Saturday, September 20, 2008

US News and World Report: The End of the Shopaholic Nation?

Ideas we've been presenting since blog inception i.e. the Pooring of America - are starting to gain fame in the mainstream media. Again, gas dropping 50 cents is not going to fix the consumers problem. I don't care what the consumer stocks rally is "telling us" - that's just hedge funds running in and out of stocks to create a return so they can make their quarter.

You have a nation built on 25 years of easier and easier credit, and that credit is drying up by the day. Then in the past decade as the middle class loses its buying power and wages do not keep up with inflation it only exaggerated the problem. To stay afloat and or "live the American lifestyle" many resorted to pulling every lever they have. Now the bill will be coming due. I wrote a lengthy piece detailing this here[Due the Bottom 80% of Americans Stand a Chance?]

Our government is like a subprime mortgage customer (except they can create monopoly money as opposed to normal humans) - and many people in the country have either been reckless in spending and/or desperate and forced to borrow to keep going. It all adds together. It is all cumulative. There is no "one event" so it's not a sexy story like a bailout. But this is what is happening in the bottom 2/3rds of America slowly but surely. The erosion of the lifestyle - I do believe this will be the first generation who does not live as well as their parents. Again, to pay for our future obligations, services/spending will have to drop at both the federal and state levels OR taxes will need to go up across the board. And you know spending is almost never cut.... that will just be another impairment on Americas over the next 20 years.
  • When it comes to longevity, few royals can top America's King Consumer. For more than four decades, our shopaholic nation has shown an insatiable desire to spend until our credit cards melt. And throughout this era, consumer spending has, well, consumed a greater and greater share of our total economy.
  • Only twice since 1965, despite half a dozen recessions, have Americans spent less in a year than the previous one. Indeed, it often seems that we have defined ourselves by our ability to buy supersized everything, from McMansions to tricked-out SUVs to 60-inch flat-screen televisions -- all enabled by decades of cheap credit.
  • Yet today, America finds itself at a once-or-twice-a-century economic tipping point. A sharp slowdown, record-high gas prices, high consumer debt levels, a plunging real-estate market and the growing green movement all seem to be conspiring to dethrone King Consumer and transform the economy and the American way of life for years to come.
  • "The process of bringing our wants and our needs into realignment," says Merrill Lynch economist David Rosenberg, "is going to involve years of savings and frugality." Or, to put it more simply, "there is an anti-bling thing going on," says Marian Salzman, the chief marketing officer of Porter Novelli, a public-relations company.
  • Many consumers, of course, don't have much choice but to scale back. Total credit card debt has increased by more than 50% since 2000. The average American with a credit file is responsible for $16,635 in debt, excluding mortgages, according to Experian, and the personal savings rate has hovered close to zero for the past several years. High gas and food prices are causing real incomes to fall.
  • "We're shedding jobs, it's much harder to borrow, and what used to be capital gains are now capital losses," says Scott Hoyt, the senior director of consumer economics at Moody's "There's no source of funding for spending."
  • Consumer spending has risen to just more than 70% of the U.S. economy from a bit more than 60% in 1965.
  • In a recent survey, she found that 90% of respondents said they were considering options for "the simpler life," and 84% said they were inclined to buy "less stuff."
  • And because consumers often learn their lifetime shopping habits during their developmental years, Mandy Putnam, a vice president at TNS Retail Forward, a market research company, says members of Generation Y may be permanently shaped by today's lessons in austerity, much as their great-grandparents were by the Great Depression.
  • But what happens when budgets aren't so tight? Plenty of hardheaded economists say we'll go right back to our prodigal ways. Alan Blinder, an economics professor at Princeton University and a former Federal Reserve vice chairman, thinks that optimism and the drive to spend are hard-wired parts of America's cultural DNA. Blinder expects that even baby boomers will continue the spending spree that has defined most of their lives, buying medical care and golf vacations instead of new cars and larger homes.
  • "We're at a critical moment," says Benjamin Barber, the author of "Consumed: How Markets Corrupt Children, Infantilize Adults, and Swallow Citizens Whole." "In two or three years, we might say, 'We had a moment where the banks were broke, credit cards didn't have much credit left, when Americans were beginning to rethink consumerism, when we really could have turned the page,'" Barber says. "Or we might be saying, 'We talked ourselves back into the old fixes,'" such as rebate checks and even telling Americans directly to go out and spend, as President Bush did after 9/11.
  • With baby boomers' habits well-ingrained, it may instead be members of Generation X and Generation Y who decide to embrace a simpler, less wasteful lifestyle, rebelling against the conspicuous consumption that their parents helped make the American way of life. (or they might have no choice but to downgrade the lifestyle)
[Sep 7: Newsweek - Get Ready for the Pain of Paying]

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