Benson's Economic
& Market Trends
Independence Day is Here,
But Not For Many Americans
Richard Benson
Jul 4, 2007
America may be referred to
as the "Home of the Brave" because when the bills arrive
it takes a lot of courage to open them up, especially when you
must turn around and face your wife and kids with a straight
face. When it comes to paying bills these days, America just
doesn't feel like the land of the free any longer. To be truly
free you must be debt-free; if you're not, your creditors own
you.
Americans now owe a
staggering $16 trillion dollars ($2.4 trillion in personal
loans, and $13.6 trillion borrowed from their house). Yet, as
a society, we just can't seem to get away from accumulating debt,
and have become nothing short of debt slaves. The American consumer
continues to abuse credit that has been offered to them, and
pay incredibly high interest charges every month, without blinking
an eye. To maintain a certain lifestyle that would ordinarily
be unattainable with their current income levels, our nation
of consumers is slowly but surely being eaten alive by our own
conspicuous consumption.
In May, Personal Savings ranked
in at a negative 1.4 percent of income (or a minus $140 billion
annually). Consumers are still not saving enough and continue
using credit to offset any shortfall in income just to keep up
with normal expenses like a mortgage, groceries, and gas because
they have chosen to live extravagantly. One major cause
of our country's need to import massive amounts of foreign capital
to keep our economy afloat stems from a weary American consumer
struggling to live and pay the rent, but behaving like he's
rich.
The United States might be
the only superpower but we still owe Japan and China each about
a trillion dollars. (We owe even more to the Gulf Arabs.)
With no savings, America continues to run an $800 billion dollar
trade deficit. We are effectively giving America away to our
creditors and if we continue to give more and more away, we will
lose the ability and the will to take back control and ownership
of our own economy. Not only are Americans, individually, becoming
debt slaves, but the country on a national level is losing its
independence this 4th of July, one manufacturing job and one
container shipment at a time, as jobs continue to go overseas.
Even though our elected officials
know that letting Japan and China manipulate their currencies
will undercut American manufacturers and workers, our national
policy still caters to them. Our government may feel they have
no choice but to look the other way because when you owe $2 trillion
dollars, you have to remember the golden rule: China and Japan
have the gold so they make the rules. The White House knows
that if we annoy our largest creditors, they could very easily
sell the dollar. If that happened, interest rates would be forced
up and the stock market would crash. The joke, of course, is
that it is Americans borrowing against their houses and buying
foreign goods that gives Japan and China our money and puts our
nation in their debt. But I can't help but wonder how long the
United States will remain the superpower it is if we continue
to give other nations so much power over us?
With the White House losing
power and credibility, it's becoming more likely that Congress
will start calling the shots. A key reason the Democrats won
The House and Senate is that they actually wanted to do something
about jobs going overseas, and to address the issue of unfair
currency manipulation by Japan and China which is subsidizing
exports to America. However, if Congress starts to force the
currency manipulation issue, the likely outcome has "1987
stock market crash" written all over it. Why? If America
"sticks it" to Japan and China, the Yen carry trade
will collapse and China will start taking their money out of
the dollar. This could have dire consequences! Who then is left
for America to borrow from? The Gulf Arabs want to diversify
away from the dollar, and Russia, which wisely prefers the Euro,
has told us to take a hike.
The international front for
the dollar and dollar investments is already precarious. One
by one, countries are showing less love for the dollar, and are
unwilling to hold all investments in U.S. Treasuries and Agency
Securities. Even Kuwait - the country we went to war to save
- is diversifying from the dollar. The big trade surplus countries
are setting up separate investment funds to diversify away from
U.S. Treasury debt. This new trend does not bode well for keeping
long-term U.S. interest rates low, or preventing the dollar from
spiraling downward. Currency realignment is inevitable, but forcing
the issues offers great risk to owners of dollar assets, such
as stocks and bonds.
It looks more and more like
some major economic trends, that looked like they could go on
forever, are reaching the point where they just can't. The biggest
trend is the American consumer who is relentless and refuses
to surrender to the splurge urge. However, looking at the average
American worker, and the poor souls with sub-prime mortgages,
it's clear they can't go on living on credit. The time has come
for lenders to tighten their lending practices. Mortgage lending
has already tightened up big time, and the bank regulators are
enforcing rules that require loans to be underwritten with a
view that they can actually be paid back! Americans may have
the will to spend, but they may no longer have the ability to
do so. I believe we are at the beginning of the consumer slowdown,
not the end.
Even if no one loses their
job, three million Americans will be forced to stiff their credit
card companies while trying desperately to stay in a house they
will inevitably lose to foreclosure or auction. The consumer
economy has already transitioned from half-full to half-empty
and if job losses pick up, a serious consumer recession could
be on the horizon.
July 4th is Independence Day
so I'm taking a reflective break. It's time to get out of debt
and live small, not large. Own only what you need, not what you
want, so you can save. Invest in beautiful things you
will enjoy for years, rather than fancy dinners that only leave
your stomach bloated and your wallet empty. Build up savings
in tangible assets that will hold their value regardless of the
rate of inflation. America the beautiful is still a rich country.
On July 4th we should be celebrating our financial independence
because without it, there is no freedom.
Richard Benson
Archives
President
Specialty
Finance Group, LLC
Member FINRA/SIPC
2505 S. Ocean Boulevard
- Suite 212
Palm Beach, Florida 33480
1 800-860-2907
email: rbenson@sfgroup.org
Richard Benson, SFGroup, is a widely-published
author on securitization and specialty finance, and a sought after
speaker at financing conferences on raising equity for mid-market
companies.
Prior to founding
the Specialty Finance Group in 1989, Mr. Benson acted as a trading
desk economist for Chase Manhattan Bank in the early 1980's and
started in the securitization business in 1983 at Bear Stearns,
and helped build the early securitization businesses at Citibank
and E.F. Hutton.
Mr. Benson graduated
from the University of Wisconsin in 1970 in the Honors Program
in Math, and did his doctoral work in Economics at Harvard University.
Mr. Benson is a member of the Harvard Club of New York and Palm
Beach.
The Specialty
Finance Group, LLC is a Florida Limited Liability Company and
is registered with FINRA/SIPC as a Broker/Dealer.
321gold Ltd
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