Masthead graphic based on a painting by Gudrun Thriemer.

Friday, July 03, 2009

David Goldman, "The rise in savings rates has only begun," Inner Workings, June 22, 2009.

[A word about words. In 1973, Tower of Power asked "What is hip?" Now you can just look it up in your favorite internet dictionary. Today's question: What is stupid? For the answer to that, you have to read the Business Section of your favorite newspaper before the multinational behemoth that owns it goes bust.

In this article, Goldman writes about the US economy and has grown a bit peevish about what he calls "entrepreneurs' rights." I thought entrepreneurs in the neoliberal universe were independent creative types who wanted nothing more than to be left to their own financial innovations (aka scams). But it seems they require certain conditions to be preserved by governments--as long as there are such--to protect their asses, I mean assets. Stealing from the poor and giving to the rich for instance.

This investment analysis business is full of interesting concepts. Back in February we were hearing about the "vicious cycle of thrift" and the "Chinese savings glut." I had always thought that thrift was a virtue even during times when I didn't have it--sort of like sobriety. But no. In the investment biz, everyone can be a six million dollar shortstop. All we need is for consumers to engage in a "virtuous cycle of undisciplined spending."

Governments can set a good example here by "throwing money" at intractable problems. Is Western Civilization "too big to fail?" Too big maybe but not too smart. This week the Bank of Sweden moved to combat the vicious cycle of thrift by dropping interest rates ondeposits to minus 0.25%. That ought to be a good conversational gambit for your company's next cocktail party. That means in Sweden, taking your money out of the bank and putting it in a sock is a good investment. They may not have trillions to throw, but we can all do our bit. I'll have another piece of that pie-in-the-sky please.

Goldman's main theme in this piece actually is the vicious cycle of thrift, but someone has alerted him to how silly it sounds when you say the whole thing all at once. So he breaks it down into pieces and plays it backwards.

He admits that "speculating in human misery" looks bad "at this stage of the cycle" and recognizes that the Chinese are not going to step in and "buy significant parts of the US economy at discounted prices...for the same stupid political reasons."

It's all Obama's fault of course. The dollar is going to collapse because Obama is pals with the UAW. (Unions are for unswerving neoliberals what the Masons are for conspiracy theorists and the Jews are for Nazis.) You have probably already guessed that this means the recession is going to "be L-shaped," which is a euphemism for "last indefinitely"--or until neoliberals get their heads out of their assets, which could take even longer.

Goldman has the moral values of a boa constrictor, but he can read the handwriting on the wall. It is only doom and gloom if you were committed to becoming a six-million dollar shortstop. -jlt]

In a recent post entitled, “The Stealth Deterioration in Asset Quality,” I argued that the rise in the US savings rate had only begun. That implies falling consumption, a weak housing market, and an L-shaped recession as far as the eye can see. That is just what we observe in the household spending and consumption data, as Bloomberg reports this morning [June 22]:

"June 26 (Bloomberg) — Consumer spending rose in May as benefits from the Obama administration’s stimulus plan spurred a jump in American incomes, a sign that efforts to revive the economy are starting to pay off.

"The 0.3 percent increase in purchases was the first gain in three months, the Commerce Department said today in Washington. Earnings climbed 1.4 percent, the most in a year, driving the savings rate to a 15-year high. Another report showed consumer sentiment rose in June to the highest level since February 2008.

"Government efforts to restore the flow of credit and prop up incomes are making it possible for consumers to spend even as unemployment climbs to levels last seen in the early 1980s. At the same time, the wealth destruction caused by the housing slump may force households to keep rebuilding savings, indicating an economic recovery will be slow to develop."


Read the rest of Goldman's investment advice here =>Recommend this Post

Sphere: Related Content