American’s On a Spending Spree

It’s official folks. Americans spent more than they made in 2005. Yep, we are now a nation of spendthrifts. According to the U.S. Commerce Department’s – Bureau of Economic Analysis, the savings rate in America was negative .5%.

The savings rate has been negative twice before in this country, once in 1932 and again in 1933. These were of course years of the Great Depression when jobs were scarce and the nation was digging itself out of a mess of economic trouble. You could kind of understand it back then. But what about now?

Could it be that people are feeling “real flush” now that their home values have benefited from one of the biggest real estate booms in history? Or has it suddenly become “unfashionable” to save and deny yourself the finer things in life?

Maybe we Americans have it in the back of our minds that Uncle Sam would never let us down in our old age. After all, he bailed us out of the stock market crash in 2000. After 9/11 the boys in Washington pumped so much “easy money” into the economy to keep it alive that it now seems they can fix anything by throwing a few bucks at it. Even our new Fed Chairman, Ben Bernanke said the government could “drop money from helicopters” if it had to.

We used to be savers. In 1985 we Americans saved 11.1 % of our disposable income. If you are smart you know this party can’t go on forever. I have a feeling that soon as we realize that our homes are not a perpetual ATM machine and that there really is a bottom to Uncle Sam’s pockets, we will go on that crash diet and return to our “fighting weight.” The sooner - the better.

"Underlying most arguments against the free market is a lack of belief in freedom itself. " --Milton Friedman.

This week the world lost the Nobel prize winning economist Milton Freidman. If you look at what's happening in the world economically, a lot of it would be very pleasing to Milton. He was "Mr. free-market capitalism."

Milton was an advocate for your personal freedom. The more he could keep government out of your life, the happier he was. Seems when he spoke, governments finally listened.

In the span of just a decade we have watched the crumbling of communist Russia and the eastern block, and the meteroic rise of China and the entire pacific rim. The veil of economic darkness appears to be lifting off Mexico and most of Latin America. Parts of the world that looked hopelessly depressed only a few years ago are enjoying a prosperity like never before. Even Vietnam is joining in and transferring from an agricultural economy to an industrialized nation.

America is the most successful "free market economy" ever. Remember that everytime you hear on the news how bad things are. America is way better off than the media will lead you to believe. If you listen to them it will seem that we are perpetually sitting atop a great abyss, ready for the great plunge at anytime. It's a wonder anyone puts their money to work in the U.S. stock market.

Every year America turns out great entrepreneurial ideas and companies. They just keep coming, and have for many years. It doesn't appear that this will be ending anytime soon.

This last year a young man named Chad Hurley started a video sharing company called YouTube. It's world headquarters was in a small room above a pizza parlor in San Mateo, California. It just sold to Google for 1.7 billion dollars. Google itself has morphed into a 150 billion dollar company in the span of a few short years. Only in America.

Innovation is the most important resource in our increasingly knowledge-based global economy. A recent study shows that as much as three-quarters of the value of publicly traded U.S. companies … some $5 trillion … is derived from “intangible” assets, namely ideas and innovation. That' s close to half (42 percent) the value of the entire U.S. economy (or GDP).

America has been responsible for nearly every major invention of the 20th century. Innovation and new ideas are the driving force behind our economic might. It is part of our cultural heritage as a nation. You might say innovation is part of our DNA.

So the next time you are doubting America. As you sit and wait for better times to put your money to work in the stock market, there is some guy in his garage with an idea right now that will revolutionize the world in some way and start yet another American bull market. These are the "good times."

I find it only fitting that my first blog post is about the power of compound interest. Most people have heard of compounding and many probably understand it. I then ask myself, why do so few use it? It will make you wealthy. It will secure your retirement if you give it a chance. It will attract money to your account without you doing very much. Why then isn't everybody doing it?

It can't be because people don't believe it works. It's really a simple and provable mathematical formula. Is it because it's not some glamorous "get rich quick scheme?" Possibly. In fact it really is a "get rich slow scheme" when you really think about it.

I suspect the true reason that most people retire with very little is that saving money is really hard to do if you are not in the habit of it. We're not taught how to save in school. My parents didn't really stress the importance of saving to me.

What most of us Americans are exposed to is just the opposite. We are bombarded constantly with slick ads showing beautiful people driving the shiny new cars and wearing the latest fashions. It seems that everyone takes exotic vacations and stays at the poshest resorts.

Your sub-conscious mind is being constantly programmed to spend, spend spend! The companies who pay for these ads don't care about how comfortable you are in retirement. Most of them actually don't want to know who you are after you reach 50 - you're no longer in a major consumer demographic. And if you think Social Security is going to be there to lend a helping hand in any substantial way - think again.

So, it's up to you. As the English poet W.C. Henley so eloquently put it "You are the Master of your Fate and the Captain of your Soul." You have the power to control your thoughts and actions.

Every time you are tempted to pull out your credit card to buy something you probably don't really need, think about your financial security in later life. Visualize a comfortable existence without money worries. The clearer you can see it, the more it will be yours.