Economy calls for caution

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March 13, 2013

Economy calls for caution

Anonymous Rushville Republican The Rushville Republican Wed Mar 13, 2013, 11:15 AM EDT

RUSHVILLE — Dear Editor:

Few Hoosiers read the financial pages because the information presented seems complex, pessimistic, or occasionally too optimistic. The economy has struggled since 2008 and investors have ridden a roller coaster of expectations. We’re accustomed to our retirement accounts being battered by forces as diverse as riots in Greece, tsunamis in Japan, and the action or inaction of our own Congress.

Entering our fifth year of this economic cycle, it’s tempting to imagine that it will all soon be behind us, but many signs demonstrate that normalcy is not on the immediate horizon. Consider the following facts from just one day’s (March 1, 2013) collection of news releases.

The Institute for Supply Management’s February survey shows that manufacturing in the U.S. was up more than expected, but prices manufacturers must pay for raw materials are rising sharply, a sure sign of inflationary pressure.

According to the Federal Reserve Bank of New York, after five straight years of American households reducing debt, borrowing is again on the increase. Some would argue that the borrowing reflects a renewed confidence resulting from the stock market’s near record high. The borrowing, however, is likely related to the fact that during January the U.S. household income dropped 4.0%, the greatest one month decline ever recorded. Ever!

A drop in household income when combined with increased borrowing dictates that Americans are saving less. In fact the individual saving rate fell to its lowest level since the Great Recession began. Construction spending was expected to increase but instead has nose-dived.

One in every nine student loans outstanding is now in default. These federally guaranteed loans total nearly $1 trillion.

What does all of this mean for Hoosiers? Simply this, be increasingly cautious.

At the very least, increase your rate of savings even if it means you must cut back on those items you’d really like to have. Saving is always better than borrowing. Saving for college, retirement, and future health care expenses are a must.

If you haven’t already done so, consider refinancing your home mortgage. If inflation occurs, as most predict it will in the near future, you’ll be able to pay off that debt with more available dollars.

We’re far from being out of the financial woods so remain cautious despite occasional brief stories of good economic news. For generations residents of Indiana have bragged of their “Hoosier common sense.” Hoping for the best but planning for the worst reflects that kind of thinking.

Sincerely,

Richard Mourdock

Indiana State Treasurer

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