Turn out the lights. The Party's over.

In 2009 Americans began to wake up. Historically high levels of unemployment and the housing crash, that stripped $6.5 trillion from the last major store of individual wealth in this country, began to cause some changes in consumer behavior. A few years ago Americans had a negative savings rate. Today that rate is approaching 5%. The Governments of the world, especially through the agency of their central banks, injected several trillions of dollars in funny money into the world’s banking system, borrowed money that has mortgaged the world’s future. These funds have done little to lower the true rate of unemployment or raise the standard of living in the advanced nations of the world. The problem at both the international level and the individual level is too much debt. It is a problem that cannot be solved by more debt.

I am not smart enough to know how or when it will end. Debt that cannot be repaid, will not be repaid is an oft repeated truism. I fear it will end badly, perhaps in my lifetime. Most assets held by the American consumer are depreciating in value. The $40,000 SUV found in a suburban driveway is headed towards zero. The median home value of $160,000 is still in decline. As readers of this blog have heard on more than one occasion, very serious, well informed men are projecting average stock market returns of about 3% per year for the next decade. That number is before taxes and inflation. For a decade, wages have been flat. During that time, the actual buying power of the American consumer has been in decline. Jobs are not being created because wealth is not being created. It is a vicious cycle that cannot be cured by borrowing 40 cents of every dollar we spend, as individuals or as a nation.

Five percent isn’t good enough but it is a start. In a letter published in a recent blog article by Charles Smith a Chinese exchange student states, “Americans try to save 5% and spend 95% of their income, where Chinese try to spend 5% and save 95%.” Should we be surprised that in less than a generation some of these (legal) immigrants own their own homes and businesses?

Capital accumulation, what our nation really needs to create new jobs, begins with an individual decision to opt out of the consumer mentality that uses borrowed money to buy the latest greatest techno-gadget that will be obsolete in six months. I was told by an employee of Kyocera that after a new model cell phone has been on the market for six months they consider it obsolete.

Studies indicate that net worth is only somewhat correlated to income levels. The accumulation of wealth begins when a household decides to spend less than its income. Over time that money is invested in wealth creating enterprises that generate new jobs. The vicious cycle becomes a virtuous cycle. Deferred gratification is a key component to what has been called the Protestant Work Ethic. Quoting the article by Charles Smith, “The key feature of Capitalism is not greed--that existed long before capitalism and flourishes in non-Capitalist societies. The key feature of Capitalism is capital accumulation, i.e. what's left after expenses are subtracted from income, i.e. savings that can then be invested in productive assets.”

The time has come for you to choose, whether you are going to be part of the problem or part of the solution. Are you going to continue to buy things you don’t need with money you don’t have or are you going to try in find contentment in what you do have, giving you the opportunity to invest in your future and the future of your country? If you answer, if our politicians answer, with a continuation of conspicuous consumption far beyond our national means, then we can turn out the lights. The party will be over.