Post by dgriffin on Jan 9, 2009 7:49:05 GMT -5
CSM News - Treeless Edition
the paradox of thrift bites into my portfolio.
Falling US consumer spending making tough times tougher
www.csmonitor.com/2009/0109/p01s01-usec.html
The pullback in US consumer spending, which accelerated ahead of the holiday season, appears likely to be sharper in 2009 than any such retrenchment since World War II.
That sobering forecast from economists goes a long way toward explaining why they generally support the idea of a large government stimulus effort, as President-elect Obama urged Thursday.
As large as it is, the stimulus won't fill the hole created by consumers. The pullback from shopping malls won't last forever, but for now, it's a reaction to tough times that is making these times even harder.
Many retirees are also struggling after big losses in the stock market.
It's not that the economy has no problems beyond a public mood shift. But when necessity or worry causes most consumers to save money at the same time, it causes a problem known among economists as the "paradox of thrift."
Consumers are acting rationally to safeguard their financial health in a recession, but their collective action may hurt everyone by shrinking the economy even more.