Shop ’til you drop

Hank Paulson gave a press conference today.  As LOLFed says, “Troubled Asset Relief Program Will Not Buy Troubled Assets“.  The Treasury Statement is long — too long — but I want to zero in on just a few tidbits (emphasis mine):

Second, the important markets for securitizing credit outside of the banking system also need support. Approximately 40 percent of U.S. consumer credit is provided through securitization of credit card receivables, auto loans and student loans and similar products. This market, which is vital for lending and growth, has for all practical purposes ground to a halt.

…

Second, we are examining strategies to support consumer access to credit outside the banking system. … With the Federal Reserve we are exploring the development of a potential liquidity facility for highly-rated AAA asset-backed securities. We are looking at ways to possibly use the TARP to encourage private investors to come back to this troubled market, by providing them access to federal financing while protecting the taxpayers’ investment. By doing so, we can lower costs and increase credit availability for consumers.

An entire generation of Americans has grown up without any concept of “net worth” or “value”.  As long as your monthly income is sufficient to make your (minimum) credit card payment, your car payment, and your house payment, you are doing great, right?  For many, the notion of a house or a car or a trinket being “too expensive” simply does not exist except in the context of being unable to make the monthly payment.

This behavior reached an apex with the housing bubble and its HELOCs and IO-ARMs and so forth.  Now credit is contracting everywhere and consumer spending is finally starting to contract, too.  If you consume more than you produce for long enough, you eventually pay for it with a period where you produce more than you consume.  The former is called “expansion” and the latter is called “recession” and the whole thing is called “the business cycle”.

Producing more than you consume is not fun.  It means working a lot harder and buying a lot less.  It means re-learning lessons your grandparents knew about the value of thrift and how real wealth is created — not by pushing paper or buying land with borrowed money and doing nothing, but rather by performing actual work to generate actual goods and services.

I think Americans today really, really do not want to hear this.  And so our government is going to ensure the easy credit continues to flow, so that we can continue to visit the mall every week and buy a new car every two years and get everyone we know 20 Christmas presents 19 of which they will never use.  And our government will continue as long as it can borrow money for 10 years at 3.5% interest.

Because that is what the people want.  And consumer spending is 70% of our economy, so it is “necessary”.

I do not know how this ends.  Should long-term Treasury rates decide to rise before the economy turns around, however, I have a guess.

Update

Bonus humor link from The Onion: Should the Government Stop Dumping Money Into A Giant Hole?