The Consumer hits the wall:
Robert Reich, the former Labor Secretary and one of my favorites on economics, writes:
After the market closed today, Bank of America announced a significant deterioration in people’s ability to repay credit-card and other consumer debt. The central fact is this: consumers in the real economy are coming to the end of their capacities to keep spending. They can’t take on any more debt. And with the costs of energy, food, and health insurance all soaring, they’re doing the only thing they can. They’re pulling in their belts. They’re leaving the malls. They’re not buying a new car or TV or anything else they can do without.
For years, regardless of the business cycle, American consumers were the Energizer Bunnies of the world economy. Their spending kept it going. But now the Energizer Bunnies have turned into scared rabbits, and they’re going back into their holes. Yes, we need better regulation of Wall Street in order to avoid the sort of bubbles and distrust that have generated a credit crisis. But even more than that, we need to get money back into the pockets of average American consumers - including major investments in infrastructure, affordable health care, and a more progressive tax code.
Agree absolutely. Basically, we were strongly encouraged to pick up the same mantra of Bushian economics - borrow and spend like there’s no tomorrow. That was the way to pick up from the recession from the early part of Bush’s term, and from the shock of 9-11. The entire bubble around the world has been built on the idea that the vast majority of people had a demand for goodies, and that the people that got them would pay for them forever. The Chinese got rich on using their manpower for building stuff, and highly dependent on outside sources of raw materials and energy. The Russians got the idea that oil and gas would make them rich. The energy speculators in oil thought that the boom times would support eternally a spiraling cost for oil, and bid it up (which is why oil has taken such a dive; all along, it’s been speculation driving things).
If the consumers can’t pay their bills, it doesn’t matter how tightly the big lenders made bankruptcy laws - you can’t get blood out of a turnip. However, you can very swiftly eliminate the possibility that any new money will come in to the system by pauperizing the American worker to the point where they can’t afford to buy anything. And then it all comes tumbling down.
I forget what the usual percentage is on Christmas season sales, but I do know that it’s huge-and I expect to pick up presents early at sales, and limit myself. And we’re in better shape than a lot of others…and this season may bankrupt a lot of retailers.