The Third Economic Wave

Oct 19, 2008 Posted by Rizki Akmanda on Oct 19, 2008 in Business | 0 comments

The Third Economic Wave

In the U.S. there have been three major waves that have more maple in our society over the past 30 years. The incredible run in residential real estate values since the late 1970s was the first arc. Except for a brief period of the early 1980s and then again in the 1990s, the value of residential real estate always seemed to go upward. This, of course, creates a great sense of wealth for those who benefited. In the first part of this decade million households took advantage of historically low interest rates to draw billions of dollars of capital to use for purchases. This cycle of 30 years, obviously, came to a crashing halt two years ago.

The second arch was the historic bull market in stocks that began in 1982 and, with a correction in 1987 and again in 2000, continued its historic peak in 2007. This arc also created a great sense of wealth for millions of American consumers. The investment has become easier as the market seems to be always upwards. These led to consumers feel richer and are entitled to feel more and more material goods and even extravagance. September and October 2008 put an end to that.

The collapse of the housing arc has had a stunning effect in the debt market, which led to the collapse of global equity markets in recent weeks. The sudden and historical speed collapse of stock markets around the world felt viscerally to billions of people around the world. In the U.S. there has been an evaporation of $ 2 trillion dollars of net worth in a matter of months.

The collapse of these two arches will produce the collapse of the third arc that has defined the U.S. economy over the past 30 years. That arc is consumer spending. Consumer spending accounts for two thirds of the country’s GDP. In the past three decades has been a time of unprecedented consumption in the U.S. The size of the houses grew, the number of cars per household grew. There was an explosion of electronic good that filled every room, pocket and briefcase. Extravaganza on increased purchases from home, dining out and travel. This arc has driven the American economy since the recession of the early 1980s. Arco to be losing his career and a fundamental change is about to happen.

Why do I say this?

The recent collapse of the stock market has left most of the poorest people suddenly feeling. This crosses all generations. Those who are retired now fear that the retirement of gold will be silver or a bronze at best and there is nothing to do but to spend less.

The greatest generation, the generation! Baby Boom, now feels as if it may never be able to retire. The greatest amount of personal wealth in the United States is controlled by those over 50 years and all these people are poor and suddenly no longer have the assurance of faith in their financial future every time the rising value of housing and the expected population. The reaction is stop buying things.

When the largest and wealthiest of the population who decides to become thrifty is the only thing you can do in a world that no longer feels they can control what is going to have a profound effect on consumer spending.

To complicate matters, the X and Y generations who now see if the baby boomers to postpone retirement indefinitely cannot move up the promotion ladder as fast as previously thought. This means that realize they can no longer pass on the assumption that the increase in family incomes.

The Millennials are now entering the workplace to see this and realize that they cannot rely on social institutions that older generations did not. They feel they were handed a bad deal that the economy is not booming one of their parents showed them. This means that they realize that they will have to be economically self-sufficient, which is why more college graduates than ever are willing to be entrepreneurs so that they can at least try to control their own destiny. Lavish spending is not in this picture.

From retirees to those who just was entering the workplace, all consumers, who consume less – less dramatically. A new social trend starts. Savings will replace the extravaganza. As small is the new big savings will be the new behavior, smart and cool thing to do.