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The Dawn of the Economic Dead

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According to the latest Royal Bank's Capital Markets CASH (Consumer Attitudes and Spending by Household) Index, consumer confidence dropped significantly in just one month, down from August's 89.3 level to 71.1 for September 2007, the lowest level since May 2006. This is seen in the retail numbers from August, which was only about half the amount that economists expected.

Why? Consumers no longer believe in George W. Bush's "booming" economy. "Americans have a dim view of their current financial situation and an even bleaker view of their future prospects," said T.J. Marta, economic and fixed income strategist for RBC Capital Markets.

Those Marxist-Leninists over at Forbes report on why there is such a large a loss of economic faith: "The value of their homes is declining for the first time in over a decade. They're shelling out more for meals and gas. Also, they're having a harder time finding mortgages and jobs."

Under those conditions, is it any wonder that American consumers are cutting back? But then, thanks to the lenders who created this mess in the first place, understandably tighter credit standards are making it more expensive for consumers to buy. In a consumer-driven economy, with about two-thirds of the national economic activity produced by consumers, that is the kiss of death to the Goose which lays the Golden Eggs!

That understanding of economic reality may well be starting to sink into those pie-in-the-sky investors who rashly bought into the market toward the end of the last week over GM (now facing a damaging strike from angry UAW members) and McDonald's flimsy "good news" – a "promise" of higher dividends. Columnist Mark Stein puts it thusly: "Economists who insisted that there was no link between consumer confidence and consumer spending always seemed like people whistling past the graveyard." There is no hiding from reality anymore. The Dawn of the Economic Dead is now upon us, and the zombies are starving.

With formerly-loyal Republican money-mismanager demi-god Alan Greenspan blasting Bush over his ill-considered economic policies – "a major mistake" that Greenspan did nothing to prevent or assuage – in what is the consumer to trust except caution?

When the campaign to promote the economic well-being of the few becomes too expensive, the many vote with their feet – away from spending. For when the rainy days arrive, there won't be room at the mansion for the many – and it's getting cloudy out there.

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About pessimist

  • I think it says a lot about the quality of the information in this article that you had to go to Red China’s propaganda outlet for that first link. Now there’s a reliable source.

    And then there’s your quote from Forbes: “They’re shelling out more for meals and gas.”

    Notable because this summer was the first summer in a decade when the price of gas went DOWN rather than up and gas prices overall are down more than 10% from this time last year.

    But of course, your use of the Forbes quote is out of context. What you conveniently don’t mention from the Forbes article is that consumer spending is actually UP substantially from last year, just not as much as the overly enthusiastic projections of the retail merchandisers. Even so, an overall 1 month increase of .3% in sales is respectable.

    And then there’s your bizarre paragraph on the stock market. Do you really have so little understanding of the market that you think that people are charging into the market based solely on what GM and McDonalds are doing? They’re only a couple of stocks out of thousands and hardly the most influential. No temporary change in the labor situation is going to make GM an attractive long-term investment, and McDonalds is so stable that nothing they do is going to drive investors one way or another.

    But keep on spinning. It’s increasingly transparent.


  • Clavos

    Realist keeps trying to make long range dire predictions based on very short term phenomena; a couple of weeks ago he was telling us the stock market was crashing because we it had a 300 (about 2.3%) point drop in one day. As of Friday’s close, the market was alive and kicking and had regained all of that “loss.”

    Now, a one month (on a month-to-month basis) drop in one consumer confidence index “proves” that Consumers no longer believe in George W. Bush’s “booming” economy.

    It should also be noted that he’s using raw data from which to interpolate his “forecasts”. Raw data tells you nothing unless put into a historical context. For example, the 2.3% drop one-day drop in the Dow that so alarmed him last week, still left that index up over 12% for the year, prior to several “up” days since.

    Now, Realist writes:

    That understanding of economic reality may well be starting to sink into those pie-in-the-sky investors who rashly bought into the market toward the end of the last week…”

    With the “understanding of economic reality” he expresses in these articles, I wouldn’t trust Realist to manage the funds in my penny jar.

  • I’ve always been fond of his predictions of a stock market crash based on a single day of decline.


