Gary Shilling: If we have a consumer-led recession it will be very different to previous post-WWII recessions which were always led by the Fed.
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“If we have a consumer led recession..”What a silly comment.
Consumers are suffering because the real productive capital is being destroyed by government and central banks policies for decades and unfortunately they increasing in scope and size. Why do you think consumers are slowing their spending especially using credit? The private sector is de leveraging whilst governments and central banks are doing the opposite. Why is the private sector de leveraging? Common sense and rational thinking will provide the answer to such questions and i am assuming readers are so endowed so i won’t bother to provide the answers.
Schilling is another one of these mainstream analysts who just cant get his head around sound economic theory.
A consumer-led recession — I think you just described one.
Colin, consumers are the victims of bad policy – their sentiment and actions follow bad policy decisions which create poor economic conditions. It seems that you and people like Shilling seem to believe that policy actions should target consumers which it is hoped will avoid bad economic conditions and outcomes .
Increased savings and real capital formation(investment) are fundamentally necessary prerequisites for real economic growth. Real capital is being destroyed by bad policy which is the CAUSE of bad economic conditions and lower consumption is the RESULT ( amongst others).
Hope this clarifies my point.
Consumers are reacting as they have in Spain, Greece and in other countries to bad policies which in turn caused bad economic conditions such as low capital investment, reduced production and higher unemployment. The situation in such countries clearly demonstrate that consumers are not leading recessions – they are the victims of what leaders ( government and central bankers) do and not do.
If you and Shilling are suggesting that consumers are the only ones suffering and and their suffering is leading the recession then may i ask who else can suffer? Is not all production geared for eventual consumption? we are all consumers are we not? That does not mean Consumers are leading the recession – implying that they causes it.
Colin , i believe i could not put it any clearer.
Regards
We are not suggesting this at all. We seem to agree. Consumers are suffering from bad policy and reacting in a rational manner by reducing consumption and paying off debt.
Colin, then you would agree the comment “If we have a consumer led recession…’ is plain wrong. Unfortunately most economists and financial commentators make the same or similar comment.
Consumers do not lead recessions. Ever. Full stop. Name one recession that was led by consumers.
Recessions are led almost always by policies and actions of banks and/or governments. Consumers follow. Consequential actions by consumers such as ‘tightening the belt’ so to speak are the outcome of what came before and caused by banks and/or government . Any student of economic history would come to such conclusion. Current recessions and those to come in the immediate months and years ahead are no different.
Regards
I have no issue with the phrase “consumer-led recession” as opposed to a “Fed-instigated recession” where the Fed raises interest rates. The Fed has kept rates low but consumers are deleveraging contrary to the Feds wishes. Consumer behavior is perfectly rational and no blame is attached.
Balderdash!!
People especially those with above average intelligence should state what they mean and mean what they say. Shilling’s comment is not only wrong it is silly. If Shilling meant a “Fed-instigated recession” or any other meaning he should have said so. He did not so we need to take his comment as it is written.
…or spoken
You may have misunderstood me. Shilling says that this is the only post-WWII recession that is consumer-led; the others were Fed-instigated. His labeling of the recession as consumer-led does not imply (consumer) culpability — as I think you have interpreted it.
deBeers is correct that consumers are rationale. They responded to bad economic policies by going on a 30-year spending binge using the stock market and their homes as ATM’s. Now current FED policy seems incapable of getting consumers to spend more. Consumers are responding to current conditions by paying down debt regardless of interest rates and government programs.
I agree with Shilling that this recession is different than previous post WWII recessions which resulted from FED efforts to slow the economy. This recession is occurring despite FED efforts to stimulate the economy.