Why is no one talking about the headwinds facing consumption in this country and what effect it will have on the U.S. and world economies?
The United States is by far the largest economy in the world, and consumer spending represents 70% of our GDP. Over the past 30 years, U.S. consumption has had a wildly positive growth affect on the rest of the world.
Our consumption was fueled by four accumulative forces:
*the doubling of consumer debt from 1980 to 2007
*the tripling of government debt from 1980 to 2012
*a 500% reduction in interest and mortgage rates from 1980 to 2012
*the ability to borrow money with little proof of income, from 2004 to 2007
These forces created a firestorm of consumption felt around the world. Unfortunately, they have run their course and will not be repeated in our lifetime. In most cases they are reversing course and will have an opposite and negative effect on consumer spending.
*consumers are now shedding debt
*state and federal governments are in a fight to the death to cut deficits, with the same occurring in Europe.
*interest rates are at a multi generational low. Even if rates just stay flat, they will not provide the kind of multiplier that falling rates have had.
*consumers have lost over 40% of their net worth, leaving them with little collateral for borrowing, let alone surviving the new onerous lending regulations.
These enormous macro economic trends are nearly impossible to repeat. If we had just one of them today, we would greatly reduce unemployment. But sadly, we have not even one.
Can someone please explain to me where consumers will find the money necessary to continue the excessive spending that created the greatest prosperity the world has ever seen.