In fundamental shift, consumers are saving rather than spending - LA Times

[Tierra_y_Libertad]

"Buy!! Buy!! Spend!! Sale!!" The good old days of credit card living are over...except for the government. The "recovery" that isn't.


http://www.latimes.com/business/la-fi-consumer-credit9-2009jul09,0,991271.story?track=rss

Reporting from Washington -- The continuing decline in consumers' use of charge cards and other forms of credit reflects an underlying weakness in the U.S. economy that most of the government's recovery plans fail to attack head-on. And it suggests a fundamental shift in the way Americans save and spend that is likely to act as a drag on the economy for at least several years.

Beset by rising unemployment, declining wages and persistent credit-tightening by banks, consumers are pulling back. Although some economists welcome the trend after years of open-handed spending, the belt-tightening is almost certain to have a negative effect on the U.S. economy, in which about 70% of gross domestic product comes from personal consumption.

A government report issued Wednesday shows that consumer borrowing is still falling. The monthly credit balance numbers from the Federal Reserve are considered volatile, and May's decline was much smaller than earlier this year. But analysts said the trend was likely to remain downward.

"Consumers were living in a fantasy world for much of the last decade," said Lyle Gramley, an economic advisor with Soleil Securities Corp. and a former Fed governor. "The financial crisis has been an enormous wake-up call."

[Mari333]

1. good, actually.

never spend more then you have.

[Oregone]

8. Its not a matter of spending more than they have. Its a matter of spending so little they save

And thats not a thrilling trend in this economic climate. Yes, the behavior is self-explanatory, but not desirable one bit.

[The2ndWheel]

13. And that's how the planet gets carved up

Since there is still some left, we can't let it just sit there, might as well keep doing it.

[nadinbrzezinski]

2. Yes it does place a drag, but that is because... 70 percent

of the GNP depends on you and me continuing to spend.

Well the paradox of all saving and not spending does come to mind, but we need a balance. Personally I only buy stuff I want that I have the MONEY saved for.

But I have been doing that for decades now. I guess the rest of the country is following suit. But the paradox is there, if everybody saves it does lead to a lower standard of living. Yes, even Keynes realized that and called it exactly that, a paradox.

[Tierra_y_Libertad]

3. So do we. And, we have been for about 30 years.

If you want something and can't afford it save for it or forget about it.

Worked, and is working, for us.

As for the paradox. The obvious problem is that the capitalists and politicians want us to sacrifice ourselves, by spending more, to "save" the economy.

IMO the economy is running the politicians and economists rather than the other way around. Their efforts, to date, amount to "do something, do anything" that, if anything is making the situation worse.

[nadinbrzezinski]

4. The paradox was noticed well before this current system

came to be... during the 1930s. It was one that continued to haunt Keynes for the rest of his life.

Remember the current spend and consume system didn't start to take form until the 1950s and formalized itself by the seventies and eighties.

One of those... hmm moments from the annals of history that most people have no idea even exists.

[charlie]

5. In fundamental shift, businesses discover they need customers

Decent wages as part of the cost of actually staying in business, who could imagine something so bizarre might be true?

[redqueen]

9. Hah... wouldn't *that* be nice!

[csziggy]

12. Minimum wage goes up next week - I wonder if that will have any effects?

FLSA Minimum Wage: The federal minimum wage is $6.55 per hour effective July 24, 2008; and $7.25 per hour effective July 24, 2009.
http://www.dol.gov/esa/whd/flsa/

An increase of seventy cents per hour or 10% may not sound like much but it will be a nice boost to those at the lowest pay grades. My husband will get an equivalent pay raise since his per hour pay is based on increases above the minimum. $0.70 x 40 = $28 per week - shoot, that could put him in a higher tax bracket, LOL!

I would love it if the economy showed an uptick as a result - and minimum wage workers pretty much have no choice but to spend it so there could be.

[charlie]

14. It could be enough

to cover transportation costs, which would be a notable relief for poor households. Maybe some hamburger and veggies added to a beans and starch diet. As with taxes, oligarchs have no idea the disproportionate effect small changes in income has on sub-millionaires.

[csziggy]

15. Yeah, when you are making $262 a week before taxes, an extra $28 is huge

Even though many closer to the top might be dismissive of such a "small" increase. And of course, it is those same people who blocked a minimum wage increase for so long and fought it tooth and nail.

