Twilight Zone

Twilight Zone

AKA

The United States Economy

                I walk around on the family farm occasionally muttering to myself. “I don’t get it, I just don’t understand” Now granted, I obviously wasn’t a great financial advisor or I would still be doing that. I did do it for 15 years though and I was good enough to at least last that long. I left that field of work because I was totally burnt out the last two of those years. I loved helping those that really wanted to work on their investing, saving, and controlling their debt level but I needed a break from the constant sales goals that never were enough, the demand to constantly be “up”, and the chugging of the corporate cool-aid. In all those years of eating “year over year growth”, “bottom line management” and “more share of customer’s wallet” speeches, I did not think that I would find myself living in a time where the entire country would be in a state of absolute denial about the current economic situation. Banks, investment houses, and insurance companies yes, but the average Joe is “out to lunch” as well. I’m talking about the same level of denial that was last seen in 1940 – 1941 when war was raging on both the European and Asian continents, and Americans continued to go about their daily lives working, shopping, and enjoying life, convinced that they would be able to set it out and not be affected. (I guess only Nero was more ignorant)

The stock market continues to rise, riding a wave of stimulus unequaled ever in this country. I’m not talking about an FDR stimulus that helped the majority of the population instead of a minority. Not even an Eisenhower stimulus that at least achieved economic stability and built the greatest interstate highway system in the world at that time. The television pundits today talk about a new era of growth and that the worst of the financial crisis is behind us. There is even talk of another round of stimulus to make sure that the recovery does not falter. The housing credit looks to renew and there is talk of another “cash for clunkers” program. Why am I worried? What exactly is it that I don’t get?

Our government spends, spends, spends, bailing out banks and business that deserve to go the way a badly run business should go, down. Heartless you say? Yes it is, but that is the way a capitalistic system works. At least it used to work that way for everybody. Why don’t you let your mortgage and credit card bills go and then see if you can get a bail-out package? I believe the only package you would get would be an exclusive stay in bankruptcy court and loss of most of possessions, as well as your future reputation. Not if you’re a big name bank, big insurance company, or a large manufacturer. Then you are in a protected class. In that case you are “too big to fail.” On top of that, as much as I believe the nation’s healthcare issues have to be addressed, we cannot add trillions of dollars to an already over burdened system.

                But let’s get back to Joe America. He goes to work and continues to add debt to his household. Blissfully ignorant that as of this week, 1 in 7 American households is behind on their mortgage. (Source: CNBC) In the last 12 months 15% (34 million) of Americans have been late with their credit card payment. 8% (18 million) missed a payment entirely. (Source: Credit Cards.Com) Personal bankruptcies surged to more than 1 million filings in the United States in 2008, the most since a rewrite of bankruptcy laws took effect in 2005. (Source: American Bankruptcy Institute) The same derivatives mess that caused this debacle is still being packaged and traded. (AIG got the government to buy some of their problems at face value when they should have had to sell them to speculators at market value) Interest rates on their savings accounts are near zero, yet the banks and credit card companies continue to raise their debt rates.

                What do you think is going to happen when the cascade of stimulus stops? Eventually it will and the government along with Wall Street is betting the house that the American consumer will continue to fire up the consumption machine. Here’s the issue, I don’t think the consumer is going to get up from this one folks. He is carrying too much debt to service already. He has continued to use that credit card to buy the new home theatre system or that 60 inch plasma TV. He has nothing left to spend or borrow against and when the same derivatives mess that blew up housing comes home to roost in the credit card industry there won’t be a printing press big enough to print the money needed to bail that one out. Those that are truly unfortunate and have already lost everything will be in even worse shape as gifts and donations to worthy agencies such as the Wayside Christian Mission, Red Cross, and other organizations that help the poor and needy dry up completely.

                As a nation we are woefully unprepared for the future we are preparing for ourselves. Either massive stimulus will cause rampant inflation that will be harder to control than it was in 79 – 82 or more likely, the economy will collapse when the financial markets blow up again in 2011 - 2012 by repeating the same mistakes that caused this mess in the first place. Why, because our representatives refused to take unpopular actions because they were afraid of being voted out of office. By not letting a capitalistic system correct itself naturally we have only put off paying the tab, but eventually the bill will come to the table.

                Look, I know this is a very pessimistic view of our future and I hope that I am dead wrong for your sake as well as my children’s. Just in case though, why don’t we all try to get out of debt over the next few years. Only live on 70% of your income and get rid of the debt albatross around your neck. My only concern for us in doing this is that our generations that came after WWII have not been real great at sacrificing now for later. We want it all, now….. and that’s another thing I don’t get.

                Till next time make solid decisions, not only in finance, but in life.