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Almost everyone has awakened one morning filled with remorse over the previous evening’s behavior. Perhaps it was the time, drunk as a billy goat, you bepissed the boss at the office Christmas party. That’s what it’s like in the American economy today. We all knew that, starting in the early 1980s, the nation was consuming more than it produced and making it up by borrowing — greatly from foreign countries that were prospering as we sent them jobs. How could we not have realized that ultimately this would be as self-destructive as urinating on the boss?

The 1980s mantra was “Morning in America.” Now we’re “mourning in America.” The party is over. We all share blame: consumers, governments, corporations, financial institutions. The big blast began in the 1980s, but both Republicans and Democrats are responsible for the mess. Remember, too, that the economic contraction is global; we aren’t the only country that overborrowed to overconsume.

A little history is in order. In the 1930s, an economist named John Maynard Keynes said that the nation must spend its way out of the Great Depression, incurring unbalanced budgets to do so. (But we forgot that Keynes said we should restore fiscal sanity once the economy recovered — advice we subsequently almost never followed.) During the Keynes period, we were told that private virtue — thrift — was public folly.

The Democratic Party made hay of the new mentality. Its shibboleth became “Tax and tax, spend and spend, elect and elect.” Conservative Republicans and Southern Democrats clung to the old virtues of fiscal responsibility, balanced budgets, self-reliance, saving for a rainy day, avoiding debt to buy what one couldn’t afford — that is, not living beyond our means. But this philosophy was called reactionary and was politically unpopular; liberal-spending Democrats dominated the Congress in the 1930s through the 1970s. To get elected president, a Republican (say, Eisenhower or Nixon) had to say they were “moderate” — just a little less spendthrift than Democrats.

Robert Snigaroff of San Diego’s Denali Advisors points out that from 1950 to 1982, consumer spending was 62 percent of the total economy. By 1990, it was 70 percent. “Baby Boomers became spendthrifts” as they neared retirement, says Snigaroff, but we can’t blame only that age cohort. Beginning with Ronald Reagan in 1981, greed washed over the whole country. Consumer debt was 44 percent of total economic output in 1982 and is now 100 percent, notes E. James Welsh of Carlsbad’s Financial Commentator.

Beginning in the 1980s, Republicans discovered that they could buy votes just as Democrats had been doing since the 1930s. But the Republicans would do it by cutting taxes. They convinced a gullible public that the tax cuts would pay for themselves. Federal deficits soared, but Reagan said government spending was to blame. Nonsense. When Reagan — supposedly the conservative spending-slasher — took office, government spending was 35 percent of total economic output. It is still 35 percent of total output.

The combination of huge federal deficits and easy money from the Federal Reserve continued under George H.W. Bush. Under Bill Clinton, there was tight fiscal policy (balanced budgets) but very loose monetary policy (excessive money creation). Under George W. Bush, it was loose fiscal and loose monetary policy. Excessive consumption became patriotic: remember when W told Americans to buckle up for danger after 9/11 but to continue spending at the mall?

Meanwhile, Wall Street became a casino: exotic, inscrutable financial instruments flooded world markets — all based on debt. Many are now collapsing.

Only a few conservative Republicans and Democrats — many of them Southern — warned that this philosophy would lead to a crack-up. A mere handful of economists and commentators saw what was coming: A. Gary Shilling, Henry Kaufman, Jeremy Grantham, Warren Buffett, James Grant, for example. Almost all others were afflicted by career risk: pointing out that the binge couldn’t last was equivalent to pissing all over your employer.

Now the political and economic consensus holds that we must get out of the dilemma by having more of what got us here: excessive borrowing for consumer and government spending, along with tax cuts and low interest rates. We’re told that once the economy recovers, then we must go back to frugality: less spending, more saving, balanced budgets. That was the advice Keynes gave. Nobody listened then. Will they now?

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Fred Williams Dec. 10, 2008 @ 12:33 p.m.

Don, to your credit, you were warning us all along.

I remember hearing you speak to a small group at a Mission Valley hotel in autumn 1988. You said, "A country in debt is not master of its own destiny".

True then, and true today.

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JohnnyVegas Dec. 10, 2008 @ 1:51 p.m.

Consumer debt was 44 percent of total economic output in 1982 and is now 100 percent, notes E. James Welsh of Carlsbad’s Financial Commentator.

Wow-that is eye popping-if it is true.

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Don Bauder Dec. 10, 2008 @ 8:46 p.m.

