Balance Sheet Recession Part 2

Following the success of the clunkers program, consumer spending remains at record low levels which is no surprise considering the preceding chain of events. According to a Yahoo news source, economists expect consumers to continue to spend less, save more, and trim debt to household finances decimated by the recession into better shape. Even though this is the type of responsible behavior we’d like to see as a nation moving forward; it doesn’t necessarily necessitate a rebound. But, this is the type of behavior that should be expected. Following the Great Depression, most families strove to pay off their homes first and foremost prior to any investment towards their future. This change in behavior isn’t the end of the world, actually much the opposite. But, it is a consumer behavior that our government must recognize and accommodate for.

As Mark Williams, professor of finance and economics at Boston University notes “It’s true that consumers are being more responsible, saying “I don’t really need that extra credit card, ‘but it is more related to banks clamping down on lending.” So this reduction in borrowing is no just restricted to the consumer. Banks seem to be heading to a more conservative route that they will most likely continue to ride for years to come.

So in sum, consumers and banks seem to be traveling the more conservative and responsible route. However, this isn’t the type of route that dictates an economic boom. So, it’s important to monitor congress’s approach towards fiscal easing at this point. The private sector has taken a swing for the better on the global scale, but it’s clear that it can’t fully sustain itself at this point in the game. Government intervention is still needed, but on a lesser scale.