The three things most people care about and want to know more about?

• Love/Relationships/Sex
• Health
• Money

You could have probably guessed that right off the bat. To no one’s surprise, business is no different. Decision-makers in business – including you, if for no other role than decision-maker of your career – want three general things, too.

• How can I save more money?
• How can I save more time?
• How can I make more money?

Again, no surprise, right?

So why is it that legions of salesmen and saleswomen never actually answer these questions? Take a look at any product spec sheet, from industrial toilets to iPhone apps, and you’ll see features listed by the dozen. This toilet uses 1.4 gallons per flush. This iPhone app can switch between 3G and WiFi seamlessly. This CRM offers RDBMS support for 8 of the most modern RDBMS systems.

So what?

When I talk to vendors, I’m exceptionally blunt. Some appreciate it, some get derailed from their carefully crafted pitch. How will your product save me money? How will your product save me time? How will your product make me more money? If a vendor can answer those questions quickly and intelligently, I’m very likely to just pull the trigger right then and there, as long as their math is sound. If a vendor tries to defer those three questions until later so they can finish their pitch, the phone gets hung up with a polite but curt “not interested but thanks”.

Classic sales books and training materials always advocate answering “What’s in it for me?” as the key question to answer in a sales presentation. Throw those books out, or at least put them back on the shelf. If you can prove a strong case for any one of the three questions – time, money saved, money earned – you’ve answered a core WIIFM question. If you can prove a strong case for more than one of the three questions, prospects will be buying YOU lunch. If you can prove a strong case for all three questions, you can pretty much retire your sales department and just replace them with order takers, because word of mouth alone will be flooding your call center.

Take a look at your own sales and marketing materials today.

Will you save me time?

Will you save me money?

Will you make me more money?

Prove it, and I’m yours.

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Right now, there’s an in-game Valentine’s Day event going on. Below is a picture of the Auction House and the price of a Buttermilk Cream chocolate. The current asking price in the marketplace is $54, and demand is so high that none are currently being sold – the marketplace is empty of this item.

Yes, $54 for a single chocolate. Suddenly the real world holiday doesn’t look quite as expensive. My character here is about to sell 3 of them for $163.

Here’s the funny part: the in-game quests needed to obtain this item take about 5 minutes, total. (dropping off a charm bracelet to another character and offering 10 characters some perfume samples) So why does the price of this chocolate seem so very high compared to the relative amount of work needed to create it? This marketplace item can teach us a lot about customer quality and behavior.

Some players may not know how to obtain it besides the marketplace. They simply buy everything in the marketplace. These, however, are long-term poor customers, because the moment they get clued in, they will stop buying from marketers and start creating their own items. True, as the old gangster saying goes, you can’t wise up a chump, but that’s not the sort of customer you’d want to rely on or build a business on.

Some players like the convenience of one-stop shopping, and will pay a premium just to be able to buy everything in one place. These are better customers because they have a persistent need (convenience). This makes them a better long-term prospective customer as they have a need that will always need to be met. The downside is that these folks are usually very price-sensitive, so a competitor who prices the same goods at even a penny less will beat you to the sale. If supply is a greater issue than demand, unless you’re always the lowest price, you won’t sell anything.

Some players just don’t like questing, period. They pay a premium in the marketplace – sometimes a very high premium – to not spend a single minute in the game doing things that aren’t fun for them. If you can provide exactly what they need, when they need it, you’ll develop a reputation in-game for being a useful sort of marketer to have around, and the kind of person who they will approach directly whenever they need to buy something. These folks will even ignore marketplace prices and just pay you obscene premiums directly because they know you’re reliable and can get them exactly what they want. It almost goes without saying that these are your very best customers in the long-term.

We have, in short, three kinds of customers – the sucker who may or may not even buy, the customer who wants convenience but is super-sensitive to price, and the premium buyer who wants to outsource everything they don’t want to do.

Which do you want as a customer? Common sense should dictate that if it’s long-term maximum profitability you’re after, you want the premium buyer. It will require more work on your part to develop reputation in your community for being the go-to marketer that has exactly what someone needs, but if you put in the time and effort in your marketplace, you can escape the always-lowest-prices race and make a ton of money.

Now, would anyone like to buy a Buttermilk Cream? Only three left…

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It’s fitting that my last work in the world of financial aid was to volunteer at Massachusetts College Goal Sunday. This year’s CGS was significantly different for me personally than in years past for several reasons.

First, this is the first year I’ve presented at College Goal Sunday.

Second, this is the last time I’ll be working in the financial aid industry after my departure at Edvisors.

Third, the differences in the FAFSA and FAFSA on the Web worksheets this made for a more complex, more challenging College Goal Sunday than ever before.

Let’s start with the first – relatively late in the process of creating this event, I was asked to present for the Framingham/Metrowest site. I spent some time reviewing and editing the presentation beforehand, working with the national College Goal Sunday committee to make it a little more streamlined…

… but the projector at our site didn’t work, so I ended up winging it instead. The truest test of a presenter is when everything goes wrong and that lovely slide deck you made just flat out doesn’t work. How well do you know your stuff? I’m proud to say that having none of my slides didn’t compromise the presentation at all – and in fact might have helped because the audience then HAD to listen to me and couldn’t mix up their verbal brains trying to read slides and listen to me talk at the same time.

On the second point, I can say pretty much whatever I want now that I no longer work in the industry. This is rather liberating.

Here’s the biggest challenge that we had at this year’s College Goal Sunday. The form given to students and families, the FAFSA on the Web Worksheet, is basically not worth the paper it’s printed on. It’s supposed to make the FAFSA process easier and more friendly, but instead makes it deeply confusing and frustrating for many students.

If you look at the slide deck for presenters, there are half a dozen slides which are all labeled, “Important question not on the worksheet”. That the College Goal Sunday committee had to go to these lengths is a sad commentary on how poorly the government’s forms were created with regard to the online application. Things that are omitted? Well, for starters, questions like assets (cash on hand, in savings and checking – vital financial aid information) don’t appear anywhere on the worksheets but are in the online application. Someone just using the worksheets would be rather startled to be asked for a bunch of information that isn’t in their preparatory worksheets.

Other questions that are deeply flawed? One of the biggest showstoppers – and one that caused more than one FAFSA application to completely fail – is the question about income tax paid in 2009. Again, this doesn’t appear anywhere on the worksheets. However, the wording in the online application is incredibly vague:

“Enter the amount of your income tax for 2009″.

This single question caused more errors and blowups in the application than any other, of the families I worked with. What should the question actually say?

“How much did you pay to Uncle Sam in taxes (NOT withholding, not your annual income, not anything other than what’s on line 55 of your IRS 1040) last year?”

Very few of the families who completed the FAFSA got this question down in the first attempt. Many got to the end of the application and were confronted with an error correction screen saying that the numbers in their application didn’t add up.

Another doozy, one that can affect your financial aid significantly in some cases? There’s a question about your adjusted gross income in 2009. In the online application, there’s a “helpful calculator” which supposedly can help families estimate how much their AGI is. As far as I can tell, this calculator doesn’t do anything useful, which is a shame since there are several adjustments that CAN change your adjusted gross income, which in turn can change your financial aid eligibility, such as the tuition and fees adjustment or the student loan interest adjustment. None of these are accounted for in the online application.

There are also some interesting interface issues with the online version of the FAFSA, one of which is a dealbreaker of sorts for people looking for help. Along the righthand side of the application, there are floating help boxes that change contextually based on what question you’re on. Lots of students and families today said they couldn’t find the help system at all…

… because they thought those boxes were ads. They’re strategically located in almost the exact same spot as you’d run a skyscraper banner ad, and if you look at studies of how our brains interact with web pages, we nearly automatically ignore advertisements like banner ads.

I’ve nothing but positive remarks for the staff and volunteers for this year’s College Goal Sunday. As usual, everyone who volunteered did so out of the goodness of their hearts, giving up a Sunday afternoon to help students and families figure out the world of financial aid and get them started on that path. I commend the folks at MASFAA and its partners for continuing to make this important day happen every year. I just wish Uncle Sam made it easier for those families to get through the paperwork to accomplish their educational goals.

Finally, College Goal Sunday was a great note to end my career in financial aid on. Nothing’s better than helping other people, and that’s a great way to go out.

Stay tuned tomorrow at noon eastern time for where I’m going next…

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Imagine for a minute that someone put a box in front of you that, on average, will give you 42 cents for every dollar you put in it. No one in their right, rational mind would ever use it. Imagine for a minute that someone built an ATM that gives you exactly 42% of whatever amount you request. That ATM would be torn out of the wall by riotous crowds.

Yet thousands of people a year flock to casinos and use machines and games designed to do exactly that. Why? Because casinos have mastered the user experience.

Let’s take a look at some of the tricks of the trade:

1. No windows or clocks. Time is the enemy for casinos – they want you to spend as much time as possible in the venue (on the premise that you’re not a weirdo like me who just stares at people without spending money) and gamble as much as possible. No cues to show just how much time has elapsed ensure this.

2. Low lighting and lots of ambient sound. Every machine in the room makes noise, and more often than not, even the demo modes have sounds that are pleasant to the ear and evoke video game-like feelings of winning. Why? Low light keeps you relaxed and slightly less aware than harsh, stark light, and lots of ambient amusement sound contributes to the idea that you’re playing games instead of spending money.

3. Play money. I lost count of how many times players referred to their chips as play money, fake money, toy money, or some other proxy by which they completely forgot they were using real currency. At one blackjack table, I saw enough money cross the table back and forth in just a few minutes (table minimum $200, maximum $50,000) to buy several cars. Casinos use proxies for money to get you to spend more, because the money doesn’t look or feel like money at all.

4. Leave no dollar behind. Right outside the casino floor was… a Rolex shop. And an art gallery. And a Swarovski crystal shop hawking stocking stuffers starting at $40. Casinos know this above all else: you might win on the floor, but you’re not leaving with your money if at all possible. Every hook imaginable is available to get you to spend anything you didn’t lose to the house.

