7 ms·

You don't realize that this economy - levered to the hilt - NEEDS the consumer to spend money they don't have to keep it going. If the American consumer started

You don't realize that this economy - levered to the hilt - NEEDS the consumer to spend money they don't have to keep it going. If the American consumer started developing financial discipline starting tomorrow, that's incredibly bearish for stocks. (Of course, that's probably a good thing for the long run)

MattGaiser 6y ago
Except that savings for tomorrow would probably end up in the stock market. Otherwise inflation kills them. So I would be interested to know would happen here.
- ceejayoz 6y ago
  Inflation doesn’t “kill”. You lose a percent or two a year. Put the savings in a no-penalty CD for emergencies and even that gets better.
- karatestomp 6y ago
  > Except that savings for tomorrow would probably end up in the stock market. For far lower returns. With reduced demand, there's not much for that extra money to do. To the extent investment drives growth it's when it goes into innovation (R&D) or if businesses have demand but are capital constrained (and I suspect even that's more like speeding up than creating growth, exactly—you just get 5% growth now instead of 2.5% over two years, or whatever). Sure maybe you could spend it on advertising and marketing but all that can do is get us back to "people spend too much".
  - bgorman 6y ago
    How does one draw the line between necessary marketing/sales expenses and unnecessary ones? Even some of the most "innovative" companies like Apple spend billions on advertising. I don't have an MBA but it seems pretty much impossible to sell new products without an advertising budget.
    - karatestomp 6y ago
      Right but if the premise is “there will be lots of investment because people are spending less and saving more” then all that invested money can’t go into marketing or advertising without getting right back to a low-savings society, unless that spending is ineffective. So that leaves R&D I guess since there’s not much else for that extra money to do. Plus lower returns on equities.
- brewdad 6y ago
  As the stock market becomes "overvalued" some investors pull their money out and invest in other "undervalued" assets. Real estate has been a major asset of choice over the past decade. Perhaps that will continue or some new asset will come into vogue.
nostromo 6y ago
US consumers really aren't so bad. Savings rates have been inching up ever since bottoming out around 2005. https://tradingeconomics.com/united-states/personal-savings https://tradingeconomics.com/united-states/personal-savings
- jhwang5 6y ago
  Now try 1) plotting that against household debt, 2) and against other countries.
  - vonmoltke 6y ago
    Household savings (latest): https://data.oecd.org/chart/5VU5 https://data.oecd.org/chart/5VU5 Household debt (latest): https://data.oecd.org/chart/5VU6 https://data.oecd.org/chart/5VU6 You can play with the charts to plot trends for as long as the OECD have data for each value. The position of the US isn't great, but it isn't terrible either.
    - jhwang5 6y ago
      These are aggregate metrics - in a country like the US that's in top 5 in terms of income gini-coefficient, I suspect medians will paint a very different picture.
rv-de 6y ago
It's like a lemon being squeezed harder and harder. As long as people have some money they can spend - no matter where the money is actually coming from - our economy will try to incentivize it and lure consumers into consuming. That's why I find the idea of this system collapsing frankly quite amusing. Actually I hope for a complete break down of our economy. It's a perverted monster which deserves to go down.
dehrmann 6y ago
> If the American consumer started developing financial discipline starting tomorrow...that's probably a good thing for the long run Don't be so sure. https://en.wikipedia.org/wiki/Paradox_of_thrift https://en.wikipedia.org/wiki/Paradox_of_thrift
- jhwang5 6y ago
  I think discipline != penny pinching

MattGaiser 6y ago

Except that savings for tomorrow would probably end up in the stock market. Otherwise inflation kills them. So I would be interested to know would happen here.

ceejayoz 6y ago
Inflation doesn’t “kill”. You lose a percent or two a year. Put the savings in a no-penalty CD for emergencies and even that gets better.
karatestomp 6y ago
> Except that savings for tomorrow would probably end up in the stock market. For far lower returns. With reduced demand, there's not much for that extra money to do. To the extent investment drives growth it's when it goes into innovation (R&D) or if businesses have demand but are capital constrained (and I suspect even that's more like speeding up than creating growth, exactly—you just get 5% growth now instead of 2.5% over two years, or whatever). Sure maybe you could spend it on advertising and marketing but all that can do is get us back to "people spend too much".
- bgorman 6y ago
  How does one draw the line between necessary marketing/sales expenses and unnecessary ones? Even some of the most "innovative" companies like Apple spend billions on advertising. I don't have an MBA but it seems pretty much impossible to sell new products without an advertising budget.
  - karatestomp 6y ago
    Right but if the premise is “there will be lots of investment because people are spending less and saving more” then all that invested money can’t go into marketing or advertising without getting right back to a low-savings society, unless that spending is ineffective. So that leaves R&D I guess since there’s not much else for that extra money to do. Plus lower returns on equities.
brewdad 6y ago
As the stock market becomes "overvalued" some investors pull their money out and invest in other "undervalued" assets. Real estate has been a major asset of choice over the past decade. Perhaps that will continue or some new asset will come into vogue.

nostromo 6y ago

US consumers really aren't so bad. Savings rates have been inching up ever since bottoming out around 2005. https://tradingeconomics.com/united-states/personal-savings https://tradingeconomics.com/united-states/personal-savings

jhwang5 6y ago
Now try 1) plotting that against household debt, 2) and against other countries.
- vonmoltke 6y ago
  Household savings (latest): https://data.oecd.org/chart/5VU5 https://data.oecd.org/chart/5VU5 Household debt (latest): https://data.oecd.org/chart/5VU6 https://data.oecd.org/chart/5VU6 You can play with the charts to plot trends for as long as the OECD have data for each value. The position of the US isn't great, but it isn't terrible either.
  - jhwang5 6y ago
    These are aggregate metrics - in a country like the US that's in top 5 in terms of income gini-coefficient, I suspect medians will paint a very different picture.

rv-de 6y ago

It's like a lemon being squeezed harder and harder. As long as people have some money they can spend - no matter where the money is actually coming from - our economy will try to incentivize it and lure consumers into consuming. That's why I find the idea of this system collapsing frankly quite amusing. Actually I hope for a complete break down of our economy. It's a perverted monster which deserves to go down.

dehrmann 6y ago

> If the American consumer started developing financial discipline starting tomorrow...that's probably a good thing for the long run Don't be so sure. https://en.wikipedia.org/wiki/Paradox_of_thrift https://en.wikipedia.org/wiki/Paradox_of_thrift

jhwang5 6y ago
I think discipline != penny pinching