What's in Store for the Economy?

by Silicon Valley Blogger on 22 July 2010 7 comments
Photo: narvikk

So does anybody really know where the economy is headed? For a little while there, things seemed to be looking up, thanks to improved stock prices. But with the market having slipped again and unemployment continuing to brew, it's hard to feel confident about the economy these days. Not to mention that we seem to be heading into round two of a stubborn recession, due to uncertain financial conditions in Europe.

How we perceive this economy is completely dependent on the needs of the politician that’s reporting it. What few people realize is that the Federal Reserve, the Secretary of the Treasury, and all those other economists and talking heads all have an agenda, whether it’s to bolster the confidence of the American people in the current Administration or to shake that confidence down to the core.

The truth is that the economy, just like a most other things in life, simply can’t be measured in straight line gains and losses. The economy is so much more than a line graph on a chart. It’s beyond stock and options trading and big corporations. It’s more than just mom and pop stores and consumers. It’s almost a living, breathing organism. The housing market, the stock market, the banks, the consumers, and the government all have a small but significant role to play in the equation and the contributions of each simply can’t be measured in finite terms.

For instance, let’s look at the housing market. Even though there seems to be more activity in the housing market when it comes to house sales, there is still an overwhelming number of houses falling into foreclosure. Does this mean that the housing market is recovering or that it’s still in dire straits? Big banks are finally showing signs of stability and their recovering stock prices prove it. But maybe it's because of the huge subsidies they've received. And is our economy really on the mend when small bank after small bank (somewhere in the neighborhood of 20-50 or more a month) continues to shut its doors?

And what about the stock market? Are we as consumers supposed to be comforted by the fact that the stock market has recovered nicely from its lows? If you notice the market's behavior, there have been equally as many "up" days as there are "down" days, and this is the normal ebb and flow of the ever-volatile stock market. We haven't really made as much progress as it seems.

ARTICLE CONTINUES BELOW

And while the credit card industry looks to be recovering after a tough period of tight credit, issuers are still keeping an eye on the kind of customers they extend credit to. Getting approved for a prime credit card may be just a tad bit easier than it was a couple of years ago, but things certainly haven’t returned to those days of yore when subprime loans, easy credit and quick cash ruled the day. Those days won’t be back anytime soon, if at all.

So as far as the economic recovery is concerned, the truth is that we don’t know what’s going on and where this economy will be in the near term. I believe that the so-called financial “experts” are just as in the dark as we are. Sure they can look at their statistical data and make some educated guesses, but in the end, it’s really no more accurate or scientific than predicting tomorrow’s weather. Sometimes they get lucky and get some things right, but, more often than not, they’re nowhere even close.

So, I’ve vowed to take a step back from the overwhelming wave of “knowledge” and information being floated around out there about the state of our economy, and I've decided to make sound financial decisions based on what works for me. I’m no longer listening to the people who once told me that debt and leverage were the ways to get what I wanted out of life five years ago, but who are now telling me (in an about face) that no debt is good debt.

It would be nice to have that peace of mind of knowing that you can pay your mortgage with only one income if you have to. And wouldn't it be great if you didn't have to worry about losing your car because you hold the title to it? But here's the irony — if we work to minimize our credit card debt, cut down on spending, and make a commitment to live within our means, would we be influencing the course of our economy for the better? While becoming more financially responsible and putting a lid on spending may be what's good for our family budget, who knows what kind of collective impact such changes would have on our economy. After all, doesn't the economy rely on a spending, consumerist base? If we become a nation of hard-core savers, where does this leave the economy?

4.333335
Average: 4.3 (3 votes)
Your rating: None
ShareThis

comments

7 discussions

Add New Comment

CAPTCHA
This test helps prevent automated spam submissions.
Guest's picture
Guest

You know, its a simple formula - spend less than what you make. I was in 11k in CC debt over 2 years ago and now I have 0. I vowed to NEVER do that again. I pay my CC off each month. We were approved for a 200k mortgage, we bought a house for 160k, we even pay an extra 200/mth on our mortgage to pay it off sooner. We own one car and 5k on the other and we make over 130k combined. We have a nice savings account and a decent retirement. We have a 6mths+ emergency fund and we can live off one paycheck if it came down to it. We tested that last year when my boyfriend lost his job right as we bought the house - we even calculated IF it happened again, we would be just fine. Its a great feeling.

I've given advice to my friends, but they don't listen. They laugh and poke fun that I'm the queen of frugal. I've given up being the voice of reason to them and will only focus on how we can improve our financial situation even more. Thank you for posting so much good information on your site. :)

Guest's picture

I really like the line about making, "sound financial decisions that work for me." Isn't this what we all have to do? It is certainly what I help my clients do.

