The Myth of Pent-Up Demand

Over the last two days, I’ve been involved in three conversations where the person I was talking to said that people aren’t spending money because they’re scared and because of how the media is portraying this financial crisis.

Is that what everyone thinks?  That if the media was saying “go spend money” they’d go out and do it again?

I think it’s a bigger problem than that.  The economy has been supported by consumer spending for years, and now, the consumers have finally run out of money.  As the bubble grew, their sources of disposable income grew.  First, it was credit cards, allowing people to buy what they wanted and worry about paying for it later.  The last straw was using their homes as ATMs, allowing them to cash out paper gains to buy big ticket items like flat screen televisions, dirt bikes, quads, and toy haulers.

When two-thirds of your economy relies on consumers to spend money, this was inevitable.  Instead of developing sustaining industries, we shipped all our production overseas so people could buy more stuff.  Now we’re paying the price.

I really don’t see any way of this turning around either.  Things are going to have to change dramatically and our need for instant gratification is going to have to be replaced with thrift and savings.  It’s not like all of a sudden, a switch is going to flip and people are going to start using their credit cards again.  They are probably maxed out to begin with.  They won’t be able to fuel their purchases with their home’s equity either.

All of the fixes the government has tried so far have done nothing to help this problem either.  It’s our fault for making bad decisions, but they’re more than willing to throw billions at the banks for even worse decisions.

Our consumer based economy is failing, and we’re going to have to adjust our economy and our standards of living in order to come out of this ahead.  People aren’t spending money because they are already in too much debt, or they don’t want to go further into debt.  The media and this “pent-up demand” have nothing to do with it.


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