American consumers use mostly debt not cash to buy goods, houses, cars and even groceries these days. Those consumers are the unpinning of our economy and the ripples of credit withdrawal haven’t been reported or factored into the meltdown. Banks, desperate to survive the credit and liquidity crunch, are cutting off access to credit and their risk management groups are closing up bank accounts, freezing or reducing credit cards and lines of credit left and right. The trickledown effect of the meltdown hasn’t even begun yet and you don’t have to be a psychic to predict what will happen come Christmas time.
Cold Turkey! Americans and America better realize that Credit Rehab is upon us. Automakers, appliances, travel, food, recreation, clothes on and on cannot be purchased if Americans don’t have any money or access to money. The squeeze is on and everyone is tightening belts these days. Every business up and down the food chain will feel the banking crisis and the banks trying to survive will be at the root of an economic free fall. The banks’ credit tighten brings the problem right to our doorstep and will force millions of consumers out of the buying game that keeps America’s fragile economy afloat.
The Consumer Confidence Index, resulting from polling 5000 households, is an important number to the Fed and Wall Street that gauges the relative financial health, spending power and confidence of the average consumer. Hey come over here and ask my opinion! A better indicator is to just watch as sales of products, goods and services in America dwindle as American buying power shrinks and credit is maxed. Just like the US Government has been doing at Treasury Auctions, rolling over debt and interest by selling more and more bonds and T-Bills, just like the Mortgage industry where banks continued to borrow and lend more and more from the sale of its Collateralized Mortgage Obligations, the same holds true for American consumers that have refinanced, borrowed and leveraged their future with credit. When it runs out or the piper comes calling, which is the case these days, what do you think will happen?
Boom! Bankruptcy, credit counseling, 30, 60, 90 days late – which then only exasperates the problem. Americans are getting cut off. I believe America will too. This is not a revelation just common sense. As a nation we have spent, borrowed and sold ourselves into bondage and the consumers have followed right down the drain too. The sucking sound you hear isn’t just money but the life blood of our nation and even more certain our economy and its consumers.
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