There is a skit from Saturday Night Live that is making its way around the Internet (and that we are actually using in our documentary, as well):

A couple sitting at the kitchen table is trying to make their bills add up.

“Geez honey, it seems like we’ll never climb out of this hole,” says the husband (played by Steve Martin).

“Credit card debt, does it never end?” she says.

Infomercial-style, the author of a new self-help financial book walks in.

“You know,” says the author, “many Americans face a wall of mounting credit card debt. That’s why I created my special new program, just for those people who might need it. It’s called, ‘Don’t Buy Stuff You Cannot Afford.’”

“Gee,” says the husband, “that sounds confusing.”

“Let’s say I see something I want,” says the wife, “but I don’t have the money. What should I do?”

Says the author: “Don’t buy it.”

“Wait,” says the husband, “what if I don’t have the money, but I want it anyway. Should I buy it then?”

“Nope,” says the author.

“Oh look honey,” says the wife, after opening the book, “It says here, if you see something you really want, you can buy it with ‘savings.’”

“Yeah but, where are these ‘savings’ supposed to come from?” says the husband.

“It’s all there in Chapter Three,” says the author, “in fact, the book is only one page long. And it’s free.”

“Great honey,” says the husband, “we can put it on our credit card!”

Yes, dear reader, the typical American family is about to discover something new and exciting – thrift! T-H-R-I-T...no, T-H-R-I-F-T.

It is going to come as a shock – but not necessarily a completely unpleasant shock. For everything that is lost, something is gained. People won’t have so much money to throw around...but neither will their lives be cluttered up with so much junk they don’t need...nor will their days be taken up with needless trips to Wal-Mart to buy it.

“Where thy purse is, there also is thy heart.”

We’ve been quoting that line from the Bible for many years. We’ve never actually seen it in the Bible and some people think it doesn’t exist. But if it’s not there...it must have been left out by mistake, because it describes how people can’t avoid “talking their own book,” as they say on Wall Street. If you’ve got a hammer in your hand, for example, everything looks like a nail. And if you don’t have a fist full of dollars, not spending money begins to take on a fetching look.

America is getting caught in the “Stagflation Trap,” says economist Gary Dorsch. Prices are rising; the economy is weakening. People are going to have less purchasing power. They’ll be poorer. Will they be less happy? Well, we don’t know...but we remember when we were poor. We don’t remember being any less happy. In fact, we liked being poor. We liked scrounging for things...“making do” with things...getting by...

...we especially enjoyed using our imaginations rather than our credit cards. When we were down and out in London and Paris, a long time ago, we would take Elizabeth to fleabag hotels for $20 a night and share a bathroom with other guests. But, oh, the romance of it! The smell of the café au lait – brought to our room, no extra charge. The clank and fizz of the radiators...the steam on the windowpanes...the beds that sank down in the middle like hammocks. The dirty carpets...the noise on the streets...and no hot water! Ah the memories...we wouldn’t trade that for a night at the Four Seasons!

“Oh yes we would,” says Elizabeth.

But getting back to our point...

Americans are going to rediscover the quaint, almost forgotten art of making ends meet. Until recently, ends remained total strangers to each other. They didn’t have to meet because there was so much credit available on such forgiving terms. Thanks largely to “Easy” Al Greenspan down at the Fed, they could always stretch one end of their budget – the spending end. “Just put it on the credit card, honey...we’ll extend the equity line if we need to.”

But now the equity line is snapping back and hitting them in the face. The big hump in mortgage resets has just begun...September was a big one. October is even bigger. And then, right up through the spring of 2008, millions of people are going to have to face significantly larger mortgage payments.

The effects of these ARM resets are going to be felt all up and down the street. We saw a chart of employment in the construction industry. Ten years ago, there were about 5.2 million people nailing 2 x 4’s and installing granite countertops. At the peak, the number rose to about 7.7 million. Now the numbers are coming down again. In September, 20,000 more jobs were lost in construction – the 12th month of losses out of the last 13. And judging from the chart, there is a long way to go – because building permits have fallen to the same level they were 10 years ago. If construction jobs fall a similar amount – which they should – there will be 2.5 million jobs lost.

Meanwhile, the value of all the houses in America is about $21 trillion. Those houses are going down in price; even Easy Al says it wouldn’t surprise him to see the average house lose more than 10% of its value. Let’s say the average loss is 15%. That’s still $3 trillion of “equity” that goes poof.

While his wealth declines...and his job prospects dim...the poor American working stiff still has to face higher prices for almost everything. That’s what stagflation is all about. Corn futures rose almost 10% last month. Soybeans were up 21%. Milk has gone up 70% in the last year. Oil is about 30% higher.

Consumers have to be feeling a little put upon...a little squeezed...maybe a little out of sorts, especially when buying groceries or filling up their gas tanks.
Bill Bonner is the President of Agora Publishing. For more on Bill Bonner, visit The Daily Reckoning.