe. The twentieth century was one long inflation.
Dare you bet that the twenty-first, starting in deflation, won’t be a long, long run of deflation (relative to periods of inflation)? I wouldn’t.
What this means for your career is twofold. First, everything you know about assets, how they change in value, their long term value, is suspect. All that knowledge comes from inflation. None of it comes from deflations.
Second, jobs held up by inflation – especially those that aren’t critical to the work of the firm – are about to be dispensed with. Firms need plant workers and sales staff. They don’t need analysts, strategists, human resource clerks, and the like.
Look at how much of the support of the business is already outsourced. Ask what happens next.
It’s not only important that you do – it may be the difference between you having a retirement and feeding your family, or not.
If that sounds extreme, well, I’m sorry. But deflations are payback time – payback of debt, and payback of structural debts in the economy.
You and me? We just have to stay out of the way of being ground down.