Daily Archives: January 13, 2008

We Did It to Ourselves

While walking around a major shopping mall today, I noticed how ridiculous the “American” life has become. We spend money that we don’t have to get stuff that we don’t need to impress people that we don’t even know. That sounds like craziness.

Who actually shops at Pottery Barn for Kids? Why in the world would you ever buy overpriced furniture and room knickknacks for children at a high-end boutique? Most kids destroy new stuff after a week of use any way.  

This is one of the really nice malls where trendy retailers sell jeans for $100-200 per pair. I don’t think that I have ever bought anything there because the prices are so high. I was there to meet up with a friend because it is a central location.

The entire experience reflects what is wrong with America. Consumption has become the national pastime. Our national savings rate is almost non-existent compared to 50 years ago. With the faltering housing situation and worsening dollar problems, I fear it is only a matter of time until our excesses catch up with us. I used to worry about the future generations. Now, I am concerned about the horrors that face us over the next five years.

Are we as country ready for a major recession? How will such an affluent society react if everything falls apart seemingly overnight?

Think this is alarmist talk? Look at all the economic fundamentals. Things don’t look good. I am not talking about the “false fundamentals” that are the equivalent to the government’s rendition of an economic magic trick. I am talking about the real numbers. Check out Crash Proof by Peter Schiff if you want to see why things could get much worse and how to prepare.

If America’s economy plunges over the next few years, we don’t have anyone to blame but ourselves. We thought that we could keep on gambling away the future and never have to live with the results.

Here’s a quick scorecard for those watching at home:

  • Record trade deficits despite a weakening dollar.
  • Housing bubble burst and loan crisis. Americans can no longer afford to tap house equity to pay for stuff. And having done so in the past has left many Americans with greater debt and fewer assets.
  • Inflation due to higher costs on everything from energy to food to education and basic necessities. Hyper inflation could well be on its way if the real buying power of the dollar continues to drop.
  • Weakening dollar will impact U.S. investments and securities in a negative way while providing some boon to U.S. manufacturing. This is a bit of a Catch-22 situation because raw materials become more expensive at the same time foreigners can afford to buy more of our stuff. I predict this will be a wash with manufacturing get a bit of a boost but not enough to spur the economy overall.
  • Still fairly low unemployment with an ever aging population. Jobs may not be the real problem for America in the future. Earning power is likely the bigger challenge. Future generations will have to take care of their parents at a time that the dollar earns less and less.
  • Extremely low savings rates with record consumption patterns. This cannot be sustained forever.
  • Massive personal and national government debt. What happens when foreigners are no longer willing to bankroll us? I think the tide is already starting to turn. 
  • Aging national infrastructure in everything from roads to ports. Security and war concerns have eaten up a lot of money that could be used for repairs and upkeep.
  • Inept government and naive voters will put the wrong people in place to make the necessary changes. 

I feel the perfect storm conditions are forming. The smart move is to prepare now by diversifying to foreign markets, reducing spending and saving more. Giving up lattes today may mean that you can keep your house tomorrow.