As part of the de-leveraging process, household saving rate must increase; However, every ONE percent increase of saving consequently translates to roughly FIVE percent decline in consumer spendings.
1% Saving ----------> 5% retail sale decline -----------> Store closings
So far, the government is willing to pump enormous amount of liquidity and credits to bail out the bursting of real estate and financial bubbles. The end result will be a ballooning federal budget deficit. We are not curing those bubbles, we are transferring private debts to public liability for all citizens to shoulder.
On the other hand, what choices do we have that would avoid more pains and hard ship ?
Are we willing to risk the prospects of a depression to flush out all of financial excesses ?
Old Math :
Appreciation = income
Credit = Wealth
Spending = Growth
New Math :
Asset = Risk
Credit = Liability
Spending = Necessity
Joe Long
Labor Day week-end 2009
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