July Personal Spending Up .2%, Income Flat

While the whole world is fretting about the massive inflation that will hit the US Economy in 2012 they seem to skipping over the deflationary funk we are in. July personal spending inched up .2% which is just pathetic considering this time period covered the "Cash for Clunkers" sales promotion. Take away that once in a lifetime government giveaway and I think the personal spending number is actually negative. Income neither shrank nor grew during this same time period.

This is actually a healthy thing, the consumer is repairing their balance sheet. Thinking that the consumer is going to magically reappear is just not going to happen. Let me predict the future for you.... Back to school sales suck and Christmas sales suck. It's not that the American Consumer has lost their passion to consume but rather they are up to their eyeballs in debt and 20% of them are un/underemployed. Outside of buying staples and replacing things that break I think we can reasonably expect sluggish Personal Spending numbers for a long while.

What is important to remember is that the Government is NOT injecting liquidity (also known as cash money) into the consumer instead they are putting it in bank balance sheets. That money is there as loan loss provisions so when the unemployed can't make their Credit Card, Car or House Payments the banks that made these loans won't go under. They will get all the T-Bill money so that they can continue to exist.

This is being done under the guise of protecting the American/World Citizen from all the bad things that would happen if BofA, AIG, Fanny, Freddy, Citi and JPMorgan went belly up. What no one has done is calculate is the cost if they did go belly up and compare it to the cost of not letting them go belly up. I think as a country we choose wrong.