Consumer Spending Rises

Though the fear of inflation is minimal right now, government’s deficit spending on this scale is bound to result in higher consumer price levels sometime. How long will it be before this good luck ends up kicking us in the derriere? How? We don’t know, but look at this chart that appeared in The Wall Street Journal. The United States has found its Mt. Potosi.

The US money supply growth was fairly constant for the last 45 years. Then, under pressure from the stimulus/bailout programs, it exploded. Art Laffer says it is meaningless to compare it to anything in our history; nothing like this has ever happened before. He argues that inflation this time could be much worse than the inflation of the ’70s, when the prime rate hit 21.5%. This is a new era!

“More Americans see sunny skies ahead,” says a headline in USA Today. Elsewhere, Bloomberg reports that consumer spending is rising.

The Wall Street Journal, however, reports that savings rates are going up.

How can consumers increase spending and saving at the same time? We don’t know. But the statistics are so jiggled and jived we have little faith in them.

The Richebächer Letter’s Rob Parenteau is scratching his head at this contradiction in trends. “Oddly,” he writes to his subscribers, “along with flat consumer spending, the gross personal saving rate has surged to nearly 7%, yet the unemployment rate has kept climbing. How is that combination possible? Specifically, where is the household sector getting the income growth to both increase saving and stabilize spending levels when job cuts remain alarmingly high?”

“If households try to hike their gross saving rate and the business sector does not increase its investment, then simple junior high algebra tells us that nominal incomes, especially profit incomes, will decline,” continues Rob.

“The only way to avoid this outcome is for the trade deficit to improve or fiscal deficit spending to increase. The trade deficit has come a long way, but it is starting to stall again as consumer spending stabilizes and the pace of inventory reduction slows. The existing fiscal stimulus will have to do the trick until the household saving rate stabilizes and residential and nonresidential investment gets some traction.”

In any case, be wary of statistics – they are furnished by government. And government has its own axes to grind and its own heads to cut off. For example, inflation numbers tend to be held down – in order to avoid costly adjustments to social security benefits. Unemployment statistics, too, tend to be understated. If joblessness was reported in the same way it was during the ’30s, the figures would be much higher. More on this in an upcoming Markets and Money.

Until tomorrow,

Bill Bonner
for Markets and Money

Bill Bonner

Bill Bonner

Best-selling investment author Bill Bonner is the founder and president of Agora Publishing, one of the world's most successful consumer newsletter companies. Owner of both Fleet Street Publications and MoneyWeek magazine in the UK, he is also author of the free daily e-mail Markets and Money.
Bill Bonner

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2 Comments on "Consumer Spending Rises"

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I’ve read recently that we, the US, are a grand total of nearly 58 TRILLION in debt! I guess that the plan was like the old saying, “you owe me $1000 that’s YOUR problem, you owe me $1,000,000 that’s MY problem.” We have borrowed so much that we are now the mother of all “too big to fail.” Plus we have this military monster stationed all over the globe, in the oceans, every continent, in space that says, “TRUMP!” if anyone pushes too hard for payment. Like a giant, global Tony Soprano who contemplates just killing his bookie rather than… Read more »

Bill, I totally agree with you that we should be wary of statistics. The best book on that topic is called “How to lie with statistics” If you give someone a few statistics, they can make them say anything they like

For example- if house prices drop 40%, and then they go up 1%- hey presto they can say “house prices are on the rise!”
-If I make one cent today and two cents tomorrow- hey I just doubled my productivity!

and stuff like that. As Mark Twain said- there 3 kinds of lies: lies, damn lies, and statistics

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