You would imagine, that if it is the people who aren’t spending that cause recession, then before or simultaneous to a recession, you would see savings rise or debt fall as the people slowed spending before they lost income.
But, if people lost income before they slowed spending, then it can be infered that there would be a credit spike and a drop in the value of savings and investment before or simultaneous to the start of a recession. In addition, we would also know that it isn’t lack of spending that causes recession.
My question is, which of these is the case? Does anyone know how this can be measured, if it has, and whether this seems logical?
Seems logical. If you subtract the MEW (Mortgage Equity Withdrawls) from the GDP in the US over the past 15 years then you get some interesting results. The recession in 2001 was largely avoided/softened becuase consumer spending didn’t slow down a bit… instead people drew down cash on their home loans (i.e. made MEWs) to pay for the necessities of life, since the value of their homes was increasing at this time. I can’t give you the graph since it’s copyrighted - but you may be able to find similar stats on Google somewhere.
The savings rate in the US is hovering around 0% at the moment (it might have hit -2% recently infact) - so US citizens certainly aren’t saving. Indeed, for the past 7 years they’ve been very much either eating away at savings or going into debt to fund their lifestyle… any argument that the coming recession in the US is caused by a lack of spending is a bit fanciful to my mind. It would seem to me that the coming recession is caused by an imbalance of consumption/production (either an excess of consumption or a lack of production with regards to the US economy as a whole).