Referring to a slightly different version of the MGI report noted below “Tyler Durden” of Zerohedge remarks:
Among US households, debt has fallen by 4 percent in absolute terms, or $584 billion. Some two-thirds of that reduction is from defaults on home loans and other consumer debt. An estimated $254 billion of troubled mortgages remain in the foreclosure pipeline, suggesting the potential for several more percentage points of household debt reduction as these loans are discharged.
That raises another question for me. How likely is it that a sharp decrease in wealth will spur an increase in spending among Americans? I don’t see it.
I might add that the economic strategies of Germany, Japan, and China certainly appear to me to be to wait for the American consumer to propel their slowing economies out of the mire. How likely is that really to happen?
“How likely is it that a sharp decrease in wealth will spur an increase in spending among Americans? I don’t see it.”
Wealth and spending aren’t the same things. Adam Smith commented that though the colonies were far less wealthy than Great Britain, they had much higher incomes and virtually non-existent unemployment. Japan and Germany had furious periods of spending during their reconstruction phases after WWII. The key is to get sufficient flows of money moving through the economy.
You’re missing the point. Let’s say that all of your savings are confiscated and your income is increased by 10%. Will you spend more or less? I think you’ll spend less and save more.
I’ll acknowledge that it’s possible to construct a model under which you’ll spend more. a) I don’t see that anybody is proposing something like that and b) I don’t think that such models are particularly realistic.
Your example (Britain and the colonies) is irrelevant—not on point. We’re talking about the same population not different populations.
I might add that the economic strategies of Germany, Japan, and China certainly appear to me to be to wait for the American consumer to propel their slowing economies out of the mire. How likely is that really to happen?
I’ll get back to you. I’m off to see Waiting for Godot right now……
I am not sure that all spending is rational. We have become acculturated to carrying lots of debt. Can we change that culture? I hope so. (I think Germany is also counting on China to continue buying its high level manufacturing gear. Not sure that happens much longer.)
Steve