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
“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!
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.