If I were a head of state in a western style “free market democracy” right now, I would probably secretly resent constitutional clauses that would restrict my government’s ability to censor the media. Faith, which is the essence of our financial system, had a fighting chance before our media outlets doggedly reported that we were in a financial crisis. The confidence of our populace has been shaken, and that confidence might have saved us from the abyss.
Just two months ago, your average person understood that there was a deteriorating situation in the financial and housing sectors, but that did not change their deeply ingrained consumer habits. It was this resilience of behavior that astonished many economists: despite setbacks in many aspects of the systemic capital, the US and European consumer confidence, which is the very soul of the 21st century economy itself, was buoyant and purring along smoothly.
Thanks to the media, all that is ruined. For the past month, there has been nothing but doomsday prophecies coming out of all the major news outlets. Now we will see a dramatic and precipitous spiral caused by a feedback effect of unemployment and consumer spending. The average person’s willingness to carry on as normal: eating out, buying consumer goods, financing cars, and using services, etc constitutes 75% of our economy. It is this sector that provides the majority of employment in the US. We are already seeing dramatic cuts in per-capita spending in just the past month. This trend will lead to higher unemployment, and a general collapse of much of our consumer sector.
The New York Times reports: