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"Be Prepared" for an Economic Meltdown
http://realclearpolitics.com/Commentary/com-9_21_05_FH.html ^ | September 21, 2005 | Froma Harrop

Posted on 09/21/2005 6:35:44 AM PDT by Maria S

"Be prepared" is the Boy Scout motto.

"Be prepared for what?" someone once asked the Scouts' founder, Robert Baden-Powell.

"Why, for any old thing," he replied.

For a people raised on that motto, Americans do remarkably little preparation. This is a nation of grasshoppers, not ants.

As the fable goes: All summer, the ants worked hard, busily storing grain. The grasshopper just played. Come winter, the grasshopper begged the ants for some of their corn. The ants asked him why he hadn't gotten ready for winter. He responded, "I was so busy singing that I hadn't the time."

When it comes to money, many Americans routinely don't think past the next paycheck. They're unprepared for things that are utterly predictable, much less the bolts from the blue.

Recent headline: "Consumer spending rises, savings rate dips." The U.S. personal-savings rate in June was the lowest on record. In fact, it was minus 0.6 percent. That means people are not only failing to save, they're dipping into their reserves to spend money -- or just borrowing more. Which brings us to the next headline:

"Debt load makes Americans vulnerable." Outstanding balances on credit cards now average $7,200 per household. That's more than double the level of a decade ago. And that doesn't include car loans, or mortgages.

For the past year, you couldn't pick up a newspaper without reading about the absurd housing prices in much of the country. Ignoring the alerts about a bubble soon to break, people continue to buy in risky markets. And to pay these high house prices, they are taking out risky mortgages.

Over a third of new or refinanced mortgages are the adjustable-rate type. The monthly payments in such mortgages are tied to changes in various interest rates. They are exactly the kind of mortgage you don't want when interest rates rise, which they will surely do.

As a come-on, lenders offer very low initial rates on these mortgages. The temporary low rates let people borrow more money than they ordinarily could or should. What will happen when their mortgage costs go up and housing values go down? Let's just say that it won't be pretty.

The banks pushing these mortgages are also not prepared. Mortgage-related loans now account for 61 percent of bank credit. Banks are in the bubble big-time. Despite these rising risks, banks are setting aside little money to protect themselves against a tide of bum loans. In 1992, their reserves against losses from bad loans were nearly 3 percent. Now, they're 1.2 percent.

A personal finance rule of thumb is to save six months' worth of wages. The object is to protect the family against the loss of a job. How many of you out there have six months' worth of savings? Don't all raise your hands at once.

President Bush inherited a handsome budget surplus. It could have served as a cushion for the near future, when retiring baby boomers put extra strain on the Treasury. But as the swingers say, "Cash is trash." Our so-called conservatives slashed taxes and spent wildly, turning the surplus into a deep deficit.

Bush apologists like to blame "unforeseen events" for the spending: 9-11, the war in Iraq and now New Orleans. How could Bush have known about any of this?

Of course, he didn't know -- but doesn't "stuff happen"? When in history hasn't it?

The Bush administration may be Bible-friendly, but it learns not from the Good Book. It certainly didn't take anything from the story of Joseph -- the government adviser who urged setting aside grain during the seven fat years to feed people in the seven lean ones.

Frankly, the "events beyond our control" excuse doesn't float. "Even after excluding spending on defense and homeland security," a Cato Institute report says, "Bush is still the biggest-spending president in 30 years."

The report adds, "Since Bush took office, domestic spending has shot up by 36 percent." And that doesn't include the enormously expensive new Medicare drug benefit that will kick in next year.

Be prepared for an economic meltdown -- as rising interest rates sink a people floating on debt. This grasshopper mentality is a plague upon the nation.


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I agree with some of this article; I also think Bush has been a victim of circumstances...just like Clinton was just in the right place at the right time and had very little to do with the 90's boom.

Just my opinion, and I know zilch about economics. I am old enough, however, to know that you save in the good times so when the lean times show up, you're prepared.

1 posted on 09/21/2005 6:35:44 AM PDT by Maria S
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To: Maria S
Recent headline: "Consumer spending rises, savings rate dips." The U.S. personal-savings rate in June was the lowest on record. In fact, it was minus 0.6 percent. That means people are not only failing to save, they're dipping into their reserves to spend money -- or just borrowing more. Which brings us to the next headline:

When I see this statement I can't help to see poor analysis. The statement is true for anything under the FDIC (like banks). What is left out of the picture is credit unions and 401k plans. A HUGE amount of money being saved that is not tracked by these traditional numbers.

President Bush inherited a handsome budget surplus. It could have served as a cushion for the near future, when retiring baby boomers put extra strain on the Treasury. But as the swingers say, "Cash is trash." Our so-called conservatives slashed taxes and spent wildly, turning the surplus into a deep deficit.

No he didn't. There was still a massive deficit even with the few unexpected years of a yearly budget surplus due to the dot.com boom. It wasn't going to last no matter how you sliced it. As for spending wildly, some truth and wars for our freedom are expensive...

