Destruction of Demand

There is no way government stimulus can replace the trillions of dollars of debt driven demand that the U.S. and world economy have relied on for years. What's ahead? See here for some very good, but very gloomy, analysis. (Earlier related post here -- see Microsoft (MSFT) CEO Ballmer's comment.)

Let's hope we don't go the way of Japan:


NYTimes:

As recession-wary Americans adapt to a new frugality, Japan offers a peek at how thrift can take lasting hold of a consumer society, to disastrous effect.

The economic malaise that plagued Japan from the 1990s until the early 2000s brought stunted wages and depressed stock prices, turning free-spending consumers into misers and making them dead weight on Japan’s economy.

Today, years after the recovery, even well-off Japanese households use old bath water to do laundry, a popular way to save on utility bills. Sales of whiskey, the favorite drink among moneyed Tokyoites in the booming ’80s, have fallen to a fifth of their peak. And the nation is losing interest in cars; sales have fallen by half since 1990.

Comments

[friar tuck:]

short but refreshingly truthful. i don't know when these so called experts on cnbc are ever going to get around to talking about the lack of demand by consumers. in order for any economy to work there simply needs to be two actions going on. we have supply but no demand. president obama's stimulus package is a start to put some extra money per month in the consumer's hands. without demand by the people as individuals the government needs to step into that role as a wholesale entity of the people and spend that money for them. this stimulus package is like a snowflake being pushed down the hill. it will eventually become a snowball of commerce. i have no doubt that president obama stands ready to give it another push in case it hits flat ground and stops. there are a lot of naysayers out there(rich republicans) who claim to know better but historically have not proven themselves to be right. the people of the united states must stand behind this man and let him do the work that need to be done. does anybody in their right mind think john mccain and sarah palin could have done better?

Feb 22 11:11 AM

[shootpar2001:]

Question?
How did they become 'rich repubs'?
By saving more than then spend; thats how!!!
Your comment was doing fine until you got political; no politician
can do better. They are a big part of the problem.
The number one answer to our problem is.... TIME!!!
It took years of over spending (Trillions) to get here and it will take years
to get us out. No President (no matter the party) can overcome that.
Please do your part, spend only when necessary and pay your debts.



On Feb 22 11:11 AM friar tuck wrote:

> short but refreshingly truthful. i don't know when these so called
> experts on cnbc are ever going to get around to talking about the
> lack of demand by consumers. in order for any economy to work there
> simply needs to be two actions going on. we have supply but no demand.
> president obama's stimulus package is a start to put some extra money
> per month in the consumer's hands. without demand by the people as
> individuals the government needs to step into that role as a wholesale
> entity of the people and spend that money for them. this stimulus
> package is like a snowflake being pushed down the hill. it will eventually
> become a snowball of commerce. i have no doubt that president obama
> stands ready to give it another push in case it hits flat ground
> and stops. there are a lot of naysayers out there(rich republicans)
> who claim to know better but historically have not proven themselves
> to be right. the people of the united states must stand behind this
> man and let him do the work that need to be done. does anybody in
> their right mind think john mccain and sarah palin could have done
> better?

Feb 22 11:41 AM

[SoCalSailor:]

Pastor Adrian Rogers explained how many Americans feel today.

"You cannot legislate the poor into freedom by legislating the wealthy out of freedom. What one person receives without working for, another person must work for without receiving. The government cannot give to anybody anything that the government does not first take from somebody else. When half of the people get the idea that they do not have to work because the other half is going to take care of them, and when the other half gets the idea that it does no good to work because somebody else is going to get what they work for, that my dear friend, is about the end of any nation. You cannot multiply wealth by dividing it."

Is this guy talking about the AIG Financial Services wizards? Or perhaps Goldman Sachs? Lehman Bros?

Feb 22 12:04 PM

[Mad Hedge F...:]

In excessively focusing on our own problems here in the US, it is easy to miss an economic collapse of Biblical proportions that is going on in Japan. Q4 GDP is coming out next week, and the median forecast is -12%, with more dire numbers of -15% out there. This is four times the rate of decline we saw in the US. The global economic shut down is heavily concentrated in the auto industry, of which Japan is the largest exporter. My old friend IMF managing director Eisuke Sakakibara, known as “Mr. Yen”, does not see a recovery for two more years. The country has no ability to convert from an export led to a domestic demand economy in the short term. Bubbles are long in building, and long in deflating. As Vice Minister of Finance in Japan during the lost decade of the nineties, he should know.

Feb 22 12:53 PM

[mkreisel:]

It's interesting to note that the deleveraging process in the 1930s began after 1934, after FDR had sworn in and New Deal had been initiated.

It's also interesting to note that US households had their lowest debt level in 1945, after 5 years of total war economy and astronomical government spendings which quadrupled our national debt to at least 100% of GDP.

So what's the lesson?

Feb 22 04:18 PM

[PainfullyAware:]

When You Squeeze People's Ability For Well Being They Regress To Survival Methods Thus Efficiency And Preparation For Hardship Become Tantamount.


On Feb 22 04:18 PM mkreisel wrote:

> It's interesting to note that the deleveraging process in the 1930s
> began after 1934, after FDR had sworn in and New Deal had been initiated.
>
>
> It's also interesting to note that US households had their lowest
> debt level in 1945, after 5 years of total war economy and astronomical
> government spendings which quadrupled our national debt to at least
> 100% of GDP.
>
> So what's the lesson?

Feb 22 06:54 PM

[Aristophanes:]

So the 1929 crash was not de-leveraging?

Of course US households in 1945 had low debt:

1) There was nothing to buy. Most production had gone into items left on a battlefield, not into consumer goods. War is about blowing up capital (factories), not investing in consumption (blow up their workers too).

