Shifting Baselines

Rodney Johnson | Tuesday, May 07, 2013 >>


Every time I see the data on the screen I shake my head.

Trillions.

The annual deficits of the United States for the last several years are measured with a “t”.

Our national debt is so big, in the tens of trillions, that mere “billions” become a rounding error.

Information like this is part and parcel of Demographics School, which I presented in Phoenix at the end of April, for what seemed like the millionth time. I know it wasn’t. It’s been more like twenty-two times. We began these back in May 2001. My how times have changed…

A decade ago people argued with me: boomers won’t slow down their spending, they said. If the economy rolls over the Fed will lower interest rates and all will be right with the world, they said. Of course, they were mistaken and I knew that…

From time to time someone would ask about monetizing the U.S. debt… or having the Fed print money out of thin air to save the economy and risk ruining the entire system.

“They would never do that!” I told them, because we as Americans would not allow it. Now it was my turn to be wrong.

As time went on my presentation grew, expanding from a mere 90 slides to over 300. I have more to explain… the last five years have given me A LOT more to explain. And it’s hard to understand.

How can the Fed print trillions without killing the currency?

How can short-term interest rates at zero not drive record debt expansion?

How can explosive government debt not ruin the country?

These are all common questions from the room. Then I pose my own question. Why aren’t you outraged? Why isn’t the American public simply out of their minds at the financial craziness that passes for monetary policy (at the Fed) and fiscal policy (in Congress)? If every path that is currently taken ends with a bad outcome, like stealing from savers, crushing our standard of living, and rewarding the irresponsible, why aren’t there daily protests?

Of course I know the answer.

Shifting baselines.

Philippe Cousteau spoke this phrase at our conference in April (more on that in another Survive & Prosper), and it struck me as so appropriate to the economy.

Every day, ordinary Americans wake up with the current regime of policymakers plodding forward. They are taking steps that have always proven disastrous (financial repression, money printing, record debt, etc.). And every day these ordinary Americans have to go about their daily lives. They still eat breakfast, they still read the paper, drive to work, get annoyed with coworkers, and worry about their kids or maybe their parents.

Every day we go through our routine and it seems light years removed from members of the Fed Open Market Committee, or the House of Representatives Ways and Means Committee. Yes, their decisions affect us. We pay more for gas. We pay more for food. We earn less than inflation in our savings accounts.

But this situation has gone on for so long – for over four years now – that it has become the norm. It is our new, shifted, baseline.

We talk about rates “rising” to 2% for CDs or deposit accounts, as if it might bring back some Utopian Period. If long-term interest rates shot to the moon, reaching a horrific 6%, it could “ruin” everything. We hope beyond hope that this year our federal government runs a deficit that finally… finally!… falls below $1 trillion.

If I had told anyone in 2001, or 2005, or even 2008 that this would be our situation, I’d have been laughed out of the room.

Shifting baselines.

We are stuck. We can’t change the situation. We have to build our own lives within these parameters as best we can.

With so many groups doing their best to drain value from your income (taxes and wage compression), your investments (forced low interest rates), and your spendable dollars (currency devaluation), it’s hard to keep up, much less get ahead. It’s a lot more work than it used to be.

Stay focused.


Rodney

P.S. We have a very exciting announcement to make in a few days… and it’s going to help you stay focused so you can get ahead in this economy. I don’t want to give away too much now but I do want to give you a heads up. Make a note in your calendar to pay particular attention to your email on May 14. You’re not going to want to miss our news.

 

 

Ahead of the Curve with Adam O’Dell

Whipsaw it Was

Last Thursday I alerted you to one of the most important indicators I follow – the stocks/bond ratio. The ratio had just turned negative, a bad omen for stocks as bonds began to emerge as the stronger asset class.

 

Categories: Purchasing Power

About Author

Rodney Johnson works closely with Harry Dent to study how people spend their money as they go through predictable stages of life, how that spending drives our economy and how you can use this information to invest successfully in any market. Rodney began his career in financial services on Wall Street in the 1980s with Thomson McKinnon and then Prudential Securities. He started working on projects with Harry in the mid-1990s. He’s a regular guest on several radio programs such as America’s Wealth Management, Savvy Investor Radio, and has been featured on CNBC, Fox News and Fox Business’s “America’s Nightly Scorecard, where he discusses economic trends ranging from the price of oil to the direction of the U.S. economy. He holds degrees from Georgetown University and Southern Methodist University.