Tuesday, December 02, 2008
The Seven Lean Years - Part 2
Humpty Dumpty sat on a wall.
Humpty Dumpty had a great fall.
All the king's horses and all the king's men
Couldn't put Humpty together again.
In the last post I discussed why, neither the Fed, nor the Treasury, nor the President will be able to get the economy out of crises and going again by getting consumers to splurge on cars or houses (or other consumer goods) because we are, on average, far too deeply in debt.
There is a second set of reasons the government will be unsuccessful in getting Americans to spend freely again and it has two related aspects. They are demographic and generational.
I’m sure everyone knows that the Baby Boom generation (born 1943-1960) is due to begin retiring in huge numbers every year for the next twenty years. Boomers have done well and spent freely, but that is going to change. Or perhaps I should say it already is changing.
Shell-shocked by market losses, millions of Boomers have likely decided they no longer need a second home, a lake cottage, a time share, or even a bigger house. They also know they can keep the car another year, if not two or three more years. Priorities have changed.
When the dotcom bubble burst and the market fell from 2000 through 2002, retirement did not seem quite so close and besides, everyone knew it had been a bubble. The recession in 2001 was neither long nor severe and real estate was rising quickly in value with gains there more than offsetting stock market losses for many people.
Now, with real estate in decline, markets sinking, and great economic uncertainty, Boomers are no longer inclined to spend. Many, if not most, have good credit and are less likely to be too far in debt to borrow for new cars and bigger houses, they simply will not in the face of current circumstances.
And now, the generational aspect. Different generations have different values and different ways of looking at the world. There are two highly acclaimed books about this topic written by William Strauss and Neil Howe. (Generations: The History of America's Future, 1584 to 2069, and The Fourth Turning, an American Prophecy) Their analysis concludes that there are four generational types that repeat in a cycle that normally lasts from 70 to 110 years altogether.
During a full cycle, our county goes from what they describe as spring to summer to fall and to winter and in each season what our country experiences is determined by which generation or generations are in power. Strauss and Howe conclude that we are entering a winter or “crises” season. Past winters have produced the American Revolution, the Civil War, and the Great Depression & WW II. Scary stuff! If you care to read their work, you can draw you own conclusions.
What I have to say about the economy and the ability of the government to get it jump-started again is not dependent on whether or not you agree with Strauss and Howe. You can observe for yourself, I believe, that there is truth in what I write below.
Gen-X (b. 1961-1981) and the Millennial generation (b. 1982-2001), as compared to Boomers, tend to put a higher value community and a lesser value on consuming. Think myspace, facebook, and text messaging vs. McMansions, SUV’s, and nice suits.
This is not to say that Boomers do not value community and that Gen-Xers and Millennials don’t buy houses, cars, and clothes, it is to say that there is a marginal difference in how each generation values these things and that over time these differences will produce a pronounced change in the economy. According to Merrill Lynch economist David Rosenberg, “The savings rate is soaring, .., and (this) is a shift that we believe should be seen as secular, not merely cyclical.” (Emphasis added.) I believe this is part of a change that will make it difficult to go back to a 1990’s style market and economic boom at anytime soon.
The government seems to have gone wild with bailouts, borrowing, and binge spending. A big shock to our economy, the nation, and the world is likely to come. In my next post, I will tell you what it is and why I believe it is coming.
Humpty Dumpty had a great fall.
All the king's horses and all the king's men
Couldn't put Humpty together again.
In the last post I discussed why, neither the Fed, nor the Treasury, nor the President will be able to get the economy out of crises and going again by getting consumers to splurge on cars or houses (or other consumer goods) because we are, on average, far too deeply in debt.
There is a second set of reasons the government will be unsuccessful in getting Americans to spend freely again and it has two related aspects. They are demographic and generational.
I’m sure everyone knows that the Baby Boom generation (born 1943-1960) is due to begin retiring in huge numbers every year for the next twenty years. Boomers have done well and spent freely, but that is going to change. Or perhaps I should say it already is changing.
Shell-shocked by market losses, millions of Boomers have likely decided they no longer need a second home, a lake cottage, a time share, or even a bigger house. They also know they can keep the car another year, if not two or three more years. Priorities have changed.
When the dotcom bubble burst and the market fell from 2000 through 2002, retirement did not seem quite so close and besides, everyone knew it had been a bubble. The recession in 2001 was neither long nor severe and real estate was rising quickly in value with gains there more than offsetting stock market losses for many people.
Now, with real estate in decline, markets sinking, and great economic uncertainty, Boomers are no longer inclined to spend. Many, if not most, have good credit and are less likely to be too far in debt to borrow for new cars and bigger houses, they simply will not in the face of current circumstances.
And now, the generational aspect. Different generations have different values and different ways of looking at the world. There are two highly acclaimed books about this topic written by William Strauss and Neil Howe. (Generations: The History of America's Future, 1584 to 2069, and The Fourth Turning, an American Prophecy) Their analysis concludes that there are four generational types that repeat in a cycle that normally lasts from 70 to 110 years altogether.
During a full cycle, our county goes from what they describe as spring to summer to fall and to winter and in each season what our country experiences is determined by which generation or generations are in power. Strauss and Howe conclude that we are entering a winter or “crises” season. Past winters have produced the American Revolution, the Civil War, and the Great Depression & WW II. Scary stuff! If you care to read their work, you can draw you own conclusions.
What I have to say about the economy and the ability of the government to get it jump-started again is not dependent on whether or not you agree with Strauss and Howe. You can observe for yourself, I believe, that there is truth in what I write below.
Gen-X (b. 1961-1981) and the Millennial generation (b. 1982-2001), as compared to Boomers, tend to put a higher value community and a lesser value on consuming. Think myspace, facebook, and text messaging vs. McMansions, SUV’s, and nice suits.
This is not to say that Boomers do not value community and that Gen-Xers and Millennials don’t buy houses, cars, and clothes, it is to say that there is a marginal difference in how each generation values these things and that over time these differences will produce a pronounced change in the economy. According to Merrill Lynch economist David Rosenberg, “The savings rate is soaring, .., and (this) is a shift that we believe should be seen as secular, not merely cyclical.” (Emphasis added.) I believe this is part of a change that will make it difficult to go back to a 1990’s style market and economic boom at anytime soon.
The government seems to have gone wild with bailouts, borrowing, and binge spending. A big shock to our economy, the nation, and the world is likely to come. In my next post, I will tell you what it is and why I believe it is coming.
Labels: economy markets spending crises debt
¶ 8:16 PM
