Government Stimulus Is Hiding the Recession

Yes, the savings rate is up, but if you look at this chart, you will see it has a long way to go to get back to historic norms. With the wealth evaporation of the past two years, mounting job losses, aging baby boomers past their peak and other considerations, one has to wonder where the savings are coming from, even at this low level.

Moreover, Bloomberg is reporting that consumer spending was up significantly in August. Indeed, the biggest jump since 2001 and not all of it was due to cash for clunkers.

Yet first time unemployment claims were higher than expected last week and foreclosures - residential and commercial - are on the rise.

Finally, might I add that we as a country still have record amounts of debt.

While on an individual level we have begun to deleverage (either through payment or default) on a government level we are increasing debt to dangerous levels. And there may be a limit to how long China and Japan will continue to fund our spending spree. Most Treasuries are now being bought by the Fed and foreign purchases were down 40% in the second quarter versus the first, so the government punch bowl may be taken away sooner than many expect.

There is something about this math that does not calculate for me. How can we make less, spend more and increase savings? The only answer I can think of is government stimulus. And government stimulus is not the same thing as an economy rebounding. And when that goes away we will see the recession in full bloom. Some view recession as a bad thing. While not dismissing the financial and other pain people will feel in a recession it unfortunately is the only cure for our excessive debt levels. It is a correction to many years of economically unsustainable spending on our part.

Disclosures: None.

Comments

[T.Stamps:]

These socialists/fascists/ma... we have in office right now
are hoping the sheeple will buy into the this market after the govt
has propped it up with debt. None of the stimulus was for job
creation. It's all about propping up this government control
initiative.

Oct 02 10:49 AM

[Tony Petroski:]

The author:

"Yes, the savings rate is up, but if you look at this chart, you will see it has a long way to go to get back to historic norms. With the wealth evaporation of the past two years, mounting job losses, aging baby boomers past their peak and other considerations, one has to wonder where the savings are coming from, even at this low level."

I expect it comes from China.

Mr. Brown. We've been through worse. Keep going.

Oct 02 11:48 AM

[jerrydd:]

The stimulus is hiding the recession? Well Duh!! It's what is suppose to do, prop it up until recovery kicks in.

I love those who blame this on Obama when it's the ones they voted in that bailed out thew banks, car companies and AIG. They are the ones that caused the massive debt, didn't stop the prime rate fiasco, had a corporate welfare energy policy, oil wars of choice and lax regulations. Now you have killed off the middle class, retiree's wealth so far fewer for you to make money from. Way to go guys!! You make terrorists small potatoes in the damage done compared to you.

And make up your mind, either socialist of Fascist, it can't be both. It's the repub who are fascist if anyone is.

Oct 02 12:25 PM

[Albertarocks:]

>Moreover, Bloomberg is reporting that consumer spending was up significantly in August. Indeed, the biggest jump since 2001 and not all of it was due to cash for clunkers.<

I'd like to know how consumer spending was up significantly in August when there are so many homeowners who don't have enough funds to pay their mortgages. I'd think that if the populace had money to spend, the first thing they'd spend it on would be a debt payment or their telephone bill. Perhaps the increase in spending that Bloomberg reports is related in some fashion to
the hiring of lawyers as homeowners try to save their homes from the greedy banks who refuse to cooperate in any helpful way (such as a common sense refi that benefits both parties). That kind of spending does not a recovery make.

Oct 03 11:43 AM