This past Wednesday, we made our way to San Bernardino to meet a client. The weather was warm, overcast, and somewhat gloomy—quite a contrast to the bright sunny skies and fresh breezes we had left behind at the beach. However, it wasn’t just the dreary weather that cast a somber mood over the city; it was the state of the economy. We had arrived in what many have dubbed the “Detroit of Southern California.”
If you’ve never visited San Bernardino, consider yourself fortunate. Statistically speaking, the area falls two standard deviations below the mean on a normal distribution curve regarding quality of life. In layman’s terms, it’s not a pleasant place.
Had there been any signs of economic recovery, San Bernardino would have been the last to notice. The past two years had shown no visible improvement in the vacant storefronts and dilapidated street corners of downtown. Nevertheless, here at Economic Prism, we have an empathetic approach and a soft spot for those down on their luck, which is why we committed our time and skills to this area… at market rates.
Despite our reservations about taking on this project, we approached it with an open mind and a sense of curiosity. What could we learn from this situation? What valuable lessons was it offering?
One of our realizations was witnessing what a community looks like with an unemployment rate of 13.4 percent—4.3 percent higher than the national average. Given current trends, it’s likely that many more will encounter such realities before the economic rot is fully cleared away.
But if the President isn’t worried, should we be concerned? Right?
What Could Possibly Go Wrong?
“President Barack Obama voiced concerns about the recent slowdown in the economy,” reported AP on Tuesday, “but stated he is not worried about a second recession and urged the nation to ‘not panic.’”
Of course, when someone tells us not to worry or not to panic, we instinctively suspect that something significant might be on the verge of occurring. When it’s the President making this proclamation, it almost guarantees that something is indeed amiss. So, what could potentially go wrong?
For starters, the situations in Syria, Libya, or Iran could escalate unpredictably. Oil prices are stubbornly high. Job creation remains stagnant. State governments are in dire financial straits, which could lead to a municipal bond crisis. Countries like Greece, Ireland, Portugal, Spain, and Italy are facing severe economic challenges, and Germany and France can’t bail everyone out. And that’s only part of the picture…
The housing market is in deep trouble… possibly for the long haul. The U.S. Dollar is slowly being devalued by the Federal Reserve. Without an agreement in Congress to raise the debt ceiling and curb spending, the U.S. Government could default on its debt by August 2. As if that’s not enough, this year’s winter wheat harvest was dismal—setting the stage for a potential food crisis before the year ends. Plus, we can’t forget the ever-looming threat of what Donald Rumsfeld famously referred to as ‘unknown unknowns.’
How to Accumulate Wealth
Other than that, everything looks fantastic. The birds are still chirping, the flowers are blooming, and our coffee remains as bold and bitter as ever.
On a more optimistic note, the stock market experienced a reversal yesterday, with the S&P 500 gaining 9.44 points. In terms of good news, U.S. exports reached a record high in April. One economist from JPMorgan Private Wealth noted that this uptick in exports could contribute an extra half percentage point or more to the second quarter GDP.
However, even though U.S. exports reached $175.6 billion in April, imports were significantly higher at $219.2 billion. The gap was no doubt filled with debt—meaning the U.S. effectively transferred $43.7 billion of its wealth offshore.
Clearly, when expenditures surpass income, bankruptcy is inevitable. This principle holds true for nations as well as individuals. To build wealth, both must ensure they spend less than they earn. Achieving this requires hard work, dedication, and time.
Anyone claiming otherwise is, at best, misinformed—if not outright dishonest… or perhaps a politician.
Sincerely,
MN Gordon
for Economic Prism