Lack of Confidence


Professional economists are shocked—shocked—that consumer confidence has dipped to its lowest level in a decade. They shouldn't be.

Week after week of terror alerts coupled with a drumbeat for a war that has yet to be clearly defined tend to darken the outlook of the homefolks. For months—years?—the mantra has been that rock-bottom interest rates have put cash in the pockets of consumers, who then have gone out and kept a feeble economy inching along.

Well, boys and girls, now what?

NEXT: Operation Pipe Dreams

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  1. A more ominous sign than the weather has been the steady growth in outsourcing jobs and production to previously underdeveloped countries like China and India. The U.S. must produce its ass off to keep up with that steady loss.

    Now, in the long run this might be a good thing. Theoretically at least, a more prosperous world should be more peaceful. The cheap prices this brings back is supposed to be a good thing, too, but it contributes to that deflation thing. (What good is cheap goods if you have less than cheap jobs?) What we may be seeing is a transition period, which could last years.

    The U.S. economy could remain essentially as it is until some type of equilibrium is reached. Or backlash legislation could occur and we move into a more protectionist mode, fueling more resentment overseas.

    Here’s a pretty balanced article on this from Pakistan.

  2. I wonder how long the suckers in Asia and elsewhere are going to loan us money to buy the cheap stuff — especially as the Fed has made it clear that it will inflate the money supply as necessary. Threatening to drop bombs on them probably won’t be sufficiant payment.

  3. OK, I understand the slippery slope argument. But you could say the same about lowering interest rates or any other fiscal policty. That aside, is there a reason why a one time money printing policy would actually be a bad thing?

  4. The pretext of 911 has led to the complete destruction of whatever fiscal discipline there ever was in Washington (deficit spending/printing money same difference) along with a pretext for self-anointed, war-mongering, imperialist to seize the reigns of power.
    Result – U.S. economy down the tubes with no relief in sight.

    The solution is to just ignore Sadam. He is only a threat to us because we are threatening him. He doesn’t want to attack us, he wants to sell us oil.
    As for Bush the first, people were pissed at him because he allowed congress to ruin the economy despite a specific campaign pledge not to.

  5. Is there a reason why printing money would be a bad idea in these circumstances?

    They are. In the modern, credit-oriented economy it’s called deficit spending, and the government’s doing several hundreds of billions of it.

    Deficit spending also pumps up the availability of cheap, high-rated bonds, though. That means that lending money to more speculative endeavours is less appealing. So you can avoid deflation by dumping cash into the economy, but you can’t avoid the liquidity trap that’s the whole reason for avoiding deflation in the first place.

    The only real way to avoid deflation is to get employment and wages running again. That makes it crucial that the money being spent in deficit is carefully targeted, since it has to get more than a buck of stimulus for every buck it sends out there (since it’s working against itself, liquidity-wise). Anyone care to place odds on how carefully targeted that spending will be?

  6. ” Anyone care to place odds on how carefully targeted that spending will be?”

    I don’t know if I feel like laughing or crying.

  7. Let’s see….

    1. GDP grew in every quarter of the last year
    2. Inflation is manageable, almost ideal, at 2.6%
    3. Disposable Income is up
    4. Per Capita Income is up
    5. Unemployment is only 5.7% (ten years ago, that would have been called “full employment”)
    6. Labor Force Participation is right around historical averages at 66%
    7. Productivity grew 4.7% last year (highest growth rate in 10 years)

    The economy is not in terrible straights. Consumer confidence is most likely low as a result of immending war, large scale protests, conflicts with NATO and the UN, terrorism and terrorism alerts. Plus, a significant portion of the population cam of age in the overhyped 90s, which provides the current, normal, economy with bad comparables.

    Once we sweep through Iraq and the weather warms up (which does have a discernable economic impact), consumer mood will improve.

  8. Grant sez: “Deficit spending also pumps up the availability of cheap, high-rated bonds, though. That means that lending money to more speculative endeavours is less appealing.”

    Could Bush 43 and the Republican return to deficit spending be a calculated political move to
    1) reintroduce the 30 year Treasury
    2) create these high security moderately high return instruments

    Who benefits?
    Rich old people
    Rich foreign investors
    Financial middlemen who can go back to 3% interest retail money market accounts and arbitrage these to 5% T-Bills
    The defense industry who gets all the current spending

    Who loses?
    Dynamic American enterprises who have a greater cost of capital

    Stupid republicans. I didn’t think they were that smart, but this really hits all of their nails on the head.


