Are we in a Consumer-less Economic Recovery?

By: Kevin_Geary

Consumers are less optimistic about their own personal finances than at any time in the past 60 years, according to an index of consumer sentiment released Friday. (From the Christian Science Monitor, August 15th).

So, where, exactly, are the "green shoots" of the economy? The stock market is rising; productivity is up; wages (apparently) are up, but nobody's spending! It's a real conundrum. With every bit of news suggesting recovery, the consumer tightens belts and fears spending. 70% of our GDP is consumer driven! (We used to be a manufacturing nation, but no more.) So, how can we have a recovery, if consumers (the 70% of GDP) are getting more fearful, and spending less, and saving (for the first time in decades)?

I simply can't divine the underlying trend. Never seen anything like it before. The "economists" and "pundits" seem to think we can have a jobless recovery, but we certainly can't have a "spendless" economy!

We might be entering a rare phase, which happens from time to time throughout history, namely a "Great Wave" which will be exactly the opposite of the last 100 years or so of ever-rising price inflation, and heading into a century of price deflation and eventual stability/stagnation of prices for the next 100 years. These waves have occurred many times, but when they happen, they last a long time, and, with some fluctuations, generally produce long periods of price stagnation/stability. The 19th Century was a time of relative price stagnation/stability almost through the whole of the Victorian period. The 20th Century became the "roaring inflation" century.

The one thing that is certain, is that there is little certainty about what is really happening, where it is going and if we are in such a paradigm shift that the US consumer will never go back to the reckless spendthrifts they were, until so recently. We could be in for a complete change in the economy that no-one is prepared for, and nobody really knows how to handle or adapt to; namely
a "consumer-less recovery."

Credit has dried up for most people and the longer that lasts, the easier it becomes to forgo buying things that you cannot afford and "paying" for it later. If credit doesn't ease (and there's little indication the banks are loosening; if anything, they are further tightening, especially to consumer credit), I think people will become so used to buying only what they need with on-hand cash or using debit cards, that they'll simply never go back to consumer debt/credit again in anything like the way that fuelled the American (and world) economy. The implications are enormous, because nobody knows how to survive in a consumer-less economy. We don't have the business models for it. Better start looking to the 19th century for clues.

By Kevin Geary

www.kevingearyart.com and www.kevingearyportraits.com

Kevin Geary is an artist who lives in Sedona, Arizona. He was the youngest political cartoonist on the Financial Times at the age of 19. He had his first one man show at 20, opened by the prime minister of Great Britain, Harold Wilson. He has had over 60 exhibitions of his work; has work in several major museums, including the National Portrait Gallery in London, and his work has sold at major auction houses, such as Christie's, in London, Whyte's in Dublin and Doyle in New York.

He has followed politics, history and economic history for many years, and has also written about it elsewhere online. He predicted this depression long before it happened, timed the collapse of the stock market in June last year, long before it happened, and his stock picks have often been very accurate. The four stocks he picked on January 1st, 2009 to do well (Amazon, Apple, Baidu and Google ), are all up from the beginning of the year. He does not offer specific public advice about stocks, but he has written from time to time about long and short term trends in the political and economic realm.

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