Hair of the dog----

Here we are in the holiday season of 2008. As we approach New Years Eve the media will be full of advice for those who in care free celebration, or, at least as likely, in an attempt to tame their worries and associated anxiety, over imbibe.

The overhanging problem is that this country has been over imbibing for at least 20 years. Consumption, at all levels, from consumer to corporate to congress have left us in a perpetual, over extended stupor, with an economic hangover that the government is trying to cure quickly. They have tried mutual support, with J.P. Morgan Chase swallowing Bear Stearns, Wells Fargo gulping down Wachovia, Bank of America absorbing Merrill Lynch (we hope). As they pursued that remedy they also tried going cold turkey and abandoned Lehman Brothers. They also effectively absorbed the sinking entities most closely associated with the housing bubble, Fannie Mae and Freddie Mac.In separate efforts they overdosed AIG on aspirin, as in almost unlimited money and are trying to save Citi Group by removing it’s toxic “assets” and transfusing new funds.

But, so far economic equilibrium is not in sight.

Now, a collaborated effort to feed the entire country, the entire population, a hefty dose of the “hair of the dog,” is in process. After New Years Eve, many of those in grouchy agony reach for a spicy Bloody Mary (some throw an egg in it) to re - hydrate, get some nourishment while letting the alcohol dilate their blood vessels and to again reach the mellow painless state of being drunk. The analogy here is that the government is now pleading with banks and lending sources to offer more credit in order to prime the consumer spending pump. Indeed, retailers have pulled out all stops in promoting Black Monday (day after Thanksgiving sales that try to stimulate holiday purchases) urging consumers to take on more instant gratification debt. In other words to get drunk again.

This is going on as virtually anyone with an ounce of sense understands that the mountain of debt layered on this country is virtually beyond comprehension. What they are doing is urging everybody to reach for a Bloody Mary or two, or three.

The banks are resisting this effort. Not that they mind drunk consumers, they love it. But bankers while greedy are not too nervy and they have learned (after this period of gross excess) that the consumer is not up to paying the accumulated bar tab. Hence, many of the people being urged to spend can not get the credit to continue to feed their acquisitive habit.

As the banks and hedge funds are forced to de-leverage to survive, so must the consumer. Some will not get the message and others are too far gone to continue an economic life so why does the government urge the consumer on? The answer is simple the entire economy is over leveraged. Equity in homes or tangible toys such as luxury cars, boats, ATV’s etc., is nil. Unrealistic and unwarranted real estate prices have collapses and equity in homes is either gone, due to values falling, or all ready backing expenditures for the toys that they are still paying for.





Further, prices for food and other basics, even though commodity prices have crashed over the last few months, have still not fallen though manufacturers have all ready cut package sizes and raised prices when they had a need and an excuse to do it.

The concerted effort to get the consumer to spend is, after the other steps mentioned have so far fallen short is a last gasp.

Only with the consumer continuing to spend can we support the economic beast that years of over imbibing created. The dim hope is that is if just enough “hair of the dog” is swallowed we can avoid a very hard landing, an aorta ripping crash.

I am not sanguine.

People do not turn on a dime and with the turmoil that everyone is hearing about, even if not yet directly experiencing and despite the crowds that turned out for Black Friday specials, the need for gratification induced by spending, is giving way to caution or outright fear.

President elect Obama plans a massive job creating stimulus focused on rebuilding the nations infrastructure. It is being compared to Roosevelt’s National Recovery Act that gave millions work , if not rewarding employment. The Great Depression ended as time played out, the economy stabilized and then blazed hot with World War II creating real need and hence prosperity after victory.

Which brings us to today.

While we have far more safety nets than the 1920's and into the1930's, we had simple ways to create work for lots of people. In looking at the workers photographed in the 30's we see hoards of men with shovels. Not too different than when looking at the really old photos of laborers building the trans continental railroads in the mid 1800's. Now when you look at infrastructure workers you see a team of a few “watchers” and machines, big machines, chewing the earth. It will be a challenge to put today’s growing levels of unemployed into productive work much less positive employment.

A mess, and we did it to ourselves. Sure a bunch of clever and or unscrupulous folks made ridiculous amounts of money creating and servicing the demands of the consumers and most of them will get to keep the greater part of their gains, but the nature of human beings means that it will all happen again.

For mankind, too much is never enough. Anybody for a Bloody Mary?