John Galt is Wondering: What Took You So Long?

No matter how hard the mainstream tries to gush a positive spin on the Obama economy, let’s face it: the so-called stimulus bill is a failure. It is not doing anything to “help” the economy or “create” jobs, and things are progressively going downhill, much like what would have happened if there had been no stimulus bill at all.

This government interjection into the market neglected to take one thing into account: consumers. We see the creation of massive government debt, an increase in all taxes, and the burgeoning of a powerful political class. So what do we do? We hunker down (emphasis added):

Data showed that while U.S. consumer spending and income both rose in May as government stimulus spread through the economy, much of the money was being socked away.

U.S. savings jumped to a record annual rate of $768.8 billion, the highest level since records began in 1959, and the saving rate climbed to a more than 15-year high of 6.9 percent.

In an editorial this week, Karl Denninger says that in addition to holding fraudsters to account, cutting the deficit to zero, and ceasing to reward bad companies and banks that made bad decisions, the consumer should starve the beast:

Until then the position of those who wish to join is simple: No non-essential purchases of anything are made. Period.

What's an essential purchase?
Here's the list:
Enough food to eat at home. No more eating out.
Rent and utilities.
Essential medical services.
Enough fuel to get to and from work.

My question to Mr. Denninger would be, “What took you so long?” This has been my way of life for over a year. And I imagine that I am not the only one.

With the rape of the 401-Ks that many baby boomers were relying on for retirement, and seeing our time horizon shortening, we have no choice but to sock our cash away. This is not done through huge, dramatic lifestyle changes. It is done through the millions and millions of consumer decisions that are made each day.

An example: While out doing errands the other day, we were thinking about stopping at a local watering hole for lunch. Murph’s Irish Pub on Philadelphia Pike makes the best corned beef reuben evah.

But we decided against it. We have food at home, and it was an unnecessary expense. Two reubens and a couple of beers would have cost us $20 - $25.

The result of this is that Murphy’s doesn’t get the business and the waitress doesn’t get her tip. Less money flowing through the economy, and both Murph’s and the waitress are less better off than they could have been, while we take our $25 and stuff it in the mattress (figuratively speaking).

Small, seemingly insignificant decisions like this happen over and over every day, and its compounding force is stronger than any government intervention.

Denninger also says that we should stop loaning the government your money at zero interest:

In addition any "excess withholding" is stopped; if you are getting a big fat refund from the IRS every year you are loaning the government your money at zero interest until April. Stop that; its stupid. Change your W4 so you get exactly nothing back or owe a tiny amount; if you pay estimates pay only that which you must and not one dime more.

That’s been my mantra for years. I never understood why people get so excited at getting a big fat refund at tax time, when the money would have been more use to them over the course of the year. It is a stupid way to pretend to save.

I also have a self-imposed furlough. If I need a day off for whatever reason, I take it off without pay. That small sacrifice means that at the end of the year I have made less money, which means I pay less taxes. It is also less money going into the government

All of these tactics, whether done consciously or not, are the public’s way of going Galt. Fearing for our future, we are cocooning in our homes and the very thing that everyone says will help us come of this recession, spending, is the very thing we are not doing. My personal savings rate has been at 25% for about six months, and I force myself to do it no matter what. That means going without alot of things.

These guys like Mr. Denninger who watch the markets and the government are all real smart, I’m sure, but I’m wondering what took them so long to realize this. Consumers have been scared for a long time, and when they see the actions the government is taking it makes them even more scared.

Starve the Beast. Read the whole thing.