Goodbye To All That

DOOR BUSTER SALE
On November 28, 2008, a worker was trampled to death as customers stormed a Walmart store in Mineola, New York, for cheap goods on the day after Thanksgiving (symbolic irony not lost here). Jdmytai Damour, 6'5" tall and 270 pounds, was killed when a crowd 2000 strong broke down the electronic doors in a frantic pursuit of bargains on big-screen TVs, clothing, and other stuff. He died of asphyxiation related to trampling. Those hundreds of people who did make there way into the store literally had to step over or around him, or on him, to get into the Walmart store, and those locked out when the store was closed, howled and shouted in protest at not being allowed in to partake of the bargains, notwithstanding the homicide. Look at where we as a species have arrived with our depraved, obssessive consumption: SHOPPING HAS BECOME A BLOOD SPORT, surely the nadir in shameful, desensitized, reckless human behaviour. Love of stuff trumps all constraints and sense of right behaviour....obliterates all regard for the other. What have we become?

CONSUMPTION
As a nation, we save zero now and are consuming 6% more than we are producing, but twenty years ago we were saving 8% of earnings. We have had a credit party like we have never seen before. But spending borrowed money is not an economy, and it has destroyed the financial security of the nation and of individuals. It is complete folly to allow consumption to constitute two-thirds of U.S. GDP, and to have dismantled the industrial base and outsourced jobs overseas, because it has made us vulnerable---I think now we all see how it has weakened the American nation. We manufactured ourselves into the wealthiest country in the world, and then consumed our way into bankruptcy, all the while transfering that great wealth to Asia and the Middle East. Neither a smart nor strategically secure monetary transformation, forged in the crucible of mad love for cheap goods. In that exchange, we ended up with nothing but junk, and not anything vital to life, and they ended up with economic wealth and power. Want more flat screeen TVs????

I knew that seismic changes in human behaviour were inevitable when I recently saw a $5 million black diamond bra modeled in a Victoria's Secret fashion show described as, "The new sexy is glamourous this season." Inanity and excessive behaviour like that makes my brain explode, the quintessence of the mindless consumption that exacts way too high a price on species, planet and scarce resources. We know no bounds, yet it is urgent that the human species self-impose limits in all avenues of conduct. Desperately we need to get a grip.....this devouring depletion CANNOT be what freedom is for--- to exhaust the earth.

SHRINK
As the society sheds the superfluous goods and services, millions of jobs, unecessary jobs, will be lost. But new jobs will be created in the green economy of energy independence & efficiency, and its attendant manufacturing. The point is that these parts of the economy must generate in the private sector in order to create anew capital formation in the economy now broke, as opposed to more borrowing & governmental spending/endebtedness to prime the pump. This process of new and dynamic industry arising from the ashes of moribund commercial activity is the Shumpeterian process described as "gales of creative destruction." (Joseph Schumpeter, 1883-1950, 20th-century economist)

DELEVERAGING THE CONSUMER
Seems that most people are finding that they can do with LOTS less stuff, looks like many are relinquishing the flotsom & jetsom of modern life, turning instead to savings for more security. Maybe the pendulum swings from addicted consumerism to revulsion at the mountains of detritus all around us. Demand destruction will be the strongest brake on retailing & sales, as Americans come off the binge and to their senses. Maybe we will be devotedly good at frugal. I think (hope) this is the next stage, and that tons of retailers will fold up shop, with "we don't need it, thank you" reverberating all the way down the line to the (foreign) originators: over the next ten years, a cascading tectonic seachange away from the consumption binge of the last decades. In the U.S., we have to start producing our own industrial goods again, of quality and life-time durability, and say goodbye to the cheap, disposable, inconsequetial junk enriching foreign saving nations. GET SMART, AMERICA!

Partial Transcript
December 7, 2008, CNN:

CHRISTINE ROMANS, CNN HOST: Welcome to YOUR MONEY. I'm Christine Romans.
Nothing is more critical to your money than your job and American jobs are disappearing fast. 1.9 million jobs have vanished so far this year bringing the unemployment rate now to 6.7 percent. The losses have spiked at the end of year. More than half a million of you lost your job in November alone, that's the biggest one-month cut in almost 34 years. More than 300,000 jobs were cut in October. More than 400,000 in September. That's more than a million jobs lost in just the past three months.