Now, how does this apply to marketing online? Take a look at your web site. Does it evoke the feelings that you want to elicit from your customers? If your goal is to get customers to spend some time with your content, does the “atmosphere” of your web site – color palette, brightness, tonality, contrast – encourage your visitors to relax, to forget about whatever else they were doing? Look at the patterns of lights and textures in a casino and you see endless repeating patterns that are nearly hypnotic. I’m not saying you should turn your web site into a slot machine’s decor, but think about what decor you do have and what it’s conveying.

Take a look at how you process transactions. Do you make it as easy as possible for visitors to transact with you? Do you use proxies for money like point systems or credits? In a casino, you can slap down a C note on the green velvet and have chips in hand, ready to gamble in less than 10 seconds. How fast can your visitors buy? Does your site let your visitors slap down the plastic and buy immediately? iTunes and Amazon figured this out long ago with 1-click.

Are you leaving money on the table? Are you letting your visitors get away with their wallets intact? What other things can you sell to your visitors as they browse through and leave your site? I’m not saying be obnoxious and run a javascript that forces a visitor through an annoying series of ads, but think about all of the different products or services you have and that you sell via affiliate programs. Are you presenting them as powerfully as the Rolex shop in the casino next to the cashier’s cage?

Casinos make good money because they’ve distilled the user experience for maximum profit. Are you doing the same?

Photo credit: acaben

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Video

Slides

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Here’s an example of how difficult profitability can be even in a very closed, contained, predictable system. Let’s take Farmville, the popular Facebook game. Of all the crops available to early players of the game, which is the most profitable?

A casual look says it should be cotton. That giant 207 coin payout for planting cotton is definitely the biggest number on the page. Of course, that’s only gross profit. Each crop also costs money to plant. Do some quick math to subtract the cost of seeds and suddenly artichokes become more profitable – that’s net profit per crop, profit after costs.

So, should you go plant artichokes willy-nilly? Not necessarily! You forgot tilling costs, which is a fixed, flat 15 coin fee for every plot of land. While this may not change the choices between artichokes and cotton, it drastically alters the profitability of cheaper items like soybeans, which at first glance look like a terrific investment – plant for 15 coins to reap 63 – but becomes plant for 30 coins to reap 63 after the tilling cost.

Finally, take the amount of time you’re willing to invest in Farmville. For me, it’s virtually none. I’ve got better games to play in my free time, like Warcraft, so Farmville is at best a curiosity. If you’ve got a lot of time to invest in the game, then you have to do one final calculation for profitability – how much income per hour each crop reaps. Divide each crop’s net profit after costs and tilling by the number of hours to maturity to get net profit per hour, and suddenly, inexpensive but time intensive raspberries yield the highest overall profit per hour – if you’re willing to babysit them every two hours.

What’s the lesson in all of this? Calculating return on investment and profitability can be very tricky. In the incredibly simple Farmville case, the tilling cost is one people leave out of their calculations more often than not. The example of raspberries also demonstrates that what looks like the biggest number at first (artichokes) isn’t – you might be better served cranking out a smaller margin with high frequency than a big margin very infrequently, particularly if you’re in a business where market conditions shift rapidly.

Now imagine how difficult this is to apply to real businesses, where prices, markets, and conditions change, where costs and profits are not fixed, and where time is not free, and you get a sense of how truly amorphous profitability can be.

This is also why it’s super important to get kids and adults playing games like Farmville and Warcraft, to teach them the powerful economics lessons in their games so that they can dig into understanding business without putting real money on the line.

Have fun farming!

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C.C. Chapman had a great podcast the other day about valuing yourself and your time as an influencer, particularly in social media. I wanted to build off his conversation by giving you a benchmark for how to calculate your value.

The monetary value of your social media influence starts with your current pay. After all, it’s the fairest price estimate of what the market is willing to pay for you. Here’s how to calculate that on an hourly basis. If you’re salaried, take the total sum of salary and benefits and divide by 2080. (52 weeks x 40 hours per week) This gives you your hourly rate. If you’re an independent contractor, self employed, or hourly worker, calculate the same way – use your 2008 taxes and expenses to judge the total cost of your self-provided health insurance, income, etc.

Once you know your hourly rate, whatever it is, you understand your current market value. If a company sends you a product for review on your blog and it takes you an hour to review it, its value had better exceed your hourly rate or you’re losing value. You’re giving away more value than you’re receiving, because theoretically, you could be working for your current employer at the same rate.

When a corporation approaches you about helping them with their campaign, you must know your hourly rate as a baseline to judge whether or not something is worth doing. As C.C. said in his show, sometimes you’ll work for no monetary compensation in lieu of exposure, reputation, or other non-monetary currencies. That’s fine. You don’t have to charge your friends, but you must know the value of what you are giving them, especially if they’re representing a company in their request. For example, if Scott Monty asked me to put up a blog post about an automobile, he may know me as a friend, but he’s asking on behalf of a commercial account, and whatever comes with the request had better be valued at my hourly rate or I’m losing value.

Think about what value your personal web site provides. Check out similar sites with similar PageRanks, traffic, and reputation, especially commercial sites, and determine what an ad costs to place on those sites. If a commercial entity comes to you and asks you to display a badge on your blog, know what they’d pay on other similar sites (use Google Ad Planner and Compete.com, for example) and judge whether you’re getting that value from the company in exchange for your efforts.

The reason we have so much trouble with social media ROI begins with not having any idea what our value is. Use some of the points in this post to start assessing your own value, and you’ll have the beginnings of understanding what the ROI of your social media influence is.

How much money are you leaving behind?

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Piracy is a market signal.

Piracy indicates that something is sufficiently valuable enough that it’s worth stealing. It’s worth making an illegal copy and spreading without compensating the creator.

Do you want the most accurate, unbiased, unmanipulated measure of how popular and valuable something is? Go hit up a site like The Pirate Bay or Demonoid or any of the other file sharing services and see if someone is stealing it.

Right now, taking a quick peek, about 150 people are illegally sharing Malcolm Gladwell’s book, The Tipping Point. Another hundred or so are illegally sharing Outliers. Seth Godin’s somewhat less popular, with about 30 people sharing Purple Cow and Permission Marketing. A dozen are legally sharing Seth’s eBooks, which are free on his web site as well.

Matthew Ebel, independent musician, noted that recently there have been inquiries on Yahoo Answers about people trying to illegally share his music. By the way, Matthew, your 2005 album Beer and Coffee is being shared by at least two people illegally on Bit Torrent, just so you know. Go post a comment in that thread on the Pirate Bay.

Unlike commercial markets where marketers spend time, energy, and money to get you to buy things, no commercial marketer actively goes out and tells people to steal their products and not pay them. That’s completely irrational.

Give away for non-monetary currency, sure, through inbound links or reputation, through legitimate venues like your web site or iTunes, but no one wants to confer any level of legitimacy on pirate markets. Thus, when you see something in a pirate market that is actively being traded (meaning someone right now is seeding or leeching, uploading or downloading), it’s a good indicator to me that there’s value being exchanged, even if the creator isn’t getting compensated.

By the way, the distinction about active trading is important – you can upload your eBooks for free in pirate markets as well, but no one can force traders to download it or share it. If it’s in active trade, someone thinks they’re enough value there.

Believe it or not, in some ways, this is a good thing. This is an indicator that people care enough about what you have for sale that they’re willing to steal it, to share it illegally. Granted, especially for an independent musician, there’s a very real consequence of people not paying for your stuff (food and rent don’t get paid with hugs), but at least it’s a market signal that your stuff has enough value to warrant stealing in the first place.

So as a content creator, is your stuff worth stealing? Is anyone stealing it right now?

If not, it might be a market signal that you need to up your game to steal-worthy!

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In the sixth edition, I re-cover the ground in the previous five editions, from Google to RSS to calendaring, plus add new scholarship search tools for Twitter and Facebook.

The best part is that the book is completely free, no strings attached.

Visit StudentScholarshipSearch.com/ebook for your free copy today for you, for your friends, for someone you know. Try the methods out, and see if it works for you.

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What I want to highlight today, though, is an important aspect of the gold making game. Take a look at the top 5 items I’ve sold in game recently:

The first and fourth items are rare cloth that can be made only once every 4 days. Scarcity makes them incredibly valuable. The same is true for item 3, the Hat of Wintry Doom, because it’s made from rare items.

The second item is an in-game pet that can only be acquired in a little-loved backwater part of the world that takes ages to get to. People pay a price premium for it because they don’t want to burn up the time and effort it takes to get there.

What’s really important is item 5, wool cloth. For anyone who does not play World of Warcraft, wool cloth is a commodity. Not only is it a commodity, but it’s an especially plentiful commodity that most early players encounter by the bucket before moving onto more challenging parts of the game. If chess pieces wore clothing, pawns would be the ones sporting wool cloth – it’s common.

So why is such a mundane commodity the #5 seller? Two reasons: first, it’s used by several professions in game, which means there’s consistent demand for it. Second, most players run right past the stage of the game where they’d accumulate a significant amount of the cloth in their pursuit for better, shinier objects. Thus, while it’s plentiful, most players forget about it and move on rapidly, long before they accumulate any significant amount of it.

Consistent demand. High potential supply, low actual supply. This is a profit engine.

So what does this have to do with marketing? How many people are searching for the shiny object, the rare, the Ebonweave cloth of marketing? Social media currently holds this crown, though a few years ago it was SEO, and before that it was email. Everyone wants into the new, the shiny, the really glittery with the high potential payoff, and for those few that do succeed in making the Ebonweave of marketing, the payout is handsome.

But.

But there’s more than enough money in the marketing equivalents of wool cloth. In the rush to social media, people forgot search optimization. In the rush to search optimization, people forgot email marketing. All along the way, there are lots of valuable methods that generate real results and real income, and those rushing to reach Grand Master Social Media Marketer are leaving money and opportunity on the table.

