For Hands That Don’t Want To Do Dishes

China, Company Strategy, Economics, US


Buy now, pay later….


Note: There is a special prize for the first blog reader who can explain the above headline.


In the 2001 recession, US consumer spending slowed but did not fall, and picked up again very quickly.

In the early 1990s, it dipped a bit but returned to pre-recession levels in a few quarters.

But this recovery is different because of the long-term changes in consumer behaviour in the West, which we’ve talked about before.

Unemployment in the States is nearing 10% with consumer spending falling in September after four months of improvements.

These gains look as if they came at the expense of savings as people, quite sensibly, took advantage of cash for Clunkers and other government-backed spending schemes.

Cash for Clunkers is over, but Cash for Appliances is about to begin.

However, the government needs to rebalance its budget and fulfil its pledges to rebalance the economy away from over-reliance on consumption.

So can consumer spending continue to be propped up in 2010? If not, what will this mean for chemicals exports to China re-exported as finished goods to the States?

The gap between the real economy in the developed world and the commodity and equity markets remains as wide as ever.

For example, here are the opening lines from an Associated Press story this morning: “Oil prices rose above $78 a barrel Monday in Asia as a weaker U.S. dollar offset signs of slumping consumer demand.

“Benchmark crude for December delivery was up 94 cents to $78.37 a barrel at midday Singapore time in electronic trading on the New York Mercantile Exchange”.

Some delegates at last week’s APPEC oil and gas conference in Singapore believed crude could be overvalued by as much as 50%, based on the fundamentals.

“I expect the recovery to be W-shaped,” said Gati Al-Jebouri, Chief Executive Officer of Lukoil, in a speech to the conference.

The upward curve of the W might last for some time longer, he added – but Al-Jebouri had no doubts whatsoever that fiscal tightening would be a major factor in preventing a U-shaped rebound.

If oil does decline next year – when reduced quantitative easing makes speculation less attractive, forcing the market to finally catch up with the prospects for real demand – a flight to the dollar is inevitable.

This is hardly going to help the US government’s need to make the economy more export-based.

But with the finance industry so well-embedded in Washington, it’s hard to envisage legislation that will make financial markets more helpful to the real economy.


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