It's Consumer Confidence Stupid

In February of this year, I wrote how America's economic future depends on restoring consumer confidence.

Obama's middle and lower class tax cuts are intended to make people start spending. The problem is consumer confidence.

Obama has his work cut out for him. The progressive version of trickle down economics is not enough. Americans need to feel confident about where the country is heading. The President needs to make Americans feel the country is on the right path. Only then will consumors spend and lending institutions will give out loans.

Robert Reich repeated the same message today at TPM Cafe.

Problem is, consumers won't start spending until they have money in their pockets and feel reasonably secure. But they don't have the money, and it's hard to see where it will come from. They can't borrow. Their homes are worth a fraction of what they were before, so say goodbye to home equity loans and refinancings. One out of ten home owners is under water -- owing more on their homes than their homes are worth. Unemployment continues to rise, and number of hours at work continues to drop. Those who can are saving. Those who can't are hunkering down, as they must.

Eventually consumers will replace cars and appliances and other stuff that wears out, but a recovery can't be built on replacements. Don't expect businesses to invest much more without lots of consumers hankering after lots of new stuff. And don't rely on exports. The global economy is contracting.

My prediction, then? Not a V, not a U. But an X. This economy can't get back on track because the track we were on for years -- featuring flat or declining median wages, mounting consumer debt, and widening insecurity, not to mention increasing carbon in the atmosphere -- simply cannot be sustained.

Reich was one of the major players crafting economic policy in the Clinton administration. The Clinton people understood the importance of making life easier for working families. The Obama administration have grand concepts of recreating health care and changing America's infrastructure with the stimulus package and cap and trade. Their acting like kids that finally got a chance to play with their shiny brand new policy toys. The number one issue is restarting the economy and stop printing money, in order to avoid inflation. Obama bought the money losing General Motors and made no push to raise the minimum wage. Talk about priorities.

On the bright side: the Obama foreign policy people have their shit together.