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desertheat.jpgWith it looking more and more likely each day that the the U.S. economy is tipping into a recession and the Fed talking about yet another interest rate cut to jump-start the economy, let’s be perfectly clear with what is really going on.

The messages from government and Wall Street will be to encourage consumers to go on a buying spree and spend, spend, spend. Consumers will be asked to live up to their name and guess what, consume.

Financial prudence and concern is damn near unpatriotic since a slow down in consumer dollars flooding into business means a trickle down effect and we wouldn’t want business profits to slip, now would we.

As one economic expert said today, “We have to hope the consumer doesn’t decide there is a real recession coming because then they’ll close their pocket books.”

Businesses, the government and banks are counting on you going further into debt to fuel the economy. But just realize that the hope for the economic rescue is built on the backs of consumers that are still able to go further into debt.

Some people will fall through the cracks and get in debt over their heads but from an economic point of view, “So what”, macro economists will say. As long as the number of people that get overextended and financially fail is small, say 2% or less of the population then that will just be the cost of doing business.

Don’t be shocked if you don’t see the Fed rates cuts which may be coming pass through to your pocket. My guess is that banks will try to keep as much of that rate cut in their pockets as possible in order to make additional profits to make up for their subprime fiasco.

Economists want you to continue to spend to help the economy as a whole but the best course of action at this point is to think of every dollar as a drop of water you’ll need to cross a long hot desert. The best plan of action as an individual in uncertain economic times like this is to shed debt, save cash and stay as liquid as possible. But then of course that will make a recession more likely. So what are you going to do? Spend or save?

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Steve

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