No more overreliance on consumer spending-Volcker

[UpInArms]

Source: Reuters

NAPLES, Fla., Nov 2 (Reuters) - White House economic adviser Paul Volcker said his meeting on Monday with President Barack Obama focused in part on reducing U.S. economic reliance on consumer spending.

The alternatives to help bolster future economic growth include boosting exports, applying innovative technology to green issues and improving the nation's infrastructure, Volcker said.

The former Federal Reserve chairman, who now heads the White House Economic Recovery Advisory Board, said Obama understands that "We cannot have so much consumption."

Consumer spending accounted for 70 percent of the U.S. economy before last year's economic meltdown, a level that Volcker said was sustained only by "the magic of financial engineering."

<snip>

Obama has been accused recently of ignoring Volcker's advice to do more to separate commercial banking from risky securities trading.

Read more: http://www.reuters.com/article/bondsNews/idUSN0246628920091102

---

Let us see if this is another thing that can be ignored.

[OHdem10]

1. In different interviews, Volker always pushes separation of Commerical

Banks and Investment Banks.(Glass-Stegal)
He also emphasizes the importance of removing Money from
Politics.

[bertman]

5. And that's precisely why the administration has been ignoring him

and listening to Summers and Geithner.

[wildflower]

2. That is great news

I hope they follow through.

[Democrats_win]

3. I wouldn't call financial engineering "magic." More like slavery.

Worse, they gave these plantation owners a big bailout with our money. Instead they should have given every last penny to the victims of Fraud Enterprise.

[Canuckistanian]

4. Reduce consumer spending?

And replace it with..... what?

Manufacturing? Gone.

Green jobs? Already outsourced.

Infrastructure? Paid for how?

Face it, America's only economy IS consumer spending.

[bertman]

6. Not to mention that it's already REDUCED ITSELF substantially. So now is a good time to

start acting like all that consumer spending really wasn't that important anyway.

Sorry about my abject cynicism relating to the hope that we will see any type of rational approach to this financial disaster. Until it's waaayyyy too late.

[Tempest]

8. And you want to keep it that way?

Manufacturing and green jobs can be brought back, just like scientists are coming back to the U.S. after leaving the country during Bush's administration.

[Canuckistanian]

16. Absolutely not

And I agree, bring back manufacturing and green jobs.

An economy based on nothing but buying goods is nuts.

[Psephos]

17. And replace it with...

...the things that are "gone." As though that is somehow permanent.

There is a barnload of work to do, but do you really believe a change in priorities and commitments won't lead to a change in outcomes?

There is one essential American story. Creation, fall and redemption. If you don't understand that, then you're on the outside, looking in.

[starroute]

7. I'd like it better if we hadn't already been disempowered as citizens

If we get disempowered as consumers as well, how will we have any influence at all? Will our economy consist entirely of corporations selling to other corporations and tossing us a few crumbs?

Maybe I'm just in a sour mood tonight, though. Somebody talk me down?

[pjt7]

10. Like him or not, Volcker

is a seasoned Financial guru. He doesn't deal with smoke & mirrors, something Obama's criminal financial team, lives on.

Better listen & get Volcker more involved.

[UpInArms]

12. maybe, the power of truth and honesty

will re-emerge as the only real collateral worth holding.

[caseymoz]

15. Good question.

But unless we change the basis of this economy, over time we will reach a point, most of us, where we cannot afford significant consumer purchases. So then we will have no influence. The consumers will be the only wealthy.

The "plutonomy" report leaked from Citigroup and presented in Michael Moore's "Capitalism: A Love Story" said just this.

Here are parts 1 & 2

http://www.scribd.com/doc/6674234/Citigroup-Oct-16-2005-Plutonomy-Report-Part-1

http://www.scribd.com/doc/6674229/Citigroup-Mar-5-2006-Plutonomy-Report-Part-2

The eerie thing is that Marx also said exactly this was going to happen. Big capitalists have now all but agreed with Marx.

I'll put in my word about this: capitalism morphed into consumerism, and this is what saved it from further Marxist agitations after World War II. It treated consumers like kings and treated workers terribly. As a result, most of us now have a lot of great stuff, like PC's, satellite TV and game consoles, but we're treated terribly at our jobs. I mean, we're driven to be more and more productive, work long hours, in some unsafe working conditions that never get better, while nameless upper management can cut our jobs at any time, and often does. If we buy a game console, though, we could at least get the attention of a customer service rep-- however, just to show the downgrading of consumers, we know that the quality of that service is being cut.

So, somehow, this has to change. The problem is, the rich rich don't see this as a problem. They actually think they are invulnerable. Read the report.

[dhpgetsit]

9. It seems sensible not to rely on unemployed people to continue buying a new car every 3 years.

Maybe it's time to go back to investing from the bottom up.
Trickle-down is a failed idea.

[earcandle]

21. Agreed!

[slipslidingaway]

11. knr - posted this article last night about consumer spending ...

this cannot be ignored, thanks for the posting the article.

http://www.democraticunderground.com/discuss/duboard.php?az=show_mesg&forum=389&topic_id=6904527&mesg_id=6904527

Direct link, this will change when the article is archived.
http://contraryinvestor.com/mo.htm

Dear Prudence, Won't You Come Out To Play?

