There is a growing rancor here in the United States: “The economy is bad. We’re in a recession.”

As a small business owner specializing in a luxury good, how people “feel” about the economy affects me, regardless of what I “feel” about the economy. My husband and I had a rather interesting discussion about this topic. Initially he misunderstood my belief that the economic perception is larger than reality, and that perception affects how well I do. He thought that I believe we are in a recession. However, I firmly believe that how well my business does depends on how consumers feel about the economy. Why do American’s “feel” the economy is bad?

There are a lot of factors feeding this current economic fear (I’ll discuss these later):

The media tells the American audience it’s bad

  • Foreclosures are at a high
  • The housing market has “slumped”
  • Gas prices are high (for the United States)
  • Precious metal commodities are at a record high

You add all these factors teogether, and it’s no wonder Americans are stressed out about money right now. More stress is added when Americans see stories such as this one on Cindy Edelstein’s blog:

De Beers cuts U.S. marketing budget
De Beers is cutting its U.S. marketing budget. Sally Morrison of the Diamond Information Center (De Beer’s US marketing arm) confirmed to National Jeweler that the cutbacks are related to the perception that the United States is headed into a recession, and that 2008 is expected to be a tough year for everyone.
The news is the latest in a string of bad news for the jewelry industry as a whole, as De Beers always has been known for its robust advertising campaigns. The DIC intends to offset the reduced advertising with more PR.

Now, initially, the average reader might read this article, and think, “Wow, even DeBeer’s says the economy is bad! It’s gotta be horrible if the diamond market is cutting back!”

First, I’d like to point out that even in this short article, there is one important word used: PERCEPTION. Just as you might fall for the image this article creates of a bad economic sitatuation, the word perception is used. Not reality. PERCEPTION.

Second, I don’t know how many average Americans are aware of this recent news making its rounds on the Internet and in the Blogosphere: DeBeers settled a class action lawsuit to the tune of $295 million (US). That means, my jewelry loving friends, you can file a claim going as far back as 1994 and get a certain amount of money back for your diamond purchases.

Do you think it’s possible DeBeer’s “marketing cutback” actually has more to do with this huge expected payout? It has nothing to do with the perception or the reality of the US economy. DeBeers controls between 65-80% of the diamond market, depending on which source you read and believe. That means that every year, regardless of how many diamonds are on inventory, DeBeers decides how many will get sold. They have ten “sites” every year, and buyers are on an invitation-only basis. If a buyer upsets DeBeers, they don’t get invited back. Make no mistake, DeBeers is incredibly business-savvy, and they know what they are doing every step of the way. Sending out a PR like this is no different. It’s easier to blame the US economy as it is the easiest scapegoat going right now, rather than say, “Oops, we got caught with our shorts down and we lost $295 million.”

Now, as far as all the things listed above in my bulleted list?

I think as a society we are caught in a vicious circle of bad decisions, and it’s easier to blame whoever is the POTUS or in Congress, than to look at ourselves and make smarter decisions. You may not like that statement, but let’s look at ourselves in a general manner of speaking.

Foreclosures are at a high. Well, what caused that exactly? First our interest rates were lowered to an insanely fantastic rate a few years ago. Simultaneously, housing prices rose, and it was a seller’s market. As interest rates gradually rose, housing prices continued to rise as well. Eventually, people who wanted to buy houses were buying them on ARMs, or other risky (and some shady) mortgage loan agreements. Those loan agreements have come full circle, and now those who agreed to such loans are now paying the price. Literally. Once upon a time Americans bought homes for the long haul. Couples saved money to have an honest downpayment on a house, with the intent of living, raising a family, and dying in those homes. Not anymore. We have become a society of “must have’s”, and that includes homes. Our parents would never have bought a home on a variable interest rate loan. Those kinds of loans are like taking your money and going to Las Vegas. You are taking a gamble. If you lose, whose fault is it?

The housing market “slump.” Are housing prices really falling, or are they just at the level they really should be? Let’s be honest here. Should your home have been worth what it was elevated to two years ago? Probably not. We went through a period of artificial price inflation, and now they’ve gone back down to what they should have. Does that mean the economy is bad, or does it mean that we were kidding ourselves two years ago? Think about it.

Gas prices are higher. Yep, you can’t argue that one. We had a lot of international incidents occur over the past decade, and you’ve got a a group of folks who have figured out how to hold the world hostage. AND you’ve got a serious glut on oil with China’s increased (11%) usage of oil. But take a look on the road. How many Cadillacs, Hummers, Yukons, and other ginormous, high-priced cars do you see on the road? The answer is A LOT. Truth be told, we have always paid much less for gas than our European colleagues, and we still are. AND…a gallon of fancy bottled drinking water is still more expensive than your gallon of premium gas. If the economy is that bad, why are so many people deadset on having the huge, high-priced vehicles? Because we Americans like status. We want to feel like we are part of the jet-set social club. As long as we feel we are entitled to the best, we can’t complain about the economy. And yes, I have friends, neighbors and acquaintances who complain about their finances, but it doesn’t stop them from having these vehicles.

Precious metals are high. Nope, can’t deny that one either. However, there is a direct relationship of precious metal prices to oil and the lowered value of the dollar. Unfortunately, politics, world events, and our reliance on oil are all tied up in this one. However, if we reduced our reliance on oil, not just for environmental reasons, but for political reasons, it breaks one chink in this vicious chain we seem bound in. Yes, we have a lot of work to do on the international front, but first we have to reduce the stronghold that oil-rich countries in the Middle East and Venezuela have on us.

There are a lot of figures that point to how bad our economy isn’t. December’s unemployment is at 5%-up from November by .3%–yet on February 1st there is an expected announcement of a drop down to 4.9%–the exact same figure as 10 years ago under the Clinton administration. While consumer confidence is going to be announced to be down to 87.5% from December’s 88.6%, durable goods orders were up 1.6% and the GDP is up for the 4th quarter by 1.2% following the previous quarter’s 4.9% growth.

My point here is that we might just be falling for the Chicken Little tactic. I think we have to take the time to research for ourselves what the numbers are, we have to look at our own spending habits and BE HONEST, before we just simply succumb to the rancor.
Is everyone financially well off? No, I’m not so naive as to believe that everyone is. However, we have to make smarter decisions about our personal finances, for today and tomorrow and the years that follow. We can’t let mainstream media tell us how good or bad thing are.

Be BOLD.
Miachelle

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