    Here’s an unflattering article about Mr. Greenspan and economic policy.

    The constant need for growth in the investment banking industry along with loosened regulations has lead to greater risk-taking (read: 20 trillion dollars in derivatives) and cheating. Lower lending standards have led the average homeowner to now have just 7% equity in their house. Everybody’s looking in every nook and cranny for cash. There’s a feeling that the big guys are cooking the books. Everybody’s in debt. States, who can’t print money, are 80 billion dollars in hock. Folks laid off last year are working this year for half their previous salary. CEO’s make 500 times that of their minions. Health care premiums doubled in the last 5 years. The biggest 3 bankruptcies in history occurred in the last year.

    I sure hope warm weather get here soon.

  10. Igoring him will work until he takes all the oil fields and decides to curtail oil production in order to inflate price. We ignored Hitler too when he was a nobody, look where that got us.

  11. Hillarious look at the situation:

    “…Cue the ominous background music. The camera pans in through the mists of the deepening gloom. Wolves howl in the distance, off-camera, “wooooOOOOoooo.” In a voiceover by some guy with a deep and ominous voice, like Vincent Price maybe, we hear, ‘Only the banks have the power of (pause for dramatic effect) fractional banking, which can be an evil in itself. (Please pronounce this as “eee-vil”) But when you compound that potential evil (“eee-vil”) with the even bigger potential evil (ditto pronunciation directive) of the power to create money at will, then you have surely sown the seeds for your own (another pause for effect) destruction.’ At this point I suggest a hideous, sinister and quite mirthless laugh, not quite a cackle if you catch my drift, and a fade to black…”

  12. typical… I present facts and Lefty counters with “feelings”.

  13. Sebastian,
    Oh please! We’ve already demonstrated that we can and will kick his ass, and the world will cheer (and even chip in), if he attempts to take anybody else’s oil. He isn’t Hitler, he’s just another in the long list of despots at large in the world, but as far as that goes, I’m not so sure we wouldn’t have been better off ignoring Hitler too. I AM sure cozying up to Stalin was a BAD idea, much like cozying up to the, Al-Qeada supporting house of Saud.

  14. Sebastian,
    Didn’t we already lay the smack down the last time Saddam tried to nab a bunch more oil fields? He should know better by now. When Hitler took over Czechoslovakia the Allies just rolled over and died. If we had done the same with Kuwait you could make the point. However, Saddam’s army is significantly weaker than it was in ’91. Israel and Iran could each mop the floor with Saddam and Israel has nukes and, supposedly, Iran is closer to getting one than Iraq. This provides an effective balance of regional threats that will keep Saddam in line because no way he goes for Saudi or Kuwait after the Gulf War and he won’t attack NATO member Turkey. Either of those courses of actions would make the butt-whupping we gave Saddam in the Gulf War look like a mild spanking.

  15. Grant,

    We’re already doing the deficit spending. My question is, given that we have low inflation (and a fear of deflation), why shouldn’t we pay off some debt with monopoly money now, instead of using (compounded interest heavy) real dollars later? The only argument I’ve ever heard against this is that it will increase inflation, and that doesn’t seem to be a problem at the moment.

    Anyone? Bueller? Bueller?

  16. >>typical… I present facts and Lefty counters with “feelings”.

  17. Wait for warm weather I guess.

    But not too soon. We need to bomb Iraq first.

  18. “Everybody’s looking in every nook and cranny for cash.” This is a fact?

    “There’s a feeling that the big guys are cooking the books.” At least this is identified as a “feeling” – who’s feeling, I cannot suppose.

    “Everybody’s in debt.” At first glance, this may be mistaken to be a statement of fact, but if so, it is certainly false. Not everyone is in debt. In FACT, credit card debt declined $8.4 billion in December, the single biggest decline in 27 years. Debt payments are right at the historical rate of 13%-14% that has held since at least 1980.

    “Lower lending standards have led the average homeowner to now have just 7% equity in their house.” Is this bad? How? What is the historical trend? This is simply an empty statement made in a vaccuum.

