Accumulated Wisdom for Today’s Economy

 

Both of my parents were from the rural south and were born a few years before the Great Depression.  Like many African-Americans in the Great Migration, they moved north for better employment opportunities and a respite from the virulent racism that characterized the southern US in the post civil war period.  They brought with them many of the habits accumulated from their experience in the rural south. Much of that experience in the aftermath of the Great Depression revolved around being poor.  According to my father, whom I’m still blessed to have with me, when he and his siblings were growing up everyone they knew, both black and white, was poor.

Both of my parents wound up in Indianapolis Indiana, where they married and started a family. After a few years they were able to buy a house in the neighborhood where I grew up.  At that time, my neighborhood was a middle class sort of neighborhood where African-American professionals and working class folks like my parents lived side by side.  It was a neighborhood of physicians, postal workers, teachers and factory workers like my father. 


Although middle class living then was far different than what it is now, there was still some pressure for people to keep up with the Joneses.    My parents didn’t feel that pressure mainly because of their mentality.  They were very “utility” conscious and if they didn’t absolutely need whatever it was, they just simply went without it.  Basically, if the item didn’t have any real utility at an acceptable price, they just didn’t mess around with it.

Of course, as their kids, we weren’t into “utility”.  I wanted my $ 9.99 Chuck Taylor Converse sneakers, not the one’s for $ 2.99 that my mother got me from Ayr-way.  On top of that, I wanted the “thick and thin” type socks that L Strauss & Co. sold, not the thick woolens she got from L.S. Ayres on sale.  Unfortunately for me, these were not necessarily the days of free speech and even if you could speak freely, my parents weren’t hearing it anyway!

My parents seemed to spend much of their time figuring out how to stretch a dollar and when you have five kids, one of the biggest bills you face is the grocery bill and this is where that rural southern background came in pretty handy.   We never bought anything from the store except toiletries, bread, meat and dairy products.  We grew and canned all of our vegetables and jellies.  My parents had a large garden on the outskirts of the city for growing all of our vegetables. Of particular insult to the five of us kids was their insistence that we all help with the all of hoeing, picking, bean snapping, corn shucking, blanching and canning. 

Again, the five of us weren’t into any of this (with the exception of the eating part).  Our feeling was that Indianapolis wasn’t Hermanville MS or Huntingdon TN and our question was “Why couldn’t we just go to the grocery store like everyone else and buy our stuff?”  Again, my parents weren’t hearing it.  I tell you, these two were absolute despots. It often felt like a military junta was running matters!

They didn’t care one whit about what the Joneses were doing or accepted conventions.  They knew what their circumstances dictated and operated accordingly.
In the few instances my mother went to the grocery store, she was fully armed with coupons.  She didn’t know what “limit 2 per household” meant.  With the five of us, that meant we’d pick up 10 extra of whatever was on sale. We’d all be sent through the line with a coupon and money to get our two. 

I won’t get into the S&H Green Stamps my mother would collect and redeem or the fact we were the last ones on our block to have a coal fired furnace after everyone else had switched to gas long ago.  I won’t talk about my father making us roll down the car windows on a scorching summer day because running the air conditioner would “burn up too much gas.”  But you get the idea; I had two extremely frugal parents.  They didn’t buy anything unless they needed it. They were debt adverse to the extreme. They pretty much handled everything as cash and carry, including houses and cars.  I can hear my father right now “son, get only a little of what you want and save your money to get what you need.  If you get too many of your wants, you won’t have the money to take care of your needs.” 

All that scrimping, saving,  picking, hoeing and canning set us up where we could eat for a full two years if we had to without having to leave the house.  Our pantry and freezer were always full.  Plus we had money in the bank to boot.  Daddy doesn’t believe in a bank to this very day and basically uses his credit union.  You’ll notice that in all the recent tumult, you’ve heard no mention of credit unions being in trouble.

Generally, saving does not simply encompass saving money, although that’s certainly a part of it.  It may also make sense to store food.  One of the primary reasons that folks used to store food back in the day was related to erratic harvests and economic conditions.  Given the uncertainty of what the next year would bring, it made sense to many folks to store food to avoid starving.  My parents knew that the law of averages was such that rainy days would eventually come and the best time to prepare for rain is when the sun is shining.

The depth of the financial crisis we’ve encountered should not be underestimated.  The first impact of the crisis has been seen in the steep drop in availability of credit and rapidly increasing unemployment.  We are still very early in this crisis, as there are another group of mortgage loans (alt A and option ARMS) that will begin resetting beginning in 2010.  It is expected that the defaults from these loans may far outstrip the defaults encountered to date and there’ll be another severe shock to the banking system, the real estate market and the economy in general.  The effects of these initial shocks have been generally deflationary as we’ve seen prices drop for things like gas, cars and houses.

The Obama administration and the US Federal Reserve have effectively thrown a Hail Mary pass in a desperate bid to save the economy.  They’ve essentially flooded the financial system with printed money in an effort to shore up the banking system’s ability to absorb the existing losses and those upcoming.  There are several problems with this and the largest is the debasement of our currency.  This means that we may encounter very severe price inflation as the printing of money lessens what your dollar will be able to purchase.  The effect will most likely show up in the prices of commodities you need the most like food, healthcare and fuel.  The stuff you don’t need will remain cheap as fewer people will be interested to buying these things (i.e. McMansions, new cars and etc.).  Also, inflation generally punishes people who are savers as the return on your savings must be high enough to cover both the inflation rate and a real return on your money. Historically, Germany’s Weimar Republic of the 1920’s is a reference point for hyperinflation caused by government money printing.  The people found that their money was so worthless they needed a wheelbarrow to carry enough of it around to purchase normal everyday commodities like food.  The nation of Zimbabwe is a good example of wild hyperinflation today where people have to carry around massive wads of cash to purchase everyday items after that nation’s government printed money to pay off its loans.  Hyperinflation is generally the result when a government engages in massive money printing as opposed to the nation producing and making things in exchange for money.

The Federal Reserve  believes that it can easily sop up and recall all the excess money they’ve printed when it’s no longer needed.  I suppose anything is possible, but I’m thinking that I can’t possibly hurt myself by saving and storing that which may rise dramatically in price.  If I’m wrong, the worst thing that will happen is that I’ll have a bunch of food stored that I’ll eat anyway.   The risk here actually lies in not being prepared. 

I’ve been fortunate to have been able to get the formal education my parents couldn’t, however education and wisdom are two separate things.  You see, it was the unwise, but highly educated who got us into this mess.  Sometimes, wisdom comes from places where you’d least expect it; places like Hermanville MS and Huntingdon TN.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: