Things Aren't What They Seem

Could the end of the era of cheap money be in its final death throes…taking the US economy with it down the tubes? That’s the premise of a piece in Thursday’s New York Times.

Is the world running out of oil, hurling the economy into a tail spin of mammoth proportions?

That’s the idea some would have you have, as the Middle East struggles to keep production levels consistent with evidence indicating we’ve passed the points of peak oil and peak gas.

Are we about to reach the threshold of pain with gasoline prices at the pump surpassing $3/gal, causing consumers to tighten up and stall the economy?

Interestingly, we’re still putting gasoline in our cars. I haven’t seen any long lines at gas stations—except those created by crass promotional stunts, which in reality create only headaches for the rest of the public.

Is Immigration Reform going to be the key to America’s economic survival?
Again, it depends upon who you ask, and where they live.

Let’s examine these hot-button issues in light of what’s really going on…

The yield on the 10-year Treasury note was pushed to its highest point in nearly four years yesterday. Does this mean we’ll soon be paying more interest on credit cards and home mortgages?
Perhaps.
Is that going to stop us from spending?
Perhaps not.

The change will have the biggest impact on those of you who took out home loans with low introductory interest rates, which are now adjusting to higher rates as the loans mature.

Joshua Shapiro, chief United States economist at MFR Inc., thinks it lends more credence to the theory that things are going to wind down. Or they’re just going to take on a different appearance: Instead of buying a 5,000 square foot house, we’ll settle for a 4,000 sq. foot home.

Ah, but people are going to go belly-up, buying too much home. They're not going to be able to make their payments! It’s going to wreck the economy!!

Yes, delinquencies have gone up, but the truth is, they are still near historic lows. The Mortgage Bankers Association says, 4.7% of all home mortgages were delinquent in the 4th quarter of last year. That’s up from 4.44 % in the third quarter.

Are people bailing our of their houses, carrying their belongings out of their neighborhoods in pushcarts and bundled bedspreads?
I'm not seeing that.

Are you getting into restaurants more easily, since fewer people are dining out these days?
I didn’t think so.

We’re still eating out…we’re still buying gasoline—in fact, the cost of gasoline is less as a percentage of our income than it was during the gas crunches of the 70’s and 80’s. That might not make it any less palatable to be paying $3/gal—but the reality is we’re still able to run our cars on relatively cheap fuel.

We’re buying that fuel from overseas with money we can print up anytime we want. Think about this notion that I heard expressed earlier this week by Daniel Frishberg on his MoneyMan Report: Which do you think is going to run out first: The supply of Middle East oil, or the supply of paper money we can print?

The interesting angle is that when the Arabs do finally run out of easy petroleum, we’ll still have our un-tapped oil sources on this continent. Whether or not Congress will then let us drill for it may be a completely different discussion…but you see the point I’m making. We’re buying and burning someone else’s oil first…saving ours for later.

The Chinese get this concept, too. Why do you think they’re buying up all of Canada’s oil sands production out from under our noses? It’s comparatively easy to get to…and it’s not China’s.
Things are not what they seem.

This may be a bit of a leap, but there is a similarly-flawed logic afoot in the immigration reform discussion that’s been inflaming people from California to Congress. One of the arguments for stemming the tide of undocumented workers has been economic: Allegedly, more native-born unemployed workers would have jobs, were the illegal immigrants to up and leave the country.

Sounds plausible…until you consider a couple of undeniable facts: With US unemployment already at historic lows, below 5%, there aren’t too many out of work Americans who are employable.

Secondly—the skills that undocumented workers need to perform the jobs they have are way below the job skills common to American-born out-of-work laborers…who would not be likely to perform those jobs at the level of pay they would produce, according to The Center for American Progress’ Dr. David Jaeger.

Were those workers to leave, the economy might not implode, but it would be slowed…and in fact America might be better served by allowing even more immigrant workers into the country…legally.

Separate the emotion from the facts and you get a clearer picture of things…and a better perspective on how you can and should react. Things aren’t always as they seem.

Look beyond the headlines…look beyond your backyard fence.
Listen to what your neighbors are saying and thinking, not just what you’re told to think and say by the talking heads on TV.

The reality is that if things get tight, you’ve known about it ahead of time, and in plenty of time to plan and react. You can control your emotions…and your decisions…and you can control your destiny. Because things aren't always as they seem.