Who Wins from the Credit Crunch?

Remember that old adage that the Chinese symbol for crisis means “danger” and “opportunity?” The press is reporting plenty about the people in danger, but what about the opportunity in this mess of a credit crunch? Who benefits?

One obvious group are people sitting on cash reserves. It’s an excellent time to buy property and undervalued stock.

Then, Dean Baker pointed out another (surprising) group–young workers:

I’m waiting to see a reporter write this story, but I’m not holding my breath. The basic point is simple, given a path of future profits, if the stock market is high, it will cost our children and grandchildren much more money to buy a certain share of these future profits than if the market is low. In other words, if the S&P is at 1000, then our children will get much higher returns on their savings than if the S&P is 2000. (There is very little feedback the other way — stock prices have little impact on profit growth– so the assumption that the growth path of profits is independent of stock prices is probably a reasonable one.)

So, the young people out there should be celebrating the plunge in the stock market, except for the relatively small group who were anticipating inheritances from their parents. You can’t please everyone.

I’m relatively young (I’m not sure what age bracket Dean is referring to). I’m not exactly celebrating the stock market. I don’t like losing money that I’m not sure I’ll earn back. There’s a certain cynicism among young people today that they’ll never earn as much as the previous generation, due mostly to stagflation and fewer jobs.

The post-Depression corporate ladder meme is pretty much busted; the only way to get ahead, it seems, is to run your own successful business or get really good at investing. Neither are easy, or meant for everyone.

I see your point, Dean, but I ain’t celebrating.

  • Geoff

    While I agree the downturn does reveal opportunity in investing as well as other business ventures, it is not something to celebrate. The market is now fundamentally different now and will never be the same. The next generations are going to have a hard time figuring out how to adapt to the ‘new’ investing style. And to your point on the corp ladder, loyalty and climbing that ladder are no longer ways to make a living in our high cost economy.

  • Alan

    It would appear that financial ecosystems, like natural ecosystems, need a stress induced collapse every once in awhile to return to a more sustainable state. The ferocious over-consumption that is euphemistically called the “American Lifestyle” began to be financed with mountains of debt decades ago, and, finally, the debt bubble has collapsed under its own weight. Perhaps now we can have the serious town meeting, long overdue, where We The People can discuss what kind of society we REALLY want to live in and face up to the sacrifices that positive change will require of us to get there. But first, we will have to learn to ignore the smoke & mirrors distractions that are the stock & trade of so many of our special interest groups, who value money over planet, country, community, family and even self. “Greed is NOT good.” Globalism has NOT raised all boats. And now we face a very serious crisis: our global partners have learned NOT to trust us. The “Leader of the Free World” is run by liars, crooks and their spinmeisters: Enron, Arthur Anderson, Tyco, Ken Lay, Bush, Cheney, Wall Street bankers, MBA’s and their bootlicking “economic advisors”. From the world’s most prosperous & productive economy to a nation of bankrupt debtors in nine easy lessons. Advice to next generation: better take a good hard look at your elders… we did this to you!