Norm Blumenthal – an attorney for workers and consumers. Selected as one of the Top Attorneys in Southern California. Norm was inducted and recognized as one of America’s Most Trusted Lawyers in Employment Law.
What will break first? Consumer Spending or Consumer Income
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Bert Martinez: Welcome back, everybody. It is unbelievable to me. Here it is, November 6th. The year is wrapping up. Just been such a whirlwind of a year. We have this constant contention coming from our politicians. They can’t seem to agree which way is up. Everything has to be a battle.
Former President Trump engulfed in multiple trials, 90 plus indictments are inflation all time high, and the question is what will break first? Consumer spending or consumer income?
Here to enlighten us is Lawyer Norm Blumenthal. Norm Blumenthal is an attorney for workers and consumers, selected as one of the top top attorneys in Southern California. Norm was also inducted and recognized as one of America’s most trusted lawyers in employment law. Norm, welcome back.
Lawyer Norm Blumenthal: Nice to be back, Bert. You know, the first thing everybody needs to remember is the consumer is 70%, that’s 70% of the United States economy, gross domestic products.
So What happens to the consumer happens to the country. What happens to this country happens to the world.
The United States is the largest economy by far in the world. China is nowhere close, and Japan is nowhere close. California has a bigger gross domestic product than, than, France or other countries Besides, Japan and China, the United States. So we have to have some context there and we have to go back a step To March of 2020.
And that’s where were we 4 short years ago? Coming up in March of 2020, COVID hit. And the world changed, in that period of time, through the end of 2020, and what ended up is there was stimulus put into the economy by President Trump at the time. They were handing out money. You might as well have been dropping it from airplanes. And as much as possible, at the same time.
The Federal Reserve that’s responsible for monetary policy, they took interest rates down to the all time low of virtually zero. So you could borrow money at zero. Not only that, the government would send you money if you’re a company, and you’d have, you’d be forgiven that debt if you’ve spent it on hiring employees. And at the same time, this was happening.
Of course, the stimulus was there. And employees were being hired, and there was a shortage in the workforce. The workforce, You couldn’t hire anybody and you still can’t hire a dishwasher for under $25 an hour.
And the economy in the last 4 years as a result of COVID vaccines, as a result of other laws, remember when Biden first got in, he passed the infrastructure bill and then the Inflation Reduction Act. And basically, the pump was being primed and there was no recourse. So all the companies in the country were taking in money, and it was free for all and raising wages. We went from remember, Bert, we were trying to get $10 an hour, and now we’re up to $25 an hour in 4 short years. And people are spending like there’s no tomorrow.
I was just in Las Vegas. Just got back. I was in there for a show, And you couldn’t move. You couldn’t move around town. It was packed with millennials spending money like there’s no tomorrow.
And the UAW, they made a deal. Car companies, 25% increase in wages. So all these things are happening now, end to end inflation, the federal reserve as fall as monetary policy has taken interest rates up the prime rate, the FED fund rate up to 5 a quarter percent. And over time, that’s going to suck up money out of the economy.
And the big tell is all of these contracts, all of these wage increases, everything that we’ve worked so hard to get, They’re changeable. So, if Ford doesn’t sell their cars at the new higher prices, they’ll and They’ll stop making cars. When they stop making cars, they lay off personnel, and that’s what we’re looking at. I think What you’re gonna see first is the slowdown in purchasing power. Consumers can only spend so much. I mean, maybe we have another year or 2 of going through this, but trillions and trillions of dollars have to be monetized in the debt, and that’s what we’ve been spending, and that’s what we’re gonna have to pay.
Bert Martinez: This is such a weird time because, first of all, one of the things that for me was kind of a really big AHA moment is when our federal government gave Kodak, the film company Kodak. I believe it was like 30 or 40 or $50,000,000 for them to come up with a vaccine, a possible vaccine during the COVID pandemic.
And I thought, you know, who does that? Who is going to give a film company money to develop a vaccine? It’s so far out of their wheelhouse, but I guess in desperation, they’re like like you said, they were throwing money or they were throwing out money To anybody possibly and, you know, Kodak’s been around for 100 years. I’m sure they have some well, well earned connections there. So, would you call it? A congress or at the White House and we’re able to get some of that money. I don’t blame them for doing that. I do hold our Politicians accountable because why on God’s green earth are you gonna give a film company 30,000,000 plus dollars to develop something that they’re not not, what do you call it, they’re they’re wheelhouse. It’s not their scope.
So we have all this money as you said. We’re just flooding the country, and it did help some people without a doubt. As always, there was some fraud. That’s not a big deal. Everybody expected that.
