Downsizing, Cutting Back, Making Do

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The Dow rose a bit yesterday. The dollar went up too.

Commodities hit a new all-time high, with the CRB at 509 and wheat over $10 a bushel. U.S. stocks of spring wheat are expected to go down 25% compared to last year.

Gold rose $10 to $910, and then went up another three bucks after the market closed.

From an inflationary point of view, these are all positive signs. The feds are desperately afraid prices will fall. They’re doing all they can to keep the party going.

It’s either “inflation…or the peace of the cemeteries,” an Argentine official once remarked. Inflation or death! Boom…or bust! Well…er…yes.

Still, the revellers seem to be putting on their coats, one by one, and heading for the door. A Wall Street Journal poll of economists gives dead even odds of a recession in 2008.

If the peace of the cemeteries is really creeping up on us, we should see consumers cutting back. And the giant retailers ought to confirm it. Sure enough, China’s American outlet store Wal-Mart tells us that sales are not as good as it has expected. Wal-Mart “leads the parade of sales misses” says a report on CNNMoney.

“I think its results show that its core of low-income shoppers and now the middle class households who shop there are cutting back,” remarked an analyst.

“Retailers struggle as Americans pull back,” is how the International Herald Tribune sees it. “You’re seeing the continuing unfolding of the consumer spending slowdown,” said another expert on retails sales.

It’s the next big thing, dear reader downsizing, cutting back, making do. Barely on the radar screen now, thrift is coming into focus more clearly day by day. So far, people are a bit embarrassed about it…a bit ashamed that they have had to cut back. But soon, it will be popular…fashionable…and finally, almost obligatory.

Capitalism is a moral system, not an economic system. It rewards virtue and punishes error…and after punishment…atonement…and then, a new appreciation for virtue.

“Virtue is what used to pay,” said an economist with a shrewd eye and a forgettable name. And if the economist whose name we can’t remember didn’t say that, we’ll say it. Saving money, self-discipline, forbearance they’re all virtues because they paid off in the past. Not every year…not in every trend…but, generally, over the long run they pay off. They will be virtues again because they will pay off again. Wasting money…spending recklessly…and going into debt will soon be seen as social gaffes…as errors…and as bad taste.

Of course, the feds are doing all they can to prevent saving. Lower interest rates and rising consumer prices discourage saving. But the struggle between Mr. Market and the market manipulators is as old as the struggle between vice and virtue. Sometimes one side wins; sometimes the other. But in the end, what must happen sooner or later does happen. When consumers must cut back, they do cut back. People do what pays.

But what pays now?

What pays is saving money. But not in dollars…and not in any other paper currency . The market manipulators are in charge of them all…and they’re all determined to see them go down.

“ECB stands pat, but signals a new line of thinking,” is the headline in today’s International Herald Tribune . Recently, the dollar has been rising against the euro. Speculators thought the ECB wouldn’t follow through on its threat to raise rates to fight inflation. They were right. Instead, the ECB stood still acknowledging that a slowdown in the United States may reduce demand and thereby slacken inflationary pressure in Europe.

The Bank of England, on the other hand, cut its key rate by a quarter point. And the ECB said it might do the same. Both the pound and the euro fell against the dollar.

Bill Bonner
The Daily Reckoning Australia

Bill Bonner

Bill Bonner

Best-selling investment author Bill Bonner is the founder and president of Agora Publishing, one of the world's most successful consumer newsletter companies. Owner of both Fleet Street Publications and MoneyWeek magazine in the UK, he is also author of the free daily e-mail The Daily Reckoning.
Bill Bonner

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