Month: December 2008

Because we consumers no longer can (many of us).

We can’t get home equity loans to spend, because housing prices have dropped and many of us don’t have any home equity to borrow against.

We can’t spend the dividends or gains from our stock portfolios because stocks have dropped 45% in 13 months, companies are reducing dividends — and no one should sell their stocks at these prices just to buy stuff.

Some of us, of course, don’t have jobs, or fear losing them.

And now, our credit cards are going away:

(Reuters) – The U.S. credit card industry may pull back well over $2 trillion of lines over the next 18 months due to risk aversion and regulatory changes, leading to sharp declines in consumer spending, prominent banking analyst Meredith Whitney said.

The economy consists of four parts — consumption, investment, exports minus imports, and government. Consumption is down for the reasons we see above. Most expect it to continue to decline well into 2009. Investment is down because companies don’t expand when they can’t sell — and they can’t get credit to expand anyway because of the banking crisis. (And no one of sound mind is building any houses.) Exports are dropping because the dollar is 20% stronger, which means our products are more expensive in the rest of the world.

You don’t have to be John Maynard Keynes to realize that government is the only buyer left.

And so the talk of a stimulus package, one hopes this time in the form of infrastructure — bridges, schools, rail.