We often hear stories about our grandparents, about how they managed to get so far on so little, and how they took care of things and made them last. My Grandfather was actually quite a successful businessman in spite of the fact he never ever never no way used debt.
Of course, modern MBA style business thinking and theory says that a modest level of debt is a terrific way to multiply your return on equity without the addition of too much risk, but like the ‘idea’ of a hurricane, until you have actually experienced the primal, life snuffing force of nature that is a Cat5, your experiential radar extends as far a strong sea breeze.
Theory is all well and good, but clearly ‘risk’ takes on a whole new meaning when, like my grandfather, you have stared square in the eyes of the depression and seen friends, colleagues and families reduced to rubble as the 1930’s ground on, and the governments of the time fumbled the economic controls (the Hoover presidency fiddled whilst Rome burned and actually allowed real interest rates to dramatically rise following the 1929 crash!).
My point is the mental impression and perception left by radical economic events can leave wounds as deeply etched as the glacial scars left across post ice age Europe. There is a lot of talk in economic circles at present about why inflation is still so low given the gargantuan monetary stimulus of the post GFC world. How can a record low 4.0% unemployment rate not be generating wage and inflation pressures, when pre GFC the generally accepted NAIRU (Non Accelerating Inflation Rate of Unemployment) was actually two percent higher at 6%?
There is considered thought about various structural forces at play, including globalisation, demographic factors (ie participation rates), and technology all moving together to produce tailwinds keeping inflation down.
But having stared into the GFC abyss myself, personally I think that over and above the economic models (which are all fine and good in normal circumstances), the GFC has certainly left a scar that I think will take a generation to work its way through the economic arteries. Businesses and consumers alike are just plain far more aware of survival as an experiential reality and not just a nice idea, be it not raising prices for fear of losing market share and manically working to cut costs in preference, or not agitating via organised labour to raise wages.
That is not to say that its not back to business as normal yet, but just that the pendulum has swung well and truly back from a pre GFC ‘gung ho’ resulting from 25 years of almost continuous bull markets, where survival was taken for granted, and just assumed away.
The GFC has certainly left a depression era echo where there is now a healthy respect for that most primal of human emotions, survival, and its worth is not taken for granted. Becoming aware of the echo is the first step, the next being to incorporate it into your thinking and generate opportunities based upon it being one potential factor driving the economic actions of others.
Interestingly, I am actually very optimistic about the future and the business opportunities that exist as the world continues to globalise and technology advances, but just as my grandfather once looked over the edge, now have I.