“So why, when America is in the midst of an apparently never-ending sweet spot, are American families in the same precarious financial position that they faced during the Depression?” -Moneyweek.com Feb. 7, 2007
Chicken Smith View:
Why is it that while everyone at the top keeps saying that all is well, all those beneath them echo the same happy-go-lucky, lemming-minded sentiment, even when all is not well for them? Are we all suffering from delusions of grandeur? And no, the middle is not the top. The top is doing well, if you’re not part of the top, then chances are conditions will be changing for you in the near future.
As consumers, it seems that we’ve all been lulled into this sense of prosperity, even when there is none. For example, why is it that so many are spending money they don’t have on frivolous items such as Playstation 3s, BMWs, Sony Bravias, iPods, Coach, and Victoria’s Secret when they quite literally have ZERO dollars in savings and tens of thousands in debt?
It almost defies logic. I refer back to that Lending Tree commercial where the guy has it all (the new car, golf club membership, big house, etc.) and admits “I’m in debt up to my eyeballs… somebody help me”. Yet he’s smiling the whole time and sarcastically asks for help, knowing full well that he doesn’t really want any.
And why should he want help? He’s having too good a time living it up and enjoying the life he always dreamed of without having had to work too hard for it. It’s almost a no brainer come to think of it… while others sacrifice years of their lives trying to get ahead so they can afford some luxuries, the “smart” ones get to put it all on credit. It’s perfect. No need to struggle, sacrifice, take risks, start your own business, none of that.
Here’s the “secret”: A) Get a job, any job. B) Open 3-5 credit cards. C) Build your credit for 3-5 years. D) Buy a house with no down-payment (all you need is a pulse and some creative application filling techniques). E) Start spending. F) whenever you can’t make the minimum payments, simply play hot potatoe between the 10 credit cards you probably have by now. G) If that gets tough, and if some time has passed, or screw time, if the housing bubble is in full swing, get an equity mortgage and “buy” some more toys or go on more vacations. H) Sit back and enjoy. If the house of cards that you built starts tumbling down around you (it can take years or even decades), file for bankruptcy or call Lending Tree and try again.
So why bother working and saving for the American dream, when you can have it all now on credit! While the example is a bit extreme, there are many who have worked hard, have studied to get higher degrees, have struggled and taken risks, but yet somehow they still fell for the credit trap. It’s something that sneaks up on people, even those who say “that would never happen to me”. The allure of shiny new things is all too appealing and hard to resist.
The sad state of affairs however, is that while all this is happening at the local consumer level (you and me), other factors in our economy are in full play. Because so many are too busy having a good time, they really aren’t intereseted in putting much effort into their work. So American companies have, over the past few decades, been outsourcing jobs to other countries. I guess they figure the work can’t be much worse and at least it will be much cheaper.
Besides, since other countries don’t have such easy credit as we have here in America, the workers there, more than likely, will be in desparate need of those 75 cents per hour to put food in their kids’ mouths. Employee loyalty will be higher, employee turnover will be lower, wages will be much much much lower, benefits will be non-existent, and the fat cats back here (those at the top) will pocket the added profits. So why wait? Let’s lay off more Americans!
Don’t think that this isn’t happening every day. We are losing jobs. And while traditionally they have been blue-collar manufacturing jobs, other areas such as programming, accounting, analysis, and graphic design are being exported too. Job losses that are in the hundreds of thousands every year and showing no signs of stopping.
Don’t believe me? Just last week, J.P. Morgan Chase & Co. CEO Jamie Dimon said “We can do business anywhere around the world, we would like to see New York thrive because we have a lot of people here, but I don’t think it would damage us dramatically,” [if more business moved overseas]. And he’s not alone. Huge “outsourcing consultant” firms like Accenture are raking in tons of profits advising all sorts of companies and industries on how to export American jobs overseas.
So, you see, times are good for those at the top and the companies they run. As I’ve stated before, just because corporate america is doing well, does not mean that Joe-six-pack is doing well. Talk to average folks, not just those in the cubicles around you, not just those business aquaintances and sales people who generally try to prove they’re doing well so you can have confidence in working with/for them, not just friends who are often trying to hide the fact that they’re in debt up to their eyeballs, talk to strangers, the waitress, the cleaning person, the contractor, the painter, the immigrant, the day laborer. These are the ones who feel it first. Then talk to the telemarketer, the tech support person, the graphic designer, and the investment banker who just got laid off from a sweet job.
Housing was a big part of what kept our economy afloat after 2001. That was mostly due to the Fed’s lowering of interest rates. Last year the fed stopped lowering the rates. We are currently in a holding pattern and the market is setting records every other day. However, housing has already taken a big dive and is yet to see more. The dollar has been going down and other countries are diversifying their portfolios (ie, dumping dollars). Our nations’ debt levels are at record highs and our savings are at record lows. Foreclosures are also at record levels and all this consumer credit will have a significant impact on the banking industry and our economy.
Winter in general is a time of uncertainty, but there isn’t much that will improve in the warmer months ahead. Well, not unless you count over inflated stock prices that will rise further before they are due for a sudden correction later in the year. At that point people will start to notice, but it may be too late.
A lot of our current upbeat economy news has been modified to showcase the “positives” and down-play the “negatives”. However, if you dig deeper, you’ll see that the economy is really placing its bets on consumer spending which, unless you count purchasing everything on credit and paying only the minimums as actual spending, means our economy is headed for disaster.