In an interview with Morgan Stanley economist Stephen Roach the economics Nobel Prize winner Franco Modigliani discusses consumer debt, deflation, life-cycle theory, and his expectations that consumers will have to reduce their spending levels:
A negative wealth effect tells me it canít go on forever. And thatís when I revert to the life-cycle theory. Sadly, the large cohort of aging baby boomers is not adequately prepared for old age. The personal saving rate is too low. It has been depleted by individuals betting on asset markets. Life-cycle theory suggests that the saving rate should have gone up by now. Obviously, it hasnít -- at least, not yet. While that puzzles me, it doesnít dissuade me from the basic view that the balance between consumption and saving will have to adjust. Itís just a matter of when. That leads me to conclude that that the American consumer is the most dangerous portion of the picture.
|Share |||By Randall Parker at 2002 October 25 12:15 AM Economics Political|