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Sour Mash

Why Aren't People Spending - Coz They Don't Have Any Money!

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Good article exploring house price 'wealth' and consumer spending. In the context of the US but also applicable in the UK:

Guardian - Surprises in store for economists

To put it as simply as possible (so even an economist can understand it), the housing bubble was driving the economy in the period prior to its collapse, beginning in 2007. It drove the economy in two ways. The run up in house prices led to a building boom. Residential construction, which is typically less than 4% of GDP, rose to more than 6%, creating more than $300bn in additional annual demand. A bubble in non-residential real estate added perhaps another $150bn to annual demand.

The bubble also drove the economy through the effect of housing wealth on consumption. Economists usually estimate that $1 of additional housing wealth increases annual consumption by between 5-7 cents. This implies that the $8tn of housing bubble wealth would lead increase consumption by $400bn to $560bn a year.

With most of the bubble wealth eliminated by the collapse of house prices over the last three years, we should expect a sharp drop in consumption.

..

There seems very little room for argument in this story. The existence and housing and stock wealth effects are among the least questioned propositions in economics. Nor is there too much dispute about their size. How could any economist see the collapse of an $8tn housing bubble and the destruction of more than $6tn in stock wealth and not expect to see a substantial decline in consumption?

Yet, we have dozens of economists being cited in newspapers and broadcast news, all saying that they are surprised by weak consumption. If anything the surprise should be that consumption is still as strong as it is. The saving rate is still near 4%, far below its historic average. Why on earth would any economist expect it to go still lower?

The reason that consumers are not spending more money has nothing to do with attitudes. The reason that most consumers aren't spending is the same reason that homeless people don't spend much money: they don't have any.

At last someone just plain lays it out in the mainstream media.

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Good article exploring house price 'wealth' and consumer spending. In the context of the US but also applicable in the UK:

Guardian - Surprises in store for economists

At last someone just plain lays it out in the mainstream media.

The spending in the good ol' USA is actually being held up by mortgage defaulters simply stopping payments and spending more on general living - so says a recent study.

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The spending in the good ol' USA is actually being held up by mortgage defaulters simply stopping payments and spending more on general living - so says a recent study.

It's pretty obvious that the Western economies will ultimately default as the debt is too huge to repay without depressing the economies for a decade or more. The most expedient way to default if you are a sovereign government is just to print up currency - that way you don't overtly fail to repay, the books stay balanced and you can covertly steal from the portion of the population who have been prudent.

It's a no-brainer and the pressure to print once we tip into outright deflation again will be irresistible. You can see the pro-printing crowd starting to pipe up again in the media: "The first batch of printing was good but not enough - Let's print some more!" is the mantra....

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It's pretty obvious that the Western economies will ultimately default as the debt is too huge to repay without depressing the economies for a decade or more. The most expedient way to default if you are a sovereign government is just to print up currency - that way you don't overtly fail to repay, the books stay balanced and you can covertly steal from the portion of the population who have been prudent.

It's a no-brainer and the pressure to print once we tip into outright deflation again will be irresistible. You can see the pro-printing crowd starting to pipe up again in the media: "The first batch of printing was good but not enough - Let's print some more!" is the mantra....

What happens to the prudent if the economy implodes?

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What happens to the prudent if the economy implodes?

By definition, if you've been prudent you should be in a relatively better position than the profligate when the economy hits hard times.

And it's not as if money printing and the resulting inflation is going to be the magic bullet for avoiding economic problems as you seem to be implying, you just get a different set of problems.

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The spending in the good ol' USA is actually being held up by mortgage defaulters simply stopping payments and spending more on general living - so says a recent study.

Thats a good idear , the government should be urgging us to adopt that policy over here.

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The solutions to these problems will be unpleasent or dull. It'll all take a long time to be dealt with, maybe the rest of your working life, it'll be boring, or exciting in an unpleasent way. These problems took a long time to form, and they will take a long time to go away.

If there is going to be a lot of drama, that drama will happen within the next 10 years.

