Pat Hines

THE CONSUMER DEFICITTHE CONSUMER DEFICIT

THE GOVERNMENT DEFICITTHE GOVERNMENT DEFICIT

THE LEADERSHIP DEFICITTHE LEADERSHIP DEFICIT

THE ECONOMIC STORM

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pkhines@rainiergroup.com

WANT TO GUESS

WHY ?

THE ECONOMISTS SAYTHE ECONOMISTS SAY

•Elasticity of consumer demand relative to the elasticity of supply was perverted by hyper credit

•Causing the deterioration of the multiplier and the debasement of the savings rate.

(Parallel phenomena existed at the Federal level ).

WE SPENTWE SPENT

THEY LENT THEY LENT

OR IN ENGLISH

MADISON AVENUE (media)MADISON AVENUE (media)

CREATED THE FANTASY… CREATED THE FANTASY… (WE HAD TO HAVE (WE HAD TO HAVE ITIT NOW !) NOW !)

THE BANKS CREATED THE MONEYTHE BANKS CREATED THE MONEY

AMERICA AMERICA LIVED ON CREDIT LIVED ON CREDIT

SAVING NOTHING…SAVING NOTHING…

SAVINGS 0%

Credit ( Debt )Credit ( Debt ) has to be repaid ! has to be repaid !

we ran out of time we ran out of time

and moneyand money

THE ECONOMY GREW ONTHE ECONOMY GREW ON CONSUMER DEBT –CONSUMER DEBT –BASED ON CREATED DEMANDBASED ON CREATED DEMAND

TVCREDIT CARDS

AMERICAN GROSS DOMESTIC PRODUCT

““ !BUY NOW ” !BUY NOW ”

GEE NOW I CAN’ T

CONSUMER DEBT EXPLODED !ANDWAS NOT REPAID

This could

not be sus

tained!

This could

not be sus

tained!

NO SAVINGS NO SAVINGS

DEBT COULD NOT BE REPAID DEBT COULD NOT BE REPAID DEATH OF THE MULTIPLIER DEATH OF THE MULTIPLIER DENIGRATION OF MONEY DENIGRATION OF MONEYSUPPLYSUPPLY

SAVINGS RATE USA

WE SPENT THE FUTURE

NO SAVINGS !NO SAVINGS !

ECONOMY CRASHESECONOMY CRASHES

NO MONEY IN SYSTEMNO MONEY IN SYSTEM

BUT BUT

THE ECONOMY… THE ECONOMY…

DID NOT CRASH WITHOUT SAVINGS !DID NOT CRASH WITHOUT SAVINGS !

WHERE DID THE MONEY COME FROM ?WHERE DID THE MONEY COME FROM ?

BANK’S FOUND A WAY TO BANK’S FOUND A WAY TO KEEP LENDING KEEP LENDING

NO SAVINGS NO MONEY TO LENDNO SAVINGS NO MONEY TO LEND BORROW FROM THE FEDBORROW FROM THE FED BUT THE FED CLOSED THE WINDOWBUT THE FED CLOSED THE WINDOW

FED CLOSES WINDOW

12 USC 82 CEILINGS

SECURITIZATIONSECURITIZATION

WAS THE ANSWER !WAS THE ANSWER !

FANCY WORD FOR HOCK

SO… SO… BANKS HOCKED THEIR BANKS HOCKED THEIR

MORTGAGES …MORTGAGES … AND AND CREATED CREATED MONEY!MONEY!

LENDING STANDARDS TAKEN OFF

LENDING TAKES OFF !

THE “BANK”THE “BANK”

WALL STREET WALL STREET BUYS LOANSBUYS LOANS “ “ PACKAGES” LOANS PACKAGES” LOANS

SELLS – QUICKLYSELLS – QUICKLY

TO ?

FOLLOW THE MONEYFOLLOW THE MONEY

to :

BANKS ?

