Search Results for: label/consumer spending

Big Government: Pendulum or Runaway Train?

Ever since FDR “saved” the economy – either through his welfare and public works programs if you like his fiscal model or by entering World War II if you believe the country was going to turn around on the basis of a business cycle anyway – despite his inept handling of the Depression – the size and role of the federal government in the business life of America has continued to grow.

Truman was too busy fighting wars and dealing with new international realities with our Soviet allies to leave a huge mark on America Inc., but conservative president, DDE, built the interstate highway system with a heavy dose of liberal spending, a symbolic and tangible symbol of a more federally driven America economy.

JFK we hardly knew you. We’ll never know his spending agenda based on his short tenure, though his activism in other areas might lead us to believe he would have been big government in all ways.

Inspired by political activists like author John Steinbeck – and in a well-documented strategy to secure minority votes, LBJ attempted to build a ‘Great Society’ – a phrase he borrowed from Steinbeck – to further expand the government’s role and responsibility as the provider and protector of the people’s welfare.

Let’s break from this historical free for all for just a second. Everyone, including politicians of all stripes, is concerned with the welfare of “the people” and individual persons. Whether one cares is not what is being debated, though in the political world it is posited by big government proponents that if you don’t want government to take responsibility for people’s welfare you don’t care about people’s welfare. The fiscal conservative or political libertarian will argue that he or she cares just as much about the welfare of individuals, he or she just does not think government does a very good job of supplying it. They want an old school model that limits the role of government to good laws and national defense – and leaves individual welfare up to individual effort, which will be much more productive and efficacious in a free enterprise system the thinking goes.

But what happens when that doesn’t work, big government proponents ask? Some free enterprise advocates agree with having clearly defined and limited temporary aid measures in place – others argue for the “family and friends” need to save you program. But based on what we’ve seen so far in our historical foray, there really haven’t been too may free enterprisers in control, no matter what we might assume from party affiliation.

RMN actually toyed with price controls, which would made him a hero among Marxist ideologues and an enigma to his independent, puritanical forebears, but ultimately, he poured his attention on foreign policy and then shifted his focus to another set of problems that were a little more personal in nature.

JC. We hardly knew you. Stagnation and malaise were the order of the day. The result of bad business or too much government intervention? Carter wasn’t sure there was a possible solution from the government or private sector and suspected we might be headed for leaner days. He spoke about those suspicions a little too forthrightly and the electorate lost as much confidence in JC as in the country’s future.

That ushered in the reign of RWR, who was sure it was the latter, too much government intervention, that was the problem. No one in the media and not even his vice president believed in his “voodoo” economics, but he get elected. He cut capital gains taxes, eliminated and simplified regulations to doing business, and cut income taxes for the middle and upper middle classes. (He would have done the same for the lower and wealthiest classes but it is impossible to cut anything from nothing.) It can be argued that he restored America’s business star, setting the stage for the largest capital growth campaign in history and the rise of Bill Gates. What he didn’t do, however, was cut government spending. And it wasn’t just because he built up the military. Liberals and columnists – I would have said Liberal columnists but why be redundant? – bemoaned all the benefits he cut from the poor. Not true. He did occasionally cut government program increases but never spending.

GHB (W’s dad). We hardly knew you, either. I do recall H was kinder and gentler than Reagan – at least he said he was – and raised taxes to prove it despite the protests of lip readers to the contrary.

WJC got his butt kicked on socialized medicine early in his first term. His solution? Keep Hillary away from Congressional hearings and enjoy Reagan’s promised ‘peace dividend.’ Then he started experiencing the joy of balancing the budget and reducing the federal deficit so much he went out and tweaked some welfare policies so that they became workfare policies. For the first time in 60 years people were involuntarily cut from welfare rolls. Bill might be the last and the only fiscal conservative of the past 100 years. Deep down, I suspect that still bothers him.

GWB. Or just W. A man of principle, faith, and profligate spending habits. He and the man who followed him, BHO, are architects and builders of an expanded role for government through TARP(s) that might have made FDR’s head spin. Even the German socialists are confused. When they throw money at economic problems it is at least to save unnecessary jobs. In America’s iteration of corporate welfare, it is to eliminate jobs and save companies.

The latest Obama move has been to appoint a ‘Special Master for Compensation’ to oversee executive and employee pay at companies that accepted government bailout money. Any wonder so many are fighting like crazy to give this ‘free’ money back? Any wonder Hugo Chavez, left-wing socialist president of Venezuela, claims he is more right wing than Obama?

