• Economy – The Outlook Is Your Outlook

You can listen to conflicting opinions of self proclaimed experts on government activity or lack thereof on “stimulating,” the economy, however, the reality is that the economy’s progress remains in your hands. The top of the financial food chain with the government’s help wants to prejudice your perception toward positive spending.

The American taxpayer is provided an abundance of opinions and fantasies surrounding economic progress packaged as truths, facts or principles. The certitude applied to the delivery of this inspiring radiation has maximum impact on the behavior of the audience.

The vast central swath through the middle of the American political spectrum representing a majority, seeks reasonableness from government. The majority expects its business to be conducted with some integrity, without the encumbrance of concrete boots of left or right extremism demanded by party affiliation. This expectation of common sense, and forthrightness has not been honestly accommodated by politicians. The cost of reaching elected office has so escalated that special interests have become the overwhelming force behind all thrones influencing legislative agendas. As a result, every utterance emanating from a political pulpit has become suspicious.

When Paulson and Geithner browbeat their economically illiterate, and incurious bosses, into bailing too big to fail financial firms, and to launch profligate spending programs, the taxpayers had no input, nor were they provided enough truthful information to know right from wrong. Furthering confusion came in the form of suddenly popular Keynesian economists affirming government stimulus spending. Their continual proclamation of mission accomplished, and the recession is over, has become a tired refrain.

With unemployment hovering at 16%, when you include marginally attached workers and part timers for economic reasons, the principal energy in the system is the government’s $1.25 trillion mortgage support program artificially inflating home prices, borrowed with future taxpayer sweat.

The two principal pulls at opposite ends of the government intervention string, are Financial Stimulus, and Lowering Taxes. The arguments move the cursor of political will along this confusing line with abundant force pulling effectively from both ends. Over the long term, practical evidence suggest that there is little positive impact on GDP from supposed spending multipliers, so the amount spent as financial stimulus will not find itself increased or even mirrored in the amount of the nation’s gross domestic product. From the other side of the great divide, the lowering of taxes has shown some positive affect, however long-term impact has been almost impossible to empirically quantify.

In the middle, rests the most reasonable path which mandates that government, and politics (humans guided by special interests), remain out of the equation altogether, with some leaning toward easing of corporate and personal taxes, and reducing government expenditures. As his will not occur, and as we have seen, the likely reality is for a continuation of tax increases facing the enormous deficit demanding to be satiated.

Your perceptions as consumers, and taxpayers, will impact economic activity. You will dictate the direction, which the economy takes, and through that process, minimize the influence from politicians and experts confusing your judgment with mutable notions of economic confidence. Instilling confidence is intended to move consumers to borrow and spend. Ignore the noise.

As the recession continues, and it will, we should all remain diligent with each dollar we earn, and even more so with each dollar we borrow, unlike the examples set by Washington.

The biggest financial decision we make pertains to our dwellings. We will be hearing newly energized implorations of mortgaging ourselves into evermore elaborate dwellings, or increasing the debt on those we already inhabit. The reality remains that a home’s increasing value should never become a source of newfound cash while we live in it. Perceive your home as an expense if you have purchased one. If you still rent, congratulations, you have bypassed the heavy stress that millions of mortgage borrowers have endured over the past couple of years.

As the ravages of unemployment persist, we can each contribute to a return of long-term national economic stability by viewing each dollar we earn as if it were your last one for a while. The behavior might just be contagious, and will hopefully spread long enough for political representatives to assimilate the message since elections don’t appear to change much in Washington’s behavior.

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• A Positive Trend Rising Out Of The Fear

A positive trend is imposing itself on the American landscape. The average savings rate, which had been 7.7% in 1992 and even reached lofty levels of around 12% in the ‘70s, dropped to almost zero four years ago and stayed there. In the last quarter of 2008 that trend made a dramatic turn.

The fourth quarter of 2008 found a 2.9% personal savings rate with 3.6% reached in December. The consumer has made a decision, forced though it may have been, that having some cash reserves for a rainy day is a prudent life style change. The other good news is that the consumer is ignoring those absurd pleadings sprinkled across the MSM attempting to instill more fear, that if you don’t spend and consume with abandon, the recession will get worse. Even the NYT laments that saved dollars don’t circulate through the economy.

