Wednesday, July 30, 2003

For those who doubt the General's logic on the teetering pillar that was consumer spending, I offer you some relevant tidbits from Monday's CNN Money:
  • "the debt-service burden before the past two consumer spending booms was closer to 12 percent -- its current level of 14 percent may be too high to spark much of a rush to the malls."
  • "the household savings rate was 7.7 percent in the last month of the 1990-91 recession, compared with just 3.5 percent now."
  • "in every recession since World War II the ratio of household debt to assets has fallen. In the most recent recession, however, the debt/asset ratio skyrocketed, setting a record high of more than 18 percent in the first quarter of this year."
  • "even as homes have gotten more valuable, homeowners are giving more and more of the pie to mortgage lenders -- the ratio of homeowners' equity to total home value dropped in the first quarter to its lowest level since World War II, according to the latest Fed data."
  • " In most recessions, the rate of household bankruptcy filings actually fall, since most people stop spending and tighten their belts. In the most recent recession, however, bankruptcy filings continued to surge, according to the American Bankruptcy Institute, setting new records in 2001 and 2002."
As a Merrill Lynch economist says in this piece, the US economy is "addicted to credit". When the price of crack starts going up, addicts begin to do strange and dangerous things. The General is not predicting that middle-class suburban soccer moms will turn into bag brides anytime soon. At the same time, when the days of double upping are over, you either desperately scrounge up the money or go through some nasty withdrawal symptoms.

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