Falling US consumer spending and house prices point to recession
Posted on 28 June 2011 with 3 comments from readers
US consumer spending fell by one per cent after adjusting for official inflation, and much more if you include food and fuel which the official measure does not, while an announcement on house prices later today is forecast to show a near four per cent annual decline.
When you consider that US consumer spending makes up 70 per cent of GDP, and that houses are the largest asset belonging to most families, then a double dip recession looks baked in the cake.
Oil tax
The most obvious immediate cause is higher fuel costs. This is a direct tax on car owners and utility bills and also pushes up food production costs raising prices in the supermarket.
Why is energy becoming more expensive? Some blame the Arab uprisings this year, although oil prices have been falling while conflicts are escalating in Syria, Yemen and Libya.
Others trace the rising cost of fuel back to money printing by the Federal Reserve and the effect of this stimulus on global demand for energy. Well, frankly who cares really. You can quite clearly see the impact of high oil prices on the economy.
It was the same in 2008 when oil prices topped $147 in July, and that tipped us straight into the global financial crisis and a very long US recession. Is it going to be different this time?
If anything it looks worse because the global macroeconomic brackdrop is so bad. The eurozone debt crisis lurches from disaster to false hopes. Japan is already in a deep recession following the earthquake and energy crisis since the March earthquake.
China crisis
Even China is slowing down in this environment as it tries to choke off runaway inflation with a tightening of lending standards and price controls. Only in Arabia are the oil producers awash with cash from high oil prices, if surrounded by uprisings in the non-oil nations of the region.
At the same time US stock market prices hang on to gains achieved since QE2 was launched almost a year ago, and that program ends in a few days time whatever economists say about $25 billion a month debt roll-overs which is just not new money in the system.
The impact of a disconnect between a still rather high stock market and a double dip recession outlook hardly needs an explanation.
3 Comments posted by readers:
I’m off to the supermarket for bottles of water and cans of anything!
- not to mention some new chintz curtains for the bunker ….
If the Greeks do not agree to EU demands and a default/credit event occurs – then watch what happens when the CD’s come home to roost. ….. er who has ‘underwritten’ those CD’s (many times greater than the principal debt) …….. US. French, German, UK etc. banks – and, indirectly/ultimately ….. you and I.
Dominoes is an understatement
Hitherto, the chinese have bought – Hungarian, Greek or whatever -in order to pressure their aims in their main market, the EU which, if diminished will have a highly dramatic effect on their own economy.
Dominoes is an understatement
By owning the debt, they effectively control the debtor – BUT they cannot buy up the cd market as well.
The French talk of rollovers – but everything hangs on the perceptions of the credit agencies i.e. will Fitch eye consider such to trigger a credit event?
If so, …. well, I’d better hurry before that supermarket runs dry of chintz etc. …………………..
What is the impact of the disconnect between a high stock market and a double dip recession? People trying to get to ground level without using stairs or elevator!
What people seem to be missing, is the Ponzi scheme is unraveling. Those who own real assests, gold,silver,real estate will survive; the ones who own paper, will be broke when the music stops. Default is only a question of when. How many more QE’s can you do before hyper-inflation. Right now we are stuck in stagflation.
Get rid of all debt.