Remember your wool cloth. Revisit the things that used to be hot and see, now that they’ve reached maturity, just how quietly profitable they can be. Some things won’t be any more, but some things perceived as a commodity could still be one of your best sellers if you’re good at it and the attention deficit crowd has moved onto whatever new shiny has appeared for the day.

Good luck farming your wool cloth.

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First, via Blytic, a look at food stamp usage and unemployment.

You don’t have to be a rocket scientist or an economist to figure out that this recession still has legs and a long way to run before we even begin to approach “normalcy”. Anyone talking about recovery is being a little on the premature side, don’t you think?

Second, via Barry Ritholtz:

Again, you don’t need a Ph.D. in economics to figure out that the housing bubble still has a long way to come down. A 4 year old with a ruler and a crayon could diagram out the long term mean and see that when it comes to reversion to mean on a multi-decade basis, we are still far, far away from the mean, which indicates that housing prices still have a long way to drop.

When you strip away the spin of government press flacks and media outlets desperate to gin up advertising revenue by getting consumers to spend unwisely, when you reveal the data as opposed to the opinion, the news is less than good, and the calling of a bottom, recovery, and green shoots is premature at best.

So what does this mean for you?

If you’ve been getting by, keep doing what you’ve been doing, only moreso. Thrift is the new black. Keep watching the fridge and the toilet paper.

If you’ve not been getting by, I’m sorry. There’s not much advice or counsel I can offer that hasn’t already been thrown at you a dozen times over. Consider putting a few hours into setting up some affiliate stuff, knowing that a payout if successful is probably 30-60 days away, but it might be a little supplementary help. If you’re job hunting, take what you can get.

Above all else, if there’s a single concept you must get sooner rather than later, it’s that positive cash flow means everything in this environment, whether it’s your business or personal life. Positive cash flow is pretty much all that matters for the short term. Get more money coming in than going out.

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Along the way, I presented an 18 minute talk on monetization and why it’s vital to new media. Longtime readers of this blog will find many of the themes to be as familiar as old friends.

I also did my usual Sunday morning semi-improv presentation, My Top 20 Social Media Tools. Unlike the other presentation, I’m not publishing this presentation in any context, and here’s why: you had to be there and ready.

The Sunday morning presentation is always a tough one for people to make. It’s at 8 AM, which, after a night of partying, only the hardcore attendees can usually make. Delivering a super-tight, all-meat presentation that many have expressed a desire to see is my way of thanking them for making that extra effort to show up.

It’s also part of a martial arts lesson my teacher, Mark Davis of the Boston Martial Arts Center, is constantly reinforcing with us. Very often in the black belt class, he’ll show a technique only once as a way of helping us train our minds to capture and catch as much information as possible, to be vigilant about paying attention.

Social media in some ways makes us reliant on the crowd, reliant on the tools, reliant on waiting for someone to retweet or blog or podcast an important event. That laziness – and it is mental laziness – softens our ability to capture vitally important things that happen which may never happen again. Think about your own life. Have you ever had the experience of missing a child’s first important event, missing a news story break on the street right in front of you, missing a key piece of information at a conference? I know I’ve missed information, especially in the dojo, because of a lack of focus. I know I’ve missed some terrific photos due to inattentiveness.

Thus, that presentation will never happen again, at least not like that. The slides won’t be posted, the video won’t be uploaded, the information never shown again. If you were there – fully and wholly there, meaning you were paying attention and not twittering, blogging, chatting, etc. – then you got some information I hope you find useful. If you weren’t there, then please make the effort to actually show up at events like Podcasters Across Borders or PodCamp rather than hoping someone will live stream/live tweet/live be there for you. You’ll find that there are many more gems from the weekend which will probably not be published from other presenters and attendees as well.

Also, big shout outs to all of the longtime friends and fabulous conversations from the weekend, from Marko Kulik’s photo advice to intense debates about the future of media with Whitney Hoffman, Tod Maffin, and Julien Smith, to the many other great conversations over the weekend.

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Let me give you an example from World of Warcraft. One of the side parts of the game (a very big side part for me) is the in-game economy. You make gold by creating stuff, by killing stuff, or by trading with other players for their stuff. In the game, there are “secrets” – great spots for earning gold through killing things or great tactics to use in the Auction House (an in-game eBay of sorts).

These secrets are powerful, capable of generating hundreds or thousands of gold a day, compared to the average player who earns perhaps a few dozen gold a day. The catch is this: their value decreases in direct proportion to the number of people who know and use the secrets, because the server’s economy is a zero sum game – if I know the secret and you learn it, at best our earning potential is halved, unless you’re truly incompetent.

There are lots of similar examples in real life – in the world of search engine optimization, Google Juice is more or less a fixed sum game. If I learn a powerful SEO tactic, the more people who know it, the less value it has.

Contrast this with the social media world of sharing everything (from the mundane to the powerful), openness, and transparency. If you share something of value, your social currency increases among those you share it with.

Here’s the questions I have for you: how do you value a secret vs. the social currency earned for sharing the secret? Which is more valuable to you, and in what context?

Please leave your thoughts in the comments. Yesterday’s discussion was especially good to read, so I look forward to hearing less from me and more from you.

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Congratulations to all. We’ve made it through the subprime crisis and only lost GM, every investment bank, nearly wiped out the FDIC Deposit Insurance Fund, put 1 out of 8 homeowners late or in foreclosure on their mortgages, and sent the economy into a tailspin. Otherwise, we made it through the subprime crisis.

We’re ready to start growing again, right?

Except… except the pool of alt-A and option ARM mortgages (all of which is defaulting at the same or higher rates of default than subprime 2 years ago) is still ahead, and it’s 50% bigger than the subprime mortgage market ever was.

If you’re thinking the worst of the storm has passed, it’s more like the eye of the hurricane. The second, stronger wall of the storm is arriving shortly. If you’re thinking that now is the time to spend a little more freely, to open up your wallet, think again and batten down the hatches. If anything, now is the time to increase your financial conservatism, to tighten spending if you can. Only once the storm has fully passed – in a couple of years – will it be time to go outside and start planting anew.

For more detailed charts, check out this post on Mish’s blog.

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Bloomberg’s commodities index of indices:

Commodities, or commodity futures, are investments in the future value of things like rice, gold, oil, cattle, and other tangible goods.

Baltic Dry Index:

The Baltic Dry Index is an index of costs to ship things on cargo ships. As BDI goes up, the price to ship something goes up. Unlike most investment metrics which are based on future value, BDI measures what it costs now to ship something. BDI is important because you don’t buy shipping if you’re not moving stuff to sell.

New Jobless Claims:

This is the number of new unemployment claims, measured weekly.

All of these charts show stabilization in the economy – arresting the freefall. Is it because of sound economic policies, stimulus, or the natural course of time and the business cycle? Hard to say. Certainly anyone promoting their own interests will claim that they’re the key influencer, but I suspect it’s all of the above with an emphasis on natural market dynamics. Even the largest forest fire eventually runs out of things to burn and snuffs itself out in time.

Once the fire has passed, it’s time for the forest to regrow. Small, tentative steps at first, little sproutlings and seeds, but regrowth always happens.

I still think there’s other parts of the forest just catching fire now – commercial real estate, credit cards and last-resort consumer credit, etc. – that will burn for some time to come. That said, there is cause for optimism, however cautious. Be on the lookout for areas of regrowth that you can partake in and carefully wade in.

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There is no such way to intermediate time. There is no coinage for time, no way to purchase time back that you have spent. If time were actually money, you could buy back that missed softball game or child’s first play. You can’t.

In fact, when you think about it, time isn’t money, but money is time. Money represents a store of value in classical economics terms, and value is time and energy spent on something.

Look at all of the things that function as money or precursors of money. The Pequot tribe had a certain kind of seashell called wampum. Multiple civilizations used gold and other metals as coinage. Why? Because these items were rare. Finding them, prospecting them, and refining them took time and effort.

Consider money as a store of time and energy, then. How long does it take for you to mine up a nugget of gold? Let’s say as a skilled miner that takes you two hours. How long does it take to harvest an ear of corn? For a skilled farmer, probably a few minutes at most. Thus, that nugget of gold is a time equivalent of two hours for a skilled tradesman. If you can harvest 80 ears of corn in two hours as a skilled farmer, then your corn is worth two hours of your efforts – or a nugget of gold, or whatever other store of value you choose. More important, as trades specialized over millennia of human history, it would take far longer for the miner to skill up his corn harvesting than it would for him to simply pay for the corn itself.

Time + energy + skill = value.

This is the basis of money, the raw foundation of money. Money stores value, and value is time, energy, and skill combined.

Consider what this means for social media and new media.

What things are you investing your time in, building skill, so that you’re creating value?

When someone starts to talk about monetization, exactly what value are they placing on your time, effort, and skill? More important, what value do you place on yourself?

This, by the way, is why so many folks in social media object to monetization – not because money is bad, but because any new field inevitably has two extremes: those folks willing to value themselves for a pittance (thus devaluing everyone else) or those folks who pimp and sell at obscenely high prices far above the value they create, thus undermining the entire community’s reputation and devaluing everyone else. After a field matures and the low bidders & snake oil salesmen are washed out, a balanced perspective on value is usually achieved.

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- It really looks like commodities have bottomed. They’ve flatlined for almost a full quarter, which is a major improvement over freefall. Sure, some of it is speculative, especially in gold, but lots of it is just ordinary business.

- BDI has bottomed and is slowly edging back up. If you’re not a follower of the world of freight and shipping, BDI is the Baltic Dry Index. Unlike other indicators, BDI is a price index to put stuff on ships. Unless you’ve got sales, you don’t spend the money to put stuff on ships and haul it across oceans.

- In a few conversations over the weekend, there’s a lot of new entrepreneurial activity going on. I talked to one guy who’s starting up a cash-basis real estate venture, working deals with landlords to manage vacant properties. Another guy is entering the biotech small business world as an importer of scientific equipment. Still another is doing regional direct resales of telco gear from shuttered companies.

One very interesting commonality among all of the folks I talked to with entrepreneurial ventures is that all of their business models – which at first glance appear quite sound – are also entirely cash-based. No one is touching credit, lending, or any form of debt either to run their businesses or as a way for customers to pay for services or goods.

