Federal Reserve Chairman Ben Bernanke recently testified before Congress amid a backdrop of fading confidence in the US economy and states, "it's difficult to chart a course when uncertainty abounds." Bernanke tells Congress and America the obvious, "The economy continues to face numerous difficulties, including ongoing strains in financial markets, declining housing prices, a softening labor market and rising prices of oil, food and other commodities."
What most Americans want to know is what to do, not what is obvious to anyone that has been to a gas station, grocery store or read a newspaper.
While the financial experts' most popular advice is quit spending, Senator Richard J Durbin (D-Ill.), the majority whip and senior member of the Appropriations Committee says, "We literally are trying to put money into the economy and get it going again." While the government wants to pump more money into the economy the experts are saying don't spend it when you get it.
Both of these actions are incorrect as:
1) The government has never successfully bailed out the individual American without causing more financial damage.
2) If you reduce spending I assure you that your business and your finances will be smaller when this contraction is over!
The government could stimulate by giving credits to those that increase production by giving tax credits for advertising, business expansion, hiring or equipment purchases as each of these actions will ensure expansion and production. Give me a tax credit for increasing production and I will increase production.
Spending itself produces nothing but spending (most of which ends up overseas) and thoughtless spending is exactly why Americans are having difficulties today.
America has become a country of people that waste too much food, energy and fuel and but what Americans waste most today are opportunities to produce more. We have gotten away from exactly what made this country great in the first place -- production!
The simple advice provided by most of the economic experts today is to reign in the spending. The end result of this advice is that you will end up with less as contraction perpetuates contraction. Normal inflation alone will guarantee that the average American would end up conservatively 3-4% behind where they started the cycle.
Contraction will not get you expansion, only contraction. The goal should be to expand and thus improve your financial situation or company's position in the market
The only possible actions to take are:
1) Contract or retreat (reign in spending)
2) Do nothing (continue on status quo)
3) Attack (expand) and do everything possible to produce more.
Individuals and businesses that will improve their financial conditions will implement a smart combination of these three actions. Reign in spending on all activities that have no chance of producing income. Don't change those activities that are proving productive. And, attack all activities that have a possibility to produce new avenues of income.
It is an absolute guarantee the individual or business that elects to just use the retreat (reign in expenses formula) will find itself smaller and financially at risk when we get to the other side of this economic contraction. Contraction begets contraction.
Look at Howard Schultz at Starbucks, as he elects to shut down six hundred stores. This could be considered a retreat but when you take a closer look he is only contracting those stores that don't produce (#1). He will leave locations in place that are producing (2) then use money, resources and energy to expand where he can increase production and take market share (3).
Every household in this country should be using this simple and sound philosophy today -- cut spending where there is no chance of production and expand spending where there is chance of increased production and income.
Example -- spending 4 dollars in gas to go to the movie has no chance of producing income, so don't do it. Burning a gallon of gas to expand your connections, expand your business or make another sale is worthwhile spending and will result in increased production-do it.