US: Not-so-deficit-hungry anymore

Key News

Quotable

“To a large degree, the problem is political; countries, even more so than companies, find it hard to change strategies, particularly since the beneficiaries nearly always are/have become powerful players. In addition, policymakers who have grown up with a system that appeared to comport itself well for a long period of time find it difficult to abandon it.”

                           Yves Smith

FX Trading – US: Not-so-deficit-hungry anymore

Reading a post from Yves Smith on her blog nakedcapitalism, from where I took the above quotable, she cites a Financial Times article explaining the imbalances that helped set off this collective recession/financial collapse are bound to worsen.

I’m not going to disagree with the article on that point – the imbalances still might worsen before they get better; but …

In response to the supposed trend toward running large trade surpluses (e.g. weaker euro and artificially lower currencies) as a means of recovery, the article assumes the US will once again take on the requisite high deficits to balance the growing surpluses throughout the world:

The counterpart increases in deficits will again accumulate mainly in the US as no other country could attract the requisite financing….Investor proclivities to buy Treasury securities and dollars could finance the American deficits for a while. The US would provide the global collective good, as in the past, by accepting increased dollar overvaluation and further increases in its external debt and deficits.

First of all, I shudder when I hear the phrase “global collective good.”

Second of all, to the author’s credit, he points out how global imbalances will very much be exacerbated if this return to pre-crisis behavior gains traction. He also concludes with this:

Most importantly, the US must convince the world it is unwilling again to become the consumer and borrower of last resort …

Now, I don’t want to dismiss the validity of the above quotable from Yves [that governments 1) have trouble recognizing their own poor conduct and 2) fail to make necessary adjustments], but as I touched on in Tuesday’s Currency Currents I feel the private sector will be the one to convince the world of the United States unwillingness to “provide the global collective good.”

More specifically, the consumer revival that’s being sought by rabid Keynesian’s will not materialize. There has been a lasting change to consumer behavior and appetite for debt, I’d like to think (and hope.)

Let’s see what I can dig up to prove this point:

ABC News Consumer Index, buying climate going back more than 10 years.

Bankruptcy filing for business (black) and non-business (blue): the spike lower in 2006, I believe, was due to a change in the bankruptcy laws which impacted the ease with which a party could file for bankruptcy. Notice though how sharply they have risen (and not yen fallen) since the onset of the financial crisis.

Consumer Confidence

Consumer Installment Credit

Unemployment

For one thing, the Keynesians look a these charts as a call to action. And while it will likely continue to impact the demand for both domestic and foreign goods, it’s not necessarily doomsday for the US.

The change in appetite for debt, credit and spending implies a shift toward deleveraging and eventually into savings.

Savings is a bad word for those who think growth can only come from demand, from consumption. In fact, savings provokes investment and investment provokes growth in business and stimulates the economy.

It would be wise for the US not to become the consumer and borrower of last resort. We should not act for the global collective good; we don’t have to.