“You can’t spend confidence” — James Quinn
Below are excerpts from the article STAIRWAY TO RETAIL HEAVEN by James Quinn, March 3, 2009. [via Paul Kedrosky's Infectious Greed]
This is not happy talk. I wish I could do better. (emphasis added)
[snip]
The Consumer Confidence Index in February was 25, the lowest since the index inception in 1967. During the Dot.com bubble it reached an irrationally exuberant 140. It hovered in the 110 level through the housing bubble until late 2007. The good news is that it can’t go below zero. The CNBC pundits and Washington politicians think that Americans just need to get their confidence back and everything will be OK. There’s only one problem. You can’t spend confidence.
[snip]
The credit card wasn’t invented until 1967. Americans have adapted quite well to this new fangled American invention. Since 1970 revolving credit debt has increased by 26,000%, from $3.7 billion to $963.5 billion. Over this same time frame GDP grew by 1,430%. These statistics prove to me that America has maintained its standard of living by using credit cards.
[snip]
Anyone who thinks the U.S. consumer is close to resuming their spending habits should look at the chart below. Consumer credit outstanding as a % of GDP ranged between 12% and 14% from 1965 through 1995. It currently stands at 18%, with GDP in freefall. With GDP at $14 trillion, the American consumer will have to shed $600 billion of debt to achieve a 14% level. It will take years of debt reduction and GDP growth to rebalance the economy.
[snip]
The American conquerors have returned from the mall wars pulling carts laden with HDTVs, iPods, Rolexes, and other treasures. There is no more ammunition left to fight another war. Retailers and Nations alike can experience fleeting glory. The question is whether it is too late for lessons learned to be implemented in time.