Spending is correlated with wealth and expected future income, which just went down a lot for most people. So consumer spending can only go in one direction- down.

If you give consumers more money, they'll de-lever more- which doesn't help the economy much (money supply grows, but velocity of money is really weak).

Maybe tax credit would help some- to get some capital off the sidelines and back in play. Hard to say.

We may just have to be patient on this one until the bubbles fully deflate and people get over the shock (causing aversion to risk). But I've spoken with a number of people over time who lived through the Great Depression and they never full recovered.

i thinks lots of people have money but they are afraid to spend, if they got rid of the fears things might improve

John,

What needs to happen to reverse this trend? What can be done to change the financial mentality of the American public? What can be done to make us a saving Nation? I am interested to hear your thoughts on this matter.

For me, the current situation is a lot like a weighted game of prisoner's dilemma. The consumer is being told that if only they started trusting again and cooperating (in this case spending) then the system would work.

Unfortunately the other side of the equation, the titans of business, has badly betrayed trust, and continues to do so (the whole fervour over giving out bonuses while receiving corporate welfare). It doesn't matter if the consumer spends themselves to bankruptcy and death so long as the merchant princes continue to abuse the system so badly.

This is of course an unfair generalization - most business have acted in good faith. But enough have betrayed trust, and society has done little to punish them. How can I trust spending the resources I might need later when I know that the other side can betray that trust and get away with it?

IMO one of the big things that could be done to restore trust is to show that the corporate powers can be held accountable for their actions. The 'just trust me' tactic just isn't going to work anymore - business has to agree to a binding contract that makes betraying trust more painful to them then carrying on in good faith. Otherwise the only rational thing for the consumer to do is conserve resources and punish the other side the only way they can - not spending.

Though I can't actually imagine that happening. My whole life I've never seen a corporation be held accountable for betraying the public trust. Any punishment has always been vastly disproportionate to the crime - when things are going well the "meritocratic" nobility claim all credit and demand the moon in exchange, but when things go bad they suddenly have nothing to do with it (but since you promised the moon before, gimme anyway). I have little faith the accountability will ever exist for the powers that be.

I think that the public is thrown. Who do you trust when everyone, including the public itself is to blame for the mess. Plus with the banks at falt they cut their loans and that also hurts the economy. Then you have the government keeping the bad banks in business and you have where we are now. But I think that the U.S. public is strong and will pull us out of this.

I think that there is not very much money in people's households right now. A lot of companies are going under, and a lot of people have also lost their jobs. I know a lot of people that have had pay cuts as well, so I think for sure that we cannot pull ourselves out of this slump at this exact moment. I think over time we may slowly be able to rise but it all takes time.

My family would be happy to spend some of our hard-earned savings -- a new roof, painting the house, travel -- if we knew we would continue to be a two income family. But there is no guarantee of employment so we're not spending a dime. And "buying low" right now? Heck no. We're a long way from hitting bottom.

I heard recently since the economy appears to be in the process of turning around, people are starting to buy back heavily into junk bonds which means more investment into unstable and bad debts. It seems that businesses and the public can't let go of bad habits easily.

I feel that although it appears that we are moving out of a recession, I do not feel as though it is because of the american people. American's tend to have terrible spending habits as Brennan stated above. We feel that we can spend and spend and not have to deal with it in the moment. That is why people are in such deep credit card debt. With the mortgage deals, people are still being approved for loans that they should not be approved for. Old habits have a way of finding their way back to the surface.

Looking at these graphs was kind of shocking to me. The difference in how much people are saving since the recession of the 1990's is crazy. People are not saving now and don't have a lot of money to spend. Because of this I think it will be a while before we can get out of this recession since many consumers can't spend to stimulate the economy. I know a lot of families that have made cut backs in their spending so we will just have to wait until people have accumulated enough money to afford to spend again.