2 posted on 09/21/2005 6:42:01 AM PDT by 2banana (My common ground with terrorists - They want to die for Islam, and we want to kill them.)
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To: Maria S
This is one TWISTED article!


Geesh!

It's NOT the fault of Bush that people are by choice, OVER EXTENDED - credit card debt, not saving etc.. It is the fault of the people DOING THIS.

Then we have this idiotic and illogical comparison:

"The Bush administration may be Bible-friendly, but it learns not from the Good Book. It certainly didn't take anything from the story of Joseph -- the government adviser who urged setting aside grain during the seven fat years to feed people in the seven lean ones."

It is NOT the role of OUR government to now encompass bailing people out of their debt. We are a Republic. We are a democracy and in THIS country people are to be responsible for their spending and lack of spending.

Nothing like taking the Bible OUT OF CONTEXT to promote MORE government taking care of you and at the same time blaming Bush for peoples INDIVIDUAL bad decisions on how they are not managing their finances.
3 posted on 09/21/2005 6:42:10 AM PDT by nmh (Intelligent people recognize Intelligent Design (God).)
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To: Maria S
I am old enough, however, to know that you save in the good times so when the lean times show up, you're prepared.

I always think of the old adage "make hay while the sun shines", myself....

LQ

4 posted on 09/21/2005 6:42:29 AM PDT by LizardQueen (The world is not out to get you, except in the sense that the world is out to get everyone.)
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To: Maria S

Why bother to save and be prepared for the unexpected? The biggest grasshopper of them all, Big Daddy government, is there to bail you out if things go bad.


5 posted on 09/21/2005 6:42:32 AM PDT by jrp
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To: Maria S

<<<<
as rising interest rates sink a people floating on debt
>>>>>

How can this be Bush's or any president's fault ? Whatever became of personal responsibility ?

If you borrow more than you can pay, I don't see how this becomes the fault of the president.


6 posted on 09/21/2005 6:42:39 AM PDT by SirLinksalot
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To: Maria S

I always though it was "Be Repaired"


7 posted on 09/21/2005 6:43:37 AM PDT by Only1choice____Freedom (I alone, am the chosen one. Because I alone, did the choosing.)
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To: Maria S
I think this is a lot of fearmongering. Unemployment is low, inflation is tamed, and the stock market is slowly but steadily rising. The price of oil is a concern but it isn't breaking the bank...and many think oil is riding a "bubble", just like many think the housing market is on a "bubble". Steve Forbes says oil we be at $35 a barrel this time next year.

Americans ARE smart enough, I think, to realize a liberal "government is the answer to every problem" solution isn't the way to go. So while we ought to be concerned about the economy, we needn't panic.

The criticisms of Bush's domestic spending seem to be well-founded, but if that spending is for Homeland Security--and I think much of it is--then I don't have a problem with such an increase. I heard Bush say last year that his NON-DISCRETIONARY, NON-HOMELAND SECURITY increases in budget were around 4%.

Additionally, Bush's tax cuts have increased revenues into the treasury by about $112 Billion. Unfortunately for the budget hawks, most of that will probably go to Katrina Relief; but it is impolitic to say the feds shouldn't help that area rebuild in some ways.

So, there is my 2 cents in this discussion.

8 posted on 09/21/2005 6:45:55 AM PDT by SoFloFreeper
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To: Maria S
Did you bother to read this crap carefully?

"As the fable goes: All summer, the ants worked hard, busily storing grain. The grasshopper just played. Come winter, the grasshopper begged the ants for some of their corn. The ants asked him why he hadn't gotten ready for winter. He responded, "I was so busy singing that I hadn't the time."

In a nutshell, God wants us to be INDIVIDUALLY responsible. This writer wants us to depend more and more on government for our needs - even when we are willing;y, by choice being irresponsible.
That "fable" is taken from the Bible. When it is convenient then the other story pops up form the "Good Book" because THAT fits the agenda of the person writing this dribble - MORE government taking care of people but notice how the ant "fable" actually a parable doesn't apply. It is GOD that wants us to be prudent and uses the parable, in the "good Book", not a "fable" to illustrate what He wants us to do.

9 posted on 09/21/2005 6:46:15 AM PDT by nmh (Intelligent people recognize Intelligent Design (God).)
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To: SoFloFreeper
inflation is tamed

Yeah thats why gasoline, electricity, education and housing costs are so low.
10 posted on 09/21/2005 6:48:49 AM PDT by hedgetrimmer
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To: Maria S
There are several problems with this analysis.

(1) The alleged housing bubble.

There is no housing bubble. There are more people living in America and jobs are becoming more and more concentrated in a handful of states and urban centers.

Therefore, in many housing markets prices have gone up considerably - this is not a bubble, it is a natural outcome of the law of supply and demand.

In my town, housing prices have gone up 50% in the past two years. This is due to a combination of two factors that are being replicated over much of the country: (a) my town is conveniently located within an hour of NYC by train, bus, ferry and highway, (b) zoning laws limit the amount of land in my town that can still be developed.

