Don’t believe the hype – the recession is not over until consumer spending picks up

Thanks to Rob Patterson for the chart and bringing it all back to basics. Without consumer spending there is no economy and no recovery.

His post Consumer Credit Crumbles – No Spending our way out of recession is more realistic than the media and government who want you to believe the worst is over but it is not.

“Credit is being squeezed on both sides,” said economist Sean Maher of Moody’s Economy.com, adding that lending standards at banks remain tight and consumers are pulling back on their debt.

The last time consumer credit contracted for seven months in a row was in 1991. It has never dropped eight months in a row since the Federal Reserve started tracking it in 1943.

Sorry to go on like this – but against a few of us is this huge mass media machine telling us that the recovery is on its way – after all the market is up!

But on Mainstreet, unemployment is still growing and people are not able to buy stuff

All recent recoveries are led by consumer spending. The dot.com boom of the late 90’s was a strange animal. Fueled by additional spending on Information Technology and a pump in the M1 supply of money by the Federal Reserve, the stock market went on a heady rise. The NASDAQ hit 5,000 based on speculation not earnings. Sound familiar?

When it fell to 1,300, demand for industrial and consumer products plummeted and we headed into recession. The government used housing prices and sub-prime mortgages to pump money into the hands of consumers and off we went for a gay old ride. We fixed up our houses and got that vital granite counter top. There was no bottom to the economy.

Somehow the greedy have forgotten that lesson. Most of the stimulus money in Canada, the US and Europe is going into big business. Business is hoarding the money or passing it around as bonuses.

In the meantime consumers are being laid off work or worrying about survival. They are not spending. They are trying to pay down they credit cards like the chart shows.

The politicians are so dumb this time. They are yelling at each other about getting the stimulus money out while ignoring the unemployed.

The whole recovery program is doomed to fail since it doesn’t prime the economic engine – the consumers you and me. Unless we start spending again the recovery is a long way off.

With the enormous debt they are running up in Washington and Ottawa, the hangover from this spending spree will be long lasting.