Why You Must Never Trust the Mainstream

Money Morning reader Wilson sent your editor a shocking video yesterday.

So shocking we could barely believe it was true. We even thought that maybe some nerdy tech wizard had dubbed the video.

But no, it appears to be the genuine article. Here’s what shocked your editor so much, and why it’s proof that you must never trust what you hear from the mainstream…

You see, there’s an online financial video channel called RainmakeriTV. As best as we can figure out, it compiles interviews of various people – CEOs, economists, brokers, etc. – and then posts those videos on its website for people to view.

As it happens, just yesterday RainmakeriTV interviewed a chap called David Wyss. Mr. Wyss is the chief economist for [cough] respected ratings agency Standard & Poor’s.

Now, you know we’re not fans of mainstream economic talk. By now we’re used to their babble. We’ve got used to the fact that they’ve either got no idea what they’re talking about, or they’re deliberately misleading everyone with their economic analysis.

But the comment that I’m about to show you from Mr. Wyss takes mainstream economic analysis to a whole new level. Either that or he’s just admitting what others are too scared to say.

So, what was it that was so bad and so shocking that it rendered your editor speechless?

It was this…

“The big problem’s the consumer. Consumer is just scared, he doesn’t wanna spend, he’s being more cautious. As individuals I applaud that because we should be saving more money, but from the economy standpoint we’d really like to get people out there living beyond their means like normal.”

A more economically retarded view of the economy we’re yet to hear.

Of course, the switched on interviewer immediately pounced on Mr. Wyss calling him to task for making such an outrageous comment… oh, no, that’s right, she didn’t. Sorry, we forgot for a moment that we’re talking about the mainstream.

Anyway, if you don’t believe that even a mainstream economist could say such a thing, just click here and view the video for yourself. You won’t have long to wait, it’s early on in the interview…

Look, maybe we’re over-reacting here. And maybe we’re just trawling over old ground.

But you know what, someone’s got to over-react. And someone’s got to keep making the argument that mainstream economists are guilty of misleading the general public.

I mean, seriously, who in their right mind could possibly argue that it’s good for the economy if people are “living beyond their means like normal”?

The answer is it isn’t. With one exception. It’s good for the finance industry. Especially the banks.

Living beyond your means generally means that you’re spending more money than you earn. Of course, spending more than you earn isn’t really possible unless you sell assets to cover the shortfall…

Or, you borrow the money from somewhere. Like, say, from a bank.

Now, we should point out that using debt to finance purchases isn’t always bad. We don’t see anything wrong with taking out a mortgage to buy a house – providing you’re not over-extending yourself.

And we don’t see a problem with taking out a short-term loan to buy whitegoods or furniture. Why not take up Harvey Norman on their interest free deals? Just make sure you pay the whole darn thing off so you don’t get stung with a 30% interest rate.

But for an economist to suggest consumers need to go back to living beyond their means in order to help the economy is rubbish. Especially from an economist who is employed by a company that claims to be “a leader of financial market intelligence”.

Financial market ignorance we’d say.

It’s all part of the muddle-headed notion that saving is bad, because saving prevents spending. And that it’s only spending that can save the economy.

As we’ve argued many times before that just isn’t true. Saving isn’t the dead money mainstream economists claim.

Savings serve two purposes. In a non-corrupt and insolvent banking system, savings provide the capital for others to spend. Savings allow individuals to borrow that money in order to spend on current consumer items, or businesses to spend it on capital goods for future production.

In both cases there’s the expectation the borrowers will repay and the saver will earn some interest as a reward for foregoing spending.

But savings serve another purpose too. Savings are the means by which savers postpone their spending until the future. They’d prefer to have their cash plus interest in one year – for example – rather than spending the money on goods or services today.

For the businesses that have invested in anticipation of future spending, that’s great news. It means there will be consumers available to buy their goods and help them earn more profits.

If there aren’t consumers in the future then it makes it harder for the business to repay their loan and harder for them to justify the increased capital expenditure.

It’s not difficult. But that’s not how the mainstream views it. They want all spending to happen now. The more the better. The trouble is, in their eyes it’s always now.

The more spending that happens today, the bigger the profits for companies will be today and the more money they’ll make.

Of course they forget about the impact on spending in the future. If everyone’s spent their money today then there’s nothing left to spend in the future. The consumer is too busy paying the bills for past spending and doesn’t have enough left over to keep spending at the previous rate.

And neither do they have enough money to save for future consumption or investment.

That’s the position many economies worldwide are in at the moment. They’ve lived beyond their means and now they are being urged to live even further beyond their means – “like normal.”

The breaking news for the likes of Mr. Wyss and other mainstream economists and commentators is that it can’t last and it won’t last.

Sadly, we think they know that, but it’s not in their interests to tell you.

Cheers.
Kris Sayce
For Money Morning Australia

Tagged as: consumer, Economic, economy, financial, mainstream