May 1, 2010 Patrick Oliver-Kelley

Economic unintended consequences pervade the US. Is the party over? For the last 40 years, the US consumer has served as the engine to lead the US economy out of miasma. Is Unbridled economic growth undermining the Protestant ethic of self-denial? Conspicuous consumption has fallen into social disrepute. Real Thrift is Back! Thrift is becoming the way to redeem ourselves.

thrift

But there is a paradox of thrift. If individuals increase savings, there must be a consequent decline in industrial demand and unemployment rises. Japan, China, and Singapore have exported their excess savings, now amounting to trillions of dollars, by investing in the US. The inflow creates artificial demand in such areas as real estate and stock exchange assets. Booms and bubbles develop. But inflows stop and the party ends, Abruptly and Painfully. Think 2008/9. Now sluggish economic recovery not just in the US, but also world-wide, will expand the pool of global savings.

The US continues to suffer an innovation deficit. Where is the Next Big Thing? Is the US now evidencing a lack of confidence? Household spending remains constrained by high unemployment, modest income growth, and tight credit. China has reacted to its aggressive economic growth by raising interest rates. Greece has re-emerged as a hot spot with its borrowing rates soaring, after an EU and IMF proposal of monetary assistance appeared to be too little, too late. S&P just lowered the credit ratings on Greece, now BB+ (junk) of Portugal and of Spain. The Dollar (presently $1.32 to one Euro) should continue to strengthen. It could reach par: One dollar to one Euro.

Only a few glimmerings of positive: housing sales seem to be bottoming out, the consumer is becoming more confident, but unemployment remains stubbornly high, there is much to wish for and much to mend. This is a protracted recovery, if that is the right word.

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