But now we have to pay the price for all that free money, and you’re looking at inflation. You’re looking at even though, as you mentioned, now the wages are gone up, but unfortunately, So as the cost. So I think that consumer spending is still at an all time high, which I find. It’s incredible that it hasn’t slowed down.
That to me is a miracle because with the way things are, Even though people are getting paid more money, everything’s costing more, so it’s kind of evened out. Hiring is slowing down. A lot of companies have made announcements that they won’t they won’t be giving a pay raise anytime soon. So in one sense, consumers you would think would be retracting, but it’s an all time spending free consumer, confidence is very high. It’s such an interesting time. Every indicator is kind of going the opposite direction that you would think it would go.
Lawyer Norm Blumenthal: This is funny because if you think back a 100 years to the twenties, this is the roaring twenties again. It’s a 100 years later, but people are spending like there’s no tomorrow. And, maybe, economically, there may not be because there’s going to be layoffs. That’ll be the 1st tell is when the 1st tell will be no hiring.
You’ll see that the jobs, new jobs have come down And they’re down to about 150,000 last month. When there are no new jobs and there is no new hiring, That’ll be the 1st tell. That won’t be the end of it, but that’ll be the handwriting on the wall Because following no hiring is layoffs. And the consumer, instead of putting money away now, is spending.
And the cost of spending, credit card spending, 20% interest rate, you can’t you can’t make it on that. And everything Will in this cycle go sideways because the FED has to continue to raise money To pay the debt that’s over $30 trillion now that we cannot afford to have In for our purposes in peacetime, you know, fortunately, we’re not fighting any wars, which is a good thing.
But there is money being spent for defense and there’s nowhere near the amount for defense that’s needed for the next attempt to take the United States out.
All these autocracies around the world, China, Russia, Iran, Syria, all of them are anti democracy and anti American. They wanna see us fail. They wanna see our prosperity fail. And we’re on our way to a potential failure. If we don’t get our own economic house in order and you can’t get your economic house in order Simply by cutting spending, there’s gonna have to be some type of tax across the board. And one of them that needs to be considered is increasing the payroll tax.
We’ve talked about this because employers and employees both pay half of that. And that’s money that can be increased. That’ll cover all the needs for Social Security and other programs that obviously, we don’t wanna see taken away from people that have already retired. They’ve already paid in and they’re entitled to get their money out. So we’re really at a crossroads. And we predicted the increase in wages, and we were right, and we have this now. But just as wages can increase, go down, but the hiring will go down.
When the hiring goes down and there’s less people working, Then at that point, we’re in a position where we have less people working, people out of work and it’ll be a spiral.
Then the company has less sales and they lay off more people. So there’s an inverted spiral one way. We had a spiral going up, but now we have the spiral potentially coming down. And there’s no fix without Getting the government’s house in order, and in order to do that, there just can’t be a cut in spending, there has to be some taxes that have to be raised so that we can cover our costs and get that part done Before, we have a position where we’re gonna have to, spend more money to to get out of a, a potential recession that’s coming. I know that they’re predicting, oh, it’s gonna be a mild recession.
It’s not gonna be a recession. There’s gonna be a recession. And the only reason you aren’t seeing it now is because everybody that had a brain got all of his loans either paid off or, have them, at these reduced zero rates that are good for, you know, 5 to 10 years.
Some of them are 30 years. So they’re sitting there with that, but the government and the Federal Reserve did not do that to refinance their debt now at these 5% rates, and they can only do that so long before there’s gonna be an issue. So my recommendation is to everybody working out there, put some money away for the times that may be coming. It won’t hurt to save. You can buy treasury bills. You can buy insured CDs at 5%. And so that’s a good return on your money and a good and put your money into your IRA or your 401 k. Put it away for a darker day.
Bert Martinez: Absolutely. You know, I wanted to comment real quick. For those who have brought up the Roth IRA, it’s a great instrument. If you don’t have a Roth, I would Highly recommend getting one.
And the reason why is because congress is thinking about changing some of the benefits, With the Roth IRA, so I would jump on that. You can open 1 up for free, at most banks, you know, with 25 to $100. There’s no big requirement. I also wanted to say this because you mentioned something that I think a lot of people are concerned about and that is we are helping Ukraine with their war.
We’re now helping Israel with their war. And Simultaneously, Senator Tuberville is holding up more than 370 promotions because he doesn’t like the Pentagon and the Pentagon’s abortion policy. And so he’s holding up 370 promotions, which these promotions Hurt the service people that they’re connected with, and it also, I think, hurts our military because we’re gonna be less prepared. We’re we’re, you know, things can’t move forward the way they should.