`

HEY !!!!!!!!! WHERE IS MY HEY !!!!!!!!! WHERE IS MY MONEY !!!!!!!!!!MONEY !!!!!!!!!!

WHERE

IS OUR

MONEY !

NOW THAT IS A NOW THAT IS A HECK OF QUESTION !HECK OF QUESTION !

ANSWERANSWERWE SPENT IT WE SPENT IT

– - - - - ’ – - STARBUCKS BOATS VACATIONS EDUCATION MOVIES PIZZA S FURNITURE – - - - - ’ – - STARBUCKS BOATS VACATIONS EDUCATION MOVIES PIZZA S FURNITURE

- - - – – TRIP TO MONROVIA CAMERAS IPOD FACE LIFT NEW CAR ANOTHER NEW CAR - - - – – TRIP TO MONROVIA CAMERAS IPOD FACE LIFT NEW CAR ANOTHER NEW CAR– – - – – - - SECOND HOME CLOTHES SHARK TICKETS BOOKS JEWLRY CHINESE FOOD– – - – – - - SECOND HOME CLOTHES SHARK TICKETS BOOKS JEWLRY CHINESE FOOD

- - - – - TEETHWHITENING DIVORCE SETTLEMENT ICE CREAM CAKES RIMS PET - - - – - TEETHWHITENING DIVORCE SETTLEMENT ICE CREAM CAKES RIMS PET-ROCKS-ROCKS

- - - – HERMES TIES MONT BLANC PEN COHIBA CIGARS BOXTERS SURF BOARD - - - – HERMES TIES MONT BLANC PEN COHIBA CIGARS BOXTERS SURF BOARD

– - – – -YOGA LESSONS NEW KITCHEN NEW BATHROOM THE SHRINK ANTIQUES – - – – -YOGA LESSONS NEW KITCHEN NEW BATHROOM THE SHRINK ANTIQUES

- - - - - -LAS VEGAS FISHING GEAR FLY ROD EBAY DELL COMPUTER ORGANIC FOOD - - - - - -LAS VEGAS FISHING GEAR FLY ROD EBAY DELL COMPUTER ORGANIC FOOD

- - - - MASSAGE BURYING AUNT MAUDE NEW CAT BOTTLEDWATER- - - - MASSAGE BURYING AUNT MAUDE NEW CAT BOTTLEDWATER

- - - - ’ - - GAS LIGHTS NEW FRENCH LAUNDRY OPERA LUNCH AT SAM S CHARDONAY A- - - - ’ - - GAS LIGHTS NEW FRENCH LAUNDRY OPERA LUNCH AT SAM S CHARDONAY A- - …PORCHE HAIRPIECE OH YEAH CHARITY- - …PORCHE HAIRPIECE OH YEAH CHARITY

Where is their money ?

By The way By The way Where DID the Banks Go ? Where DID the Banks Go ? (Where did the BANKERS go ?) (Where did the BANKERS go ?)

They used to be consultativeThey used to be consultative

THEY MORPHED INTO SALES THEY MORPHED INTO SALES DRIVEN PAPER MILLS DRIVEN PAPER MILLS DRIVEN BY FEE INCOME DRIVEN BY FEE INCOME

THE ENTITLED SOCIETY

THE AMERICAN CONSUMER I WANT (DESERVE ) IT NOW

USING DEBT INSTEAD OF CASH

BUYING NOW AND NOT PAYING LATER !

YOU AND ME YOU AND ME

THE BOOMERS 1946 - 1964THE BOOMERS 1946 - 1964Generation X 1961 - 1981Generation X 1961 - 1981Generation Next 1982 – 2000Generation Next 1982 – 2000

BECAUSE WE WANTED… IT !BECAUSE WE WANTED… IT !

GAP CARRIED BY DEBT !

THE ECONOMY THE ECONOMY

WAS WAS FINANCEDFINANCEDAND WE HAVE AND WE HAVE

TO PAY IT BACKTO PAY IT BACK

BY THE WAY PAY BACK WHO ?BY THE WAY PAY BACK WHO ?

