"We're certainly in the midst of a once-in-a-lifetime set of economic conditions," Microsoft Chief Executive Steve Ballmer said on a conference call with analysts. "The economy is resetting to a lower level of business and consumer spending that's based largely on the reduced leverage in the economy."
First, consider this post from a few weeks ago. Here is a quick summation:
1.) Savings has been declining since 1980
2.) Total household liabilities started increasing at this time
3.) Currently, the financial obligations ratio for households is below 14% -- near one of its highest points in decades
Coordinate this data with information of median family income from the Census Bureau, which shows that median household income has been pretty stagnant for the last 8 years
And add one last piece of information: according to the Federal Reserve consumer credit has dropped the last two months.
Let's tie all of this together.
For the last few decades, household incomes have not kept pace with the consumer's desire to spend. As a result, the consumer has taken on larger and larger amounts of debt.
Now we are probably starting the great unwinding; that is, consumers getting rid of all their debt (or at least paying some down). While this is good in the long run because it will create a healthier consumer it is bad for the economy because the US economy derives 70% of its growth from consumer spending. And that's what Ballmer is getting to.
7 comments:
Am I correct in assuming that this debacle began with the economic ideology promulgated by Ronald Reagan and continued through the administrations of Bush Sr., the Republican-led Congress during Clinton and Bush Jr?
Perhaps more "conservatives" should follow Alan Greenspan's example and admit that their "free" market/Big Government and taxes are bad philosophy was flawed!
Anonymous,
The monster was spawned by the Friedman/Rand cult in the 60's and 70's, and spent its childhood in Reagan's White House, but the monster was totally unleashed in the '94 Republican takeover, fed steroids by Gramm and crashed under W's watch, when the monster decided to drive with its eyes closed, hands off the wheel and foot fully smashed down on the accelerator.
An article in Fortune Magazine states that we should apply more supply side economics to this debacle to create jobs. In keeping with this approach, the California Forestry Service announced that it will now use a mixture of naphtha and polystyrene (aka napalm) as a flame retardant in the upcoming fire season.
Thought from a Biologist [barely remembering most of my required business coursework in my undergrad years, lo' these many ages ago]
I often hear the words, "...the US economy derives 70% of its growth from consumer spending." Is this an accurate representation of the US economic system? That almost all of it is basically buying things at the store? Where does the wealth come from for this process since it seems very weighted in the wrong direction (spending outweighing production, that is)?
I realize the credit card and home equity lines of credit provided a great deal of 'phantom' wealth. But if the USA is just a spender and not a net producer there seems to be no foundation, in my mind, for the money that people spend.
Very confused here...
I've always thought the upside-down thinking of the Reaganomics "trickle down" theorists was particularly absurd. They got the direction wrong.
As an example of this, consider a small town with n single grocery store. Who ends up with the money from the townspeople? While it's true that some of them might get jobs with the grocer, most won't. The money trickles up, not down.
So, if you want to apply economic stimulus, you increase wages and employment starting at the bottom. Giving money away to the people at the top is just wistful thinking.
>> Steve Ballmer Gets It Right
I thought his comment was funny - but yours is funnier.
I bet Ballmer uses the word "problem" about 1% of the time that he should. Here's one word proof: Vista.
Ballmer is a businessman and as such it is easy to recycle platitudes about macroenomoic conditions. Kudos.
Sadly, the one thing he doesn't get is how to produce a product that consumers want. Window managers and DRM music stores are 10 years too late. Maybe Ballmer can go work for the Feds when he's done sailing MSFT into the coral reef of obsolescence. Of course dinosaur US companies will still buy their licenses. Hilarious, really.
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