So, if you have a minute, maybe you drop a line to Senator Tuberville and say, hey, enough. You know, fight this battle in a different direction, but let’s care for our servicemen and women. This is crucial for our country’s defense and so in our preparedness. So it’s something to think about because I think these wars are gonna be protracted.
I mean, look at Ukraine. It’s going on. Is this year number 2 coming up? I can’t remember, but it’s been going on for a while. I think the deal with Israel, that might be a shorter situation, but still it’s gonna take tons of money, and we may get sucked into these conflicts.
Lawyer Norm Blumenthal: Yes. you’re 100% right on this with Tuberville. He should be kicked out of the senate. But until that happens, the problem is you need 60 votes, which means that the democrats need another 9 votes, to pass a piece of one time legislation to get everybody approved. And they’re all afraid because if you’re a Republican and you vote to have these military personnel positions approved, they’re gonna target you.
The anti abortion group will target you for your next election. So what you have to do is who to write to. If you have a republican senator in your state, that’s the person to write to and say that, You know, the defense of our country is more important than the issue of abortion, In the military, we need to have these personnel get their rank raised and get in a position where we have a strong military.
You’re 100% right. And the weak link is the Republican Senators who they can’t put muster together. 10. Well, how about mustering together 50? And so that way everybody’s in it together. So we have 50 Republicans and 50 Democrats, you know, they all vote for it by unanimous consent minus Tuberville but you’re 100% right. And our military is willfully inadequate. That’s an issue too that It’ll have to be dealt with.
But in the meantime, we’ve done a lot, worked real hard to get everybody’s wages up. And so there’s money there but the spending I mean, and if Las Vegas is any judge, You can’t get around town. There’s so many people in Las Vegas. Just right. Spend spend spend spend spend. And it’s expensive. So there’s I mean, I all well and good enjoyed the entertainment. But at some point people have to think about putting money away for a rainy day.
And that’s where we’re headed because the FED wants to tighten this economy. They need to bring inflation down into their 2% mark. And if when they do that, gonna get hurt is the employee because it will be layoffs is what’s what’s gonna hurt the most, and that there’s no protection. We can’t protect you legally from a layoff. And so that’s where the rubber is gonna meet the road, and that’s what the FED wants. They want, an unemployment rate higher than it is. It’s 3%. They wanted it 5, 6%.
And so that’s what they’re shooting for. They’re not your friend, the FED is not your friend this week. They’ve been their friends for a while, and they brought rates way down, but they’re no longer your friend. And when the FED is not your friend, there are problems because you just follow the FED. The FED’s telling you that they’re gonna tighten this economy, and it’s gonna hurt. And so just like it helped to get wages up, and that was fortuitous how we were able to do that. It’s gonna hurt when it doesn’t matter what your wages are If you’re laid off. So everything you’ve gotta think about protecting themselves.
Bert Martinez: Absolutely. And the best way you could do that is you gotta cut spending now, start informing your family, the holidays are coming up, but so is a bunch of uncertainty. So maybe start talking to your family now about budget constraints for the upcoming holidays. Let them know that, maybe reduce the amount of holiday gifts you’re going to be doing. A lot of people are going to reduce the amount of travel, which is going to affect not only airlines, but also hotels and things of that nature. So now is a great time to start Socking away some money and being prepared. Nothing’s gonna hurt you.
If all of a sudden you have an extra month or two of expenses and nothing happens to your job, great. It’s a great pad to have. If on the other hand, you’re gonna be one of those individuals who might be affected by a layoff and you have a month or 2 or 3 of expenses put aside, you’re going to breathe a lot easier and probably will have a job before your money runs out.
So don’t let the holidays or the fear of the holidays or whatever you wanna call it. The enthusiasm of the holidays keeps you from saving money and protecting yourself and your family because the holidays will come and go, and there’s no point in having a bunch of credit card debt as Norm was talking about. There’s no point not having a bunch of money in the bank. It’s much better to be skimpy on the gifts or tell people that you’re going to forgo gift giving this year because of budget constraints than to give a bunch of gifts away and then not have money or worse, have a bunch of debt. So this is the time to act and be ready.
Lawyer Norm Blumenthal: And, you know, the best thing you can do if you wanna make a gift is to make a gift off of a treasury bill or an account.
Fidelity has an account that’s backed by treasuries that’s paying around 5%. And it couldn’t be safe from that. Nobody’s bigger or smarter than the markets. The markets are bigger than all of us. And when the market goes, we all go with it. If we remember, we’re all on the same little planet here, and we’re all hanging in here together, and we wanna see that everybody’s protected. So Wanna make a gift for your children or your wife or your husband? Make it a treasury bill.
