The Federal Reserve announced that consumer borrowing dropped 5.2 percent in March Consumers are the weak link in recovery. Even if the banks were sound, business may not borrow and invest if they think consumers won't buy. What to do?
When there are massive unused resources in the economy, there is no need for consumers to save or borrow to put them to work. The government should increase consumer wealth. First step, eliminate payroll taxes for social security. But, that will not be enough. The Treasury should write everyone a sizable check, especially to the poor. And, there is no reason for the Treasury to borrow either (see earlier blogs on government finance). Writing checks is the civilized way to increase consumer wealth, but to make the point, it cash could be dropped from airplanes. I think Bernake suggested this once and earned the title of "helicopter Bernake."
I have mixed feelings about consumerism, maybe people will learn they do not need a lot of stuff to be happy. The millions of rental storage units across the country filled with stuff people bot, but really do not use, is witness to excess. But, this is a poor time to reduce consumer spending greatly.