30 september 2010, can’t spend, won’t spend

Even as the dollar continues to enable the us to spend, spend, spend, still the fed may yet go back to printing more money ("quantative easing" as it seems to be soothingly termed now), as may the bank of england, as public spending tails off and recovery looks unlikely to be able to pick up the slack. Even the anti-christ of asset purchase, the ecb, is slowly becoming a serial offender, again this week intervening to support the irish, with every sign of more to come on that front soon. The evidence is ever stronger that the western consumer has finally decided to stop spending ever more and start paying off debt, and even putting away a bit for a rainy day, which long-term macroeconomics would recognise as an unalloyed "good thing", but which is going to act as a long-term drag now that the well of the two interlinked drivers of western economies for the last years (consumer spending and credit flood) has now run dry. So the million renminbi question, is where will growth come from ? Regular readers will know my considered view that there is an inevitably long way to go in the dip and stagnation cycle before we find the answer to that question.