Why aren’t people spending money?

101913928-94989168.530x298This seems to be the perplexing question that haunts Janet Yellen and her band of Keynesian cronies on the eve of one of the most significant Fed meetings in history. After all, hasn’t she and her predecessor, Ben Bernanke, made money almost free for the taking with their Zero Interest Rate Policy?

If people who they hang around with in the Hamptons have benefitted from this generous policy why haven’t Main Street Mom and Dad? Janet can’t figure out, if cars are being sold (produced) at record levels why aren’t the cash registers ringing at the chain stores?

Why is the National Retail Federation’s (NRF) Chief Economist proclaiming a drop in retail sales of at least 15% year over year from 2014 to 2015? How can this be? Unless his other proclamation “household spending patterns appear to have shifted purchases toward services and away from goods…..a deflationary retail environment has been especially challenging for retailers’ bottom line”, has some validity.

Perhaps taking a peek at another era will shed some light on the Fed’s quandary.

It was 1931, beggars could be seen on every street corner asking that proverbial question “Brother can you spare a dime?”

How did we get from an industrial giant to a country sinking ever lower into a pit of hopelessness?

Many books have been written and theories given. Yet all can be traced back to the business cycle – sales, production, employment, income, sales, production, employment, income, etc. During the ‘20’s the world was buying everything the US was selling, from vacuum cleaners and washing machines to autos and refrigerators. The key was that if money wasn’t available, not to worry, just use the layaway plan. If you wanted it you could have it right now. That required plants to run 24 hours a day seven days a week. Unfortunately, with the Smoot Hawley Tariff established in the US and around the world it brought the flow of goods to a standstill. It doesn’t take one long to realize that if no one is buying inventories will build, production will cease, layoffs will come and money (wages) will be nonexistent. Unfortunately, the purchases of the past which most Moms and Dads of Main Street couldn’t really afford had to be paid for. If one was using savings, since unemployment was rising, to pay off prior debts, current purchases were either at a minimum or nonexistent.

The cycle accelerated so plants and equipment laid idle and millions found themselves wondering where their next meal would come from.

Currently the newsreels of the ‘30’s are rewinding as once again the street corners have occupants holding placards asking “Please help” and bread lines are replaced with food stamps.


“The absolute dollar size of the gap between inventories and sales has never been bigger and is the biggest flashing red light in an economic recession (depression) now inevitable as part of the massive destocking, likely at deflationary dumping prices, that has to take place”.

  • Inventories at record levels
  • Sales of 60 to 80% off
  • Clearance of the shelves
  • Then start all over again
  • So the theory goes

All seems logical but has one major flaw. Money wasn’t borrowed by Main Street’s Mom and Pop when interest rates were at zero. Why will goods be bought at bargain prices of 60 to 80% off? Just because you have a sale doesn’t mean that the consumer will buy especially if he only has a maxed out credit card. If they don’t buy how long can a retailer survive with no sales and no profits?

Now we are getting to the real answer of Janet Yellen’s question “Why aren’t people spending?”

It’s gone. The money is gone. Used to buy stuff in the past. Now that the jobs have disappeared and peoples own cupboards are filled with shopping trips from another time, inventories will continue to build and deep discount sales will go unnoticed. Deeper in debt is not where people want to be.

The clothes are from another era, the music a little tinny and the videos a little grainy but the reality is still the same.

The consumer had no money then.

They have no money now.


Written by
With his passion for economics, Bill Tatro has been entertaining audiences on the radio and in seminars for over 30 years. Bill’s dynamic and no nonsense style has made him one of his stations’ most popular show hosts.