Economic Mirages

April 13, 2001

I guess the American consumers simply refuse to let go. In my last essay I reversed what I was trying to say about consumer confidence. Hey I'm free. And thanks for the surly emails accusing me of being too cynical. Now where would anyone get that idea? Hey, if you can't accept we're headed for ecological catastrophe, that's not my problem. It should be much clearer by 2005 or so.

Americans do realize things aren't too good economically right now, but are optimistic for the future. Exactly why they are optimistic is unclear to me. The Consumer Index rose from 109 to 117 and the futures expectation soared from 70.7 to 83.6. The Present Situation Component went from 167.1 to 167.2 The reason this fascinates me is there is no economic reason at all for this kind of wild swing in future expectations. There also wasn't any reason for the DOW to go up 400 points last Thursday or 250 points today. Amazon.com went up 30% because they announced they would only lose $250 million plus and not the expected $300 million plus in the quarter. A company that has never had a profit announces it will continue to lose money, but not as much as people thought, and that lifts it stock 30%. Like the confidence numbers, this is truly scary.

There was another group of people, albeit fictional, who like the Americans refused to believe a looming disaster beckoned them. Superman's home planet of Krypton was populated by people who refused to believe Superman's father when he warned them of imminent planetary chaos. They refused to listen and in one memorable scene in 1979's Superman movie their whole city, screaming inhabitants and all, is swallowed up by a giant crack in the surface. Personally, as an unrepentant sexist pig, I've always felt the loss of any society, even one that doesn't exist, where all the women wear tight spandex all the time, was a crushing blow to the universe.

I was thinking of Superman's home planet when the March consumer confidence numbers came in. Am I somehow missing it? Are the American people seeing something in our economy that I'm not? Are the businessmen who are battening down their economic hatches wrong? Is the NASDAQ collapse a fantasy? Of course not. I'm right and they're wrong. Here's what I saw in March that leads me to believe our economy is tanking. I saw layoff notices for Mexican factories along the Texas border making automobile tires and other automobile parts. I saw both Stock Markets suffer week after week of losses. I saw American consumers add $13.5 billion in credit card debt in March, even though total consumer debt, including mortgage, now equals 107%. I saw the power crisis stagger California first, including a $9 Billion Utility default, and then head north into Oregon and Washington. The Bonneville Power Administration said today it's either going to hit consumers with a 250% rate increase in October, or shut down the entire Aluminum Industry in the Pacific Northwest. Gasoline prices are expected to surge this summer again. Auto sales are going to the Asians and Europeans and not the Big Three, which suffered sales declines in March. The list goes on and on and on. Commercial real estate is now beginning to show signs of declining rents and increases in vacancy rates in city after city. San Francisco has lost 30,000 dot.com jobs.

Yet, none of this apparently impacted the American consumer confidence numbers. The stock market was dismissed because its for retirement in 20 years. Home values haven't started to collapse-yet, so who cares about commercial real estate in major cities. I've got a job so why not refinance one more time and hit the credit card again? The American people either don't get it at all, or refuse to believe what they are seeing. In either case, it makes no difference. The lapdog press is telling us this is a business lead recession caused by a collapse in capital spending. What's really happening is a credit and debt bubble is imploding one sector at a time. As such, consumers don't understand what's happening until it hits employment. Employment is always the last sector to be affected. Employment is the last bastion of defense for the debt laden American consumer. Once the jobs go, everything goes with it. The home, the car, the credit card are all sucked into the vortex. Well, the jobs have been going for several months in manufacturing, but nobody cared or even noticed. Now the unemployment rate just went to 4.3%, with more increases in the future. Once the unemployment rate hits 6%, watch consumer spending and confidence numbers collapse.

If the American public wants to be like a thirst crazed desert wanderer and stagger after one final mirage, then so be it. I'm afraid once they get there, they will find sand and not water. It's the debt stupid. And once the jobs start to go, it will be too late for American consumers to do anything but retrench and start saving. Of course, when they do that, exercise historical prudence in economic matters, our modern fiat, credit and debt illusion will collapse under its own weight.

Isn't it ironic that if modern Americans start acting like past, economically prudent and fiscally responsible Americans, our modern economic system will collapse? The day will hopefully come when modern Americans emulate Ben Franklin's words to the wise as expressed by his thirteen virtues. TEMPERANCE: Eat not to dullness, drink not to elevation; SILENCE: Speak not but what may benefit others or yourself; avoid trifling conversations; ORDER: Let all your things have their places; let each part of your business have its time; RESOLUTION: Resolve to perform what you ought; perform without fail what you resolve; FRUGALITY: Make no expense but to do good to others or yourself; i.e., waste nothing; INDUSTRY: Lose no time; be always employed in something useful; cut off all unnecessary actions; SINCERITY: Use no hurtful deceit; think innocently and justly, and, if you speak, speak accordingly; JUSTICE: Wrong none by doing injuries, or omitting the benefits that are your duty; MODERATION: Avoid extremes; forbear resenting injuries so much as you think they deserve; CLEANLINESS: Tolerate no uncleanliness in body, clothes or habitation; TRANQUILITY: Be not disturbed at trifles, or at accidents common and unavoidable; CHASTITY: Rarely use sexual intercourse but for health or offspring, never to dullness, weakness, or the injury of your own or another's peace or reputation; HUMILITY: Imitate Jesus and Socrates.

What do you think Ben Franklin would think of the derivative market for instance? And for sure he learned the lesson of Revolutionary War fiat folly called the Continental. I'd say Ben was probably a gold bug.

The world’s gold supply increases by 2,600 tons per year versus the U.S. steel production of 11,000 tons per hour.

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