Think Globally, Act For Your Consumer Base!

"If you're goin' to Winnemucca, Mack, with me you can ride."
And so I climbed into the cab and then I settled down inside
He asked me if I'd seen a road with so much dust and sand
And I said, "Listen, I've traveled every road in this here land!"
- Johnny Cash

We've all been through our ups and downs - emotionally, financially, even literally.

I sometimes think back over my life and all the places I've been. But not just the places, I also think about how I got there and why. It's an interesting exercise. Imagine a globe that records your footsteps from the day you were born until now. Take a look at all the places you've been in your life, how many times you went on the same trip to the same place, how often you crossed state lines, rivers, even oceans. Imagine all this and you will quickly see just how small the world really is.

But what is the driving force? What makes us get up and go every day, not as individuals, but society as a whole? I believe it's the fundamental goal of bettering our own lives as well as the lives of others - mostly family and friends.

Review your globe once again and think about all the different societies and what their specific goals are. Some very broad generalizations jump to mind such as: the destitute in communities where basic services do not exist (running water, etc.) simply are trying to survive. To be sure, this exists in every country, but is concentrated on the lesser developed world, specifically Africa and much of Latin America and Asia.

Flip to the super-developed world and you'll find these citizens still want to improve their own lives, but in addition have the luxury to reach out and help those in less fortunate circumstances. You'll also find their methods are quite different.

Because by definition opportunities exist more fully in the developed world, those people can increase their fulfillment through hard work, risk-taking and, yes, luck. More specifically, Americans work hard so they can purchase more tangible things, such as vacations or high-level services. Other parts of the developed world are more attune to saving the credits earned from their hard work.

In a simple economic model, one can see that there are only two outlets for the gains of hard work, luck and risk-taking: spending and saving. Culturally, Americans are the prime spenders of the world and most other societies are the savers. Of course, individual societies can't and shouldn't remain on either side of this equation for long periods of time lest they risk severe global imbalances of wealth leading to potential political unrest.

The global economy has slowed drastically in recent years because Americans are taking a holiday from their spending habits. Though a long-term correction toward higher savings is necessary, today it is ingrained in our culture to spend and that will not change quickly.

Instead, the world needs to get the American consumer back in gear - even if it is a lower gear than in years past. And so I was very happy to see the news last week that the China Investment Corporation (CIC) has committed $2 billion to the Public Private Investment Program (PPIP) in order to buy mortgage securities.

Not that $2 billion is a lot, or that the PPIP will ever be successful, or even that China can solve all the world's problems, but the fact that it understands these interrelationships and that our problems emanate from a non-functioning mortgage market, which they are now targeting directly, is cause for hope.

It's one thing for China to pump billions of dollars into their own culture of savings, but it's quite another for them to help boost the ability of their consumer base to get back to spending!

Key Developments

The producer price index dropped 0.9 percent in July led by a 2.4 percent drop in energy prices and a 1.5 percent drop in food prices. The core version, which strips out these effects, also dropped, but just slightly, by 0.1 percent. Over the last 12 months this inflation indicator is down 6.8 percent overall, while the core measure was up 2.6 percent.

Existing home sales are trying to make a comeback, rising 7.2 percent in July capping the fourth straight monthly increase and hitting their highest level in almost two years. Existing home sales have a strong follow-on effect to the economy as new homeowners invariably need to purchase large ticket items in the months following the home sale.