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June 14, 2005

Dawn of the Dead
by Gary Tanashian

I received another in a long line of auction notices last week. Yet another local custom, high tech manufacturing firm is being liquidated. Another competitor of Pan-Tec (my company) gone up in a mushroom cloud resulting from the deadly mix of too much debt and improper business plan (which is understandable given that most business owners spend their time trying to build their business, not guarding against the corporate and government sponsored efforts to outsource their livelihood).

I may attend the auction, as there is plenty of late model capital equipment and nice modern office furnishings available. I could not care less about the furnishings, as the outdated stuff in my office is just fine. For me, it has always been about the technology. If Pan-Tec had not been a very early adopter of computer driven, multi-axis automation, it would have blown up in a huge mushroom cloud of its own, a victim of the semiconductor industry crash of the mid 80's. However, my company remains, in many ways stronger than ever now that we have reduced debt by 80% (on the way to 100% soon - thanks John, for pounding this point home to me!).

Others have not been so lucky. They have existed since the recession of 2001 (emphasis due to the idea that we really didn't have a recession, as in true modern American fashion, we just papered over a seriously needed adjustment of years of excess and proceeded hastily to the next boom, in credit, liquidity, lifestyle and hubris) in a state of the undead. These manufacturers levered up to the go-go Clinton boom of the late 90's by buying the latest in machining, Cad/Cam and Inspection technologies. Those not familiar with the industry might be interested to know that the average quality, highly automated machining center sells new for $150,000 to $300,00. At the time, these machines sold for what then might have bought a comfortable house. Now picture shops with these things lined up in rows of mega capacity, just waiting for the good times to roll on.

Unfortunately, in many cases there was no defensive business plan, no viable plan to back away from the ledge if things did not go according to the script. These companies did indeed blow up, yet they remained online and in competition with others that remained viable. How you ask? The companies that leased their equipment had no hope of liquidating on the used machine tool and equipment markets, so they just let these companies exist (while not paying their debts), in time and space, moving slowly and awkwardly forward as the undead; Frankenshops if you will.

In an ironic twist, now that unprecedented official inflation policy has finally taken root in the economy over the last two years, many of these companies have gotten busy along with the rest of us. But with one big difference. They are still liable for their debts and the leasing companies have regained some pricing power in the used machine tool market. The situation boils down to this; "pay up all deferred debt or we will liquidate". Many shops just give up the ghost right then and there. Finally, at peace and purged from the system.

It is a sad story, but it is a microcosmic metaphor for the greater economy and debt culture of modern ponzi-nomics. "You can pay me now, or you can pay me later. But you WILL pay." Creditors always come calling.

There are many fine commentators on the websites where biiwii commentary is published (including Mr. Puru Saxena, who I may have been a bit hard on when I got my manufacturer's dander up and replied from Fantasy Land), and many of them are presented on biiwii itself. If there has been one strong theme running through their respective messages, it has been that the bill must eventually be paid. Cycles turn and official and social denial will only make the reckoning more severe. That is why I label the US stock markets "Frankenmarket". One could go further and label us all "Frankenpublic" or FrankenREpublic. This is the heart of the argument for eventual deflation, and a toxic and unyielding deflation at that. Creditors always come calling.

Gary Tanashian
http://www.biiwii.com/

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Copyright © 2005-2009 Gary Tanashian

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