Are You Prepared for a Financial Winter?

Your flood of responses to my recent blogs on the economy made me realize what a vital topic this is. This morning I was watching another day of economic turmoil unfold on CNBC. Listening to experts tends to give me a headache in times when common sense might matter much more than expert opinion. I’m no economic expert, but common sense does seem to be quite obvious.

We’d all like to think the current escalation of foreclosures will be limited to those with “unworthy” credit. We’d all like to believe that unemployment rates will remain low. We’d all like to hope that we’ll all have money to spend in our consumer economy will keep humming even though there are plenty of dark clouds heavy with rain directly above our heads.

But what if what we’re seeing now is just the beginning of a much more fierce storm? What if the variable mortgages used by millions of middle class, good credit home buyers to get much bigger homes are going to trigger a rash of foreclosures across America’s core consumer? What if lenders, too-little-too-late efforts to bring sanity to mortgage loan standards choke off refinancing and home sales to a point that the real estate market freezes? What if we consumers cut back even 10% on our purchases of stuff we really don’t need? What if gasoline, heating, and oil rise in price again? What if business stops expanding and job lay offs become standard place? What if health care cost and the cost of war, milk, corn, and bread continue to rise? What if this is already happening? Are you prepared for a prolonged financial winter?

Maybe it won’t happen. Maybe it won’t be so bad. Maybe all our economic hype-freeze really know what they’re talking about. Maybe lenders will create 100 years mortgages to bail us out temporarily. Maybe some unexpected positive events will keep our leaky boat afloat indefinitely; no one knows.

Our global economy is more complex than our weather. Both are unpredictable. So we can just hang out and hope for the best, or we can prepare for a hurricane. One thing we can’t do is rely on experts to tell us we have nothing to worry about. They don’t know. It’s time to exercise our own good judgment to make ourselves less personally vulnerable to forces no one really controls. Nobody is going to take care of us. We‘re simply economic statistics to people who have their hands on the levers of commerce. And those folks are trying to control the weather. They are foolish enough to think they can. As for the rest of us, it seems wise to follow the advice of Winston Churchill. To paraphrase: It’s always best to plan for the thing you most don’t want to happen….in case it does.

9 comments.

Your Response to “Fake Wealth”

When I posted “Fake Wealth” late last week, I unleashed a torrent of wisdom from many of you who had thoughtful things to say about our hyper-consumption economy. You talk about the need for all of us to become financially literate and to think for ourselves. Most of all, many of you reflect the wisdom and judgment of an increasing wave of citizens who want America to become more than we currently are. I am impressed, and genuinely encouraged by your consistent, thoughtful comments and responses.

So, I am forwarding your comments along with the blog to the most popular Democratic and Republican Presidential Candidates to see if any care enough to respond. Has anyone out there got a real plan? Something more than easy platitudes, something clear, credible and compelling? We need a new American agenda. We shouldn’t be weakened by our laws and policies. We should be strengthened. Our history is clear. We are at our best when we both promote individual initiative while we also enthrone our united commitment to our common good. It’s not that hard to understand. It just takes courage and common sense to unleash our inherent virtue.

Let me know what you think. What are some ways we can amplify our voices?

3 comments.

Fake Wealth

Yesterday President Bush declared that our economy was “sound” and all this concern about home foreclosures is overblown. He said, “I’m a glass-half-full person” (USA Today). Well, what if you’re a what’s-really-going-on-here kind of person?

What’s your house worth? How much home equity do you have? Will your mortgage readjust in the next two years? Welcome to the wealthiest country in history. But is it the wisest? Recent news is full of a declining housing market with the biggest price declines in the shortest time in history (“Economy.com Forecasts Historic Home Price Decline”). What we’ve just experienced is called asset inflation. It’s when the price of things goes up but their underlying value doesn’t. It’s all due to easy credit. It drove up the stock market before the 1929 crash. It drove the Internet bubble of 1998-2000 (which eventually cost 17 trillion dollars in stock losses), and now it’s hitting nearly all homeowners who live paycheck to paycheck. Whether the ripple effect of 3 million mortgages adjusting to higher payments in the next two years is going to choke our economy is yet to be seen. But if it does, it will hurt those who have the least resources. And the worst is it could have been avoided. It didn’t happen by chance.

About 30 years ago our leaders decided that turning America into a consumer economy was a good thing. So today instead of borrowing to invest in factories, technology and ideas, we spend 70% of our 12 trillion dollar economy on buying stuff. We can’t afford to repair our bridges, our levees, or fix education, but anyone can get a credit card. You see, there is lots of money to be made loaning us the money. But since we quit investing in productive assets and now mostly spend it on consumption, look what we’ve produced. Today, two-thirds of Americans believe their children will be economically worse off than they are. This might be why:

• We live in a country of 300 million people in which the richest 3 million own more than the bottom 256 million. 1% owns more than 90% of us put together!