This is likely to be the trend for a while, I suspect. No one is talking about equities, lending, or speculation, and rightly so – those markets are still incredibly unstable, subject to additional losses, and frankly, who wants to invest in the companies that got us to our current economic situation?

What does this mean for you? There are new opportunities beginning to spring up. If you have cash, if you have capital, there may be some great new opportunities to put it to use, either as an investor or an entrepreneur. If you’re looking for work, search more than just the big job boards – dig deep, use Google, find new businesses in and around your area. You might just find that ground floor opportunity you’ve been looking for.

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The Crisis of Credit Visualized from Jonathan Jarvis on Vimeo.

I only wished the video went further. It ends at the credit crisis and failing investments – and the chain reaction beyond that is choking of credit to businesses, which puts some out of business, which creates joblessness, which creates more mortgages that can’t be paid, which creates…

Hat tip to Garr Reynolds for this one.

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Sample:
DJIA +146 VIX 42.28 TED 95bps 3mo LIBOR 1.17 1mo OIS 20bps MSCI +1.53% BDI -2.54% 30yr 4.85% BCF 51.39 GLD 919.90 RR 12.30

DJIA: Dow Jones Industrial Averages futures for the day, based on Bloomberg after-hours market data. Gives an idea of what the market sentiment will be at the start of trading, typically due to Asian and European market movements.

Updated: At the recommendation of Mike LaLonde, I’m throwing the S&P 500 Futures (SPX) in right after the DJIA. The S&P 500 is a measure of a broad range of companies, giving a bigger picture of market sentiment.

VIX: Chicago Board of Options Exchange Volatility Index, based on Yahoo Finance data. The VIX is considered by some to be a leading indicator of how crazy the market is, based on S&P futures. A high VIX number (above 20) indicates that something’s going on in the market.

TED Spread: The difference between Treasuries and Eurodollars, typically T-bills and LIBOR (London Inter Bank Offering Rate), as measured by Bloomberg. A big TED spread indicates banks don’t trust each other and would rather borrow from the government.

3mo LIBOR: The interest rate for 3-month LIBOR, as measured by Bloomberg. This is the rate banks charge each other in London for borrowing money and is a good non-government measure of interest rates.

1mo OIS: 1 month overnight index swap, an interest rate that measures risk and liquidity in the money market, as measured by Bloomberg. A higher OIS indicates less cash in the system as banks hoard cash. A lower OIS indicates banks are willing to lend more freely.

MSCI: A stock market index of world stocks (MSCI used to stand for Morgan Stanley Capital Int’l), as measured by Bloomberg. This is an index containing stocks from 23 countries, and tells you how the world market is doing.

BDI: Baltic Dry Index, as measured by Bloomberg. This is a daily average of the price to ship raw dry materials, and is a good current indicator of economic health for goods and services. The reason why is that it costs money to put stuff on a boat and ship it – so if BDI is low, it means producers and retailers aren’t shipping stuff and the economy is unwell. A high BDI means that people are paying real money to ship stuff.

30yr: The average 30 year fixed mortgage interest rate. Since housing is such a vital component of the economy, seeing what mortgage rates are doing is useful for figuring out how housing is likely to be doing.

Updated: At the recommendation of economist Maria Simos, I’m adding BCF and GLD.

BCF: Brent Crude Futures, as measured by Bloomberg. This is the price of barrel of Brent crude oil, which gives a sense of where energy costs will go based on the source product. Neat trick – take the price of a barrel of oil and divide by 25, and you often get very close to the retail price of a gallon of gasoline.

GLD: Gold 100 oz futures, as measured by Bloomberg. Gold is the, well, gold standard, of a third party measurement against inflation. As countries inflate or deflate their currencies, the price of gold goes up or down.

Updated again: I’m adding RR: Rough Rice futures, Chicago Board of Trade. Why? Most of the planet eats the stuff, far more than other grains. When rice prices are high, you’re talking about a global increase in prices on the consumer. i was debating corn or rice, but chose rice because it’s purely a food stock, whereas corn has additional deviations due to things like ethanol.

Any one of these indicators has economic implications, but combined, I think they’re a good quick snapshot of different parts of the economy and how things are going on a day to day basis in a broader perspective than just the stock market.

What public leading economic indicators do you think are important?

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I heard an interesting comment made during Davos (I wasn’t there, but was listening to Bloomberg Surveillance) about the economic situation. One Davos participant said that it’s all a matter of trust. He hit the nail right on the head. Everything that you see happening right now is about trust, because trust is the foundation of money.

Remember the lesson we discussed recently: money is essentially a medium of exchange and a store of value. I trust you to represent yourself and your value accurately, and you trust me to do the same. Money flows between us, and business is done.

This is why, by the way, trust cannot be a commodity or a currency, as Julien Smith once posited – trust is a meta-quality of currency but cannot be currency itself. Let me put it another way. (Julien and Chris Brogan will be publishing a book about the topic of trust as currency, which I look forward to debating)

Money is a tangible form of trust.

If I write on a sheet of paper that this paper note is redeemable for one iPod, is that paper worth one iPod?

It depends. If you trust me and believe that I’m acting in good faith, and that I have that iPod, then yes, that paper is worth one iPod.

If you don’t trust me, then that note is just a sheet of paper with words on it.

Trust powers currency. The only difference between my sheet of paper worth an iPod and a sheet of paper from the government of the United States (besides obvious physical differences) is that relatively few people trust me, and a whole bunch of people trust Uncle Sam. If I do business with my close friends, that sheet of paper has as much purchasing power as Uncle Sam’s sheets of paper.

Our current financial crisis ultimately comes down to a lack of trust. We don’t trust realtors to accurately represent the price of a home, so we don’t buy. We as buyers and taxpayers don’t trust appraisers to accurately assess the value of a home. The real estate market tanks. As values go down, investments based on that real estate collapse.

Banks don’t trust each other’s investments because of poor practices, and so interbank lending and lending to consumers dries up. Banks conserve cash because they don’t trust.

And here we are. No trust anywhere in our institutional financial system is what’s ultimately causing it to malfunction. This, of course, has real consequences as investments decay, the job market deteriorates, and the overall economy grinds to a halt.

What ends this crisis is whether our trust can be regained by corporate America and the government. What ends this crisis is a re-establishment of trust – and as anyone knows who has violated or had their trust violated, that takes a long time, a lot of forgiveness, and a clear record of performance, of living up to promises in an unbroken record.

This is where social media is a start – authenticity, transparency, and humanity in our communications with others. Not PR. Not corporate-speak. Relationships we can begin to trust. When you talk to Pamela O’Hara or Greg Cangialosi, you’re talking to human beings who represent their companies, but the trust you have in them is at the human level.

If companies want to restore profitability and growth, they have to fulfill that trust. There’s a reason we say that brand is a promise. Fulfill that promise, earn back trust, and you will prosper. Violate that trust and in this fragile economic environment, your company disappears.

What should YOU be doing right now, in this economy? Building trust. Building relationships. Strengthening your network. Growing your network. Why? Relationships can exist without money – barter, trade, collaboration. Money can’t exist without relationships, because without trust, money itself fails.

Who do you trust?

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Get rich quick! Quit your day job! Money while you sleep! All claims made of social media and virtually every other new technology, idea, or movement since mankind first created money itself. Can you make money in social media? Should you make it an aim?

To answer this question, we have to dig into the history and concept of money itself.

What is money?

Ask any child and most adults, and no one will have a coherent answer to this question. People know money by what it can do, but not what it is. The classical definition of money is a medium of exchange, a measure of account, and store of value. For the purposes of this discussion, we’re going to focus on a medium of exchange and a store of value.

A Medium of Exchange

Before money, we had barter. Let’s say I raised chickens and you raised cows. If I wanted some beef and you wanted some chicken, we’d get together and trade. We’d negotiate how many chickens equaled a cow, and vice versa. If all went well, I went home with some beef for my family and you went home with some chicken.

But… what if you didn’t want chicken? You had beef, and I wanted beef, but you didn’t want chicken? Suddenly, I have a problem. We couldn’t trade. No amount of chicken I had would be helpful to me if you didn’t want chicken. I’d have to find someone who wanted chicken and see what they had to trade. Maybe they had seashells, and you wanted seashells, so I’d have to trade chicken for seashells first, then find you and trade seashells for beef.

This got really inefficient around Greek and Roman times, which is when currency got invented. Suddenly, we have a neutral intermediary. I think chicken is worth 5 copper coins, and you think cow is worth 250 copper coins. Now, if I have chicken and you have beef, but you still don’t want chicken, that’s fine. I’ll find someone who wants chicken and trade with them for copper coins. Then I’ll come back to you and buy as much cow as I can with the same copper coins.

This is one of the core roles of money – instead of having to barter everything, you can trade in a generally accepted medium of exchange.

A Store of Value

Here’s another problem with barter. Let’s say instead of chicken, I have wheat. You have cows. During harvest season, we can trade. I’ll trade you a few bales of wheat in exchange for a cow. Everyone’s happy.

What about in the winter, though? I have no wheat. All my wheat either got milled into flour, sold, consumed, or… spoiled. Wheat is transitory. Wheat spoils, rots, molds, etc. if you don’t use it within a certain period of time. In fact, most consumables eventually spoil.

Here’s where money comes in again. I go to the market and trade my wheat to someone who wants it. I get copper coins. Unlike wheat, these don’t spoil, decay, or rot. (yes, they do oxidize, but that’s a different conversation) If I sell enough wheat, I amass a large pile of coins and throughout the non-harvest season, I have copper coins to buy things with.

This is money’s role as a store of value. It takes the fruits of my labors – wheat – and stores it in a form that’s less subject to spoilage. Also, it’s a lot easier to carry around a pile of coins than a bale of wheat.

What does any of this have to do with new media and social media?

If you are a social media practitioner interested in earning money for your skills, you have to deeply understand money first.

