Stock prices have been soaring for the past eight months, so investors must be confident.  But, in America at least, consumers are saving an ever increasing share of their income aside for the rainy day.

 Who has the better sense of the long term, the consumer who is relying on intuition and instinct, or the investor who has the benefit  of years of study ,analysts reports,  surveys and company accounts?
I am afraid I believe the consumers have a better handle on reality. The consumers see that the banks problems have not disappeared. They have simply been postponed or transferred to Governments. They see that some banks have become too big for the tax bases of the Governments that feel obliged to guarantee them. They  are doubtful about whether they will have an adequate  pension or healthcare system when they come to  rely on both and feel that building up a  nest egg might be prudent. They have also had a look with new eyes at all the  things  they already have lying  around the house that  they would have to dump  to make  room for new purchases, and are  concluding that they can get by with  what they  already have a little  while longer. And, in the  United States at least, they are looking at neighbours, 11 million of them, who have lost their jobs and  over  9 million neighbours working  shorter hours  than they say they  would like to.
So how do we explain investor confidence?  A lot of the investors are not actually investing their  own money but  somebody else’s. Notwithstanding all the talk about changing the way people in the financial sector are paid, a lot of the investors are still rewarded royally for short term results but are at no personal  risk if the investments  turn out badly in the longer term. Furthermore the investors are able to  use  exceptionally cheap money provided by central banks which they  can get a  good return on  from credit starved businesses. Other parts of the economy may be downsizing but so far the  financial  sector is not.
My own sense is that the model upon which the world economy  has to  change.  Over indebted  consumers  in the  United States and a  few other countries can  no longer carry the  world economy forward.  Economies like China and Germany ,who have built their success on exporting to these  consumers , have to adjust to the  fact that their customers are going to be  saving more, and spending less. And in doing  so they will also ,incidentally and unintentionally, be reducing their carbon  footprint.
I believe we will see a return to meeting basic needs. The future economic growth will not come from jaded western consumers, but from consumers in developing countries who have not  yet  met  basic needs like  food, shelter, a refrigerator and a  small car. It will come from the elderly who will be living alone in increasing numbers and will need better means of looking after themselves. 
Every crisis is a  means of bringing about change. The change that has to be brought about by the  economic crisis of 2008 has not happened yet,

John Bruton
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