Recessions, in large part, are a result of waning consumer confidence. So at first glance it makes sense to look past the bad news and get people’s glasses optimistically half full again. Writing for The Daily Beast, Mark McKinnon urged President Obama to stop being so concerned with managing expectations and communicate enthusiasm. “You were elected because you are a walking, talking hope machine” writes McKinnon. “Plug that sucker back in and crank it up to ten.”
Not so fast there Mark. The U.S. has deep, systemic problems that would only be temporarily masked if hope-crazed consumers blindly dipped into savings, ran up credit cards balances and took out new loans to spur another fleeting rise in the gross domestic product (GDP) of which 70% is driven by consumer purchases.
“Rule one: Never allow a crisis to go to waste,” Obama’s chief of staff Rahm Emanuel said in a recent interview with The Wall Street Journal. “They are opportunities to do big things.” Emanuel, though speaking of the fear mongering being used to push the Obama agenda, may be on to something. The economic crisis can be used to drive home some painful lessons that government, business and individuals are in desperate need of learning.
Government spending, which accounts for 19% of our GDP, has far exceeded revenues for years. Were we to address our national debt--which stands at $10.9 trillion dollars today--every man woman and child would need to cut at check for $35,809.65 And that staggering sum ignores the additional $56 trillion in unfunded liabilities needed to support social insurance programs such as Social Security and Medicare—programs that are set to implode.
Worse yet, the deficit continues to grow at the rate of $3.71 billion dollars a day and the Keynesians in charge of the government purse strings see cranking up that deficit to be the only solution to the current economic crisis.
Despite years of lip service concerning deficit reduction, politicians have shown that they can’t make hard choices. Our rate of indebtedness is so great that if were we to apply for membership in the European Union we would be rejected. The debt-to-GDP ratio for the U.S. is in the neighborhood of 76%, far in excess of the 60% maximum established by the European Union’s Maastricht Treaty.
Proving that the only thing worse than complete Republican control of the reigns of government is complete Democratic control, the three tax-and-spend horsemen of the Apocalypse--Obama, Pelosi and Reid—are out to prove that government, government and more government is the cure for what ails us. Perhaps the pain of a deep recession, coupled with the realization that government can’t magically make it dissipate, might be what’s needed to show Americans that the two party system is broken and real change in government is imperative.
What’s more, it appears that American businesses might need a little pain therapy as well. In the past, recessions have served as the harsh taskmaster that forced businesses to cut costs, streamline operations, diversify their customer base, ratchet down inventories and focus on service. But in today’s climate of government bailouts, the only lesson businesses seem to be grasping is how to grovel and beg at the off ramp of the Federal government expressway.
Bankers, who in recent years hastily and irresponsibly wrote loans because they knew they could be repackaged as securities and sold off to investors, don’t need a bailout. They need to relearn the importance of writing solid loans that have a legitimate prospect of being repaid.
Automakers need to respond to changing market trends and build products that attract consumers who are concerned about the environment and who are still reeling from recent spikes in gas prices. Of course durable goods sales are down 28%, everyone is waiting to see the auto industry’s next move. The first round of automaker bailouts taught no lessons and only served to delay painful, but necessary restructuring.
Though socialist systems have failed for years, the U.S. seems hell bent on proving that to itself. Having sunk approximately $70 billion into AIG, the government now a 78% shareholder. What lessons has AIG learned under the government’s tutelage? According to The Wall Street Journal, AIG is now discounting offerings so heavily to attract new business that they are saddling themselves with policies that will be unprofitable for years. Bailouts don’t help businesses operate more efficiently, they just subsidize ineffective management.
If American’s weren’t so busy pondering important issues such as the merits of the octomom’s latest video blog or whether Rhianna should get back with her abusive boyfriend we might be able to learn some lessons from this recession as well.
First, we need to unlearn the dangerous lesson taught by the housing boom: Don’t worry about the credit card debt you are racking up because house values only move in one direction—up. When you get saddled with too much consumer debt, simply refinance your house and pay down those balances.
Second, if the housing bust made one thing clear it’s that someone who has not learned to manage their finances well enough to put together a significant down payment probably has no business buying a house. Homeownership entails unanticipated costs. A leaky water heater, new roof or blown air conditioning unit can quickly overwhelm someone who only knows how to live paycheck-to-paycheck. Yet Obama and company feel the need to bail out these unfortunates as well.
Fortunately, it appears that the recession is teaching individuals one important lesson. Savings rates jumped to 3.6% in December 2008, 3 times the 2007 average and far above the 0.04% rate in 2004 during the housing boom. Fear apparently is an effective teacher.
Refined by their struggles during the Great Depression, my parents, Preston and Frances Bell, exemplify frugality, preparedness and living within one’s means. Values they had etched into their core during years of struggle and hardship. Though never wealthy, the current economic downturn has left them unfazed. Their house is paid for, bills are almost nonexistent, and cash is on hand. Contrasting my parents with the majority of Americans who have immediate gratification as their mantra, one can only hope that the current recession teaches some long overdue values.
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