First, money is a medium of exchange for other goods and services. Money doesn’t solve the value equation – that is, what you do must have value to someone. Money only makes trading value easier. If what you do is of no value to anyone, then like the farmer facing no demand for chicken, no matter how skilled you are, no one will trade with you. As a social media practitioner, your work has to have value.

The most successful social media practitioners recognize that social media in and of itself is of relatively little value. It’s a communications channel. What is of value is what you deliver to your audience. I deliver, for example, financial aid information on my Financial Aid Podcast. The fact that it’s a podcast has no inherent value; what has value is the quality of the information.

If you’re considering offering up your services to someone else as a social media practitioner, make sure that they have something of value to offer their customers, or both you and your client will fail to generate any business. Your own track record must demonstrate that you understand underlying value and how to present it in a social media context.

If you’re considering engaging the services of a social media practitioner inside your company, look to see how adept they are at understanding value. Forget how many friends they have or how often they blog – look to see if they can communicate their own value and the value of their clients’ goods and services to others. Examine their other work and see if it conveys well the value of the client’s goods and services. Most important, recognize that a truly skilled social media practitioner will decline to do business with you if your offering has no value.

Second, money as a store of value is vitally important to social media practitioners. Like all industries, social media, new media, online media, etc. all have trends. There’s a new shiny object every day, and that presents new opportunities for you to demonstrate your skills and earn some money in doing so. You have to not only capitalize on trends, but sock those earnings away. You have to be able to store the value of a trend so that when it cools – and it always does – you have a strong base of capital to operate with.

Equally important is your ability to recognize value and trends ahead of time so that as a platform matures – as blogging has – you’re ahead of the curve and in new spaces. This is the often referenced blue ocean strategy, where there’s virtually no competition in any vertical in a new area. Blue ocean was podcasting in 2005, blogging in 1997, Twitter in 2006, Facebook in 2004 and so forth. As a social media practitioner looking to earn a living at your craft, you need to be able to spot new blue oceans and move in long before others do, while recognizing that it will be some time before that space is highly desired by a large population.

For companies looking at social media, recognize that the store of value means you need operating capital and strong revenue streams today from your social media efforts, but you need to be investing for the future as well. Your internal financial health will dictate how you prioritize investing for the future vs. banking on what’s hot today.

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Grab a copy for yourself and share it around.

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“A mortgage is good debt! It’s an investment that will pay off!”
“A college education and student loan is good debt! It’s an investment in yourself!”
“A credit card is bad debt! Stuff you buy with a credit card doesn’t increase in value!”

Let’s break this destructive lie right now.

There is no such thing as good debt or bad debt.

There is only debt you are capable of managing financially, and debt you are not capable of managing financially. Are there things you’d like to buy or invest in that have a larger probability of paying off dividends in the future? Of course. Few would argue that a college education or a house to live in are wastes of money. But implying the value of a debt is equal to the value of the investment is a dangerous fallacy. It’s one of the main reasons we’re in the financial situation we’re in now.

Which is better? A diamond that increases in value paid for with cash, or the same diamond paid for with credit? The diamond is the same. How you pay for it is the difference. To be sure, there are some things in life which are exceptionally difficult to obtain without using a debt vehicle, like a house. That said, the mortgage on that house isn’t inherently good because the house might appreciate in value. The mortgage on that house is only as good as your ability to repay it without going broke.

Before you borrow, see your financial picture clearly, and break away from the fallacy of good or bad debt.

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Yep, another economics crossover. Blizzard Entertainment’s Wrath of the Lich King expansion pack for World of Warcraft dropped last week, and its impact on the economy has been fascinating. Veteran players of the Auction House (the in-game free market) have been finding that since the expansion came out, very little has been selling. The reason, however, is not because the most advanced players in the game are in a new part of the game. The reason is likely because the most advanced players (and the wealthiest, or at least those with greatest access to capital) are running out of money.

If you’ve never played World of Warcraft, it’s a virtual reality game, an online role playing game in which you are an adventurer beating up other people or game-generated opponents. Part of the game is buying and selling equipment to make your character better, more effective. Whenever you defeat a creature in the game, you typically get a small reward of some kind, plus some experience points which contribute towards making your character better. Once you hit the maximum level of experience points, money is substituted for experience points. For a long time, since the last expansion pack, top players have been generating hundreds of gold (the in-game currency) a day, and pouring that money into the virtual economy.

Here’s where the expansion pack changed the economy. The expansion pack now allows top players to earn more experience points, up to a new cap. Because they’re fighting stronger, better opponents, their equipment repair bills (yes, you can’t escape bills, even in virtual reality) have increased, but more importantly, there’s not generating capital any longer – they’re generating new experience points to reach a new maximum level. On top of that, a new class of character was introduced, and experienced players have been trying to build up those characters as fast as possible, again taking a lot of money and earning potential out of the virtual economy.

Think about that for a second. Your top sources of capital in an economy have dried up, while expenditures of capital have increased.

You have, in other words, deflation. Deflation, economically speaking, is when the amount of money in an economy decreases with respect to goods and services in the economy. A dollar (or gold, or whatever measure of currency) is worth more tomorrow than it is today, because there’s just less money available. Deflation brings prices down, but that means it also brings wages down, too. Consumers lose spending power. Demand for items drops because there’s just less money to buy things with.

As a result, economic activity slows down. Supply outstrips demand. Items in the Auction House are still being listed, but buyers are getting harder to find. If you look at the moving averages of prices, you also see that prices are falling – exactly what you’d expect in a deflation. This is a double whammy for sellers trying to move goods in the Auction House – fewer buyers and falling prices.

Sound familiar?

This is exactly the situation that the real economy, especially real estate, finds itself in. You have an absence of buyers complicated by falling sale prices due to foreclosures and lack of demand. Because housing has been a disproportionate amount of economic activity over the past 5 years, the collapse of the housing market has in turn spread malaise to the rest of the economy.

This is also why inflation isn’t a concern right now. Governments of the world have been printing money like crazy recently, borrowing against future taxpayer earnings, or just outright inflating their currencies. However, inflation isn’t a concern because capital – money, in the form of credit – is being destroyed faster than the governments are creating it, as investments go bad over and over again. Without the capital generators of top players in a virtual game or an engine of growth in the real game of life, money is being used up faster than it’s being generated.

How will things change? Well, in Warcraft, those top players will again in the near future hit their maximum levels of experience, and will once again return to income generation. As that happens, capital will return to the markets and you’ll see sales and buying rise again. It may take some time to get there, as reaching maximum experience does take time and effort, but it will happen. In Warcraft, at least, the engines of the economy – top players – can be counted on to bring new influxes of currency to the world.

This is the conundrum that faces the real world economy. The practices – irresponsible lending, irresponsible buying, irresponsible investing – that drove the last economic engine are broken. We can’t go back to them. We need a new economic engine that can begin to generate growth and capital. When we figure that out, when we figure out what will bring money back into supply without the danger of another bubble, we’ll see things turn around in real life.

What should you be doing? Both in the game and in real life, in a deflation, preservation of capital is essential, in the form of saving money, reducing expenditures. Both in the game and in real life, if you have a capital base, you should be looking for very cheap opportunities for investment and growth, and spending the money you do have very selectively, looking to pick up serous bargains. If a dollar is worth more tomorrow than it is today, then it makes sense to hold onto those dollars, to not spend beyond necessities, and to find new opportunities for growth. Find that next economic engine, be very picky about where you spend your money, and keep your eyes open.

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Consider this: in an economy when the average worker lasts about 2 years in any given job, how many workers have expertise? How many workers have achieved any degree of mastery? 1 in 4 workers at any given company has been there less than a year, according to Department of Labor statistics. 1 in 2 has been with their company less than 5 years.

Translation: that means that half the workforce is probably not developing expertise in their job at their company.

Certainly, some trades let you accrue experience no matter where you work, but for the most part, learning the ins and outs of an organization and how it functions requires a level of mastery all its own. You may be a proficient public relations professional, but are you proficient at navigating the hallways of SHIFT Communications? You may be a financial aid professional, but are you proficient at the culture of the Student Loan Network?

This is why the idea of the golden rolodex not only persists, but has great validity. I can say from personal experience that after 5 years in the financial aid industry, my personal network is significantly more useful to me and my employer than it was on the first day of the job, or even after a couple of years. When you hire a seasoned veteran from any industry, they bring experience and their personal network. You’re not just hiring a person for their talent, because there’s a lot of talent out there. You’re hiring for their mastery, for their life experience and insights.

So here’s the takeaway: how many times have you changed jobs in the last 5 years? How many times will you change in the future? If you’re changing constantly, how are you going to build mastery?

If you’re not willing to stick it out at your current employer, find one where you can, because you’ll need the time to build experience and achieve mastery.

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Get it at StudentPlatinum.com/warcraft.

Full Disclosure: It’s through work, which means I earn a very small amount of money for each new applicant. More important, I don’t get any mats or a zhevra, but it’s still neat, and I’d talk about it even if it wasn’t for work. And hey, if you have a credit card, at least this one grants you game time.

Important: as with all credit cards, it’s a loan. It’s not free money. Read the terms and conditions BEFORE you apply, ok?

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In a variation of a Financial Aid Podcast blog post this morning, here’s a brief economics 101 explanation of how you can monetize your blog, podcast, Twitter lifestream, or other social media outlet.

Economics 101

Supply and demand are inversely related. When demand exceeds supply, you have to pay others to take your stuff. When supply exceeds demand, other people pay you for your stuff. Value comes from demand. Here’s a simple monetization chart:

If your social media outlet is in high demand, you can get paid for it. If your social media outlet is not in high demand, you have to pay others to take your stuff. If supply and demand are in equilibrium, you’re at totally free.

This is why advertising is the main method of monetization for most social media. Your social media outlet in and of itself has very little value, sorry to say. What has value is your audience. They’re the commodity that you have to sell, and you do sell them, whether or not you want to believe you do. You can sell the actual audience in the form of renting or selling an email list, or more likely, you sell access to your audience in the form of endorsement, sponsorship, or ads. Your audience is the value to the advertiser, and in turn, your content is the value for your audience.

