Sounds like a crazy question but let’s take a look at what a depression would mean to our country. A depression can be viewed best as a sustained recession. The demand for goods and services declines mostly due to fear as people start saving their money instead of spending it like they usually do.
Essential products are still purchased like groceries; as a matter of fact grocery stores’ sales would go up because people would start eating out less. The value of goods drops (i.e. cars, food, homes, stocks, etc.) because retailers have to do something to turn inventory. But the bottom line is that money gets tight so non-essential products take a big hit which leads to downsizing of some companies which in turn hurts our economy even more.
This certainly doesn’t sound good but let’s look at the flip side to this scenario. Because we are now dealing with a global economy the prices of our goods and services directly competes with the rest of the world. As we all know countries like China, India, and Taiwan, are by far outperforming us directly due to their much lower prices for their goods. The fact is, when the value of our dollar is depressed the cost of producing our products goes down.
What this means is that a company who sells a million units of a particular product for $1 and makes $.20 cents a unit would make $200,000 off of the product. Now let’s say they take a 10% hit because they have to sell their product for $.90 cents and now are making $.10 cents off of each unit sold. The lower price could make them more competitive in the marketplace so they would sell more volume and hopefully make at least as much profit overall as they made before. This isn’t a guarantee but most manufactures will tell you that price reductions increase sales and the key is to keep product moving.
Americans would have less money because the value of our dollar drops in a depression but keep in mind prices on some goods and services go down as well so there’s a chance that in the scheme of things it could become a wash. Now if an individual was doing business with another country (or even travelling to another country) he or she would take a hit because our dollar would be worth less than their dollar. A U.S. investor who invests $5MM dollars in another country might have their investment devalued to $4.5MM meaning it might not be a good investment just because of the dollar exchange. The bottom line is that a depressed dollar has a good side to it and a bad. I’d certainly be more afraid of a depression if there wasn’t a positive spin to it.
Let’s face it anytime our economy slows down it negatively impacts us in certain ways but we need to keep in mind that for those who have a job they might not lose much ground in buying power; plus people often realize during tough economic times that they can live with less…this isn’t all bad.
Essential products are still purchased like groceries; as a matter of fact grocery stores’ sales would go up because people would start eating out less. The value of goods drops (i.e. cars, food, homes, stocks, etc.) because retailers have to do something to turn inventory. But the bottom line is that money gets tight so non-essential products take a big hit which leads to downsizing of some companies which in turn hurts our economy even more.
This certainly doesn’t sound good but let’s look at the flip side to this scenario. Because we are now dealing with a global economy the prices of our goods and services directly competes with the rest of the world. As we all know countries like China, India, and Taiwan, are by far outperforming us directly due to their much lower prices for their goods. The fact is, when the value of our dollar is depressed the cost of producing our products goes down.
What this means is that a company who sells a million units of a particular product for $1 and makes $.20 cents a unit would make $200,000 off of the product. Now let’s say they take a 10% hit because they have to sell their product for $.90 cents and now are making $.10 cents off of each unit sold. The lower price could make them more competitive in the marketplace so they would sell more volume and hopefully make at least as much profit overall as they made before. This isn’t a guarantee but most manufactures will tell you that price reductions increase sales and the key is to keep product moving.
Americans would have less money because the value of our dollar drops in a depression but keep in mind prices on some goods and services go down as well so there’s a chance that in the scheme of things it could become a wash. Now if an individual was doing business with another country (or even travelling to another country) he or she would take a hit because our dollar would be worth less than their dollar. A U.S. investor who invests $5MM dollars in another country might have their investment devalued to $4.5MM meaning it might not be a good investment just because of the dollar exchange. The bottom line is that a depressed dollar has a good side to it and a bad. I’d certainly be more afraid of a depression if there wasn’t a positive spin to it.
Let’s face it anytime our economy slows down it negatively impacts us in certain ways but we need to keep in mind that for those who have a job they might not lose much ground in buying power; plus people often realize during tough economic times that they can live with less…this isn’t all bad.
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