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View Diary: Welcome to the Wonderful World Of Commodity Inflation (175 comments)

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  •  Until we see an actual decline in consumer (2+ / 0-)
    Recommended by:
    testvet6778, Skjellifetti

    spending (and I mean a real decline, not just a lower rate of growth), the overall economy will chug through this mess.  Most economists are still forecasting retail sales to grow at 4+% this year, which is not too bad considering all of the problems we hear about here everyday.

    •  "My fellow former millionaires" (14+ / 0-)

      That's what the head of National City Bank quipped in a toast at a party in Churchill's honor held the week of the 1929 crash. It got a laugh because many didn't realize how true it was yet. There was an idea that the fundamentally sound US economy was decoupled from the speculative bubble in the stock market. It took several years to play out, with many false rallies intervening.

      For New Years 1930, the New York Times gave some pro and con views on the outlook for the economy (the market had fallen about 16% in 1929), summarized in Rainbow's End: The Crash of 1929:

      PRO: In broader terms, argued the optimists, nothing could stop industrial expansion given the continued growth of the nation's population and wealth. By one estimate total income had risen from $69.6 billion in 1924 to $81 billion in 1928. Production had to increase to meet "this rapidly increasing power to purchase." CON: The estimates of increased annual income did not carry with them estimates of expenditures. Moreover, "no one can be sure... how far the yearly increment of wealth and buying power will have been affected by last Autumn's losses in stock speculation." After all, income fell from $65.5 billion in 1920 to $55.8 billion the next year during that slump. Then, too, it was always possible that in a consumer economy people would spend more than they earned until it was no longer possible to do so.

      In this case rather than a stock bubble we have a collapse of a real estate bubble (and home equity loan bubble), weakening jobs numbers (a net fall of 4,000 last month instead of a predicted increase), falling consumer confidence and signs of retail weakness just coming in. Moreover, mortgage securities have been leveraged by hedge funds well beyond any stock leveraging back in the day.

      So it's interesting that today we see arguments that the general economy is decoupled from the "subprime" collapse, and even that "high end" retailers are decoupled from problems at "low end" retailers like Target. Until recently, Target's relative success was attributed to consumer's eschewing "low-end" Wal-Mart for something a bit more upscale. Now Target is low-end and we are moving up the social ladder.

      •  A few things to remember (1+ / 0-)
        Recommended by:
        Skjellifetti

        One, the US economy was already on its way to depression prior to the crash.  Two, replacement consumerism had not yet been born.  Three, there were no employment protections.  Finally, let's remember that Target et al are still predicting sales to be up from last year, just not as much up as previously hoped.  Until we see actual declines I will stick by the consumer.

      •  Endgame coming (2+ / 0-)
        Recommended by:
        3goldens, sravaka

        This is where we are now:

        It was always possible that in a consumer economy people would spend more than they earned until it was no longer possible to do so.

        Most of the consumers below the top ten percent or so have given up on the long term.  They're just getting through today, whatever they have to borrow to do it.

        With all his noble qualities...man still bears in his bodily frame the indelible stamp of his lowly origin--Darwin

        by MadScientist on Tue Sep 25, 2007 at 11:25:43 AM PDT

        [ Parent ]

    •  I will bet on that (9+ / 0-)

      I will bet that merchants have a miserable Christmas.  

      This is us governing. Live so that 100 years from now, someone might be proud of us.

      by marthature on Tue Sep 25, 2007 at 08:01:34 AM PDT

      [ Parent ]

      •  I'll second that (2+ / 0-)
        Recommended by:
        3goldens, MarketTrustee

        I agree. If anything we're talking about here makes any sense, we should expect people to spend less. I have already told my kids we're changing Christmas this year: one present each -- something they really want or need -- and small gifts to people in the community who deserve a helping hand (like the convenience store clerks and others who are always nice to us but make peanuts).

        "There are four boxes to use in the defense of liberty: soap, ballot, jury, ammo. Use in that order." Ed Howdershelt

        by JuliaAnn on Tue Sep 25, 2007 at 11:00:20 AM PDT

        [ Parent ]

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