Households' "belief in the system has faded"

Households' "belief in the system has faded," to use a Survival+ phrase, meaning their belief in the current "prosperity" based on exponential credit expansion, governance by Financial power Elites partnered with a parasitic Savior State, and the status quo idea that "housing and stock markets are coming back, buy and hold for the long term," etc.

As I have noted before in When Belief in the System Fades, Stock Market Version (March 26, 2010), the American public is staying away from this "global stock market rally" in droves.

U.S. households are staying out of stocks, paying down debt and saving cash. That reflects their actionable belief system. They are rejecting the status quo's desperate pleas to borrow more, spend more and leverage themselves to the hilt once again.

Most pundits seriously underestimate the global overcapacity in manufactured goods. If Americans want another 10 million cars, 10 million sofas, 10 million TVs, or whatever other good you can name, China, the EU, Asia and the U.S. have so much overcapacity that any spurt of demand, no matter how gargantuan, could be met quite easily by production facilities that are already in place and currently idle.

So even if you print $10 trillion and give it away, people will use it to pay down debt and bolster savings; if you doubt this, please re-examine the chart above. Whatever goods they do buy will not rise in price because global overcapacity exceeds any possible spurt in demand.

Lastly, let's ask a question which is rarely ever asked: is buying more surplus consumer crap really the kind of "growth" we want or the kind that is sustainable?The second the consumer item moves off the lot or out of the store it immediately loses much of its value; due to massive overcapacity, "new" will be abundant and cheap until Peak Oil disrupts the entire global trade flow. Mercantilist economies like Japan, Chuna, and Germany (despite lip-service to "domestic demand") are like sharks: they either grow their exports or they die, just as sharks must swim forward or they expire.

Spending $10 trillion on more superfluous, rapidly depreciating consumer crap is actually a massive malinvestment, a stupendous diversion of capital from truly needed infrastructure and debt deleveraging.

But we all know the Fed isn't going to print $10 trillion and give it to U.S. households; it will print trillions and give it away to banks, in a futile attempt to recapitalize insolvent, fraudulent firms which should be forced into bankruptcy. The trillions of "free money" (courtesy of ZIRP, zero interest rate policy) will sit in the banks where it will fund speculations in stocks, bonds, commodities and foreign exchange. A trivial sum will be lent to insolvent consumers with much ballyhoo, and the consequences of deleveraging shoved forward one more election cycle (extend and pretend).

Those who expect this policy to create inflation will be disappointed; there is simply no way that this policy can create inflation, nor can it reinstill households' belief in the exponential credit expansion system.

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