So is the size and scope of the federal government cyclical – a pendulum that is simply on a high note of growth? Or is it a runaway train navigating hair-pin turns as adroitly as possible?

If these economic days are tough on your personal welfare and you see a bright shining light ahead, it might mean there is hope at the end of the tunnel for you. Or it might mean you better jump off the track in a hurry if you don’t want to get hit!

Overheard at the Gym: Prices are Soaring

She said “hi” but I was on minute-28 of an elliptical workout at the YMCA so I was red-faced and could barely breathe. It was pretty obvious I wasn’t going to be good for a conversation that included formed words and thoughts. I guess she forgot her ear buds and was bored and wanted to talk so she looked the other way and started a fairly loud conversation with the person to her left. I kept trying to breathe – and since I forgot my ear buds, too – I couldn’t help but eavesdrop.

The key revelation I picked up was that she had asked for two tea bags at a coffee shop that afternoon and was charged $2.25 each, which somewhat angered her and led to a sharp exchange with the waitress that ended with her telling the waitress, “I’m drinking your tip.”

I’ve always thought it was unfair to punish a waiter or waitress when a dining problem is clearly outside of his or her control. Like prices posted on the menu. Or a grease fire in the kitchen. And all that begs the question of why she was ordering tea in a coffee shop in the first place.

But what most caught my attention was that she was at least the fifth person I had heard in a 24-hour time frame that was complaining about how high prices are. If you’ve checked costs on homes and many commodities you already know it’s a seller’s market out there – if you can find someone that can actually afford what you have to sell!

What I think I was overhearing was actually a micro example of a fundamental psychological shift occurring on the macro level in America. We’ve always complained about prices – except when bragging about how much we paid for something – but I think now people really mean it.

Could it be that we are shifting from being consumers to conservers again? A lot of pundits will say it’s about time. That sounds as good and right as saying you’re only going to help people who can’t afford their homes because of bad luck rather than those who can’t afford their homes because they were greedy. But many economists will remind us that the Great Depression was caused in large measure because people stopped spending and investing. Consumer spending does create the magical process of turning a company’s inventory or services into cash, which is usually a requisite for staying in business.

But that doesn’t mean we haven’t been incredibly greedy and overspent on the aggregate – and as individuals. This seeming personal course correction – possibly nothing more than a temporary dip in our mad spending ways – is undoubtedly overdue but we shouldn’t be naive that there won’t be more corporate casualties. Whatever you think of companies – unfair, unfeeling, unscrupulous or anything else unflattering – they are entities that provide jobs.

So what’s the takeaway in all this for me? First of all, I’m not going to forget my ear buds again. And secondly, I’m limiting myself to one tea bag!

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Broke for the Holidays

You might be broke for the holidays if …

1. you think Ebenezer Scrooge is a great role model.

Broke for the Holidays

Are you broke for the holidays? And more so afterward?

2. the cashier at Wal-Mart begins to laugh hysterically after you swipe a credit card that you thought might have a little credit left on it to pay for your purchase.

3. you decide that friends and family members really would prefer a homemade present from you even though you’ve never made anything homemade in your life.

4. you ignore the Salvation Army bell-ringer and use your pocket change to play the lottery.

5. you raid your closet to find unused gifts from last year that you can wrap as presents this year.

6. you undercut prices of the kid down the street to grab market share in the snow shoveling business in your neighborhood.

7. you show up at your rich cousin’s house for Thanksgiving and stay through New Year’s Day.

8. you volunteer to help at a soup kitchen so you can take your spouse out for dinner.

9. you go Christmas caroling in your neighborhood and carry a very large tip jar.

10. you head downtown to look for beggars you can borrow money from.

11. you decide on a fresh-cut Christmas tree this year … and it’s the tree that used to be in your next door neighbor’s backyard.

12. you announce that hors d’ oeuvres for the party at your house will be served in the food section at Sam’s Club.

Okay, being broke for the holidays really isn’t funny and is certainly no laughing matter if you are the one impacted by it. On the other hand, everyone knows that Americans are too materialistic in general and put way too much emphasis on spending money to make the holidays jolly. We also suspect this is going to be a much leaner holiday season for millions.

