With the triple whammy of unemployment, deleveraging of personal finance and the collapse of home prices, it is only common sense that people have stopped spending and conserve cash for the future; nobody knows who will be next to loose their job!
So why does the financial community seem to think that things are improving when the reality is that the global economy is heading for stagnation and worse.
Lets look at some of the facts, governments are building up unsustainable amounts of debt in the hope that stimulating their economies using quantitative easing, TARP funds and shoring up the financial system will save the global economy and return us to growth.
We have no proof that these programmes will revive the global economy. But here are some real facts for the economy. We could be entering a new era where high unemployment becomes normal for western economies. After years of over spending consumers are learning a harsh lesson in personal finances and the hangover will take years to get over.
During this time, consumers will put off making large spending decisions on such items as cars, white good, house hold goods and moving house.
The longer these people put off making these purchases, the longer consumer confidence will remain weak.
On a corporate level, organisations will be in a continuous state of restructuring with the aim of reducing costs. They will not be investing in new products for future growth. Mergers will happen to reduce operating costs and increase economies of scale but not drive top line growth. The easiest way for organisations to do this is to reduce their largest operating cost which is direct wages. Organisations will employ just enough people to remain profitable, but as the cycle continues remaining profitable will become dependent on cost cutting and restructuring.
So can somebody tell me where the earnings growth is going to come which will reverse this trend if the global consumers have their wallets firmly shut?
