Economic Recovery Unlikely

Today’s economic output is for 70% dependent on consumption. Shoppers cannot ‘save’ the world economy anymore and China's economic miracle can't rescue this economy either.

The law of personal and financial responsibility is as irreversible as the law of gravity. No one can change that, no bailout no stimulus package, you name it. Consequently no more shopping but very much less than before. Consumers will keep buying what they really need, like in the 60s when the consumptive share of economic output was between 25 and 30%. The economy needs to be restructured and not revived. Structural reform is necessary, by reducing manufacturing capacity and not more money as generally is thought.

Too many industrialists and policymakers count on credit-card carrying shoppers to jumpstart the global economic engine all over again. Politicians, Leaders and Bankers still have the belief that they can reverse this trend. They have apparently no idea that the freeze in consumer spending and consequently the consumer economy will actually take many more years before this is going to happen and likely in our life time not at all.
Growing up during good times, people easily forgot that saving and value assessment were once, and still is, the foundation of our society. Now leaders have to learn that people are returning to those ideals once more. A sea change in long-lasting consumer behaviour is taking place.

A valuable example is Japan. In the late 1980s, Japan was busy buying up American companies at a breakneck pace. They too felt pretty rich. A square foot of land in Tokyo was priced $1000. Then in 1989 their market had their credit meltdown, similar as is happening today, but this latest one is global and therefore of a much larger scale and impact. Japan hasn’t yet recovered either. The only change that took place in Japan was cultural by saving more as the savings rates do indicate. As a result sales of everything went down, car sales by 50%, while eating habits adapted to more austerity, and multiple small savings everywhere became the habit. Less luxury, less waste, all what could be reused were used again, cloth, water, electricity and so on.
Not out of poverty, not at all, it are well-employed Japanese middle class people, with good incomes that now are saving for bad times, thinking these could happen again. And that change in attitude will happen in the rest of world as well, causing a much longer recession or better said a depression that many under us are unable to imagine.
And without buyers, there will be no recovery, so simple is this economic mathematic.

The jobs that disappeared with job losses as a consequence do have a "multiplier effect" on lesser consumption that won’t contribute to a quick recovery either.

And then, China that up till now finance U.S. spending as bailouts and stimulus packages with their dollar reserves worth about $2 trillion may have a change of heart soon. These are loans that ought to be paid back as well. What will happen when China thinks that those loans are no longer a save investment?

With China, yet not acknowledged, in not a good shape either they may some day change their mind, that day could come rather sooner than later, on that day the dollar will go down the drain. Already, China's Prime Minister Wen Jiabao says openly that he's ‘worried’ about the dollars long-lasting value. During the G20 gathering last month, both China and Russia have called for a new world reserve currency. All it would take to have that happen is a shift of opinion.