Unless of course you are living in a cave, in the middle of nowhere, with no media, not even a newspaper (in which case you’re not reading this Blog), you cannot have missed the news that we are on the brink of a global credit crunch (the new, sexed up term for a depression.) So what? I’ll probably still have a Job/House/Computer etc and I’ll still be able to read TimK’s wonderful blogs? Right? You’re probably saying to yourself, things can’t be that bad. Well, you’re right, things are never as bad as the Financial Press make it seem, they are just as desperate for things to write about as all of us, and Doom and Gloom sells like hotdogs at a ballgame. Yet there are some surprising consequences of the Global Credit Crunch that are going to significantly affect the way all of us access and utilise technology. This current crisis is because of the long period of sustained growth that most mature western economies have experienced in the last ten years, fuelled by the emerging markets of India, China and Russia, amongst other things. Much of the funding for new and existing web based technology is based on share issues and venture capitalism. These are two areas which have benefited with large amounts of surplus cash washing into the investment markets from generally good economic conditions, and as such investors were willing to take a higher than average risk. Now the money is being choked off, the investment community will be less likely, or have more stringent conditions for prospective stat ups. In an economic downturn there will be less investment, especially in high risk areas such as the dot com industry. Moreover the big players in the market will start to both rationalise and consolidate their positions (read about the business brains behind Vivendi and Activision here)
This could lead to a reduction in the number of products hitting the markets (there is unconfirmed speculation that the iPhone was rushed to market in the last half of last year as Apple knew the midden was about to hit the windmill.) Companies looking to prop up their Balance Sheets may begin to cut R&D back, as there will be less consumer cash for the new products anyway, and existing products may fair better or worse depending on how bad things get (for example the Wii V PS3 battle will become one not of game play, but of price, as the Wii is significantly cheaper than its rival, an economic downturn will actually benefit Nintendo.) The fact is that it effects us all, sometimes in positive, but mainly in negative ways, so buckle up for a bumpy 2008.
Anyone wanting an introduction to finance and investing can read my blog, same user name TimK, happy trails everyone.
January 10th, 2008 at 10:21 pm
What the gloom and doom does do, even if it isn’t that bad as it seems, is creates a lull in consumer confidence. Not only is R&D cut back, but people aren’t buying new products that do come out. This causes an avalanche for a time, but in the end, people like innovation and they yearn for it. So it’s part of a self-correcting system. Unfortunately, the financial losses in the lull make that hard to see.
January 10th, 2008 at 11:10 pm
It is definitely a self correcting system, in probability theory almost all of the bell curves for a random sample of any data is neutral, there are only a very few exceptions, being either positively or negatively skewed (meaning that the probability of data values increasing or decreasing over time are certain) and all stock markets follow a pattern of positive skew. this essentially means that the stock market, whilst experiencing highs and lows (and even crashes), will always increase in value over time. Capitalism at its most pure.
February 24th, 2008 at 12:45 am
yes this is called self correnting system i also goes with timk its true .