Bruno the bruiser

It is easy to forget that the prosperity of the automobile and radio led us into this great financial mess. It is called consumerism and consumers demanded more and more. Consumerism was thought to be the greatest thing since 'sliced bread'. By the way, consumerism created sliced bread. In some ways consumerism has done some good things!

You ask how did consumerism cause the financial meltdown?

Anyone remember the term - saving! When the US adopted consumerism as it's economic policy it created an imbalance between having and waiting (spending and saving). All these years the politicians should have been developing policies to incent the consumer to save. The politicians tried with instruments like IRAs, 401ks, etc. These were good instruments, but were at an imbalance with another commodity that was born from consumerism's economic policy. Anyone venture to guess?

If you guessed 'credit' you are correct. Credit led to impulse consumerism. Buy today and pay tomorrow plan. Your pay stub became your collateral for your 'gotta have it now' impulse.

The very freedom of economy and society depends upon sufficient voluntary saving. The US has had a minus savings rate for several years now. What is the price that must be paid for a negative savings rate? Inflation and loss of freedom. From 2005 - most of 08 we had commodity inflation (price of fuel, food, materials were all higher). Now we reap the benefits of the politicians planning and strategizing our loss of freedoms. Look for many more regulations as to what you can and cannot do with your money, and the government's basic need for more of your money. Their need for more of your money will limit your freedom to chose what you will be able to do with the money you earn.

To put it in more technical jargon, "today's super-state, with its super-budget, super-taxation, and super-welfare programs, has developed into a colossal apparatus for dissaving and, at the same time, an apparatus of inflation and growing compulsion. To close the vicious circle, this same inflation, which is due to insufficient saving, gravely impairs further saving because it shakes the saver's confidence in the stability of his saving's value." This comes from Mr. Ropke in an interview he gave in 1936.

Interpreted for today's meaning goes something like this.............Most of the older folks today grew up in a society that promoted savings. They knew the value of a dollar and how hard it was to come by. These older folks had put aside a tidy sum for old age. However, suddenly one day these older folks (who now have access to consumer credit) decided to blow it all and spend their little fortunes on luxury television sets, automobiles, meals in restaurants five nights a week (plus lunch five days a week), and other things. When asked why they suddenly changed their minds and began spending all their savings; they replied "the welfare state was now taking care of them anyway and there was therefore no reason why they should deny themselves the immediate enjoyment of what they had set aside for old age."

The term 'bet on the come' applies as well. Up until February 2009 most folks bet they would get an increase in their paychecks. Therefore, they made a bet and bought more with those consumer credit instruments that do not promote savings. Consumer credit actually encourage you to make big bets on what you do not have. Now you have a number of folks who made BIG BIG bets and lost, and Bruno the Bruiser is knocking at their doors wanting to collect. They can't pay so they have turned to the government to bail them out.

This problem was not created by the government (except maybe for some lax oversight), and the full amount of the blame can't be placed on the financial community that made the consumer a consumer. The major part of this blame has to rest squarely on the shoulders of the American consumer and the 'gotta have it now' ways. The government put saving instruments in place, i.e. IRAs, 401k, 403b, etc. I don't think the government ever anticipated that the American consumer would leverage these savings instruments against consumer credit and home equity. Rightfully though it should have been expected for none of the consumers today have really ever experienced any financial pain.