Macro-economic view of the day

After Bernanke's optimist economic remarks echoed from the walls of the Grand Tetons yesterday, boosting the stock market, the question many of us have is what economic near term future can we expect. To help answer that question, I took my calculator and followed the following reasoning. Our GDP is about $14 trillion, and 70% of it is pure, unadulterated consumption. Before the “crisis” our saving rate was about -1% per capita, which meant that we were all running a deficit in our personal affairs. Now that our home, our personal little ATM that we've been liberally using to buy SUV, luxurious goods and far-away vacation is no longer working, we need to accumulate money the old-fashioned way, that is, by saving it.

So if we have to rebuild our retirement nest-egg, our “rainy-day-fund,” and pay some of our credit card debt, we will have to save 10% a year. That's about $1 trillion less in GDP and that reduction is going to leave us in a prolonged stagnation for many years to come, having a continued negative impact on employment and personal income. I'm not even factoring the fact that global “leveling” will continue to hurt good paying jobs.... Less fancy cars, handbags, restaurant meals and exotic vacations are going to become the norm and all that excess “fat” is likely to get trimmed for a while. The obvious question is for how long. . .