What’s going on and where I feel we are headed

Hello everyone,

Something has been on my mind since the beginning of the blog last October. I have shared many of the details that make up the bigger picture. But I’m not sure that I have related that bigger picture to everyone.

What’s Going On
In general, the massive, unsustainable economic culture of the United States is experiencing creative destruction.

It is obvious to me that the citizens of the U.S. are taking this recession as an opportunity to “catch up.” Many consumers are cutting up their credit cards and refusing to shop for trifles. This is evidenced by the big dips in consumer spending and retail sales. Those unspent monies are being directed to pay off credit cards and to increase savings. Overall, credit balances are dropping and savings rates increasing.

I have said previously on the blog that real economic growth is not simply an increase in the amount of money spent in the economy. Though, that is how Gross Domestic Product is calculated. Real economic growth is finding a way to do either new things or do old things better. It’s plain vanilla economics. Find a way to do more with the same set of resources and you have economic growth. Find a way to do the same with fewer resources and you have economic growth. Create something new that no one has ever seen before and you have economic growth. These “new” things can be products, business organizational structures, information technology, etc. Everything else is not economic growth. So the fact that someone is willing to spend a greater proportion of their income on new, unnecessary clothes is definitively not economic growth. I think all of you will agree.

Unfortunately, a lot of U.S. “economic growth” has been of the variety that isn’t real. In tremendous proportion U.S. GDP growth has been fueled by spending more than we earn. This glut of spending has been financed by domestic and foreign investors alike.

Metaphorically this is like the person who continually lies to themselves and others. Their life becomes a grand and elaborate distortion that is unsustainable. Eventually the liar chooses to engage in a personal reckoning that returns them to a firm footing, or the liar’s reality collapses in on them, forcing really horrible consequences (e.g. estrangement, divorce, imprisonment, death, etc.). Alternatively, just as overeating doesn’t result in long-term health, overspending does not either. At some point there is a return to a dedication to health by the overeater or there is death. I am super impressed that, instead of death, the U.S. consumer is deciding to return to fiscal health.

These issues are really ethical/philosophical/spiritual issues, not economic issues. The result of a solid ethical footing is that the economy can flourish. However, the cause is ethical solidity and the effect is a strong, sustainable economy.

That leads me to the next part of this post…

Where I Feel We Are Headed

The U.S. is investing right now in its spiritual well-being. The evidence is nearly everywhere and I am extremely happy that as a nation we are taking the time to do this right now. As individuals we are getting our financial houses in order. At the national level the Obama Administration is choosing to tackle many issues that have been procrastinated about for far too long. In my opinion, on the other side of this massive spiritual reckoning is greater, sustainable health. Future economic growth as measured by GDP is likely to be more modest than in the past, but it will be more real. This will help remove some of the planetary environmental issues as well. Furthermore, individuals and businesses are now thinking long-term and they are reconnecting cause and effect together. That is, decisions are being made with an eye on the long-term consequences of those decisions. This is all amazing and necessary.

So, in conclusion, I reiterate that this is an incredible time to be investing in the U.S. economy and its businesses. Will the economy get worse? Maybe. Will the stock market fall further? Maybe. But those are short-term questions put to a long-term investor. And I am a long-term investor because as citizens we are finally doing the things that we have put off for far too long. The long-term result will be greater, more sustainable prosperity. And the result of investing now, when asset prices are relatively low, is higher long-term returns. Will we be buying at the absolute bottom of the market? Who knows? But we are buying near the bottom and we are buying at an opportune time.

Nuff said.

Jason