See the entry on the chart where it says your blog, podcast, and twitter stream? See how it’s actually in the you pay others section? It’s true. Statistically, you pay others for your content. You may say that you’re blogging for free or giving away your content, but the reality is that you’re paying others, in hosting fees, bandwidth, in domain name purchases, in your time and energy to create and market your content.

You’re paying others.

Social Media Metrics That Matter

How do you know when you’ve become a true social media success?

When everyone pays you.

Advertisers pay for access to your audience. Your audience pays for access to your content – perhaps in cash, perhaps in inbound links, perhaps in word of mouth marketing on your behalf. Major media outlets pay in time and energy to cover what you’re talking about.

Most important of all, checks arrive in the mail or by direct deposit that are sufficiently large enough for you to meet your expenses and then some. At the end of the day, whether or not you can afford to eat and put a roof over your head is the only metric that matters.

How To Monetize

How do you get there? Back to the chart.

You’re fighting an uphill battle if you think you can reduce overall supply, so you have to be a specialist, an expert in something that is in short supply. Ideally, it should be something in short supply but high demand – like insider stock tips, or financial aid information.

As I’ve said in the past, I’m not a podcaster. I’m a financial aid expert who has a podcast.

So let’s assume you’ve got basic supply solved – you’ve found a niche, a place where there’s market demand for your supply. Then it’s up to you to market your content. Marketing, as I’ve said in the past, is about sharing ideas, which is a kind and gentle way of saying marketing is creating demand for your ideas.

Marketing is the creating of demand for your supply.

The more you effectively market, the more demand there will be for your content. That in turn will drive audience growth, which you can monetize directly (audience pays) or indirectly (advertisers pay), or both.

As my friend Whitney Hoffman says, you can’t outrun Adam Smith and the laws of economics. If you’re currently being paid for social media, enjoy that you are, and realize that if your monetization model doesn’t conform to the basic laws of supply and demand, your model is not sustainable and sooner or later, the money will stop.

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Financial results for the second quarter are contained in the FDIC’s latest Quarterly Banking Profile, which was released today. Among the major findings:

Provisions for loan losses continue to be the main cause of falling earnings. Rising levels of troubled loans, particularly in real estate portfolios, led many institutions to increase their provisions for loan losses in the quarter. Loss provisions totaled $50.2 billion, more than four times the $11.4 billion the industry set aside in the second quarter of 2007. Almost a third of the industry’s net operating revenue (net interest income plus total noninterest income) went to building up loan-loss reserves.

Noncurrent loans are still rising sharply. The amount of noncurrent loans and leases (90 days or more past due or in nonaccrual status) increased by $26.7 billion (20 percent) during the second quarter, following a $26.2 billion increase in the first quarter and a $27.0 billion increase in the fourth quarter of 2007. Almost 90 percent of the increase in noncurrent loans and leases in the last three quarters consisted of real estate loans, but noncurrent levels have been rising in all major loan categories. At the end of June, 2.04 percent of all loans and leases were noncurrent, the highest level for the industry since 1993.

Assets of insured institutions declined. Total assets of FDIC-insured institutions declined during the quarter for the first time since 2002. The $68.6 billion (0.5 percent) decline was caused by a reduction in trading assets at a few large banks. Assets in trading accounts, which increased by $135.2 billion in the first quarter, declined by $118.9 billion (11.8 percent) in the second quarter. In addition, the industry’s holdings of one- to four-family residential mortgage loans fell by $61.4 billion (2.8 percent). Real estate construction and development loans declined for the first time since 1997, falling by $5.4 billion (0.9 percent).

The FDIC’s Deposit Insurance Fund reserve ratio fell. Due to a significant increase in loss reserves, including reserves for failures that have occurred since June 30th, the DIF balance fell to $45.2 billion at the end of the second quarter, down from $52.8 billion at the end of the first quarter. While insured deposits rose only 0.5 percent during the quarter, the decline in the fund balance caused the reserve ratio to fall to 1.01 percent as of June 30th from 1.19 percent one quarter earlier. Because the reserve ratio is now below 1.15 percent, the Federal Deposit Insurance Reform Act of 2005 requires the FDIC to develop a restoration plan that will raise the reserve ratio to no less than 1.15 percent within five years.

This is a big deal, folks. A scant 1.01% reserve is all that stands between you and massive runs on banks.

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I want to share something with you that might be helpful for protecting you from the worst negative influences in your life – the ones that originate in your own head. See, in ninjutsu, there’s a mental framework we use to describe four classes of responses in the basic self-protection curriculum, based on four archetype elements. There is…

… Earth energy. This is the energy of confidence, standing your ground, neither giving way or seizing gains. You protect as an immoveable barrier to whatever seeks to harm you.

… Water energy. This is the energy of distance and time, the scientist who can coolly and calmly assess a situation, unswayed, and then act accordingly.

… Fire energy. This is the energy of inspiration, creativity, and assertiveness, taking the fight to an attacker before they even get a chance to get going.

… Wind energy. This is the energy of compassion and benevolence, like how you’d handle an aggressively drunk loved one or relative, not harming, but subduing.

Historically, these four qualities have been used in ninjutsu as general maps and guides for effective responses to self protection situations. Sometimes you need to stand your ground, sometimes you need to strategically retreat, sometimes you need to take the fight to the opponent, and sometimes you need to shut things down without doing harm.

These archetypes can be extended to more than just physical confrontation. They’re models and frameworks for handling virtually any kind of daily situation in which you need the hero qualities of confidence, calmness, creativity, or compassion.

You may be saying, okay, that’s all well and good, Chris, but how do I use this?

This is the ninja power move. My teacher’s teacher, Stephen K. Hayes, often speaks on the topics of mantras and motivation, how a mantra not only protects your mind from itself, but also that a mantra is a highly charged, highly powered, highly personal way to instantly change your frame of mind.

There’s something besides esoteric Sanskrit phrases (which work incredibly well) that can do this – the music on your playlist.

Let’s get started. I’ll talk about my personal playlist a bit, but this is something that you’ll have to do for yourself. Your music choices will be totally personalized to you. There are songs from your past that are totally unique from an emotional perspective, whether it’s a song from a first boyfriend or girlfriend date, a song you heard on the radio when someone passed away or when someone was born, a song from a first victory in competition – it’s all from your background. Don’t copy my playlist contents, since I didn’t have your background and experiences.

Start by firing up your music player of choice. I use iTunes, so I’ll make reference to iTunes from here out, but you can do this with any media player.

Set up four playlists. Earth, Water, Fire, Wind. For each of these, I want you to pick three songs from your playlist, of relatively short duration, relatively medium duration, and relatively long duration.

In the Earth playlist, comb through your own experiences, backgrounds, favorites, and preferred tunes from your present and past that emphasize the qualities of unshakeable confidence, mountain-like invincibility, command like a general, and complete lack of worry about whatever opposes you. Personally, I love John Ottman’s Superman Returns, Ronan Hardiman’s Warriors, and Kelly Clarkson’s Break Away. For me, the archetype hero who can’t be shaken is Superman. Yeah, there’s all things Kryptonite, but beyond that, good luck steering him off course.

In the Water playlist, comb through your own experiences, backgrounds, favorites, and preferred tunes from your present and past that emphasize the qualities of ocean-like calm, late evening coolness, a sense of necessary detachment, emotional reboot, the comfort that comes from superior knowledge and experience. You’re the scientist or veteran who knows all the tricks, who can step away from a heated situation and bring insight. Personally, I love the Battle Hymn of the Republic, the Imperial March of Emperor Palpatine, so cold and calculating, and the epilogue of Les Miserables.

In the Fire playlist, comb through your own experiences, backgrounds, favorites, and preferred tunes from your present and past that emphasize the qualities of amazing creativity, passionate inspiration, engagement, unstoppable momentum towards your goals, the kind of music that won’t let you sit still, that will kick you in the butt if your momentum flags. Personally, I love Eminem’s Lose Yourself, Journey’s Faithfully, Black Lab’s Mine Again.

In the Wind playlist, comb through your own experiences, backgrounds, favorites, and preferred tunes from your present and past that emphasize the qualities of compassion, of an eager willingness to make a difference, to lend a hand, to reach out and touch the hearts and souls of the people you care about, to make the world a better place, qualities of kindness, love, and service. Personally, I love Matthew Ebel’s I Will Wait For You, Garry Schyman’s Praan, and Kevin Reeves‘ Shine.

Like I said, these songs are highly personal, and likely will have different meanings to you than they do to me. For example, Journey’s Faithfully is the 2008 edition, and it’s on the Fire list not because of the song’s contents, but because of the backstory of Arnel Pineda and his unlikely rise to fame. Hearing him create music and live his passions and dreams is inspirational not because of the music, but because of how I feel when I recall his story. Your own playlist will have radically different contents than mine, and that’s okay.

Once you’ve figured out the three songs for each of the four lists, make sure they sync to whatever devices play your music, and use them specifically for times when you need the qualities of confidence, calmness, creativity, and compassion. If you’re about to head into a meeting with someone who truly needs a kind word, even if they’re a pain in the ass, load your Wind playlist and listen to one, two, or all three songs to change your mood and mind to what you need to be feeling and thinking. If you’re stuck with writer’s block, blast it away with a dose from your Fire playlist. Need a breather from over focus, a heated debate, or frustration? Wash your troubled feelings away with your Water playlist. Need to stand up for yourself when it’d be more convenient to give way? Command yourself with your Earth playlist.

The songs on your playlists can change over time, too, as you have new experiences and new emotions that map to them. Garry Schyman’s Praan is brand new to my personal Wind playlist, but it brings out in me those qualities that I associate with Wind energy very strongly, so in it goes.

Later on, as you gain more mastery of your emotions and mind, these playlists will change roles, but that’s another story entirely. For now, load up your iPod, create your personal mantras of protection and power as playlists, and change your mind when you need it most using the power of your own music.