"...When it comes to the macro credit and conjoined economic cycle, we suggest an important item to keep in mind is that historically; US economic recoveries of the last half-century have had similar “fingerprints”. Those being pent up demand for auto’s, housing and accelerating credit usage by the private sector. Every single one. They all look the same. But what we are seeing at the current time that is completely different than anything seen over the last six decades is net private sector credit contraction. The following chart could not be more clear on the issue. Remember, the private sector is made up of households and corporations (including the financial sector).

***see link for chart


As you can see in the chart, even at the depths of any recession of the last half-century plus, year over year credit demand by the private sector has always been in positive territory. We’re currently breaking new ground. And this new ground begs the question, is Fed monetary policy impotent? Here we have the lowest Fed funds rate of a generation, and credit is contracting. Completely the opposite of what we have experienced in prior cycles. It could not be clearer. We are convinced this key fact is simply not getting the attention it deserves. Moreover, we need to remember that government stimulus efforts have been focused on reviving credit demand as of late. C4C (cash for clunker) and the tax credit for home buying was the sheep’s clothing used in an attempt to spark credit reacceleration. Crazily enough, despite the success of C4C in August, non-revolving (largely car loans) consumer credit balances actually shrank in the month! Not even C4C could offset the power of household balance sheet reconciliation. That’s a very loud message.

We know we are going to sound like pessimists and doom and gloomers with a few of these comments. We also know that we risk looking like idiots down the road by suggesting we buck the longstanding Street truism of “do not bet against the US consumer”. But every dog has its day, and we believe the consumer/household dog is barking, and loudly. Is it the end of the world? Of course not, but we believe changing patterns of behavior at the household level will have very meaningful consequence for investment outcomes ahead. As it applies to US households, two themes emerge from the numbers. First, we are currently in the beginning stages of a household balance sheet reconciliation cycle that we feel will be of a magnitude greater than anything we have seen in the post War era. Secondly, and we’re still early in this, household behavior regarding consumption is likewise in the midst of necessarily important change directly linked to the balance sheet reconciliation phenomenon. Lastly, we believe these two forces will be greater in magnitude than Wall Street may be discounting and will play out over a longer time period than the consensus now expects. Let’s get to the numbers and trends relative to historical precedent...


...We know that at this point you get the picture. Let us try to quickly summarize the key thematic issues here.

For now, asset disposition is not an option for many US households. Remember, a huge chunk of current homeowners have little to no equity in their homes. So it follows that household balance sheet reconciliation will be driven primarily by income used to pay down debt, income that will not find its way into consumption.

For boomers and their retirement expectations, reality has hit home. The need to save in the absence of asset inflation is here. The ability to do that, as well as pay down debt and consume means something in the equation has to give. Again, the logical give point is consumption. Below is a quick table we believe provides point blank perspective regarding demographics. The massive pre or post retirement boomer wave is moving beyond their consumption years and the numbers below tell us the demographic wave behind them is much smaller in size. Again, this says something about aggregate consumption levels ahead. A secular inflection point for the boomers in terms of their consumption habits? We suggest this should not be dismissed lightly..."

[Frank Booth]

13. If Volcker really wants to get Obama's attention,

he should get a job with Goldman Sachs.

[troubledamerican]

18. +1 ... One of the best comments I've seen on any DU thread.

[dysfunctional press]

14. translation: "we've sucked them dry, and this christmas shopping season is going to be BAD"

and that's not "sucked dry" in a good way, either...:evilgrin:

[DallasNE]

19. So Much Of Consumer Spending

Simply contributes to the trade deficit, undermining the value of the dollar. The other thing about that spending is the low impact it has on the velocity of money. Money spent on infrastruction has high velocity because it creates jobs and the earnings from those jobs buy other things in return and keeps the money circulating. Spending $50 billion to bail out Citi only to have them file Chapter 11 bankrupcy was money down a rat hole. No velocity there. Volker makes great sense here, just as he did when Reagan was President. Too bad Reagan replaced him with "Bubbles" Greenspan.

[SleeplessinSoCal]

20. How to pressure Obama to listen to Volcker?

[earcandle]

22. How to get Obama to listen to something that isn't in the limelight? Hmmm... good luck. He doesn't

ever include the word "poor" or refer to the
underclass in his public speeches, does he? 

It's as if they don't matter, don't count outside being a
statistic. 

Only 6 million of the 46 million that are poor will get the
public option. 
And maybe they are not really poor, just people without
insurance.  

This is selective genocide.  I think this is murder.  I think
somebody has to make him think that we are watching
and we don't like his behavior, that we think he is being an
elitest, and has duped us.  And that we are impeaching him.

And then we will have Biden.  Is that right?  And do we have
an election for the new VP? 

I am tired of this run around.  Aren't you? 

[earcandle]

23. And what is up with no one staffing the COnsumer Protection Agency? They are a voice at the Health

Reform table and have had no representation.  No wonder we
don't get a public option.  We don't matter.

Hey what can we do about this?