  • Dr Dreadful

    Realist, I’ve just noticed a new zit. Does this mean I have terminal skin cancer?

  • We’re having a genuine “run on the bank” in the UK. To an extent anyway. Northern Rock Bank (one of a slew of demutualised Building Societies, which is one of our biggest mortgage lenders) asked the Bank of England for emergency credit access (which it hasn’t yet used) and I am listening as I type to radio reports of massive queues outside branches (partly because the website no-longer functions) as savers try and get their cash out – £2billion-worth of withdrawals were reported over the weekend – while financial experts tell everyone not to panic. I am a complete financial numpty but reports in the media have linked the bank’s troubles to the American Sub-prime problems and a loss of confidence in the banking system which means banks won’t lend to each other.
    I myself am off in my model T for Aberystwyh, far from this dustbowl and where the streets are paved with laver bread!

  • bliffle

    It is certainly true that large economic changes will occur as a result of the warring and spending policies of the Bush administration. And that’s what those dandies intended. But whether it’s for good or ill can be debated.

  • Colin, or anyone else in the UK. What happened with the banks when we had our previous US banking crisis back in the 80s? I was actually living in the UK then, but I was a student and so poor that the only thing I could have put in the bank was my can of spam and a box of crackers. I don’t recall a general panic in the UK, and that crisis was MUCH worse than what’s happening now here in the US. The government actually had to shut the banks down like they did in the depression.

    That was, of course, also caused by problems with real estate, with foreclosures on a much larger scale than we’re seeing now.

    I think that in the current situation we’re seeing more concern overseas because the lenders who got in trouble were not the small banks who got hit in the 80s, but larger more international banks who were speculating incredibly stupidly. And also, as I understand it, a lot of the low interest deals and special financing we had over here got picked up in other countries. The UK seems to have been having the same kind of high risk loan boom that we had at about the same time.


  • moonraven

    Yesterday on his show, Alo Presidente, Venezuelan President Hugo Chavez warned about the danger of a world-wide financial crisis due to the problems presented by the high-risk mortgage business in the United States.

    Chávez noted that in recent weeks the Federal Reserve was forced to inject around $300 billion to avert the collapse of the dollar.

    The statesman blamed the Washington administration for the current situation by cutting taxes on the rich and offering low interest rates on loans.

    Now interest rates have gone up, he observed and the effect of that is extending to credits, with the threat of generating a debacle and more poverty, hunger and serious upheavals.

    Seems like Chavez and Greenspan are dancing to the same tune.

    And fools like Nalle and Chavez will be doing a jig all the way to the poorhouse.

    Couldn’t happen to a better pair–unfortunately they willnot be the only folks affected.

    “Get out there and SHOP, you assholes!” (GW Bush)

  • Clavos

    The Dow closed today at 13,739.39; UP 335.97.

  • Dr Dreadful


    Your stocks went up, didn’t they?

  • due to the Fed cutting rates by half a point

    see how it goes after October’s numbers hit Wall street

    until then, yer gonzo recommends investing in canned goods and shotguns


  • Clavos

    Did OK, Doc.

    I bought some “bargains” on the down days the last month or so.

    Took some money off the table this afternoon.

  • I’m doing a jig, how about you, Clavos?


  • Clavos

    Right with ya, Dave, but I’m on my way to the bank, not the poorhouse.

    And before any of the doom-and-gloomers come back to say “I told you so” tomorrow, I’ll go on record now to say that the likelihood of the Market going down tomorrow is good; I am certainly not the only profit taker out there.

  • Alessandro

    Well, as a former member of the RBC family, I can say that the overall culture of their forecasters are not of the doomsday type. Their economists are actually pretty solid.

    “Realist keeps trying to make long range dire predictions based on very short term phenomena”

    Bingo. You have to be VERY careful on how to rationalize financial works. Therein lies the issue and I agree that selecting two companies in a sea of thousands in an ecomony as dynamic and innovative as the U.S. is about as useful as using a couple of bad apples to conclude the American markets are inefficient – if not corrupt.

    Our grasp of high finance and economics is superficial at best. Long term trends of the U.S. economy are normal, if not healthy. People betting on its permanent pending demise will just have to sit down, wait and keep quiet.

    That’s why short selling is there. To pacify the bears on a series of short term drops.

