Friday, December 21, 2007



The Commerce Department reported this morning that consumer spending was up 1.1% in November, much more than expected, while consumer income was up 0.4%, a little less than expected. The market loved this news; at this writing, the Dow is up over 200 points.

One can make nothing out of either one statistic (or a conjoined pair of statistics) or one day’s trading, but this news, and the markets’ seeming reaction to it, provides an opportunity to consider broader issues.

What is described as the sub-prime problem (or the sub-prime “crisis” by those who lack the senses of proportion, decorum, or perspective) is, as I have pointed out for a long time, just part of a larger debt problem that has at its root the self-destructive American pastime of spending more than one can afford, indeed, more than one makes or has. So why is news that we continue to spend more than we make (Note that spending exceeded income by a factor of almost three.) such good news?

The “experts” (i.e., the same people who told us this “mortgage blip” was well under control, really not a problem at all; they had talked to the guys at the big Street firms about this, you know) tell us that this spending news will enable us to avoid recession, at least for awhile. Oh, boy!

November’s spending binge reminds one of one last gasp before the party comes to an end. It’s as if a couple guys went out at 2:00 AM with the last few bucks everyone could scrape together and bought a couple cases of Meister Brau to keep things going long after everyone should have gone home. The consequences are at best predictable and at worst fatal.

So party away, everyone…people continue to spend beyond their means! Hey, and Bernanke will show up in the morning with plenty of Bromo-Seltzer, Pepto-Bismol, vitamins and other placeboes that we really think can make us feel better.

And the hole gets deeper and deeper.

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