Betting Against America

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It used to be that saving was looked upon as a good thing.  Remember the old saying, “A penny saved is a penny earned?”

That morsel of wisdom has been attributed to none other than Benjamin Franklin, one of our most esteemed and shrewdest Founding Fathers. Whether he said it or not is of no matter; he certainly abided by it and its message has been passed down to almost all of American generations since.  What does matter, however, is not what saving in America used to mean…but what it means today.

The old assumptions used to be that when we Americans saved money, we put it in the bank.  A nation of savers was a good thing, because when more people saved money in the bank, there was more money to lend.  Saving money in the bank used to be not only a prudent and thrifty thing to do in one’s personal financial life; it was also an act of faith in the country.

It wasn’t so long ago that economist lamented the passing of the old days when America was a nation of savers.  “Americans,” the complaint went, “were living beyond their means.  People ought to save their money, not spend every dime they earn and then add even more debt on personal credit cards.”

Those dismal economists were right, of course.  Americans did live beyond their means…for decades.

And why not?

Spending for the world

But there's another way of looking at our profligate spending habits. It could be said that not saving a dime was also an act of faith in the country.  People spent more than they took in because they were confident in the future of America, and in their own futures as well.  Everyone just sort of assumed that major crises were for the rest of the world.  And besides, we protected most of the world that was worth protecting, with the strongest, most hi-tech, sophisticated and lethal military force the world had ever laid eyes on, didn’t we?

Yes, we did.  And still do.

Having said and done that, didn’t we deserve to get fat and sloppy and watch the other side of the world burn, flood, riot and revolt, and otherwise fall apart on our brand new, sixty-inch-1080p-plasmatic-HD-auto-tuned-mega-channelled-satellite-fed-remote controlled, NASA mission-abled-televisions for God’s sake?

I mean hell’s bells; we’re on Mars right now! Don’t we deserve at least a clear picture of the dusty plains of the Red Planet to show for all of our tax dollars and American know-how?

But I digress…

Was our "spend-it-all" attitude maybe, slightly, short sighted?  Might have been.

Perhaps just a smidge arrogant?  Uhhh…perhaps.

But mostly, it was just a very big part of the American economy…about 70% of it.  You see, without American consumers spending every dime of their savings and most of their grand children’s futures on televisions, overpriced homes, and all the stuff that went in them, the rest of the world would not be as rich and developed as it is.

It was the American consumer market, and access to it care of the US government trade policies, that pulled Japan out of the toilet, allowed Western Europe to live out its socialist fantasies for three generations, gave South Korea, Singapore, Mexico, and of course, Communist China a rope to lift themselves out of the self-imposed cesspool economies that they’d led themselves into.

So by not saving one red cent, several generations of Americans made much of the world a helluva lot better place to live; more so than before, when we were a bunch of Depression-wise, World War II-hardened, Cold War-waging penny-pinchers.  Spending money, especially money that you don’t even have, takes quite a lot of confidence in the system, actually.

Betting against the home team

But does that mean that not spending money—that is, saving money—is the same as betting against the home team?

‘Fraid so.

That’s why the 2012 Survey of Affluence and Wealth in America, from American Express Publishing and Harrison Group is such a buzz kill…and should make the rest of the country very worried. The survey found that those who still have large chunks of dough, otherwise known as the One Percenters, are hoarding three times as much cash as they were two years ago.  The savings rate of America’s Thurston Howell the Thirds has jumped to 34% in the second quarter of 2012.  That is up from 12% in 2007.

Are the rich, as we may as well call them, being selfish…or just smart?  What do they know that some of us have yet to grasp?

Perhaps the best way to answer that is to remind ourselves that the rich have access to resources that most Americans do not.  I’m not just talking about CPAs and lawyers; even middle class folks are lawyers and CPAs--or their kids are.  No, I’m talking about something much more valuable than fun-of-the-mill white collar services; I'm talking about access to information.  The truth is that the rich know things that most Americans do not.  After all, what good are money and position if not to leverage the aforementioned money and position in order to hold onto both and/or acquire more of the same?

Here’s how that works.  Say you own a large manufacturing firm the does business both in the US and abroad.  In the course of business, you meet people in high places here and abroad.  You also know people who know other people in even higher places.  And people talk.  They talk about business.  They talk about politics.  They talk about what laws will pass and other important events will be coming before you read about it in The Wall Street Journal or see it on the news.  And then, armed with this very crucial information, the rich behave accordingly, as would you or I.  And what are they doing?  Sitting on their money.

Of course, this savings rate among the rich is also reflected in all the cash that corporate America has stashed away both in the US and overseas.  You can read about it here: http://www.absolutewealth.com/fear-and-loathing-in-america/.  Uncertainty about what the economic environment will be is one of the major reasons for corporate cash sitting idle. The Obama administration is all about economic cannibalism, and US firms are fearful of getting their own heads shrunk. But it’s not just uncertainty that scares the rich.  They also know what they know.  Should it bother us that the rich aren’t about to invest in a sinking ship?  I’ll tell you what; it bothers me.

And those are…The Gorrie Details.

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