How the World Economy Affects the Recovery, Jobs, and You

Last Updated May 24, 2010 3:28 PM EDT

No matter how hard we try to look at the big picture, each of us tends to think of the economy in terms of how it affects us personally. We tend to think in terms of our own little personal food chain. We want jobs and raises from employers, access to credit from banks, and lowered costs from providers of goods and services.

Well, for most of us, that personal food chain hasn't been doing so well lately. And understanding the global picture is pretty darn complex. That said, throwing up your hands and saying "whatever," or sticking your head in the sand and waiting for everything to magically fix itself isn't a very good idea either. In fact, I think it's a really bad idea and I'll tell you why.

This is a buyer's market, and that means whether you're competing for a job, credit, or customers, the competition is intense and global like never before. Moreover, it's a zero sum game. So, whether you're a CEO, a small business owner, a manager, or a worker, the better you understand how the global economic picture affects your food chain, the better your chances of coming out of it ahead or at least with your shirt.
Now, saying that it's a global economy, that everything's interconnected, that what happens in Greece or Thailand affects you in New York or Ohio is trite and useless. Of course it's true, but it's still useless because it makes the problem sound bigger and scarier than it really is. So let's try to break this down and figure out where we are and what it really means to each of us.

First, if you get caught up in labels, like whether it's a jobless recovery or not, and follow each and every economic indicator, you'll only drive yourself crazy and you won't come any closer to understanding the situation which, at a 30 thousand foot level, is actually pretty straightforward.

Globally speaking, debt and deficits are really high and credit is still really tight. Sure, we've bailed out a bunch of banks and other too-big-to-fail companies, but now we've got governments defaulting so other governments, which aren't doing so hot themselves, have to bail them out.

Sure, the markets have recovered, but that's primarily because companies have laid off and cut expenses so corporate earnings look good. But revenue growth is constrained because consumers are still faced with the problems we discussed at the top of the post, namely unemployment, no raises, tight credit, and high cost of living. Folks are hunkering down and not spending, so companies are managing their businesses conservatively, and that means, you guessed it, continued unemployment. That's right, it's a vicious circle.

Sure, some industries are doing better. IT spending, for example, is up. And you'd think that would bode well for California, but that's so not the case. California got hit really hard by the housing bust so unemployment is still at staggering levels. Moreover, the grossly overextended state government is virtually bankrupt. That's how it is in most places. Some things have improved, but overall, not so much. If it's not one thing it's another.

Yes, we've managed to progress from extreme volatility following the near-financial meltdown to a period of great uncertainty. And that means conservative risk management rules the day. Sure, there are exceptions, but for the most part, everybody, and I mean everybody, from CEOs and CFOs to small business owners and folks like you and me are hunkering down and managing their businesses and finances conservatively. And that will pretty much keep us in that vicious circle for a while.

What will break the circle? When credit markets loosen up. Also when companies and countries stop defaulting for a while. Then everyone will start gaining confidence and start taking risks again and, eventually, you'll see a reversal of the vicious circle. Want to know when that will happen? Yeah, me too. All I can say for sure is "eventually." Until then, hang in there and play it safe.