Response to post #1: Yeah, I have been singing the excessive debt song since arriving in San Diego in 1973. I suppose many are tired of hearing about it. Best, Don Bauder

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Don Bauder Dec. 10, 2008 @ 8:48 p.m.

Response to post #2: Jim Welsh is one of the savviest commentators in San Diego. Best, Don Bauder

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Twister Dec. 10, 2008 @ 10:40 p.m.

The floor area (sf) ratio to people (2) in my house is well below 500:1. The house was built in the 1920's. I wonder where we stand in the distribution? I don't make any payments, but we are struggling to pay our bills and our retirement account (and income) has dropped precipitously. I suppose we are spendthrifts and should be wearing a crown of thorns and give up our house to the young folks we saw lying in front of the post office this evening (after dark). Our food bill was close to 200 bucks this week (no restaurants). We were born in the depression of the 1930's. I recently got some eyeglasses through the HMO at the bargain price of over $200. I've got to get another pair next year. We buy almost all our clothes at thrift stores and garage sales. We feel lucky, but I wonder when somebody's gonna cut our throats for our TV. PLEASE, how do we conserve our principal and still buy beans? I know that there are a LOT of people far less well-off than we are, and they are not bums. One very nice young woman got talked into a refinance deal and is going to lose her house. She has cancer and four kids and works as a janitor. What kind of people ARE we, in this once-great nation? Is a nation the highest form of social organization? How do we repent and get back into the graces of the Great Economist in the Sky?

Signed, a big fan from the San Diego Union days.

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JulieParrots Dec. 10, 2008 @ 11:54 p.m.

Yep, we are all screwed right now. That is the sad reality. Don is right the party is over. It took time and effort to get the economy where it is now and it will take MUCH more TIME and EFFORT to get the U.S. out of this huge mess.

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Don Bauder Dec. 11, 2008 @ 6:50 a.m.

Response to post #5: I, too, was born in the Depression -- 1936, actually. No doubt living through that period shaped my penurious attitude. If we as a nation return to the virtues of thrift, prudence, and saving, we will exacerbate the deep recession. But we must do it to get the country back to sanity. The government's attempt to stimulate consumption earlier this year was asinine. Obama wants another such jolt -- equally asinine. I don't question spending for infrastructure, even though the money won't get into the stream quickly. In the long run, such programs provide jobs and there is a clear need for these projects, unlike Japan's experience in the 1990s. One thing we do know from the 1930s: a global war will end the downturn. But that is verboten. As painful as it will be, we must return to the old virtues. Consumption and debt are our enemies. Best, Don Bauder

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Don Bauder Dec. 11, 2008 @ 6:53 a.m.

Response to post #6: The good thing is that this can be done democratically, in a sense. Consumers can go on strike. The government can't make them borrow and spend. American consumers can get the country back on the right track. Best, Don Bauder

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MsGrant Dec. 11, 2008 @ 7:36 a.m.

My horoscope from the Union-Trib yesterday had this line: You could go from hoping you'll strike it rich to knowing that you have it all.

I live a great life. I did not start my life as a rich person, but I worked my way into a fairly comfortable life. My mother taught me to work for what I want, not borrow for it. She also taught me that good credit is something that will serve you for your entire life. Credit is earned, it is not a right. I do not over-spend, I am not seduced by luxury cars, I put all my expenses on a miles credit card that gets paid every single month, in full. I travel for free based on these miles, I walk for exercise instead of paying for a gym I never use, I drink wine at home with my husband instead of spending hundreds in a bar. I have one quality purse I bought years ago that I still get compliments on. I do not need, nor do I want 30 purses to impress strangers. Learn to cook. I learned to cook at a young age. I love to cook. People don't like to cook because they do not know how. I know people that eat EVERY single meal out because they not only do not know how to cook, they have no concept of how to shop for food. Teach your kids to cook instead of mainlining McDonalds into their impressionable young veins. I make a pot of coffee every morning. It costs maybe six cents. Stop going to Starbucks for "coffee". You know it is not coffee. It is a six dollar milkshake, which is going to make you fat.

Americans are responsible for their own predicaments. We have become so used to everything being available to us that we have no idea how to do without. I did escrow for a living for years and I paid off millions of dollars in debt that people used the equity in their homes to finance. Cars, clothes, makeup, trips, furniture, hair, nails, plastic surgery, you name it. It disgusted me.

