happyeconomist

The Second Reason Consumers Aren't Spending

I found the most interesting thing about the article were the comments. Not one person (maybe a consumer clinger-on) has talked about going back to turbo charged consumerism.

Seems like three factors: one - we don't have the money to spend any more. Two: we don't have the credit capacity to spend (home equity and credit card lines). Three: many have reached the law of diminishing returns and simply don't want to spend.

If the fundamental consumeristic behavior has changed it will mean significantly slower economic growth over a very long period of time. Slow growth means lower expectations on standard of living, that learning to live with less will be permanent.

Citigroup Questions

1) your question on the FX fee. A foreign website might have a deal with Mastercard that if someone buys a product outside of their country (even if you credit card is denominated in that currency), Mastercard will charge you for the exchange. Ie the foreign website needs to be paid at the end of the day in sterling for selling USD tickets, the agent fee. And you end up paying for it. Mostly because you don't have any leverage viz MC.....you got the short end of the stick.

2) on Citi, a small glimmer of wishful thinking from Pandit. The bank's fundamentals are still awful. Every business is sliding down, revenue decrease, while they still have pending write-offs (HINT: he didn't say anything about the net result, just revenues/expenses). Another reason to avoid the penny stock is the pending doom and gloom on the credit card and commercial real estate portfolios....the next icebergs.

The Benefits of This Recession

I think you need to be frank about the current situation. This is not your run of the mill (if there is any) recession, or downturn in the economic cycle. This is an economic depression, and it's global. Unfortunately there isn't any formal definition of a recession, but a 10% contraction in GDP is a good start. Guess what? We are almost there.

In a depression, normal business cycle law stops working. Unlike the depression of the 30's we've moved into a service, consumer spending run economy. Saving is fine, but it will take a very long time for incremental savings to turn into consumer spending. Personal assets will have to be shed first. The "cleansing" is very painful. And prolonged. Among the economist circles, we privately estimate this to last 3 to 4 more years before we see a real recovery starting to happen, never mind a bull market. Remember, the Depression of the 30*s lasted 12 years and only got kick started due to WWII. I hate to sound so pessimistic, but if we acknowledge the realities of what is really happening, the better we can plan and deal with it.

No Gold Bubble

I agree with the assessment. Very wealthy middle easterners and north asians have gotten creamed in the markets. They seek safety. They will buy into gold. It's traditional for them almost to the point of religious. Much of this sits with the Swiss private banks, watch for their actions. I'm long.