“My Two Cents”
By Andy Sutton

9/1/2006

Once again, the propaganda machine is in full regalia this week as we
read story after story about how slumping housing, low consumer
confidence, and higher interest rates cannot derail the consumer
spending machine or what is otherwise known as the economy. This latest
barrage of 'good' news feeds into a strong belief that I have that the
bigger the fraud, the more people you will hear telling you that it
isn't one. True to form, 'economists' (I use that term very loosely),
politicians, market watchers and 'investors' (also used loosely) are
lining up from sea to shining sea to comfort the beleaguered consumer
and cajole him into spending more money that he simply doesn't have.

I think that it might be a good idea to share some of these insightful
idioms and let you hear it straight from the horse's mouth:

From the front page of www.marketwatch.com 9/1/2006:

"Dow industrials and S&P 500 trade to 31⁄2-month highs as data show
inflation under wraps, consumers largely upbeat and manufacturing
activity robust."

From www.bloomberg.com 9/1/2006

"U.S. consumer spending rose the most since January and a measure of
inflation increased less than estimated, suggesting a prolonged economic
expansion that will let the Federal Reserve keep interest rates steady
through year-end."

From Yahoo!! Business News 9/1/2006

"The new reports provided evidence that consumers are continuing to
spend despite rising interest rates, a cooling housing market and
gasoline prices that hit records this summer above $3 per gallon."

"Some analysts say overall economic growth in the second half of this
year may come in at a stronger pace than expected, based on the rebound
in consumer spending. But they said it was critical that consumer
confidence stabilize in coming months."

From bloomberg.com 9/1/2006

"Federal Reserve Chairman Ben S. Bernanke said "strong'' growth in U.S.
productivity will probably go on for "some time'' as companies and
industries make better use of computers to raise workers' per-hour
output.. ... Rising productivity has been an engine of U.S. economic
growth for the past decade." (Editor's Note - How much more productivity
can possibly be squeezed from computers? In 1995, yes; today I don't
think so)

I think I've made my point. This on again off again stance with regard
to inflation has got to be very old for anyone who actually pays
attention to it. Out of one side of their face they talk about being
tough on inflation while out of the other they make the case for
lowering interest rates. Keep in mind that all the while, the printing
presses are running full bore. You can almost hear the clickety-clack of
the presses in the background anytime Helicopter Ben opens his mouth
these days.

Also keep in mind that while all this 'good' news is reported, what goes
unreported is that consumer debt continues to explode at an alarming
rate. More troublesome, the faster than expected jump was largely the
result of more credit card debt. In June alone, borrowing on credit
cards and other revolving debt rose at an annual rate of 9.8% on the
heels of an 11% gain in May. We are talking about households
overspending their paychecks by BILLIONS per month. This little trivial
tidbit never garners headlines, or for that matter is even mentioned in
the mainstream media. The powers that be choose to ignore debt at all
levels under the premise that we are the holders of the world's reserve
currency and are thus entitled to borrow without paying. This is a
dangerous premise, and ought we be betting the future of our children
and our way of life on it? The consequences will be downright ugly if we
choose incorrectly.

Andy Sutton holds an MBA in Economics from Moravian College and is a member of Omicron Delta Epsilon International Honor Society in Economics.

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