Consumer spending intentions down; Setting the stage for inter-generational tensions; Bond market whips Ireland like a bad, bad donkey…bailout imminent

Consumer spending intentions down

A new RBC poll has indicated that Canadians are planning on spending 7% less on Christmas gifts this year over 2009 (which saw a significant drop over 2008).

“Canadians are clearly keeping an eye on household spending and taking a cautious approach when it comes to holiday purchases,” said Karen Leggett, senior vice-president at RBC’s cards and payment solutions.

The holiday season is the most important time of year for retailers, accounting for up to a quarter of personal spending. Last year, stores were forced to embark on a campaign of aggressive discounting to get shoppers through the doors.”

As I’ve predicted before, I think we are seeing the leading edge in a secular shift away from consumerism and towards frugality.  Debt levels are at historic highs, which should in itself put a cap on consumer spending.  However, if (when) my prediction of falling home prices fully materializes, the effect will be to abruptly end the HELOC parade, which has boosted discretionary income by over 8% last year alone.

The US is well along in this process.  Consumer spending continues to decline year-over-year, providing the most significant drag on the US’s formerly consumer-driven economy.  This is why Bernanke et al are trying so desperately to get people to borrow their brains out again.  QE2 is meant to provide liquidity and lower interest rates for borrowers.  You’d think they’d finally get the clue that you can’t perpetually grow an economy largely on the back of ever-expanding debt levels.  Despite our self-imposed ‘conservative consumer’ label, we’re not much different from our cousins to the south.

Their Christmas consumer spending expectations are even worse than ours.


Coming inter-generational tensions

A special by-partisan commission set up by Obama to examine ballooning debt and deficits in the US has come back with some alarming suggestions.

“Raising the Social Security retirement age, simplifying the tax code so more Americans pay a lower tax rate, ending tax deductions for mortgages, and cuts to discretionary spending are the cornerstone recommendations”

“We’re clearly on an unsustainable path,” …”We can’t grow our way out of this problem, we can’t tax our way out of it, we can’t cut our way out of it. We’ve tried to put a balanced approach out there that takes $4 trillion out of the budget, so we cut the budget by $4 trillion over the next 10 years. We have specific cuts in this proposal.”

It’s hard to tell just how much the social mood has changed, but I doubt that a plan like this could be passed….just yet.  But give that some time, or let the US get spanked by the bond market and we’ll see how things change.  It’s all part of the austerity movement that is gripping much of the West as we experience the social fallout of our dying credit bubble

I can’t help but think that this social climate will set the stage for inter-generational tensions as younger generations start to look at the promises made to older generations during better times.  As the younger population becomes a relatively smaller group left to shoulder the burden of these promises, the obvious effect will be higher taxes, less discretionary income, and lower standard of living….all to pay for promises made before many of them were even alive.  And that’s assuming that things remain as is….as in we don’t slip back into a renewed recession/depression.  Just google the words ‘screwed by boomers’ for an insight into the rising tide of anger among the younger crowd.

This is simply an observation and prediction and is not intended to start a discussion about whether or not this rising hostility is warranted.  You can come to that conclusion on your own.


Bond market whips Ireland like a bad, bad donkey…bailout imminent

Irish bond yields rocketed higher again today.  I had indicated in an earlier post that I believed Ireland would require a bailout by the Spring.  At this rate, it may well get a bailout by next week!

Europe puts Ireland on crisis watch

Irish bond woes send shock waves across Europe

Of note, I have repeatedly stated that the US will NOT be the first domino to fall.  It should be very clear to everyone that if any currency is doomed, it’s the Euro.  Though the USD will take a shellacking over the longer term, there will likely be a capital flight out of Europe and into the ‘safe haven’ currency of the USD.

If jitters persist in Euro-land, expect a strengthening greenback to take some substantial steam out of the rapidly rising commodity markets.







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7 Responses to Consumer spending intentions down; Setting the stage for inter-generational tensions; Bond market whips Ireland like a bad, bad donkey…bailout imminent

  1. Ash Singh says:

    Won’t the safe heaven currency be Gold/Silver. Why would anyone get out of Euro & jump into USD

    • That would make too much sense. Just look back at a USD graph and compare the last fiscal crisis with Greece. You’ll note the bounce in the USD.
      I’m not saying it makes sense, but it’s likely what will happen.

  2. Money Talks says:

    I’ve read several of your blogs and agree with several points that you’ve brought up. However, I believe that these personal “opinions” are rather biased and perhaps the banks are not the only ones wearing tinted glasses?

    • Perhaps. It’s always hard to see your own bias. I’ll tell you what: You write a guest post outlining my flawed logic using facts, or perhaps just exposing my improper use of facts to support my biased position. I’d be happy to post it.


      I call it like I see it. I look forward to your post and to finally seeing the errors in my ways.

    • jesse says:

      If you have any info or argument why Ben is wrong post it here. That he might be biased isn’t good enough and, frankly, meaningless.

  3. Sammy says:

    Money Talks – Please tread carefully before suggesting one’s opinions are biased, but I do believe that we need to be aware of data manipulation, whether it be the from the banks or other individuals.

  4. vreaa says:

    Agree re the coming run into USD.
    If one a looks at a USD chart… it bottomed in 2008 and we’ve just put in the third higher low.
    Yes, it’s toilet paper, but for a while it’ll be a better quality of toilet paper than the others.
    It’s also one of the best contrarian plays at present.

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