The argument, obviously, runs that consumption now forms such a major portion (71%) of U.S. GDP, that only the consumer’s spending can bring this recession out of its tailspin. Ignore those experts and pundits, and disregard their threats and idiotic short-term thinking. While Obama helps failing companies and bails mortgage foreclosures, consumers should disregard the noise and remain on track. The economy is a long-term game with long-term effects in which patience should prevail as the governing strategy.

With this perspective, consumers armed with their increased savings will gain confidence as they live within reasonable and manageable levels of consumption. Wherever they choose to preserve their capital in a pillow, in gold, silver or any other medium, the state of mind will be positively impacted over a 3 or 4 year period. Such assurance in time will translate into long term, sustainable support of the economy.

It is hoped that consumers will ignore government and expert pleadings, and that current trends will prevail pushing savings rates to levels achieved 30 and 40 years ago. Perhaps we can say, "good riddance" to profligate spending for a generation or two into the future. It would, however, be too much to expect that such attitude could infect government through osmosis. With the return of consumer confidence there will also be an increase in the powerful sense of freedom, and a recession of the fear that government is trying so hard to instill in the American taxpayer.

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• Obama, Watch Consumers And Learn

American consumers are being accused of closing their wallets. This is evidenced in three months of contracted spending into the end of 2008. The new year has brought more of the same, and consumers are being admonished for spreading “weakness.”

Politicians, economists, and the media, have strained to peculiar characterizations in describing the source of the current protraction in economic activity. Most renderings are not flattering to consumers, and are aimed at stimulating feelings of guilt or culpability. The use of imagery such as “weakness feeding on itself,” with the weakness being the consumers’ spending, borders on ridicule of the consumer. “Consumer confidence falls,” is another great headline we are subjected to. Why is there such negative perception attaching itself to what is in fact an extremely positive reversal of past detrimental behavior by consumers?

Consumers are not panicking the way their leadership appears to be doing. Taxpayers are being conscientious with their hard earned dollars. Consumers increased their rate of savings to 3.6% of disposable income in December, representing a significant month to month increase from a 2.8% rate in November, and overall a marked improvement from the only 0.8% of last August. Consumers are prioritizing their purchases, and cutting back on credit card use. This is a positive trend that will strengthen the likelihood of a return to economic health in the mid to long term. It also suggests that consumers are discounting endless prognostications, including Obama’s, of a restoration of the economy’s wealth and health within 6 months.

Consumers should ignore the mainstream media, the pundits, the economists and most of all should ignore implorations of “spending” from politicians. The economy will not be fixed in the short term, and believing otherwise is ignoring reality. The turn around can only be realized gradually through a diligent and patient ascent along a very gradual incline. Consumers are first taking care of absolute needs such as food and shelter, and they will then endeavor to save for an uncertain tomorrow. From those savings will emerge confidence that will very gradually ensue to gradual, rational, and conscientious increases in spending levels. Current signals strongly suggest that consumers have learned a lesson, and will in future spend within reasonable means of their disposable incomes. It is safe to expect that consumers will treat their homes very differently, and will no longer perceive them as rapidly appreciating sources of cash.

Government’s artificial injections of taxpayer borrowed stimulus billions, over and above normal and required spending, are unlikely to deliver reliable foundations for establishing solid and sustainable economic pillars. Does no-one sitting at the new Presidential round-table of experts understand that a $15 trillion dollar economy is a “long build?” Short term thinking is what brought us the current mess. Why agitate taxpayers through fright and terror? Is this an attempt to justify incomprehensible spending programs to placate special interests? Will this lead consumers to remain uninquisitive as to the structures of the bailout packages, and their lack of contractual arrangements? Is this an attempt to win over the almost 60% of the population strongly against the stimulus and bailout package Obama and Congress are implementing? Rebuilding of the economy will be a lengthy process, and other than providing consumers with incentives to continue their current trends, government should get out of the way of its materializing.

