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What happens when over 70% of a nation’s economy is built on Consumer Spending … and the consumer runs out of money to spend?  We are about to find out !

Turns out the worst thing that could happen to our already punch drunk economy is for people to start saving money. Our national savings rate has been a negative number – meaning we spent more than we earned – for years now … until last quarter. Here’s how frugal we have become …

• In the third quarter of 2008 consumer debt fell for the first time SINCE 1952 !
• Consumer spending fell for the first time in 17 years !
• Goldman Sachs is predicting a 2009 savings rate of 6% – 10% ….. YIKES

This new trend is incredibly important if we are thinking Economic Recovery means a return to the boom economy of 2000- 2008, powered by consumers spending home equity withdrawals. If “Recovery” means a return to those “spend the money you don’t have” days, I have news for you – IT AINT GONNA HAPPEN.

Which brings up the age old saying — “This time it’s different.”

And this time it really may be different. The deleveraging of the financial markets and the “Brick Wall” effect of housing market collapse on Mortgage Equity Withdrawals has made the old Economy impossible to recreate.

This is why any “economic stimulus” package should no longer contain direct payments of cash  – people will just save it … the horror !!

So what’s next … and this is Really why it is different this time. What’s next?

NO ONE KNOWS WHAT IS NEXT … AND ANYONE WHO SAYS THEY DO IS FULL OF BALONEY. I can’t count the number of pundits in the WSJ or Barron’s or the investing news networks who have simply thrown up their hands and admitted as much.

We are in uncharted territory. It is just going to take a while to find out what the new economy looks like.

• What will the new driver of economic activity become?
• Will the government backed stimulus have the desired effect?
• Will the value of the dollar fall to zero after multiple years of trillion dollar deficits?

These are all good questions we will have to wait to be answered.

In the meantime, buy value add multifamily … and get an owner carry while your at it.

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