Also, with regard to your comments on uncertainty, I offer Ecclesiastes 10:14, "...no man knows what is to be, and who can tell him what will be after him?" I think it is important for us to acknowledge that we cannot know or predict the future and to plan accordingly.

Guest's picture
Leah

How can it be bad for the economy for people NOT to be on the brink of foreclosure and bankruptcy? Where do savers leave the economy? Safer.

Guest's picture
Capozzi

It's surprisingly easy to put two and two together about the state of the economy, actually. Here it is: America is broke. Banks are not putting the value of these homes on their books so they can appear solvent and leverage their cash elsewhere (namely acquiring smaller banks and have a huge consolidation). Are banks lending money to small businesses and lowly consumers? Not really. Check their books and you WILL see they're still doing major financial investments overseas and with large corporations.

No one should be surprised home values are dipping yet again when they were only propped up artificially through the govt tax credit program. Housing prices aren't going to rise until people actually have the income to buy them and banks ease up on credit. Plus, the banks are not releasing many of their foreclosed homes on the market, so the issue of "supply" in the supply-and-demand' equation is still appearing better than it is.

On an international level, the dollar is plunging (though the Euro's plunge is a nice diversion from the U.S.'s problems): our debt-to-GDP ratio is worse than other European countries bound to bogus IMF austerity measures when factoring in the U.S. Medicare and Social Security which our country simply cannot afford. China's not investing in the TBills with as much confidence and they're looking to get out of the dollar. Asking them to appreciate the yuan didn't help with that one. The U.N. wants the dollar to exit stage left as the world reserve and instead use an IMF-backed currency. The U.S. is looking to go to war with Iran with any excuse it can find in a pitiful attempt to gain control of more oil reserves and revive the economy ala WWII style. Great for Halliburton, Blackwater, other defense contractors and oil companies, but not so much for you and I. This didn't change when Bush exited the White House and Obama entered.

The unemployment rate continues to rise, and anyone who thinks there's such thing as a jobless recovery is only kidding themselves. Just like the housing market being propped up with artificial programs, the census jobs are doing that now. Meanwhile, the underemployed, part-time workers and the discouraged workers make the unemployment rate even worse than what's announced by the BLS.

With regards to the stock market, it's a fool's game. Just look at how many shares of BP were dumped and shorted BEFORE the oil spill even happened. We're told "the economy is getting better" precisely because consumer confidence is what drives the stock market and pays for the jobs of those analysts who feed us this information. Meanwhile, our savings and 401k's are being gambled in this little game. Agenda? You bet.

Do we need to spend, spend, spend to keep this economy going? To some extent, yes. But the logic that we need to spend to excess is like saying we need to binge on twinkies to prevent starvation. Meanwhile, the twinkie company is laughing all the way to the bank. In this case, it's the financial institutions with usurious interest rates laughing at the myth that we somehow need to spend more than we can afford to prop up 'the economy' and by 'the economy' I really mean, 'the CEO's multi-billion dollar salaries.' I'm not against an honest profit. I'm quite fiscally conservative. But I'll be damned if I'm the one subsidizing it under the guise that I'm somehow performing a patriotic act. Think about your monthly bills: how many are going towards the small mom-and-pop shop down the road, or to the electrician? How much of it is actually being funneled into your community? Not much. Quite likely, most of it is paying off debt.

And you're HONESTLY saying "no one really knows or has a clue about the economy?" Shame on you. It doesn't take muddy statistics, ivory tower academics, a slick 'economist' who appear on the major news networks or some crystal ball to illustrate the economy is not, in fact, getting better. Hang on to your seats, folks, it's going to be a bumpy ride. And for the love, educate yourselves. The puzzle pieces are out there. Put them together, connect the dots. There's some truth to that bumper sticker that says, "if you're not mad, you're not paying attention." When the economy tanks later this year, just don't say, "no one could have predicted this."

Guest's picture
Guest

I believe you covered it all and then some, it's hard to be optimistic right now. As someone who lost their job last year and can't find another one, except for every temp job I can get, it's hard to even know what to think anymore. All I can do is hope my glass is half full and hope it stays that way, but I'm worried really worried.

Guest's picture
Regina

Great post. Our household is doing the same things with debt and cars. We are positioned better than some because we chose not to participate in the borrowing insanity. But now there is a feeling of urgency to focus on "our" personal economy and strengthen our base. Too many people we know have lower incomes now and are facing bankruptcy or/and foreclosure. I believe that no one is immune to these possibilities. That sounds doomy but it's all so a reality that I can see within our own circle and that, for us is
the "real economy".

Guest's picture

Bigger government and more government regulation, higher taxes, socialized health care... all are bad for small business which is the backbone of the American economy. I can't see the economy improving much at all.