Closing the Books on 2008

Monday’s editorial in the Courier News underscored the idea that the fiscal discipline which consumers have begun to show in the recent holiday shopping season is a trait that should be emulated at all levels of government, from Washington, D.C., all the way down to Bridgewater.

I often wonder why it is that governments seem to become as addicted to spending as a crack addict is to cocaine. It looks like some public entities just don’t pay any attention to what is obvious to the average citizen – that, in times of economic distress, spending needs to be adjusted to income. Of course, if a governmental entity can simply adjust income upwards by increasing taxes, then what’s the problem?

So far, there isn’t any sign that public spending for 2009 – at least in a couple of areas – is going to abate. Certainly not at the Federal level, and, from preliminary indications, not at the local level either. In Bridgewater, where the preliminary Bridgewater-Raritan school budget has already been released, spending is assured of coming in at another record level.

All Shopped Out?

One of today’s news reports indicated that retail sales for the Christmas shopping season were down 5% to 8%. You’d think that the world had come to an end! The TV talking head who passed on that information explained how retailers were hoping that consumers would make up that deficit by the end of the year. Deep merchandise discounts are supposed to be the incentive to lure you in.

We may be in the midst of the biggest economic downturn since 1929. If all we had to be concerned about were an 8% slowdown in seasonal consumer spending, it would be a gift from heaven. If only the stock market had gone down by a mere 5% to 8%; or the real estate market; or the auto industry!

Even though the Bridgewater area may not be feeling the pain as severely as the most depressed sections of the USA, the economic issues plaguing this region are similar to those across the nation. Just look around: Our spending habits, expectations, and bellies have simply grown too outsized over too long a period of time.

If you believe in Guardian Angels, then I sincerely wish that yours will watch over you in the coming year. And that’s not an idle wish. You’d probably do better to put your trust in that phenomenon, while keeping your nose to the grindstone, than you would be to trust some of the yahoos who have been misdirecting our financial and governmental institutions.

Always Look Behind the Veil

The photo of Bernard Madoff in this weekend’s edition of the Wall Street Journal may be one of the most revealing examples of the time-tested adage, “You can’t judge a book by its cover.” The picture shows a frontal face shot of Madoff who is alleged to have bilked hundreds, perhaps thousands of people and organizations out of $50 billion. You might think his photograph would look like a mug shot, but it doesn’t – that’s the surprising part.

Indeed, the veneer of Bernie Madoff’s face gives the impression of someone you might instinctively trust. His features are soft: the eyes deep, but not hard; the emergent smile, welcoming. He sports unpretentious spectacles and a round, almost jovial visage that emanates no sign of deceit. All those features are topped off by a blue baseball cap covering a head of silver. The photo gives off the air of an informal personality. The guy might just as well be your own grandfather, he looks so first-rate!

However, if the allegations brought against him prove to be true, no one would trust him any further than they would a recidivist, child-abusing relative nestled in the middle of a family get-together sprinkled with innocent children.

This phenomenon brings up the age-old question that comes up in such situations: Why? No one but Madoff can explain what happened. Even though his investors should have been wary of returns that were consistently too high in both up and down markets to be credible, there is something else: People want to trust other people. Despite all of the mendacity in the world, trust, properly applied, is still one of the essential oils that lubricate the operation of a viable society.

The fact that so many well-trained empty business suits, bureaucrats, and elected officials have taken advantage of that human attribute is the main reason why our economy is now in the tank.

They Played, We Pay

Ben Bernanke, Chairman of the Federal Reserve, is holding the discount rate to a below-market 2% and, together with Henry Paulson, Secretary of the Treasury, has pulled out of the fire the collective butts of some prominent investment firms; as well as those of national and international banks, most of which speculated heavily in high risk, hybridized, mortgage-backed financial instruments.

Nonetheless, housing markets are still in a funk, and artificially low interest rates perpetuate poor lending practices, while possibly encouraging inflation. On top of this, the U.S. Congress and the Administration seek to bail out borrowers whose credit worthiness is sub-par.

Thirty-five years ago, the late, iconoclastic Harvard economist John Kenneth Galbraith wrote that, “Unless lower interest rates and easier borrowing are accompanied by good prospects for selling goods or houses, nothing much may happen.”

Well, nothing much is happening, except that the housing market hasn’t hit bottom yet, GDP growth is hovering barely above recession levels, and the U.S. taxpayer is picking up the tab for corporate mismanagement, poor legislation, anemic regulation, a deflated dollar, dead-beat loans, and an increase in core inflation.

If one wishes to empty a cesspool, one has to drain its contents, nor merely stir them about.