The good news is simple enough: consumers are cutting back in their spending. This may not be pleasant for some people because they want to sell more stuff. But their welfare is not the general welfare. The general welfare is obvious: people need to spend less and save more. The Guardian reports:
“Retailers pulled stocks lower Wednesday as US markets reopened following the Christmas holiday. The Dow Jones industrial average fell 49 points to 13,090 as of noon. The Standard & Poor’s 500 index fell seven to 1,419 and the Nasdaq composite lost 19 to 2,993… Major US retailers fell following a glum report on US holiday sales. Macy’s and Urban Outfitters lost 3%. Sears Holdings fell nearly 5%. The MasterCard Advisors SpendingPulse report found that sales of electronics, clothing, jewelry and home goods increased just 0.7% in the two months before Christmas compared with the same period last year. That’s well below the growth of 3 to 4% growth that analysts had expected and the worst performance since 2008, when spending shrank during the Great Recession” (emphasis added).
This is, hopefully, a turning point from past foolish behavior. Thanks to consumer credit and boundless fantasies about how it will all be taken care of in the future (commonly called “consumer optimism”), consumers have been spending more than they bring in. This doesn’t just mean that they are in debt; it also means that almost every industry is selling goods and services to Americans on the basis of wealth that doesn’t really exist. No matter how much Wal-Mart boasts in low prices, the truth is that their expectations regarding how much they sell are shaped by a past history of consumers willing to use credit and to not bother to save.
The government has encouraged this behavior by keeping interest rates low so that borrowing looks more attractive than saving. The government also sponsored a network of financial “experts” who went on TV shows and other venues and assured us that the declining savings of Americans was nothing to worry about because Americans were now “saving” by putting their net worth into their rising housing values. They used the housing bubble to give American’s a false sense of security. They boosted “consumer confidence” on lies.
Now that lie has stopped working. This story, like many others, wants us to believe that the lack of consumer confidence is a bad and baseless pessimism. And it wants us to believe that the fact that it now looks like there will be no deal to prevent “the fiscal cliff” is the culprit. Of course, that means it really wants us to blame the GOP leaders in Congress for not caving into Obama’s demands.
But the drop in consumer confidence seems to have begun to early to be blamed on the fear of going over the fiscal cliff. It should be obvious to everyone that our economy is still failing and that Bernanke’s eternal QE stimulus is putting out false signals of a slow recovery. Even if it was due to the perception that we are going over the fiscal cliff, that would be a benefit, not a problem. Americans need to stop pretending that somehow they will be rescued in the future from their reckless spending of today. The exact opposite is true: the reckless spending now is what impoverishes our futures and the futures of our children.
What would a deal to avert the “fiscal cliff” really mean? It would mean more borrow and spending in order to delay the inevitable and make it worse. That is the only basis for optimism that the mainstream media can really offer.
It is a delusion and a snare. This was a wonderful Christmas, and it needs to become the new normal. We need to cut spending and begin saving, or at least start paying off debt.