    As for the housing market with a global impact – this is possible but I would not be surprised if nothing happens. Here in Canada rates are expecting to drop and the housing market remains robust. Once again, the people who use this as proof of an immimnent demise forget that sometimes it takes two to tango.

    Yes, rates were low and liquidity is accessible thus making the temptation to borrow great – but what about the responsbility of each individual to examine their personal budget? Ever hear of the word no? No one forces you to take that mortgage deal. Do you accept every credit card and line of credit each time it is offered? Do you have an excessive debt/equity ratio? You should be able to answer these questions.

    A little bit of blame can be spread on this but to use it as “yet another example of the dawn of the dead” will probably prove hollow.

    There will be short term hiccups and downturns. Some worse than others. Some will take us by surprise and storm. That’s life. But overall, the big picture is not perfect but it’s not awful either.

    Then again, I’m a glass half-full kina guy and I’m just going with experience and gut here.

  • The housing slump may have its worldwide aspects, but it should also be pointed out that it’s not even a universal problem in the US. Areas with strong growth like here in Austin still have very strong real estate markets and prices are still going up and building is still going strong.


  • moonraven


    Kepp on dancing, Dave.

    All the way to Armageddon, asshole.

  • Didn’t Karl Marx tell you that belief in Armageddon was just an opiate for the masses, MR?

    I do like your earlier slip-up where you repeatedly called Clavos ‘Chavez’. Very freudian, especially given your unnatural love for Chavez.


  • moonraven

    My love for Chavez is anything but unnatural, Nalle: He’s a very attractive HETEROSEXUAL man (unlike you circlejerkers here)–with nice HAIR–something you haven’t had in many years.

    Armegeddon has shit to do with Marx–so far as I know Groucho is not an Endtimer like you redneck republican bullshitters.

  • Ruvy in Jerusalem

    While you are all sniffing at Chavez’ underwear to assess his masculinity, you might want to stroll over to the Desicritics site and examine this article on the strength of the dollar by Aaman Lamba.

    Mr. Nalle, since you appear to be the resident “Havemore” at Blogcitics, might I suggest you buy gold, a troy scale and maybe a brace of rupees…

    Marthe, if you have spare money laying around, I suggest the same for you. In fact, I happen to know someone who is selling silver, both coins and bullion. I told her to hold on to the metal and buy a troy scale, but her need for immediate money appears to outweigh her willingness to wait for her silver to make her a lot richer than she is. So, if you are interested, go to my blog-site, look up my e-mail, give me a holler, and I’ll put you in touch with her….

  • gonzo marx

    dollar in parity with the Canadian dollar for the first time since the 70’s

    not that the Loonie has gone up much, it’s that the US dollar is dropping so hard…check the graph between the dollar and the Euro since the inception of the Euro

    i’m just sayin’


  • moonraven

    Sorry Ruvy, but I have two priorities for my money: travel and helping with the children’s expenses for school and clothes and stuff in the village where I live here in Mexico.

    I believe that you receive when you give–not when you hoard. (The Fluidity Theory of Properity)

  • Ruvy in Jerusalem


    Your open-handedness is the sign of a tzadiká, a righteous women. Maybe that is why in spite of you calling me crazy in other forums, I continue to communicate with you.

    My suggestion is not so much that you hoard but rather look ahead. If currencies collapse, the peso, like the dollar and other pretty paintings with monetary values printed on them, will be only pretty paintings.

    At that point the silver or gold will be money and the currency will be toilet paper. So, holding on to the silver (or gold) allows you to be open-handed and kind to children (and others in your village) when it will really be needed – when the money economy in Mexico collapses, but merchants will still charge for the products they sell.

    tzedaká matzilá Hayím… Righteousness saves life.

    g’mar Hatimá tová… May you be inscribed and sealed for goodness in the Book of Life in 5768.

  • Moonraven

    Thanks for your advice.

    I traded in the early 70s in Lebanese currency, as it was actually backed by silver then, so I do know a bit about what you are talking about.

    I just don’t care about it any more.

  • A consumer driven economy is choking at this point at time and will be for a while. Where looking at deflation to stagflation in the near term and inflation on the back end of the cycle.