What if the World Stops Spending for Good

By: Kevin_Geary

All the politicians and policy makers around the world are trying to do what actually may be impossible.

They are trying to get banks to lend again and they are trying to get "Joe Public" (consumers) to spend again. Nothing they are doing is working so far, and nothing they are likely to do will get banks to ease credit again, nor people around the world to spend again like there's no tomorrow, or in other words, like they did before yesterday.

We are in a worldwide deflation both of demand and consumption, as well as prices. The reasons are not just psychological (like those who have stopped spending out of fear of losing their jobs, or their savings, or their stockholdings), but deeply fundamental.

For many years, countries like the US, England, Ireland, etc., have seen boom times, but most of it was based on huge amounts of personal debt. People were borrowing from the "equity" or "appreciation" of their assets (their homes) and spending with credit, in the mistaken belief that, even though they were building up huge mountains of personal debt, the economy would carry on expanding, and their "worth" would keep on going up. This was despite the fact that, in many of the "industrialized" countries, manufacturing was disappearing, or being "outsourced," meaning that people were no longer making things to export, and increasing real wealth, but instead were importing things from overseas, and consuming them on borrowed money.

Until recently, if you failed in business, or lost your home, or had to go bankrupt, you were looked upon as an oddity, a screw-up, or some kind of pariah, even by those whose conspicuous consumption was leading them unwittingly into the same future abyss. Now, everyone is virtually in the same boat, or fear they soon will be, and talking about your distress is as acceptable as talking about how well-off you used to be only a year ago.

The party is over. Everyone knows this instinctively, even if they can't read a balance sheet. In America and Britain and Ireland peoples' banks have cut off their lines of credit, or upped their interest rates, or lowered their credit limit AND upped their interest, and collectively everyone is waking up to a huge hangover. Like all good hangovers it has caused people to say "I'm not going to do that again!" We have been forced into a kind of collective "spending binge detox," unwillingly, yes, but nevertheless a cold-turkey detox. But governments, particularly our own here in the US, have failed to recognize that their idea of "freeing up credit" and getting us all to cure our hangover with "the hair of the dog" is doomed to failure (except maybe for those who are irredeemable "spendaholics.")

What if the world stops spending for good? What if everyone in the US, China, India, Europe, all stop spending, start saving every spare penny, and only spend on dire necessities like food, shelter and utilities? Already all the car manufacturers worldwide have seen a drastic fall in sales, and it isn't just because people can't obtain credit to "buy" the new cars, it's because people have collectively changed their whole mindset, and going out to spend (even when they can easily do so), to get something "new" before the old thing has failed, is just no longer considered desirable, feasible or prudent. The whole premise that we have built our economies upon (the constant desire for consumption of the newest and latest) has fallen apart, and all the current attempts to fix it, using the idea of stimulus, relaxation of credit, etc., appear doomed to fail, because it's based on a no longer existent premise.

How we will emerge from this fix seems impossible to predict. But the "remedies" being tried are doomed to fail at present, as long as people no longer want to spend like drunken sailors on a weekend pass in a foreign port. Until we address the question, "What if the world stops spending for good?" it seems we are headed deeper into a worldwide depression, as politicians try to spend us out of our situation, based on the mistaken belief that easing credit, and "creating jobs" will get us back into spending again, like we used to do. That ship has sailed, and it's time for us all to recognize it, and figure out how to replace it with something new.

By Kevin Geary

kevingearyart@npgcable.com

Kevin Geary is an artist who lives in Sedona, Arizona. He was the youngest political cartoonist on the Financial Times at the age of 19. He had his first one man show at 20, opened by the prime minister of Great Britain, Harold Wilson. He has had over 60 exhibitions of his work; has work in several major museums, including the National Portrait Gallery in London, and his work has sold at major auction houses, such as Christie's, in London, Whyte's in Dublin and Doyle in New York.

He has followed politics, history and economic history for many years, and has also written about it elsewhere online. He predicted this depression long before it happened, timed the collapse of the stock market in June last year, long before it happened, and his stock picks have often been very accurate. The four stocks he picked on January 1st, 2009 to do well (Amazon, Apple, Baidu and Google ), are all up from the beginning of the year. He does not offer specific public advice about stocks, but he has written from time to time about long and short term trends in the political and economic realm.

© 2009 Copyright Kevin Geary - All Rights Reserved
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