ALI VELSHI, CNN HOST: Retail trade losing 91,000 jobs in November, that's when they're supposed to be ramping up and the job losses are coming at companies where the names will be very, very familiar to you. A huge week for job cut announcements, AT&T slashed 12,000 workers. Credit Suisse, 5,300, DuPont laying off 2,500 employees. Viacom making 850 cuts and NBC announced plans to cut 500 jobs worldwide. That's more than 20,000 this week alone.

So is there any relief in sight? We are joined by a fantastic panel, Peter Schiff the president of Euro Pacific Capital, Lakshman Achuthan is the managing editor of the Economic Cycle Research Institute and Jim Ellis is the assistant managing editor of "Businessweek." Thanks to all of you for being here.

I want to start with you, Peter; you have been writing about and describing a coming crash and recession for some years now. I hate to say that some of the things that you've written about is outlandish as they seem do seem to be bearing out right now.

PETER SCHIFF, PRESIDENT, EURO PACIFIC CAPITAL: Sure, you know the problem, too, a lot of the jobs that are now being destroyed in our economy never should have been created in the first place, they were a function of our bubble economy. The fact that Americans were borrowing money and spending too much and as they can no longer spend because we're broke, all of these phony service sector jobs will have to disappear.

As painful as it is for the people who are in those jobs, the government has to stand aside and let it happen. We can't try to keep people in nonviable jobs. We have to go back to making things and it will be a very painful process and Americans are going to have to rein in their spending and start saving money.

VELSHI: I just want to ask you one thing, and I know this is theory that you've worked on, but we're now talking about officially close to 2 million jobs lost this year alone and it could be substantially more. I've heard you say it will mean millions of job losses to set this economy straight. What is the real equation there for people? What does your science and your academia tell you what to do when 5 million people are unemployed?

SCHIFF: That's how markets work.

VELSHI: Don't we have an obligation as a nation, as a modern economy to make sure that 5 million people aren't living in tents?

SCHIFF: There's nothing we can do. The government can't create jobs; they'll destroy jobs trying to do it. The government doesn't have any money all they have is a printing press. We need to free markets to create jobs; if the government wants to help they should reduce their burden on the economy. We should be cutting government spending. We should be cutting taxes and we actually should be raising interest rates. We're doing all of the wrong things and we're going destroy this economy.

ROMANS: Nobody is talking about doing any of those things. You're right. What they're talking about doing is spending a whole lot of money in fiscal stimulus and we have the Federal Reserve doing everything that it possibly can to keep the economy.

SCHIFF: Remember, we're in trouble, because we borrowed and spent too much money. We're not going to borrow and spend our way out of it. We have to do the opposite of what we've been doing. We're simply digging ourselves into a deeper hole right now.

ROMANS: Lakshman, we're not doing what Peter says we should be doing and no one says we are going to do that. What are we doing and will it work?

LAKSHMAN ACHUTHAN, ECONOMIC CYCLE RESEARCH INSTITUTE: Well one thing we are doing is we're probably cutting taxes which I think is one of the things you are prescribing. What we are doing here is they are throwing an ungodly amount of money at the economy. Not only the U.S., all of the major economies in the world are doing this, even China is doing it in a coordinated way.

VELSHI: You're a proponent of the idea that that will ultimately work.

ACHUTHAN: Look. What this will do is it will mitigate to a degree the pain on the way down. We are in a severe recession. As you were pointing out this economy went from a mild recession to a very, very severe recession. The numbers today they don't tell you anything about the future they just tell you that a few weeks ago we really accelerated to the downside.

When you look at the forward-looking indicators on the business cycle, they don't look years ahead, they look quarters ahead, they are tanking. They are at the worst readings they've been at in 60 years so we've got more numbers like we saw today on Friday coming in the months ahead and the one thing, the business cycle, the sharper the downturn, it tends to get a sharper upturn.

All of the things that we're doing here in the desperation of the moment are going to create all kinds of big questions on the other side in terms of the ideology of free markets, inflation and other things. Printing presses with the currencies.