Here are various ways you could get out of the situation:

  • Debt is wiped clean - debtors keep the goodies
  • Debt is wiped clean - lenders keep the goodies
  • Printy printy. Debt is printed away with high inflation
  • Abandoning of the current economic system for communism or something new
  • War with the booty used to fix financial problems
  • War used as an excuse to do a default on international creditors
  • Grind - Debts payed off slowly
  • Revolution used as an excuse to default
  • Try one of above, have a revolution, try another option, have another revolution, repeat.
Edited by Della

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It's pretty obvious that the Western economies will ultimately default as the debt is too huge to repay without depressing the economies for a decade or more.

a decade of depression doesn't make the debt any more payable than it is now, in fact it becomes even less payable.

The most expedient way to default if you are a sovereign government is just to print up currency - that way you don't overtly fail to repay, the books stay balanced and you can covertly steal from the portion of the population who have been prudent.

don't forget that bad debts imply bad savings. That is that if those dodgy loans had never been made then the prudent savings would either not be there or would be much reduced.

it is difficult to claim that you have prudently acquired ponzi savings and that therefore they should be spared. in fact the more prudent you have been and the more savings acquired one might then say, the more this person has benefited from the bubble.

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don't forget that bad debts imply bad savings. That is that if those dodgy loans had never been made then the prudent savings would either not be there or would be much reduced.

it is difficult to claim that you have prudently acquired ponzi savings and that therefore they should be spared. in fact the more prudent you have been and the more savings acquired one might then say, the more this person has benefited from the bubble.

Well, the problem with the creation of 'bad' credit (created by banks loaning irresponsibly) is that you can't differentiate it from 'good' credit (created by banks loaning responsibly to borrowers who can pay it back) once it's in the system.

However, that doesn't mean that those who ran their financial affairs prudently by living within their means and accruing savings from the credit in the system are somehow in the wrong or are share the guilt of the greedy bankers who flooded the markets with credit ... what a bizarre notion :rolleyes:

You can't run capitalism without capital and savings should be the basis of bank capital.

Still, people seem to want the magic bullet every time there is a problem these days and inflation appears to offer the easy path out so one more reason why we'll get it.

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http://finance.yahoo.com/banking-budgeting/article/109816/hey-big-spender;_ylt=Avkp13MxFi8lq1IrCN.9uSq7YWsA;_ylu=X3oDMTE2aGY5cnRzBHBvcwMxMARzZWMDdG9wU3RvcmllcwRzbGsDcmV0YWlsZGF0YXB1?mod=bb-budgeting&sec=topStories&pos=8&asset=&ccode=

Where are the big spenders, now that we really need them?
More from MarketWatch.com:
.
Deflation now a virtual certainty
• We're in the Eye of the Financial Storm
• Obama Chastises BP, Lays Out Spill Strategy
• Fannie, Freddie to Scrap NYSE Stock Listings
The unexpected decline in May's retail sales has many economists questioning the strength and durability of the nascent recovery.
This was the first month-to-month retreat for retail sales since last autumn.
What is more, it was pretty much across the board — even if you exclude autos.

Whats that sound, goin round? Its the sound of consumers no longer spending. It always begins in America but it doesn't stay there because we did the same sh*t.

Edited by Realistbear

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However, that doesn't mean that those who ran their financial affairs prudently by living within their means and accruing savings from the credit in the system are somehow in the wrong or are share the guilt of the greedy bankers who flooded the markets with credit ... what a bizarre notion :rolleyes:

I was not saying that the prudent have done anything wrong, merely that the electronic numbers they have accumulated don't (all) represent real wealth for which the numbers could be redeemed.

That is what I mean by ponzi savings. For example, a person who bought a second house in 1998 and sole it in 2006 has garnered much ponzi savings. These savings are not real wealth and sooner or later MUST be defaulted on at least in part.

Also bear in mind that part of the reason rates have gotten so low is that too many people worldwide have been trying to invest and accumulate capital and not enough people have been actually buying stuff with their own money (as opposed to credit). If you have a bunch of prudent types who won't spend and all want to invest then unless there are matching less prudent types would like to spend and borrow, you have no economy and the prudent types would be frustrated in their desire to save.