How many in this country earn minimum wage or an hourly wage based on it? Now let's multiply that number by $28 and see how much more money will start to circulate through the economy.

OK, this site (http://www.americanprogress.org/issues/2007/01/minwage.html) says "This minimum wage increase would boost earnings for 13 million American workers—9.8 percent of the United States workforce." So 13,000,000 x $28 = an additional 364 million dollars per week will start circulating through the economy (OK, maybe a little less due to taxes, but still a LOT of additional money).

That has got to be good for stimulating something!

[charlie]

18. Oh yeah

There'll likely be a measure of stimulus and every little blip helps in the direction we're heading. But if this new austerity doesn't hammer the 1st lesson of Econ 101 into them, that their fates are inextricably bound to their customers' fortunes, they'll circle down the drain with the rest of us. Feudalism looks terrific to bean counters, right up to the moment they realize there aren't enough serfs with money to keep most of them afloat. People on food stamps don't buy beer, furniture, or cars, and if they're poor enough, often don't live long enough to buy anything beyond food.

[jesus_of_suburbia]

6. This is me. I used to charge EVERYTHING. Now I pay for all I can in cash.

[Oregone]

7. No shit. This is another reason tax cuts don't stimulate the economy so well

[bvar22]

10. There goes the "stimulus effect" for the $20/week $300Billion taxcut.

Lobs...Jobs...JOBS!

[Hydra]

11. Our economy was running on pure debt and fictional "profits"

And they want to go back to that.

How about "No." Let's start doing something that WORKS.

[KoKo]

16. I'm a citizen, customer and if I choose not to spend...it's MY RIGHT!

To label me in some "Econo-Speak" as "the Consumer" is demeaning and dehumanizing.

Who has the money these days. It's about buying "necessities" to exist for families and not some damned "CONSUMER" which is a "guilt trip" that our economy is imploding because we aren't able to afford anything anymore because of Greenspan's policies and the Greed, Avarice and Criminality of those who expolited the "citizen/customer" all these years.

Let them Rot in Hell. It all ways comes down to the "wisdom of the masses" to know when they've been manipulated and their ways of striking back against those who exploited them.

I never thought I'd see America as a Repressed State with the Ruling Class totally in control and calling us "Consumers" ...but I guess if one lives long enough one see's patterns of repression and subjugation repeated.

The "REVOLUTION" was not the 60's ....it's what's going to happen in the coming years..built on the first blip where folks got concerned but were fed Pablum (sweet gruel) from Reaganomics/Greenspan/Friedman that took everyone off track.

[dysfunctional press]

17. so...if people save more, and then the dollar collapses...

what happens to all those dollars they've saved?

[Odin2005]

19. Something is seriously messed up with the basic structure of the economy if...

...it needs rampant consumerism to keep it going. Yes, I understand the economics, less spending = less demand = less jobs. But that simply underscores that somethings broken. And what I think is broken is that a person works X number of hours in order to have enough money to spend on consumer junk (I'm assuming the person is making a reasonable wage) that is needed to keep other people employed in order so they have enough money to spend on same junk. If people's real income drops because of inflation, losing a good-paying job to outsourcing, credit drying up, etc. the level of consumption drops and you get positive feedback of less and less income and less and less consumption and thus the whole thing comes crashing down.

[cascadiance]

20. This is another cost of relying too much on credit to float our economy the last decade or so...

Saving might ultimately be a good thing down the road, but by people building up their debt too much, ultimately we have to pay it off at some point, even though the economy needs our spending at the same time. Recovering from our own private debt will delay the economic recovery that much longer, UNLESS!....

We put in place the pre-Reagan tax rates before his top marginal tax cuts and start restoring more balance to income in the economy sooner. That way, more government revenue could be used to create more jobs, and less spendthrifting of those that are unemployed now... And those at the top would spend about the same, but speculate less making or markets more stable and growth oriented so that people could actually gain from their investments instead of getting screwed with the wide pendulum swings that only benefit the criminals doing insider trading ala Goldman Sachs...

FDR already showed us the wisdom of this strategy. We should learn from it and use it again now that its applicable in similar circumstances!

[TexasObserver]

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