Wealthy Credit

Another day, another drop in the DJIA… this is the reality even after several news sites were pushing articles about a potential run-up in the stock market because they believed we had hit the theoretical market floor. It was a good idea… or ploy considering they had the entire weekend to try and magically conjure up some goodwill for the sagging financial markets. The smoke and mirror trick didn’t work as the DJIA fell another 80 points today and hit another 12 year low (it was down over 100 points before inching up before the final bell). Consumer and investor confidence isn’t easily won over. If lengthy Presidential speeches and billions/trillions of dollars of “free” money cannot shake the earth beneath Wall Street, a simple set of curiously “optimistic” reports over the weekend won’t turn the tide.

Day after slumping day, we continue to receive horrid reports of just how bad the jobs sector, housing market, and world financial system really is. Any thread of optimism is crushed by the daunting weight of reality. Not only has the American economy slipped into a wild tailspin, the entire world’s economy has. That is to be expected given the globalized economy and America being the world’s number one economic engine. It’s simple trickle down… or waterfall down at this point.

Everyone wants things to turn around, and turn around quickly. But, that is equal to asking to win the lottery of all lotteries. It just isn’t going to happen. There is one major reason why we will not experience a quick turnaround at the level of you and me, let alone at the corporate level. That reason is the fact that the credit market has seized with little to no hope of it releasing in the near term. A harsh reality may be that it will never return to what it once was.

Since the credit card market boomed and basically gave credit to anyone who could show any sort of income (and many who didn’t have any income), consumers began using this “free” money to fund their lifestyles. This so-called “credit wealth” allowed us to live beyond our weekly, monthly, or even yearly means. Many of us have extended ourselves past the year timeframe into many years. We never really think about it when the going is good, but now that the economy has hit the skids, the bills are coming due as our take home pay is raked across the coals by increased costs of living without adequate raises to make up the difference.

The credit lines have shrunk, but the bills are increasing… it’s a no win situation. I believe several things have all hit the “sweet” spot and the catalyst was the price of gas. Consumer credit boomed and raged out of control as banks tried everything to gain customer count and increase their “assets.” The housing market was an inferno out of control and everyone knew the bubble would pop, but nobody expected it to simply implode in a few short months. And then there was the price of gas… the summer of $4 per gallon gas. We borrowed, and borrowed some more, until our wallet was stretched as far as it could go. Our theoretical budgets could not withstand the doubling and tripling costs of gas to drive back and forth to work, let alone the increased costs of goods and services passing along the costs of higher oil and manufacturing costs.

Gas prices were the catalyst that pushed our economic boat over the edge. We were maintaining our credit wealth as best we could until the real monthly bills became so overly exaggerated, we couldn’t push the costs of living out into the future. Initially, the savings (what little of it there was) we had, were used to augment our income to take care of the “temporary” costs increases. As these increases were seen as less than temporary, our savings were burned through and then the credit lines were strained even worse. The bad situation was turning into a horror show.

Now, after more than 15 months into this recession, there still appears to be no end to the downturn. Billions, and even trillions, of dollars have been injected into the system in an effort to save what little confidence we have left. These people are hoping for a return to how things used to be. I don’t think we’ll ever see things return to that stage. If we do, this recession will have solved nothing and will have only served the purpose of extorting houses from many families and dashing the retirement for untold thousands of hardworking American citizens. We all need a return to normalcy. We cannot fund wealth with credit. Credit is necessary, but to an extent to augment our daily lives, not finance them. Until we realize that as a nation, we will continue this road to nowhere. The consumer must change and most of all, we must realize that the government is not going to save us. We must save ourselves by spending more appropriately.