Last week we had a story in the New York Times that literally could of been ripped from the virtual pages of our website. [Dec 29, 2008: What Happens if America Returns to a Historical Savings Rate?] [Sep 20, 2008: US News & World Report - The End of the Shopaholic Nation?]

While we laid out the case long ago about what has been happening under the surface [Dec 8, 2007: Do the Bottom 80% of Americans Stand a Chance?] which was simply hidden under Fed induced asset inflation the past decade, the mainstream media is finally starting to put together the pieces.

Wall Street? Still in (a) denial (b) projecting their lifestyle and believing its the same for the peon class in the far off lands of middle America and/or (c) relying on government taking future money and pushing it into the now, and believing that is a fine substitute and/or kindling for a return to the good ole days.

What we have confirmed is when the government gives Americans money that the country does not have, no questions are asked by the majority, and they are more than willing to spend the bounty. And we have confirmed the government is willing to do this for as long as it can since they could care less about the future and only want the near term benefits. What we have not confirmed is (a) when those being taken from and (b) those who are receiving gladly today but have children who will pay the price - will finally raise enough fuss to stop the above actions of the subsidized economy.

The United States of America has become Wimpy the Moocher

Wimpy is Popeye's friend. In the cartoons he mainly plays the role of the straight man to Popeye's outbursts and wild antics. Wimpy is very intelligent, and well educated, but very lazy and gluttonous. Wimpy is also something of a scam artist and (especially in the newspaper comics) can be notoriously underhanded at times.

His famous line, which was first introduced to the cartoons in 1934's We Aim to Please, is I'd gladly pay you Tuesday for a hamburger today.

Via New York Times

  • Even as evidence mounts that the Great Recession has finally released its chokehold on the American economy, experts worry that the recovery may be weak, stymied by consumers’ reluctance to spend. Given that consumer spending has in recent years accounted for 70 percent of the nation’s economic activity, a marginal shrinking could significantly depress demand for goods and services, discouraging businesses from hiring more workers.
  • Millions of Americans spent years tapping credit cards, stock portfolios and once-rising home values to spend in excess of their incomes and now lack the wherewithal to carry on. (that's where apparently the government ATM now replaces the house ATM) Those who still have the means feel pressure to conserve, fearful about layoffs, the stock market and real estate prices.
  • Households must increasingly depend upon paychecks to finance spending (the horror), a reality that seems likely to curb consumption: Unemployment stands at 9.4 percent and is expected to climb higher. Working hours have been slashed even for those with jobs.
  • “Lower-income households can’t borrow, and higher-income households no longer feel wealthy,” Mr. Zandi added. “There’s still a lot of debt out there. It throws a pall over the potential for a strong recovery. The economy is going to struggle.”
  • In recent weeks, spending has risen slightly because of exuberant car buying, fueled by the cash-for-clunkers program. But most economists see this activity as short-lived, pointing out that incomes did not rise.
  • Some suggest the recession has endured so long and spread pain so broadly that it has seeped into the culture, downgrading expectations, clouding assumptions about the future and eroding the impulse to buy. The Great Depression imbued American life with an enduring spirit of thrift. The current recession has perhaps proven wrenching enough to alter consumer tastes, putting value in vogue.

This was part of the virtuous circle we had via easy money Federal Reserve policies inflating anything in its path...

  • Economists subscribe to a so-called wealth effect: as households amass wealth, they tend to expand their spending over the following year, typically by 3 to 5 percent of the increase.
  • Now, the wealth effect is working in reverse.

So you see why the powers that be want to inflate things again - because it makes us feel good. And we spend 3-5% extra. Just don't talk about the costs of their actions, just embrace the lush rewards we receive today.

Anecdotal example - the question will be, what happens when we hit 2011 as we see where our new normal is. It is very different to change your behavior for 12-18 months, rather than permanently and culturally.

  • ... even if her spending power (6 figures) is restored, Ms. Nelson says her inclination to buy has been permanently diminished. Through nine months of joblessness, she has learned to forgo the impulse buys that used to provide momentary pleasure — $4 lattes at Starbucks, lip gloss, mints. She has found she can survive without the pedicures and chocolate martinis that once filled regular evenings at the spa.
  • Once intent on buying a home, Ms. Nelson now feels security in remaining a renter, steering clear of the shark-infested waters of the mortgage industry.
  • “I’m having to shift my dreams to accommodate the new realities,” she said. “Now, I have more of a bunker mentality. If you get hit hard enough, it lasts. This impact is going to last.”

  • “This is a cultural shift going on. People will save more.” As recently as the middle of 2007, Americans saved less than 2 percent of their income, according to the Bureau of Economic Analysis. In recent months, the rate has exceeded 4 percent.
  • “The only time you do a lot of business is when you throw a sale,” said Pat Bennett, a salesman at a Macy’s. “You see very little impulse buying. They come in saying, ‘I need a pair of underwear,’ and they get it and leave. You don’t really see them saying, ‘Oh, I love the way that shirt looks, and I’m just going to get it.’ ”

What will be interesting to me is not what happens in the next 2-3 years but after this next 4-6 year period which Americans will spend rebuilding their tattered balance sheets. If they even attempt it, this will take us to the middle of the next decade. The world will look very different - and our national debt and Medicare will have to (in theory) begin to be addressed. That should require ever higher taxes, as well as higher interest rates. If we don't instead employ an inflation scheme to get us out of this mess, which at this point seems the only master plan.