Op-Ed: In Clods We Trust, Dow reacts to consumer spending drop

The value of recent Wall Street cheerleading can be assessed pretty easily: Non existent. The “expected” drop in consumer spending produced a 2.5 percent drop on the Dow, and a return to the US dollar as a safe haven.

The drop in the Dow is one of those events that occurs when something resembling reality sneaks in between press releases. Apparently real-time domestic economies only qualify as news when explanations are required. Investors are somewhat less than starry eyed for some reason, and the duck and cover response is predictable. The consumer spending result is a fact which isn’t susceptible to misinterpretation, even by the most inept. It is understandable and almost forgivable that the general cultural move in the US would be to talk up a recovery. It’s neither, when real economics are neglected. It’s inexcusable, when the ongoing assumption that the wider public is incapable of understanding the situation is still the driver for the culture. People can do more with information than without it. You'd think the entire American public had to be spoon fed. Negativism isn’t the answer to anything, but nor is irredeemable bull. If the “cash for clunkers” program has to be factored in to produce a positive consumer spending figure, what are the figures without it? Why wasn’t a comparison made? (You could also ask why such a popular program was shut down so arbitrarily the minute it was an obvious success.) On the basis of Commerce Department figures, it looks like net national income has gone down significantly, probably as a result of unemployment. The spending increases and the inflation rate just happen to be consistently within 0.1 per cent of each other. Real disposable income fell by 0.1 per cent, while real incomes rose by 0.1 per cent, according to these figures. If you’ve done basic accountancy, this looks like adding a cost center to make a balance work, but that’s not the case. Unfortunately, balances aren’t generally included in economic models, which are usually "figures and more figures" with or without reciprocal verification from other information. More’s the pity, because balances might produce some explanations that aren’t showing up in existing models, which are basically weather reports. If you had the figures, you could do some interesting analyses of that hedonistic thing people call the real world, for example: Where does all that income go? 1. Taxes 2. Debt 3. Health 4. Fees 5. Food 6. Families 7. Savings 8. Perhaps even living/breathing Does it or does it not make sense that if consumer spending has gone down, that money must have gone somewhere? Or did the prior estimate level reflect an artificial or passing situation? Some of this data is available. Debt is a known factor, it’s just that it’s not very well known, and worse defined. Debt relief, so far, has been an ideal, much spouted on all sides of US politics, result, so far, nil. What a surprise. A debt-based recovery? Not as weird as it sounds, because the US consumer market has frequently just borrowed and bulldozed its way out of recessions before. That isn't happening, this time. The problem with current economic modeling, which LEGO wouldn’t put its name to, is that it isn’t looking at the more perverse elements in this situation. People can’t spend what they don’t have. Their access to capital is severely restricted, and their access to costs is higher than usual as charges increase to offset declines in revenue. Capital is required, and it’s not being lent. The capital equation, relative to debt, is however listing debt as assets, despite massive defaults and the appalling news that up to six million American families may be foreclosed in the next two years. Who’s cheering what, exactly? Ø The huge ghost towns masquerading as assets? What’s a real valuation, if the amount of actual lending is for example half the original rate? Ø The people who want to buy homes, and can’t, because of pre-Cambrian lending policies? Ø The fact that a lot of GDP now consists of welfare payments? Ø The fact that job losses are continuing? Ø The fact that the lowest interest rates in US history aren’t noticeably lifting consumer income? Even when they’re way below any reasonable commercial rate to lenders? Ø What’s supposed to be encouraging business investment? Innuendo? Ø The fact that monetarism, by definition, doesn’t address ground level finances in any meaningful way except as a principle? I would suggest that no sophistry in history has ever been bullet proof. Rhetoric is not yet an accepted dietary substitute for food. The US economy is, and always has been, a consumer driven economy. Yet the consumer figures are the first to be touted as signs of a recovery, when a mere glance at those figures indicates a significant, if not lethal, contraction. Net income doesn’t go down in a recovery. The world wants out of this recession. That’s not going to happen unless Wall Street gets its collective pin head out of its eternal self psychoanalysis and starts figuring out ways of making that happen through sane financing. It might also want to remember where the money comes from. Markets might be an alternate reality, but they’re not self supporting. Ayn Rand isn’t coming back for an encore anytime soon. Another question: Where are all the business blowhards who were experts in 2007 and haven't been heard from since? Where are the business opportunities? What are the business models for this situation? You can hear the wind whistling through those concepts. For sectors which for the last 30 years has been incapable of shutting up on the subject of their own brilliance, the finance and business sectors have been strangely silent. Few economies in history have been able to run on the basis of press releases. If you want “Recovery by media”, fine. Bring back Shirley Temple, and preferably the Marx Brothers, if necessary, nobody will mind. Just don’t try and pass off facts as fiction and vice versa. Last time I checked, “clod” wasn’t a synonym for “God”. There must be some reason for that. If you want business to trust this environment, let’s see something trustworthy.