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If your employer has a payroll account at a bank that exceeds $100,000 in cash, anything over the $100,000 is at risk if the bank that manages your payroll pulls an IndyMac and goes broke.

Ask your employer today if there’s a backup plan to ensure that payroll funds are covered by FDIC insurance (kept in accounts less than $100K in cash) – because if your bank goes belly up and your payroll account is over the insurance limit, your paycheck goes with it.

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FDIC is the backstop, the guarantee to depositors at banks that there will not be a repeat of the Great Depression, when bank runs wiped out banks and depositors alike.

Here’s the unthinkable. IndyMac isn’t going to be the last of the major financial institutions to fail. (Fannie and Freddie, anyone?) There are a LOT of them on shaky ground. Bear Stearns, IndyMac so far – Lehman isn’t looking so good lately, and Bank of America just assumed control of the festering carcass of Countrywide.

How many failures of depositor-funded institutions can the FDIC handle before it’s in serious trouble?

I advised on my work blog that as long as your money is FDIC insured, you don’t have anything to worry about.

I’m not so sure of that now.

Keep an eye on the amount of damage the FDIC takes per bank loss. Keep a tally.

Right now, the FDIC is out somewhere between $4 billion and $8 billion due to IndyMac. This is out of its insurance fund of $53 billion.

If the FDIC’s insurance fund drops below $10 billion, it would probably be a really good idea to start looking at someplace to store your money other than in a financial institution of the United States of America. One big bank or several medium banks could wipe that insurance fund out at the $10 billion mark, and then it’s time to get your cash out of the bank, because there’s no safety net and a single run means if you get to the bank later than its other customers, no money for you.

Today is not the day to hit the big red panic button. Not yet. But don’t lose sight of it, and have a plan B ready to go.

Other blogs have more coverage.

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Image by tnkgrl via Flickr

Submit your blog or podcast show notes to Amazon’s Kindle directory. They offer 30% rev share on your blog if they choose it for inclusion – and since you’re blogging ANYWAY, you may as well get some incremental revenue if you’re chosen to be worthy of inclusion!

Apply here.

Compensation terms:

6. Subscription Royalties. For each calendar month during the Term, provided you are not in breach of your obligations under this Agreement, we will pay you royalties (“Publisher Royalties”) equal to thirty percent (30%) of Subscription sales revenues actually received by us from sales of Subscriptions to your Publications during the month, net of any bad debt, credits and returns. Subscription sales revenues means only amounts actually received by us for the sale of Subscriptions to your Publications and excludes any fees paid for any product or service other than a Subscription, even if sold together with or required to make use of any Subscription. If we sell a Subscription together with any other content subscription at one undistinguished price (the “Single Price”), Subscription sales revenues for such sale will be allocated on a pro rata basis based on the then-current stand-alone retail price for each individual title included as part of such sale (after taking into account any discounts accorded each participating title in the Single Price sale).

7. Payment Terms. All payments will be due as of the date ninety (90) days following each calendar month of the Term or portion thereof in which Publisher Royalties have accrued. We will, concurrently with payment, provide statements providing detail regarding the amounts of Subscription sales revenue for your Publications collected during the applicable months. All payments shall be made in U.S. dollars. If Publisher is unable to accept Electronic Funds Transfer (“EFT”) payments, we will pay by check, but we will charge a fee of $8.00 per check and will issue checks only if the amount payable is at least $100; if Publisher needs to be paid by check we will accrue and withhold payments until the total amount due is at least $100. All statements shall be conclusive, final and binding, unless Publisher gives Amazon written notice stating the specific basis for objection within six (6) months after the date rendered. You shall not maintain any action or proceeding against us with respect to any such statement unless you commence that action or suit within six (6) months following the date that you provide Amazon with the written notice referred to in the immediately preceding sentence. Any such action or proceeding shall be limited to a determination of the amount of monies, if any, payable by Amazon to you for the accounting periods in question, and your sole remedy shall be the recovery of those monies with no interest thereon.

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Remember, a delay in filing your tax return will also delay your receipt of your economic stimulus payment, if you qualify to receive one, since payments are based on the tax return.

Note that an extension of time to file is not an extension of time to pay. You should pay any taxes you owe by April 15; otherwise, the outstanding tax balance will accrue interest and possibly penalties, increasing the total amount you will owe. If you can’t pay the full amount that you owe by April 15, pay as much as you can to minimize the interest and penalty charges.

With the deadline approaching, our last-minute reminders may be helpful.

And visit 1040 Central, your one-stop shop for all your tax information needs.

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Original blog post and eBook download link is here.

And yes, that’s a Goodbye Planet Earth sticker on my MacBook Pro. That’s also Jacob Lewin, son of PodcastingNews.com’s Elisabeth Lewin and James Lewin.

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Why we won’t embrace this solution:

Few businesses understand the sunk cost fallacy. Banks and mortgage holders cling desperately to assets that continue to decline in value in the vain hope that they’ll be worth something close to what they paid.

Remember this: a bag of gold, no matter how valuable, will kill you if you’re trying to stay afloat.

Give people about a month after their subprime mortgage payment balloons to obscene proportions and it’s not hard to guess that in some cases, that will lead to divorce and broken homes. The next big wave of resets begins in March 2008, based on the CSFB data in the chart above.

Buckle your seatbelts and unplug the popcorn machine. 2008 is going to be a rough year.

Combine that with crass commercialism and an attempt to raid your wallet through your heart by major corporations (check the stocks of 1-800-FLOWERS today – ticker: FLWS, FTD ticker: FTD, Red Envelope ticker: REDE) and you have a day I’m not wildly thrilled about.

So let’s rearrange the day of showing love a bit.

Figure out what you’d spend on an average Valentine’s Day among flowers, gifts, dinner, cards, and the other corporate subsidies pop culture asks you to buy. Total all that up, and then make a contribution to your significant other’s favorite charity instead, in their name. If you’re going to spend money today, spend it on something that will show true love – a contribution to an organization that will serve the greater good.

There’s no shortage of charities to choose from, and tons of good causes. Check out Charity Navigator to find efficiency ratings of various charities, to see how your money is used and what percentage of each dollar goes to actually help the people or causes you donated to help. Every non-profit charity with 501(c)(3) status is also required to disclose its IRS 990, so you can inspect for yourself how they use their money.

Make Valentine’s Day about love – love not only for your significant other, but about love for your world, your community, and the greater good. As my teacher Stephen K. Hayes says, there is no greater way to serve yourself and make yourself happier than to help others.

Got a charity you want to promote? Post a link to it in the comments! 

Photo credit: Sister72

Financial Aid Podcast Community Question: Where do you get your beer money?

And for just 2007:

You don’t Google it if it’s not on your mind.

It’s absolutely no secret that the US economy is headed to hell in a handbag, and honestly, it’s overdue. We’ve spent the last 20 years inflating one bubble after another – defense in the 80s, tech in the 90s, real estate in this decade – and the time for another correction has come. That said, while I believe that many of the large financial institutions need to get their houses in order and take their knocks, I also desire no harm to come to my family, friends, and community. Here are some thoughts about how to weather the storm and even prosper during it.

First and foremost, get your own house in order. Figure out exactly where you are financially, and do your best to clean house. Cut down discretionary expenses as much as you can without turning to a miserable quality of life. You -must- have three months’ mandatory expense funding set aside, or as close to it as you can. That will give you a cushion of three months to figure out next steps in the case of job loss.

Having a strong personal network is more important than ever. Not just a strong network, but a large one, one in which you participate and try to help as many people as you can and ask them to do the same. With so many social networks and digital communities, this is easier than ever. A strong network will provide you with information you’ll need to make decisions, and will also provide you with leads if you need a job, etc. as long as you bring as much or more value to the people in your network. The key is to get building as fast as possible. Reconnect with old friends, establish new friends. Attend conferences and other meetups, such as PodCamp, BarCamp, MacCamp, etc. that are free or low cost. Look for opportunities to help others.

I strongly recommend Keith Ferrazzi’s book, Never Eat Alone, as a good guide on network building.

Build a strong personal brand. Having a personal brand that’s established, clear, and unambiguous gives you the advantage of being memorable. If you can speak confidently about something you’re an expert in, you’re heads and shoulders above most people who can barely put together two words about themselves. That will translate into more opportunities for you. Be clear about yourself, about your goals, and about your passions, and you will build presence.

I strongly recommend Mitch Joel’s Six Pixels of Separation blog for more reading on personal brand.

A downturn is also a crowd thinner – if you’re able to weather the storm, once it’s over you’ll find the playing field emptier than normal. Strategically speaking, as competitors go bust during a downturn, if you’re able to weather it, you’ll pick up marketshare and when business trends upwards again, you’ll be in a much stronger position.

What things will you do to weather the economic downturn?

I had the terrific experience of speaking in front of high school students today, and the part that I think disturbed them most was the opening discussion about money and where it comes from. It’s unsettling to a lot of people to realize that money – currency – has no intrinsic value. Its value is entirely based on the faith you have in it and the government that’s backing it, as well as the faith of the vendors from who you buy stuff.

Once upon a time, money had backing and intrinsic value. You could redeem a United States dollar bill for a dollar’s worth of silver or gold, albeit a small amount, and thus the money had intrinsic value. Today, it’s only a medium of exchange, as there’s no store of value any longer. Your money is worth only what you think it’s worth, and more importantly, only what others think it is worth. Ask anyone in the currency exchange markets just what the worth of a dollar is relative to other currencies in the world.

At the end of the day, if there ever was a serious crisis of confidence in the US dollar, it wouldn’t matter whether you were a pauper or Bill Gates – your money would be worth the exact same amount – the paper it’s printed on. Ask anyone still alive who survived the Weimar Republic, when citizens burned Deutschmarks to keep warm, so low was their value. History was not kind to the Weimar Republic or what came after – a dictatorship led by a guy with a scrubby mustache who gave us a second World War.

I read with great alarm on CFO.com that as the housing and mortgage crisis deepens, people are dipping into or even cashing out retirement funds.

