2012 March 06 | timiacono.com

Unsustainable Consumption

Every time I read a story like this one today in which “leading economists” talk about the importance of the American consumer in powering economic growth or when talking heads on TV casually note that consumption accounts for 70 percent of all economic activity here in the U.S., I think back to this data series:

I don’t know what would make anyone think that the 70 percent figure is anything but worrisome, especially with government spending accounting for another 20 percent or more. That leaves the combination of domestic investment and net exports contributing less than 10 percent (net exports being negative for quite some time), yet, economists and news anchors repeat this “consumers account for 70 percent of the economy” over and over as if it were some kind of economic law which it is certainly not.

Future historians will no doubt look back someday while scratching their heads and say, “I don’t know why on earth they would have thought that was sustainable”.

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This Bloomberg report on the impact lower bonuses are having on Wall Street’s finest serves as another reminder that, like elected officials in Washington, Americans throughout much of the rest of the country have more of a spending problem than a revenue problem.

Andrew Schiff, brother of  doomsayer Peter Schiff of Euro Pacific Capital, laments the high cost of private school tuition, living in New York City, and four month long summer vacations in Connecticut that have become difficult to bear on his $350,000 income.

While Andrew won’t get much sympathy from the rest of the country that struggles to make ends meet on a 10th of that income or less – and that is, perhaps, the more important story here – it does illustrate the point that, at just about every income level, many Americans are doomed to financial failure simply because they spend too much money.

I’ll never forget Lakers owner Jerry Buss who, back in the 1980s, famously said that all you have to do to become wealthy is to spend less than you make and to keep doing this over many, many years.

It’s a simple formula, actually.

Yet, in a society where image seems to be everything and buying things you don’t need with money you don’t have is a way of life, that simple wisdom seems about as relevant today as the idea of paying off your mortgage.

I find it hard to conjure up much sympathy for people like Schiff and the primary reason why is that, for decades, I’ve approached personal finances in a completely different way, one like Jerry Buss recommended and which may someday soon come back in style.

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Can Consumer Confidence Go Any Higher?

The final February data on consumer confidence is now in over at Gallup and they report that, after the American mood darkened slightly a few weeks ago, economic confidence ended with its sixth straight monthly gain as depicted below.

What’s interesting about the graphic (as well as with other similar surveys) is that we’ve been here before but have never been able to move higher.

In a separate, less frequently conducted survey at Gallup, the percentage of Americans who think the U.S. economy is growing has reached a new recovery high at 40 percent. While this is good news, it’s worth pointing out that some 46 percent of those polled say the economy is still either in recession or depression.

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Tuesday Morning Links

MUST READS
Gas prices break 27-day rise – CNN/Money
Stocks Fall as European Economy Contracts – Bloomberg
Obama holds news conference, unveils housing plan – AP
As an Adviser, Goldman Guaranteed Its Payday – DealBook
Greece bubbles towards a third bailout, boiling point – Telegraph
How all CDS are at risk of not paying out – Salmon, Reuters
Credit Default Swap Fraud Exposed/Confirmed – Implode-O-Meter
IBM’s Watson Gets Wall Street Job After ‘Jeopardy’ Win – Bloomberg
Fed Study of Student Debt Outlines a Growing Burden – NY Times
How College Education Has Become A Giant Money Making Scam – American Dream
Dozens arrested protesting education cuts at California – Reuters
Wall St. Bonus Withdrawal Means Trading Aspen for Cheap Chex – Bloomberg
4 big myths about Wall Street bonuses – MarketWatch

MARKETS/INVESTING
Oil slides to $106 on global growth concerns – AP
Gold falls below $1,690/oz as euro slides – Reuters
Insiders as bearish now as last April – MarketWatch
Buy-and-Hold Can Not Die – The Aleph Blog
‘Peak Oil’ is back with a vengeance – Today Online
Billionaires Buy Petrol Ships as Cargoes Expand – Bloomberg
A volatile ride ahead to far higher gold prices – Mineweb
Sentiment hit hard by gold sell-off – could be more to come – Mineweb
Hong Kong gold exports to Mainland China dips in January – BullionStreet
Mining market funk to wane as PDAC engenders optimism – Mineweb

ECONOMY/WORLD/HOUSING/BANKING
Under $2 a Day in America, Part 1 – off the charts
AP survey: More optimism about US jobs and economy – AP
How Does Anybody Make a Living These Days? – LewRockwell.com
In China, Sobering Signs of Slower Growth – NY Times
Goldman Secret Greece Loan Reveals Sinners – Bloomberg
How the IMF reasserted its power in Greece’s debt crisis – Washington Post
Spain tries to head off deficit rebellion in regions – Reuters
Overall Decline in Shadow Inventory Masks Big Regional Differences – S&P
Home price declines resilient against REO saturation: Clear Capital – Clear Capital
Fed’s Fisher “Perplexed” By Wall Street “Fetish” With QE3 – Zero Hedge
Richard Fisher: QE3 would be like ‘medical malpractice’ – CNN/Money
Seventeen Years of Boom and Bust – Mises
Fed Up with the Fed – Ron Paul

 
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