"The economy isn’t recovering fast enough." One of the principal reasons is that sales of anything, from houses to double no-foam lattes, are down or flat across the board. American consumers are worried about their personal financial health, their jobs (or lack thereof), their families’ future, the sorry state of the economy, gridlock in Washington, and the fear of another bank/mortgage/stock market crash.
The piling up of this real heap of trouble over the last couple of years has caused most Americans to go into stress reaction mode: fight, flight or freeze. The evidence is mounting that most are choosing to freeze. Businesses that sell goods and services report flat or lower sales to fewer buyers. In a so far vain attempt to get the consumer economy moving again, prices have been and continue to be reduced through special offers, discounts, two-fers and other creative ways meant to entice more buyers.
As consumers refuse to take any risk, either because of their worries or simply waiting for prices to fall further, deflation may now be setting in. Deflation is the opposite of inflation and defines a situation when prices are mostly falling, sales stagnate or fall, with "lower business profits, which lead to layoffs and lower consumer spending and further price declines. [Deflation] makes it more difficult to pay off debt because the value of debt rises relative to income. It provokes hoarding, as consumers, businesses and banks hold on to cash, expecting that prices will keep falling," as characterized by the New York Times. In short, the paralysis of freeze.
So it is that unending economic turmoil since 2008, record-high job losses, stagnating or falling employment, and the double-whammy mortgage/foreclosure crisis appear to be provoking one of the most severe stress reactions in generations, in individuals, families, and businesses across the nation. While a few are now fighting to get the economy moving again, a significant number may have left the fight and given up trying, and many more still could be just frozen in place, unable to move forward with their decisions, investments, and major purchases.
As understandable as it may be, this nationwide stress reaction is just what it is, a reaction. It is not a formulated response against a severe and persistent set of stressors, which would require the exercise of sound judgment, decision-making and risk-taking. Instead, the risk to the US economy is that this reaction may become chronic and take years before progressing toward an effective response.
The red lights are flashing and the alarm bells are ringing, urging meaningful action that will address the emergency. Not much appears to be happening. Until the paralysis of freeze is overcome and a real response begins, the alarm bells will continue to ring, while deflation takes hold. Chronic stress, on a national scale.