All of that represents potential demand in that it must be addressed. This condition is similar to that which existed after WW2.
I think all those post WWII reserves you refer to actually belonged to the depositors, not the banks. That's the primary difference. Due to rationing and wartime production schedules, as well as saved military paychecks, households had tremendous amounts of cash built up.
So it was when the rationing ended, and industry was in the process of retooling, that you saw the demand increases and inflation.
After WWII the CONSUMER had cash to spend and limited goods to purchase. They were back from the war, making babies, and looking to buy houses and products that existed in limited quantity due to retooling.
But right now.. the consumer is TAPPED OUT, about to lose their homes, can't afford the PLETHORA of available consumer products that already exist. And the reserves you're talking about belong to the Banks, not the consumers.
It's just that the sales are going to low cost producers at any price point, and that ain't much made in the USA.
I think that we're definitely seeing descretionary spending moving to the discounters. I see it at the local Walmarts, which are putting other retailers out of business. People are looking for bargains to buy the things they HAVE TO HAVE. Those are the things they can't do without. But that isn't the kind of "potential demand" that's going to pull this economy out of deflation.
The problem is that government money was misdirected and put in the wrong hands. There was an argument made last fall regarding the TARP funds. If that money had been given to businesses as a $20K tax credit for each employee that was hired and retained for at least a year, you'd have shored up the demand curve and cost FAR LESS than giving it to banks with no pool of qualified borrowers.
And that money would have been placed in the pockets of those who need it most, the consumers. That would represent "potential demand". I certainly don't see any economic validity to categorizing bank reserves as "potential demand" if there is a shrinking pool of qualified borrowers due to rising unemployment.
The only kind of demand that an unemployed person has is for that unemployment check, ramen noodles, and spaghetti.
Hawk |