Their are ligitamet reasons for being broke. I feel for the folks that got screwed in a refinance deal, or people who are REALLY poor, who lost their jobs while no one was paying attention to the economy and corporate America. Not the guy that can't make the payments on his Hummer, or the gal who can no longer afford her hair extensions.

When we have everything we could possibly want, we move on to something else. We want to be recognized and noticed, therefore the need to present to the world a wealth that is not only NOT within our means, but is completely false and unnecessary. Reality TV with unrealistic means. Stop trying to be something you are not. Once people get this, it's as if the weight of the world has been lifted from their shoulders. If you have shelter, clothes, a job and food, your needs are met. It is all the other crap that is killing us.

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Don Bauder Dec. 11, 2008 @ 9:42 a.m.

Response to post #9: Yours is a beautiful message. Have you ever noticed in a grocery store that people buy prepared food, heavily-sugared doughnuts, Coke -- all the high-margin items. I chuckle at people drinking diet soft drinks. Why don't they just drink water if they want to lose weight? Keep preaching your message; it seems Americans may be catching on. See item posted below. Best, Don Bauder

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Don Bauder Dec. 11, 2008 @ 9:49 a.m.

HOUSEHOLDS PAY DOWN DEBTS FOR FIRST TIME SINCE AT LEAST 1952. Some good news -- for the long term economy, not the short term. The Federal Reserve reported today (Dec. 11) that households paid down debt in the third quarter for the first time since records began being kept. That would make it at least since 1952. As of Sept. 30, households' total outstanding debt shrank at an annual rate of 0.8 percent. Households paid off more mortgage debt than they took on. Credit card and auto loans increased, but only a little over 1 percent. Best, Don Bauder

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JF Dec. 11, 2008 @ 9:42 p.m.

"Why don't they just drink water if they want to lose weight?"

Water doesn't have caffeine.

MsGrant does have a great message... one it took me years to learn and one I'm still learning every day.

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JF Dec. 11, 2008 @ 9:52 p.m.

In other news, the pension bill will go DOWN for the City of San Diego next fiscal year, dropping from $161 million to $154 million.

https://www.sdcers.org/pressreleas/Press_Release_Actuarial_Valuations_6_30_08-08.pdf

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Don Bauder Dec. 11, 2008 @ 9:53 p.m.

Response to post #12: Caffeine has its bad side effects; in some cases, the extra weight would be better. Best, Don Bauder

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Fred Williams Dec. 12, 2008 @ 6:48 a.m.

MsGrant advised:

"Stop trying to be something you are not. Once people get this, it's as if the weight of the world has been lifted from their shoulders. If you have shelter, clothes, a job and food, your needs are met. It is all the other crap that is killing us."

It applies on the civic as well as the personal level.

Remember the hue and cry of the corrupt ballpark backers? "Major League City".

We are not, and never will be, a place where baseball is a central or defining aspect of our lives. We've tried to be something we are not...a sports town.

Someplace in Wisconsin doesn't have much else going for it, and so it make sense for them to be fanatical about football. But for San Diego, blessed with the world's best climate, beaches, sun, mountains, canyons, Mission Bay, Balboa Park...football will never be important.

Yet we've seen our money squandered on professional sports. It was sold to us by politicians, "businessmen", and media talking heads who have all made careers pretending to be something they are not. We fell for it, and now are suffering the consequences.

It isn't just that the money was wasted on sports palaces...it's that the same money COULD have been spent on what MsGrant recommends. The civic equivalent of food, shelter, clothes, and a job is infrastructure and social services for the less fortunate.

What is San Diego missing today? Infrastructure and social services for the less fortunate. Savings for a rainy day. Good jobs, transportation, and affordable housing. All the basics.

Because we allowed our civic "leaders" to consort with wheeler-dealers like John Moores and Alex Spanos, with the full backing of labor unions and city staff, we've become a laughing stock for the nation.

We don't have to continue down this path.

Don points out that the sports mogul contracts are airtight, written by the best lawyers money can buy and signed off by the likes of McGrory, Gwinn, Golding, and Murphy.

So, MsGrant and Don, and all the rest of you who agree that this is an injustice and civic disaster...what can we reasonably do?

I just worked my butt off to elect a new City Council, and yet I don't see any movement from that quarter. Even the new majority is terrified to take on the moguls. They all know it's a minefield and an almost guaranteed end to their political aspirations...even though they'll privately agree the city got a raw deal.

So what's next? How do we change this situation. Certainly we cannot let it stand when we're in such dire straits. So I'm looking for the next step.

