Nick Benton's Corner: Aborting Inflation
Posted with permission of Nicholas Benton, Owner Editor of the Falls Church News Press.
by Nicholas Benton
The news came yesterday that for only the seventh month since 1947, October 2008 marked a one-percent decline in the Consumer Price Index (CPI), suddenly raising the specter of things far worse than a mere recession, but a deflation and depression.
There's no indication that there will be a turnaround any time soon, and public and private financial policies seem to be exacerbating, not correcting, the problem. Unabated financial exploitation to line the pockets of the super rich, while real wages for American workers have fallen in the decade, is the legacy of the worst U.S. administration in history that has brought us to the brink of another Great Depression.
Aggressive government efforts targeted at preserving and adding jobs, keeping families in their homes and providing debt relief are the only ways to reverse the trend.
Even scarier than contemplating the amount of real insolvency there is out there in the global derivatives and related overly leveraged markets, is the thought of how the consumer bubble could contract in the U.S. in a very short period of time.
Obviously triggered by unemployment, falling wages, overburdened mortgages and other debts, and a lack of access to more credit, the American consumer, which is to say the average citizen, is already under heavy pressure to "do with less."
All the attention is on what this may do to the holiday shopping season. It could be a veritable bloodbath for retailers that count so heavily on the generosity of Santa and his surrogates (the American consumer) between Thanksgiving and New Year's.
But that's only the start of it. It's downright chilling to think of how much of the average citizen's spending is discretionary, not mandatory, once the mortgage, the car payment, other debts, insurance and taxes are stripped away.
Almost everything Americans eat, buy and use to entertain themselves are highly-overpriced luxuries by comparison with alternatives actually at their disposal.
How hard is it, really, to make coffee at home in the morning rather than to stop in at a Starbucks and pay $4 for a cup? How inconvenient is it to pack a lunch rather than blow $20 buying lunch at a restaurant? The same goes for dinner, and the same for drinks at a pub rather than having friends over.
How about enjoying that HD television in the comfort of home rather than spending $100 on a ticket to a Redskins game? Or watching a DVD instead of paying $150 for a ticket to a Madonna concert?
Then, what about spending $7 on a pair of sneakers instead of $200 on some fancy pumped-up shoe? Then there's the blue jeans and shirts you can get at the discount warehouse compared to the fancy designer brands. How about driving to a nearby park rather than flying the family to the Caribbean?
Of course, there are plenty of people who have always, out of financial necessity, taken the bargain route, rather than the other. But the consumer economy of the U.S. is rooted, to an unnerving degree, in the more expensive spending habits of those making higher salaries and, especially, having easy access to credit.
As those millions lose their jobs (1.2 million so far in 2008 alone), have their salaries cut, find themselves upside down on their mortgages and can't get more credit, their lifestyles are undergoing what Best Buy's CEO has called a "seismic change."
The only way to break this spiraling effect is to address it not at the Wall Street end, but at the Main Street, and the side street, end of the problem.
Only by aggressive measures to secure people in their homes and jobs, and to provide debt relief, can the public's capacity and confidence be restored to participate in the full potentials of the economy. In the context of declining housing values, government participation in mortgage rewrites and other forms of relief are essential.
Jobs represent another critical component. Not only does American industry require the aid it needs to stay productive, but the new administration will to have to look at models of large scale publicly-induced employment. This could be either in the form of the legislative package (the Homestead, Railroad, Greenback and Land Grant College acts) passed under Lincoln that expanded the Industrial Revolution, or the public works infrastructure-development agencies introduced by FDR in the Great Depression.
In the context of these, with the government having tremendous leverage over the banking system, it could also provide not only wages, but badly-needed consumer, including student loan, debt relief in exchange for public service participation.