Prosperity was Right Around the Corner
The best economy in history is over, folks. The first recession since 1991 is here. Thanks to many factors, it could get ugly long before it even starts to get better.
Beginning with the worst news you will not here anywhere else, American consumers dissaved in September and October 2000 for the first time since the Great Depression. That means that the aggregate of consumers (every man, woman, and child in the U.S.) spent more than it earned. Some economists say no big deal, while others are, frankly, in a mild panic.
It is very common for some consumers to dissave in a given month or even over many months. Many of us overspend from time to time, using credit cards to augment our incomes. Lower income families have a greater tendency to dissave than do upper income folks. For more than 60 years—through the presidencies of Roosevelt, Truman, Eisenhower, Kennedy, Johnson, Nixon (recession), Ford (recession), Carter (recession), Reagan (recession), Bush (recession), and Clinton—the Americans who earned more than they spent out balanced out those who spent more than saved giving America. By my research, 768 consecutive months saw America with a positive propensity to save. It has been small the last twenty years, but it was always there.
Moreover, less historically significant numbers are bad. In fact, looking the most recent news on income and spending, there really is no good. For instance:
- Personal Income fell in October from the previous month by $16.5 billion, or 0.2%;
- Disposable personal income (DPI)—personal income less personal tax and nontax payments—decreased $29.4 billion, or 0.4 percent; and, straight from the U.S. Government,
- Personal saving—DPI less personal outlays—was a negative $55.9 billion in October, compared with a negative $13.3 billion in September. Saving from current income may be near zero or negative when outlays are financed by borrowing (including through credit cards or home equity loans), by selling investments or other assets, or by using savings from previous periods. Personal saving as a percentage of disposable personal income was a negative 0.8 percent in October, compared with a negative 0.2 percent in September.
- For more numbers, see the BEA
Meanwhile, anyone who used to have a 401(k) or Mutual Fund, knows that the NASDAQ is nearing a disaster. In a column I never published, I should that this could be the worst year in the history of that exchange. Now it is all but certain. Moreover, the Dow Jones Industrial Average will close 2000 significantly lower than it started the year for the first time since—inception? In that previous column, I wrote, “This stock market ended 1999 at 4069.31. Today it closed at 3455.83, down 15% for the year.” But that was the good ole days of October. Now it’s November and the NASDAQ closed today at 2597.93 down 36% for the year. In addition, like the snow in the Dakotas, it does not show signs of stoppin’.
Of course, there are more and more data. Unemployment is at its highest level in two years, technology field is laying of workers in the northeast, and people really expect the economy to go down. In fact, some are not panicking, but I find few who are truly optimistic about any aspect of the economy.
Why is it so? Number one, Federal Reserve Board Chairman, Alan Greenspan (seen here in an 1892 photograph). Greenspan is as frightened of (a) inflation and (b) unjustified
investor exuberance as a two-year-old is of a tarantula. He’s strangled the economy to point of death, and even with all the evidence that the economy slipped into recession in September, refuses to change the Fed’s bias from “choke the crap out of it” to “don’t let it off the ground.” Economist Larry Kudlow and Steve Forbes have been warning about Greenspan’s overzealous interest hikes, only to be riduled by pundits and Harvard professors. Turns out, the conservatives were right, as usual. But your portfolio looks more like a paperclip thanks to Greenspan and his accomplice.
Do I even need to say it? Al “I’ll fight all of you” Gore is economic enemy number one. His never-ending attempt to overturn the 2000 election has subtly eroded confidence in America among Americans. Polls say otherwise; pundits wax patriotic, and everybody sells stocks. Gore’s immaturity is bad for the economy, not just the market. Like the markets, the economy does go up
and down. But when it goes down, the economy stays there for a long time.
As you plan your purchases in 2001, bear this in mind: we will be in a recession for much the year and possibly in to 2002 no matter who the president is. The recession, in my opinion, began in September. The last straw was continuing record-high oil prices, which persist to this day. (Oil closed higher today than it did the day before Clinton, Gore’s request, released oil from the strategic petroleum reserve.)
Having said that, there will be an enormous difference in the consequences of the recession depending upon who wins. Gore will pour a flood of money into various failed government programs, increase taxes on the top 50% of income earners, and various other draconian and socialistic measures. He is a typical Harvard liberal who will shove down our throats Harvard liberal dictates.
Should good prevail and Bush is sworn in January 20, he will cut taxes and pressure Alan Greenspan to cut interest rates. He will pressure OPEC to increase oil production. He will work on privatizing part of Social Security, which will have both economic and psychological impacts on markets and investors. His solution will get results by about October or November. Gore’s will see results just after the GOP picks up a veto-proof majority in both houses during the 2002 elections.
My problem is, based on that last set of predictions, I am torn on whom to root for.
Copyright © 2000 by William Hennessy. All rights reserved.
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