Consumer Psychology is the Answer

Here's a good supplement to my previous post.

Minyanville is good blog that provides some common-sense thought about the economy. In Five Things: What Comes Next?, Kevin Depew educates readers on a credit expansion and a credit crunch within a fiat-based monetary system that thrived on consumer demand for the past 25 to 30 years.

One major point, Depew said, is that consumer attitudes have gone through a paradigm shift that prevents credit expansion and stalls Fed Chair Ben Bernanke and Treasury Secretary Timothy Geithner's plan for economic recovery.

On a deeper level, a major positive social mood trend, which was supportive of risk-taking and increasing risk appetites, was what created the conditions necessary for credit expansion. Unfortunately, that trend in social mood has changed, and no amount of central bank tinkering or exogenous force can reinstall it.

Looking at the general public, as mentioned in the previous post, more than one-quarter of consumers are either:

1. Unemployed (9.4 percent);
2. Employed part-time or discouraged in finding a full-time job (16.5 percent).

OTHER THREE-QUARTERS of the UNITED STATES
3. Employed full-time but scared to spend because unemployment should hit at least 10 percent;
4. Employed full time and tapped out on debt trying to pay it down;
5. Employed full time and without any children or family--living with parents or possibly empty nesters--trying to save for a home and/or the possibility of retirement after their 401K was blown up by the stock market crash last year;
5. Employed full time needing money to pay for their kids's tuition to go to college;
6. Employed full time and responsibly live within their means;
7. Employed full time and are wealthy enough to buy whatever they want without needing to take on debt for more than a month (about 1 percent of the U.S. population whose taxes will definitely increase);
8. Employed full time, confident and materialistic enough at this time that they want to take on debt to purchase a variety of items--cars, home improvement, a new home, new televisions, new computers and new clothes.

These people also make the monthly mortgage payments on their home, purchased their home prior to 2005, have excellent credit ratings and little debt. In fact, they can only receive credit with this criteria.

But, with that criteria, why do they need to take on any debt?

Any debt they had was probably paid off from 2005-2009. If that's the case, the things they bought are only four years old. They probably will not need to be replaced for at least another five years.

When will consumer debt return? I don't know. How long did it take people who lived through the Great Depression to start spending frivolously? I think the answer is--NEVER. They were obsessed with saving money for years to come.