by Rob Horning
It was thought to be impossible, as impossible as house prices falling simultaneously nationwide, but the American consumer has stopped spending. Even when the savings rate went negative in the midst of the housing bubble, many economists took to the op-ed pages to proclaim this perfectly rational and nothing to fear. People were saving through appreciating asset prices, we were assured. Consumer-led recessions were things of the past; we'll never run out of money.
Now asset prices are falling across the board. And with retail spending recording a record drop in October, the economy has officially begun to contract, with GDP shrinking in the third quarter of 2008.
In the past, it was presumed that we could spend our way out of recessions, this one is different. Economist Nouriel Roubini has compiled an exhaustive list of 20 reasons, but they basically boil down to what Morgan Stanley analyst Stephen Roach argued in a New York Times editorial on Black Friday: "In an era of open-ended house price appreciation and extremely cheap credit, few doubted the wisdom of borrowing against one's home. But in today's climate of falling home prices, frozen credit markets, mounting layoffs and weakening incomes, that approach has backfired. It should hardly be surprising that consumption has faltered so sharply."
We are becoming poorer and probably feel poorer than we are, judging by consumer confidence figures. Even Best Buy's CEO declared recently that "rapid, seismic changes in consumer behavior have created the most difficult climate we've ever seen." Former financial analyst and tech-bubble booster Henry Blodget concurs in this post:
For 30 years, we piled on debt and then spent almost every new penny we got. This borrowing spree was made possible by a smorgasbord of no-money-down lending products and ever-appreciating asset prices. Unfortunately, the situation has now changed. The lenders who created those products have now been demolished, and asset prices are falling fast. And this is leaving American consumers with no choice but to cut back.
Not long ago, it seemed as though nothing could make us give up consumerism voluntarily - not impending global warming, not our awareness of the futility of quickening our pace on the hedonic treadmill, not the tech crash, not the blight of hipsterism, not the forced nostalgia, not the hypermediation and reification of every aspect of life, not anything. So what happens now that the impossible has become reality? How will American consumers change their behavior, now that it appears that they have no choice? And should we be pleased about these apparently inescapable changes?
http://www.popmatters.com/pm/column/68743-depression-modern/
