Wednesday, September 16, 2009

Pent Up Consumer Demand???

Remember, if we can just free up the credit markets, the consumers will start spending, rainbows will appear, and, as Karl Denninger so aptly put it, Unicorns that shit Skittles will appear and shower us with "gifts".

Little problem though (other than the Unicorn)...
Americans say they plan to maintain their spending patterns as they are uncertain about the direction of the economy over the next six months.

Only 8 percent of U.S. adults plan to increase household spending, almost one-third will spend less, and 58 percent expect to “stay the course,” according to a Bloomberg News poll. More than 3 in 4 said they cut spending in the past year.

Bloomberg had an article on current consumer behavior today, which went on to say
Underscoring consumers’ austere attitudes, 77 percent of respondents say they have cut back on spending during the past year, 59 percent say they have made a bigger effort to pay off debts and 48 percent have put more money aside as savings.

Because consumer spending accounted for 70 percent of the economy since 2001, the speed and strength of a recovery may depend on how quickly Americans loosen their purse strings.

People aren't going to start spending again until they de-leverage themselves. They can't get a loan or a new credit card because they already are carrying too much debt, and have wrecked their credit scores. This is compounded by banks knowing that the crap they have on their books isn't worth what they say it is (hint: it's worth 30% or more less than they claim). This means they aren't solvent, and are doing everything they can to bank capital to reduce their leverage themselves.

Winter is coming, and it's looking colder by the second.

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