The political leadership should listen to American consumers. Listen and observe. Doing so would temper the rush to explode the National debt to 70% of GDP. You can help no-one else, if your house is not in order. Consumers are not rummaging for “boom times.” They are searching for shelter in stability.

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• Consumers And Volatile Oil Prices

Consumers across North America daily check the wildly fluctuating prices of gasoline at their favorite neighborhood stations. Magically, prices change at all pumps in unison. Just as strangely, pump prices have not dropped in step with the currently defeated price of crude.

Price of crude oil today floats around USD$35 per barrel, down severely from a high of over $147 only months ago. You don’t require a calculator to realize that the current price is now at approximately 24% of it’s high which is not reflected in your wallet’s hemorrhage as you fill-up. You drive off disillusioned and frustrated, but you feel less anxious than you did following your recent summer fill-ups during the oil speculation frenzy. You hear rationalizations like, “OPEC is contracting its output by 2.2 million barrels per day,” or you read, "... global demand is expected to shrink by about, …" well it doesn’t matter, you just know that you and millions of gasoline consumers are at the front line of this commodity’s implications on the future. What can you do? What will you do?

It would be easy to blame oil industry conspiracies for the wild ride of oil pricing. Reality is that stakeholders directly or indirectly connected to the industry are simply doing what is necessary to extract as much money as possible out of their respective positions. Each is being human. Expectations of high returns currently includes “hoarding.” At least this is the prevailing clairvoyance of astute speculative bets. Keep that one in mind.

To shatter more assumptions and agitate matters further, hoarding has exacerbated the impact of refinery output reduction. Refiners had curtailed operations, contemplating drops in demand. The resulting confusion ignited volatility in prices to frenetic levels. Such volatility is not constructive to the overall long-term health of the exploration and refining sectors of the industry. Uncertainty in oil prices is also not therapeutic to an ailing economy.

Crude reserves are bursting the capacities to contain them onshore to the point where storage availability has become scarce, and oil filled tankers are sitting afloat offshore, awaiting a more favorable price day. This is a calculated measure to apply pressure on the outcome of pricing speculation. This strategy expects a global economic recovery. Should that not occur, the tactic hopes that a depletion in refined oil might eventually bring back prices of $60 or even $70 per barrel. These are the price levels that many oil resource dependent economies require if they are to escape overwhelming deficits. How can a Middle East monarch possibly retain power over a semi-suppliant population, building palaces, ordering 400-foot yachts, and over-fitting Airbus A380s on $35 oil? Can’t do it. Something or someone has to give.

Here we are in the middle of a cold winter, yet consumer demand for oil continues to drop. Diligence with home thermostat settings has had a direct impact on consumption. “Travel” reduction has also cut a deep gouge into supplier assumptions. Overall reduction in consumption of all goods affects the price of oil negatively, and consumers should remain vigilant. We should all maintain our current frugal attitudes toward accumulation of all things not grown in soil. The speculative bets made against the consumer, may turn to bite the hands that placed them.

The OPEC cartel and other oil producing nations will continue to be conflicted. They are each competing for a piece of the consumer’s oil dollar. Since each barrel of oil finds its own independent path to market, the Saudi barrel will always seek a position on the delivery system ahead of the Venezuelan barrel, which will itself attempt end-runs on the Nigerian barrel coming across the ocean. Current prices have also macerated attitudes like those of Venezuelan Strongman and part-time Latin American hero Hugo Chavez, who is now soliciting help (read begging) from the major oil companies he not so long ago demonized and seized assets from. Evidently there is no persuasive Spanish translation of the adage about “burning bridges” he is familiar with.

The outlook on oil prices may be uncertain, however, there is one enduring certainty world markets can rely on, … the consumer will persist as the arbiter of good taste on conscientious consumption. The consumer will continue to command oil price trend direction. Should current tendencies persevere, and consumers stay the course, chance will be infinitely more accommodating to the reality of an economic recovery within the next eighteen months.

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• Myths Of Debt To Be Corrected For 2009

The year 2008 brought a rude awakening to a population enthralled by a bottomless availability of cash. Mesmerized into debt accumulation we now wonder how we could possibly have overdone it.

