"The Fundamentals Are Sound"

After last Friday's meeting in Washington of the Group of Seven nations, U.S. Treasury Secretary Henry Paulson said that the market's "fundamentals are sound."

History suggests, however, that is one phrase you don't want to hear any politician, fund manager, or corporate leader say in response to a worrying situation. More often than not, the person uttering that particular cliché 1) doesn't have a clue about what is going on; or, 2) knows that the so-called "fundamentals" are bad, but figures that he (or she) might as well engage in some meaningless cheerleading because it makes for a great sound byte.

Still, it's probably not fair to single out Mr. Paulson, because a number of public officials have been uttering similar reassurances for many months now about the state of the U.S. economy. Despite clear signs that the fallout from the collapsing housing and credit bubbles is spreading by the day, and polls that indicate more and more Americans see a recession on the horizon, our leaders in Washington keep suggesting that "the fundamentals are sound."

In "Higher Food Bills Squeezing Working Families," the Associated Press makes it clear just how wrong those guys really are.

The calculus of living paycheck to paycheck in America is getting harder.

What used to last four days might last half that long now. Pay the gas bill, but skip breakfast. Eat less for lunch so the kids can have a healthy dinner.

Across the nation, Americans are increasingly unable to stretch their dollars to the next payday as they juggle higher rent, food and energy bills. It's starting to affect middle-income working families as well as the poor, and has reached the point of affecting day-to-day calculations of merchants like Wal-Mart, 7-Eleven and Family Dollar.

Food pantries that serve the needy report severe shortages and reduced government funding at the very time that they are seeing a surge of new people seeking help.

While economists debate whether the country is headed for a recession, some say the financial stress is already the worst since the last downturn at the start of this decade.

Merchants have adjusted their product mix and pricing. Sales data show a marked and more prolonged drop in spending in the days before shoppers get their paychecks, when they buy only the barest essentials before splurging around payday.

"It's pretty pronounced," said Kiley Rawlins of Family Dollar. "It seems like to us, customers are running out of food products, paper towels sooner in the month."

Strain may get worse in winter

Wal-Mart said the imbalance in spending before and after payday in July was the biggest it has ever seen, though the drop-off wasn't as steep in August.

And 7-Eleven says its grocery sales have jumped 12 percent to 13 percent over the last year, compared with only slight increases for non-necessities like gloves and toys. Shoppers can't afford to load up at the supermarket and are going to the most convenient places to buy emergency food items like milk and eggs.

"It even costs more to get the basics like soap and laundry detergent," said Michelle Grassia, who lives with her husband and three teenage children in Brooklyn, N.Y.

Her husband's check from his grocery store job used to last four days. "Now, it lasts only two," she said.

To make up the difference, Grassia buys one gallon of milk a week instead of three. She sometimes skips breakfast and lunch to make sure there's enough food for her children. She cooks with a hot plate because gas is too expensive. And she depends on free vegetables and powdered milk from a local food pantry.

Industry analysts and some economists fear the strain will get worse as people are hit with higher home heating bills this winter and mortgage rates go up.

Comments

[Boom2Bust.com]

It's unfortunate that a number of Americans still believe in what the spindoctors are saying about the U.S. economy. Washington and Wall Street have a vested interest in painting a rosy picture (healthy economy= government maintains status quo and financial institutions increase bottom lines). Employees like Secretary Paulson are just doing their job in talking up the economic picture, and are very good at it. Americans must do themselves a favor and look at what the data is saying, while filtering out the noise...

[Bruce]

Well Golly Gee! I wonder where we've heard that statement before? Oh right. Just before the big crash of '29...

Keep up the good work Mike. I'm glad there's a few of us out there who still have a grip on reality and know what's really going on behind the scenes... Kudos!

[DestroyThePrivateCentralBanks]

It is time to destroy the Federal Reserve System. There is no way to justify a private central bank controlling the money supply and charging interest to the US government. There is no way to justify a fiat currency that continously devalues the buying power of money. This should be the focus of all economists and anyone that is interested in preserving their wealth. Increases in the stock market are meaningless if the value of the money they are denominated in is crumbling due to inflation caused by central banks.