"Mirror Mirror on the Wall"

From Timothy Bauer
Reno, Nevada

Follow the link for the entire article


We Have Met the Enemy

Who’s to blame for our economic woes? Let’s all look in the mirror.

By Knight Kiplinger, Editor in Chief
From Kiplinger’s Personal Finance magazine, September 2008

""It’s a natural tendency to blame others for our misfortune. And it’s also human to demand of elected officials that they “do something about it.” And that’s what we Americans are doing.

We want Washington to lower the prices on gasoline and food and to enable our dollars to buy more on a trip to Europe. We want someone to fix the housing mess and make the value of our homes start to rise again.

We’re embarrassed that Wall Street is going hat in hand to Arab and Asian governments for infusions of capital. We don’t think the Pennsylvania Turnpike should be leased to a company from Spain, nor should Anheuser-Busch be sold to a Belgian-Brazilian brewer.

But Congress and the White House are powerless to be of much help in the short run – and even if they tried, they would probably make matters worse. When looking for someone to blame, we would be wise to look in the mirror. In the words of that comic-strip philosopher Pogo, “We have met the enemy, and he is us.”"

Excessive borrowing

Most of our economic wounds are self-inflicted, stemming from our inability to live within our means.

America’s household savings rate hovers at just about zero and has occasionally dipped into negative territory. That means many families are using credit to support spending that exceeds their annual income. (A financially healthy household should be saving at least 10% of its gross income for emergencies and retirement.)

Many Americans live in a house – and drive a car – that eats up too much of their monthly budget. They dine out when they could be eating at home, and they indulge their children with trendy clothes. They mistake wants for needs.

Want to bring gasoline prices down? Producing more of it in the U.S. will help … in about 20 years. For immediate relief, our only choice is to start using less of it, diminishing global demand. And as individual and institutional investors, we could stop trying to benefit from soaring oil prices by pouring money into commodities mutual funds. The investor demand contributes to higher prices.

America’s biggest overspender? Uncle Sam. Perpetual federal deficits force Washington to borrow from its own citizens and, increasingly, from foreign lenders. Repayment will put a terrible burden on our children and grandchildren. Shame on us for abetting this. Plus, our insatiable appetite for imported goods, especially petroleum, exceeds what the U.S. earns from selling our goods and services to other nations.

The nation’s perennial overconsumption and undersaving lie at the root of our economic challenges today. They are the reasons the dollar is so weak. And the weak dollar makes imports more expensive, fuels inflation, makes U.S. assets cheap for foreign buyers and, eventually, will force the Federal Reserve to push up interest rates to shore up the dollar and fight inflation.

We citizens say we want Washington to reduce the budget deficit, but we continue to elect congressmen from both parties who apparently think we don’t mean it. Their confusion is understandable because voters demand lower taxes and more services from government simultaneously. Many citizens say they would accept higher taxation if federal spending were frozen, thereby balancing the budget. But they don’t believe Congress will ever stabilize spending.

Genuine “budget hawks” are as rare as the ivory-billed woodpecker. Barack Obama certainly isn’t one. John McCain used to act like one, but now that he’s running for president, it’s not so clear that he is.

The U.S.'s economic problems are not the result of bad luck or other nations picking on us. As Cassius admonished his friend Brutus, “The fault is not in our stars, but in ourselves.”

We Americans have it within our power to slowly reverse these dangerous trends. The big question is whether we have the will.

Columnist Knight Kiplinger is editor in chief of Kiplinger’s Personal Finance and of The Kiplinger Letter and Kiplinger.com.

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