The Great American Consumer

President Barack Obama confers with Federal Re...

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June 18, 2011

According to the IMF, the world economy is looking a little green around the gills and the august lending body “has cut its forecast for US economic growth, warning Washington and debt-ridden European countries that they are “playing with fire” unless they take immediate steps to reduce their budget deficits.” http://www.telegraph.co.uk/finance/economics/8582352/IMF-Debt-ridden-eurozone-countries-playing-with-fire.html

It’s no wonder that, on the home front, consumer expectations are down as “The Bloomberg gauge of economic expectations dropped to minus 31 this month, the lowest level since March 2009.” http://detnews.com/article/20110616/BIZ/106160452/1001/rss21   The Misery Index is up http://finance.fortune.cnn.com/2011/06/17/misery-index-hits-new-high/  and consumers, business owners and investors become gloomier by the day. http://www.msnbc.msn.com/id/43432796/ns/business-eye_on_the_economy/t/consumers-business-owners-turning-gloomy/from/toolbar

According to a Gallup pole at the end of May, consumer spending at all income levels, although up slightly for the month, is down from a year ago and down sharply from 2008. http://www.gallup.com/poll/147863/consumer-spending-may-down-year-ago.aspx  To the economists, at least, “The question going forward is whether the current slowdown is simply transitory, as suggested by Federal Reserve Board Chairman Ben Bernanke, or something indicative of economic stagnation or stagflation. At this point, the answer is unclear.”

So what has happened to the Great American Consumer, once the growth engine of the entire world economy?  Over the last two years – until the recent increases in energy and food prices – they have been busy paying down debt rather than increasing spending.  Why?  It’s anyone’s guess, of course.  My own guess is, that they have begun to realize – at some gut level – things are not going to go back to anything resembling “normal” any time soon.

Back in 2007/2008, as oil supplies tightened and prices rose, the bottom fell out of the housing market.  Recession set in and oil prices dropped as demand destruction occurred – though at their lowest, prices were still almost twice as high as they started out in 2000.  Recovery began, oil prices rose again.  Now we are in danger of the world economy stalling again and the cycle beginning anew. http://www.mongabay.com/images/commodities/charts/crude_oil.html   This is an oversimplification, of course, but oil really is the lifeblood of the world economy.

Take a look at these stats posted over at the End of the American Dream blog a couple of months ago, if you want a pretty good picture of where  many Americans are today.  http://endoftheamericandream.com/archives/35-statistics-that-show-the-average-american-family-has-been-broke-down-tore-down-beat-down-busted-and-disgusted-by-this-economy   Income inequality in the rest of the developed world continues to rise, too, as wages stagnate. http://news.yahoo.com/s/yblog_thelookout/20110504/us_yblog_thelookout/report-inequality-rising-across-developed-world   And, of course, natural disasters have continued to take their toll on individual lives as well as the world economy in increasing numbers.

Oil is a peculiar energy source, in that conventional crude oil (which peaked in 2005 according to the IEA) has the highest energy return on energy invested of all the current known energy sources.  Even natural gas, of which we are told we have an increasingly abundant supply, has only about half the EROEI of conventional crude, coal less than that.  Other sources of energy – unconventional oils, nuclear, wind and solar – have still less, even before the energy used to acquire and produce them are factored in and require increasing amounts of oil energy to scale up to amounts which would make a difference at a time when oil production is flattening and decreasing worldwide.   All of this had led some economists and many energy experts to believe that we have entered an era in which economic growth hits a limit, recessions or depressions follow (with demand destruction increasing supplies temporarily) and the cycle begins again, until world growth finally hits a wall from which it can’t recover, though no one is sure how soon that might be.

The average American consumer probably doesn’t know much of this, but they do know something has gone terribly wrong and doesn’t seem to be getting better.  EROEI applies to human energy, too.  I can’t say for sure, but I do wonder if, in the light of all that is happening to them, the Great American Consumer has arrived at a point in which the energy returned on the energy they invested to run that engine of the world economy for so long is no longer worth it.  The era of the Great American Consumer may truly be over.  What if, despite the world’s best efforts, there is no time left and no one to take his place?

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2 Responses to The Great American Consumer

  1. Bill Hicks says:

    And here comes the end of QE2 along with political brinkmanship on the federal debt limit. If the clowns in Congress fail to raise the debt limit, the U.S. economy will instantly contract by just over 10% (roughly $1.5 trillion in annual deficit spending injected into a $14 trillion economy–simple math!). If that happens we will be instantly plunged into the debts of a REAL great depression.

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