Don't Buy It!
I retired a few years ago from a career as an international banker and corporate executive. In my economic blogs I have for two years been predicting a momentous global downturn, long before any official sources admitted such a possibility. (They are still partly in denial.)
Now I would offer this advice: Don't Buy It. That is also my word to myself in these treacherous times.
Whether you are looking at taking a bargain cruise, buying a new TV, another car, a house, or making a financial investment, don't buy it unless you really need it and can clearly afford it without borrowing. I am not buying much these days except groceries and small things I truly need.
It is not our obligation to rescue the American economy or the world economy. Our obligation is to manage our individual and household budgets prudently.
Many economists are telling us to spend more to get the economy going, but that will only put us further into debt, which is the root of our problem.
We are in an economic hurricane that is still gaining strength. There have been several premature announcements of a recovery in the stock market or housing market, but don't buy this theory just yet. Obviously I wish this storm would be over soon, but I see no signs whatsoever that it is lessening.
In fact, this feels to me like a full scale depression in the making. I am not suggesting a 1930's drop in GDP of 40%, although that might be possible; but I do expect a GDP drop of 10 - 20%, which would qualify as a real depression by any measure.
So let me suggest a more prudent way of looking at our predicament. What if the government is in fact virtually powerless to stop this incoming tsunami wave?
Franklin Roosevelt tried mightily for nearly a decade to stop the last depression without much success, although he was arguably the greatest president of the 20th century. Today many economists and government officials have become perfect "Monday morning quarterbacks" who seem to believe that if they had been in charge, the 1930's Depression could have been avoided or quickly repaired. Don't buy those pretentious claims; they are unfounded and misleading, even if well motivated.
Various political leaders are claiming their unique expertise about what should be done to fix this mess, but in fact none of them saw this meltdown coming and they have no basis for claiming such profound understanding.
You should instead respect any leaders who admit honestly that they don't know how bad it will get, or precisely how to avoid it. Our government should be concerned primarily with offering help to those who are hardest hit. Trying to stop the tsunami in its tracks is patent nonsense.
So where does this leave you and me? Hopefully not waiting for someone else to rescue us. That is our job: to rescue ourselves. And rescue does not mean getting back on top of the house of cards that has tumbled down around us. It means bravely starting over from where we have landed.
If you do the math, you quickly realize that the proposed $800 billion American stimulus package divided among a population of 300 million is less than $3,000 per person. How can that provide $40,000 jobs, or rescue $100,000 mortgages in default, plus pay for a new health care system, alternative energy research, and a host of other benefits that we desire? The expenditure per person to do all of that would be astronomical--many trillions. It just isn't possible.
But the trillion dollar American government deficit will surely contribute to growing inflation and send the price of gold still further up. So if you are going to buy anything, buy gold, because the dollar is becoming worth less and less.
We have a choice. We can sit in a heap and cry about how desperate the economy is becoming or look at history and realize that we are still incredibly lucky. The economist Jeffrey Sachs has estimated that we are ten times better off than our ancestors were in 1750. We are even far better off than our grandparents. They faced war and depression and survived. We can too.
Our principal source of hope is in what we can do for ourselves and for those around us. This must happen at every level, with every person, company, family, community and at every level of government. We need to find entirely new ways to contribute to this stark new economy, whether in paid or voluntary work.
With a "can do" attitude, extreme frugality, and an enterprising spirit, we have every chance to survive and to rebuild our lives.
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Gee, I wish we had those billions of dollars we threw away in Iraq (not to mention the hundreds of thousands of lives that were thrown away). A have an idea for a great stimulus - publish pics of george bush in handcuffs being taken away to prison.
This poor writer is in the old conundrum: Which came first, the chicken or the egg?
Which came first, the spending or the healthy economy?
This guy would be on-point if he told us to watch _where_ what we buy was made! IF the spending you undertake goes back into the USA's economy, it's VERY NEEDED right now. Spending on fresh bread or a theatrical play is spending that helps us. Spending on a big-screen TV made in China is not.
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You can see a pattern with the market. The graph looks like a rock that fell off the cliff ~$12k to $9k and then, has been skipping downward, with bumps in the road that provides us small hopes. The market is still falling. We need to stop the fall! first!
First, we need to set a floor to which the markets will close once those markets fall below 50% of its high. For instance the DOW if it falls below 6500, close the market and make drastic changes. In the meantime, before we get to this point, we need to create "sub-floor's" that acts as a paddle to create a rebound. So, when the market is bouncing downward before it hits a new low, create this "sub-floor." These sub-floor should be given some infusion through appropriation by the federal government that will prop up an industry. We should not give the predominant amount of appropriations to one field like we have over the last 8 years giving over 50% to the military. We need to support opera as we promote education and we defend military security.
There should be balanced appropriations and very deliberate moves that will give confidence to the average American. No more squabbling; otherwise we will lose everything and never recover.
Until we are 'citizens' again, and not 'consumers', nothing will change.
Like people need 1/2 million dollar houses!
Everyone for himself--isn't that how we got here in the first place?
Let's stop speaking of dollars in our pockets as if they're hydrogen atoms on the sun. In other words, the dollars, and the accounts that hold them, are not real, but only social conventions. Hydrogen atoms on the Sun are real, finite, and non-renewable. We can correct problems in the distribution of resources across populations, if we first recognize them as problems. So, we should spend freely.