    “States, who can’t print money, are 80 billion dollars in hock.” This is a positive development, as it will necessitate spending cuts, as we are seeing here in Washington state.

    “Folks laid off last year are working this year for half their previous salary.” Other folks are making twice this year what they made last year – so what? My wife got a 25% raise last March and another 10% raise in December – this a true statement, but it is not a relevant economic fact.

    “CEO’s make 500 times that of their minions.” Again, so what?

    “Health care premiums doubled in the last 5 years.” This is, at least, factual in some sense, but how is relevant to the current economic situation? Health care premiums are rising due to several long-term issues which have nothing to do with short term fluctations in economic growth or consumer confidence. It would be just as relevant to the conversation to say “Some polar bears weigh 1600 pounds.”

    “The biggest 3 bankruptcies in history occurred in the last year.” In ten years, these 3 won’t even be in the top 10 – again, your statement is comparable to saying “the most expensive production car every manufactured was introduced last year”. It is simply a statement about inflation and economic growth and has little to do with macro economic events.

  19. OK, then YOU explain why consumer confidence is the lowest since the other Bush was in the Whitehouse.

  20. who gives a shit about consumer confidence?

    Adam Smith 101 Economics — Wealth is created by PRODUCTION not consuming.

  21. As I stated earlier, immending war, terrorism, disintegration of the UN and NATO, and harsh winter weather back East appear to be the primary drivers of the sharp drop in confidence.

    “Gregory Miller, chief economist at SunTrust Bank in Atlanta, said consumers were reacting to the threat of war and said economic fundamentals did not appear to be deteriorating.”

    Also, I wouldn’t pay much attention to point-in-time confidence index figures; survey metrics are highly variable month-to-month. The real concern is that consumer confidence has declined for three consecutive months.

  22. A certain group of people in this country want consumer confidence to be down. People of this type are disproportionately represented in major media. Obviously I’m talking about Republicans, right?

  23. The survey’s only done across 5000 households (about 3500 reply). Pretty weak basis from which to gauge what all 270+ million Americans are thinking. Not too detailed of questions either (only 5, with POSITIVE, NEUTRAL, and NEGATIVE as the only answers).

  24. PLC – please enlighten us on the corporate debt situation.

  25. Lefty:

    Corporate debt has risen markedly in the past few years, as has mortgage debt, as a percentage of GDP. (see

    Since the equity markets are not providing adequate capital to business currently, and since interest rates are at historically low rates, one would fully expect debt to rise. When the costs of borrowing decline, borrowing increases.

    There would only be a real concern if the aggregate ratio of income to debt payments became inverted. This situation has not yet arisen. If we encountered a real, sustained recession, we might see a situation similar to the earlier S&L collapse. Since I’m optomistic about the economic outlook, I’m not overly concerned about this prospect.

  26. Yeah, I know we’re not ignoring him like we did with Germany. My point was when you ignore people like Saddam Hussein they have a habit of surprising you. Technology is going to make it easier and easier to inflict a lot of damage with less and less resources. The fewer screwy dictators and rogue nations there are in the world the safer we’re all going to be. If we want to secure the economic benefits of globalization, we have to be able to effectively deal with the few who threaten it.

  27. “Well, boys and girls, now what?”

    The reckoning day cometh…

  28. Everyone is taking a breather. Debt is high, jobs aren’t as easy to come by. If we’d had the labor surplus we had in the 70’s, this minor recession would look like the great depression. Once people pay off some debt and the Iraq problem is resolved (I don’t think it really matters how), people will start spending (beyond their means) again.

  29. Bush has painted himself — and the country — into a corner with his one-note performance that deems war the only solution to our current problems. He has convinced the world that the only answer is an attack on Iraq, and until that happens, and some certainty — however fragile — is restored, there is no reason for consumers and business leaders to have any confidence.

  30. PLC – Thanks for the reference. It looks to me like the overall debt load is double what it was 10 years ago and has risen 50% in the last five years. This is a pretty straight line upward. Where and how does it end?

    My sense is that many businesses are pausing now to pay the piper. This is taking cash from R&D, advertising and new investment in products and technology. Many are at their limit with traditional lending sources. There’s VC cash out there but they now want a solid business plan (for a change) and a piece of the action to boot. There are still some big companies out there with very bad fundamentals.

