Why our economy must IMPLODE!!!!!!
June 14, 2008
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The consumer makes up 2/3 of our economy.
Never in American History has costs risen for the consumer so far so fast.
For many families, if you factor rising food costs, rising fuel costs, rising interest costs, rising insurance/healthcare costs, and rising property tax costs...expenses have increased upwards of $20K per year in the past five years.
However, for many of the above families, incomes have remained stagnant or actually declined. As a result, our nation fell into a negative savings rate which was supplemented by home equity withdrawal accounting for hundreds of billions of dollars of accumlated debt since 2002.
As home values have contracted, home equity withdrawal has recently decreased dramatically. The problem is that the expenses have continued to rise and the consumer simply cannot bridge the gap any further. Consumers have been forced to cut spending way back and are still unable to meet montly obligations.
Compounding the above is the fact that employers are reducing staff at rapid rates. Not only that, for those employees being retained, many employers are cutting benefits, wages, or both in order to remain competitive.
It is falling wages coupled with the rising costs that is forcing record number of American families into financial distress. But it is not just working families....retirees on fixed incomes are just as distressed as almost everything they spend money on is rising but income is fixed. Teenagers face the worst job prospects since 1948.
Few are telling this story...many are feeling the effects.
Practically every retailer is scaling back growth or shutting stores down. Many many restuarants are on the brink of insolvency as consumers eat out less. Auto dealers that used to sell 300 cars per month are selling 30. Airlines, if not going bankrupt, are cutting capacity and charging for just about everything. Banks are having trouble finding suitable borrowers while losing billions of dollars writing off bad debts.
We could go on and on.
Right now many families are spending down their savings and extinguishing their borrowing capacity. Businesses are scaling back or shutting down. Government deficits are at record levels as tax receipt are now falling while expenses are rising.
It seems like the consumer is becoming aware if the problem as sentiment is the worst in 30 years. Being 2/3 of the economy, a dying consumer means a dying economy.
Simply from an income/expense perspective....many many Americans are now insolvent. Over a million families have had their homes foreclosed and notices of default are rising. Bankruptcies are skyrocketing
Factor shrinking and/or shuttering business and declining government receipts....all piled upon an unprecdented pile of debt......our nation faces something we have never faced before....
What is amazing is how few really understand the problem. Our country no longer has the income to support its expenses. For the past few years we masked the problem with excessive borrowing...especially by consumers using an inflated housing asset. As collateral is crashing in value, our banks are running dry speeding up the contraction.
The above is simply the facts. As long as income is too low to meet expenses, and credit is not available to cover the deficit, our economy must implode....and since we are so leveraged, it may happen quicker than many may think.
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