The Switch on the Wall

Consumer spending accounts for about 70% of the economic activity in the United States . There’s a Conference Board that measures consumer confidence, and this analysis, along with a host of other factors, is an economic indicator of the immediate future. The consumer confidence index reported today fell to 38 (from a revised 61.4 in September and well below analysts' expectations of 52). An Associated Press article today put this measurement in perspective: “The 23.4-point drop in the consumer confidence index from September to October is the steepest since it fell 36.9 points from October 1973 to December 1973, when the economy was in the throes of a severe recession.”

If you deal with consumers or companies that deal with consumers, this is bad news, but no surprise. Retail is turning tail. What is a surprise is the chorus of Congressional voices calling for an infusion of spending cash – in the form of a “tax rebate” (the failed $600/$1200 rebate concept we saw in February of this year) – to give consumers money to spend. The theory goes that if they have money, consumers will immediately go out, in a patriotic moment, and spend that rebate on stuff, maybe Christmas gift-stuff. Then we will stimulate the economy, and things will look up.

But it’s like assuming that the light switch on the wall is connected to the light that you want to turn on. What if that switch actually went somewhere else, and if you wanted to turn the ceiling light on, you'd actually have to go to the real switch on the other side of the room. Trust me, if you are worried about losing your job or your home, the last thing you'd do is buy stuff unless you want to go out in a blaze of spending glory before you file for bankruptcy or just plain don't need the money. Putting a band aid on a piece of skin near the wound but not on it… well you get it.

Until there is a moratorium on mortgages, a reasonable ceiling on mortgage interest, a serious reevaluation of the existing homeowners’ viability to sustain the homes they live in and a targeted federal intervention to help those who actually might be able to stay in their homes and carry a reasonable mortgage… until we shore up payrolls (and business credit liquidity) and incentivize new job creation… we're flicking the wrong light switch and throwing taxpayers’ money into a bottomless pit of bad ideas.

There’s enough help at the top of the economic food chain… and an expected Federal Reserve cut tomorrow in the discount rate (the rate accorded to banks by the government) still does not solve the immediate problems, since very, very few of us can even borrow money at any interest rate, even with the best collateral, because there is no loan money, no job certainty, no leveling off in housing price declines down here where most of us live.

I’m Peter Dekom, and I approve this message.