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<span id="lbl_ArticleHeadline"><font size="3">How Long Until the"Giant
Horse Pill" Wears Off?</font></span><font size="3">
<span id="lbl_ArticleDateTime">1/30/2003 5:00:47 PM</span></font>
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<p class="MsoBodyText2" style="MARGIN: 0in 0in 0pt"><font size="3">by Anna
Troupe</font>
<p class="MsoBodyText2" style="MARGIN: 0in 0in 0pt"><font size="3">Â </font>
<p class="MsoBodyText3" style="MARGIN: 0in 0in 0pt"><font size="3">After a year
of cheering on American consumers' resilient spending habits and more recently
-- nudging them forward at any sign of fatigue, experts and policy officials may
finally be facing the fact that the"driving force of the U.S. economy"
really does have a shelf life.</font>
<p class="MsoBodyText3" style="MARGIN: 0in 0in 0pt"><font size="3">Â </font>
<p class="MsoBodyText3" style="MARGIN: 0in 0in 0pt"><font size="3">Or maybe the
rest of the world is facing facts for them. A story in the January 28 Wall
Street Journal announced: “World Business Leaders Fear U.S. Consumption is
Faltering.” The story makes it clear that the U.S. isn't the only country
whose economy has counted on American consumers' willingness to carry the baton
another mile:</font>
<p class="MsoBodyText3" style="MARGIN: 0in 0in 0pt"><font size="3">Â </font>
<p class="MsoBodyText3" style="MARGIN: 0in 0in 0pt"><font size="3">“As
spending ground to a halt in Germany, Italy, Japan, and other major economies,
Americans continued buying cars and homes, keeping the global economy afloat.”</font>
<p class="MsoBodyText3" style="MARGIN: 0in 0in 0pt"><font size="3">Â </font>
<p class="MsoBodyText3" style="MARGIN: 0in 0in 0pt"><font size="3">And now that
we know consumer spending saw its weakest rise in a decade, evidence that the
“American wallet” will save the day is dwindling. But not even the evidence
can change the minds of people committed to Rosy Scenario.</font>
<p class="MsoBodyText3" style="MARGIN: 0in 0in 0pt"><font size="3">Â </font>
<p class="MsoBodyText3" style="MARGIN: 0in 0in 0pt"><font size="3">Those who are
doubtful now still believe that the consumer will resume spending -- “in about
a year." So the obvious next question is, what do we do in the meantime?</font>
<p class="MsoBodyText3" style="MARGIN: 0in 0in 0pt"><font size="3">Â </font>
<p class="MsoBodyText3" style="MARGIN: 0in 0in 0pt"><font size="3">The story
says that in the past, the traditional economic steroids have been tax cuts,
rate cuts, and business investment. Mysteriously, there is no mention of the
giant horse pill being shoved down our consensual throats -- namely, cheap, easy
credit for everyone, even teenagers.</font>
<p class="MsoBodyText3" style="MARGIN: 0in 0in 0pt"><font size="3">Â </font>
<p class="MsoBodyText3" style="MARGIN: 0in 0in 0pt"><font size="3">Bob Prechter
says much on this subject (and many others) in his January 16 Elliott Wave
Theorist. Here's a brief excerpt:</font>
<p class="MsoBodyText3" style="MARGIN: 0in 0in 0pt"><font size="3">Â </font>
<p class="MsoBodyText3" style="MARGIN: 0in 0.5in 0pt"><font size="3">“Only
producers can afford to buy things. A consumer qua consumer has no economic
value or power. The only way that consumers who are not (adequate) producers can
buy things is to borrow the money.</font>
<p class="MsoBodyText3" style="MARGIN: 0in 0.5in 0pt 0in"><font size="3">Â </font>
<p class="MsoBodyText3" style="MARGIN: 0in 0.5in 0pt"><font size="3">So when
economists tell you that the consumer is holding up the economy, they mean that
expanding credit is holding up the economy. This is a description of the problem,
not the solution!</font>
<p class="MsoBodyText3" style="MARGIN: 0in 0.5in 0pt"><font size="3">Â </font>
<p class="MsoBodyText3" style="MARGIN: 0in 0.5in 0pt"><font size="3">The more
the consumer goes into hock, the worse the problem gets, which is precisely the
opposite of what economists are telling us. The more you hear that the consumer
is propping up the economy, the more you know that the debt bubble is growing…"</font>
<p class="MsoBodyText3" style="MARGIN: 0in 0in 0pt"><font size="3">Â </font>
<p class="MsoBodyText3" style="MARGIN: 0in 0in 0pt"><font size="3">The officials
who've pushed consumers to the wall with"keep spending" rhetoric are
fully aware of the consequences those individuals will suffer in the name of
saving the economy. Yet they continue. The irony is that, as Bob pointed out,
their willingness to encourage irresponsible spending is not fixing the problem
-- it's making it grow.</font>
<p class="MsoBodyText3" style="MARGIN: 0in 0in 0pt"><font size="3">Â </font>
<p class="MsoBodyText3" style="MARGIN: 0in 0in 0pt"><font size="3">Bob goes on
to discuss the RISK that is growing right along with the debt bubble, namely
deflation. In thirteen pages of commentary, he addresses virtually every
economic argument against it you've ever read.</font>
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