You haven't learned your lesson

Everybody's saving more and spending less. But while thrift is 'in' now, will consumers and investors really avoid making the same mistakes all over again?

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By Paul R. La Monica, editor at large

What do you think about the Obama administration's new automotive fuel standards?
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NEW YORK ( -- Thrift is the new black. Cheap is chic. Well, it is for now at least.

Much has been made about how consumers and investors have finally learned a hard lesson as a result of this severe economic downturn. Too much debt is bad. So is conspicuous consumption.

Forget about buying a new car just because your neighbor bought a new SUV. Stick with the one you have for a couple more years. Why shop at a fancy department store when you can go to Wal-Mart (WMT, Fortune 500) or Costco (COST, Fortune 500)? And why eat out when you can stay at home and cook a nice meal that costs a lot less?

General Electric (GE, Fortune 500) CEO Jeff Immelt has dubbed what's going on in the economy as a "permanent reset."

But have people really learned that they have to change their ways? According to a survey released Tuesday by HSBC Direct, the online bank operated by British banking giant HSBC (HBC), an overwhelming majority of those polled said that they didn't expect people's newfound sense of stinginess to last.

According to the survey, 85% of respondents said that they have in fact modified their savings and spending as a result of their recession. But interestingly, 76% of respondents said that they also thought most Americans would go back to their old habits once financial conditions improved.

So it looks like a lot of people think that they are going to be more responsible, but that you won't. I guess you could call it the paradox of the paradox of thrift.

To be sure, it is a good idea for people to save more in general. The problem though is that aforementioned paradox.

If everybody hunkers down, it's going to be tougher to get out of this economic funk. Businesses are not going to start hiring more people and producing more again until it's certain that demand for goods and services is returning.

In other words, it's nice to encourage people to save for the proverbial rainy day. They don't, however, need to save for a flood of biblical proportions.

"It's incumbent on banks, governments and regulators to instill a savings mentality in consumers from an early age," said Neil Brazil, vice president of public affairs with HSBC Direct "Disciplined saving is healthy. But there has to be a balance."

Talkback: Do you think people will really start saving more and spending less? Leave your comments at the bottom of this story.

Not everybody thinks that Americans will return to their reckless spending patterns of the past. Robert Prechter, president of Elliott Wave International, an investing research firm based in Gainesville, Ga., said he sees comparisons to what happened in Japan during its so-called lost decade.

Prechter thinks consumers are going to be afraid of debt for some time -- and that's one factor behind the continued credit freeze. The Federal Reserve has tried to get banks to start lending more freely. But even if banks do start to lend more to responsible consumers, those consumers may be unwilling to borrow.

"The reigning adage has changed from go into debt and invest and speculate to get out of debt and stay thrifty," he said. "I think that what has happened over the past year will change behavior for at least a decade. That's one reason why it has been so difficult for the Fed to expand credit."

Along those lines, a survey done by advisory firm AlixPartners in March showed that Americans expect annual spending to return to just 86% of what it was before the start of the recession. What's more, Americans said they plan to save 14% of total earnings.

But cynics would argue that consumers may never learn their lesson. It is human nature to speculate and try and latch on to the next big thing -- whatever that turns out to be -- once the market improves.

"I do not believe that Americans will have a cathartic realization that they need to save," said Michael Pento, chief economist with Delta Global Advisors, Inc., a money management firm. "Interest rates are low and that's going to eventually provide a lot of easy credit and influence consumers to engage in unhealthy practices of spending more and saving less."

I hope he is wrong. But history does have a way of repeating itself.

After all, did investors really learn a lesson from the tech bubble's bursting in 2000? I guess they learned that it didn't make sense to use money on margin from their online broker to buy unprofitable Internet companies like So people did learn that dot-com stocks wouldn't go up forever.

But investors started to speculate elsewhere once the economy bounced back. Instead of going into debt to buy overpriced Internet stocks they went into debt with no-money down option ARMs to buy overpriced houses they couldn't really afford. Because it would be easy to flip those properties for a big profit since, you know, housing prices would go up forever.

So what's going to be the next new bubble? You could make the case that some bank stocks are starting to look frothy now that many have more than doubled in just two months. The same might be true for oil and other commodities.

But rest assured, as long as the free market continues to function (and it is, despite massive government meddling), you can rest assured that investors and consumers will find something new to get excited about -- even though it's probably not going to be housing again. We did learn some lessons, mind you.

"When an asset bubble bursts, it's never the first to recover. So home prices will probably be the last thing to bounce back," Pento said. "But whatever the next big up cycle is, it will be led by something different than this one."

Talkback update: Greetings Buzz readers. There is a new way to post comments for this column. If you have a Facebook account, you can submit your feedback using the Facebook Connect feature that will appear at the bottom of the page. If you don't have one, it is free to sign up.

The good news is that reader comments will now appear immediately and on the same page as the column as opposed to a separate page. I trust that loyal Buzz readers will continue to actively share their thoughts with this new feature. And rest assured, I will still be using the best reader reaction as fodder for video installments of The Buzz.

So with that in mind, here is today's question for readers. Do you think people will really begin to save more and spend less? To top of page

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