U.S. household debt down for first time since feds started tracking it in 1952
The Wall Street Journal reports that U.S. citizens have suddenly become quite thrifty.
Hard-Hit Families Finally Start Saving, Aggravating Nation's Economic WoesUsually, frugality is good for individuals and for the economy. Savings serve as a reservoir of capital that can be used to finance investment, which helps raise a nation's standard of living. But in a recession, increased saving -- or its flip side, decreased spending -- can exacerbate the economy's woes. It's what economists call the "paradox of thrift."
U.S. household debt, which has been growing steadily since the Federal Reserve began tracking it in 1952, declined for the first time in the third quarter of 2008. In the same quarter, U.S. consumer spending growth declined for the first time in 17 years.
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Wonder if this marks the return of "Lay-A-Way" plans.
Yeah, Fist Time always seems to bring household debt down...
I love the way everything's the opposite of what people think it should be. After all, haven't we all be told, all our lives, to save wisely and reduce our debt?
"No no no! Don't save NOW, you idiot! We're in a recession!"
What's good for the country doesn't always feel like it's what's good for the individual.
#1. Yes! NPR ran a story about the sudden popularity of lay-away. (Briefly: You hand a store an item you want and a deposit. They stick it on a shelf in a back room. You make payments when you can. When you pay the full amount, you get the item.)
In Oregon, Goodwill thrift stores have had a sizeable (7%) increase in sales.
Keynes is the one that came up with the "paradox of thrift," and we're only going to get out of this recession with the assistance of Keynes-style government spending, specifically geared toward increasing employment, which will boost demand. In spite of a half century of Milton Friedman spouting to the contrary, we're now seeing that Keynes was right.
Could some of the debt reduction be due to foreclosure and bankruptcy rather than savings?
Once you know you'll be tracked by someone, fist time can suddenly take on new erotic dimensions.
They presented that graph in the way that would make the change seem the most drastic. If you actually charted out the personal consumption amounts themselves rather than the change from the previous quarter, you would see a steadily increasing line which dips down slightly in 3Q 2008 to about the point it was in 2Q 2007.
It's the stark fist of deleveraging.
When you throw a rubber ball down the stairs, it bounces up sometimes.
We're seeing that Keynes was right? We're certainly seeing that lots of people in power think he's right, and are embarking on a Keynesian plan, but those are all the same people who claimed that there was no housing bubble.
If the economists who did see it coming - the Austrians - are correct, not only will the Keynesian approach not work, it will produce hyperinflation and the destruction of value through malinvestment.
We have until the end of this year, which is when declines in Mexican oil production move it from our third largest source of oil to an importer itself. All those trillions of freshly printed dollars will suddenly be chasing a much smaller supply of precious energy.
You have been warned.
Not to worry, if the economy ever recovers we'll all go back to being good Monetarists soon enough, once we can afford the luxury of that economic school of thought once again.
When consumers file bankruptcy, as much as the new bought-and-paid-for-by-the-credit-industry law allows, they have no debt.
What a miracle.
More than monetarism has come out of Chicago of late.
JJR1971: Word.
Anyway, Ernunnos, both the Keynesians and the Austrians were sounding the alarms about the Monetarist traps well before 2007-2008. If the "Keynesian plan" is done well--i.e., investing in new technology, infrastructure, etc, we're not going to see the destruction of value which you fear, but a platform from which businesses can grow and our economy will once again thrive.
I do not think that any self-respecting Keynesian is in favor of the current actions--pumping money into the banking black holes isn't exactly increasing demand for anything.
Mark's title for this posting:
Ye Gods, please let that be a typo! ("fist time")
I thought it was a wonderful coincidence that after a year of high gas prices, they suddenly dropped *just like that*.
As if someone suddenly realized the golden fist^H^H^H^H goose was being killed.
Fist they blame us for spending. Now they blame us for saving. I'm tired of all this responsibility. Is there a way we can blame everything on environmentalists, gays, and black people?
When people think their jobs are in danger, they try not to spend so much. Get the danger of mass layoffs off our backs, and we'll start spending again. Simple, eh?
"U.S. consumer spending growth declined for the first time in 17 years."
This is the kind of vaguely mathematical statement which drives me nuts.
It sounds like spending declined, but what it says is that the growth in spending went down - in other words, they expect X% of growth each year, but they didn't quite make it, even though they did have growth!
Let's not forget that businesses can still be profitable even with zero growth, as long as their income exceeds their costs.
Jack @#1: Sears has "Layaway is Back!" posters up in stores. I found it kind of heartening, although Sears isn't exactly in a sound financial situation itself right now.
Topically: Saving is what we need, saving is what we've needed for 20 years. All that time, Congress and Greenspan kept pushing for less saving, more lending, more spending, and a recession -- okay, a depression -- is the inevitable consequence. And the more Congress today spends, the more they "stimulate", the more they "free up credit", and the more they promote unwarranted consumption, the more they sow the seeds for the next recession. The idea that government spending can "drive" an economy has been fashionable since WWII, but it's no more true now than it ever has been.
This is definitively not proving Keynes was right- in fact, this is quite the opposite. We have been deficit spending our way into this mess. Both the 1920's and last 10 years were been characterized by excessive easing of credit. Government market manipulations have caused a lot of problems, and not letting the market correct this is going to be more painful than a recession. We don't need more spending, we need to pay for what we've already purchased. Is what we really need to drop $6B to GMAC so we can borrow more money to buy more new cars?
There was some talk of instead of having stimulus checks sent, the gov't should spend the same amount of money having a "National 10% off month," where all businesses, big and small could take 10% off and send in the receipts to be refunded. That puts the stimulus money into driving up spending, instead of putting it towards people's savings accounts, which is what it's going to do otherwise.
1. not all deficit spending is created equal.
2. excessive easing of credit != Keynes
3. the market did not self-correct to get us out of the great depression, and furthermore, things got worse when the government attempted to balance its budget.
In general, I don't think that deficit spending is such a good way to do business, but unfortunately we are now stuck in a vicious low-demand cycle, and without the right type of government investment, we're not going to see things getting better any time soon.