economy slowdown and the manufacturing sector

So everyone is trying to explain the current economy today, a lot of people are worried, particularly small businesses, how much of this is psychological and how much is actually a physical barrier we are up against? A lot of talking heads and pundits have tried to explain this chrisis, often dumbing it down or skewing the facts, even creating simplistic childlike cartoons that insult the viewer’s/reader’s intelligence. CNC Machining Blog’s guest blogger Michael Hayes, gives his take on the so called “crisis”. My advice? DON’T PANIC.

So we all have seen or heard about this economic “crisis” that we are currently experiencing. The general person probably has no knowledge of what this crisis actually is, but a slightly more informed person (say, one who watches CNBC) would tell you that it is a capital problem, meaning that banks don’t have, or won’t part with, physical cash money… This is an issue.

People probably don’t realize how importance credit actually is; in fact, it took the biggest economic crash of the past 80+ years for people to come to terms with it, and slowly realize the err of our collective ways.

For the past decade or more, American’s have been on a credit binge. The average American has Six (6!) credit cards, Adjustable Rate Mortgages (ARM) have been screwing over homeowners left and right, and the mentality of Buy Now, Pay Later, has wrapped millions of American’s in a smothering blanket of debt that cannot be removed. This has lead to record numbers (unfathomable number, to be honest) of home foreclosures.

In that time period, the irresponsible borrowers were joined by similarly irresponsible, arguably predatory, Lenders. So much expectation was placed in the field of Mortgage Backed Securities (basically a Stock you can buy, that is publicly traded, that only value is the equity of a mortgage). Home values went up, more people bought more houses, people took second mortgages out on existing homes, more people purchased shares of the securities, more people took loans with balloon payments, and adjustable rates, Fannie Mae and Freddie Mac lent money to basically anyone, and then it all came crashing down.

People couldn’t pay, so banks foreclosed. The foreclosures lead to decreasing home values. Sooner or later, banks had assets that were worth less then the securities associated with it… Multiply this by a few millions times, and you have a conglomerate effect of created trillions of dollars of defaults.

You had Bear Sterns collapse under the weight of this, followed by AIG, Freddy and Fannie, Lehman Brothers. Keep in mind some of these firms had lasted through the Great Depression and both World Wars. It is a mind boggling cluster bomb of economic collapse that can really only be associated with greed, irresponsibility, and lack of oversight.

So what industries aren’t affected by this trend? Well, considering how massive this crisis is purported to be, there are vast industries that will not be hindered, and in fact may grow despite it.

Take for example dry goods, or hardware production. The world continues to show a demand for wheat grain no matter what Bear Sterns is doing, or what bill Congress passes. No matter what happens, American’s still need to fill up their gas tank (at least to the half way line) and the government is hell bent on removing us from the clutches of foreign oil, so that means more pipelines, more raw materials, more transport. This creates demand for metal fabrication, raw materials and mining operations, heavy duty hardware and fastener fabrication, and much more. You need the people that make the things that no one thinks they need: i.e. Gaskets, Pressure Gauges, Compressors, Metal Railings, etc. There will be a small “lack of growth”, do to less home building and the like, but a consistent growth is sometimes better then erratic growth/loss.

With Britain’s struggling economy, a situation that some have ventured to call a recession prior to the credit crisis, has significantly impacted its level of manufacturing. India, however, seems to remain unaffected and may in fact present an opportunity for growth.

“There has been a surge in foreign direct investment in the manufacturing sector and there have not been any signs of a slowdown, said Ajay Shankar, secretary of the federal department of industrial policy & promotion. ‘International confidence in Indian manufacturing is much higher than we seem to realize,’ he said.
Recently enough, Iraq’s stock exchange has soared over 30%, due to the falling dollar and a drop in violence throughout Iraq. Meanwhile areas like Turkey and South America seem to feel the crunch in the manufacturing center. Being a needs based, industry, there will never be a “crash” such as in the mysterious, erroneous and downright shady industries of finance. But there will be a decrease in a amount of business to some extent. Though this too will pass.

Simply put, the world will continue to turn, with or without available credit or liquidity issues, with Barack Obama or John McCain. So the hope is there, constant and consistent.


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