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This is my effort to share my thoughts with readers about concerns facing our country today.  I believe there is a good chance my grandchildren may be the first generation in the history of this great country not to have a better standard of living than their parents. If so, our generation is to blame. The clock is running out for damage control. .

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Sunday
Mar012009

Americans Save While Washington Spends

The public "gets it." There is a crisis and most Americans have hunkered down for the long pull. Unemployment is up to levels not seen since 1982. No job is safe. Businesses are losing money because there is less demand for everything. Investments of all kinds are insecure. People have lost $8 trillion in equity value in the past year, just in the equities market. The value of their houses are half what they were. There is no incentive to spend or invest. As yet, Washington can't make us spend. Until these systemic problems go away, spending will stay down.

Investment experts will tell you there is $10 trillion on the sidelines waiting to be reinvested. They will tell you the people who have ridden the stock market all the way down aren't getting out, and when that pent up demand comes back, the market will roar back. They may be right. But, the math defies me. Is the stock market just driven by supply and demand or do corporate profits play a role? How can the market roar back if corporations continue to flounder? When pressed, these same experts are not quick to tell you which businesses will prosper in this environment. 

If Americans keep saving, nothing will change. If Washington keeps spending the problems will get bigger. Especially, if the the spending does nothing to encourage spending. The revenue for the government in the next budget is grossly overstated if the tax revenue from corporate income taxes keep going down, revenue from capital gains keep dropping. This is at every level of government. Local, state, and federal. 

Citizen confidence in government curing the economy is low. Corporate and small business confidence is low. There is expense cutting, capital spending cuts, and consolidation of plants, retail outlets, and no expansion. 

When businesses who do get help from the government get too much help, it makes their recovery harder. Government has made no sacrifices. Pelosi and the rest continue to fly private air. Congressmen and Senators continue to enjoy boondoggles provided by lobbyists. But, woe to any business that tries to keep customers by sponsoring events or entertaining customers or prospective customers. Citi Corp. has no less that six government agencies they have to check with on any plan.

Until saving is replaced by private spending demand will keep dropping and no amount of lending will change that. No amount of government spending on social programs will change that. Much of that money will get spent on base necessities. Unemployment will go up, corporate profits will go down, small businesses will fail, the auto industry will go under, and more and more banks will drop. 

California is the model for all of America. They have been trying the spending idea for years. The demand for money from the government for social programs is far greater than tax revenue can cover. Business and people leave. The more taxes are raised, the greater the problem becomes. Business contracts, unemployment grows, and tax revenue shrinks while expenses grow. California tried to end capitalism and inject socialism and it isn't working. 

I predict the public will keep saving. The problem will grow and answers will ultimately come, but not in the near term. My advice, hunker down and stay hunkered until real change comes.    

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