So this might be the year a number of individuals and families change their priorities and spending habits for the Christmas season out of necessity – and find themselves richer for the experience. That same individual or family will hopefully be reminded of the importance of generosity and giving in future years when they have plenty because they’ll remember what it feels like to be without and be much more aware of the needy around them.
Whether broke or rolling dough this year. just remember that the ho ho ho that springs from a generous always sounds better than bah humbug heard from a miserly heart!

So how do you plan to spend the holidays?

The Subprime Crisis and Your Future

For most, the American dream has included owning ones own home. One of the most important reasons is that it has traditionally been a key component in ones retirement portfolio.

The thinking goes like this: buy a starter house, fix it up, leverage the improvements and appreciation that have increased your equity stake, sell it, and then sew the proceeds into buying a bigger and better house; repeat those same steps with your new house to secure your next upgrade; repeat until sometime in your mid-thirties to late-forties at the oldest, buy your dream house with terms that insure it will be paid off no later than the day you retire, thus eliminating and in essence “fixing” one of the biggest variable expenses at retirement age, when odds are your income will go down or be eroded by cost of living adjustments.

Even as America got mobile and people cris-crossed the country with moves, the above scenario worked because of a persistent and unrelenting appreciation of home values. A transitional lifestyle might create a few lateral side trails, but the assumed destination has been the same: a home owned free and clear to live in — or to sell in order to pay cash for a downsized home (while pocketing the proceeds) or in a more desired retirement location.

Something quietly shifted in the equation that is a direct corollary to the boom in the use of consumer credit as a way of life. Home prices continued to rise well beyond the inflation rate, thus increasing equity, which is another way of saying, “wealth.” But rather than letting the home nest egg grow, we turned this windfall into a new revenue stream for living expenses, usually by refinancing an entire mortgage with debt added in or by taking a second mortgage(s) to pay off credit debt rather than to do home improvements, another traditional way to increase equity.

It’s been said that retirement should not mean no more work — idleness is bad for your health — but rather it should lead to the ability to do whatever work you want, ranging from volunteerism to a second career.

A few of the potential impacts on our future in light of the subprime crisis and ensuing loss of home values include:

* we may have to work more years full or part-time than we planned because part
of our retirement package has been damaged;

* it’s tougher to move — unless a company is guaranteeing the sell of your home (and a lot of companies have been forced to eliminate this program) — and watch your home sit on the market; even if there are great deals where we want to move, most of us can’t afford to buy without first selling;

* with less “wealth” we don’t have as much credit available to spend on those goods and services outside our normal income stream — which will hurt the easy-credit-fueled economy;

* you might not be able to move where you want to at retirement age — not all regions are equally impacted by the subprime crisis in relation to home values; there’s a reason small “ghost towns” in areas of the country that have experienced
population loss for decades are filling back up — cheap mortgages.

Will home values bounce back? I believe the answer is yes. But I think it’s going to take a few years. There seems to be too much inventory with so many people insisting on building new homes. But new house starts are finally going to slow down, which will be one more stressor on an already stressed economy, but which is required to tighten the housing supply and raise prices. How can I be so sure? Simple. If it costs $130 per square foot to build a new home and it costs $90 per square foot to buy an existing home less than 10 years old, home buyers are going to figure ways to freshen up and personalize the existing inventory. The per square foot cost gap is at its highest ever on a national aggregate.

As someone who has benefited tremendously from the appreciation model — and then taken an “equity beating” during a recent move (that included building a new home) — I am realistic but optimistic that owning a home still needs to be a key strategy in securing your best financial future. Obviously, our future, financial and otherwise, is not just up to us, but I’ll throw out a couple modest suggestions:

1. Get on a schedule to pay off your house before retirement. If you aren’t familiar with the simple little secret of making double principal payments, which will allow you to cut your 30-year mortgage in half, visit any reputable financial website to learn how — it’s not nearly as daunting as it sounds. If you’ve elected one of the dreaded interest-only loans, put a principal payment into your monthly automatic payment schedule and start paying down — yesterday.

2. Don’t treat appreciation as a revenue stream but rather a long term investment — retirement. Second mortgages and refinancing as an ongoing strategy to eliminate debt needs to be eliminated.

3. Don’t put your eggs in one basket — your retirement nest egg should be a diversified program with IRAs, 401ks, Social Security, personal savings and investments, company retirement plans, ideas for post-retirement income, AND a home that is paid for!

4. Get bad spending habits under control. Enough said.

5. Outgrow your problems. To have more, you have to become more. Don’t float along in life, make a plan and build disciplines in your life for growing emotionally, socially, mentally, and most of all, spiritually.