Sir,
Sure some people overspent their way into economic trouble. I'd call them bankers. Leave the rest of us mortals alone. We didn't cause this crisis, but we'll be fitting the bill for it through taxes and the like. Trickle down economics loves to blame the overindulgent american for failure to manage their finances, when really nothing's trickled down for decades. Meanwhile tuition, food costs, fuel, health care,etc. have skyrocketed and somehow it's the average guy's fault? Please, spare us the lecture and use your financial mind to do something constructive for a change.
Signed,
The Extremely Frugal
Right, people should not be going into debt to buy anything right now. Those who do have a lot of money could help by buying.
Our biggest problem is that our computers and everything is made overseas and workers are hired overseas by the manufacturers of our TVs, computers, etc. It isn't stores like Wal-Mart who are buying overseas. They buy some things overseas, but when they buy American, they are buying products where most of the manufacturing has been done overseas. It is the American companies, not the stores who are causing the layoffs.
> The expenditure per person to do all of that
> would be astronomical--many trillions.
> It just isn't possible.
Yeah, but we don't need to do it for EVERY person.
There is a ceiling on job losses - a certain number of people will remain employed to service those who still have money, carry out essential functions, work as policemen etc etc.
We even know what it is, from the Great Depression - 25% unemployment. No matter how bad things get in the GOP Second Depression, there will still be 75%+ employment.
So that's why a finite-sized stimulus can do the job. As long as we don't foolishly cut taxes. This is a great time to be increasing taxes on the very wealthy. Bring back the estate tax on estates over $1M, bring back higher levels of capital gains tax.
Actually, if you measure employment by the same measurement as the 1930's, we're hovering at over 19% now. They've changed the yardstick for measuring since then.
He is a former banker and corporate executive. You seem to understand the economy and the stimulus better than he does. I expect many readers here spotted the same error in his thinking. So would someone please explain to me again, just what is so special about these people that they deserve large salaries and bonuses?
I agree we should be giving priority to making sure we all survive in good health rather than attempting to feed the abstractions. Seeing to it that people eat, have shelter and health care apparently is the best stimulus as well. So I think we need to give priority to the human needs. A sound economy can grow from the ground up.
There is more to life than consumer spending. While I haven't been buying for years, there are things that I need that I can't buy for myself: good roads and safe bridges for starters. Good schools for your kids (yes, I need that, because your kids will one day pay the social security taxes for my payments) and scientific research into renewable energy. These are things that the government has to buy for me with my taxes. And so I am more than willing to pay more taxes, IF they will be spent on these things and not on yet another useless nuclear powered attack submarine.
Most people do not live in a place where they raise a few chickens or grow a small garden to have something, anything to eat. Most people wouldn't KNOW how to do it, even if they did have the room. Most Americans can't even sew on a button or darn a sock, let alone make thier own clothing.
If you've been living payday to payday and now have no more paydays, I don't see how you could be better off than our ancestors.
This is the worst of times, this is the WORST of times.
It does seem rather absurd that the only solution to the problem is for people to spend more money. But more and more people are loosing their jobs, their credit is maxed out, and they've lost their savings. So they need to go deeper in debt somehow anyway. How rich! Doesn't this illustrate how capitalism has failed us all? (don't sent me to Gitmo please!)
Perhaps it is Capitalism that failed us, but then again a government that has decided to be the world's policeman, supported and abetted by a military-industrial complex (which just has to have the latest obsolete aircraft carrier and super billion dollar fighter planes to fight roadside bombs) along with a zillion ideas as to how to redistribute our money (my money) to "help" all sorts of folks who can't seem to understand that there is no free lunch, and an army of time-serving bureaucrats might have had a share in creating the present economic mess. After all, a 3T national debt was not caused by Wall Street.
I listened to Ben Bernanke in front of the House today as he was asked if he (Bernanke) thought that it was the imprudently low rates of the Grnspan era that led to our current problems? His answer was "no" it was rather the trade deficits the country ran. And the capital flows that ensued that were at the root of the current problems. That does seem to implicate you internatiional banker types. Trade deficits. Who'd of ever thought that?
Bernake wasn't going to slam Greenspan - he is a much humbler man today than he was a year ago when he apparently thought he could turn the economy around by just dumping money into it.
The reporter's question was leading and didn't draw a real answer. It was the low rates allied with no control over an enormous exodus of working capital into retail and fallow investments that primed the implosion. Trade deficits are a symptom of what happened, not the root cause.
Bernanke seems to be leaning towards the protectionist camp. I wonder if that is the way the wind is blowing?
It was not a reporter who asked the question, it was a Republican House Member, I cannot recall his name. It was indeed the trade deficits that permitted the Asian monetization of our debt that permitted rates to be as low as they (our rates) were. We were running $700 billion annual trade deficits. The normal economic response would be a continued devaluation of the dollar and that would have pushed our interest rates higher. I believe that it is no mistake that Geithner worked for and is familiar with the IMF and that there are major issues with respect for the central banks to coordinate to preclude the highly speculative "carry trades" that are also a trillion, maybe more, in the diagnosis of the ailments.
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