Some days, I feel as if major change is an impossibility, and then other days, well, I see change is more than possible – it is happening. Now, understand, when I say “major change,” I am talking about change at the highest level – how we think as a nation. Like the market, what happens in this nation is a direct result of what we collectively think, and how we actualize our thoughts. For example, for some thirty years, we as a nation have been and still are encouraged to use debt as means to get the things we want. You want a new car, borrow money. You want new shoes, charge the cost to your credit card. So, we think if we have the plastic or if the bank permits us to borrow, we can go in debt just to get what we want. We think, or at least we used to think, this is simply the way things are.
I see change in this regard, and even though it is hurting all of us in the short run, this change is necessary for us to survive economically. The change is that Americans now think saving money is good and too much debt is bad. Americans are now thinking past near-term satisfaction and working toward long-term financial health. We see this in an astounding U.S. savings rate that, as of September 30th of this year, is just under 6% and the continuing month-after-month decline in borrowing. Now compare this to a negative (yes negative) savings rate and the high debt for most of the last thirty years or so, and the word “astounding” seems more than appropriate. Consider as well that folks are saving their money in an historic, low interest environment that absolutely discourages savings. The government is doing everything it can to encourage American to buy, buy, buy or invest, invest, invest. And here is the kicker – the collapse of 2008 badly burned Americans who were investing, so now, although not happy about it, Americans are putting their excess dollars in accounts that offer little return but lots of security. Truly understandable, indeed, Americans are shoring up their balance sheets for the long haul. This is the upside to the mess we in which we find ourselves, and if we can hold on, the benefits may come.
What benefits, you say? Well, in 1980, two-thirds of our GDP derived from manufacturing. Today, that number is less than a third. Today, two-thirds of our GDP is dependent on consumers spending, which is why the government is so bent on keeping liquidity in the economy with low interest rates. If consumers keep saving, perhaps we will return to a manufacturing economy, moving away from a service economy. Perhaps we will see borrowing money as a thought-out step in the process of creating wealth, not as a means for immediate satisfaction. Perhaps, as a nation, we will begin to emulate the thinking of the Chinese who believe saving money is the way to invest in the country, and they do. Perhaps, banks will go back to doing what they should be doing, which is pay reasonable interest rates to attract savings so they can lend that money at reasonable interest rates.
I see becoming a nation of savers and investors as an imperative, and I hope we have the learned lesson of the ant and the grasshopper. As well, I believe that once we get through this horrid economic cycle, Americans will become investors again, which means buying homes, investing in markets, and, perhaps most importantly, investing in ourselves beyond the newest car or the hot new shoes.
Trade in the day; invest in your life …
