Tuesday, January 15, 2008

Orgy Of Consumption Over

America’s economic engine is dead, or at least gasping it last breath. Our days as the world’s largest consumer are ending as our bloated debt ridden economy struggles to produce new jobs and keep inflation in check. The National Retail Federation kicked off its annual convention recently with figures released showing a sharp decline in consumer spending.

Wendy Liebmann said most shoppers were making fewer weekly shopping trips and spending significantly less on discretionary items such as home appliances and decor, fashion accessories, electronics, perfume, computers and software.

The only two categories getting a larger share of consumers' wallets are food and pet supplies, Liebmann said, noting however, that food prices have increased.
What does this mean for the American economy?

First it means the we can not buy our way out of a depression. The Fed would slash interest rates during times of economic slowdowns and the American people always responded appropriately by taking out their plastic, getting home equity loans or simply spending their saving to purchase goods. This kick started the job growth, businesses made money and soon we were out of trouble.

The problem with this model is that it relies on Americans buying American goods. If you import all the products, then American businesses are not making money. The money is being exported to slave labor countries, not used internally to bolster American business. All this does is stave off a full blown recession, if you are not replacing the jobs lost to cheap imports, it can not stop the recession.

The artificially created housing bubble did just this, money was pumped into the system with low interest rates, temporary jobs were created with the housing boom and our economy surged for a bit. This was a fake recovery, no permanent jobs were created and the American public simply dug itself into debt further. Where did all those products come from that were put into the new homes…China.

Secondly, we are no longer necessary on the world market. The United States is like that obnoxious customer you have to take to lunch once a week. You can not stand this person but as a salesman you have to treat him right because he has all the money.

America is not respected as a superpower, but as a superbuyer. We were the engine of consumption, driving trillions of dollars into the hands of foreign businesses. Now that we can longer consume at the appropriate level, our usefulness on the world scene is over. It is only a matter of time until we become an irrelevant third world country trying to remember our glory days.

1 comment:

theotherryan said...

The concept that a nation (at any level)can spend its way to wealth is ludicrus. I do not think that anything is going to rapidly change. Quite frankly if people in our country would stop raiding their home equity like a kid in the candy jar and charging all manner of needless stuff on plastic our economy would probably be better. Trickle down economics still works (as well as it used to but that is a whole other discussion) as long as the companies bought from are American owned. However it does not stimulate our manufacturing sector in the way that it used to. In effect it used to work from bottom up and top down, now it is just top down.