As we launch into a new year, it might bode well to be reminded of some of the myths we enjoyed so much these past two decades.

• Debt is your key to achieving the lifestyle you deserve.
This well-oiled refrain was repeated ad nauseum throughout the past quarter century, to the point where the affirmation morphed into an accepted assertion. I borrow, I spend, and therefore I am. The Fed, Congress and the White House have historically presented a united front to convince taxpayers that they should seize all opportunities to consume. It has been the patriotic duty of all citizens to consume impulsively and with abandon, taking absolute custody of the title Consumer.
• Spend yourself into economic recovery.
It appears that all media has bought into this myth. Abundance of noise from economists and pundits has been particularly effective for too long on this one. The economy needs you. Business needs you. There are bonuses to be paid out at the top that will trickle down and stimulate all corners of your economy. Your guilt will get you if you don’t spend everything you can borrow. Forget saving for a rainy day. Forget budgeting, and absolutely reject the concept of finding balance between funding your needs and setting aside money for your future unanticipated emergencies. You don’t want this recession to devolve into a depression, do you?
• The Debt you are drowning in is not your fault.
How could you possibly have known that buying your first home for $500,000 with nothing down and a variable rate mortgage would launch a perfect storm through your future, ravaging your state of mind?
• Wall Street, The Fed, and the World Bank know what they’re doing and they know best what is good for you.
This one requires little delineation here. Dissecting it might even be a little too depressing, and might dissipate the joy of a brand new year. We'll save it for a future article.
• Becoming highly leveraged is a right of passage into nether regions of society.
Leverage’s modern redefinition is imbued with notions of achievement beyond simple debt. It embodies an ultra-modern conversion of water to wine. Wall Street was able to stretch the boundaries of debt with the creation of derivatives, those unfathomable, little understood but outrageously leveraged vehicles that were so effective in creating billion dollar bonuses. With government advocacy, the banking industry distended debt to the extreme boundaries of leverage, inventing unfathomably creative debt instruments hiding behind ambiguous terms such as "derivatives." The beauty of this myth rests in its apparent ability to have magically enchanted the top of the economic intellectual food-chain.
• You should not wait until tomorrow to acquire what you can get today through debt.
Instant gratification has become a firmly entrenched affliction. Capricious satisfaction of wants has transplanted patient and planned fulfillment of needs or considerations for the future. It is almost as if there has been a very deep shift across a broad swath of consciousness, and now the thrill of the chase no longer provides the joy it once did. Have indulgence and consumption become the voyage?

Intuitively we have all known for over a generation that we were living a great paradox. Lifestyles were better than ever, yet in the core of our beings, we all felt an unmistakable angst. Since the mid eighties, each one of us sensed that very conflicting dichotomy between what we were doing, and what we knew was right. We were over-borrowing ourselves into the highest standard of living known to any society in history. Political leadership cynically applauded.

2008 slapped us into acknowledging that our intuitions were right, and that long-term health of an economy requires savings and also requires investments. It has been years since it made any sense to leave money in a savings account to collect interest. Inflation deducted from the interest left a shrunk balance at year-end. Bernanke’s interest rate cut to a half percent, will have little impact on borrowers’ access to loans. Panic set-in, and attitude shift will be slow process. Congress and The Fed should revisit the government's interest rate policies. Taxpayers should be looking forward to making money on their "savings," … in the bank.

We are thinkers, inventors, creators, producers, nurturers, and spiritual beings, who can enjoy a material abundance we ourselves define and frame. We decide the nature and scope of our intellectual and spiritual sufficiency. Rather than giving in to external strafing of our decision making, it is high time each of us gave a little more room to our own individual Intuitive Knowers, abating the consequences of our overwhelming egos and intellects. Human satisfaction and progress should not be measured in GNP growth, or intoxicating accumulation of possessions. The voyage has become exhausting. It is time to sweep aside the myths. It is time for living with less anguish, and acquiescing to the truly profound joys life offers far from the sirens of debt.

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