Wednesday, May 13, 2009

Unexpecting the inevitable

AP's Martin Crutsinger nervously beats the Keynesian drum:


WASHINGTON – Retail sales fell for a second straight month in April, a disappointing performance that raised doubts about whether consumers were regaining their desire to shop. A rebound in consumer demand is a necessary ingredient for ending the recession.

Desire and demand pretty much sum up the Establishment understanding of economics. That "understanding" is further expressed in this gem of a statement:

Retail sales had posted gains in January and February after falling for six straight months, raising hopes that the all-important consumer sector of the economy might be stabilizing.

Did you get that? Consumption is all-important! Making stuff is not even of secondary concern. You'd think an editor would catch an error this obvious, except the editor lives in Fractional Reserve/Credit Bubble Land along with the reporter.

The article briefly wobbles closer to reality with this:

The hope had been that consumers were starting to feel better about spending, helped by the start of tax breaks included in the $787 billion stimulus bill. Households had spent the fall hunkered down in the face of thousands of job layoffs and the worst financial crisis since the 1930s.

Massive job layoffs, now that might explain things. People without income don't tend to spend as much as people with income. But our reporter is not fooled. The problem, you see, is that those jobless (and soon-to-be-jobless) consumers are "hunkered down" instead of "starting to feel better" about...the worst financial crisis since the 1930s.

Then, five paragraphs into the piece, Crutsinger quotes a sane man:

The latest retail data "are yet another illustration that, although the worst is now over, there is still no evidence of an actual recovery," Paul Dales, U.S. economist with Capital Economics in Toronto, wrote in a research note.

A bit of wacky optimism there. We haven't yet seen the collapse of commercial real estate, the upcoming ARM resets, and the tidal wave of credit card defaults. The "worst" is about to get a whole lot worse. But Dales isn't finished talking:

While anecdotal evidence suggests some improvement in sales in recent weeks, "to offset the plunge in wealth, the household saving rate still needs to double from the current rate of 4 percent," Dales wrote. "With falling employment hitting incomes, this can only be achieved by a further retrenchment in spending."

Yes. Saving, the accumulation of capital, is the first step to climbing out of poverty. The message of thrift goes forth despite the Old Media's exhortations to spend, spend, spend.

Saving dollars will prove to be an exercise in futility when the beloved "Stimulus" money, plus a flood of repatriating greenbacks from China, generates severe inflation. But deferring consumption for the sake of long-term prosperity is an excellent habit to relearn, no matter what happens to our currency.

* Later in the day, the article's title was changed to "Retail sales dip raises worries about recovery".

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