Fair use for educational/research purposes only!

Economic Mirages

I guess the American consumers simply refuse to let go. In my last essay I reversed what I was trying to say about consumer confidence. Hey I'm free. And thanks for the surly emails accusing me of being too cynical. Now where would anyone get that idea? Hey, if you can't accept we're headed for ecological catastrophe, that's not my problem. It should be much clearer by 2005 or so.

Americans do realize things aren't too good economically right now, but are optimistic for the future. Exactly why they are optimistic is unclear to me. The Consumer Index rose from 109 to 117 and the futures expectation soared from 70.7 to 83.6. The Present Situation Component went from 167.1 to 167.2 The reason this fascinates me is there is no economic reason at all for this kind of wild swing in future expectations. There also wasn't any reason for the DOW to go up 400 points last Thursday or 250 points today. Amazon.com went up 30% because they announced they would only lose $250 million plus and not the expected $300 million plus in the quarter. A company that has never had a profit announces it will continue to lose money, but not as much as people thought, and that lifts it stock 30%. Like the confidence numbers, this is truly scary.

There was another group of people, albeit fictional, who like the Americans refused to believe a looming disaster beckoned them. Superman's home planet of Krypton was populated by people who refused to believe Superman's father when he warned them of imminent planetary chaos. They refused to listen and in one memorable scene in 1979's Superman movie their whole city, screaming inhabitants and all, is swallowed up by a giant crack in the surface. Personally, as an unrepentant sexist pig, I've always felt the loss of any society, even one that doesn't exist, where all the women wear tight spandex all the time, was a crushing blow to the universe.

I was thinking of Superman's home planet when the March consumer confidence numbers came in. Am I somehow missing it? Are the American people seeing something in our economy that I'm not? Are the businessmen who are battening down their economic hatches wrong? Is the NASDAQ collapse a fantasy? Of course not. I'm right and they're wrong. Here's what I saw in March that leads me to believe our economy is tanking. I saw layoff notices for Mexican factories along the Texas border making automobile tires and other automobile parts. I saw both Stock Markets suffer week after week of losses. I saw American consumers add $13.5 billion in credit card debt in March, even though total consumer debt, including mortgage, now equals 107%. I saw the power crisis stagger California first, including a $9 Billion Utility default, and then head north into Oregon and Washington. The Bonneville Power Administration said today it's either going to hit consumers with a 250% rate increase in October, or shut down the entire Aluminum Industry in the Pacific Northwest. Gasoline prices are expected to surge this summer again. Auto sales are going to the Asians and Europeans and not the Big Three, which suffered sales declines in March. The list goes on and on and on. Commercial real estate is now beginning to show signs of declining rents and increases in vacancy rates in city after city. San Francisco has lost 30,000 dot.com jobs.

Yet, none of this apparently impacted the American consumer confidence numbers. The stock market was dismissed because its for retirement in 20 years. Home values haven't started to collapse-yet, so who cares about commercial real estate in major cities. I've got a job so why not refinance one more time and hit the credit card again? The American people either don't get it at all, or refuse to believe what they are seeing. In either case, it makes no difference. The lapdog press is telling us this is a business lead recession caused by a collapse in capital spending. What's really happening is a credit and debt bubble is imploding one sector at a time. As such, consumers don't understand what's happening until it hits employment. Employment is always the last sector to be affected. Employment is the last bastion of defense for the debt laden American consumer. Once the jobs go, everything goes with it. The home, the car, the credit card are all sucked into the vortex. Well, the jobs have been going for several months in manufacturing, but nobody cared or even noticed. Now the unemployment rate just went to 4.3%, with more increases in the future. Once the unemployment rate hits 6%, watch consumer spending and confidence numbers collapse.

If the American public wants to be like a thirst crazed desert wanderer and stagger after one final mirage, then so be it. I'm afraid once they get there, they will find sand and not water. It's the debt stupid. And once the jobs start to go, it will be too late for American consumers to do anything but retrench and start saving. Of course, when they do that, exercise historical prudence in economic matters, our modern fiat, credit and debt illusion will collapse under its own weight.

Isn't it ironic that if modern Americans start acting like past, economically prudent and fiscally responsible Americans, our modern economic system will collapse? The day will hopefully come when modern Americans emulate Ben Franklin's words to the wise as expressed by his thirteen virtues. TEMPERANCE: Eat not to dullness, drink not to elevation; SILENCE: Speak not but what may benefit others or yourself; avoid trifling conversations; ORDER: Let all your things have their places; let each part of your business have its time; RESOLUTION: Resolve to perform what you ought; perform without fail what you resolve; FRUGALITY: Make no expense but to do good to others or yourself; i.e., waste nothing; INDUSTRY: Lose no time; be always employed in something useful; cut off all unnecessary actions; SINCERITY: Use no hurtful deceit; think innocently and justly, and, if you speak, speak accordingly; JUSTICE: Wrong none by doing injuries, or omitting the benefits that are your duty; MODERATION: Avoid extremes; forbear resenting injuries so much as you think they deserve; CLEANLINESS: Tolerate no uncleanliness in body, clothes or habitation; TRANQUILITY: Be not disturbed at trifles, or at accidents common and unavoidable; CHASTITY: Rarely use sexual intercourse but for health or offspring, never to dullness, weakness, or the injury of your own or another's peace or reputation; HUMILITY: Imitate Jesus and Socrates.

What do you think Ben Franklin would think of the derivative market for instance? And for sure he learned the lesson of Revolutionary War fiat folly called the Continental. I'd say Ben was probably a gold bug.

