Tia on The Economic Domino Effect



Tia; Let us address matters at hand, let us look at the current economic boom, now, we're closing in at the eight thousand mark at alarming speed, this is of great concern, the fact that it is covered in less then a year, twenty-four percent growth increase and shot up a thousand points, this is very, very unusual . In fact it's so unusual that it is alarming, now economists talk of a great rosy period, now of the people involved in the stock market went through the crash of nineteen-twenty-nine, majority of the people involved in that are either long gone, or very old, so incomparisome the period of great, great prosperity now and back then. Now with the market going the way it is, the thing to watch out for, the telltale signs of it getting unstable is, degress in growth, and degress in number of new jobs, increase in unemployment, and new businesses on the stock market that are little businesses that have gone public, these are the ones to watch, at first if you start to fail, and then that few increases to more, from a trickle to a deluge of little small companies that have just gotten into the stock market failing. Now when this occurs, the thing is that you have got to watch the bigger companies, the middle range companies, not the giant multi-national conglomerates, but the middle businesses that are national or proventinal concerns. When they start to fail because of the little ones, actually play an important role in all of them, all the Hugh multi- national corporations all rely on the little ones, the suppliers, Let us say that a company goes on stock market that supplies silicon, goes on the market and then it goes bankrupt, how does that effect the bigger corporations? Lets concentrate on technologies at the moment.
Russ; It doesn't effect them at all.
Tia; Yes it does.
R; Just go to another company.
Tia; No, I'm just saying, just taking this in a chain, right? By going to another company by itself brings up another problem, by moving to another company, there's that period of time that of transition that causes problems, but let us say that the small corporation that sells silicon goes bust, right? Now the company that buys the silicon to make the chips, has to find a new purveyor, and there's quite a few out there, so it has to search for one suitable for the quality and quantity that it wants, what starts happening is it goes into difficulty, it's not producing anything, that the national corporation needs, to supply the hardware to these Hugh multi-national corporations. You see how one small corporation, can effect a Hugh multi-national corporation.
R; It really shouldn't go like that because there should be plenty of back up all around, it could be just miss managed, bad debts, risky investments.
Tia; True, but, if you take it in it's simplest form the chain effect, right?
R: Are you saying like the one company, represents many companies.
Tia; It could represent any company.
R; I know, but many parts of the same thing, another words, one company is actually a symbol for many silicon companies that all go down.
Tia; Well, that's a possibility, I'm just taking the simple chain, I'm taking one company effecting a regional corporation, effecting a national corporation effecting a multi-national corporation. You are quite correct in what you are saying, but the effect is the same, weather it is just a temporary fluctuation of a couple of days, or if it is on the larger scale, say, let us take something a little bit different, take food for instance, ok, we're going to follow this to risk, natural progression. Let us look at the company that produces the fertilizer for this humble grape here, Ok, what happens? The company supplying the fertilizer, goes out of business for whatever reason, now the thing is, a company that produces fertilizer, I think there's only like a dozen in California that produce fertilizer, and they're scattered all over, let us say, one of the main ones in the central valley goes out, right? Now the producer of the grape has to find where he can get fertilizer, right? to replace the company that has gone out of business, he finds a company to replace it, the company is in Northern California, like say Mendeseno County, so he has to pay more, let say to the guy that's going to bring it to say to the central valley where they grow the grapes, two-hundred miles right? So that pushes up the price of this one grape, now this one grape may only be like half a cent at most, or a tenth of a cent, now that pushes it up to two-tenths of a cent. Now with that company going out of business, it's pushed up the price of grapes, maybe per pound maybe, two to three cents. Now the company that buys the grapes from the farmer, has to increase its margin, which may be four to five cents, a pound, now how does that effect you?
R; Well it effects me at the market place.