Best,

Fred Williams

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Don Bauder Dec. 12, 2008 @ 7:46 a.m.

Response to post #13: The pension bill may go down because of the absurd way that bill is calculated. If one looks at the state of the economy and stock market today, and the prospects for the next year or more, it is clear that realistically, and conservatively, the pension bill should be far higher. Best, Don Bauder

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Don Bauder Dec. 12, 2008 @ 7:47 a.m.

Response to post #15: Yes, all things in moderation. Tell your union that. Best, Don Bauder

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Don Bauder Dec. 12, 2008 @ 7:58 a.m.

Response to post #16: You are right on all points. San Diego's priorities are out of whack. (Watch for upcoming column.) The establishment and city labor unions are stealing money from the taxpayers. But the taxpayers don't seem to care -- or as you point out, their elected representatives are afraid to battle the status quo. The next step? Fred, keep battling. With Moores deserting the city and taking his ballpark, real estate and Peregrine loot with him, some people are waking up to what has been going on. That is hopeful. The daily newspaper that has been feeding the public propaganda on behalf of the corporate welfare crowd could be sold, scaled back severely, liquidated, or reformed out of economic necessity. Those prospects are also positive for San Diego. Best, Don Bauder

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JohnnyVegas Dec. 12, 2008 @ 9:04 a.m.

In other news, the pension bill will go DOWN for the City of San Diego next fiscal year, dropping from $161 million to $154 million.

By JF 9:52 p.m., Dec 11, 2008

Oh brother-JF with a whopper so big his nose just grew 40 feet.

JF, the pension bill is going sky high, not going down. It is just being underfunded.

It is in the hole $5 billion, with a 50-60% funding level. The notion that the contribution is going down is perposterous.

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JulieParrots Dec. 12, 2008 @ 11:34 a.m.

In response to post #19. There has to be a light at the end of this tunnel.

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MsGrant Dec. 12, 2008 @ 1:02 p.m.

"The civic equivalent of food, shelter, clothes, and a job is infrastructure and social services for the less fortunate."

This can be accomplished by changing the dynamics of how non-profits are organized and how they are required to spend their donations. Dan Pallotta wrote a great book called "Uncharitable". In it he describes various restrictions on non-profit contributions, including the inability to advertise. Look at these huge stadiums we have. Banks, beer, investment firms advertising everywhere. Habitat for Humanity? No where to be found. The Humane Society? Ditto. The American Cancer Society? Who cares? Aids in Darfur? Not so much. Great pains are taken to make sure that donations given to non-profits are used in a manner that would not be conceived as improper to their benefactors. But because of this inability to reinvest or advertise, the opportunity to generate income to actually pay the caring individuals who work for these organizations is cancelled out. Our greatest minds of this generation are being seduced into the giant corporate maw of the America for-profit sector because it pays. Non-profit work does not pay squat. Why is this? He indicates that if you make a million discovering a cure for cancer you are a parasite. If you make millions selling violent video games to kids, you are a genius. I know lots of people do not agree with him, but this book is a great read, especially right now when non-profits are needed more than ever, and our tax dollars are being used to bail out giant corporations who never shared a dime with us, only enticed us to buy their now valueless stock and want us to share in their failure.

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Don Bauder Dec. 12, 2008 @ 4:12 p.m.

Response to post #20: Mayor Sanders and his minions may say the pension contribution will go down. But if the City is forced to face the situation honestly, the contribution will have to soar. Best, Don Bauder

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Don Bauder Dec. 12, 2008 @ 4:18 p.m.

Response to post #21: Let's hope that light at the end of the tunnel isn't a freight train. Best, Don Bauder

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Don Bauder Dec. 12, 2008 @ 4:21 p.m.

Response to post #22: That book looks provocative -- well worth reading. There is corruption, too, among non-profits. But most seem to be clean. Best, Don Bauder

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RobertBurns Dec. 12, 2008 @ 9:38 p.m.

Another Masterpiece, Don. May you write forever!

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Don Bauder Dec. 13, 2008 @ 7:11 a.m.

Response to post #26: Publicly-held companies use every accounting trick in the book to inflate their profits. Pro sports teams use every accounting trick in the book to make it look like they are losing money. Best, Don Bauder

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Don Bauder Dec. 13, 2008 @ 7:14 a.m.

Response to post #27: First, I would have to live forever. Odds are against that. Thanks and best, Don Bauder

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