The proverbial wheels are coming off. The financial crisis is spreading across the globe. The political mudslinging is getting into full gear as the U.S. presidential election nears its conclusion and inflation continues to rise. Basically, everything costs more, with the exception of gasoline spurred by slowing demand as consumers look for ways to stay afloat financially.
The well-heeled country of Iceland, with 320,000 residents (about half the population of Alaska in an island the size of Kentucky) is nearly underwater financially. Europe, not just the U.S., is in the midst of a once-in-a-lifetime economic crisis.
Governments, via taxpayer funds, are stepping into the breach with the equivalent of Band-Aids and bailing wire to stop the potential slide into financial oblivion. But there is no escape from this perfect storm. The financial institutions played fast and loose and now they can't cover their bets. (See the 60 Minutes segment in which the credit crunch is explained in plain English.)
For the tech industry it means hunkering down. A few days ago, the legendary Bill Gates said that companies will continue to invest while the economy sputters somewhat, but "nothing like a big recession or a depression."
His remarks seem overly optimistic, given the crisis of confidence in financial markets spreading like a virus throughout the world. A hacker or terrorist hoping to destabilize economies couldn't have done a better job than the financial industry itself.
Already a steady stream of companies are lowering their forecasts, taking out any surprises as the typically more lucrative fourth quarter gets under way. The stock prices of the top tech companies are in the tank, which is indicative of a very spooked investor community. The investment community looks at those prices and sees a buy order--the stocks are really cheap--but after the last few days it's difficult to have any confidence that a seemingly good bet would pay off.
In the midst and aftermath of this perfect storm, brewed out of years of habit and taken down by mortgages for the masses, both consumers and businesses will be far more conservative in their spending habits in the coming months. As in other epochs, such as the tech meltdown at the end of the 20th century, only the strong will survive. Consolidation or extinction will be the exit strategy, reaching way beyond the broken banking industry, which has been whittled down to a handful of players.
Out of this perfect storm new financial infrastructure and regulations will emerge that bring back confidence into the markets and reignite innovation, that is until the next destructive cycle driven by irrational exuberance comes around.