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Rex Nutting
Oct. 1, 2010, 12:01 a.m. EDT · Recommend (7) · Post:
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"¹ Previous Column
America's choice: Hypocrites or cowards
First Take "º
Detroit dares to think big again
By Rex Nutting, MarketWatch
WASHINGTON (MarketWatch) "” Even though the recession officially ended more than a year ago, the economy still has big problems. It can't fully recover while American households are still carrying so much debt.
And despite progress in working off some of that debt, it'll probably take several more years before the deleveraging ends and consumers are willing to take on more debt again.
Deleveraging doesn't mean consumer spending won't grow at all, but it does mean spending is likely to grow no faster than incomes do. It means the economy will be restricted to 2% to 3% growth for a while, not enough to bring down the jobless rate very quickly.
We've had too much credit, but it's also possible to have too little.
We live in a world that thrives on credit. Capitalism would be unthinkable without it. If everyone had to pay for the things they want or need out of pocket, very little economic activity would take place. Credit allows us to spend or invest in one time or place, and settle the accounts in another time or place.
It was the invention of credit instruments in the early days of capitalism that created our modern world. Credit allowed capital to come to life; it gave people with ideas, vision and drive the ability to tap into the dead savings of the tired-but-wealthy old guard and put those savings to work.
It's not a perfect system, however. Waves of euphoria and doubt have swept across our economy for centuries. Periods of irrational exuberance led to excesses, which are followed by years of rethinking and retrenchment.
American antiques collector Ralph E. Carpenter built this home in the Murray Hill section of Scarsdale, N.Y., in the 1950s using rooms from homes destroyed to make way for new businesses. It's now up for sale for $3.495 million.
We are in one of those cycles now. There's nothing new about it, except the size and the complexity of the bubble and ensuing collapse.
The economic growth in the United States over the past 30 years relied too much on debt, on ever-more leverage. Credit is supposed to be the lubricant, not the fuel.
The deregulation of financial services meant that, for the first time in history, even ordinary working people could live like kings. Even your dog could get a platinum card and spend like there was no tomorrow.
Except tomorrow came.
September car sales and telltale economic data rekindle visions of the SUV, writes Jim Jelter.
3:07 p.m. Oct. 1, 2010 | Comments: 35
- DPinSoCal | 11:42 p.m. Sept. 30, 2010
"U.S. stocks get firmer grip on gains http://bit.ly/dzhsuU" 3:53 p.m. EDT, Oct. 1, 2010 from MarketWatch
"U.S. stocks finish higher, lifted by energy sector; crude at seven-week high atop $80 http://on.mktw.net/9ykQDo" 3:02 p.m. EDT, Oct. 1, 2010 from MarketWatch
"Microsoft files patent suit against Motorola over Android phone http://on.mktw.net/aowjYh" 1:56 p.m. EDT, Oct. 1, 2010 from MarketWatch
"Household #debt still a drag on #economy http://bit.ly/cyFyq6" 1:19 p.m. EDT, Oct. 1, 2010 from MarketWatch
"#TARP due to end, but its funds to live on http://bit.ly/c5ZAQ9" 12:41 p.m. EDT, Oct. 1, 2010 from MarketWatch
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