2004 Year in Review

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Can you feel the pull?

It's that time of the year. Black Friday, the day after Thanksgiving. The day we are summoned to shop. The questions this raises are: Is all this shopping good for the economy and what does it say about us that we shop and consume so excessively?

Robert Kuttner writes about The Amazing Shrinking Dollar.. The dollar has been sinking steadily for about four years now. In the 1990s a Euro (the common European currency) was worth about 90 cents. Now a Euro is worth around $1.20. What's wrong? Kuttner writes:

Two things. Our trade deficit grows bigger every year, as does our budget deficit. Both deficits require foreigners to supply capital. The more capital they have to supply, the more nervous they get about the dollar. Lately, private foreign investments in US stocks and bonds have both declined, leaving the United States precariously dependent on two foreign central banks -- China and Japan -- to finance its twin deficits.

Part of the problem, then, is the trade deficit. We simply spend ever nickle we make. That's true. American's saving rate is 0%. Most of the rest of the world saves much more, then ends up lending it to us (buying US Treasury Bonds). Since they save more, they aren't buying as many American products - thus, a trade deficit.

In addition, the US government, after running surpluses in the late 1990s has gone on a spending spree. Government spending has gone up like a shot and, coupled with tax cuts, has left us with a huge governmental deficit.

The trade deficit and our government deficit "require foreigners to supply capital." But why should you and I worry - we're not going to Europe and we've given up Perrier and Volvos?

The problem is that the only way to continue to attract foreign investment is to raise the interest rates they receive. A higher interest rate makes it more expensive for American businesses to expand, leading to a recession. It could also lead to the collapse of the value of the dollar, as Kuttner writes:

None other than Paul Volcker has said that he thinks that the odds of a dollar crash in the next few years are something like three in four.

If you watch the news over Thanksgiving the most prominent report is holiday shoppers standing in long lines for department stores to open. Since it happens every year it seems like it isn't news (a dog bites man story), but for some reason it always is.

One report showed a parent who said that she was afraid not to buy toys for her children for fear that they might think she was poor. I look out my window in this poor Southwestern town and see people drive by in SUVs that must cost $35,000 or more. Yet, reports show that most of the aging Baby Boomers have saved virtually nothing for their retirement.

Shopping has become an obsession with many Americans. It is a way of life. It is an addiction. It is our real religion.

There must be more to life than having stuff.

But, I just can't decide what I want. I feel the pull.

by John Legler, Guest Columnist
December 1, 2004