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Tuesday, June 30, 2009

Money in the bank -- sort of

The increase in America's "savings" rate apparently just means that people are paying off old debts while the retail economy shrivels up.

Comments (7)

Paying off debt is good. Less consumer debt means that people will be keeping more of their income rather than paying debt service.

For what it's worth, retail is in a strange place at the moment. Six months ago, everyone's identical sales growth was flat to negative across the board. However, some people "in the know" think that number is soft, and it was actually more negative than what was reported; but the numbers were pushed towards positive due to inflationary pressures.

This year, identical sales appear to be trending up for some retailers, but due to deflationary pressures, the numbers are still soft, in the other direction. Milk doesn't cost what it did last year, so profits are down, but unit volume is up.

When the money supply gets stable, we'll have a better idea of what's really going on. Right now, with the Obama Money Pump™ still in operation, it's hard to get any hard data on anything.

The big question, the one we ask after every recession, is whether or not anybody learned anything or kept up good saving habits after things get better. Having watched spending behavior after six recessions in my life (including the oil bust of 1986), I'm not holding my breath on that.

This may not be a bad thing, with all of the banks closing every credit account and bad loan they can, they will probably be in pretty good shape to start making lonas, but when?

MachineShedFred's comments were very insightful. I would also point out that savings is calculated in a weird way --- as a residual of income less spending. The problem has always been, what is income? It is actually hard to measure. For example, interest on a savings bond or dividends from a stock you own in a retirement account is NOT counted as income and does not count in savings. So I do n ot put as much weight on a low savings rate problem. Even so, people have been abusing date and been too free spending, so in a way a recession does have some upside if people's behaviours do change appropriately.

From profligate to prudent - bubble to bust. Next up -carbon tax credits. Like lemmings we trend haltingly into the abyss.

I think that the internet is killing the retail industry -- just like it is killing the newspaper industry.

There is very low overhead if I want to sell something on ebay. Retail stores have to pay people to order, stock, sell merchandise.

I think it is ironic that Ford's elite Explorer 15 years ago, was the Eddie Bauer edition -- and now both companies are bankrupt.

Craigslist is the only classified worth using. Every article worth reading is on-line.

For some things, I use the Internet to purchase. However, there are everyday things that are not feasible to buy via the Internet - food, clothes, consumables, large items that are cost-prohibitive to ship.

Retail will survive with a change in how it works. If retailers move to more of a service model, they will survive. People don't want to search and read for hours on how to do particular things, when they can walk, ride, or drive for 10 minutes to a local establishment, ask a knowledgeable associate, make the purchase, and be back home and doing whatever it is they needed to do.

Compared with hours of searching and reading, and days of waiting for shipping, local establishments will be just fine, should they adapt.

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