The Last "Normal" Holiday Season

As we prepare our purposefully irreverent meal for this day of thanksgiving - boiled oats and day-old biscuits - we would like to stop and make a fearless prediction which has been rolling around in our heads since about the middle of this year. We really don't have any hard data to back up our assertion; in fact, we're going to just put it right out there, that this is an intuition.

Simply put, we posit this will be the last holiday season that anyone in the United States, or elsewhere, can call normal. Note the call normal; last year saw the last holiday season which could be considered actually normal. This season, however, will be all about keeping up appearances; the show must go on, after all.

Take this Thanksgiving in the United States; 49 million Citizens are going hungry at the end of every month. Now, at last report in September, 28.4 million Citizens are on food stamps. Hmm, we sense a number problem here... but anyway, on top of that, half of all children in the U.S. will receive food aid, as well as 90% of African-American children.

Let that settle in your mind for a moment, dear Reader. Those numbers are not from Haiti or Zimbabwe, but rather the only so-called superpower in the world, the United States. Those are not good numbers to be seeing from an OECD nation; it makes us think about terms like 'third world' and 'failed state.'

This will be a failed Thanksgiving; people will max out what little credit they have remaining for the month in order to have a 'feast.' By that, we mean keep up appearances, as there are really very few people in the U.S. right now who can actually afford to have an extravagant meal, pay their bills, and have savings. Perhaps the 'recovery' propaganda has worked its magic, and most Citizens have moved into a Keynesian dreamland, where they spend now and have an economy later. We frankly think not; we posit most U.S. Citizens couldn't make a budget - and keep it - if their lives depended on it. For 49 million of those Citizens, their lives do depend on it, and they seem to prove unequal to the task.

After Thanksgiving will be the failed consumer orgy of Christmas; failed, because one cannot have an orgy if no one shows up. That's not to say that lights won't be strung and trees erected, because they will be... probably with more 'animal spirits' energy than ever. Under those trees, though, will tell the real tale. Show us an average Citizen who has lots of gifts, and we will show you someone who is nearing the end of their financial rope.

As we're writing, an ironic thought occurs to us: would it not be an expression of cosmic justice, if the attempt at summoning up a holiday shopping extravaganza is what finally topples the still-tottering U.S. economy? Think about it: maxing out credit cards for one last huzzah; blowing the savings on gifts for the kids, or Social Security cheques on the grandkids? Citizens of the United States are far too broke to enjoy the spendy, spendy ways to which they became accustomed; at this point, they should go limp, take their financial kicks to the stomach, and try to get things in order again. Instead, they will - and we mean will - go down, in vast numbers, and in flames.

Fire Up the Presses!

The Year of our Depression 2009 hasn't yet ended its second month, yet already a great sea of red ink is bathing the bailout-happy nations of the world. Japan's exports tanked 46% year-over-year in January; the Royal Bank of Scotland is haemorrhaging pounds like nothing else in British banking history; Fannie Mae put her lil' ol' hand out for more money after losing another $25.2 billion in fourth quarter of 2008.

Perhaps to top it all off, yesterday President Obama unveiled his $3.5 trillion budget, featuring $989 billion in new taxes. Oh, all these numbers are making our eyes bleed, dear Reader! We see a great tsunami of red ink barrelling down upon the economic landscape, and we hope to keep our head above all the mess.

Imagery aside, the implications of all these massive problems is severe: a great deal of pain and misery is required, if a society wants to honestly work its way back to fiscal health. That, however, isn't very popular with the average American, or Briton, for example. It's also political suicide to suggest such a thing: people do not want to work hard, to pay off the national bar tab, or all the gambling debts.

No, the only expedient way out of this mess, the one that is relied upon time and time again, is inflation. These debts will be inflated away into nothingness; President Obama's bloated budget makes this clear. He is only getting started with his spending spree, since he has to make up for the Baby Boomers and their underwater finances.

In summation, we turn to no less a sage that Ernest Hemingway:

The first panacea for a mismanaged nation is inflation of the currency; the second is war. Both bring a temporary prosperity; both bring a permanent ruin. But both are the refuge of political and economic opportunists.

End of the Service Economy

We read today that the U.S. Postal Service wants to cut a delivery day. We see a dark trend behind this story. People just don't have the money to pay other people to do stuff for them.

When you're cutting your budget, one of the first things to go usually is eating out, that is, paying someone to cook for you. Then there is cutting entertainment - not paying someone to sing or dance or tell jokes for you. Cutting travel means not paying someone to fly you somewhere and give you an exotic place to sleep. Pretty soon a lot of people are out of a job.

In 1986, an article was entitled Taking in Each Other's Laundry - the Service Economy. A critical expression was thereafter circulated - "We can't get rich doing each other's laundry." In the following years as more and more people earned their living catering to other people's inclinations - it seemed that just maybe everyone could get rich doing each other's laundry, nails, or pet-washing.

Now that the economy is contracting and have less to spend, people are deciding to do their own laundry. This is setting up a feedback cycle of job loss and spending cuts that has a very deep bottom. We expect to see the US economy (among others) de-servicing, if you will, in the years ahead just as it de-manufactured in the 1980s. This process will be very painful and disruptive for many, and a good deal more than most could now imagine.

Getting from the R-Word to the D-Word

As the economic news gets worse and worse in the coming months, one can expect to see quite a bit of tip-toeing around the deterioration. In a world that rewards the positive thinker, it's just not hip to be gloomy. On the other hand, in order to be truly optimistic (making the best of any situation) and not just indulging in wishful-thinking, it is important to have a good grasp of reality. We maintain that it many respects this is not a very happy new year, and a view that acknowledges that is more reality-based.

So, here's our short list of New Year's Resolutions of general, good advice:

1. Do not take advantage of teaser-rate financing to buy a new car. If you absolutely must have a car, and need another one, for heaven's sake get a used one! There are plenty out there. Pay cash.

2. Be very cautious about buying housing. Buy the smallest house you can manage in. This is the opposite of real estate agents' advice. What makes sense in a rising market does not in a falling one. This market is still falling and will fall for a while yet. Pay cash. If you can't pay cash, and you think owning on a mortgage is cheaper than renting, rent a smaller place.

3. There is absolutely only one reason to borrow money: to pay back an existing loan, and lock in a lower rate. This will be a good year for mortgage refinancing.

4. Think about how you will get by if you lose your main source of income. Then think about how you will get by if you lose your second source of income too. Do not despair, just have a plan. It's not a happy thing, we know. It's a good year to plan and budget. Learn to prove wrong the adage: "budgets don't work."

5. Let 2009 be the year you learn to enjoy being frugal. And remember the best things in life are free!