Friday, March 18, 2011


"One would think that after the worst financial crisis since the Great Depression, Americans could at least catch a break for a while with deflationary forces keeping the cost of living relatively low. That’s not the case.

A special index created by the Labor Department to measure the actual cost of living for Americans hit a record high in February, according to data released Thursday, surpassing the old high in July 2008. The Chained Consumer Price Index, released along with the more widely-watched CPI, increased 0.5 percent to 127.4, from 126.8 in January. In July 2008, just as the housing crisis was tightening its grip, the Chained Consumer Price Index hit its previous record of 126.9.

“The Federal Reserve continues to focus on the rate of change in inflation,” said Peter Bookvar, equity strategist at Miller Tabak. “Sure, it’s moving at a slower pace, but the absolute cost of living is now back at a record high in a country that has seven million less jobs.”...

...Bottom line: The cost of living for Americans is now above where it was when housing prices were in a bubble, stock prices at a record, unemployment low and consumer confidence was soaring. Something has gotta give."

As the cost of not only living but also doing business continues to climb one of the things that's going to give is jobs. Here's the deal: businesses are seeing their margins squeezed by the high cost of goods sold while they are finding it nearly impossible to raise their prices due to the unemployment rates in this country. We're going to start seeing more and more small businesses shut their doors as rising costs make it impossible to remain profitable. As an example, this story from our local paper this week:

"After 144 years in business, Droege's Supermarket is turning off the lights. The downtown institution will close next month.

Owners John "Butch" and Judy Droege made the announcement Friday. Employees were told that morning.

"Making the decision to close was a very difficult one for Judy and me," said Butch Droege. "This store is my family's legacy and we feel a personal commitment to our community and the good people of Washington.

"Like many small businesses, we found it increasingly difficult to compete with larger grocery chains and other retailers that stock food items. We believe we have competed admirably, but with continuing changes in the marketplace and consumer buying habits, closing the store now is a prudent decision for our family."

Established by a son of a German immigrant, Droege's Mercantile opened on the corner of Main and Oak in 1867. The store moved to its current location at Main and Lafayette street in 1896, and has been in continuous operation there, headed by a member of the Droege family."
Washington Missourian

I don't know the details and what the actual issues driving this decision were but I'd be willing to bet that at least in part the decision to shut the doors was driven by inflation in their cost of doing business while not being able to pass the costs along. Washington has a Walmart and a couple large chain grocery stores in it and I'm sure that their efficiencies of scale couldn't be matched by the mom and pop operation.

But this is just the tip of the iceberg. How many other small businesses are closing their doors and how many workers does that put out on the street? Further, as the cost of fuel, clothing and food continue to rise and eat into the paychecks of those still fortunate enough to have work how long can even the large chain stores remain profitable? At some point consumers are going to be forced to make major changes in how they spend their money and this will impact everything, most assuredly causing the lose of even more jobs and creating a cycle of collapse. Who's going to buy a new television or computer when they can't even pay the electric bill easily?

And what about the people that have taken crappy minimum wage jobs and the like just to get by after losing their good paying job in the last couple years? At some point they're going to start doing the math and realize that the cost of employment, primarily the cost of fuel to get to work, has become so high that it doesn't make sense to keep going in. Then what? Another guy back on the dole looking for money that we are going to have to borrow from future generations to give to him.

So yeah, a whole lot of things are about to give. Prepare and pray.

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