Note to The Economist: The American Consumer is Toast

Note to The Economist: The American Consumer is Toast

Our good friend JL sent this laugher along from The Economist…is it any wonder why old media financial coverage is heading towards extinction?

The Economist reports:

The behaviour of American consumers has been rather confounding of late. Early in the year, retail sales were surprisingly strong, even as labour markets remained exceedingly weak. Recently, however, retail numbers have disappointed despite declines in household savings rates. Analysts, meanwhile, can’t figure out what they want consumers to do. American household saving has to go up at some point; excessive borrowing drove the crisis from which the world is only now emerging. And yet, there is precious little holding the American economy up. If consumers don’t keep spending, it’s not clear where new economic growth may come from.

Confounding?  Really?  What’s so confounding about the fact that the American consumer is completely broke – tapped out – toast.  Retrenchment has started – this is healthy, and natural – but it’s got a lot farther to go.

This is also why we believe deflation is the real threat here, not inflation.  Because declining consumer credit (check out these charts) looks like a classic case of debt deflation.

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