Don’t Blame the Mullahs – Blame Me (for the Markets Recent Declines)
Market Overview by Saul Sterman (CEO CrossProfit) – A differing view to WW3 Brewing
Consumer spending increased 5.9% YOY. This is ahead of inflation and is also ahead of GDP growth. On the one hand this means that businesses are still profitable and growing. On the other hand it also shows that consumer debt must be increasing as new jobs and wage increases do not add up to 5.9% YOY.
Consumer spending declined 0.1% last month. Great! I mean it.
The stock market is concerned with the above coupled with the U.S. unabated appetite for oil. The real problem is that no matter how you look at the figures the U.S. economy is in a Catch 22 situation.
If consumers start spending less then business earn less then hire less then there are less consumers spending less and so on and so forth. The result is a recession.
The flip side is that if consumers start spending more then business start earning more but if they hoard the cash or even distribute the profits to the wealthy, eventually the consumer goes bust and then you don’t have a recession instead you have a depression.
If businesses increase wages and reduce their profits then investors will look elsewhere and there will be no new job creation and you end up with stagnation.
If businesses increase wages and then raise prices to refill the company’s coffers then you end up with inflation.
The real killer is if at the same time that wages increase the currency devalues or raw materials and/or finished goods increase and interest rates and unemployment explode and then you end up with stagflation.
Recession, depression, stagnation, inflation and stagflation – no matter how you cut it the current situation doesn’t look good.
There is however a way out. The objective is to maintain current levels of economic activity as a whole perhaps even manage a slight increase in line with inflation and reduce consumer debt.
The first dose of reality is to understand that no economy can maintain a 66% consumption rate. The ideal situation is that production equals consumption. If you don’t produce then don’t consume. The notion that supply side economics can spur economic growth indefinitely is bogus. Eventually you accumulate so much debt that everything goes kaput. Supply side economics works great for getting an economy out of a recession. Once achieved, the emphasis should be on production of goods consumed.
They don’t have to be the exact goods. The equivalent value is fine.
This is the exact juncture where the U.S. economy is at now. Increase production to match consumption. Of course this is easier said than done. In order to achieve this objective we (Americans) have to work hand in hand with Big Business. I’m not referring to protectionism which always backfires in the long run. I am pointing to the fact that as industry figures out how to and implements production increases for both the domestic and export markets, we (the consumer) can assist by shifting our discretionary spending habits. Any bottom line reduction in consumer spending has to be replaced with exports in order to maintain the same level of economic activity. Also industry has to want to invest in America.
Certain items deemed nondiscretionary have to change as well. There have been numerous articles written by patriotic Americans on how Americans waste energy. (Patriotic was thrown in to exclude articles written by Uncle Sam bashers.) This too has to stop.
The taboo of driving a gas guzzling SUV around the corner to buy milk has to become synonymous with your next door neighbor loosing their job. On second thought, the problem seems to be that we just don’t care anymore. When meeting the neighbor it’s ‘oh how awful’ – then go home shut the door and say to yourself we’re the strongest nation on earth – it’s not going to happen to me – why worry etc.
On third thought, who really cares about the SUV – in fact as gas prices go up it becomes more of a status symbol! It is almost like why buy a cup of coffee for a buck when you can spend five at Starbucks!
It looks like things will have to get a lot worse before they get better. Either that or we change our thinking and wise up. I’m still a fool.
An outstanding post. It comes as no surprise then that emerging markets and commodities have been so hot over the last few months despite the recent “correction”. Gold is beginning to look like the ultimate safe haven at this point.
I cannot imagine most of us Americans changing our ways voluntarily unless a big catastrophe (in the form of war or recession) hits us. Unfortunate, but true.
You are right though. The econonomy may be chugging now, but we are in a lose-lose unless something is done. Trade deficit and national and consumer debt will eventually cause one of the above things you mentioned.
I think the government should tax those with SUV’s more heavily (I own a V8 SUV so I’d be hit too). Additionally, those who conserve energy and keep their usage below a certain minimum should be rewarded.