Why are we struggling?

I don’t want to talk about the larger economy today.  It’s a mess.  The DOW’s going to end down again and there’s no end in sight to the bureaucracy that is taking place to try to fix the micro economic situation.  The government and the financial analysts are still trying to fix this mess from the top.  Yes, they’re that stupid.  Despite a mojority of American’s drowning in debt, fees and interest they still think the best solution is to throw billions at big companies.  They still want the solution to “trickle down” or “piss on the people”.

Consumers need spending power.  Let’s reverse engineer this from the bottom up.  What got us here in the first place?

1. Borrowing. Most people pay for everything they have monthly.  And those that have paid cash for middle tier items (like my plasma TV) still finance at least their car or home.  These loans have begun to become a real threat now that wages are decreasing and people are losing jobs.
2. Rising costs. Gas is up, food is up, retail goods are up.  In short, inflation.  Although the Feds won’t admit we’re experiencing inflation (hence more cuts in interest rates).  Inflation is defined as: “The overall general upward price movement of goods and services in an economy, usually as measured by the Consumer Price Index and the Producer Price Index.”  I’ll be damned if the first part of that definition is not what we’re experiencing now.  I don’t care what Chairman Bernanke and his indexes say.
3. Stagnant and low wages. Never in US history have wages experienced a slower increase verses inflation.
4. Job losses. In my opinion this is where it all started around 2005, possibly earlier.
5. Fines, fees and taxes. The government still wants theirs, even if your children can’t eat.  This in itself wouldn’t be such a problem if the citizens and were getting their moneys worth.   Unfortunately almost every municipal, state or federal government are the most irresponsible and corrupt spenders among us.  They call it revenue but right now it’s extortion and literally taxation without representation.
6. The cost of health care. Notice I didn’t say the cost of health insurance.  Insurance is expensive because the cost of health care continues to rise at eight times the rate of inflation.

So here’s the skinny as I see it: Someone’s got to take the hit.  I’m going to try to analyze which gut punches might be the most favorable.

1. Creditors can relieve some debt and take a loss.  If the originators of the sub prime mortgage loans had been more willing to take a loss on a mortgage re-write three years ago they may still be in business today.  Instead they opted to foreclose because they bundled these mortgages into complex securities and lost track of which investors actually controlled note.  They literally couldn’t do the re-writes because too many players were involved.  Auto and credit card lenders are next in line.  They better learn a lesson and be prepared to modify terms even if it means a loss in projected future revenue – or else.
2. Retailers, wholesalers and manufactures could lower the cost of goods.  This in turn would increase the consumers spending power but could adversely effect wages and jobs.  Probably not the best bet.
3. Employers could give raises. Again, this increases spending power but could have an adverse effect on the businesses ability to maintain profitability unless the cost of goods and services increases.  Kind of a trade off so it probably wouldn’t work.
4. NAFTA can be modified or repealed. Bring jobs back to the US.  This would mean an increase in operating cost for a lot of those companies big enough to have shipped jobs and manufacturing over seas anyway.  Despite what many micro economic analysts argue, I’ll never be convinced NAFTA was a good deal for the US.  It was only a good deal for the US companies who wanted to increase profit margins by shipping jobs and manufacturing costs to areas of the world where they could get it done for a fraction of the cost over here.
5. Governments needs to stop wasting so much money. <-Period.  One of the only things I agree with McCain on is that we’ve got to limit special interests and earmarks in legislation.   That would allow fiscally responsible governments to operate within their budget, national Beekeepers association and wooden arrow manufacturers be damned.
6. Reduce the cost of health care. I have a real problem with the fact that health care organizations are allowed to operate as publically traded companies.  You cannot put profitability and share holder interest above the health of individuals.  I realize not all hospitals are part of HCA or other publicly traded companies and surprise, surprise, they are usually the least expensive.   This is one industry where unpopular government intervention may be required in the form of price caps and cost controls.

If we can implement even some of these ideas the micro economy could see a rebound.  Unlike the top-down method of repair currently being pursued in Washington many Americans would immediately feel relief on their personal finances.  This would in turn stimulate the dollar and like some kind of magic the micro economy would be healed.  I hate to think of the short and long term consequences of not addressing the financial strain on Main Street.