ROMANS: But Jim Ellis says, it is too soon too start worrying about that, right? We are facing the beast that we're facing right now and then somewhere down the road there will be a recovery and a bubble that will have to be popped again, but what are we doing right now and will it work?

JIM ELLIS, ASSISTANT MANAGING EDITOR, "BUSINESS WEEK:" Well right now we basically have to find ways to free up the credit markets and get people to lend again and as bad as we ran into trouble with people borrowing a lot and spending, we've got to get people spending again. That is something that I think some people, particularly fiscal conservatives really worry about, but that's the bubble to come. That's next year's fight or the fight after.

Right now, the only thing to do is to get money coursing back do the economy and that will be a real challenge for the new president if and then we're talking about doing that and basically accepting deficits that we haven't seen in years.

VELSHI: Hold on, Peter, we are going to have this discussion in a way where our viewers can understand how they fit into it. This is a very smart discussion. You need to know how this affects you.

ROMANS: Just because we've spent an awful lot of money does it mean that it is right to spend more money?

SCHIFF: My mother always taught me that two wrongs don't make a right. We shouldn't bail out Wall Street. We shouldn't bail out Detroit. It will cost the economy more than the cost of the bailout which is more than the politicians think. We'll run into the hundred of millions to prop these companies up. The real cost is the damage to the economy that we do, because by propping it up, what are we destroying. What companies are going fail so they can stay in business?

ROMANS: You've made the point and a lot of these Congressmen have been making the point that there are dealerships across country and there are plants. Lakshman let's talk about around the country and you have a map that you can show us of how things have changed.

ACHUTHAN: Basically, as this recession has taken hold, job losses have gone from the coast and they've squeezed into the middle of the country and this is how a recession works. It's become more and more pervasive. It's no mystery that California is in trouble and they're really screaming right new.

VELSHI: And you can see Michigan was in trouble back then.

ACHUTHAN: These are the ones that were on the early edge of it and then as the recession has taken hold over the course of the year you've seen job losses just really cover the map.

VELSHI: Let's advance that to October. ACHUTHAN: We're having a little bit of a delayed holdout in the middle of the country from the commodity bubble with both oil prices. Basically, the recession has fully gripped this country and you're seeing that in the latest data. There is a very pervasive job loss. It's regional and its industry wide.

And this is what a recession is. So in the middle of that, right? Ideological arguments that have merit aside, do you want to put a slug of people out of work right there? And if you do, you are going go from what's a severe recession. People act surprised by this number today. I mean, get over it. If you look at forward numbers they're going to get a lot worse.

SCHIFF: People will get put out of work and there's nothing we can do about it. What government policy is doing now is making sure that there are no new jobs waiting for them. We have to let the market work, we can't centrally plan the economy and have the bureaucrats in Washington try to figure out how to run the economy and try to make this green economy and how to micromanage the auto industry. It's never worked.

ACHUTHAN: All of that is a nice discussion before you get into a severe, global recession.

VELSHI: Jim started by saying this will ultimately be a decision made in Washington. The American people would like to know whether the government can help or will help.

ELLIS: The government can undoubtedly can help, the question is whether they'll want to shoulder the burden and shoulder the financial burden that goes with that.

VELSHI: With what money?

ELLIS: I have a feeling that the same way the government has come in and come up with really innovative ways to pump money into the financial system to make sure we have a banking system. They'll say something like manufacturing still does matter in the U.S. It's very difficult to imagine a modern society that's a leader society and economically that doesn't have the manufacturing.

VELSHI: That's a point that Peter will agree with.

SCHIFF: The solution is to save our money. Remember, he's talking about we need spending. When you're overweight the solution isn't that you eat more. When you're broke the solution isn't to spend more. If we're going to have manufacturing in this country, we have to stop spending money.

ELLIS: If people don't spend.

SCHIFF: We'll have a real economy.

ACHUTHAN: Some of the excesses have already been corrected. You have home prices coming down. You've had a lot of jobs lost. You're already having some of that creative destruction already happening. SCHIFF: Spending is not an economy.

ROMANS: We have to leave it there guys. He brings up a good question what we've got get to. That is where do you get the money? We borrow the money. We don't have the money and that's part --

VELSHI: How do we pay it back?