A conversation

A conversation

Had a conversation with a guy that went like this:

I refuse to participate in any recession.

As long as I work and earn, I will save and spend just as I always did. My family’s economy won’t be dictated to by some namby-pamby report by a bunch of gloom and doom busybodies.


If you practice fiscal responsibility (something the U.S. government seems unwilling to do, hence the current mess), work hard and consistently, keep your skills updated and always marketable, you’ll stay out of trouble… or at least be nimble enough to make whatever moves are necessary to get out of trouble very quickly.

I used to think like you do – but I have realized the far too sad truth. We’ve rounded a moral hazard corner that is about to dramatically re-shape future perceptions and policy as to what is ‘acceptable’ pain we as a country will accept when things go wrong. And I see it as a real canary in the mine as to things to come.

I also lived within my means. I was going to buy a house 2-3 years ago, but didn’t because I saw the writing on the wall. I figured when the collapse came, I could buy a house at probably less than half of current prices. I saved and hoped to be rewarded for that foresight. But that hasn’t happened.

Instead, I now have over $2000 of new national debt in my name, housing prices have been propped up artificially, and that much more of my taxes are going into the national debt toilet instead of doing real work for roads, schools, new companies, etc. And with a moratorium on foreclosures, it makes me wish I had gone out an lived stupidly.

And now we’re about to do it again for automakers who haven’t been competitive in years. Bloated with poor products, union handcuffs, and an apathy worthy of the name ‘fat lazy American’, we’re about to enter a world of US automakers that are just as wonderful as our airline industry. Ones that go bankrupt every 5-10 years and a lovely cycle of restructuring, dollar stocks, and mediocrity that’s carefully maintained by union contracts instead of being allowed to go belly up and restructure into something viable.

Folks like to talk about Obama’s plans just like the ‘New Deal’ – but I argue it’s not the same. I applaud the idea – I think it’s the best we’ve got, but this isn’t that companies collapsed and joblessness skyrocketed. We’re in a crisis of personal debt – and we’re using new government debt to pay off personal debt. We’re in uncharted waters. What’s the answer? I don’t know – I think we’ve done the best we can. We’d have had a real 1929 this year if the govt hadn’t stepped in. But I don’t see this as sustainable.

As it is, we’ll likely find ourselves in the same ‘lost decade’ Japan did when it’s housing bubble burst. Years of no real growth while we pay off debt (yes, we’re being much more proactive, but it’s very likely the pattern we’ll follow). Meanwhile everyone slowly walks out your investment doors and when you are open for business again – it’s all moved on. The rest of the world isn’t America – and China is sitting on mountains of cash and ready to innovate, invest and become the new world leader. We’ve certainly endeared ourselves to the world enough they’ll certainly remain loyal haven’t we?

Even all that doesn’t put the nail in it for me. It’s the fact that we’re seeming to pour out money while only sort-of dealing with the underlying, fundamental problems. We gave $100’s of billions to the very banks that got us in this mess. Have *we* however started changing our credit card use and living within our means?  In my book – nope.  We’re just making someone else pay for it – our whole society (aka government who spreads the debt around via taxes).

I personally am thinking long and hard about getting my long-term investments out of the US – or diversified outside much more.  I’m thinking China is looking better now – which has a national *savings* rate of over 50% as a better bet with people that know how to make money and keep it with real products. This is all speculation though.

A final note for those of you that like pointing fingers or say this analysis isn’t fair.  I say we should roundly point our fingers at ourselves on this one equally. Yes, the loan companies were out of control – but you know what – so were all of us. This wasn’t Enron sitting on a hill – this was each of us living beyond our means.  This is us not picking up a copy of ‘Mortgages for Dummies’ for God’s sake.  Chapter 1 is “Figuring out what I can afford” for heavens sake.  So when that sad tale on NPR pops up and average Joe is losing his job. Tell him it’s because *you* run up so much debt and had to be bailed out. Because that’s the hard truth on this one.

One thought on “A conversation

  1. Good article. I agree with your general sentiment!

    One comment regarding the national savings rate comment. It’s my understanding that the national savings rate is simply a nations overall money in minus overall money out. It has nothing to do with the personal savings rate, which would be the amount of money per capita that individuals save. I don’t think the personal savings rate of the average Chinese citizen is anywhere close to fifty percent. As for the national saving rate of China being so high–that is because the Chinese government has decided to do that. It isn’t necessarily because the people want it. The Chinese government has decided that it is better to save up money for now and gain world dominance than to spend the money on improving the lives of its citizens (note that I’m not necessarily saying that this is a bad decision on their part).

    I have 30 percent of my equity holdings in Vanguard’s VFIWX fund (all-world minus US). Plus a little money in Swiss Francs 🙂

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