Cut in Household Spending Points to Recession

Most voodoo practitioners, including practitioners of voodoo economics, rely on coincidence to bolster belief by the gullible in their irrational theories. Apparently, the Tea Party faction in Congress angered the gods of economics who now punish us with bad mojo. Really, what else can it be?

 

Smithers Sees ‘Significant’ S&P 500 Rally Before Retreat Resumes

'U.S. stocks are set for a “significant rally” which will provide an opportunity for investors to sell before equities resume declines, according to economist Andrew Smithers....

...“There is a good chance of a rally because of the cash position of U.S. companies, their tendency to buy shares when they have high cash ratios and the importance of company share buying on the stock market,” Smithers said. “A 10 percent rally would be an opportunity to sell.”'

http://www.bloomberg.com/news/2011-...ant-s-p-500-rally-before-retreat-resumes.html


In other words...when the (probably) inevitable short rebound happens (as they almost always do during a large decline) - then you can sell your stocks and get the heck out of this market that is rapidly heading for the lower floors.

 

Early Mortgage Delinquencies Rise to Highest in Year as U.S. Economy Slows

'The percentage of U.S. mortgages overdue by one month rose to the highest level in a year in the second quarter as homeowners who lost jobs were unable to make their payments.'

http://www.bloomberg.com/news/2011-...-to-highest-in-year-as-u-s-economy-slows.html

 

That must be it. I'm sure the debt ceiling extortion fiasco had nothing to do with it.

 

Just out of interest, has the consumer spending of, say, the bottom 95% increased or decreased? I'm not trying to make a wider point, its just that statistics on such things are very hard to find.

 

I don't know. If you find it, let us know.

 

I would imagine that there is a sharp social gradient to spending.

The wealthier would spend more in a recession to pick up the good deals (although some would be going out of business) whereas the lower and middle classes would cut back. That said the lower classes have a large degree of essential expenditure.


I found an article which answers some questions:

http://blogs.wsj.com/wealth/2010/08/05/us-economy-is-increasingly-tied-to-the-rich/

"What is surprising is just how much or our consumer economy is now dependent on the rich, and how that share has increased as the U.S. emerges from recession. In the third quarter of 1990, the top 5% accounted for 25% of consumer outlays. That held relatively steady until the mid-1990s, when it started inching up past 30%. It dipped in 2003 and again in 2008, but started surging in 2009 amid the greatest bull market rally in history, with the Dow Jones Industry Average rising nearly 50% in the last nine months of the year.

Mark Zandi, chief economist for Moody’s Analytics, cites two main reasons for the increase. First, the wealthy panicked during the financial crisis and stopped spending. When markets rebounded, they came out of their shells and started spending again. “I think that pent-up demand was unleashed,” he said. “It was an unusually high rate of spending.”

The second reason is that those people in the middle- and lower-income groups are struggling to pay off debt and stay afloat amid rising unemployment, as today’s data remind us. That has crimped their spending."

I'd like to see a full breakdown however....

 

The Jobs have been outsourced to China and India.

Bush, and his Dad have screwed us royally.

 

We had just ~5% unemployment just a few years ago, outsourcing an all. That historically would be considered excellent.

The housing bubble virtually destroyed construction, a huge sector of the economy and employment.

 

Just wait until "real" spending cuts are made federally. Military and Civil service Job cuts will be made and at the very least no new hiring will take place, wages frozen, and benefits cut.

Municipalities and States are already making cuts.

The housing bubble coupled with legalization of highly speculative instruments led to a near collapse of the financial system. Banks still will not loan and credit markets for corporations are very tight.

Credit is hard to get so companies are afraid to invest and/or can not get financing. New business start ups ? Good luck.

Companies that do have money are saving it rather than reinvesting.

 

I agree. Unlike the last two recoveries under Reagan and Bush were millions were being added to government employment which stimuluated the economy and improved economic growth, in this recovery we have governments termininating positions and making things worse in an "anti-stimulus."

About a million government jobs have been eliminated over the last year or so.

That's why tax cuts don't make sense.

 

Folks like to tout "we have the highest corporate tax rates 35%" .. but in reality Corporations do not pay anywhere near this. Loopholes allow them to get real tax rates down close to zero.

I would be in complete agreement to a tax cut if some of the big loopholes were removed. Cutting taxes then would result in an increase in tax revenue.

Is it just me or do folks not think there is something odd about GE making 14 Billion in profits in 2010 and paying zero federal tax.

It is true that 9 Billion of this profit was from oversea's operations (but this is through loopholes) .. even so, what about the other 5 Billion.

GE ended up getting a 3.2 Billion dollar tax benefit ?

 

DUH if they are putting off the recession by printing too much money, why are we in a recession now, seeing a decrease in household spending NOW, even though inflation is below 2%, now?

