Monday Thoughts – Can Not Spend to Growth


Nigel Gault, chief U. S. economist at IHS Global Insight in Lexington, Massachusetts, said, “We’re heading to a sluggish recovery. We’ll get more support from government programs in the second half, but if you want a strong recovery you need a strong consumer, and we are not seeing that.”

excerpted from Bob LeClair’s weekly Finance & Markets Newsletter 8.2.09

Is he serious? We need to see a strong consumer? What country was BUILT on a strong consumer? Our ‘strong” consumer is the result of decades of investment,  industry growth and security built by a real economy. This last 30 years transformation into an intangible service economy where everyone spends everything they have then borrows on their house to spend MORE is the natural result of a wealthy, bored country, secure from most outside dangers and secure from lack of food, water, and energy looking for thrills in consumerism.

With that said, I’m getting a bit tired of people with academic economic training saying stuff that just does not make sense. Folks, let’s be clear about what happened economically over the last decade:

1. People tried to speculate their way to prosperity in the 1990’s with government and private economists cheer-leading – didn’t work

2. Then we tried to borrow & spend our way to prosperity with the housing bubble and AGAIN government and private economists were cheering madly.

3. Finally we are trying to print our way to prosperity as the Federal Reserve “prints” massive amounts of money effectively doubling the money supply – and again our government and private economists (like the guy quoted above) are calling for more wrong policies (more consumer spending) as they cheer lead the Fed’s money printing and the Bush/Obama! policies of ensuring 70% of our tax revenues goes to debt interest payments (thanks guys, seriously).

Let’s be clear – if we want REAL growth, we need to INVEST. When we throw money at problems or try to borrow our way to prosperity, all kinds of bad things happen. Many people still think in order to reinvigorate the economy, we need to:

1. restart the housing market or

2. get consumers to spend again and STOP saving (I can’t believe this but there are many people (including some moron Harvard economist) that believe you should not be saving, you should be SPENDING! They have ideas such as making 1/10 of the paper money supply worthless by government rule so you’ll go spend it! I’m speechless – almost – on that one), or

3. restart lending by making loans available this time to people with NO pulse (they at least checked for pulses in the mortgage boom), or  etc…

Folks – people want to save. They want savings for security and because they know now they can not skip saving and investing and simply count on a booming stock market or booming real estate market to ride them to retirement bliss.

Investing will help growth this country – also, we must accept there was a huge CORRECTION from massive EXCESSES and that this trouble period is a cleansing process (if policymakers will let it be so). Bailing out deadbeat companies such as AIG and GM are BAD – yes short term their failure would hurt, but now long term, we have less money to invest in growth and we supported POOR operators which kept potential GOOD business operators from moving in – killing the innovation process.

Bottom line – the consumer can’t spend because the consumer is broke and possibly losing his house, job, wife, and whatever else. We’re not going to revive spending. But if we invest, then in the coming years, new industries will flourish, new jobs will be created and growth will start as risk-taking entrepreneurs seek out opportunity and grow their ideas into going concerns. This will take time, which I know, is almost impossible in American politics/lifestyles – the idea of waiting for something that is – but it is the BEST way to go and to ensure a slower, stabler, and less boom/bust type of growth.

But When government/economists are focused on one part of the economy (boosting house prices for example – which can’t be done on rising unemployment plus lower prices let more people buy) then the problem is never allowed to run its course and get resolved.

Chris Grande