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Don’t Count on Consumers to Save the Struggling Recovery: Economist


It's not like he can just come right out and say "can I get a little help over here?!" But if you translate Ben Bernanke's latest comments, his message is plain as day: rewards from the Fed's rate reduction efforts (in all forms) are dwindling.

For example, when the Fed Chief said, "Monetary policy by itself is not going to solve our economic problems," that was the equivalent of serving a Congress with a subpoena for woeful neglect, an outright plea for his elected Federal counterparts to get over gridlock and take action on tax policy, the budget and the debt/deficit immediately.

As unlikely as that is to occur, hopes that businesses and/or consumers are going to suddenly spring to life and start spending seem equally improbable.

"If people don't have cash and they have limited access to credit, than there's just so much that they can run up in terms of bills," says Jerry Webman, Chief Economist at Oppenheimer Funds, in the attached video. "We're not creating a lot of new paychecks, so of course, the rate of consumption growth, (which accounts for) two-thirds of the economy, is going to be slow."

Compounding the problem is the drip-feed of unsettling global developments as well as a stream of weak economic data. In fact, this week alone presents no less than 5 different reports that are not expected to jolt the economy from its coma, including New Home Sales today, Consumer Confidence tomorrow, Durable Goods on Wednesday. We'll wrap the week with Unemployment Claims, Chicago PMI, and the latest look at Income & Spending.

Webman believes the trend of households reducing their debt is a headwind cycle that still has years to go. "There's a long-term unwind (of household deleveraging) that we're maybe 2/3 of the way through, and until we're through that, we're not going to see a rapid expansion of consumption," he says.

You could call it a vicious cycle, or a high stakes version of chicken or egg, but the fact remains that unless and until we are able to create new paychecks, this recovery is going nowhere fast.