This weeks blog is somewhat diverted from the usual corporate theme as we take a look at how the impending ‘Depression’ is set to sort out excessism of both consumers and businesses alike.

We had the Great Depression of the 1930’s and are now witnessing the Greed Depression of the 2000’s. I might be the only person on the planet to think so, but I think the current credit crunch is a good thing. Along with many others, I predicted this 2008 collapse about 5 years ago. [I wish I had predicted a few personal finanical matters but that is another story]. Not only were cyclical forces in play, but there were many consumer and demographic factors were driving the magnitude of the forces. Consumers have been extremely debt greedy over the past 5-8 years. Youth today want everything now and many have little concept of earning before spending. Credit card companies have been extremely negligent in driving excessive debt and too many investors in real estate that could barely afford their own homes were given 90%+ loans on investment properties at rates of less than 6%. With the average interest rate over time being 7.5% it didn’t take a math scholar to recognise that the rates would have to soar well above 7.5% in the coming years to effect a 7.5% average. In New Zealand they hit over 10% over the past 6 months.

Whilst this has been great for those of us with money on deposit – earning 9%+, it has lead to a major crunch for investment home owners on both their investment and own dwellings. And of course, with so many affected, the rental market is likely to become swamped with houses for sale and tenants are negotiating much lower rents – so a double whammy effect is in play. This does not bode well for the investment home owner, unless banks revisit their current foreclosure policies and do whatever they can to stabalise the market. No one gains in a mass market foreclosure [except those smart enough to foresee the situation and be cashed up and ready to buy]. However, I honestly feel the relying on normal market forces to reverse the current debacle is not a proportional response. Home lenders and credit card companies need to front up to the part they have played in the current crisis and provide payment plan alternatives to at least dilute the potential for a total RE market meltdown.

Although I have little more to say about the perils of investing without a solid foundation – I do empathise with new investors who were seduced into property investment by the plethora of free Real Estate Investment seminars.

So that’s the bad and ugly side of the equation – but there is a good side. The housing market, driven by the lust for ownership and investment has rocketed in prices well out of proportion to natural cyclical expectations. This has driven up not only house prices and rent, but also the demand for new building, and thus the cost of building. For the generation of 20-30 year olds attempting to buy their first home, this has become a somewhat daunting prospect. With so many house price indexes on offer – I prefer to use a comparative of the average cost of house compared to the average income. This has more than doubled over the past 20 years, making it much harder for young couples to both purchase and pay off their homes. Nothing short of what is currently occuring would be a significant enough impact to destabilise this trend and reverse the current level to something more rational.

So, potentially good news for young home owners and renters.

On the business front – the credit crisis will make it much more difficult to gain investment funding for new technologies and new products. However, with the payback period of core technologies such as business intelligence often being only a few months – this should be an easing concern.

Most businesses have been through the era of cost cutting – but few really got down to driving more efficient processes to a point where technology was being utilised to the best advantage. The Greed Depression will refocus organizations into a more integrated approach to technology and build a stronger bridge between IT and the business. It will also serve to focus more of profitiability drivers and pay more attention to monitoring key performance indicators.

Another good impact will be an escalation of interest in virtualization, cloud computing and SaaS models. These all offer significant economic gains and many businesses are now including these models in their IT capability strategies. Interest in BI will likely strengthen, in spite the cost, but with profitability being squeezed from both sides – it challenges business owners to come up with a valid reason why NOT invest in such core capabilities.

To help businesses understand how such technologies can benefit their businesses, we will be launching a series of keynote and miniseminar presentations. Watch the Coded Vision website for more details.

Overall, in the 1930’s we did not have the sophisication of the financial industry [not the they have shown much in the past 5 years] – internet banking, international monetry policies, and government intervention mechanisms are all much stronger today than ever before. Personally – if the media can play a more responsible role [big hope!!] I don’t think things need to be as bad as every doomsayer claims. The banks and financial lenders needed a good kick in their social responsiblities and consumers more responsible in managing their debt levels. It certainly serves to highlight as to why governments perhaps need some control over money markets. The current situation was quite preventable, and I am convinced that once we get through the mockery of election campaign agony we can focus back on core market principles and work together, not as a nation, but as a global economy and repair the damage.

So its not all doom and gloom……..for those who can understand the forces – the force will be with them!

Gail La Grouw

Forever, The Logic Evangelist