Doug McIntosh

13 April 2001

http://www.gold-eagle.com/gold_digest_01/mcintosh041301.html

-- Martin Thompson (mthom1927@aol.com), April 12, 2001

Answers

Consumer Confidence Weakening

By John M. Berry Washington Post Staff Writer Thursday, April 12, 2001; 1:12 PM

American consumer confidence is faltering as workers are becoming increasingly worried about their job prospects, several economic reports indicated this morning.

The University of Michigan's consumer sentiment index fell to 87.8 in early April from 91.5 in March, according to preliminary results of this month's survey. Consumers were more pessimistic both in their assessments of current conditions and their expectations about how the economy will fare in the future.

Analysts said the resumed decline in confidence poses a serious risk to economic growth. If consumers decide to cut their spending, the very slow growth of recent months could give way to a decline in economic activity – in other words, a recession.

Two-thirds of consumers believe the economy is already in a recession, according to the Michigan survey.

"Confidence fell in early April as consumers became more distressed about their current financial situation and more pessimistic about the outlook for the national economy," the survey statement said. "Concerns about future job prospects also heightened, as the majority of consumers expected the unemployment rate to continue to rise during the year ahead."

Meanwhile, the Labor Department said that initial claims for unemployment benefits rose by 9,000 last week to 392,000, the highest figure in five years. A number of analysts said the irregular but nevertheless steady upward march in claims points to a rising jobless rate in coming months. That rate has already moved up to 4.3 percent last month from a three-decade low of 3.9 percent last October.

Perhaps reflecting the rising worry about jobs, retail sales fell 0.2 percent last month after being flat in February and up a sharp 1.3 percent in January, the Commerce Department reported.

Sales at auto dealers dropped 0.8 percent while other retail sales were off only 0.1 percent. Even with last month's weakness, sales for January were so much stronger than they were late last year that for the first quarter as a whole, retail sales rose at a 4.5 percent annual rate. In the fourth quarter, when the economy grew at a 1 percent annual rate, spending at retail increased at just a 0.4 percent rate.

"While the quarterly numbers don't look bad, one has to keep in mind that most of the strength in the quarterly number stems from strength in January," said Ray Stone of Stone & McCarthy, a financial markets research firm. "Since then activity has softened, and the weekly data on chain store sales suggest that March ended on a sour note."

Economist Oscar Gonzalez of John Hancock Financial Services said weather may have been a factor in last month's dip in sales.

"We . . . can't ignore that the weather in March was simply miserable pretty much across the country. I think consumers are still doing their part. They may wobble, but they won't fall down," Gonzalez said.

Meanwhile, the Labor Department also reported that producer prices for finished goods fell 0.1 percent last month following an increase by the same amount in February. Declining energy prices offset generally modest increases elsewhere in the producer price index, which measures changes in the prices producers charge when they first sell a completed item.

Residential natural gas prices, whose earlier sharp increases hit many households hard this winter, fell 4 percent. Over the previous six months gas costs had gone up by roughly one-third. In contrast, home heating oil prices fell for the sixth month in a row, declining 9.2 percent last month. Electricity prices edged up 0.2 percent after rising by 1 percent or month each of the three preceding months.

Over the past 12 months, the PPI increased 4 percent, but the so- called core portion of the index, which excludes volatile food and energy prices, increased a much more modest 1.3 percent.

Some analysts said the combination of falling confidence and retail sales and the weak March employment report released last week, coupled with the benign inflation outlook indicated by the PPI, could lead the Federal Reserve to reduce interest rates again – perhaps as soon as next week.

But others think a rate cut won't come until the central bank's next policymaking session May 15. In recent public comments, several Fed officials have indicated a strong preference for waiting until that meeting to take any action, this group of analysts noted. The Fed has cut its target for overnight rates by 1.5 percentage points to 5 percent since the beginning of the year.

The expectation is that the next Fed move will be another cut of a half-percentage point in the target, the same size as three earlier reductions this year. With the economy so weak, many analysts believe the target will eventually be trimmed to 4 percent or perhaps as low as 3.5 percent.

© 2001 The Washington Post Company

http://washingtonpost.com/ac2/wp-dyn/A10943-2001Apr12?language=printer

-- Martin Thompson (mthom1927@aol.com), April 12, 2001.

Whew you said a Mouthfull. Seems the American Consumer has there head so deep in the SAND you couldn't pull it out with a DOZER. I agree wholeheartedly. Energy & debt combined are going to colapse the economy before our eyes. In a county that has allways had incredible HIGH unemployment (Sutter CO CA.) I have seen unemployment here above 20%. I can't imagine what will happen when the Crapola hits the Fanola. Allready every intersection is a used vehicle LOT. & hundreds of vehicles are hopelessly lost in the local Classifieds. At this course were in for a HELL of a ride. Personally were aren't buying a damn thing. Nothing but essesentials & underwear :) Thanks For saying how it really is Martin!! The press would have you believe that ALL is WELL & noone is going to be affected by the coming HYPERINFLATION & ENERGY DEFECIT. Geno-Ca

-- Geno-Ca (headturbo@hotmail.com), April 13, 2001.

The lapdog press is telling us this is a business lead recession caused by a collapse in capital spending. What's really happening is a credit and debt bubble is imploding one sector at a time.

A rather astute observation by the article's author...

-- (a@key.quote), April 13, 2001.

Thanks for your good assement. Employment liability and high energy costs will lead to a lot of problems. I expect food shortages because a lof of growers can't afford production.

Its time to start prepping again.

-- John Littmann (LITTMANNJOHNTL@AOL.COM), April 13, 2001.

All of you, better take another look. We may at daylight seem to be stupid, but at nightfall, we become the most Smart of Smart. P.S/ I don't think the Russian Thing ever existed. I have conversed with a Russian (eg gats!). It is your responsibility to speak peace with another. I am not "perfect" yet.

-- My Story (andIam@sticking.com), April 13, 2001.