Wednesday, May 7, 2008

The Great American Distraction

“Thou shalt not covet.”
- God (The 10 Commandments #10)

I had occasion to visit a large “consumer electronics” store recently. It is probably the largest store of its kind in my metro area. If it beeps, flashes, projects, broadcasts, computes, rings, networks, communicates or otherwise distracts one’s attention, this place has it. And how. It is the largest toy store in town.

When I go to places like this one – which isn’t often – I find myself asking questions: “How are the people buying all this stuff paying for it?” and “Is this something they need or is it just entertainment (either what they are buying or the time spent in the buying)?” and “How much of the stuff in here was made in America by American workers?”

The U.S. has become the world’s largest consumer market. Not coincidentally, the U.S. is also the world’s largest debtor nation. Our IOUs have found their way to every corner of the world.

It is not my intention to book the reader a ticket on a guilt trip. The U.S. is still the “land of the free” – it is not illegal to spend money in whatever manner one wishes.

However.

If you consume all you make – and more, by leveraging your income with credit cards and home equity loans – you will never become financially secure.

Too many Americans are scurrying in the Lemming Parade over the edge of the cliff following the bigger house, newer car and larger plasma TV into the abyss. Every one a distraction.

What is our own government telling us to do with that $600 tax rebate? “Go out and spend it.” I’ve already seen ads that promise to “double your tax rebate if you spend it in our store”. The vendor is willing to take a $600 hit to keep the goods flowing through his store. Do these messages sound a little desperate to you?

In the meantime, the Federal Reserve – supposedly independently in charge of monetary policy and primarily interested in price stability – has been slashing short-term interest rates attempting to mute the effects of a recession that has already begun. In theory, lower interest rates lead to growth in business and consumer spending. By the way, consumer spending is about 2/3rds of the U.S. economy. No wonder the government and the Fed are so desperate.

In the coming months you’ll be seeing a lot of articles and advice about the “New Frugality” – not spending and saving money will become hip here in the United Consumer States.

Questions? kimm@sweetwaterinv.com

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