FRUGAL TO A FAULT
by Bill Bonner
There was a time when thrift was a virtue. "A penny saved
is a penny earned," dead people whisper.
Accountants with sharp pencils even noticed that a penny
saved was more than a penny earned, 40- 50% more; it was
not subject to state, local and federal income taxes.
But now thrift is regarded no longer as a virtue, but as a
mental disorder.
Evidence comes from a magazine spotted on Long Island, via
Grant's Interest Rate Observer. The publication, entitled
Real Simple, tells the story of a poor woman named Morning
Naughton, 34 years old in the flesh, hundreds of years old,
perhaps, in spirit.
If the phone doesn't ring at an expensive jewelry store
this morning, it will be Ms. Naughton who is not calling.
If there is no one admiring the new SUVs in a North
Carolina showroom, it will be Ms. Naughton who has stayed
at home.
If you were to check the credit card records for sales of
expensive vacations, fancy hotel rooms, extravagant fur
coats or top restaurants, you would not find Ms. Naughton's
name.
Alas, says Real Simple, the woman has a real problem; she
is "frugal to a fault."
"She has never had credit card debt, she pays all her bills
on time and she typically saves $500 each month - on a
salary of about $30,000," we are told.
"Her husband, Jason Michaels... worries about her inability
to indulge herself... or him." The plot thickens. "And he
wonders if her scrimping sends the wrong message to their
child. "I realize she can't help herself," says Jason. "But
her obsession with saving can drive me nuts."
But never was there a problem under the bright sun of
America 2004 that didn't have some sort of fraud creeping
in the shadows of its debt bubble. Reading about Ms.
Naughton, economists are likely to see a threat; if other
consumers were to do the same, the whole shebang would be
in trouble. Psychologists, on the other hand, will quickly
see an opportunity; some may prepare 12-step programs to
help overcome it. Others will offer drugs and counseling.
For the present, both economists and psychologists can
relax. If frugality is a disorder, it is too rare to worry
about. The odds of coming down with it are as remote as
integrity in public office.
Besides, thrift - even if it is a disorder - is one that
comes and goes. If people are saving too much, or too
little, just wait.
Ms. Naughton - through no fault of her own - tumbled into
an unusual situation. One generation creates; the next
dissipates. One generation earns; the next burns. One
generation composes, the next disposes. Morning Naughton
was merely born at the wrong time.
"In the '70s," begins a letter from a Daily Reckoning
reader, "I recall seeing many people, children of the
Depression, ravaged by inflation. They remembered the 'bad
times' and were loath to take on debt - even if it would
have been prudent to borrow and pay back in cheaper
dollars. In the face of rising prices, they would slam
their wallets shut or buy used, rather than new - 'I'd
never pay that much for a new car!' They held their
dollars, steadfastly refusing inflation hedges, and
watched, even increased their dollar position, as the
inflation storm ravaged their holdings."
"When Morning was 9," continues the Real Simple analysis,
"her parents divorced, and she moved with her father to
Cape Cod. Her dad did some construction work to make money,
but he was an artist at heart... She worked at a multitude
of odd jobs, including baby sitting, to make money. At age
10, she opened her first savings account. At 13, she
started paying all the bills by filling out the information
and having her dad sign the checks...
'My childhood left me with this extreme anxiety about
parting with money. I always need a safety net.'"
She may be the only American on two legs who still worries
about falling. But she can always try therapy.
"Were it not for her husband and child, Morning... might
not be motivated to change," Real Simple explains.
"After more than 20 years of belt-tightening, Morning knows
she needs to relax. 'I don't want [my son] Spencer to grow
up with the same money anxieties I have,' she says. 'Being
so frugal has become a burden, and I want to change. But
it's hard after a lifetime of being this way.'"
We wish her luck. But we offer advice: Don't change too
much. Old habits might turn out to be useful. Our Daily
Reckoning correspondent from Pittsburgh offers this
insight:
"Now everything seems reversed. In this deflationary
environment, people are spending like crazy, afraid that
the low prices they see are going to evaporate, convinced
that debt will always be paid back in cheaper dollars.
When I drive around, I don't see old cars anymore - the
oldest cars on the road seem to be 5 or 6 years old. Seeing
a 10-year old car is an oddity. Two years ago, I bought a
TV with a MSRP of $1,299 for $850 and paid 50 bucks to have
it shipped across the country, because it was the best
price. A year ago, we sold the TV when we moved and
replaced it for $600 at a local store. Four months ago, I
found out my parents' set died, and I bought them the
identical set for $450.
"I finally began to catch on to this deflation business,
but a little voice in my head keeps screaming: 'That's a
great deal! Buy now! Buy now! Buy now!' I'm 'built' on
inflationary expectations - as, I'm convinced, most
Americans are. People are spending their dollars, their
un-secured credit lines, even their homes. The dollars are
gone, the credit cards and home equity lines maxed, and the
low prices are still there - frequently perversely taunting
the consumer by going lower still.
"Frankly, I've enjoyed the shopping spree, but dollars are
starting look a lot more valuable than I thought they
would. Wouldn't it be ironic if the Fed couldn't destroy
the dollar even if it tried... "
If the Fed cannot destroy the currency, saving dollars
could become popular again. Who knows? Frugality could make
a comeback. It always does.
Regards,
Bill Bonner
The Daily Reckoning |
