Economic free association leads to debt woes


Economic free association leads to debt woes

Well, I thought I’d experiment with a little stream of consciousness this month.

There is too much economic data available anymore. Remember in the 1970s, when Louis Rukeyser was host of “Wall Street Week”? That was “week” not “day.” Back then only about 20 percent of Americans had any stock holdings, so no one really paid much attention to the flow of economic minutia.

How things have changed.

Now, about 54 percent of Americans invests in stocks. Throughout the last three decades, banks and other financial intermediaries introduced a dizzying array of financial instruments such as IRAs, CDs and 401(k). Largely gone are pensions, and most of us are exposed to stock-market risk.

This has spawned a whole cottage industry to provide Americans, equipped with varying degrees of financial sophistication, with information and statistics supposedly intended to allow them to make well-informed decisions.

We have the Jim Cramers and the Motley Fools of the world analyzing and prognosticating on how “this” affects “that” and “that” causes “how.” It sounds like an Abbott and Costello sketch.

However, stock prices are determined by large market-movers, and individuals are basically a rowboat adrift in the Atlantic.

I was reading the unemployment rate research notes recently, as one does, and the U.S. Labor Department says the actual rate could be 0.2 percent plus or minus the reported rate. That is, December’s unemployment rate could be 7.6 percent or 8.0 percent, depending on what you believe.

Another stat that raises concern is inflation. Just ask the about 50 percent of Americans receiving entitlements. Recently, it was suggested that government programs indexed to inflation abandon the standard way of calculating inflation in favor of the more accurate chain-based method. This could save taxpayers billions, but, also reduces entitlement spending by billions.

About 20 years ago, the Boskin Commission guesstimated that the method then used of calculating inflation overstated it by about 1 percent. There are huge implications for all sorts of things if this is true. It would affect mortgage rates, cost-of-living adjustments, the true value of your debt. You name it.

In short, it’s a political nightmare.

Speaking of Washington, D.C., just when you think it’s safe to go outside. Just when you think the storm has passed, Congress, in its infinite wisdom, has once again decided that making an actual decision is a bad course of action. Naturally, I speak of the fiscal cliff and debt ceiling.

Remember back when the rationale for putting major across-the-board spending cuts into play was to be so horrific that Congress would have to act to prevent it from happening? Remember?

Well, act they did. They decided to wait until March. And then what? Decide to decide in May?

Fitch Ratings threatened a U.S. bond downgrade, but it’s unlikely to change anything.

We might as well sequester ourselves in our little corner of the world where this all seems so far away. Unfortunately, it isn’t. Robert “Tino” Sonora is an associate professor of economics at Fort Lewis College and the director of the Office of Business and Economic Research at Fort Lewis College.

Economic free association leads to debt woes

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