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More Market Pain and Consumer Spending

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Once again as I write this, the Dow Jones is down another couple hundred points. I’ve given up on worrying about it despite my sagging brokerage account, but it’s important to understand the importance of consumer spending in today’s drop.

Retail sales data came out today and let’s be honest, it’s not good. People are scared, and those that are willing to spend can are finding it harder to do so. From getting a credit card, to a mortgage, even a car insurance quote is likely to prove more expensive or harder to obtain than it used to be. Lenders have rightfully choked off a lot of the easy credit they let flow in the past, they’re too busy shoring up their own balance sheet with cash.

Much of the growth the country’s economy experiences is driven by people who spend money on frivolous things. That’s why marketing is such a force to be reckoned with, and that’s why the government gave you a free check and said don’t save it go buy stuff. You have to spend money to keep the nation’s economy prosperous. We all talk about the need for frugality, but when everyone saves, the economy stops growing and even shrinks.

Naturally this would lead one to believe that there has to be a happy medium somewhere. There has to be a point where people can spend enough on a new iphone and flat screen TVs while still preserving their future in a retirement fund. For too long we’ve run our financial lives based on credit and borrowing and reckless spending. No longer.

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