Financial Banter...

The G.D.P. revealed today that consumer spending is down. Ya think!

3.1% decline in Q3. Real spending on durable goods (TV's, dishwashers etc) fell at an annual rate of 14%. This, prior, to the Lehman Brothers bankruptcy in October and its subsequent domino affect.

We have not seen a drop like this since 1980.

Paul Krugman points out in his NYT Opinion column that " To appreciate the significance of these numbers, you need to know that American consumers almost never cut spending." He goes on to point out that, even in the 2001 recession, consumers continued to spend...

Well we were not as fatigued and wounded then. I guess. We are exhausted now...but, in my view, if we are buying less...we are smarter.

ya know we really shouldn't be spending money we don't have...but I am the first to admit..life is no fun living - that way...

In practice, if consumers were to cut back in spending, the Fed would respond by slashing interest rates, which is supposed to help the economy avoid recession and lead to a rise in investment. Well I've got news for you...the Fed is not going to cut interest rates on things that matter.. like home loans, and they are not going to raise interest rates on savings accounts...Generally speaking, free market capitalism demands consumer spending, to thrive. Saving money at the individual CD level, and getting rewarded for it with small rates of interest is a cost of doing business for banks. Think of it as a loss leader in any retail environment .Gee - I have to attract consumers to my credit lines so I can charge them interest on the money I lend them...but since those interest rates are somewhat regulated...limiting my point of difference as a business....I will create a "savings" rate to attract them to my suite of more profitable lending products. Consumers save far less as a percentage of their income (2% annual savings rate on earnings is the current rate) than they are willing to buy on credit.

This works well for the banks. It is not rocket science...

Banks are in the business of contractually binding you to something you think you can accomplish...they sell you - confidence. But - if you or they miscalculate - the banks share none of the risk...It is entirely your fault and your problem. That is not all bad. We as consumers need to be responsible for our personal financial decisions. We need to be able to discern if the confidence that the bank is willing to sell us, is in fact reasonable. We own the mark whether or not we hit it or miss it. Period. Just like you own the shoes, once you wear them, even if they make your feet hurt.

So...contrary to all of the experts, I am celebrating the drop in G.D.P.
At its very least, this measure is honest. At its best, it is corrective. It is not fun...but in my view it is necessary and dare I say, it is good.

People. Until we stop buying what we can't afford...the free market will continue to over produce, over price and perpetuate the dysfunction. I love that car lots are full of cars...because one day soon, the manager is going to say....I gotta move this inventory...he will look at his margin and knock a few points off of it, until he can sell the damn thing....I don't expect him to sell it at a loss, but I don't expect him to skip to the cash register either. I work for my money, just as hard as he works for his. If we are fair, we can all eat.

Am I nuts? Am I stupid? Or am I just enraged? One thing is for sure..I am confused...but I am trying to understand.

What the Fed needs to do now...right now.. is hold off on kicking people out of their homes, and engage in some kind of market value rent to own type of scenario..so those facing foreclosure, can over time, work to preserve their mortgage at a reasonable - not inflated market value. We need to create jobs ! We need to stop importing products from overseas that we can make here...and put to work in these factories, all of the people that have been displaced from factories that have closed because they made too much product they can't sell. We will not solve the reduction in spending problem until we create jobs and price goods at a fair market value. We are doing NONE of this now...

Finally, I will say this. I am very disturbed that the stock market fluctuations are so deeply tied to blind confidence. This is not a new thing. But I have come to realize that "confidence" does not mean the same thing as calculated risk. In today's unregulated and [outright deceitful] environment , confidence means feeling comfortable that the paper I am investing in is immaterial...but I am "confident" that somebody will be hoodwinked into buying it for a higher price than I paid. What is that?

I don't know what that is, honestly. So I will not be investing...sorry Fed. You got us into this mess, I have little confidence that you can get us out of it. I will manage my own little, dwindling financial fiefdom - Thank you ! Mostly by trying to save it, vs risk it in an investment game I don't understand. I will manage it, on my own! Not for power ego or even pride...but for survival...