2) They bough federal debt in the form of War Bonds.

3) Households were regulated into austerity at home by severe rationing. I still make a chocolate cake from my grandmother's recipes with no milk or eggs (water and vinegar). You had coupons for gasoline rationing. Tens of thousands of citizens received criminal convictions for breaking rationing laws.

The lesson is that over-consumption is rare and its collapse is unplanned for. One can make a very compelling argument that wartime America was a highly regulated but focussed state whereby the wheels of commerce were driven by the federal government, and frankly, given the outcome, driven fairly well. Society had consensus about the direction, and that helped. Sacrifice in money and blood was part of national honour.

Now everyone is fighting their neighbours and whining. Everyone wants the other guy to pay.

On Feb 22 04:18 PM mkreisel wrote:

> It's interesting to note that the deleveraging process in the 1930s
> began after 1934, after FDR had sworn in and New Deal had been initiated.
>
>
> It's also interesting to note that US households had their lowest
> debt level in 1945, after 5 years of total war economy and astronomical
> government spendings which quadrupled our national debt to at least
> 100% of GDP.
>
> So what's the lesson?

Feb 22 07:53 PM

[Chaztikov:]

SoCalSailor, I just had to reply so I could make sure I keep track of this quote, that's a refreshing change to hear it from a pastor!


On Feb 22 12:04 PM SoCalSailor wrote:

> Pastor Adrian Rogers explained how many Americans feel today.
>
> "You cannot legislate the poor into freedom by legislating the wealthy
> out of freedom. What one person receives without working for, another
> person must work for without receiving. The government cannot give
> to anybody anything that the government does not first take from
> somebody else. When half of the people get the idea that they do
> not have to work because the other half is going to take care of
> them, and when the other half gets the idea that it does no good
> to work because somebody else is going to get what they work for,
> that my dear friend, is about the end of any nation. You cannot multiply
> wealth by dividing it."
>
> Is this guy talking about the AIG Financial Services wizards? Or
> perhaps Goldman Sachs? Lehman Bros?

Feb 22 09:11 PM

[Bobco23:]

I read the AP news article this morning on the impact of the BO "stimulus" package.

Per the AP most workers will see an average of $7.70 per week in their paycheck. $7.70! Yeah, that oughta work. The depression will be over next week.

BO has no clue and neither do his supporters.


On Feb 22 11:11 AM friar tuck wrote:

> short but refreshingly truthful. i don't know when these so called
> experts on cnbc are ever going to get around to talking about the
> lack of demand by consumers. in order for any economy to work there
> simply needs to be two actions going on. we have supply but no demand.
> president obama's stimulus package is a start to put some extra money
> per month in the consumer's hands. without demand by the people as
> individuals the government needs to step into that role as a wholesale
> entity of the people and spend that money for them. this stimulus
> package is like a snowflake being pushed down the hill. it will eventually
> become a snowball of commerce. i have no doubt that president obama
> stands ready to give it another push in case it hits flat ground
> and stops. there are a lot of naysayers out there(rich republicans)
> who claim to know better but historically have not proven themselves
> to be right. the people of the united states must stand behind this
> man and let him do the work that need to be done. does anybody in
> their right mind think john mccain and sarah palin could have done
> better?

Feb 22 09:27 PM

[grh1212:]

Accountability demands that we be aware of the political roots of our present economic crisis. We cannot ignore the reality that the irresponsible yahoo administration that left the White House premises only a month ago spent eight years swinging an axe at thed heart of our nation. They were fully supported by a Republican Congress until the last two years. It will take many years to right even half the damage to our children's futures. Some of it will never be corrected. Of course the majority of America's electorate is primarily responsible since, in November 2004, they said to themselves "Well he's buried us in debt up to our eyeballs, lied us into a war, and is torturing people. That's the guy for me. At least he doesn't look French" And they marked their ballot for GWB.


On Feb 22 11:41 AM shootpar2001 wrote:

> Question?
> How did they become 'rich repubs'?
> By saving more than then spend; thats how!!!
> Your comment was doing fine until you got political; no politician
>
> can do better. They are a big part of the problem.
> The number one answer to our problem is.... TIME!!!
> It took years of over spending (Trillions) to get here and it will
> take years
> to get us out. No President (no matter the party) can overcome that.
>
> Please do your part, spend only when necessary and pay your debts.
>
>

Feb 22 11:03 PM

[HaavBline:]

Short but right to the point.

Feb 23 03:25 AM

[Al-USA:]

Ok, so the American working class is max out on debt. Whats the lesson here? In the wealthiest country in the history of the planet, how is it that the working class needs to resort to massive debt accumulation in order for the continued smooth functioning of the "free market"?

Why didn't the "invisible hand" of the market resolve this pending calamity, as the author noted, equaled only in the last Great Depression of the 1930's. Why didn't the "animal spirits" of creative destruction not deal with with it in a non-Armageddon manner? Already, some are stating that we are heading for another Greater Depression.

See link below:
"Recent Policy Decisions and a Greater Depression"
seekingalpha.com/artic...

Arguably, the 1930's Great Depression only came at an end with the implementation of the New Deal, the enormous investment in production needed to win WWII, plus, and this is the most important, in my opinion, increasing the tax rates on the wealthiest Americans from 25% (1929) to 95% (end of 1945).

In other words, the crisis of Capitalism was not resolved by the capitalist system. If not for the pending collapse of the whole capitalist structure, in the need to win WWII, where would capitalism have ended? What would have been the end result?

Why do we have an economic model that in its most successful phase, as evidenced by the triumph of global capitalism, is no teetering on the edge of a self-created abyss.... That is, the massive destruction of demand. If you ask me, no rational person or institution would come up with such an insane model...

Feb 23 07:09 PM