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Not everyone is hit by the recession

March 5, 2009

Technically as consumers, we’re all leveraging. Using other people’s money to buy things we can’t afford.

We are likely to own a house with a mortgage, a car that’s not paid off, student loans, credit cards, savings, maybe some investments. Some of us with a death wish have a business.

When something we want to buy costs a hefty sum, we go to the credit market for a loan. That’s other people’s money, borrowed from sources like savings accounts. Other people want financing too, for money tapped from your savings accounts. You borrow from me. I borrow from you. For a fee of course, called interest.

Same thing when we buy stocks. We give a small leverage to the company by reaching into our wallets. This money will be given back to us when we demand it, adjusted for the co’s profit, loss and broker fees. If we’re unlucky we’ll get nothing back.

My point is, everyone’s leveraging off each other. You could go out to a bank and borrow up to 30 times your monthly salary, unsecured. More if its a loan shark. Being consumers who want a lot of things we can’t immediately pay for, we demand leverage in order to lead a “normal” life. With that, we surrender our souls to the great financial system and spend the next 30 years working for the banks.

Everyone’s involved. The only question is how deeply.

If you’re still struggling up the ladder, you most likely have a negative net worth. You can sell off everything and still be in debt. Without a safety net, you’ll be the first to be pulled under when the system croaks, as is happening today. Even those with positive net worth may not escape if their assets plunge in value.

But is there anyone that’s immune to this mother of all economic storms?

I think so and they’re not necessarily millionaires.

Think of people who are unplugged from the world’s financial system. People who hold no debt, do not depend on anyone in debt, have no assets recognized by the system, and don’t consume things whose prices are determined by the system.

They are people who live off the proverbial grid, consuming only what they produce and bartering what they can’t.

You won’t find these people living in posh mansions and gated communities because they live in deep forests, isolated mountaintops and snow-covered tundras. These are people that society has forgotten.

Should a triple whammy happen – the simultaneous collapse of the world’s financial system, drastic climate change and worldwide food shortage – and precipitate another K-T style event, the ones who could end up carrying our genes into the future are not our best and brightest, but the ones who may not know how to use a cellphone.

How ironic that human creativity, when leveraged past a certain point, could hasten our exit rather than prolong it.


Glad that other people notice it too. Eric Werker of The Atlantic weighs in on how the losers of globalization may actually end up as winners in this crisis.

“And thinking about these multipliers is the key to understanding a paradox of the current recession: some of the countries that are least developed are having the least difficult time weathering the crisis.”

What I call leverage, he calls multiplier.

3 Comments leave one →
  1. March 5, 2009 9:28 am

    yeah true, i really been thinking, what crisis ? the money is still circulating like before.. just that more ppl facing money problem, only a few will benefits it

    Yes, someone is reaping all the money that’s everyone’s losing. The thing is, if its US dollars, how long will it be before even that money becomes worthless?

  2. March 5, 2009 10:05 am

    Maybe we should return to the caves 😛

    I’ll take my cave with airconditioning and cable TV, hehe. 😀

    Seriously, at the risk of sounding radical, I think the global credit & finance system doesn’t work, not becoz its a bad engine but becoz its too vulnerable. Human greed will keep throwing spanners into it until it breaks and what these bailouts will do is just prolong the death of an unsurvivable animal. Someone needs to invent a new and better system but who?

  3. March 7, 2009 9:58 am

    Nice article! Thanks for the encouragement. 😉

    I agree with you that somehow in this growing monster of an economic crisis, there are the few companies and individuals who are doing OK. They sure are keeping a low profile. Besides, the CNN, CNBC and Bloombergs are all too busy being prophets of doom and gloom that we don’t see the bright side of things now.

    Somehow, I think that’s what governments are doing now. Like you said, we’re throwing everything in the path of the monster to stop it but is anyone thinking of a new way out?

    A paradigm shift required?

    Yes, and if it happens it will be the single biggest shift we’ve seen since the start of the industrial age. I think 2 things remain the show-stopper. One is greed. The other is the political cost of change.

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