• Profits are at a 40 year high for Fortune 500 companies ($705 billion) nearly 2X previous high, and worker productivity is up 48% between 2000-2006, but average wages are only up 1% (inflation adjusted) (Bureau of Labor Statistics (BLS)).

• Median personal income is actually down, below 2000 levels (BLS), and also below 1977 levels in real dollars! (The real median income in 1977 was $51,223 (inflation adjusted). In 2006 it was $50,700.) (National Center for Education Statistics (NCES)).

• Prices in real terms of housing, college education, and health care have risen nearly 300% more in the past 30 years, while individual incomes are stagnant. (College Board and U.S. Census Bureau).

• The amount of monthly income it takes to buy a house today is nearly 23% vs. 17% in 1970. People who pay 50% of their income for rent or mortgage payments are at an all time high.

• The average home price adjusted for inflation in 1970 was $115,000. Today it’s 2X as much in real dollars ($219,000). (Fetterman, Mindy. (2006, Nov. 19). Young people struggle to deal with kiss of debt. USA Today.) In many markets it’s 4X more (475,000+).

• The average debt of a college graduate is nearly $20,000+ (College Board).

• 47 million are medically uninsured. Most are in families with at least one full time worker.

• In many communities, teachers, policemen, and firefighters cannot afford housing.

• Medical Insurance Premiums of an average American family exceed $1000 per month.

• Loan defaults and foreclosures are doubling monthly in many parts of the country.

• In Cleveland, Ohio nearly 10% of the homes are vacant and abandoned due to foreclosure caused by job loss.

• Retail sales are declining due to increase costs of gasoline, insurance, and housing.

• The savings rate for the average American 30 years ago was 9%. Today it is at zero.

• America has fewer manufacturing jobs (14.3 million) than it did in 1950 with 2 times the population. SOURCE

• Since 1977, inflation-adjusted medium income for U.S. males has declined 7.5%.

• U.S. productivity in terms of output ranks 8th behind Norway, Belgium, France, Ireland, Italy, Austria, and Germany (OCED).

• U.S household debt exceeds $12 trillion.

• U.S. Federal Deficit is $8.8 trillion!

So what’s our plan? Can this continue? Is this the best society we can produce?

Maybe we need new leadership with a vision for a new future. A future in which we get our identity and our joy from who we are and what we create rather than from how we appear and what we consume. We need a new economic agenda for our future and individually we need to make sure our personal economic agenda is serving our real dreams rather than the dreams of someone trying to sell us something. The lessons are simple. We need new leaders with a new agenda. And most of all…we need to invest in ourselves, not in our stuff.

Let us know what you think. We want to hear your voice.

23 comments.

Real Wisdom

A few days ago I was speaking to 28 year old Kate Atwood, one of Atlanta’s outstanding young leaders. Kate’s mom died when Kate was 12. Her teenage years were hard, lonely, and grief stricken. You’d never know it today except for her uncommon wisdom.

Four years ago Kate founded Kate’s Club, a non-profit dedicated to helping grieving children who have lost one or both parents. It’s been a huge success and has become a major community asset.

Kate offered a profound insight about the human condition. She said the number one fear of a grieving child is that the dead parent will be forgotten and that implies that inevitably so will the grief-stricken child. Kate said our greatest inner fear is that we don’t matter, that in the end we are insignificant. What most of us do to shield ourselves from this fear is to amass wealth, power, and fame as a defense against being forgotten. This coping strategy is the cause of nearly all of our world’s problems and most of our personal ones. In a desperate bid not to be irrelevant we become so.

But all of us have a legacy. All of us have a unique purpose. All of us have influence far bigger and broader than we imagine. As author Matthew Kelly passionately puts it, our purpose, the universal purpose of each of us, is to become “the best version of ourselves.”

We are unique for a reason. Each of us has a unique Greatest Total Value equation where the sum of our gifts, talents, actions, and relationship add up to infinite, irreplaceable value. No one can take that from us. We can only abandon it ourselves. And yes, our choices do matter. As Kelly reminds us, every choice either brings us closer to our best health, best work, best relationships, best lifestyle, best thought, best spirituality, or it takes us somewhere lower. Every choice takes us toward integrity or assaults it. Only integrity will make us happy.

So in an age of social insanity, political chaos, and economic insecurity, it is a time to look inward. We need to remember the wisdom of Kate Atwood. “Insignificance is an illusion, we all matter in exactly the way we are designed to.” Live the life your inner integrity is calling you to.

Give your gift.

Serve others.

2 comments.