You are afraid of the future, and our problem is here today.

Also, 2% inflation is not high, it is low.

Your plan is to stimulate employment by decreasing aggregate demand?

Or you have faith in corporations to spend the money they have been hoarding only once they are confident that our government will revert to a primitive state like it was pre-ww2?

 

Personally, I think corporate taxes should be cut way down, maybe to zero.

Folks who benefit from the corporation should be taxed, not the corporation. A corporation is just and organization.

 

Inflation is 3.6%...and has been for 3 months.

http://www.usinflationcalculator.com/inflation/historical-inflation-rates/

I have great faith in free market greed.

I have zero faith in government ability.

 

Headline inflation changes based on droughts or middle east unrest which restrict the supply of food and oil. This is unrelated to monetary policy/printing money and is therefore not relevant to discussions of money printing.

Oh I agree that greed is amazingly great and skilled and doing it's job.

Here is the problem: their job is to make money, it is not to help america, they are not supposed to try to do that. The government's job is to help America (it is supposed to be, whatever you have to say about their ability)


The free market has made it clear that it will not invest in jobs unless there is demand for it's goods and the new employees will cause a profit for the company.

They have extra money already! They did a great job of cutting labor costs and taking advantage of the market like they are supposed to. Three years ago I would have two interns working for me right now. Now it's just me doing the same job, horay for capitalism good fine.

If we give them more money, and the demand for their goods remains the same: I have faith that they will continue on their most profitable path: get into the fetal position and wait for something to increase demand.

The jobs are waiting for the demand. We need to artificially create demand.

There is no other plan.

 

'...The U.S. personal income and expenditure figures for July, released Monday morning, showed that personal consumer spending jumped 0.8 per cent in the month. That was well above the expected 0.5 per cent, and a sharp rebound from June's 0.1-per-cent decline....'

But...

...'However, there's a catch. Personal income rose 0.3 per cent in July - but in real terms, excluding inflation, that actually represented a decline of 0.1 per cent. The burst in spending, then, was financed not by income but by savings: The personal saving rate slipped to 5.0 per cent from 5.5 per cent.'...

http://www.theglobeandmail.com/glob...economy-saved-by-the-consumer/article2145730/

So the spending rise means practically nothing (imo).

You cannot borrow your way out of economic trouble. All you can do is delay the inevitable...and make the end result just that much worse.

 

A decrease in saving does not mean an increase in debt.

 

I never said it did.


Will you leave me alone?

How many times do I have to ask you?

 

"You cannot borrow your way out of economic trouble."

I appreciate that it can be frustrating when your factual assertions are shown to be inaccurate or erroneous.

Simple solution. Don't post.

 

That was a stand alone, general statement.

A poster asks you in private and in public to leave him alone, and you are refusing to comply with his request?



Okay - I'll just put you on my ignore list.

 

Sounds like you got this out of a Tea Party Kracker Jack Box.

Depends: if you borrow at low rates and you apply the funds to increase productivity so that you get more back in revenues than the cost of servicing the debt, then in fact you can quite easily borrow your way out of economic trouble. Indeed, businesses do it all the time.

By the way, what are the yields on T-bills nowadays? Oh yeah, they're really low.

Only in Tea Partyville is it a bad thing when the entire world wants to loan you tons of money at low interest.

 

U.S. Consumer Confidence Falls to Two-Year Low

'Confidence among U.S. consumers plunged in August to the lowest in more than two years as Americans’ outlooks for employment, incomes and business conditions soured.
The Conference Board’s index slumped to 44.5, the weakest since April 2009, from a revised 59.2 reading in July, figures from the New York-based private research group showed today. It was the biggest point drop since October 2008. Economists predicted the August gauge would fall to 52, according to the median forecast in a Bloomberg News survey.'

http://www.bloomberg.com/news/2011-...-lowest-since-09-as-index-slumps-to-44-5.html

 

No surprise. Confidence tanked with the Republican Tea Party debt ceiling fiasco.

 

'The global economic crisis is leading to a possible “developed economy” recession in the U.S. and Europe, which may be hard to alleviate, according to Pacific Investment Management Co.’s Bill Gross.
In this environment, the world’s biggest manager of bond funds favors investing in Australia, Mexico, Brazil and Canada, along with non-dollar currencies that have strong ties to the Asian continent, Gross, co-chief investment officer and founder of Pimco, reiterated. Although global equities are attractive because dividend yields in many cases are higher than bonds, they’re vulnerable to faltering growth, Gross wrote in a monthly investment commentary published on Pimco’s website today.'

http://www.bloomberg.com/news/2011-...azil-mexico-as-u-s-europe-face-recession.html