The government released January personal income data today
and, sure enough, personal incomes were sharply down, falling 3.6 percent from
December. If you have been following Along The Gradyent this is old news. Last month I blogged on how Obama’s built to
last monetary and economic strategies, and tax policies, were combining to drive down the purchasing power of ordinary working stiffs, despite his
claims that he was just “asking the wealthiest to pay a little more.”
What I did not know last month was how ordinary US consumers would
adjust their spending patterns to the loss in purchasing power. It turns out in January they forged ahead as if nothing
happened. Spending grew a normal 0.2
percent. The way consumers got there was
by dropping savings rates from 6.4 percent to 2.4 percent. If this reduced-savings reaction continues it
marks a return to the pre-financial meltdown days of the under-saved consumer – no built to last recovery -- instead an over-leveraged
and financially unstable economy that sooner or later will go south in an
incredibly ugly way. On the other hand,
if the reduced savings reaction does not continue, that means spending decreases
and the recovery stalls. Obama’s manipulative
rhetoric notwithstanding, he cannot have it both ways. It’s one way or another and neither is attractive.
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