Economic Contractions can be spurred by many things:
- War
- mis-management of resources, capital, workforce etc; both on a personal level, corporate, and governmental fiscal and monetary level.
- Poor farming season.
- Reduced productivity of the workforce.
- Trade imbalances.
- dis-proportionate allocation of resources.
- rapid regulation, rapid deregulation, fluid laws making unstable investment environment
- Money supply changes (typically occurs with a fiat currency like US dollar)
Whatever the root cause of the problem, Economic contractions almost always result in the following three outcomes:
- Lack of investor confidence; ie no lenders
- Lack of consumer confidence; ie no buyers of goods and services - too many sellers - too much inventory
- Lack of productivity; no employment or underemployment
The three outcomes listed above will rear their ugly heads in different ways as the economy goes through the contractive cycle including inflation, hyper-inflation, then extended period of deflation.
The current economy is complex enough that one part of the econmy can go through inflation like commodity prices, while the housing prices go through a severe deflation. I believe this is having the effect of reducing the impact to the individual pocket book.
But the economy will continue to contract as credit lines are removed, consumers stop buying stuff, and jobs don't pay. In this environment, Gold, Commodities, durable goods will be king I think as the cash under the matress diminishes in value. Keep in mind that if deflation becomes severe, then even durable goods will no longer be a safe haven. Just my two cents.
I hope my friends are on the winning side of the line during this economic contraction. Oil shocks may come, commodity prices will go up, but if we are prepared, we will be okay. Hope this posting helps.
