Will Consumers Save us from Deflation or Revolt by Nonparticipation?

Lots of talk these days about consumers starting to save and invest.  Funny, most consumers I know can't yet save or invest because of mountains of debt.

Step 1 in the Savings and Investment process is the elimination of debt.

Interesting comparisons have been made to the massive corporate deleveraging that led to deflation in Japan but our situation is very different, consumer debt is the problem, not corporate.

When Bush II was faced with the 2002 inflection point in the labor market brought on by technology (misalignment due to the shift to information technology as the center of the economy), he and his advisors avoided addressing the issue by creating the massive consumer real estate and credit card overleveraging of 2002-2008, funding a period of 'adjustment' for middle class workers. Unfortunately, the adjustment did not happen and the misalignment of the labor force continues (amazing talk of middle class 99ers today- people who have been unemployed for 99 weeks).

Now we have the unavoidable consequence of those bad decisions (and the reliance of a massive system on consumers not only funding the rescue of the banks- the ridiculous TARP, but sucking it up big time to pay the underlying debt they incurred themselves). It is unclear how fast consumers will be capable of ridding themselves of debt, if at all.  In fact, it may not be advisable for them to pay it back given the obvious- if they do, they may never again participate in American prosperity. Better choice for consumers may be to force change by not paying it back and forcing systemic adjustments.

What was the middle class may opt for forced frugality and not participate in the economy going forward.  Adam Werbach makes a great case that this will be the beginning of a path that actually solves problems such as Global Warming through choices based on frugality.

Non-participation in the Banker's economy may be the hidden bullet that eventually takes them down!

Ironic that the real revolution may come from non-violent non-participation!