“In the last four or five months we have seen an absolute onslaught of people trying to do hardship withdrawals and loans out of 401(k)s,” Mark Anderson, CFO of Granite City Electric, told CFO magazine in October. “What has happened with housing and the economy has really blown up for people at the lower end of the spectrum.”

When you cash out a retirement fund to pay down a mortgage, you take a double hit. First, you lose the money itself in a market that is declining rapidly, dumping good money after bad. Second, and most perilously, you create an enormous opportunity cost for yourself that you will in all likelihood never recoup in your lifetime.

Let’s do the math. Let’s say you are an eager 21 year old college graduate, with a great outlook on life, a job that pays a salary of $2,000 a month before taxes, and 45 years in the workforce ahead of you. If you start saving today, 3% of your income with employers that match with a 3% contribution, and your investments give a safe return of 6% over your working lifetime, you’ll retire at the age of 66 with roughly $330,000, give or take.

Now, let’s say you, at the age of 50, make some bad choices and consider bailing yourself out of a mortgage problem with the $110,000 you’ve accrued so far in life. Boom, problem solved, right? Wrong. You’re now in incredible trouble. You will retire in 15 years with a grand total of only $35,000 in the bank (at the same savings rate). To retire with the same amount of money as you would have had, you would need to save 30% of your income instead of 3%, have an employer that matched 6%, and hope for an 11% return over those 15 years. Otherwise, you have to depend on the government and HOPE that Social Security is still solvent when you retire – otherwise, you will not retire.

What SHOULD you do if you find yourself in super-serious, no end in sight mortgage trouble? Walk away. Mail in the keys to your lender, declare bankruptcy, rent a nice apartment somewhere, and work off the bankruptcy. Does foreclosure look bad? Yes. Foreclosure and bankruptcy means you’ll be paying cash for a lot of things for a while. But it lasts 7 or 10 years at the most. 7 to 10 years of bad credit is easily survivable, and you may even develop good personal spending habits by only being able to spend what you have. Compare 7 to 10 years of conservative living with 30 years as an elderly man or woman trying to make ends meet with meager savings. Can’t declare bankruptcy? Leave the country. As long as you have useful skills, there are PLENTY of nations on this planet that are all very nice, and very few of them have credit bureaus connected to the United States.

Truth: the United States is NOT the best country in the world. It’s one of many very good countries, and any flag-waving moron who blindly believes that one country is the best has probably never traveled more than 20 miles past his doorstep. LOTS of good countries in the world.

Unfortunately, for a lot of people, they’ve already dived off the cliff, and that means a certain percentage of the population in the years to come will be gambling that social services and the government can assist them in their “golden years”.

Is that a gamble you’d take?

Like the old Willie Nelson song goes, know when to hold ‘em, know when to fold ‘em, know when to walk away, know when to RUN.

If so, you might want to consider having a subscription object written for you in Second Life.

A “bonus” called an allowance is issued in Second Life every week to residents. It’s L$50, or roughly US$0.18 per avatar.

18 cents doesn’t sound like much, but hire a developer to create a script for your cause and ask people to donate their L$50 every week to your cause. A quarter million Second Life residents would be US$45,000 per week. Not too shabby!

-Patrick Byrne, Chairman and CEO of Overstock.com, December 2007

“If home prices decline by 30 percent, as one noted economist has said could happen, “We’re all going long apples and boxes to sell them in,” Syron said, invoking an image from the Great Depression.”

- Richard Syron, Freddie Mac CEO in today’s Washington Post

“The current credit crisis will come to an end when the overhang of inventories of newly built homes is largely liquidated, and home price deflation comes to an end. That will stabilize the now-uncertain value of the home equity that acts as a buffer for all home mortgages, but most importantly for those held as collateral for residential mortgage-backed securities. Very large losses will, no doubt, be taken as a consequence of the crisis.”

- Alan Greenspan

The United States doesn’t -make- anything any more. For the last 5 years, our economy has been driven by increases in asset prices, namely housing. People cashed out equity and spent like crazy, driving the economy forward.

All good things must come to an end, and we’re seeing just the first inning of the housing bubble unwind in a game that’s going extra innings. As prices drop, equity vanishes, and mortgage owners owe more than the property is worth.

Next in line are consumer grade loans – auto defaults are already up, as are student loans, because when the choice is between a roof over your head or a student loan payment, you go with roof every time.

Housing equity can’t be used to pay down those loans any more, so they go red. The next wave after that is credit card defaults, because once you’ve maxed out, you’ve got nothing left and have no way to pay. Discretionary income? No such animal in a recession. Everyone’s paying just to stay afloat and with the basics.

All this plays out over the next 3 years. Mortgages are unwinding now, but subprime goes nuclear in March 2008 with the largest wave of rate resets yet, $65 billion worth, and stays at that level for 6 months. Defaults typically occur in 30 days of a rate reset; some borrowers don’t even make a payment.

Expect secondary loan (car, student loan, etc.) default rates to hit the wall shortly after the mortgage ones, and credit cards even sooner as the source of last resort financing, because the people who are in trouble are living lifestyles beyond their means.

Scared yet?

While I’m not a certified financial planner or anything, I’m going to give this piece of advice. If your money is in a place that is not insured, move it to an insured place. Insurance means FDIC coverage for up to $100,000 of cash per account. Money market funds are discovering they’re tainted with bad mortgage debt. Municipal bonds are finding out their guarantors overextended.

Anyone who promises a fix for this situation that isn’t “we have to ride this out” either has something to sell you or is running for office. Don’t believe them. This financial crisis took years to make and it will take years to unmake.

If you want to talk viral, let’s talk about the disease of debt that’s spreading. What started out as a portfolio of subprime mortgages going bad is rapidly spreading to any financial sector that touches any form of credit or debt.

Last week, First Marblehead (ticker: FMD), one of my company’s partners, registered a half price haircut on its stock as their student loan portfolio was downgraded. Turns out that defaults may be higher than thought, and FMD might be forced to buy back bad loans.

What does this have to do with the mortgage crisis? Two things. First, securitization depends on available credit and liquidity, and the markets have neither in great supply right now. Second, on the consumer side, my gut instinct tells me a lot of people were paying their student loan bills with home equity. Now that the housing ATM is closed for business for the foreseeable near-term future, expect credit card and student loan defaults to rise precipitously. We’re going to do our best to help people avoid default, but there’s only so much you can do.

It’s getting ugly out there, folks. Cash is king now and will reign supreme in 2008.

If you have debt, and you have the capacity to eliminate it, eliminate it as soon as you can.

Debt is your enemy in uncertain economic times.

An illiquid asset is something like a house – you can’t really trade it quickly or easily. It’d take weeks, if not months, to sell that house and get the proceeds to pay off a doctor’s bill.

Excess liquidity is when there are too many dollars chasing too few goods or services. A nation’s central bank can print more money, and when they do, those dollars have to go somewhere. The same is true on Wall Street for investors. A sudden influx of money means they have all this extra money to play with and nowhere to invest it. This creates great investment opportunities, but it also creates a bubble that will eventually burst.

Enter new media. Investors looking for the Next Big Thing have been dumping tons of money into new media companies. Podshow, for example, received $8.8 million in round 1 of its financing and $15 million in round 2. Plenty of other companies and web properties have been funded partly through all the play money generated by the excess liquidity on the market.

The market, however, is being called. People are cashing out and it’s causing both a liquidity squeeze and a credit crunch – loans at absurdly low interest rates aren’t available any more, investors aren’t buying portfolios where the value is just a guess, and available cash to play with is going away fast.

What does this mean for you? If you’re working at or running any kind of new media or Web 2.0 company – or a company that relies on them for cash flow – it’s time to bootstrap. Forget VC money, forget private equity, dismiss thoughts of being bought out and everyone getting a fat chunk of investor proceeds, and get down to business. Get cash positive, nuke your debt, and build the business. Not only does your survival depend on it, but so does new media’s.

If you’re a member or a part of a new media company, for example a podcaster at a podcasting network (pick any one), you’d better have a Plan B. Make sure you have archived copies of all your shows on a few data DVDs or an external hard drive. Back up your blog, show notes, and site. Make sure you have copies of everything, including emails, because Plan B assumes that one day, you’ll go to upload your show or edit your blog and there will be a big 404 there – and nothing else.

I’m not saying it’s going to happen like that, but for a couple hours’ work, it doesn’t hurt to plan for it. Anything less than that and you’ll feel smugly overprepared.

What are YOUR plans for Bubble 2.0’s bursting?

… well, nothing’s made here any more, not in significant quantities and not with sourced materials. Even the Made in the USA trade group and NAFTA have rather relaxed guidelines about what Made in the USA must mean:

“Made in the USA” products need a content consisting of 51% or more of domestically produced or manufactured parts, labor and or value-added content or any combination thereof.

Thus, even if a toy was manufactured in the USA, if the leaded paint used on the toy was of Chinese origin, the product would still qualify for a Made in the USA label.

The unfortunate reality is that in the quest for the lowest possible prices at all costs, we’ve effectively outsourced virtually every part of the supply chain, and to countries (not just China) who have varying standards of quality and safety, not to mention labor laws. Unfortunately, buying American is harder than ever.

Don’t even think about American icon Hershey Chocolate for this holiday season. From Forbes.com:

In February, Hershey announced a major restructuring designed to cut costs and excess production capacity in the United States and Canada, while expanding in Mexico, China and India, where labor is cheaper and Hershey hopes to sell more candy.

Since then, Hershey has announced it will close six U.S. and Canadian plants and cut more than 3,000 workers in the two countries, including up to 900 at its hometown plants. It has plans to shift more production to contractors and a new plant it is building in Monterrey, Mexico.

On Thursday, it said production is underway in China through a joint venture with South Korea’s Lotte Confectionery Co. and its joint venture in India with Godrej Industries Ltd. is up and running.

Perhaps we’ll see a resurgence this holiday season of small craftsman goods – things made not only in the USA, but made by your own hands. It’s the only way to be sure of a product’s origins. Just make sure you make the components, too.

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