Treasury note, 5%, And, put it away and tell them, look. Let’s save this for a rainy day. That’s the best gift you can give. It’s some type of economic protection because the storm clouds are on the horizon, But nobody seems to be worried about them because they haven’t come over and brought a hurricane with them. But It’s coming.
You can’t print money forever and not expect there’d be some problem created by doing that. You know, in Argentina, they had before the 2nd World War, they were on the gold standard, and they had one of the strongest economies in the world. Everybody wanted to hold Argentina, pesos. Well, after the prepare Peron came in and throughout all the government protection, they just printed money and basically the same kind of thing.
You might as well have been dropping it from airplanes, And they’ve never recovered. Argentina today has one of the worst economies in the world. It has defaulted on their debt numerous times because of government mismanagement of financing.
And we are really at the point where we are financing. We are mismanaging it, and we need to take control of it. We just can’t spend, spend, spend. We have to have some government regulations in place whereby we start to at least get our budget in balance. Last time we did that was when Clinton did it With the help of George Bush senior going out who lost his job because, you know, he said no new taxes.
And they put in new taxes, he was thrown out of office. Clinton came in, and he followed Bush’s lead. And they raised taxes and they had a balanced budget. And that’s what it’s going to take. It’s going to take some reduced spending and it’s going to take Some increase in taxes.
Bert Martinez: Absolutely. And I think If consumers were to take action just like we’re talking about guys, you start cutting your spending, start saving some money.
The point, Real quick point I wanna make about the treasury bills in case you guys don’t know this. This is backed by the government. You never lose your principal. And as far as I know, the treasury has never defaulted on any other bonds or notes, So you have a good chance of making good, safe money. And if you’re thinking that 5% isn’t doesn’t sound so good, the Average professional fund manager that works on Wall Street, the average return is like 3.5%. As Norm pointed out, it’s very, very, very difficult to time the market or beat the market.
But when you have 5% secured principal plus interest. It’s like a no brainer. It’s something to really consider. We have the situation where, again, there’s no greater peace of mind than having 2 or 3 months of expenses set aside. It is a gift. It really is a nice gift to give people and give yourself and your family. And so, yes, again, you may have to disappoint some of the kids and and even disappoint yourself, but, peace of mind, I think, any gift that you can come up with or any expense that you can come up with, it’s it’s a wonderful feeling knowing that whether it’s, whether you have a job or not, hey. I got a couple of months worth of expenses set aside.
Lawyer Norm Blumenthal: You can open up with a bank. You have to go talk to your banker or go into the bank. A savings account for your kids is a college account that you can deduct the money you put in, and it can earn 5%, without paying taxes. And so this is something that you need to talk to your financial adviser about or a banker, and they can explain to you the advantages of such an account. They’re like college funds that you can put money into. But everything’s gonna meet the maker that a student loan debt has been deferred now for, what, 4 years. And now students are gonna have to pay that debt.
So there’s issues consumers are facing already. There are headwinds that are coming at them with higher interest rates, paying off student loans. And when the consumer stops spending, corporations will adjust because they’re certainly not gonna lose profit. So they’ll adjust, and one of the areas they adjust with is cutting labor. So everybody beware, you know, The company is your friend until it isn’t. Right. You know, they don’t you know? That’s the way it goes. And so everybody, you know, we need to be all of us to be big boys and girls out there and take care of ourselves.
You know, we’re coming into the holiday season, and it’s a time we wanna spend, spend, spend. As you know, the day after Halloween, everything went to Christmas. So all the decorations, I think skipped Thanksgiving this year, so they got an extra month to convince you to spend, but try to be a little more frugal this year because the headwinds are there.
Bert Martinez: Absolutely, Norm. Good stuff. We’re out of time. As always, my friend, good to have you here. Looking forward to having you back soon.
Lawyer Norm Blumenthal: Okay, Bert. Nice to be here. And, talk to you next month, and happy holidays.
Bert Martinez: Absolutely. Happy holidays. Good stuff there from lawyer Norm Blumenthal. You can find out more about Norm and his team at BAM Law CA. That’s BAM Law CA.
And maybe you agree with us, maybe you disagree. Why don’t you leave us a comment in the notes or leave us a comment, and, we can reply back to you, whether you think we’re on track or off track, it’d be a perfect time to leave us a comment.
And as always, let’s share this episode with everyone you know.
Let’s help as many people as possible.
Let’s get a conversation started. Not an argument, not a disagreement, not more contention, but a discussion.
Can we help other people by saving and investing correctly?
Can we prepare ourselves for what’s coming up ahead in this recession, are you ready?
Remember, you were created to succeed.