It'll Be An Empty Christmas

I think retailers and manufacturers will be suffering this Christmas.   

1.  In the U.S., banks are reducing credit limits on cards.   This is probably going to shock a lot of consumers.   Reduced credit limits = less spending.

2.  If the value of your house decreases, are you going to spend a lot of money?  

3.  If the value of your stocks or retirement account is falling, are you going to spend a lot of money?  

4.  U.S. consumer spending accounts for around 70% of U.S. GDP and 20% of world GDP.   lol 

(CNN Money.com)

6.  Exports account for 2/5 of the Korean economy.    

(Bloomberg)

7.  Debt and late payments affect FICO scores in the U.S., which in turn can raise your car insurance.  lol   Higher car insurance = less money to spend.  

8.  Gas prices are still high. 

9.  Food prices are increasing.

10.  Unemployment is close to 6% in the U.S.   South Korea's unemployment rate is around 4%.  

More people without jobs = less spending.

11.  In the U.S., mergers and acquisitions usually involve a lot of layoffs, which will increase the unemployment rate.  

12.  Housing has not bottomed.  Prices fell in July.  There are 4.67 million (and rising) unsold houses and condos in the U.S.   You need to have a great credit score and 20% downpayment if you want to buy a house now.  How many people do you know have that?  

13.  We will not have another Great Depression, but there are quite a few similarities.  One of the causes of The Great Depression was leverage.  People were putting 10% down to buy stocks --  thousands of shares of stocks.  Our current financial crisis is also due to leverage. People put zero down to buy houses.   In 1929, J.P. Morgan tried to save the economy by investing billions in certain banks.  In 2008, Warren Buffett invested $5 billion in Goldman Sachs.   J.P. Morgan was able to prop up the market temporarily before another crash.  Will Buffett be doing the same?  In the 1930s, private and corporate investment ceased.  Companies could not expand and had to consolidate in order to pay debt.  In 2008, banks are not loaning money as freely and companies are consolidating.  Finally, during The Great Depression, banks foreclosed on a lot of homes.  Unfortunately, no one had money to buy these foreclosed properties.  So, banks ended up with tons of properties but no way to get cash from them.  Sound familiar?  

Overall, I think a worldwide recession is unavoidable.   All this talk about China becoming a world economic power... but the U.S. still has the greatest impact on world economies.   

Do you know anyone that's going to be spending a lot this Christmas?