Portable Alpha

Does the U.S. Need China to Pull it Out of Recession?

This conspicuously vicious cycle of spending beyond one's means, represents a double edge sword, same as in Olympics, War in Iraq, Oil boom/decline, and ceteris paribus. I agree that savings and cutting expenses are literally deemed indispensable for both consumers and businesses in such time, nonetheless, the upside could turn into downside, and vice versa.

It's in nature a reluctant yet de facto socio-economic self-sabotage in addition to economic and financial suicide, albeit many consumers neither have the sense of economic security nor the perspectives to have actually been able to realize it, collateral damage. Ok, you stop spending and start saving [which is totally justifiable in such environment]. And the scenario gets problematic, you are buying less, which translates into lower corporate profits, which translates into fire-thine-back en masse, [plus some side effect: cascading stock prices, etc.] which translates back into "you" are less able to buy to the next level, and this goes on and on, at corporate level. At government level, you are buying less, corporate america reaps less, in turn signs you even scanter paycheck, so you are having to buy less, state and federal collect less from your consumption tax, you are buying less, the businesses make less, disbursing less business tax, the government receiving less in revenue, issuing more bonds, devaluing more of the currency, intending to bail more out...

The underlying question here, is that the over-panic consumers have forsaken the key momentum driving the U.S. economy to outperform for half a century - consumerism. Bad or good, it offers the incentives for business to increase capital expenditure [by generating ginormous demand], in terms of hiring more, investing more in R&D, making efforts to keep their desired staff, equipping more and better. And such impetus reverberates throughout the processes, the IB will underwrite that 8 zillionth deal , the CB and credit card companies will issue 12 zillion more loan, the EM will manufacture 100 zillion more goods, yet sustaining 0.000 digit sweatshop salaries for underemployed [who are nevertheless overapperciating such engagement, after all, a meager income is nonetheless more appealing than nada] so that their children could also buy iPOD, enjoy frappuccino, and laptop, which albeit locally-produced and but US assembled, in turn, cementing uncle sam's balance sheet and financing the U.S. consumers.

Perhaps after a quarter or so go with this saving like there is no tomorrow strategy, people should start to spend again.