Condemned To Repetition

George Santayana memorably observed:  “Those who do not remember the past are condemned to repeat it.”

Hey, does anybody here remember 2008?

isantay001p1A report released yesterday by the Federal Reserve discloses that Americans have just set a new record for accumulated credit card debt.  The grasshoppers among us had saddled themselves with a total of $1.021 trillion in outstanding revolving credit in June, just edging out the previous record of $1.02 trillion set in April 2008.  Total household debt in the U.S., which totes up housing, auto, student loan, and credit card debt, reached a new record of $12.72 trillion in March, which also passes its 2008 peak level.

Of course, those of us who do remember the past recall what happened in and around 2008 — banks failed, the subprime mortgage bubble burst, and the economy was thrown into the Great Recession.  For a while, Americans reacted by tightening their belts, paying down their credit card debt, and getting rid of some credit cards — but those days of responsible consumer behavior apparently are long over.  Recently, credit card debt has been growing at an annual rate of 4.9%, and more consumers are getting access to credit cards.  More than 171 million consumers had access to credit cards in the first quarter of 2017, which is the highest such number since 2005, when about 162.5 million people had access to credit cards.  And some banks have made the conscious decision to provide credit cards to people with subprime credit scores.

Gee, what could go wrong with this scenario?

It’s all not-so-vaguely and scarily familiar, but a lot of people apparently just don’t care.  They think times are good now, and therefore times will always be good — so why not use that credit card to buy another impulse purchase consumer good that they don’t really need?  The problem is that, in our interconnected economy, the irresponsibility of the grasshoppers can pull down the ants among us, too.  If the heavy credit card borrowers start defaulting on their debts en masse, and banks and businesses start feeling the pinch, we’ll feel the unfortunate results, too.

If Santayana were still with us, maybe he’d change his famous statement to read:  “Those of us who remember the past but are unfortunate enough to live with other people who do not remember the past are condemned to repeat it, whether we want to or not.”

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The Latest (Sigh) Jobs Report

Yesterday the August jobs report came out.  It was another in a series of “disappointing” economic reports — to the point where journalists covering employment numbers must have had to hit their thesauruses to try to find new synonyms for “weak,” “soft,” and “discouraging.”

In August, the economy added 169,000 jobs.  It’s a mediocre number, following a series of mediocre jobs growth numbers.  The unemployment rate dropped, but only because we don’t take into account people who have just stopped looking for work.  As the New York Times story linked above reports, the number of people participating in the labor force — i.,e., either working or looking for work — fell to its lowest level since 1978, since the Jimmy Carter administration.  And, the job creation estimates for June and July were revised downward.

There are concerns about the quality of the jobs being created.  Many of the new jobs are part-time positions in the retail and food services where the pay per hour is lower than in salaried jobs.  More then 7.9 million Americans are looking for full-time jobs but are only able to find part-time work.

The analysts react to these reports by debating whether this latest glimpse at a lame economy will cause the Federal Reserve Board to modify its monetary policies, and how the stock market will be affected.  And who knows?  Perhaps President Obama will declare, for the umpteenth time in his presidency, that he is ready to focus with laser-like intensity on jobs, jobs, jobs — and hope that no one recalls that his previous pivots to the terrible employment situation did absolutely zilch to ease the angst of people who can’t find work.

As for me, I try to remember that behind each employment statistic there is a human story of suffering and embarrassment, of people who can’t provide for their families and have seen their dreams explode in a blizzard of unpaid bills and urgent notices from creditors.  Why isn’t their terrible predicament more of a priority for President Obama and Congress?  Isn’t it time that we tried a different approach that might actually help them to find a good-paying job?

The Stock Market, Like Pavlov’s Dog

Today the stock market has rebounded somewhat after a few tough days, although that result could turn on a dime.

What caused the stock market to plummet the last few days?  Poor sales by large companies?  Weak economic data?  Lingering concerns about an unemployment rate that remains too high and millions of Americans giving up on job searches?

Nah.  It’s because earlier this week Ben Bernanke may have hinted that the Federal Reserve is going to tighten its prolonged loose money policy and may actually reduce the amounts of cash it has been pumping into the economy.  Of course, whether the Fed actually is going to change its policy isn’t entirely clear.

It’s sad, really.  We’ve gotten to the point where the Wall Street titans and stock market wizards have become so addicted to the manipulations wrought by the Fed’s monetary policy that the market simply responds, like Pavlov’s dog, to the Fed’s opaque pronouncements.  Ben Bernanke sounds a bell, and the market starts slobbering like Fido expecting a wet can of Alpo to splat into his food bowl.

This should be a concern for all of us, especially those of us who are trying to save for retirement.  The stock market, where so many people keep their money, has become a one-note opera.  The overriding focus is on what the Fed will do.  Actual economic performance, actual company performance, and other “fundamentals” that used to be reflected in stock prices now are overridden by the aggressive actions of the Fed.

It’s not a good thing when the stock market is so easily manipulated, and when companies become so dependent on easy money.  The fact that it is an arm of the federal government that is doing the manipulating doesn’t make it any better.

Ron Gone

Texas Congressman and Republican presidential candidate Ron Paul has announced that he won’t be spending resources to contest Republican primaries in any states that haven’t yet voted.  It’s just another reason why Mitt Romney is now described as the “presumptive” Republican nominee.

