Boomers spend less. The economy exhales.
What were they doing down by the pond?
The Dow was flat yesterday. Gold rose $9 to $1,226.
Has the dip in gold already come and gone?
We were expecting lower stock prices鈥nd lower gold prices too. Both went down earlier in the summer. But neither went down as much as we expected鈥or stayed down.
But it鈥檚 still fairly early in this correction. The recession began at the end of 鈥�07. We鈥檙e now approaching the last quarter of 鈥�10.
By this time in the 鈥�30s, stocks were hitting rock bottom. The market crashed in the autumn of 鈥�29鈥hen bounced鈥nd then started down again. It didn鈥檛 stop until it hit bottom in July of 鈥�32 鈥� nearly three years later. By then, stocks had lost nearly 90% of their value, from 381down to 41.
It can take longer, however. Japanese stocks crashed in 鈥�90. But they didn鈥檛 hit their ultimate bottom until 2008 鈥� 18 years later 鈥� with losses of about 90%.
So relax, dear reader.
Analysts are talking about a 鈥渄ouble dip.鈥� They鈥檙e worried that the economy may slip back into recession in the fourth quarter.
There are signs of weakening. GDP growth figures are being revised downward. Consumers aren鈥檛 spending. Banks aren鈥檛 lending 鈥� except to the federal government. Mortgage payments are falling further behind 鈥� even with fixed mortgage interest rates at record lows.
So many people are out of work for such a long time that we鈥檙e seeing more and more 鈥淒eath of the American Dream鈥� articles.
Even lawyers are out of work. Recent law school graduates say they can鈥檛 find jobs.
And the president of all the Americans, Barack Obama, tells us not to 鈥済ive in to fear.鈥�
鈥淎ll we have to fear is fear itself,鈥� said Franklin D. Roosevelt. Yes, fear鈥nd 25% unemployment鈥he Great Depression (made worse by Roosevelt鈥檚 interventions)鈥 27% decline in GDP鈥he Dust Bowl鈥he Wehrmacht鈥nd the Imperial Japanese Army!
Obama might want to save the fear claptrap until Americans have something to worry about. So far, the correction has only taken 4% off America鈥檚 GDP and only took the official unemployment rate to 10%. And consumer prices haven鈥檛 actually gone negative 鈥� yet.
Don鈥檛 trouble yourself about it. The economy is in a correction that began in 鈥�07 and hasn鈥檛 stopped. It won鈥檛 end until it has done its work. That will take time鈥aybe another 5 years. Maybe another 15 years.
Markets have to breathe in and breathe out. This market is exhaling. That鈥檚 just the way it works.
A Wall Street Journal headline:
鈥淎nother threat to the economy: Boomers cutting back.鈥�
You see, dear readers, the financial press has no idea of what is really going on. Boomers are cutting back? Of course boomers are cutting back! They鈥檙e getting ready for retirement. They need to save some money.
It was loony to think you could finance your retirement out of the increases in your house鈥檚 value. Who were you going to sell the house to? Boomers were the biggest buyers of houses. When they turned into the biggest sellers, it was sure to cause trouble.
Besides, you gotta live somewhere.
Financing your retirement on stock market gains was a bit absurd too. Stocks go up鈥nd down. There was never any guarantee that they would be up at a convenient moment鈥or that they would stay up when the boomers all decided to cash out.
No, dear reader, you can never count on getting something for nothing. You can鈥檛 expect to finance your retirement on money you didn鈥檛 earn. Instead, you need real savings. Saved money. Money you didn鈥檛 spend. Money set aside. Anything else is just hoping鈥ishing鈥raying you get lucky.
(Even real savings are not guaranteed. Your money can still be swept away by inflation.)
But the problem with the WSJ headline runs much deeper. Financial journalists don鈥檛 understand what an economy is. Instead, they wallow in the same flattering claptrap as economists. They think the economy is something that is supposed to do their bidding. It鈥檚 supposed to make us all rich, by growing constantly. If it isn鈥檛 growing there must be something wrong with it. Something that needs to be fixed by the mechanics at the Fed and the Treasury.
You think the economy is 鈥渢hreatened鈥� by boomers cutting back? Not the least bit. It鈥檚 just breathing in and breathing out. What鈥檚 the big deal?
But economists want to 鈥渄o something.鈥� It鈥檚 all very well when the boomers spend and the economy expands its broad chest. But when it exhales they rush to put a plastic bag over its head.
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