Tuesday; February 26, 2002

Addendum of March 1, 2002

Reconsidered, reevaluated and reaffirmed on April 3, 2002

Right after September 11, 2002 I wrote this article but have hesitated to put it on the Internet. The time has come.


Start with fear in America during the great depression.


Unless you were born before 1933 the odds are that you have no experience with national fear.

This generation of Americans has no experience with national fear. Our so-called leaders including the President of the United States have not lived in or experienced a nation surrounded by a wall of fear. Not one member of the Bush government has lived through a prolonged period of national fear.

No one I know of in the American government either in person or through the media, military and civilian, has lived through a prolonged period of national fear.

The only people that have lived through a period of national fear are all retired or dead. I am talking about those of us that lived through the depression and the onslaught of Pearl Harbor.We are all gone or about to be gone. Not one of us is able, in any way, to make any decisions or provide any enlightenment on the impact of fear on the American economy.

This article is about national fear as I lived through it in the depression and after Pearl Harbor.

The reason for this article is simple: this country is now in the grip of fear and the impact of that fear on the future of this country is barely understood. Not only is it barely understood but what is worse is that it is barely recognized. But how or why should it be since so few have lived through it?

What is the fear I am talking about? It is one or any one OR ALL of the following:.

 Fear of the present.  Fear of destruction, personal and national.
 Fear of the future.  Fear of the inability to master life.
 Fear of survival.  Fear of helplessness.
 Fear of the loss of income.  Fear of economic and financial destruction.
 Fear of the loss of assets.  Fear of the unknown.
 Fear of the loss of life.  Fear of uncertainty.
 Fear for the nation.  Fear of the inability to control.
 Fear for freedom.  Fear of random events.
 Fear of Failure.  Fear of death.

Fear dominated America from 1931 until 1941. President Roosevelt have made it a major part of his first inaugural address to the nation when he said "The only thing we have to fear is fear itself.".

The problem with that wonderful quote is that the fear was justified!

I know, I was there and terrified of the future!

Fear and Assurance are the major driving forces of any economy. This rather simple and basic fact is only dimly understood by most economists and most analysts.This was first realized and measured by a man named George Katona of the University of Michigan back in the early 1950's.

What does FEAR do to an economy? We all know that fear makes individuals COWER. When an entire country is afraid and living in fear it too COWERS. "Cringe in fear: to cringe or move backward defensively in fear."13th century. From Middle Low German kuren, “to lie in wait,” of unknown origin.]Encarta® World English Dictionary © & (P) 1999,2000 Microsoft Corporation. All rights reserved. Developed for Microsoft by Bloomsbury Publishing Plc.

George Katona realized that confidence or the lack of confidence were major driving forces in any advanced economy. It was not a new idea and the realization of the impact of psychology on the development of an economy goes back to the early 1700's. What Katona did was to measure it! Incidentally the University of Michigan is still THE authority and the Conference Board data is both suspect and second rate.

Confidence is a two way street and the word is misleading since popular understanding has come to mean a positive attitude:

"con·fi·dense [kónfid?nss] (plural con·fi·dences) noun
1. belief in own abilities: a belief or self-assurance in your ability to succeed.
2. faith in somebody to do right: belief or assurance in somebody or something or the ability of somebody or something to act in a proper, trustworthy, or reliable manner."

The antithesis of confidence is fear:

fear [fear] noun (plural fears)
1. feeling of anxiety: an unpleasant feeling of apprehension or distress caused by the presence or anticipation of danger.

Encarta® World English Dictionary © & (P) 1999,2000 Microsoft Corporation. All rights reserved. Developed for Microsoft by Bloomsbury Publishing Plc.

The majority of opinions cited by both CBS MarketWatch and Bloomberg expected confidence to come roaring back at this time. The exact opposite happened. It dropped down.

"Washington, Feb. 26 (Bloomberg) -- U.S. consumer confidence fell this month as concerns about unemployment and the reliability of company earnings reports dimmed enthusiasm that had been building since September.

The Conference Board's gauge of sentiment dropped to 94.1 after rising to 97.8 in January. The decline was the first in three months and larger than expected. More than 80 percent of those surveyed indicated they were concerned about jobs."

"NEW YORK (CBS.MW) -- Stocks snapped a two-day winning streak Tuesday as the first decline in consumer confidence in three months dampened investor optimism. Still, stocks refused to go down without a fight and mustered a brief push into the plus column during the final hour of trading.

The confidence index -- arguably the week's most interesting release -- mirrored drops in other confidence measures released over the past couple of weeks. The wavering optimism on Main Street hinged on the stock market's shabby performance since December and ongoing job insecurity. "

"University of Michigan Sentiment Index Fell to 90.7 (Update2)
By Monee Fields-White

Washington, March 1 (Bloomberg) -- U.S. consumer confidence fell in February, the first decrease in five months, as a decline in stock values clouded optimism about an economy that otherwise is showing signs of recovery.

The University of Michigan's final consumer sentiment index dropped to 90.7 for the month from 93 in January. A preliminary estimate had put the index at 90.9 in February. Reports on incomes, spending, manufacturing and construction indicate that the U.S. is pulling out of a recession that began a year ago. "


As long as airline travel takes hours to get through the screening process, as long as you have to take off your shoes to be examined, as long as you have to have every bit of your baggage examined ad nauseum, as long as the bells and whistles go crazy when you walk through the electronic screen and as long as the Feds dominate and control air line admission American confidence will remain depressed and the American economy will remain depressed and limp along.

The American people will adapt and learn to cope with it by taking conservative routes and positions. Confidence will never return to its exuberant heights of pre-September 11 until the threat of unannounced death and destruction is eliminated as part of everyday life. Until that day the American and the global economy will remain in a holding pattern. Exuberance is a thing of the past.

"Caution" is the keyword of the future; short term, medium term and longer term.

Never forget what John Maynard Keynes once said:

"Long run is a misleading guide to current affairs. In the long run we are all dead."

To which I add "And in the short run we suffer."

Email me about anything that interests you and I promise an answer and who knows, we both might enjoy the exchange!