Demand has grown and supply has remained relatively static.

This leads me to point

(2) America's savings rate is berated as low compared to high-savings countries like Japan.

However, most of Japanese savings are held in postal accounts - the US equivalent of passbook savings accounts. They pay minimal interest and are about the least profitable investment imaginable.

A very large number of Japanese and European people rent all their lives and never own a home.

In contrast Americans save their money in their homes, which are a good and profitable investment with a higher return than passbook savings accounts.

Yes, there are plenty of Americans who save nothing in a bank or in a home and live off maxed-out credit cards and from paycheck to paycheck. These peopel are not the majority and there are plenty of them in every developed country, not just the US.

11 posted on 09/21/2005 6:49:52 AM PDT by wideawake (God bless our brave troops and their Commander-in-Chief)
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To: Maria S
How many of you out there have six months' worth of savings?

Well, I did have, until I built a new house last year, LOL! We, however, did get a fixed rate 20 year note and have been doubling up on the payments. We are currently paid 3 months ahead and now the extra payments go towards the principle. And, of course, we are trying to rebuild our savings. I had my share of lean times in the past raising my kids as a single mother...never want to go there again. But then, I have already warned my kids, I am leaving them all the money they owe me, I will enjoy myself now.

12 posted on 09/21/2005 6:52:16 AM PDT by ravingnutter
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To: Maria S
What are these proverbs telling you?


Proverbs 6:6

[6] Go to the ant, thou sluggard; consider her ways, and be wise:


Proverbs 30:25

[25] The ants are a people not strong, yet they prepare their meat in the summer;

Is it the message the author wants you to have?

Being responsible? Being prudent as individuals?

Did you know the hungry ant works his arse off? The little ant will lug, I many times his body weight in food to others and store up? Does it sound like the ant is waiting for others to feed him and take care of him?

Hmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmm?

This is what God wants us to do - not be dependent on others.

There are other verses in there but I leave that for you to discover.
13 posted on 09/21/2005 6:55:48 AM PDT by nmh (Intelligent people recognize Intelligent Design (God).)
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To: 2banana

401K isn't savings. It's investment.


14 posted on 09/21/2005 6:58:12 AM PDT by Huck (There's nothing you can hold for very long.)
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To: SoFloFreeper
The market seems to be stuck in the 10250-10750 range, other than the times when it sinks lower.


15 posted on 09/21/2005 7:01:22 AM PDT by Huck (There's nothing you can hold for very long.)
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To: nmh
This is what God wants us to do - not be dependent on others.

An interesting analogy, particularly considering that ants are inherently socialist, and specialized to the point of absolute interdependence. No single ant can survive alone.

16 posted on 09/21/2005 7:01:32 AM PDT by tacticalogic ("Oh bother!" said Pooh, as he chambered his last round.)
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To: 2banana
A personal finance rule of thumb is to save six months' worth of wages. The object is to protect the family against the loss of a job. How many of you out there have six months' worth of savings?

This is what they mean by savings. With the penalties you get for early withdrawal from 401K, not to mention the basic fact that it's intended use is as a retirement investment, not as rainy day savings, you can't consider it saving for rainy days ahead.

I invest 20% of my paycheck in 401K, but I also have 6 months of income tucked away in CDs, staggered so that some of it is always available if trouble strikes, plus I keep a decent amount of cash in a passbook savings for immediate access, plus what's buried in the yard. THAT'S savings.

Just kidding about the buried in the yard part.

17 posted on 09/21/2005 7:04:13 AM PDT by Huck (There's nothing you can hold for very long.)
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To: wideawake
In contrast Americans save their money in their homes, which are a good and profitable investment with a higher return than passbook savings accounts.

That's not savings, it's an investment. You don't sell your house to buy groceries when you lose your job. You need to do both: invest wisely AND have plenty of available cash for hard times.

18 posted on 09/21/2005 7:06:07 AM PDT by Huck (There's nothing you can hold for very long.)
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To: tacticalogic

It's not an "analogy".

Here's the classic form of this parable:

The ant works hard in the withering heat all summer long, building his house and laying up supplies for the winter. The grasshopper thinks he's a fool, and laughs and dances and plays the summer away. Come winter, the ant is warm and well fed. The shivering grasshopper has no food or shelter, so he dies out in the cold.

"An interesting analogy, particularly considering that ants are inherently socialist, and specialized to the point of absolute interdependence. No single ant can survive alone."

They may live together but they are not pushers of socialism as you suggest. No single animal can survive alone. You need a male and a female to procreate.


19 posted on 09/21/2005 7:07:11 AM PDT by nmh (Intelligent people recognize Intelligent Design (God).)
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To: nmh
"This is what God wants us to do - not be dependent on others."

Well, that, and help the TRULY needy (which most on welfare really are not). And the type of help should tend toward the "hand up, not hand out", if at all possible.

20 posted on 09/21/2005 7:10:36 AM PDT by Wonder Warthog (The Hog of Steel)
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