    I, too, see a turnaround but just don’t know when. Analysts have been saying it will be “soon” for a year now. The longer we sit still the more likely something bad could happen.

  31. Debt to earnings raios are still too high. There’s still room for more settling downward in the marketplace. If we’re lucky things will start turning the corner in another year. If not, deflation takes hold and we’re then in a world of hurt. Prices in almost all sectors but health care and oil have been dropping. That’s not a good sign.

    I hate to agree with Steve. But he’s right.

  32. We have a high federal debt, sluggish economy, and low inflation, possible deflation. Is there a reason why printing money would be a bad idea in these circumstances?

  33. So what are your solution Tommy? How do you make a man like Saddam Hussien listen to reason? How do you find hidden weapons with a few hundred inspectors in a country the size of California?

    I agree the war uncertainty is wrecking the economy though. Is it just me, or are fewer people this time around blaming the government and looking to it to fix the problems? I seem to remember in 1991 people getting livid at George Bush Sr. as if he controlled the entire economy, and could fix it with a wave of his magic wand.

  34. ” Is there a reason why printing money would be a bad idea in these circumstances?”

    History tends to side against this course of action.

  35. Joe,

    Historically speaking inflation (from just printing more money) has been like an addictive drug, in that the short term high is followed by the crash. As long as the money supply isn’t actualy shrinking, they shouldn’t print any more money.

    One thing I think may be working against the ‘low interest rates = spending’ thing is that typically when stocks are low, bonds and fixed securities are high. Right now everything is low. People who were planning on having X dollars for retirement now have 0.5 X, and since they can’t even put their money into a decent money market account may actually be saving more since they can’t figure out any other way to bolster their fallen 401ks. So I think the rate cutting thing has reached the point of diminishing returns because although it is saving us current dollars, it is costing us future dollars.

  36. Uh-oh. Lefty and I agree again? something’s amiss here.

    (pssst…hey, Joe….I’m already printing some in my basement.)

  37. Jim seems to indicate we are heading Japanese.

    I would say we are heading Argentine.

  38. Oh nonsense. There are many other reasons why consumer confidence is so low:
    (1) It’s feburary. Everyone gets depressed in Feburary.
    (2) We’ve been hearing for at least 20 months now how crap the economy is. I don’t beleive it’s nearly as bad as the “experts” say, but it’s not like it was in 1999, that’s for sure.
    (3) The governments constant terrorism alerts–usually for spurious reasons keeping people on edge.

    Yeah the threat of war with Iraq may have something to do with it, but #2 is the biggest reason, followed by #1–things will get better when the warm weather hits.

    In the meantime, I’m going to go up to Tahoe and throw some money around.

  39. “things will get better when the warm weather hits”

    Solid economic analysis. Alan is that you?

  40. “Well, boys and girls, now what?”

    This being a democracy, we do the same thing we always do: struggle along under the tyranny of the masses. I propose government interference in the form of the first idea that comes along and sounds good to really dumb people.

  41. I think it’s unlikely something economically “bad” will happen. Maybe a little deflation, but even then those who are supposed to know these things say economic fundamentals are still pretty good. Let’s look at the past 5 (yes, 5…this ain’t new) years. In ’97 (that would be the Clinton administration by the way), the semiconductor industry began to fall off. This was followed by the dotcom bust, followed by 9-11, Enron, Worldcom, etc. Now war fears. The dotcoms were speculation-driven and died a deserved death. Enron, et al were shell games that also died a deserving death. Looks to me like business “Darwinism” at work. The slow, sick and weak have been culled from the herd. The economy will absorb the workers and the markets will begin to rise again….and soon, I expect. It’s a business cycle, not a Clinton thing or a Bush thing. It’s the economy, stupid.

  42. Sebastian,
    Were you dropped on your head? Where do you get this stuff? Sadam is just NOT the boogey man you are trying to make him into. Osama is a REAL threat, going after Iraq will make him an even bigger threat. This war is wrong wrong wrong. Why are you dedicated to demonizing Sadam (he is a nasty thug I’ll grant you, but he’s a petty nasty thug the likes of which the world is full of) in ways so disconnected with reality.

  43. EMAIL:
    DATE: 01/20/2004 11:27:05
    Misfortune shows those who are not really friends.

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