Tia; Exactly, and it's the same thing with a small silicon producer being effected the same way. See how the chain has taken place? Now let us suppose that the same thing that effected the first fertilizer producer effects the second one, expanding to rapidly to fast and suddenly something goes wrong and the company goes bust. Let us say that's the company in Mendeseno, so the purveyor has to search around again, and look for somewhere else to buy the fertilizer, that makes it more difficult, because again the same thing goes into play. Now supposing the farmer, as most farmers are runs on a shoestring budget and he can't afford to pay the extra on the fertilizer, because now let's say it's coming from Southern California which is three hundred miles away, and is costing him an extra five cents per pound, that means that he's got to sell the grapes at an extra five cents per pound, which means that the buyer might go else where. Let's assume that he does, that makes the farmer go out of business. So by one company going out of business, right? Has forced the increase in the price of the grape, another business going out of business, has again forced the increase in the grape, which in turn forces the producer out of business, because he can't afford to buy the fertilizer, that's only a very, very simplified version with only one possibility going wrong. Ok, let's change it slightly to a insecticide company, this is a little bit more drastic, let us say that the chemical company that produces the key element to the fertilizer also produces the same element as is used in the insecticide, now this company goes out of business, we're going to add an extra company into the format at this point, Ok, it goes out of business, it forces the fertilizer company to go out of business, that means that the farmer has to search for new fertilizer, the chemical company going out of business also effects the insecticide company, the insecticide company also has to find a new person to supply the nessecary chemical, let us say, that it does, and the same circumstances go into play as with the fertilizer company. So, the insecticide company goes out of business, so you have two businesses, one business relies on getting into trouble, now the farmer who might have survived without the fertilizer, needs the insecticide to keep the pests down, the pests run riot through his field destroying his crops, let's say he loses basically half of his crop, let us say that it is locust that caused the problem, now most farmers run from year, to year, Ok, he loses fifty percent of his crop, now fifty percent of the crop is profit, so he just breaks even this year. Ok, let us say that he finally gets a hold of the insecticide and everything, oh, oh, what's happened to his profit? Didn't have any in the first place, what happened to his being able to pay for labor, insecticide and fertilizer? Can't do it can he? So what happens?
R; He takes a loan.
Tia; Takes a loan. Which means that next year the profit doesn't happen either, because he's paying off the loan. Do you see what's starting to happen?
R; Yes.
Tia; To make a profit, to be able to expand and update and buy better equipment and so on, what's he got to do? He's got several choices, increase the price, which he may or may not be able to do. Let us say that farmer John Brown up the road, has a bumper harvest, and that forces the prices of the grapes down, let us say that happens on the second year, farmer Smith, is trying to pay off his loan can't because the price of grapes have gone down, oh dear, what's happened?
R; Loans default.
Tia; Loans default and who ends up owning the farm?
R; No one can own the farm.
Tia; Exactly, so it ends up getting auctioned off.
R; New farmers.
Tia; New farmers, new set of problems. So you see what's happened is one person has been put out of business, by other people, other actions. Now looking back at the stock market, let's say first of all a few small companies fail for whatever reason, let us say that one is a grape producer, that one is a fertilizer producer, and one is a chemical producer, they go out of business, they create a hole in the market which is quickly filled, by expanding companies, but, the same contributing factors, can cause them to fail also. Now here's a common piece of information, seventy percent of all new businesses, fail in their first year, out of that seventy percent, your left with thirty percent. Now another factor, in five years ninety percent of the thirty percent will fail.
R; Doesn't leave much room for error.
Tia; Correct. So when you think about getting into business, you've got o remember that. You've got to make everything as simple as possible, cut down on the costs, but, of that five percent that make it of the thirty percent, this is where it starts to get tricky, eighty five percent get swallowed up by bigger businesses or end up going bankrupt for whatever reason, or cease to function for whatever reason. So let us say you have one hundred businesses, they all start off at the same time, only one person will make it past ten years, out of that only, one hundredth of that person will make it really big. So if you scale that up to ten thousand, out of the ten thousand, only one person will make it big, big being able to sell off the business for in excess of a million dollars. Now I have to let the next speaker but I'll be back.


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