GETTING AND SPENDING
by Bill Bonner
"The World is too much with us; late and soon,
Getting and spending, we lay waste our powers;
Little we see in Nature that is ours;
We have given our hearts away, a sordid boon!"
William Wordsworth
"The attack IS a great blow to an already vulnerable
economy," writes my friend Martin Weiss. "As I have been
telling you for many months, the world economy was
ALREADY teetering on the brink even BEFORE yesterday's
attack."
On Tuesday, it got a shove.
Everything changed. But everything remained as it
already was. Martin explains:
"Even as the hijacked airlines flew mercilessly toward
their targets, a flood of red ink had wiped out over six
years of TOTAL accumulated profits of ALL companies
listed on the Nasdaq exchange (see last issue of Safe
Money).
"Even as the upper floors of the World Trade Center
burst into flames, America's largest money center banks
had the greatest exposure ever to derivatives - high
risk bets that are notoriously vulnerable to unexpected
events (according to the latest reports by U.S. General
Accounting Office).
"Even as the 110-story twin towers imploded into a great
cloud of dust and debris, the world's stock markets had
already been tumbling for 18 months or more. The Nasdaq
had lost about two-thirds of its peak value, with over
$5 trillion in wealth destroyed. The German Neuer Markt,
the equivalent of our Nasdaq, had lost roughly NINE
TENTHS of its value. The German DAX, the counterpart of
our Dow Jones Industrials, was down about 45%, the
Nikkei down close to 75%."
But now, for the first time, the fragility and
vulnerability of the U.S. has been exposed to the entire
world.
People will say all sorts of mad things...that stocks
will go up because it is their patriotic duty...or that
they'll go up because wars always make stocks go up...or
that the economy was ready to turnaround anyway. And who
knows...maybe they will be right.
But is it not likely. For the economic picture remains
nearly the same as it was before, with one important
exception: consumers have suddenly grown cautious.
Americans may proclaim their faith in the system. They
will stand with moist eyes, waving the flag and reciting
their newfound sense of national unity. They will affirm
their belief in American capitalism and their commitment
to buy-and-hold investing.
But they will not buy new cars. Nor take luxury
vacations. Amid the images of the dead and dying...of
bodies falling 100 stories...and mass destruction at the
very heart of American capitalism...
...getting and spending, at the margin, suddenly seems
less important.
Consumers will wonder if all their frantic efforts to
build wealth during the boom years was worth it. They
may recall an article in last week's U.S. News & World
Report. The article said that people are ten times more
likely to be depressed today than people born two
generations ago. "Though the quality of life is much
improved since WWII," the authors elaborated, "the
number of people who consider themselves happy remains
flat."
What makes people happy? "Strong marriages, family ties,
and friendships..." say the authors.
Rather than spend an extra 15 minutes working at the
office...people may decide to spend the time with their
families. Rather than upgrade their home computers...
they may make do with the one they have until they are
feeling more confident.
Consumers are becoming hesitant. Not because they
believe the economy is sinking...but just because
spending money has suddenly gone out of fashion.
Something big has happened that is beyond reason...
striking at the deep, dark "rag and bone shop" of the
human heart.
Alan Greenspan blamed the economic downturn on what he
called a "breach of confidence." For him and many
economists, the challenge in America was merely to
maintain consumer spending. As long as consumers
continued to spend, they reasoned, the economy would
continue to grow.
The real problem was not a lack of consumer confidence,
but a surfeit of it. Consumers developed, as Dr.
Richebacher put it, "an unrealistic and unsustainable
excess of expectations in future prosperity...built up
in the past boom years."
The more the economy boomed, the more confident they
became, and the more money they borrowed and spent. But
even as they felt more and more confident, debt loads
piled up like skyscrapers, leaving them more and more
vulnerable to shocks. Now that they've felt the earth
shake...can there be any doubt that they will turn more
cautious?
"This is NOT the end of the world," writes Martin Weiss.
But it feels like the end of an era.
Bill Bonner
dailyreckoning.com |
