Obi-Wan Kenobi
/ 178.36.29.* / 2010-04-09 12:52
The facts do not point to a robust recovery in spending. Indeed they do not point to any recovery in spending beyond the massive government intervention that we have seen to date.
This is not 2006. Homeowners cannot tap their houses for home equity spending. Moreover, some of the data for that report was from 2007. There have been millions more bankruptcies since then.
Millions of households are underwater in their mortgages. Banks are stuck with massive numbers of REOs via foreclosure.
The unemployment rate is hugely understated at 9.7%. Alternative measures show unemployment at 16.9% and even that number does not count Realtors and self employed persons on commission who have not had reportable income for months.
There is no driver for jobs except government stimulus.
A Record 39 Million Receive Food Stamps, the 14th Consecutive Monthly Increase.
Consumer credit does not give any hints of sustainable increases in spending or lending. Please consider Consumer Credit Drops $11.5 Billion, 5.6% annualized, 12th drop in 13 Months. The Increase In January was a Mirage related to Student Loans.
Also note that millions of boomers are headed into retirement severely underfunded. That fact alone shows how wrong it is to expect a huge bounce in consumer spending.
It is important to factor in the effects of increased cutbacks by cities and states in response to numerous fiscal crises. For example ….
* Los Angeles: L.A. to Shut Down City Departments in Budget Crisis; IBEW Local 18 Head: “How Taxpayers Feel Is Not Relevant”
* Detroit: Detroit Bankruptcy Looms with Deficit of $446 Million in Budget of $1.6 Billion
* Los Angeles: LA Deputy Chief of Staff Says “Unions Have Priced Themselves Out Of A Job”
* New Jersey: Governor Christie Calls Unions “Crass Bullies of State Street”; Says Unions Have a Choice “Givebacks or Layoffs”
* Missouri, Indiana, Washington, Kansas: Missouri Budget Overstates Revenues By Up To $1 billion; Indiana Revenue Falls Short; Budget Battles In Washington; Budget Gaps In Kansas
* Illinois: Rep. Suzie Bassi: “Illinois in Utter Crisis, Next to Bankruptcy, $13bn Hole in a $28bn Budget”; Ambrose Evans Pritchard Inflicted with FIV
That is just a small sampling of problems facing cities and states. Layoffs are coming. Those layoffs need to be factored into to consumer spending. So does the rise in mortgage rates now that the Fed has stopped monetizing treasuries.
Finally, consumer and bank attitudes play a key role.Consumer attitudes towards spending and consumption have changed for good. So have bank attitudes towards lending. Bernanke can cajole all he wants, but $1 trillion in excess reserves tells part of the story. Undercapitalization of banks tells much of the rest.