Tuesday, 10 March 2009

Seismic shift

I think we are all witnessing (as we live through this depression) a seismic shift in the consumption habits of people in the U.S.. Also, i don't think it applies just to the U.S.. It is global in scale. The Fed and the U.S. government do not realize that they have been powerless in stopping deflation up to this point. Bernanke says he is re-capitalizing the banks by giving them credit. CREDIT is not capital. Capital comes from savings (i.e Capital formation). Because of this huge contraction in credit people have had to change their ways (e.g. the chart above). But i think the change we are experiencing now is one that will be burned into the pysche of anyone who has been a victim of this credit bubble implosion. You can see from the chart that consumtion in the U.S. has been rising steadily since the late 60s. I think this party has come to an end, and I say that purely from a technical standpoint. If this was a stock chart, I would say that it is peaking and I would be looking to short it because the next move is much lower. So, that means U.S. consumer buying foreign goods on credit is going to decrease. People in the U.S. have already realized this and have started to save. I think the trend we are going to see, is more saving and less spending.

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