Consumer Squeeze is On
Minyanville does a nice analysis, using the Star Wars Death Star garbage masher analogy, of the consumer conundrum–damned for credit, and damned if you save.
Consumers are certainly being pinched at both ends as the US government keeps trying to unfreeze credit by driving down interest rates. The result? Lenders are getting more attractive rates by “borrowing” from consumers tax dollars, than bidding for their savings. Therefore, savings rates are down and lending is not happening.
Charlie Gasparino Unplugged…
No need to intro this, just watch in amazement–”What You Got?”
Election Trades, McCain Up-Obama Down in Final Week
(source: intrade.com)
FDIC Strongs Banks, Treasury, Congress, and White House into Loan Modifications
FDIC Chair Sheila Bair may finally get to execute her master plan for loan modifications. Although probably economically sound and necessary, many responsible borrowers take it as an enormous slap in the face:
If the banks, which frequently lent irresponsibly, and many homeowners, who often borrowed irresponsibly, are getting government assistance, Mr. Lawrence says he believes sober souls like himself are also due a break.
“Why am I being punished for having bought a house I could afford?” he asked. “I am beginning to think I would have rocks in my head if I keep paying my mortgage.”
Krugman on Consumer Capitulation
We are certainly wandering into uncharted American waters when we stop spending, even in hard times:
To appreciate the significance of these numbers, you need to know that American consumers almost never cut spending. Consumer demand kept rising right through the 2001 recession; the last time it fell even for a single quarter was in 1991, and there hasn’t been a decline this steep since 1980, when the economy was suffering from a severe recession combined with double-digit inflation.
Not sure I like his recommendation for a policy response. Sounds very Democratic:
Don’t stimulate spending by letting consumers hold on to more of their income, let the government hold on to it (or get more of it with deficit spending) and we will find useful projects for your money. The Krugman punishment for saving more in the last quarter? The government now gets to decide where your money goes because you are not making choices for the “greater good.”
No, what the economy needs now is something to take the place of retrenching consumers. That means a major fiscal stimulus. And this time the stimulus should take the form of actual government spending rather than rebate checks that consumers probably wouldn’t spend.
Deflation/Reflation Whipsaw by Kedrosky
Deflationary and Inflationary economics, explained and forecasted in 200 words or less–classic Paul Kedrosky.
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