Thursday, March 24, 2011

How About We Stop Playing With Ourselves?

All the smiley-faces drawn by government pointing to a recovering economy doesn't change reality which goes something like this:

Almost three-quarters of the U.S. economy comes from the American consumer. It follows that unless consumer shops, there can be no real growth.

And that's why there's no real growth -- adjusted for inflation, the wage of the average American employee is lower today than it was in 1973.

So, you may be wondering, "So, if wages didn't go up how did we buy all this crap?"

Good question and here is the answer: We borrowed the money. Indeed, total consumer debt has gone from about 150% of GDP to over 370%.

Until 2007, the feds overruled every correction by turning on the money faucet.

But, about 2008, that dog would no longer hunt. The private sector economy was saturated with debt. It could hold no more.

So, the government took over the position of resident deadbeat and has been borrowing and printing money like there is no tomorrow. The country supposedly in "recovery," can no longer even pay the interest on its debt. Rather, it's now borrowing the interest, too, and "paying" (to use that term loosely) interest on the interest by borrowing some more.

Joe Lunchbucket, on the other hand, can't borrow now and wouldn't even if he could. He took the butt-kicking of a lifetime the last time he tried borrowing and found out his home, which he confused for an ATM machine, ran out of cash.

What about the recent increase in consumer credit? Most of it is simply an increase in borrowing from the government in the form of student loans which themselves have a shocking default rate, not to even ask the question, "What are these young people doing exactly with these 'educations'?"

Bottom line? The average American employee, and some not so average American employees, are not going to drive the economic recovery promised by the federal government if only because they can't. The ones who have jobs are trying to keep them and pay off debt, while the ones who don't have jobs don't have credit. Both, however, do have houses that are falling in value like a sack of dead cats and they know it and they are buying (or better said "not buying") like they know it.

The only cheerleaders for this economy besides the government are those invested the stock market which not so miraculously has recovered much of its losses since 2008. Amazing what a few trillion dollars injected into an economy can do. And, we're about to see what happens when you jerk the whiskey nipple away from the alcoholic since QEII is supposed to end in June.

So, what's an employer to do? The same as always -- tell the truth. Don't paint a smiley face on a pig and call it a purse. Encourage employees to do what many of them are doing for the first time in their lives -- living within their means.


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