On March 19, 2009, a team of Weiss Research analysts published an urgent report: Dangerous Unintended Consequences.
In it, we warned how the unprecedented attempts by the Fed, the Treasury and Congress to bail out financial institutions and pump up financial markets would fall flat on its face. We said: “It’s not nearly enough; and, at the same time, it’s already far too much.”
We listed specific reasons for this bold statement. And we included the steps that will ultimately guide us to make prudent and courageous choices.
Washington Ignored
Weiss Research …
Regrettably our bleak predictions were correct. Now, scores of institutions survive on government life support with no end in sight. Meanwhile, the economy continues to flounder.
And Washington still isn’t paying a bit of attention!
In fact, they continue to spend like there’s no tomorrow. The problem, of course, is that the government doesn’t have anywhere near the amount of money needed to pay for a crisis of this dimension. So it’s borrowing hundreds of billions more … tossing long-term Treasuries into the market like they were confetti.
Consequently, the market’s perception of the U.S. government’s credit is falling, as anticipation of a possible future default by the U.S. government, no matter how unlikely, is rising. And creditors, like China and Russia, are getting nervous.
Fortunately, many Americans are listening to us here at Weiss Research. They’ve discovered something the folks in Washington haven’t: There’s no such thing as a free lunch, and sooner or later there comes a day of reckoning with creditors.
I’m talking about …
America’s Newfound
Embrace of Thrift
I know what you’re thinking: Using the word “thrifty” in the same sentence as “American” seems like a crazy thing to do. If there’s anything we’re good at as a country, it’s spending like mad — and running up the credit card (or mortgage) to do it!
But that’s changing. Really changing. And our team at Weiss Research thinks that the shift toward thrift is going to last for a long time. The evidence is everywhere:
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The Wall Street Journal noted in a story called “Restaurants Burned By Deep Discounts,” that several fast-food and casual dining chains are slashing prices and offering all kinds of come-ons. Yet consumers aren’t biting. They’re spending less time and money eating out regardless of the deals. In the Journal’s words:
“Despite heavy discounts across the retail industry — prices have been slashed on everything from food to clothing — consumers have been stubbornly reluctant to open their wallets.”
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The same thing is happening at the nation’s shopping malls. While overall retail spending rose 0.6 percent in June, the gains were largely driven by higher fuel prices. Core sales in discretionary categories like furniture (down 0.2 percent), general merchandise (down 0.4 percent), and clothing (unchanged) were weak.
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This newfound culture of thrift cuts across socioeconomic lines, too. Every year, American Express Publishing and the Harrison Group publish their “Survey of Affluence and Wealth in America.” The responses on the economy, on savings, and on spending come in from more than 1,500 people who make anywhere from $100,000 to $5 million a year.
This year, the survey showed that wealthy Americans are saving a whopping 16 percent more of their income. They’re raising their retirement plan contributions by 6 percent, and most (77 percent) are purchasing fewer big-ticket items.
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Nationwide, the personal savings rate soared to 6.9 percent in May. That’s the highest level going all the way back to 1993.
Bottom line: We’re spending less and saving more, from one end of the country to the other. Just about the only group of Americans that haven’t gotten the message are our elected officials in Washington … the same ones we sent our exclusive Weiss Research report to. They’re blowing every last penny of taxpayer resources, then borrowing trillions more and blowing that money, too!
What the New World of Less Spending,
More Saving, Will Look Like …
So what will it mean for America going forward? TIME Magazine took a crack at envisioning it in its March 26 cover story called “The End of Excess. Why this crisis is good for America.” The author said:
“It’s time to ratchet back our wild and crazy grasshopper side and get in touch with our inner ant, to be more artisan-enterpriser and less prospector-speculator, more heroic Greatest Generation and less self-indulgent baby boomer, to return from Oz to Kansas, to become fully reality-based again.”
At Weiss Research we think this is a healthy development that’s been a long time coming …
The “borrow and spend, then borrow and spend some more” approach has done nothing but hollow out our economy. We borrowed trillions of dollars to chase asset values ever higher. Now we’re left holding a steaming pile of deflating assets (commercial real estate, housing, etc.) — and a gigantic mountain of debt that we’ll be paying off for years and years.
We NEED to get back to an economy built on a healthy foundation. We NEED to save more and spend less. And if the government doesn’t get in the way of this healthy, corrective process, we’ll find ourselves in a much better place for the long run.
Click here to read complete Weiss Research white paper.
About the author
Dr. Weiss is the founder of Weiss Research and the editor of the financial newsletter, Safe Money, known for its track record in picking major turns in interest rates. He is also the author of The Ultimate Depression Survival Guide, The Ultimate Safe Money Guide: How Everyone 50 and Over Can Protect, Save and Grow Their Money.
Martin Weiss holds a bachelor’s degree from New York University and a Ph.D. from Columbia University.
