Paul, don't read this.

Here's what I see.

And it ain't pretty.

My friend Paul is always telling me I'm being too depressing, so fair warning, Paul.

Bend has a big hole in it's economy. The bubble burst, creating a huge crater, and there isn't anything in our local business and jobs to fill up the hole.

There isn't anything from the outside that will fill that hole. We're on our own.

The way I'm imagining it is -- everyone just got a 20% pay cut. All the restaurants, all the retail stores. Everyone else is going to cut back that much out of fear and uncertainty. Many -- those involved in the housing market -- will get a 100% pay cut, others involved in government, health care, schools, etc. will keep their income, but cut back in their spending.

Anyone who borrowed too much, or lived too much off their equity, will either leave town or quit or shrink back to living within their means.

The ripple effect will reach everyone. The money flow is being squeezed off.

The funny thing is, there seems to be little awareness that things have changed. Or that they have changed for the long run. The old joke, if you can keep your calm when everyone around you is panicking.... you don't know what's going on.

In all the financial shows I've watched lately, there has only been the most superficial comments on the 'ripple effect.' That people will lose jobs, that they will cut back in spending.

But to me, the 'ripple effect' is the whole enchilada.

The bubble wasn't just in real estate, it was also in the entire infrastructure. Too much of everything, especially businesses. And Bend was the epicenter of the bubble, and downtown was the epicenter of Bend.

Maybe businesses will be able to scale back and survive. But they have to recognize that there was a lot of easy money floating around over the last three years or so that has probably disappeared forever.

I've been saying for some time that this level of business was an illusion, a mirage. High end businesses and restaurants are going to need to come back down to earth, marginal businesses are going to have to get very creative.

Very early, some of us were wondering if we could ever go back to the 80's. Well, I never thought so. But....now I think there is a good chance that the next 3 years will produce an entirely different mix of stores downtown. Ironically, the fact that people can't simply sell their businesses and their houses may actually help nail some of these people in place, force them to try to make a go of their business.

There was always an outside chance that people from out of town could move here and fill the hole, but I think that's unlikely now. Even if 80% of the inflow of wealthy retirees keep coming, which seems unlikely given what's happened to everyones housing prices, equity markets, and retirement accounts, that still leaves a 20% shortfall. (I think it's more the opposite, it will slow to 20% of previous levels....)

So that's what I see.

It isn't all bad. I thought this ostentatious way of life was out of bounds. A little luxury here and there was fine, but it got way beyond that.

If I sell a 1000.00 worth of graphic novels in a week, I have to spend something like 600.00 to replace them. But if I sell 500.00 a week, I only need to spend 350.00. It's a matter of scaling your business to what is actually happening, and because of all the bubbles I've been through, I'm practiced at that.

Of course, all these businesses will be smart enough to cut spending. The trick, though, is to cut spending without cutting services and selection. And at the same time not allow your margins to disappear (constant SALES!). That's a whole nother level of sophistication. It helps if, like my store, you were earning well above your break-even point and can simply scale down to the appropriate level.

It's turning out that my credit card debt debacle of the 90's is serving me well now. Living within my means, keeping away from debt, has kept the stress level at a minimum. I have to be careful, is all.

Part of that is trying to anticipate the level of sales I'm likely to get. I try to remind myself that it's very, very easy to ramp up. Pick up the phone and order stuff. But the scale down is much more difficult; picking up the phone and canceling orders is a good way of ruining your relationships with suppliers, who are the guys who make it possible for you to get inventory.

This month is turning out much better than last month, so far. Finally had a really big day yesterday, which brought me to my original estimates. I was holding my breathe, wondering if Sept. was the new norm or just a really down month. For instance, January was awful this year, but Feb., March, April, and onward were more like what I was expecting.

Still, to be prudent, I'm going to look at September as my new benchmark. Realize that that level is possible, or even 10 to 20% below that, and that good months will probably be 10 to 20% above that.

I'm getting the usual "We're doing great" out of friends, neighbors and customers. Which I hope is true. But I'm still going to be careful.