Welcome To New Era: Scrimp And Save

Hoping for a quick return to the consumer spending habits of past quarter-century, when “financial discipline” meant remembering to withdraw enough home equity to get a new SUV every two years? Forget about it, says Gary Shilling.

We are indeed going to return to the past, but it’s going to be the enforced frugality of the 1930s and 1940s, not the debt fuelled orgy of the past couple of decades.

As the charts below show, in the last 25 years, our total consumer debt load has ballooned from about 50% of GDP to almost 100% (FT).  We’ve also raided our home-equity piggy banks, pulling out an increasing amount each year until house prices collapsed (Gary Shilling). At the same time, our savings rate has dropped from more than 10% of disposable income to zero.

Over the next several years, Gary says, these trends will continue to reverse, placing enormous pressure on consumer spending. Unable to borrow anymore and seeking to replenish our demolished retirement accounts, we’ll have no choice but to go on a “saving spree.”

And this is not good news for the thousands of companies–domestic and international–that got fat and happy over the past two decades selling us things.

See our interview with Gary on TechTicker here:

 

See Also: Bernie Madoff’s Ponzi Victims: The Updated Slideshow

NOW WATCH: Money & Markets videos

Want to read a more in-depth view on the trends influencing Australian business and the global economy? BI / Research is designed to help executives and industry leaders understand the major challenges and opportunities for industry, technology, strategy and the economy in the future. Sign up for free at research.businessinsider.com.au.