A prudent economy is one that aims to insure that the level of investment is balanced with the level of non-credit-based consumption, because anything else leads to economic failure and excessive indebtedness

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I was not saying that the prudent have done anything wrong, merely that the electronic numbers they have accumulated don't (all) represent real wealth for which the numbers could be redeemed.

..because they have been lied to.

That is what I mean by ponzi savings. For example, a person who bought a second house in 1998 and sole it in 2006 has garnered much ponzi savings. These savings are not real wealth and sooner or later MUST be defaulted on at least in part.

..because they have been lied to.

Also bear in mind that part of the reason rates have gotten so low is that too many people worldwide have been trying to invest and accumulate capital and not enough people have been actually buying stuff with their own money (as opposed to credit). If you have a bunch of prudent types who won't spend and all want to invest then unless there are matching less prudent types would like to spend and borrow, you have no economy and the prudent types would be frustrated in their desire to save.

Bilge. Real savings don't require anyone else and certainyl don't require debt.

A prudent economy is one that aims to insure that the level of investment is balanced with the level of non-credit-based consumption, because anything else leads to economic failure and excessive indebtedness

pfft there are only individual human beings, there is no economy in this sense.

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I was not saying that the prudent have done anything wrong, merely that the electronic numbers they have accumulated don't (all) represent real wealth for which the numbers could be redeemed.

That is what I mean by ponzi savings. For example, a person who bought a second house in 1998 and sole it in 2006 has garnered much ponzi savings. These savings are not real wealth and sooner or later MUST be defaulted on at least in part.

Also bear in mind that part of the reason rates have gotten so low is that too many people worldwide have been trying to invest and accumulate capital and not enough people have been actually buying stuff with their own money (as opposed to credit). If you have a bunch of prudent types who won't spend and all want to invest then unless there are matching less prudent types would like to spend and borrow, you have no economy and the prudent types would be frustrated in their desire to save.

A prudent economy is one that aims to insure that the level of investment is balanced with the level of non-credit-based consumption, because anything else leads to economic failure and excessive indebtedness

Because 'bad' bank credit is the same as 'good' bank credit you can't really say with any certainty that someone who accumulated wealth through managing their finances sensibly (vs maxing out their credit) in the boom years shouldn't be as well off as they are. It's certainly likely that many people benefited from the credit boom on the basis of a rising tide floating all boats though - but that's just the way things were and it's down to the individual to react to the market as they find it. Plenty of people managed to run up absolutely massive debts at a time when it was never so easy to earn money and stash it away. Gordon Brown and his ballooning of the PSBR at a time of record tax takes springs to mind ...

That wasn't the point I was making though - people who accumulated savings through being fiscally sensible should not be robbed to bail out the spendthrifts. Undermine the principle of saving and prudence and you are headed for an all out crack-up boom. Of course, I recognise that deflation would likely rob unwary bank account savers of their 'money' through the bank owing them credit going bust. In the unlikely event of real deflation, savers will have to be smart to preserve their wealth.

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Why are people not spending? they don't have the money!

They are not spending:

1. they don't have the money

2. they don't need to spend the money

3.they don't want to spend the money.

4. they would rather save their money.

5. they are uncertain about the future and job.

6.they would rather save for things they want.

7.spending they haven't got doesn't make them feel better.

8. wasting money doesn't make them feel better.

9.spending money you haven't got makes them poor.

10.spending money you haven't got makes others rich.

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So many economists are now whoring for whatever 'think tank' or institution that employs them that it renders any claim to objectivity they might make absurd- they express the 'opinions' their paymasters would like expressed. The 'science' of economics- with a few notable exceptions- has become totally corrupted by the money that owns it.

As a result they are constantly taking positions that are based in ideology rather than reality, and are therefore constantly 'surprised' when the real world fails to conform to whatever half baked pseudo intellectual model they are currently employed to promote.

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  • 140 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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