Paul always seemed like somebody’s batty uncle.  Now that he’s called a kind of end to his campaign, he can go back to the House of Representatives, where he has served for years and accomplished virtually nothing.  (Of course, the people who support Paul probably think that is a good thing.  When you take a libertarian approach to the issues, you don’t want the federal government doing much of anything.)  Still, Paul was entertaining, and his views clearly resonated with a quirky core of voters.  Accordingly, he deserves a bit of farewell doggerel:

Bring all troops home, so Ron Paul said,

And while we’re at it, shut down the Fed

Time to get government off our backs

Which means we end the income tax

And there’s one other thing we hate

Yes, that would be the welfare state

We’ll also strongly protect our borders

While we all become gold hoarders

So anti-government Ron is done

Now he’ll head back to . . . Washington?

Financial Armageddon – Reader Discretion is Advised

In August of last year I read an interesting book called The Great Depression Ahead by Harry Dent and posted the following blog. Dent’s book summarized that demographic changes and technology cycles predict business and economic trends and that between now and 2014 the stock market will correct to around 3,500 (the market today is trading at around 12,900).

A patron told me about another book called Aftershock, written by three economists, David Wiedemer, Robert Wiedemer and Cindy Spitzer who had correctly predicted much of what happened during the financial downturn of 2008 in their first book, America’s Bubble Economy – Profit When it Pops.

In Aftershock, these economists estimate that the United States governments credit limit is between $15 to $20 trillion (currently we owe $15 trillion) and that once the we reach our credit limit foreign investors will stop or dramatically begin to reduce their lending to us causing failed treasury auctions.

The authors seem to think that this may happen sometime around 2013 or 2014 which tracks closely to what Mr. Dent is predicting. When this happens they expect a “triple double digit economy” with double digit unemployment (they mention it could be as high as 40%), double digit inflation and double digit interest rates. Gas prices will soar, government services will need to be cut, real estate will go much lower and the stock market will tank.

Is it just a coincidence that the Federal Reserve has announced that they will be keeping interest rates at almost zero until the end of 2014 ? I recall Ron Paul saying in one of the Republican debates that “the Federal Reserve must really be worried about something to be keeping rates this low for this long”.

The authors suggest that there is very little that can be done to avoid what’s about to happen because political leaders don’t have the willpower to do something until it is too late. They recommend lightening up significantly on stocks, buying gold and keeping a lot of cash on hand.

Of course no one can predict the future and hopefully what’s mentioned above doesn’t occur, but it might be worth taking some precautions just in case.

What in the Heck is Going On ?

Look  (both hands chopping in a downward motion) – I’ve recently retired and figure I have done everything right okay – never carried any debt except for an occasional credit card bill and my mortgage payment (considered good debt). Always lived well within my means – paid cash for all of my cars – sold my house for a good price and traded down to a small condo back in 2004 which I recently paid off.

A week or so ago the Federal Reserve released a statement saying that they are keeping interest rates at or near zero through at least mid – 2013. So basically what they’re saying is this is a great time to buy or re-finance a house – thanks Ben (Bernanke) but you see I don’t need a house right now, I have one that is paid off ! Keeping rates low means interest rates on credit cards will remain low – thanks again Ben but I don’t use my credit card except when I am taking a trip or in case of  an emergency and I always pay the one credit card I have off every month.

YOU SEE BEN WHAT I WOULD LIKE IS SOME KIND OF RETURN ON MY MONEY FOR CHOOSING TO SAVE AND IT LOOKS LIKE I AM NOT GOING TO GET A GOOD RETURN FOR AT LEAST THE NEXT COUPLE OF YEARS. BEN, I DON’T WANT TO INVEST TOO MUCH OF MY SAVINGS INTO A RISKIER INVESTMENT LIKE SAY THE STOCK MARKET BECAUSE I AM RETIRED AND I AM GOING TO NEED THE MONEY SOME TIME IN THE NEAR FUTURE – I MEAN A BIRD IN THE HAND IS WORTH TWO IN THE BUSH ISN’T IT ?

So yesterday I’m opening my mail and I come to an envelope that says – Important Information About Your Property Value 2011 Reappraisal. I’ve read numerous stories on the internet about home values dropping like rocks and of course Columbus Ohio is no different right, so I open the envelope and WHAT – my condo is now worth 25% less than what it was in 2005 the last time my property was appraised.

THIS REALLY SUCKS ! Ahhhhh – they say that blogging is therapeutic and you know what I think it is, I feel so much better now ! I wonder what tomorrow will have in store for me !!

Red Herring Anyone

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As a semi-retired person the current economic environment has made it very hard to get any kind of return on my money and I would like to see interest rates begin to go up sometime soon. With interest rates at virtually zero, money market accounts and certificates of deposit are paying close to nothing at all.

During the coming week, the Federal Reserve as this article points out is going to announce plans to print more money (QE2) in a effort to boost the economy, create jobs, avoid deflation and thus keep interest rates low. How much more money the fed is going to print has yet to be determined.

The thing I found quite interesting about this article is the writers premise that he believes the “true purpose of QE2 is not to do what’s mentioned above, but to disquise the decreasing ability of the treasury to finance its debts because global demand for our debt is falling.”

Lets face it, we all know that sometime in the future (if not already) China is probably going to scale back their purchases of our debt and when that does happen as the author says “if the truth be known a real panic would ensue”. 

One of the amendments added by independent Bernie Sanders from Vermont, to the Wall Street Reform Bill passed earlier this year, was to have the General Accounting Office audit the fed periodically, but the language was watered down and the audit now only applies to emergency spending by the fed.

So much for government transparency !