My parents were children of the Great Depression. Both were farm kids from the South, both dirt poor. As a kid growing up, I hated to hear the stories about the Great Depression. Frankly, they greatly depressed me.
Sorry for the depressing tone at a time when we’re supposed to look forward with cheery news and unbounded euphoria because the calendar turned from December to January. Believe me, I really don’t want to depress those of you who are trying to lose weight, mend your marriages or sell twice as many auto parts and accessories. But our country is already on the road to fiscal irresponsibility and we have to take this serious big picture stuff...well, seriously. For those of you who don’t want to plow though more negativity, jump to the next to last paragraph for a more uplifting (well, mostly) message.
Sadly, the people who whooped and hollered through the prosperous Roaring Twenties didn’t see the Depression coming. But when it hit, some stock brokers jumped out their Wall Street office windows while millions of others preferring slow suffering wound up penniless, homeless and bread line bound. All in all, then, my parents may have been lucky for being so stinking poor. As former protest poet and, more recently, Victoria’s Secret panty pusher Bob Dylan once said, “When you ain’t got nothin,’ you’ve got nothin’ to lose.”
Before anyone accuses me of predicting the next depression, I want to be clear that my point is more that our economy is not invincible rather than predicting a flat out debilitating depression. Plus, if I was so presumptuous to predict a depression surely someone would say, “He’s so melodramatic,” and I can’t stand to be accused of being MELODRAMATIC! So when it comes to a “prediction,” I’ll settle for just a nagging, nasty, nefarious recession if our government doesn’t somehow find some religion when it comes to fiscal responsibility. The problem with my predictions is that I could be off by, say, a decade or so. (I’ll admit that my psychic powers aren’t what they used to be, but I’ll still match myself against the financial weathermen, i.e., economists. [“The market’s hot,” “no, it’s cold”...and when really pressed, “it depends on divine intervention”]...)
Psychic powers aside, let’s assume for a moment that the Iraqi war drags on...that we add to our national debt like that of a third world country...that gasoline prices remain unstable...and that consumers will continue to go into deeper debt, not save for their future and, in the worst cases, declare bankruptcy (which we’re doing at record numbers).
With all of the ups and downs in the U.S. economy, what is going to lead us to long-term fiscal responsibility? Many think it revolves around the weakness –– yes, weakness –– of the dollar.
The general consumer and businessman seem to be in a daze when it comes to the fall of the dollar that we’ve been experiencing for many months. Most just write it off as no big deal because they see it as just paying a little more for imported goods, which means “we’ll just borrow a little more to cover the increases.” Doesn’t that just want to make you join in on the chorus of “Zippity do dah(lar), zippity eah, my oh my, what a wonderful day!”?
But it is this excessive borrowing by consumers (and the government) that will undoubtedly cripple the nation’s economy. Is there anybody out there who really thinks borrowing and spending more than you earn is a good idea?
The record amounts of money we’re borrowing as a nation may not be the most disturbing thing. It may be who we’re borrowing from: China, the country determined to take our place as the economic leader in the world. The Chinese keep their exports cheap, while the reverse is true for our exports. That means the trade imbalance is in their favor. No matter how much cash we ask from them, we get. That, in itself, is a scary thought when you think that at any point in time, they could pull their money out. That probably won’t happen because of what they would lose on their investment but, ultimately, it depends on what kind of financial game they want to play on what appears to be their chessboard.
Most economists are predicting the continual depreciation of the dollar. In effect, that means we will likely see inflation. According to Mark Zandi, chief economist for Economy.com, how fast it rises depends on how quickly our government can get borrowing under control.
Assuming that happens, Zandi says the U.S. housing market, which has helped fuel economic recovery, will be hit hard. Likewise for the auto industry. The latter is the “uplifting” message I promised. Not that I wish any ill will on the auto manufacturers, but the aftermarket is bound to benefit as consumers turn their attention away from borrowing money to buy new cars to fixing up the cars they have. Of course, consumers will have to pay higher prices for parts and services, too, but it will be for parts and services they need as opposed to taking on what they don’t need: new car debt at what could wind up being exorbitant interest rates.
As unsavory as inflation sounds, it’s best to think of it as a necessary adjustment. The alternative could be far more serious...and depressing.
