09.26.07

I’m jealous

Posted in Society at 7:46 by RjZ

And I am not an economist. So really, you should stop reading now because the following is surely uninformed and biased by my sour grapes. I am worried about the future of the U.S. economy. I forecast winds of a nasty storm all blowing in the same direction and none of them are very good for the future.

Three deficits
U.S. Americans have built up record highs in all three forms of debt. The current administration has not only done nothing to limit it’s spending, but in fact has built up the national debt to its record high. Our national debt is likely greater than the number of bytes on your hard drive.

We’re buying a lot of things we don’t make too. Cars, toys, clothing, shoes, we seem awfully hungry for cheap things made somewhere else. (I think it’s great that we can do this, but it’s also really difficult to see the real cost of our actions.) The trade deficit is also hovering around all time highs.

Finally, we’re buying all this cheap stuff with credit cards and home loads. Individuals have record high credit card debt and the collapse of the can’t-do-math home loans represent huge amounts of unmanageable secured debt as well.

The problem with this is that when investors from the UK, Germany, the Netherlands, Japan and above all, China are looking around deciding where to invest their extra cash and considering ‘emerging markets’, the ‘Eurozone’ or hopefully, USA incorporated, many of them are looking at our debt to earnings ratio and thinking twice. That’s gonna hit the stock market at some point. Which is unfortunate because….

Boomers and their kids
Boomers discovered the stock market at least a couple of decades ago. Fueled by extra time, extra income and easy access to easy trading their influx of investment may have contributed to the stock market swings of the .com and telecom era. They’ll do OK though, don’t fret about them. They’ll retire and start withdrawing all that cash they’ve earned. Boomers did so well in the booming stock market that many will probably even have some left over to leave to their kids. All the while, they’ll be spending money on boats, travel and retirement homes which isn’t going to be too bad for the economy, but they’re not investing anything in any new growing businesses either.

What ever’s left over, boomers are likely to leave to their kids. Lucky kids of boomers. They’ve been pretty protected from the growing threat that is life in America (halloween parties instead of trick or treating comes to mind) and now, when their parents finally pass away, they’ll get a nice lump sum for their retirement. Quite the legacy. Some of them, I’m thinking Paris Hilton, will spend the money like blood squirting from a coronary artery, and some will see the opportunity and build great new businesses with this unexpected seed money, but the majority will do the best they can and basically spend the money for better houses, cars and clothes. They’ll make ends meet and live a little larger, but pitifully few of them have will have the experience or the discipline to do what their parents did and grow that money. They’re not likely to have this discipline, after all, because their parents made a concerted effort to shelter them from it.

So, we’re in debt, investors will think twice about choosing the USA for their money (don’t believe me? check out the value of the dollar which essentially represents a stock market certificate in USA inc.) boomers are withdrawing money and their kids are too young to even think about retirement, so they’re likely to spend it. It’s a recipe for short term gain and long term pain.

My only proposal to solve the problem is to educate the lucky boomer kids who are receiving the inheritance now about retiring and investing. I don’t see how it would work, but it might help. Any (other armchair) economists out there think I’ve got this right?

1 Comment »

  1. Aaron said,

    September 29, 2007 at 12:32

    I’m no economist,
    but I do know
    that the US dollar
    (at just over 37 Thai baht
    to the dollar when
    I arrived here
    over a year ago)
    is dipping below
    30 baht per dollar.

    And that’s against a country
    that recently had a military coup
    and still has no elected government.
    A land pithily described as
    “where common sense prevails
    after every other option
    has failed”

    Let’s just say
    I ain’t plannin
    to sing no Lee Greenwood songs
    in the near future

Leave a Comment