By Mike Whitney
Consumer spending is 70% of GDP, but consumers have suddenly stepped on the brakes. This is a real game-changer. Even if the credit markets are restored and the banks show a greater willingness to lend; there will be no return to the pre-crisis consumption-levels of the past. Those days are over.
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Going forward, it seems probable that many U.S. households will reduce their debt. If accomplished through increased saving, the deleveraging process could result in a substantial and prolonged slowdown in consumer spending relative to pre-recession growth rates. ("U.S. Household Deleveraging and Future Consumption Growth, by Reuven Glick and Kevin J. Lansing, FRBSF Economic Letter")
Household wealth has slipped $14 trillion since the crisis began. This includes sizable losses in investments, real estate and retirement funds. Home equity has dropped to 41% (a new low) and joblessness is on the rise. When credit was easy; borrowing increased, assets prices rose and the economy grew. Now the process has gone into reverse; credit has dried up, collateral values have plunged, GDP is negative, and consumers are buried under a mountain of debt. Personal bankruptcies, defaults and foreclosures are all up. Deflation is everywhere. It will take years, perhaps a decade or more, to rebuild household balance sheets and restore the flagging economy. The consumer is running on empty and the chances of a robust recovery are nil.
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- Highr0ller
- 4 months ago
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