Spend While You Got It

Over the last few months, when we were treated with economic distress reports or bailout packages, the common denominator was the valuation term of billions. Billions of dollars here, billions of dollars there, billions upon billions of necessary dollars required to rescue our nation’s failing financial industry, our nation’s car industry, and our nation’s housing market. At times, we would even hear the term “trillion” bounced around by the “in the know” strategists and market forecasters. They knew the first wave of bailout money printed by the federal government would only be the initial drip necessary to fill the quickly emptying toilet bowl we currently call our economy.

The eyes of the American public have been pried open by what some may equate to how an experienced torturer may open the eyes of his victim. People are losing their retirement savings in an instant, many families are being forced from their homes, and individuals are losing their jobs that they once thought were safe in a hustling and bustling economy. Nothing is safe at this point. The news reports the demise of the big three automakers in Detroit and their pleas for Congress to help bail them out. We hear daily reports of financial institutions going under with their only hope to survive being federal takeover or submitting to a takeover from a rival company. Employees are finding out that their jobs are not safe each and every day as companies are cutting their costs by sacrificing jobs. Home values have declined to the point where more people have no equity in their home than ever before in our history.

All of these things have combined to generate a horrific downward spiral of events that cause the next major collapse or economic downshift. The net effect is that there is less money to be spent by both the individual and the business. Less money in the economy at all levels – national, state, and local – means that people are going to face even worse times in the future. Things may appear bleak at the moment, but we are only riding the first wave of issues that are pounding our economic beaches. However, right now is the time of giving, the time of holiday shopping, the ultimate time to spend money… the Christmas shopping season is upon us and Black Friday opened our eyes to the “necessary” products we must have for ourselves and to give to others.

Forecasts for the holiday shopping season are generally conservative and if people do not spend as they have in the past, the economic fallout will be felt in the coming year. But, given that jobs are becoming more scarce, corporate profits are down, and the stock market isn’t generating instant millionaires at the rate is has in our recent past, where is this holiday shopping money going to come from? Do people have hundreds or thousands of dollars in cash stuffed under their mattress? Do they have a savings account or trust fund to dip into to satisfy their Christmas “giving” needs? Where exactly is the money going to come from?

Initial reports from Black Friday estimated that Americans spent $41 billion during the Thanksgiving shopping period. That was up several percentage points when compared to last year. Forecasters have turned in their estimates and believe that even though they expect the lowest increase in spending in six years, they fully expect Americans to spend upwards of $470 billion during the Christmas shopping season. That is up from $460 billion last year…

In four days, Americans spent an estimated $41 billion shopping and are expected to spend over 10 times that in the next 25 days or so. How is that possible? Where is the money coming from? I can tell you where the money is coming from. It’s coming from the last remaining amounts left on consumers’ credit cards. People are willing to spend what they have when they have it because let’s face it, Christmas is important and everyone wants to have a good Christmas.

Also, the sense of spending it while you have it has entered many minds. Credit companies and financial institutions have been cutting the amounts they are allowing their customers to borrow. Rather than watch the credit line disappear, many people are using every last cent available to them to offset the current shortage of cash in their lives. Eventually, the credit lines will be tapped out and many consumers will be faced with very tough decisions. Without available credit and bills coming due, something has to give.

An easy way to make ourselves feel good when things are bad is to buy something. We fill a depressing need with a new possession. We spend some “future” money today in an effort to satisfy our decaying lifestyle only to see that we’ve made things worse. I believe that next year, if our economy isn’t treated to some kind of miraculous turnaround or unforeseeable bubble akin to the internet boom, bankruptcies will be the next statistic we hear about on a daily basis. Today, it’s bailouts… next year, it could be bankruptcies. There is only so much bailout money to go around and eventually, people and corporations will be allowed to fail. The economic fallout will be horrific. It could be our generation’s Great Depression. No, we likely won’t face 25% unemployment, but our standard of living could in fact be comparable to how our forefathers lived… day to day, worrying about the necessities of life being fulfilled.