We Need to Break the Bubble Cycle

Bloomberg reports that U.S. consumers are about to bounce back to their old spending ways. Now you can take this two ways. First, they are right and we start adding again to massive amounts of U.S. debt and further the already extreme debt situation in this country. Temporary boost for the economy perhaps, but long term pain. Second, they are wrong and consumers continue to pay down debt and - but for clunker and first time homeowner stimulus packages of late - their spending does not revert to the old mean. They keep spending less and start saving. I truly hope for the latter. We do not need to create a new bubble. We do not need to add to debt. We do not need to prolong this pain any longer than necessary. It could take well over a decade to get us to a point where consumers can start to spend, versus save, in a prudent manner, but I for one hope we never go back to massive debt spending. I owe it to my kids.

If option one is happening, which Bloomberg seems to believe to be the case, then we are in for a perpetual cycle of one bubble after another with each leading to a worse recession/correction than the last. We need to break this cycle. The government is doing its best to prevent us from doing so. They are incurring public debt and giving it to the banks and us to spend so we can continue our evil ways. We need to resist this temptation. The future can be somewhat painful if we pay down debt and save or it can be disastrous if we go back to our over-spending ways as Bloomberg and the Government suggests we will or should. You decide.

I just put my two year old son to bed a couple of hours ago and a few minutes ago looked in on the angelic face of my daughter finally sleeping. I will be damned if I will spend money now I do not have to support an economy that needs massive further correction and pass off the buck to them. We got into this mess and our children and grandchildren should not be tasked with getting us out.

Disclosures: None.

Comments

[TinyTim]

Hate to say this, but the next bubble is already here and ready to blow.
That would be Treasuries. The big one.

2009 Aug 28 04:55 PM

[rosey99]

Do I detect a note of disappointment? I know I'm disappointed in what we (seem to) have learned from our collective irresponsibility. All I hear is how we must get the consumer back to the mall, the auto dealership, or the realtor. No mention of what to do to cure the massive imbalances that supported the profligacy: the trade and budget deficits. It reminds me of Roosevelt's 1933 inaugural: "Faced by a failure of credit, they propose only the lending of more money."

I don't know what it will take to get us to own up to our responsibility to future generations, but I am increasingly worried that it might require - literally - a new generation. Our current generation of leaders obviously sees no problem in ordering every meal on the menu and leaving the check for their kids, and grand kids.

2009 Aug 28 09:14 PM