One of the things that I find amazing about our world today is the unwillingness of people to acknowledge
that their behavior has ramifications. In other words they are unwilling to pay the price for their actions. For
example many individuals and families bury themselves in all kinds of debt (credit cards, car loans, education loans,
unaffordable mortgages), spend all of their income and have no financial reserves. The have a nice lifestyle
until something goes wrong. Then they start begging for the government to bail them out.
Why is it
that so few people live a lifestyle below their income, defer current consumption so they can save to build up their
net worth and work diligently to avoid unaffordable debt? Do the majority of people not understand that in the
end the numbers have to add up? Is our society so consumption focused that a large percentage of the people
won't take any personal responsibility for their own lives. Is our society so weak minded that large numbers of people
are completely unwilling to work hard before they get to consume.
My belief is that the economic difficulty that
we have experienced since the financial crash is part of a long term corrective process that is reversing decades of bad economic
behavior. As a society we grossly over-consumed relative to our income and assets. The US government continues
to grossly over-consume relative to its income and assets. The final phase of the corrective process will be the global
financial markets establishing limits on the US government's ability to consume.
In other words we are paying the
price for our collective actions since we got off a rational financial track in the 1960s and 1970s. A lot of people
are feeling some pain. There is a lot more pain to come. In the end there is no free lunch. Everyone
collectively must earn what they consume. Everyone collectively must compete in the world markets for our part of the
economic pie.
Don't expect the economy to dramatically improve any time soon. We aren't done paying
the price yet.
TPM
I watched the release of key US macroeconomic statistics the past two mornings
on CNBC. Yesterday the 4th quarter gross domestic product (GDP) was released. Everyone was shocked that the number
was negative when the "expert economists" expected a positive number. The reason the GDP number was negative
is that the US government spending element of the calculation was negative. Apparently, the government slowed its massive
deficit spending slightly in the 4th quarter in advance of the fiscal cliff debate at year end.
Today, the government released its monthly employment report. The number of jobs created in January
was about 157,000 with another 127,000 jobs added to the previously reported numbers in November and December. However,
the jobless rate increased to 7.9% due to people that had dropped out of the work force now attempting to get a job. So
we added 284,000 jobs and the unemployment rate increased! This is the craziness of the way the government spins employment
data.
During the discussion this morning on CNBC, one of
the "expert economists" attempted to make an argument that the US government should spend a lot more money to stimulate
the economy in order to reduce the unemployment rate. Rick Santelli asked him if he meant that the government should
increase its deficit spending to a level higher than the $1T that already exists. There was no answer to Santelli's
question.
I have seen dozens, if not hundreds, of economists
talk about the US economy over the past five years. Only a small number of economists appear to understand that managing
an economy means managing all aspects of the nation's financial structure, the equivalent of the profit and loss statement,
cash flow and the balance sheet. They are focused on GDP growth and its translation into jobs as opposed to a balanced
approach that takes into consideration all three elements of financial management.
Our government has ignored its balance sheet as the deficits have grown and unfunded liabilities increased
dramatically. The economists advising the government appear to lack any fundamental financial management skills.
None of them have ever proven they can effectively run a business or any type of organization that has to balance revenue
and expense and manage its cash flow and balance sheet. All the economists want to do is spend money, other peoples
money. They appear to have no understanding as to how the balance sheet wreckage they have created will come back to
haunt the country.
Ask Greece, Spain and many other countries
about what it means to have a wrecked national balance sheet. The US government is trying to match their accomplishments.
There are some people in the media like Rick Santelli that are attempting to make the economists look at the balance
sheet damage they are creating. If we are not careful the US will end up with its own completely wrecked balance sheet.
There is no way to end the government's stimulus and fix the nation's balance sheet without an economic slow
down. This is no different than a company or family that has to be cut back on its activity to fix its balance sheet.
There is no way to fix the nation's balance sheet without a recession or extended period of very slow growth.
The balance sheet is the key to long term health. If your balance sheet is solid you can move forward,
maybe not as fast as you would like, but you can move forward in an effort to gain ground. If your balance sheet is
wrecked there is no way forward. One has to restart from scratch and attempt to rebuild. Economists don't appear
to understand this concept at all. We need more business people making our major economic decisions, not economists.
Maybe at some time in the future, economists will learn how to read a balance
sheet and understand what it means.
TPM