OH YEAHOH YEAHAND THE FEDAND THE FED

FED COMES TO THE RESCUE

CASH FROM FED !

THE STORM HAS HIT ?WHERE DID WALL STREET GO ( ) ?WHERE DID THE BANKS AND BANKERS GO ? WHERE DID CREDIT GO AVALANCHE OF HOME FORECLOSURES CREDIT CARD DEBT RIPENING TO LOSS NO SAVINGS AND HUGECONSUMER DEBT CONSUMER INDULGENCE -REGRET -DENIAL UNEMPLOYMENT STAGGERING POLARIZATION OF ELECTORATE – - RAGE IN AT WASHINGTON

PAY OFF DEBT PAY OFF DEBT INCUR NO NEW DEBT INCUR NO NEW DEBT INCREASE SAVINGS INCREASE SAVINGS INCREASE EARNINGS INCREASE EARNINGS EMBRACE NEW REALITY EMBRACE NEW REALITY

DEBT

… IS THE GREATEST THREAT

TO OUR FORM OF GOVERNMENT…

IT IS OVER

$13 TRILLION NOW

…… so WHAT is a TRILLION ?so WHAT is a TRILLION ?

1 million seconds = 12 days1 million seconds = 12 days 1 billion seconds = 32 years1 billion seconds = 32 years 1 trillion seconds = 32,000 years (that’s 1 trillion seconds = 32,000 years (that’s

approximately 30,000 years before Christ!)approximately 30,000 years before Christ!) 10 trillion seconds = 315,460 years10 trillion seconds = 315,460 years

$13,000,000,000,000

WHAT DID THE WHAT DID THE GOVERNMENT GOVERNMENT

( WE ) BUY ?( WE ) BUY ?

THE FEDERAL BUDGET …

Mandatory Entitlements

DISCRETIONARY

Where will we get the money ?

CREATE EMPLOYMENT CREATE EMPLOYMENT

AMERICAN INOVATIONAMERICAN INOVATION

RESPONSIBLE SPENDINGRESPONSIBLE SPENDING

REALISTIC BUDGETSREALISTIC BUDGETS

CULTURE OF MODERATIONCULTURE OF MODERATION

WE ARE FACING VERY

ROUGH ECONOMIC SEAS

DECLARE WARON

DEBT

‘29

WE CAN DO IT !

THE BUREAUCRATS AND ELECTED OFFICIALS

LACK THE WILL TO FIGHT THE DEFICIT

WHAT’S IN IT WHAT’S IN IT FOR THEM ?FOR THEM ? WHAT’S THEIR INCENTIVE TO WHAT’S THEIR INCENTIVE TO

SAVE ?SAVE ?

Let alone cut !

Our elected officials

…Spend their time getting re-elected…

SUPLICANTS TO SPECIAL INTEREST GROUPS

WITH OUT A WITH OUT A

REPRESENTATIVE REPRESENTATIVE

GOVERNMENT GOVERNMENT

WE ARE WE ARE

HELPLESSHELPLESS

WE MUST FACE THE WE MUST FACE THE DEFICITDEFICIT

TAX INCREASES TAX INCREASES

ENTITLEMENT REDUCTIONENTITLEMENT REDUCTION

CAN NOT BE AVOIDED CAN NOT BE AVOIDED

FEARLESS DRIVE FOR THE TRUTHFEARLESS DRIVE FOR THE TRUTH FORCING POLITICIANS TO CHANGEFORCING POLITICIANS TO CHANGE WE MUST TAKE BITTER MEDICINEWE MUST TAKE BITTER MEDICINE

YOU WILL DECIDE WITH YOUR VOTE

PROVIDES Unconflicted Investment Counsel

Independent investment analysis

CREATES - Business Wealth Transition Solutions

Econometric Modeling Common Sense

Pat Hinespkhines@rainiergroup.compkhines@rainiergroup.com pkhines@stanford.edu